Post by livinginmedellin on Aug 1, 2016 10:37:56 GMT -5
Shock waves from Venezuela’s precipitous economic collapse have finally reached Cuba. They are forcing drastic cuts in energy consumption, slashing economic growth from 4 percent last year to just 1 percent in 2016, and raising fears of another “Special Period”—the catastrophic economic decline in the 1990s that followed the collapse of Cuba’s previous patron, the Soviet Union.
Cuba’s predicament was foreshadowed by the plunging price of oil on the world market and Venezuela’s declining production, down 12 percent in the past year alone. Nevertheless, for several years Venezuela continued to meet its obligation to ship some 80,000 to 90,000 barrels of oil daily to Cuba at subsidized prices in exchange for the services of some 40,000 Cuban medical and educational professionals. Cuba resold some of the Venezuelan oil on the world market for a tidy hard currency profit—the same arrangement Cuba had with the Soviet Union in the 1980s. Now, however, the inevitable has come to pass: Venezuelan oil shipments to Cuba are declining, down 20 percent this year, impacting both Cuba’s domestic energy supply and its hard currency reserves.
In his speech to the National Assembly in July, President Raul Castro acknowledged the economic slowdown precipitated by the energy shortage. He urged everyone to conserve resources and “reduce expenses of all kinds that are not indispensable.” Despite the looming austerity, he promised that social services would not be reduced and that the process of economic reform known in Cuba as the “updating” of the social and economic model would continue apace. Moreover, Castro tried to reassure people that Cuba’s current economic problems were not the leading edge of “a return to . . . the Special Period.” There were difficulties, and they might even get worse, he admitted, “but we are prepared, and in a better condition to turn them around.”
To be sure, Cuba’s dependency on Venezuela is far less than its dependency on the Soviet Union. In 1989, more than 80 percent of Cuban trade was with the Soviet bloc, which provided 98 percent of Cuba’s oil. Venezuela accounts for about 40 percent of Cuban trade. Today, Cuba imports 59 percent of its oil and produces 20 percent of its electricity from renewable sources, so even a total loss of Venezuelan oil would not have the disastrous impact the Soviet collapse had.
The rapid growth of Cuba’s tourism industry will also cushion the shock of declining aid from Venezuela. This expansion dates to the 1990s, when it offered Cuba an alternative to its failing sugar market. Since then, the number of tourists visiting annually has expanded tenfold from some 340,000 in 1990 to 3.5 million in 2015, generating almost $3 billion of income. The improvement in U.S.-Cuban relations has unleashed a flood of new U.S. visitors that shows no sign of subsiding anytime soon; travel from the United States was up 77 percent in 2015, and up another 84 percent in the first half of this year.
Nonetheless, Cubans are worried. The traumatic hardships of the Special Period are still fresh in the minds of those who lived through it, just as the Great Depression scarred a generation of Americans. Energy shortages in the 1990s meant electrical blackouts, shuttered factories, and streets empty of cars, buses and trucks. The shortage of hard currency meant empty shelves at the grocery store and the pharmacy. Today’s fuel shortages and rising food prices are foreboding. “A perfect storm is brewing,” warned Karina Marron, deputy editor of the Communist Party newspaper Granma, during a meeting of the Union of Cuban Journalists. “People, this country can’t withstand another ’93, another ’94.”
The economy is likely to get worse before it gets better. Cuban economist Pavel Vidal, now living abroad, estimates that with declining oil shipments from Venezuela, Cuba’s GDP will drop by 2.9 percent in 2017, with a 10 percent fall in consumption from 2015 levels.
This new period of economic hardship comes at an awkward political moment. Cubans across the island are assembling in their neighborhoods and workplaces to discuss two documents released at the Seventh Congress of the Cuban Communist Party in April: a long-range economic plan reaching to 2030 and a conceptual model of what Cuba’s unique hybrid of socialism and private enterprise will look like when the reform process concludes.
With less than two years left until he steps down as president, Castro is running out of time to make his economic reforms irreversible and demonstrate that the new model of socialism is really prosperous and sustainable, as advertised. The reform process raised popular expectations significantly when it was launched in 2011, but thus far it has produced little noticeable improvement in the standard of living of ordinary citizens.
Frustration, especially among well-educated youth, has spurred a jump in emigration. This brain drain undercuts the government’s heavy investment in education and its vision of a 21st-century economy built around value-added industries like biotechnology and information science. The economic downturn is certain to aggravate the migration problem.
Castro faces a critical choice in the months ahead: Should the government’s response to economic difficulty be to slow the implementation of reforms, or accelerate it? Castro insists that he will not slow the pace of change, but that may depend on how bad things get. The shortage of hard currency and slowing growth will constrain the government’s ability to rebuild Cuba’s dilapidated infrastructure and its manufacturing base, attract foreign capital, and raise the standard of living.
Vidal argues that the new economic reality requires accelerating and deepening the reform process, and many economists on the island—including those advising the government—agree with him. Cuban leaders no longer question the economic logic of that advice, but they worry about the political repercussions of rapid economic change. Thus Castro’s mantra has been, “without haste, but without pause.”
The worsening economic downturn puts Cuban leaders squarely on the horns of a dilemma. Go too fast, and the resulting social disruption may aggravate discontent; go too slow, and the public may lose hope that the reform process will ever produce Castro’s promise of a prosperous and sustainable socialism.
See: www.worldpoliticsreview.com/articles/19522/venezuelan-contagion-hits-cuba-s-economy-putting-reforms-in-jeopardy
Cuba’s predicament was foreshadowed by the plunging price of oil on the world market and Venezuela’s declining production, down 12 percent in the past year alone. Nevertheless, for several years Venezuela continued to meet its obligation to ship some 80,000 to 90,000 barrels of oil daily to Cuba at subsidized prices in exchange for the services of some 40,000 Cuban medical and educational professionals. Cuba resold some of the Venezuelan oil on the world market for a tidy hard currency profit—the same arrangement Cuba had with the Soviet Union in the 1980s. Now, however, the inevitable has come to pass: Venezuelan oil shipments to Cuba are declining, down 20 percent this year, impacting both Cuba’s domestic energy supply and its hard currency reserves.
In his speech to the National Assembly in July, President Raul Castro acknowledged the economic slowdown precipitated by the energy shortage. He urged everyone to conserve resources and “reduce expenses of all kinds that are not indispensable.” Despite the looming austerity, he promised that social services would not be reduced and that the process of economic reform known in Cuba as the “updating” of the social and economic model would continue apace. Moreover, Castro tried to reassure people that Cuba’s current economic problems were not the leading edge of “a return to . . . the Special Period.” There were difficulties, and they might even get worse, he admitted, “but we are prepared, and in a better condition to turn them around.”
To be sure, Cuba’s dependency on Venezuela is far less than its dependency on the Soviet Union. In 1989, more than 80 percent of Cuban trade was with the Soviet bloc, which provided 98 percent of Cuba’s oil. Venezuela accounts for about 40 percent of Cuban trade. Today, Cuba imports 59 percent of its oil and produces 20 percent of its electricity from renewable sources, so even a total loss of Venezuelan oil would not have the disastrous impact the Soviet collapse had.
The rapid growth of Cuba’s tourism industry will also cushion the shock of declining aid from Venezuela. This expansion dates to the 1990s, when it offered Cuba an alternative to its failing sugar market. Since then, the number of tourists visiting annually has expanded tenfold from some 340,000 in 1990 to 3.5 million in 2015, generating almost $3 billion of income. The improvement in U.S.-Cuban relations has unleashed a flood of new U.S. visitors that shows no sign of subsiding anytime soon; travel from the United States was up 77 percent in 2015, and up another 84 percent in the first half of this year.
Nonetheless, Cubans are worried. The traumatic hardships of the Special Period are still fresh in the minds of those who lived through it, just as the Great Depression scarred a generation of Americans. Energy shortages in the 1990s meant electrical blackouts, shuttered factories, and streets empty of cars, buses and trucks. The shortage of hard currency meant empty shelves at the grocery store and the pharmacy. Today’s fuel shortages and rising food prices are foreboding. “A perfect storm is brewing,” warned Karina Marron, deputy editor of the Communist Party newspaper Granma, during a meeting of the Union of Cuban Journalists. “People, this country can’t withstand another ’93, another ’94.”
The economy is likely to get worse before it gets better. Cuban economist Pavel Vidal, now living abroad, estimates that with declining oil shipments from Venezuela, Cuba’s GDP will drop by 2.9 percent in 2017, with a 10 percent fall in consumption from 2015 levels.
This new period of economic hardship comes at an awkward political moment. Cubans across the island are assembling in their neighborhoods and workplaces to discuss two documents released at the Seventh Congress of the Cuban Communist Party in April: a long-range economic plan reaching to 2030 and a conceptual model of what Cuba’s unique hybrid of socialism and private enterprise will look like when the reform process concludes.
With less than two years left until he steps down as president, Castro is running out of time to make his economic reforms irreversible and demonstrate that the new model of socialism is really prosperous and sustainable, as advertised. The reform process raised popular expectations significantly when it was launched in 2011, but thus far it has produced little noticeable improvement in the standard of living of ordinary citizens.
Frustration, especially among well-educated youth, has spurred a jump in emigration. This brain drain undercuts the government’s heavy investment in education and its vision of a 21st-century economy built around value-added industries like biotechnology and information science. The economic downturn is certain to aggravate the migration problem.
Castro faces a critical choice in the months ahead: Should the government’s response to economic difficulty be to slow the implementation of reforms, or accelerate it? Castro insists that he will not slow the pace of change, but that may depend on how bad things get. The shortage of hard currency and slowing growth will constrain the government’s ability to rebuild Cuba’s dilapidated infrastructure and its manufacturing base, attract foreign capital, and raise the standard of living.
Vidal argues that the new economic reality requires accelerating and deepening the reform process, and many economists on the island—including those advising the government—agree with him. Cuban leaders no longer question the economic logic of that advice, but they worry about the political repercussions of rapid economic change. Thus Castro’s mantra has been, “without haste, but without pause.”
The worsening economic downturn puts Cuban leaders squarely on the horns of a dilemma. Go too fast, and the resulting social disruption may aggravate discontent; go too slow, and the public may lose hope that the reform process will ever produce Castro’s promise of a prosperous and sustainable socialism.
See: www.worldpoliticsreview.com/articles/19522/venezuelan-contagion-hits-cuba-s-economy-putting-reforms-in-jeopardy