50 Years After The Cuban Revolution – A New Era Dawns
The ‘low-key’ (almost anti-climatic) celebrations marking the 50th anniversary since the Cuban revolution on January 1 were highly symbolic of the republic’s current economic, social and political state of affairs. Cuba endured three devastating hurricanes in 2008 (Gustav, Ike and Paloma) incurring damages worth an estimated US$10bn, struggled with soaring fuel and food costs earlier in the year, and is now facing a highly uncertain economic outlook in light of the ongoing global recession.
Particularly worrying are prospects of foreign companies abandoning investment projects to develop Cuba’s natural resources, as global prices for nickel, iron ore and sugar continue to slide. According to figures published by the Cuban authorities in late December, the Cuban economy expanded at a clip of 4.3% in 2008, about half of what the economy ministry originally projected. The National Statistics Office’s methodology for calculating GDP growth includes public services in addition to economic activity, thus exaggerating the actual growth rate. Indeed, I imagine that this could add some three-to-four percentage points to real GDP growth, implying that economic growth, going by the official figures, has remained barely positive in 2008.
While Cuba’s Economy Minister José Luis Rodríguez sees 2008 as ‘without a doubt one of the most difficult’ years since the collapse of the Soviet Union, Risk Watchdog believes that more economic hardship is in store for the Caribbean island in 2009. Despite prospects for a new chapter in US-Cuban relations with the onset of the Barack Obama administration on January 20, I see no change to trade restrictions on Cuba for the time being. Moreover, while President-elect Obama signalled that he may ease travel restrictions and remittance flows to Cuba, the consumer-led recession in the US will likely keep any benefits of such a move limited, in my view.
A New Mindset
The 50-year anniversary of the revolution seems to have coincided with a change of leadership and a new mindset in the country. Since Raúl Castro took over as president from his brother Fidel in February 2008, many Cubans and outside observers set high hopes for economic and political reforms, which would provide new economic opportunities and greater civil liberties. Although there are hardly any tangible reforms to speak of at this point, Risk Watchdog believes that Raúl Castro has put mechanisms into motion, which will likely brand Fidel’s successor as a reformer in the years to come.
During Raúl Castro’s address to the national assembly on January 1, Cubans may have witnessed the most critical assessment of the country’s economic imbalances and problems since the revolution. The president highlighted the island’s economic challenges, and warned of severe imbalances in public finances, announcing that cost-cutting measures are unavoidable. Although no clear measures have been proposed in response to Castro’s comments, the president suggested that many subsidies and free-of-charge services will be reduced or altogether eliminated. Cuba’s minimum retirement age will be raised from 60 to 65 for men and from 55 to 60 for women in an effort to increase productivity and reduce the financial burden of an ageing population. What is more, the state budget for travels abroad for state officials will be cut by half, and free vacations in state-run hotels used to incentivise high-ranking officials or commendable workers will be abolished, among several other cost-cutting measures needed to tighten the belt.
Some To Become More Equal Than Others?
Raúl Castro has previously signalled that he is willing to break with Cuba’s emphasis on income equality in an effort to boost productivity. Indeed, in a recent speech, the president suggested that equality referred to equal rights and opportunities, as opposed to equal income. A similar tone echoed in his speech on January 1, when he suggested that people are more interested in their salaries, rather than in what they can obtain for free. Notwithstanding the ideological implications of such a policy on the Partido Comunista de Cuba (PCC), less emphasis on state-sponsored services may provide welcome relief for strained government finances.
What will be the implications of this new mindset, and will the PCC now be able to prevent a shift towards market economics? What is more, how will a growing sense of disillusionment with promised reforms by Cuba’s old guard play out, particularly as deep spending cuts will continue to be announced in the months ahead?
Risk Watchdog believes that there are three key factors, which will be vital in determining to what extent Cuba’s political and economic environment can change: Firstly, regarding the domestic political setting, while recognising the fiscal and economic challenges facing Cuba today is a major step, demonstrating political will for far-reaching reforms may prove a considerable challenge, particularly when trying to avoid a sudden change of the political landscape.
Secondly, Risk Watchdog cautions that Cuban relations will unlikely dominate the foreign policy agenda of the new Obama administration. As such, it will be key to see how prospective reforms in Cuba will be perceived by the US and to what extent the US may be willing to provide financial and economic relief to the island.
Finally, on a regional level, players such as Brazil may play a vital role in reform incentives in Cuba, and act as a crucial mediator with the US going forward.