Cuba - Economic development



Until 1959, the Cuban government followed a policy of free enterprise; government ownership was largely limited to local utilities. When the Castro government came to power in 1959, it proceeded to create a centrally planned economy. By means of nationalization and expropriation, all producer industries, mines, refineries, communications, and export-import concerns were brought under government control by 1968.

Planning in the 1960s vacillated on the question of whether Cuba should concentrate on the production of sugar, on industrialization, or on a balance between the two. After 1963, sugar predominated. But the effort that went into the 1970 harvest diverted enormous resources from other sectors of the economy. At the same time, there was growing absenteeism, and low productivity in the labor force, attributed to the policy of eliminating material incentives. Under the Economic Management System, pay was again tied to production though the introduction of a system akin to piecework.

The 1975–80 development plan, approved by at the PCC Congress in December 1975, set specific production goals for Cuban industry and projected an overall economic growth rate of 6% annually; it was announced in 1980 that the actual growth rate was 4%. The 1981–85 plan introduced new incentive schemes and gave more freedom to market forces; it also eased restrictive hiring regulation. One of the major aims of the plan was to increase industry's share of gross social product to 50%, but industry accounted for only 45.3% in 1985. The 1986–90 plan envisioned a 5% annual growth and aimed particularly at an increase in exports. In December 1986, 28 austerity measures were approved by the National Assembly, including increases in transport and electricity prices and rationing of kerosene.

Under several finance and investment accords signed by Cuba and Russia in 1992 and 1993, Russia agreed to supply fuel, tires and spare parts for mechanical harvesters and other vehicles, fertilizers, and herbicides for Cuba's sugar harvest. In addition, Russia agreed to import a minimum of 2 million tons of Cuban sugar. Russia also agreed to extend a $350 million credit to Cuba to complete and further develop a number of oil, energy, and nickel mining projects that had previously been backed by the Soviet Union.

Since 1998, Cuba has sat as an observer at International Monetary Fund (IMF)/World Bank meetings. Cuba's economic planners predicted a 1.5% growth rate for 2003, as tourism declined following the 11 September 2001 terrorist attacks on the United States, sugar prices were low, hurricanes damaged the island, and external financing was lacking. The Central Bank reported a $12.2 billion hard-currency foreign debt by late 2002. Direct foreign investment in Cuba declined to $38.9 million in 2001. Unemployment stands at approximately 12%, but close to 30% of workers have been displaced or underemployed. Castro in 2003 replaced at least five officials in economy-related government positions in an effort to combat a faltering economy. Cubans increasingly turn to the black market for food, clothing, and household goods. Cuba continued to apply timid market reforms while actively seeking foreign investment. Economic growth in the late 1990s came from an expansion of manufacturing, tourism, mining, and services. Other positive factors included the improved tourist industry and a sharp recovery of the cigar industry. Indeed, during the 1990s, tourism replaced sugar exports as Cuba's primary source of foreign exchange. The creation of a new Central Bank completed financial sector reforms begun in 1995. These reflected the increased role of the private sector in financial transactions. In 2000, the Cuban economy continued its growth through the generous investment of foreign countries, but the US trade embargo held fast in the face of opposition from key US political leaders.

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