Saturday, July 30, 2016

Randy, the situation is worse than in the 90s

Randy, the situation is worse than in the 90s
DIMAS CASTELLANOS | La Habana | 29 de Julio de 2016 - 12:26 CEST.

The newspaper Granma recently published an article by Randy Alonso that
commenced by dismissing "media vultures" who "revel in painting a dark
picture, according to which Cuba will return to the direst days of the
Special Period."

It is telling that Randy Alonso and the daily Granma would devote time
and space to responding to these "vultures," extraordinary birds that,
by feeding on animals in a state of decay, play a vital role in the
health of their societies.

In the fulfillment of his mission, Randy quotes Cuban President Raúl
Castro on July 8: "speculation and predictions have begun suggesting the
imminent collapse of our economy and auguring a return to the acute
phase of the Special Period that we faced in the early 90s, and we were
able to overcome thanks to the resilience of the Cuban people and their
unlimited confidence in Fidel and the Party. We do not deny that
adversity may arise, even greater than that we are experiencing today,
but we are prepared and better positioned than then to deal with it."

Although Raúl Castro acknowledges that "adversity may arise, even
greater than that we are experiencing today," Randy focuses on
demonstrating that the Cuban economy today is in a better position to
weather it than in the early 90s. To do this he chooses ten issues,
which I shall summarize and address below (the remaining three: the
BioCubaFarma Group, petrol production, and self-employment are not
relevant to this analysis).

1- In 1990 more than 80% of Cuban foreign trade was with the USSR and
the countries of Eastern Europe. Today it is more diversified, by
country and region.

Diversification in and of itself does not constitute any advantage.
Trading with more and more countries does a nation no good if its
productive inefficiency prevents it from taking advantage of that trade,
and instead forces it to spend hundreds of millions of dollars abroad
each year to buy what could be produced in Cuba, like coffee, rice and
milk byproducts. The strongest evidence of this inefficiency is the drop
in GDP from 4% in 2015 to 1% in the first half of 2016.

2- In 1990 Cuba had no sources of credit. Today Cuba's debts have been
renegotiated with its creditors.

Randy Alonso fails to mention that Cuba ran out of sources of credit due
to the infeasibility of its economic model, which rendered it unable to
pay either "friends" or "enemies." It was renegotiated with Cuba
because, in view of the normalization of relations with the US,
creditors, aware that they would never collect, decided keep one foot in
Cuba. But renegotiation also means you have to pay. The Club de París
has forgiven 8.5 billion, and Russia, 31.7 billion. The former is now
owed 2.6, and the latter, 3.5, to be paid over the next few years,
precisely when GDP growth is close to 0%.

3- At that time (1990) foreign investment was almost nil, but during the
current stage we boast revised legislation and the promising Mariel
Special Development Area (ZEDM).

Cuba, according to its own authorities, requires sustained GDP growth of
5 to 7%, which means an annual flow of investment of between 2 and 2.5
billion dollars. That amount has not been achieved under the "revised
legislation" because, among other things, it bars Cubans from
participating as investors, and foreign companies from directly hiring
them. Meanwhile the ZEDM, which could help to lift Cuba out of this
stagnation and insert it into the global economy, is plagued by delays
in the dredging of the bay to make possible the entrance of mega-ships
with a capacity for approximately 13,600 containers. Hence, it has had
no significant impact. In his presentation the Minister of Foreign Trade
and Foreign Investment stated that the ZEDM "represented a profound
modernization of the transformative process that was undertaken at the
beginning of the Revolution to place the main means of production in the
hands of the Revolutionary State." In other words, the law intends to
preserve the very nationalization that is the root cause of Cuba's
economic inefficiency.

4- Tourism, which back then (90s) was only emerging as a promising
economic sphere, today is the second largest generator of foreign revenue.

Tourism is the country's third source of foreign revenue after family
remittances and the export of services. However, most of this revenue is
lost buying what Cuba's inefficient economy is not able to produce. In
order for tourism to constitute "a promising economic sphere," and for
the country to be able to take advantage of the increasing flow of
visitors, what is needed is greater and more active participation by the
private sector, and the development of a domestic industry to mitigate
the financial leaks caused by the model's inefficiency.

5- The export of Cuban services was only getting underway in the 90s.
Today it is the country's largest source of foreign revenue.

The training of people in order to rent out their services is
universally considered to constitute modern slavery. It is outrageous
that the State rakes in 8 billion dollars a year for these services,
over 75% of which it retains. The fact that some ideological allies, in
Brazil and Venezuela, for example, look the other way, does not
guarantee its permanence or infuse it with potential, much less
promising to sustain a country that is fast falling behind, and from
which many professionals are fleeing.

6 - Electricity generation was (in 1990) based entirely on imported
fuel. Today we have an electro-energetic system largely based on
domestic fuel. In addition, we are increasingly using renewable energy

It turns out that the Economy Minister actually asked the National
Assembly of the People's Power: "What are we missing?" And he answered
his own question: "....we lack fuel, because everything we had planned
on has not reached the country." He added: "What we are talking about
here is 7,862,000 tons of total fuel that the country
receives."Therefore, if we subscribe to Randy Alonso's own arguments,
the Economy Minister's analyses, and Raúl Castro's speech before the
National Assembly, make no sense. According to a Reuters cable on July
8, 2016, delivery of crude to the island fell from 100,000 to 53,000
barrels a day; this suggests that Cuba was exporting some of that oil,
which could explain its plummeting GDP.

7- If then (in 1990) numerous investments were partially or totally
paralyzed, without any possibility of their completion and
commissioning; now the country has the capacity to preserve the
financing of investments slated in sectors strategic to national

"The other measure that we have to take," said the Minister of Economy
and Planning, "is to carefully administrate the taking out of loans, to
make the country's future debt manageable". The aim is not, in the words
of Randy Alonso, "to preserve funding" but rather, in the words of the
minister, to "seek financing in the medium and long term and abandon the
principle of making short-term investments, because then the debt
payment is very fast, and the debt is not paid with the return on
investment." What both the minister and Randy overlook is an inefficient
economy that cannot pay its outstanding debts to creditors, such that
there will be no financing in the medium and long term.

In short, with an inefficient economy:

1- Trade diversification cannot be capitalized on.

2- Suppliers and creditors cannot be paid reliably, so obtaining new
loans is difficult.

3- The "revised legislation" has not achieved its objectives.

4- The private sector must be permitted a greater and more active role
in the Tourism industry, so as to develop a national sector, which is
impossible under the current model.

5- The export of services, in its variant of modern slavery, has no future.

6- The lack of available fuel,although its price has been reduced by the
market, will lead to serious problems in the country.

7- Obtaining financing in the medium and long term will be impossible if
current outstanding debts with creditors are not paid, unthinkable give
the sharp reduction in the GDP.

If, in addition to all this, we add Cubans' disbelief, despair and
disinterest, we must concur with the director of the Round Table and the
CubaDebate site that the situation today is, in fact, not like that in
the 90s ... it is simply and categorically worse.

Source: Randy, the situation is worse than in the 90s | Diario de Cuba -

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