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In between Venezuela’s collapse, Trump, and Covid-19
The year 2020 will go down in Cuba’s history as one of the most shocking in recent decades. It may be the case that scenarios arise similar to those that occurred during the “Special Period” after the collapse of the Soviet Union when the country saw a contraction in GDP of more than 30 percent. On this occasion, a number of major external factors impact the country, in which the global crisis caused by Covid-19 will have devastating consequences for the world economy and, obviously, for Cuba as well. We must also note the well-known structural distortions of the Cuban sociopolitical model, with its enduring Soviet matrix. The combination of external and internal elements leads to the country’s current crisis, which is projected to get worse.
This crisis has seen a growing deterioration of the island’s infrastructure, a decrease in the quality of living, the simultaneous crises of transport, housing, food and water supply, the growing exodus of hundreds of thousands of Cubans – especially young people – the activation of a dangerous “demographic bomb”, the unsustainability of the national pension system, and the repeated dismantling of “ideologically” suspicious citizens’ initiatives. All of these factors combined have the potential makings of a humanitarian crisis.
The island reached the year 2020 without the reform, promoted by the Raúl Castro government (2008-2018), having achieved even the slightest change in the Cuban social, economic, and political models. The Communist Party continues to maintain an absolute monopoly of the centrally planned economy. The model’s current structural deficiencies are exasperated by three important external events: a) the Venezuelan collapse, b) the Trump administration’s “maximum pressure” policy on Cuba and Venezuela, and c) the global crisis caused by the coronavirus pandemic. Furthermore, traditional allies like China, Russia, and other Latin American countries have not yet offered sufficient assistance.
The first aspect to consider is the sale of professional services abroad, especially medical services. The country’s medical brigades are Cuba’s main channel for foreign diplomacy, but its contribution to GDP fell from 13.8 percent to 8.3 percent between 2012 and 2017 (Mesa-Lago, 2018). The reduction of these services in Venezuela and the departure of Cuban medical personnel from Brazil, Ecuador, and Bolivia paint a bleak picture for the program’s future. The next aspect is the fact that remittances are Cuba’s largest source of foreign exchange, but the government does not publish official figures. According to Mesa-Lago himself, the value of cash remittances increased by 143 percent, from $1.447 million (in 2008) to $3.515 million (in 2017). However, remittance flows to Cuba will surely be reduced following the impact of Covid-19 in South Florida. If the economic impact is significant in Florida, the rate of incoming remittances will be drastically lower, strongly impacting people’s lives.
Another aspect that has eroded the island’s macroeconomic stability has been the Venezuelan collapse, which has resulted in a growing reduction in capital flows to Cuba, as part of the provision of medical services to that country. According to estimates by Carmelo Mesa-Lago (2018), during the peak season of Venezuelan trade was in 2012 when subsidies and investment totaled $14 million. This massive flow of capital from Venezuela to the island was not used to implement even the slightest change in the Cuban economic model. Venezuela’s collapse has now put the island’s economy in check.
Adding to everything discussed, another Cuban export is showing poor performance. The coronavirus crisis could potentially affect another of Cuba’s most important exports: tobacco. 2019 was not very good for Cuban global tobacco exports which grew only 2 percent, the lowest in six years. The effects of the pandemic on the Chinese economy, the main Asian market for Cuban tobacco, could further sink exports.
Another sector that will be substantially affected is tourism, which has already experienced a contraction of around 16.5 percent in the first two months of 2020 compared to 2019. This has amounted to more than 150,000 tourists less than the previous year. The sector will also experience an unprecedented crisis as a product of the closure of Cuban borders, a measure taken in response to the Coronavirus. Monetary losses for the island in tourism will be large and will have high-impact implications, given the sector’s connection to other areas of the Cuban economy.
On the other hand, Cuban agriculture fails to meet domestic demand for food. For example, in 2017, Cuba imported $1.8 billion in agricultural products, 60 percent of which could have been produced in the country. Statistics on agricultural production for the period 2009-2017 indicate that domestic food production has not increased.
Moreover, the impact of the Coronavirus pandemic is expected to put much of the global economy into recession. This will result in a deeper economic crisis in Cuba, which has been showing signs of stagnation for six years. with negligible growth figures. Furthermore, the Trump administration’s “maximum pressure” policy has had a severe impact on the island’s economic performance. It has sought to narrow the declining trade relationship with Venezuela, especially in oil delivery, and it hampers global capital flows to Cuba. It has also reduced the number of flights between the United States and Cuba; sanctioned entities linked to the business apparatus of the Armed Forces, especially of GAESA; applied personal sanctions on figures belonging to the Cuban power structure; and effectively implemented almost all the resources contained in the legal scaffolding of the Helms-Burton Act and the embargo.
The pressure of the present moment has led Miguel Díaz-Canel’s government to take economic action in an attempt to brave the storm. These “new” provisions repeat the strategy followed by the Cuban government during the terrible crisis of the 1990s. The economist Pavel Vidal (2020) describes them as follows: a) after a long silence on the subject the Cuban government mentioned the issue of allowing small and medium-sized enterprises; b) political discourse emphasizes both the state and non-state sectors, but always gives priority to the former; c) economic policy seems to be inclined toward the easing of the “central plan” and toward “selective” business autonomy; d) the above formula is accompanied by partial “redollarization” of the economy.
The colossal magnitude of the pandemic on the Cuban economy, coupled with the aggravating factors described above, opens the door to a truly dramatic scenario for the country; where a “humanitarian crisis” will be experienced, with serious social implications. For the moment, a growing shortage of essential products in the retail network, an increase in products and services, and an increase in rigors on the daily life of all Cubans, whose cumulative effect generates fatigue and social unrest, is palpable. The so-called “seniors,” who have low personal incomes, are especially vulnerable. Surely the gap in extreme poverty will increase, with all the evils that this brings. Likewise, the flow of migration will increase, especially of young and talented people, who will continue to leave the island in search of new horizons.
Cuba is experiencing the cumulative effect of the structural crisis of its socio-political and economic model – which was not transformed and is not sustainable for the future – plus the impact of new external factors. The combination of all this will radically increase the crisis that the country is living in. Without an extension of freedoms so that citizens can enter the economy, society and politics; without the consolidation of the national private enterprise; without a large influx of direct foreign investment; without the island’s connection with international financial agencies and global economic chains; without the restitution of the economic and political rights of their emigration; and without a stable relationship with the United States; it will be incredibly difficult to deal with this crisis of historical magnitudes.
Mesa-Lago, C. (2018). La economía cubana: situación en 2017-2018 y perspectivas para 2019. Recuperado de: https://cubaposible.com/informe-la-economia-cubana-situacion-2017-2018-perspectivas-2019/
Mesa-Lago, C. (2018). Cuba: 60 años de dependencia económica extranjera. Diario. The New York Times. https://cubaposible.com/cuba-60-anos-dependencia-economica-extranjera/
Vidal Alejandro, P. (2020). Fórmulas recicladas de los años 90 para reanimar la economía cubana en 2020. Recuperado de: http://www.realinstitutoelcano.org/wps/portal/rielcano_es/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_es/zonas_es/ari20-2020-vidal-formulas-recicladas-anos-90-para-reanimar-economia-cubana-en-2020