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CUBA : ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN CHALLENGES

CUBA : ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN CHALLENGES. The collapse of the European socialist block caused a deep crisis in the Cuban economy, which suddenly lost:. Its main suppliers of equipment, raw materials, food and particularly fuels

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CUBA : ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN CHALLENGES

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  1. CUBA: ECONOMIC RESTRUCTURING, RECENT TRENDS, AND MAIN CHALLENGES

  2. The collapse of the European socialist block caused a deep crisis in the Cuban economy, which suddenly lost: • Its main suppliers of equipment, raw materials, food and particularly fuels • The markets for over 80% of its exports • The sources of spare parts and assistance for most of the technology installed in the previous 30 years • Its sources of financing and economic preferences At the same time, the United States’ Government reinforced its economic embargo with several additional measures, aimed at defeating the Cuban Revolution

  3. Effects of the external shock 1990-1993

  4. Economic Reforms to Face and Reverse the Crisis • Macroeconomic adjustment to correct some imbalances. • Structural reforms (decentralization and reorientation of foreign trade, opening to foreign investment, banking re-structuring, enterprise rationalization anddecentralization) • Resources were concentrated in a few sectoral programs (aimed at developing hard currency earners or substituting imports) • Continued development of medical services and infra-structure (not only for Cuban nationals, but also aimed at exports) • The US $ was allowed to circulate in the country (a network of state dollar shops was set up and $remittances were allowed) • Reintroduction of small private property (agricultural markets, industrial and handicraft private markets, self-employment) • Conversion of most state lands and agricultural companies into semi-private cooperatives. THE STATE PROPERTY KEPT PREVAILING IN MOST KEY SECTORS

  5. THE PHILOSOPHY OF TRANSFORMATION MAIN DECLARED GOALS • To preserve the country’s independence • To keep and improve socialism • To create the economic and social basis to re-launch a development program once the crisis was over

  6. RESULTS

  7. Gross Domestic Product

  8. Gross Domestic Product

  9. Cuban strategy for reinsertion in world markets brought changes in sectors acting as growth engines • Sugar, traditional engine  now secondary • Tourism and Remittances emerged with the reform  displaced sugar • Healthcare services, biotech patent licensing, nickel, oil & gas recently emerged as key sectors For some of these sectors foreign investment played an important role

  10. BUDGET DEFICIT / GDP( % )

  11. Breakdown of Budget Expenditures

  12. UNEMPLOYMENT

  13. EXTERNAL SECTOR

  14. Exports of Goods Structure

  15. Current Account(million USD)

  16. PERFORMANCE OF FDI Sales Exports Dividends for the country 3000 2500 2000 1500 1000 500 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 MMUSD Active Joint Ventures 62 123 170 210 258 306 330 373 392 407 403 342 313 258

  17. Reinforcement of the social content of the economic policy • Improvement of the free educational system in all levels • Refurbishment, expansion and retooling of the free healthcare system • Increases of wages, pensions and social assistance

  18. MAIN CURRENT CHALLENGES • The low productivity prevailing in some manufacturing sectors and most of the agriculture • An increase of petty and mid corruption • Critical condition of dwellings, transportation, and part of the infrastructure • The need to eliminate the dual currency system introduced to face the crisis

  19. Economic Policy Measures to face these challenges • To increase the productivity in manufacturing and agriculture: • The government has deepened the restructuring of state companies, emphasizing on accounting, control and discipline • Cooperatives and other flexible schemes are being extended in agriculture • State companies, cooperatives and private producers have been granted state financing • Foreign investment has been allowed and promoted in particular areas.

  20. To face corruption: • A partial re-centralization has taken place in most sectors • Foreign exchange controls re-established • Approval is now required for high-value import transactions • Revenues of state companies were concentrated in a single account at the central bank.

  21. To face the critical condition of infra- structure, dwelling and transportation: • Program to build 70,000 houses and refurbish 150,000 per year. • Gradual recovery of transportation • Energy revolution • Investments in highways, water pipelines, ports

  22. To move towards currency unification: • US dollar withdrawn from the domestic economy • Gradual revaluation of the two Cuban currencies The prevalence of State Property in most relevant economic sectors has been confirmed as the main strategic economic policy principle of the Cuban Government.

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