Cuban Economists on the Cuban Economy

3. Cuba’s Insertion in the International Economy since 1990

3 Cuba’s Insertion in the International Economy since 1990 Nancy A. Quiñones Chang In the international context, Cuba is a small economy highly dependent on foreign trade. For 2000–2006 its participation in world exports of goods and services barely averaged 0.05 percent, while its ratio of foreign trade to GDP was 41.1 percent, an increase over previous years.1 In the early 1990s, several adverse factors converged to unleash one of the worst crises in the country’s economic history. Some of the relevant factors included the dismantling of Cuba’s markets in the CMEA countries, financial and commercial barriers to trade with non-CMEA countries, and the strengthening of the U.S. blockade. With the demise of the socialist bloc, the Cuban economy lost • its main markets for the purchase and sale of goods and services. In the late 1980s the socialist countries accounted for 80–85 percent of Cuba’s total exchange; • its favorable pricing terms. It has been estimated that in some years during the 1980s, the higher-than-world-market prices Cuba received for sugar, nickel, and citrus increased its income from exports by more than 60 percent;2 • its only external source of financing and credits. Cuba did not belong to any multilateral or regional financial bodies and had declared a moratorium on the service payments of its foreign debt in freely convertible currency since 1986;3 and • the type of relations and links prevailing in CMEA. The external sector operated on the basis of a state monopoly over foreign trade, government-level coordination mechanisms based on five-year plans, nonconvertible currencies, and physical trade quotas with prices fixed to guarantee a fair exchange.4 90 Nancy A. Quiñones Chang The country’s external earnings took a severe hit. The terms of trade (at 1997 prices) declined from 1.48 to 0.70 between 1990 and 1992 (fig. 3.1), and the value of exports declined by 67 percent between 1989 and 1993. Sugar alone accounted for 50 percent of total export losses, as its price dropped from 51.4 cents per kilo in 1990 to 21.4 cents in 1992. The supply of credits was also interrupted , with the capital account in 1993 reaching barely a tenth of the 1989 figure.5 Due to these reductions in export earnings and credits, the current value of imports decreased by 72 percent from 1989 to 1993, returning to close to 1974 levels (fig. 3.1). The greatest contraction in the value of imports was concentrated in equipment, unfinished goods, and other consumer items. In 1993 Figure 3.1. Trade (billions pesos) and terms of trade (1997 = 1). Sources: Data from many different publications of ONE, various years. Cuba’s Insertion in the International Economy since 1990 91 the combined value of these three groups equaled only 13 percent of the value imported in 1989. This caused a corresponding paralysis of installed manufacturing capacity, with estimated production at only 10 to 20 percent of capacity in 1993; moreover, the existing capital equipment was facing technological obsolescence for lack of upgrades.6 In order to guarantee minimum levels of economic activity and food supplies , priority for imports was assigned to fuels and foodstuffs. Their joint ratio in the import of goods was nearly 60 percent in 1993 and 1994, but their joint value still declined by 66.5 percent between 1989 and 1994. Import restrictions contributed significantly to a major deterioration in the population’s quality of life through decreases in the supply of services—mainly transportation, electricity , health care, and education—and the availability of food. The per capita nutritional intake dropped from 2,845 kilocalories daily in 1989 to 1,863 in 1993.7 The situation in late 1993 was characterized by • an overall drop in economic activity; • an accumulation of internal financial imbalances that caused repeated devaluation of the Cuban peso. The fiscal deficit to GDP ratio was 33.5 percent, and the currency in circulation (liquidity) to GDP ratio was 73.2 percent; • a deterioration in workers’ real income; and • a deterioration in labor productivity and social discipline. This situation manifested in a high level of hidden underemployment, failure to seek formal employment, selective acceptance of employment, high labor turnover, high absenteeism, and a drop in the average retirement age.8 Thus, Cuba faced a situation similar to that in the early 1960s when the United...