Cuban economy: prospects for 2009

Predicting trends in the Cuban economy is a particularly challenging exercise, especially from outside of the country. After all, Havana does not release complete information about the economy, business climate, or domestic financial systems. One is left almost solely with sparse data and the word of Cuban officials to go on.

For instance, the Cuban Minister of the Economy (well, the Minister who was then replaced in the March cabinet shake-up, Jose Luis Rodríguez) predicted 6% economic growth for 2009—this in the midst of a global economic and financial crisis, while commodity prices remain low and the damage of the 2008 hurricanes has not yet been repaired. Growth for 2008 was 4.3%, according to the Cuban state; what reason is there to predict greater growth in light of the current international economic climate? And what reason is there to think that Cuba will not only outpace growth of Latin America as a whole, but experience rather healthy growth while the rest of the region feels the weight of recession and a negative growth rate?

As we’ve already discussed, Cuban banks appear to be in an unspecified bind that could complicate international business activity on the island. Tourism has declined already this year; visitors from the UK were down 13% in the first quarter, and tourism from most other countries, with the exception of Canada, declined as well. The combined effect of these phenomena has been to force sharp cuts in investment plans and activity levels. Raúl halved the state budget for travel abroad and reduced government-sponsored vacations that were used to reward employees, ultimately affecting a number of high-level Cubans—from Cabinet members to top executives at state-run firms—and the family members that rely on dollars, Euros and products unavailable in Cuba brought back from abroad. 

But without another natural disaster this year (which is by no means guaranteed), some growth might be reasonable.

Sign 1: It appears that most crops have recovered from the damage caused by the hurricanes in 2008. In January and February of this year, production of rice, beans and potatoes—staple foods in Cuba—was actually higher than in the first two months of 2008.

Sign 2: Armando Emilio Pérez Betancourt, a specialist in increasing the efficiency and profitability of state-run companies, was appointed Vice Minister of the Economy and Planning at the end of April. His past work has modeled privately-run companies, incorporating greater decision-making autonomy for local managers, and the payment of wages more closely tied to productivity. His appointment sends a signal of approval of these policies.

Sign 3: Quite simply, the stars might have aligned in favor of the Cuban tourism industry. Swine flu is discouraging tourism to Mexico, and Cuba is an easy and sensible substitute for those seeking resorts and beach vacations. Coupled with easing of U.S. regulations on travel to the island, tourism might just rebound.