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Monday, December 15, 2014

Cuba’s Economy at a Crossroads

Cuba's Economy at a Crossroads
By THE EDITORIAL BOARDDEC. 14, 2014

In July 2007, while serving as acting president as his brother underwent
medical treatment, Raúl Castro delivered a startling indictment of the
Cuban economy when he railed about the inefficiencies of the dairy
industry. His description of the onerous and expensive mechanism to get
milk from cows to dinner tables was old news to Cubans, who have been
subjected for decades to a centrally planned economy that is among the
world's most dysfunctional and anomalous. It soon became clear that Mr.
Castro's unexpected candor that day signaled the start of a
transformational era for the island's economy.

After Fidel Castro ceded power to his brother in 2008, the government
initiated reforms that have allowed Cubans to start building livelihoods
that are not wholly subject to state control. The pace has been halting,
with plenty of backtracking from the government's old guard, which views
further liberalization of the economy as an abdication of the socialist
system Fidel Castro made sacrosanct.

The looming end of the Castro era — Raúl Castro, 83, has said he will
step down in 2018 — is unfolding amid a vigorous debate on the future of
the country's economy.

To date, the Obama administration has watched the reforms with
skepticism. The White House has eased restrictions on remittances and
travel to the island, but it has done relatively little else to pare
down the web of sanctions the United States has imposed on Cuba for decades.

President Obama could help expand the role of Cuba's small but growing
entrepreneurial class by relaxing sanctions through executive authority
and working with the growing number of lawmakers who want to expand
business with Cuba. The White House could start that process by removing
Cuba from the State Department list of countries that sponsor terrorist
organizations and making it easier for Americans to provide start
up-capital for independent small businesses. Doing that would empower
Cuban-Americans to play a more robust role in the island's economic
transformation. More significantly, it would gradually erode the Cuban
government's ability to blame Washington for the shortcomings of an
economy that is failing its citizens largely as a result of its own
policies.

••

Before Fidel Castro came to power in 1959, Cuba's economy was heavily
reliant on the United States, which bought the bulk of its main export,
sugar. American tourists flocked to the island, lured by its proximity,
tropical weather and raucous night life.

After the overthrow of Fulgencio Batista, an authoritarian leader who
had protected American commercial interests on the island, Fidel
Castro's government asserted control over virtually every segment of the
economy. It seized land and assets from American companies and vowed to
guarantee all citizens housing, health care and education. Communism
brought an ever more anemic and backward economy, one propped up largely
by Moscow. But after the Soviet Union collapsed in 1991, so did Cuba's
economy.

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Cubans euphemistically call the stark deprivation of the 1990s the
"special period," a time when the Cuban government was forced to allow
in some foreign investment and authorize limited private-sector
employment. In 1999, Havana found a new benefactor in the newly elected
president of Venezuela, Hugo Chávez — which gave Cuban officials the
ability to retighten state control of the economy. But in the last two
years Venezuela, which provides heavily subsidized oil to Cuba in
exchange for medical services, has struggled with a worsening economic
and political crisis, which could force it to cut off subsidies to Havana.

The precariousness of that relationship has added urgency to the debate
over how fast the Cuban government needs to implement the reforms Raúl
Castro endorsed. Old-guard leaders warn that a liberalized market
economy could turn Cuba into a less egalitarian society and provide an
opening for the United States to destabilize the government through a
flood of private investment. Reformists, including some of the country's
leading economists, say the current state of the economy is untenable.

••

The reality is that the island's social welfare achievements cannot be
sustained if current economic and demographic trends hold. Cuba is
currently ranked in the top tier of the United Nations Human Development
Index, a measure of a country's education level, life expectancy and
other variables. That's an achievement matched by only two other
countries in Latin America and the Caribbean, Argentina and Chile.

Wages in Cuba are worth roughly 28 percent of what they were before the
collapse of the Soviet Union, according to the Center for the Study of
the Cuban Economy at the state-run University of Havana. The devaluation
has turned workplace theft into a major problem. It has also led tens of
thousands of Cuban professionals to emigrate to the United States and
elsewhere in Latin America in recent years in search of a better life.
The country's birthrate is declining, while its elderly are living longer.

The agricultural sector remains stymied by outdated technology and
byzantine policies. A foreign investment law Cuba's National Assembly
approved in March has yet to deliver a single deal. Adding to the
challenges, the Cuban government has pledged to do away soon with its
dual-currency system (which includes a dollar-pegged peso established in
the 1990s when tourism opened up), a process that could drive up
inflation. Yet against the picture of stagnation is the growth of a new
class of private-sector employees, now nearly 500,000 strong. That's not
a huge number in a nation of 11 million, but they are a marvel of
ingenuity in a place where running a private restaurant requires buying
virtually all ingredients on the black market. Basic staples, like
potatoes, must be purchased as contraband in Cuba.

Many of those building small businesses, such as bed-and-breakfasts, are
Cubans who returned with savings earned abroad and those with relatives
outside the country who provided start-up capital. All struggle with the
bureaucracy, since they are unable to import legally items as basic as
mattresses and pillows. Bringing items from the United States is onerous
and complicated by American sanctions. Cuban authorities appear
conflicted about the growing private sector. While they welcome the
employment and tax revenue it generates, bureaucrats are throttling
businesses that are doing particularly well and forcing some to become
joint ventures with the state. The underlying message seems to be: We
want prosperity but not overly prosperous individuals.

Washington could empower the reformist camp by making it easier for
Cuban entrepreneurs to get external financing and business training.
That type of engagement is unlikely to succeed unless the United States
abandons its policy of regime change. Cuba's economic transformation may
be proceeding slowly, but it could well lead to a more open society. For
now, continued antagonism from Washington is only helping the old guard.

Source: Cuba's Economy at a Crossroads - NYTimes.com -
http://www.nytimes.com/2014/12/15/opinion/cubas-economy-at-a-crossroads.html?_r=0

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