Cuba: an economy that lives in the past

It's a former Soviet ally that toyed briefly with a little free enterprise. Its people are some of the poorest in the hemisphere. Condoleezza Rice, President Bush's choice as secretary of State, has just labeled it one of six "outposts of tyranny" in the world.

That's Cuba, still clinging to its communist ways. And it has the economy to show for it. A bright spot - a new oil discovery - lifted hopes for the island nation last month. But don't count on a big change - unless there's a bigger find by Spain's largest oil company, Repsol, drilling in a separate offshore tract.

Cuba has still not fully recovered from the loss of Soviet subsidies more than a decade ago. A communist regime, combined with an economic embargo by the United States, have pushed Cubans to the bottom of the rung in the Western Hemisphere, somewhere between Haitians and Guatemalans.

Indicating the importance of the oil find, President Fidel Castro announced last month that two Canadian energy companies had discovered oil in the Gulf of Mexico north of Cuba. He said there were 100 million barrels of reserves, with production possible as soon as next year. But the find so far isn't nearly big enough to replace imports of Venezuelan oil - up to 53,000 barrels a day.

From a purely economic standpoint, the Cuban economy has recovered only partially from the huge damage caused by the end of Soviet support. Total Soviet assistance - huge loans and heavily subsidized exchanges of Cuban sugar for so much Soviet oil that Cuba could export a surplus beyond its own needs - amounted to an average $4.3 billion a year in 1986-90, according to an International Monetary Fund paper.

That was equivalent to 15 percent of Cuba's gross domestic product (GDP) if converted at the official rate of 1 peso per US dollar, much more with a more realistic exchange rate.

By 1993, Cuba's GDP had fallen by a third, estimates Carmelo Mesa-Lago, economist emeritus at the University of Pittsburgh. When Mr. Castro saw a threat to the political stability of his regime, he timidly allowed a little free enterprise. The economy revived considerably. With a small, growing private sector, income inequality ballooned - from 5 to 1 in 1989 to 2,500 to 1 in 2001, the Cuba expert calculates.

In 1996, Castro virtually halted the reforms and the capitalist pep faded. So by 2004, the Cuban economy remained 12 to 15 percent below 1989 GDP levels, Mr. Mesa-Lago says.

The outlook is not shiny. The Central Intelligence Agency in Washington estimates Cuba's real GDP grew 2.6 percent to $32.13 billion last year (measured by purchasing power parity, since the official exchange rate has little real meaning). Since Cuban statistics are considered unreliable or not made public, outside analysts must estimate GDP.

The Cuban regime tries to paint a happier picture. It says GDP grew 5 percent last year to $36.5 billion. Then again, it is counting differently.

José Luis Rodriguez, the economy and planning minister, declared recently that GDP was a tool designed to measure capitalist economies, and useless as far as Cuba was concerned. So Cuba would add the nation's superb free healthcare and education to GDP, he said. Thereby Cuba's real GDP growth in 2003 would be 3.8 percent, not the 2.6 percent of the standard measure.

This past November, the government trumpeted a visit by China's President Hu Jintao with his plan for China to invest in Cuban ferro-nickel production, a promise of 1 million television sets bought with soft loans, and an interest-free rescheduling for 10 years of old loans to Cuba. This month, Iran, another of the "outposts of tyranny," promised Cuba a credit of 20 million euros.

The US has tried to remove Castro from power through economic strangulation. But he's still in power, 46 years after the revolution.

Speaking to a south Florida audience in 2003, Mr. Bush announced creation of the Commission for Assistance to a Free Cuba. Reporting last May, that body noted "the most severe repression of peaceful political activists in the history of Cuba" in March-April 2003.

This past June, the US tightened its economic vise on Cuba again. The new Washington measures are primarily an attempt to make it more difficult for Cuban-Americans to supplement the incomes of their families in Cuba with cash or goods.

Notes the Cuba commission: "The economic lifelines of the Castro regime are tourism; access to subsidized Venezuelan oil; commodities; and revenues and other support generated by those with family on the island."

Tourism was up last year, recovering from 9/11. But because of the new US sanctions, "I don't see any prospects for it to get better" for Cuba in 2005, says Jorge Salazar-Carrillo, an economist at Florida International University in Miami.