Cuba Business

China and Venezuela investments bring Cuba out of economic slump

Posted February 17, 2005 by publisher in Cuba Business.

By VANESSA ARRINGTON, Associated Press Writer
Gilberto Sago remembers the time, before the collapse of the Soviet Union thrust Cuba’s economy into crisis, when a pound of pork cost just four Cuban pesos, or about 15 cents.

“Everything was so abundant, and much, much cheaper,” said the retired bus driver, 67.

Today, Sago spends up to 25 pesos - nearly a dollar - for that same piece of meat, and must work an overnight shift guarding a carpentry workshop to supplement his meager pension.

President Fidel Castro says the Cuban economy has climbed out of its decade-old economic slump, but it’s unclear whether new subsidies from Venezuela and China will be enough to improve the quality of life for those in the island’s increasingly state-controlled economy.

In a weekend speech to hundreds of economists at an international conference in Havana, Castro painted a rosy picture of a Cuba with improvements in problematic sectors like transportation and a lessening of the social divisions caused by access - or lack of access - to hard currency.

Castro based his optimism on oil prospects off Cuba’s northern coast and strengthened economic ties with China and Venezuela. China has agreed to invest in the island’s nickel industry and increase involvement in Cuban tourism and telecommunications; Venezuela has promised expanded trade and favorable terms on oil. Cuba and Venezuela recently eliminated all taxes and import duties on each other’s investments and products.

“A new motor named China has emerged, as well as (Chavez’s) Bolivarian revolution,” Castro said.

In his remarks, the Cuban leader contrasted the image of his future nation with the economic suffering of islanders in the early 1990s after the fall of the Soviet bloc ended substantial aid to Cuba’s communist government.

Running out of everything from food to oil to wood for building coffins, and hurt by the tightening of a U.S. trade embargo, the government took measures Castro recalls with distaste: letting U.S. dollars circulate and opening the gates to foreign tourism and investment. The government also had to legalize self-employment in professions from computer programming to auto body repair, and decentralized state decision-making.

Observers at the time applauded the steps pushing Cuba toward a market economy. But Castro viewed the actions as temporary, and waited for signs of economic improvement.

Now he says those signs have come, and he is strengthening the centralized economic system with moves such as last fall’s elimination of the U.S. dollar from circulation and tighter limits on private sector workers.

“The state is reborn, like a phoenix with expansive wings,” Castro said.

Critics, however, say that while Cubans are better off now than during the “special period” of the early 1990s, daily life remains a struggle.

“I do not see real economic recovery,” said Mark Thornton, a senior research fellow at the Alabama-based Ludwig von Mises Institute, which defends the market economy. “Basically, the reason Fidel is optimistic is that ... he’s now found two new sugar daddies: Venezuela and China.”

In Cuba, the government provides free education and health care, heavily subsidized utilities and transportation and a food ration. The island doesn’t have the kind of wretched poverty seen in South American mountain villages or Central American urban slums.

But the monthly food ration lasts most Cuban families less than two weeks, and state salaries averaging less than $15 a month barely begin to cover the high prices of everything from canned food to toilet paper.

Cuban officials estimate some 60 percent of Cubans have access to additional income, primarily through remittances sent from relatives and friends abroad or jobs in tourism that bring in tips and bonuses.

The remaining 40 percent get by on their wits alone.

“They survive, but they certainly don’t thrive,” Thornton said.

In this two-tiered society, a hotel bellhop or taxi driver can make more than a doctor - a contradiction Castro wants to eliminate by regaining state control of the economy and preventing individuals from enriching themselves.

Larry Birns, director of the Washington-based Council on Hemispheric Affairs, said the change could help bring Cuba’s population together, but he expects hard times ahead unless there is an upsurge in tourism and offshore oil discoveries.

“You cannot keep calling on the population to make sacrifices,” he said.

Sago, the retiree, receives a monthly pension of 246 Cuban pesos, or $9.50. His every-other-night custodian job pays 300 pesos, or $11.50 a month. But he also gets help from his daughter, who works for a state tourism company.

Sago lives in a decaying two-bedroom apartment with four others, including his ex-wife. The household has a television, a refrigerator and an old washing machine, but there is no phone line.

Nonetheless, Sago is not dismayed: “Sometimes we want more than we have, but really, we have everything we need,” he said.

For Castro supporters like Sago, the Cuban leader’s enthusiasm is contagious.

“We’re on a road that could bring improvements,” Sago said. In the meantime, he said, “The country is holding itself up. With much difficulty, but yes, we’re surviving.”

Other workers were less enthusiastic, even critical, about the economy, but declined to be identified by name.

“The situation is tough here, people don’t even want to have more children,” said one Cuban, who feared he would lose his job at a tourist restaurant if his name were published. “There is a large percentage of people who don’t have any access to hard currency, and they really have to be inventive to find ways to eat.”


Member Comments

On February 17, 2005, waldo wrote:

Above cost of living in Cuba fails to include, evaluate, or compensate for monumental expenses   incured in say the US such as;
Rent: none
Home mortage: none
Property taxes: none
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Income tax: none
State tax: none
County taxes: none
City tax: none
Sale tax: none
Capital gain tax: none
Social Security tax: none
Health insurance payments: none
Dental insurance payments : none
Optical insurance payments: none
Senior home payment: none
School payments: none
School taxes: none
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Trash disposal tax: none
Recycling tax: none
Whatnot taxes: none
Whatnot pyments: none