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HavanaJournal.com: Cuba Politics

Cuban economy and politics summary and what to watch

Posted November 01, 2010 by publisher in Cuba Politics.
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This is a great summary of the current status of the Cuban economy and politics.

The link to the entire article is at the bottom.

Jeff Franks | Reuters

The success or failure of Cuba’s economic reforms will be the key issue to watch in the next year as the government moves to strengthen the economy and ensure survival of the island’s communist system once the current aging leadership is gone.

The cash-strapped government is looking for ways to cut spending while increasing income, and could get long-term help if offshore oil exploration slated to begin in 2011 is successful.

All this occurs against a backdrop of only slightly tempered hostility with the United States, including an ongoing dispute over a U.S. contractor held by the Cubans on suspicion of spying.

ECONOMIC CHANGES

President Raul Castro has taken aim at Cuba’s chronic economic problems with plans to slash 500,000 jobs from state payrolls by March while expanding the private sector and encouraging less reliance on the state.

About 200,000 of those jobs are expected to shift over to employee-run cooperatives that will be created at businesses currently operated by the state. The government also says it will issue 250,000 new licenses for self employment and for the first time, the self-employed will be able to hire workers.

Self employment was first allowed in communist Cuba during the economic crisis that followed the collapse of the Soviet Union, the island’s main ally, in 1991. As of end 2009, there were 143,000 people licensed to work for themselves, and many more doing so illegally.

The government’s bet is that it can create enough jobs quickly enough to absorb the laid-off government workers, most of whom it says were not in productive positions. After the first 500,000 jobs are cut, it plans to slash another 500,000 over the next few years, likely meaning more private sector expansion lies ahead.

There are many questions surrounding the reforms, which are the biggest since Raul Castro succeeded brother Fidel Castro as president in 2008 and promised economic change.

Among them are whether the cumbersome government bureaucracy can move quickly to implement the plan and whether the new entrepreneurs will be too handicapped by regulations, taxes and lack of credit to succeed.

Also, do the planned job cuts present the danger of many people ending up without work and if so, what will the consequences be in a socialist country where people basically have been guaranteed employment for decades?

But the key question is whether the reforms will accomplish what Castro wants—more productivity, a stronger economy and, ultimately, the survival of communism, installed after his brother took power in a 1959 revolution. Castro has said maintaining the system is key to protecting national sovereignty and that it must be preserved by future leaders.

Other reforms have been made, particularly in agriculture, with the same goal in mind. Castro, trying to increase output and reduce dependence on budget-draining food imports, has leased fallow lands to private farmers, decentralized decision-making and given farmers more leeway in producing and selling their products. Despite that, agriculture production was down 7.5 percent in the first half of the year, as farmers complain that they are still too stifled by the state.

What to watch:

—How quickly government moves to implement reforms.

—Numbers and performance of the newly self employed.

—Effects of government layoffs.

—Agricultural production.

—Further reforms.

CASH SQUEEZE, SOURCES OF REVENUE

Cuba, hit hard by hurricanes in 2008 and by the global financial crisis, has been so short of hard currency that it stopped paying most of its bills and froze Cuban bank accounts of many foreign businesses two years ago.

The situation has eased, but is not yet resolved.

To avoid future cash shortages, Castro has cut spending and sought more income for the state, which controls 85 percent of Cuba’s economy. He has slashed imports by about 30 percent and will reduce outlays for employees with the planned job cuts. Cuba recently said its budget deficit had diminished.

Taxes from the newly licensed self-employed are being looked upon as a new source of money, and Cuba is hoping to boost revenues from old standbys like nickel exports, and tourism, two of the island’s top hard currency earners.

The government has said it will allow construction of golf course developments, with the goal of attracting wealthier tourists. The courses will be a small piece of the tourist industry in Cuba, but, given golf’s image as the leisure sport of the rich, they are a larger symbol of how far Cuba is prepared to go to improve its economy.

The government also hopes one day to get more American tourists, should the U.S. ease or eliminate the ban on most travel to Cuba under its 48-year-old trade embargo against the island. Expected Republican gains in the U.S. Congress in the Nov. 2 mid-term congressional elections could weigh against any moves to ease the embargo.

In a potentially game-changing development, a consortium led by Spanish oil firm Repsol YPF is expected to drill a second exploratory well in Cuba’s part of the Gulf of Mexico sometime next year. It previously drilled an offshore well in 2004, but said it did not find oil in commercially viable quantities.

The drilling rig it will use, which has been under construction in China, will then be passed on to other companies such as Malaysia’s state oil firm Petronas and the offshore unit of India’s ONGC to explore in the blocks they have leased in Cuban waters.

The U.S. Geological Survey has estimated Cuba has about 5 billion barrels of oil offshore, but Cuba says it may have 20 billion barrels. A discovery of that magnitude would make Cuba energy independent, and likely an oil exporter, whereas now it depends on imports from its oil-rich socialist ally Venezuela.

Russia’s state oil company Zarubezhneft has said it also plans to begin exploration next year in two blocks adjacent to Cuba’s coast.

What to watch:

—Possible U.S. moves to ease its ban on travel to Cuba.

—Movement of nickel prices, start of golf course projects.

—Repsol’s second deepwater exploratory well in Cuba.

READ THE REST OF THE STORY HERE starting with U.S.-CUBA RELATIONS

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