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Cuba's new relationship with foreign capital: economic policy-making since 1990*

Published online by Cambridge University Press:  04 December 2008

EMILY MORRIS
EMILY MORRIS
Affiliation:
Emily Morris is Senior Research Fellow at the International Institute for the Study of Cuba, London Metropolitan University.
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Abstract

This article attempts to analyse the nature of Cuban policymaking during the period of economic ‘adjustment’ since the collapse of the Soviet bloc by focusing on one aspect: the opening to foreign capital. It outlines the widely-accepted characterisation of policy as a cyclical process and identifies the assumptions about the policy-making process that underlie it. Citing data on the changes in economic conditions and the sequencing of policy towards foreign capital in the post-1990 period, it suggests that policy-making can be better understood as an evolutionary process. This conclusion has implications for the way in which we understand the renewed wave of reforms launched in March 2008.

La nueva relación cubana con el capital extranjero: el establecimiento de políticas económicas desde 1990

Este artículo intenta analizar la naturaleza del establecimiento de políticas públicas durante el periodo de “ajuste” desde el colapso del bloque soviético al enfocarse en un aspecto: la apertura al capital extranjero. Señala la caracterización ampliamente aceptada de tales políticas como un proceso cíclico e identifica las asunciones sobre el proceso que las sostiene. Citando datos sobre los cambios en las condiciones económicas y las consecuentes políticas públicas alrededor del capital foráneo en el periodo post-1990, se sugiere que el establecimiento de políticas se puede entender mejor como un proceso evolutivo. Esta conclusión tiene implicaciones en la forma en que entendemos la renovada ola de reformas lanzada en marzo de 2008.

Palabras clave: Cuba, política económica, inversión extranjera, transición

A nova relação de cuba com o capital estrangeiro: a criação de políticas econômicas desde 1990

Este artigo busca analisar a natureza da criação de políticas cubanas durante o período de “ajuste” econômico desde o colapso do bloco soviético, focalizando em um aspecto: a abertura para o capital estrangeiro. Ele delinea a caracterização amplamente aceita das políticas como um processo cíclico e identifica os pressupostos acerca do processo de criação de políticas que estão por trás disso. Citando dados sobre as mudanças nas condições econômicas e o sequenciamento de políticas em direção ao capital estrangeiro no período pós 1990, ele sugere que a criação de políticas pode ser melhor entendida como um processo evolucionário. Essa conclusão afeta a forma na qual entendemos a nova onda de reformas lançada em março de 2008.

Palavras-chave: Cuba, política econômica, investimento estrangeiro direto, transição.

Keywords

Cubaeconomic policyforeign direct investmenttransition
Type
Research Article
Information
Journal of Latin American Studies , Volume 40 , Special Issue 4: Cuba: 50 Years of Revolution , November 2008 , pp. 769 - 792
Copyright
Copyright © 2008 Cambridge University Press

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References

1 The literature is large, with an annual conference on ‘Cuba in Transition’ convened by the Association for the Study of the Cuban Economy (ASCE) in Miami, US, providing a forum for the many contributions to the subject. For some, reforms are dismissed as insignificant because of the government's failure to embrace ‘transition’ from a centrally-planned to market economy, and the focus is instead on presenting strategies for the inevitable post-communist transition. Among the leading economists who consider reforms worthy of analysis despite being hampered by ideology are Carmelo Mesa Lago, Jorge Pérez López, Archibald Ritter and Jorge I. Domínguez.

2 The analysis of Mesa Lago, Pérez-López and Ritter consistently uses the cyclical pattern as a framework. See Carmelo Mesa Lago, ‘Economic and Ideological Cycles in Cuba: Policy and Performance’ in Archibald R.M. Ritter, The Cuban Economy (Pittsburgh, 2004), pp. 35–41; Pérez-López, Jorge F., ‘Rectification Redux? Cuban Economic Policy at the End of 2005’, Cuban Affairs, vol. 1, no. 1 (2006), pp. 1–13Google Scholar. The approach taken by Jorge I. Dominguez, in ‘Cuba's Economic Transition: Successes, Deficiencies and Challenges’, in Jorge I. Dominguez, Omar E. Pérez Villanueva and Lorena Barberia (eds.), The Cuban Economy at the Start of the Twenty First Century (Cambridge, Mass. 2005), pp. 17–48 does not use the cyclical characterisation but nonetheless argues that ideological resistance has obstructed the liberalisation process.

3 Eliana Cardoso and Ann Helwege, Cuba After Communism (Cambridge, Mass. 1992), p. x.

4 Sergio G. Roca, ‘The Comandante in his Economic Labyrinth’ in Enrique A. Baloyra and James A. Morris, (eds.), Conflict and change in Cuba (New Mexico, 1993), pp. 86–109.

5 Carmelo Mesa Lago, ‘Cuba's Economic Policies and Strategies for Confronting the Crisis’, in Carmelo Mesa Lago (ed.), Cuba After the Cold War (Pittsburgh, 1993), pp. 197–258.

6 Ibid., pp. 246–7.

7 Carmelo Mesa Lago, ‘Economic and Ideological Cycles in Cuba: Policy and Performance, 1959–2002’, in Archibald R.M. Ritter (ed.), The Cuban Economy (Pittsburgh, 2004), pp. 25–42.

8 Ibid., p. 26.

9 Ibid., p. 37–8.

10 Ibid., p. 39.

11 Ibid., p. 40.

12 The source of all the data used here is the Anuario Estadística de Cuba, published by the Oficina Nacional de Estadísticas (ONE), unless otherwise stated. Room for reporting bias in trade data published by the ONE is small as the figures are the same as those used by the government, for which accounts have to balance. External accounts, being denominated in US dollar values, do not suffer from the problem of prices presented by official data for the domestic economy. However, there are problems of timeliness and completeness: at times publication has been delayed or selected series suspended on the official grounds that the information might be useful to the US administration in its efforts to damage the Cuban economy.

13 Details of this process are described by Rodríguez García, José Luis, ‘La Economia de Cuba ante la cambiante coyuntura internacional (I)’, Economía Cubana, vol. 1, no. 1 (1991), pp. 5–10Google Scholar; ‘La Economia de Cuba ante la cambiante coyuntura internacional (II)’, Economía Cubana, vol. 1, no. 2 (1992), pp. 2–13.

14 OECD, Geographical Distribution of Financial Flows to Developing Countries, (Paris, 1998).

15 José Luis Rodríguez García, ‘The Road to Economic Recovery’, in Max Azicri and Elsie Deal, (eds.), Cuban Socialism in a New Century: Adversity, Survival and Renewal (Gainsville, 2004), pp. 149–62, quote p. 152.

16 IV Congreso del Partido Comunista de Cuba: Discursos y documentos (Havana, 1992), Resolution sobre el desarrollo económico, Articulo 17, quoted in Gail Reed, Island in the Storm: the Cuban Communist Party's Fourth Congress (Melbourne and New York, 1992), pp. 133–41.

17 Consultores Asociados S. A., Abstract of the Legislation on Investments in Cuba (Havana, 1992).

18 Republica de Cuba, Foreign Investment Law (Havana, 1995).

19 Article 1:1, p. 3.

20 Source: Omar Everleny Pérez Villanueva, ‘The Role of Foreign Direct Investment in Economic Development’. in Jorge I. Domínguez, Omar Everleny Pérez Villanueva and Lorena Barberia, The Cuban Economy at the Start of the Twenty-First Century, The David Rockefeller Center Series on Latin American Studies, Harvard University, 2004 Ch. 6, pp. 161–97.

21 Interviews conducted during 12 research trips between 1995 and 2007. As interviews were off the record, positions are indicated but not names. Interviewees included members of negotiating teams at the Ministerio para la Inversión Extranjera y la Colaboración Económica (Minvec), Ministerio del Turismo (Mintur), Camara de Comercio, Ministerio de la Industria Básica, Tabagest, Cubaniquel, Ministerio del Azúcar, Ministerio de Comercio Exterior and Banco Central de Cuba. Annual interviews were conducted with Minvec and Mintur negotiators; interviews with negotiators in other agencies were less frequent or one-off.

22 Interviews with a sample of representatives of foreign businesses operating, or seeking opportunities, in Cuba were conducted over the same period. These included two financing companies, two business consultancies, a bank, a nickel company, a hotel and real estate investor, a travel agency, a ports services provider, a music promotion company, a tobacco company, a telecommunications investor and an auditing company.

23 The events surrounding the dispersal of researchers at the Centro de Estudios de las Américas (CEA) are fully described in Maurizio Giuliano, El Caso de CEA: Intelectuales e Inquisidores en Cuba. ¿Perestroika en la Isla? (Miami, 1998).

24 See http://www.cuba.cu/gobierno/discursos//1997/esp/f081097e.htm for Fidel Castro's opening speech.

25 Described by Philip Peters, Cutting Losses: Cuba Downsizes its Sugar Industry (Arlington, 2003).

26 The data are from the Oficina Nacional de Estadísticas and Central Bank.

27 Joint venture agreements announced in the national press are reported in Economist Intelligence Unit Cuba Country Reports. The cigar distribution venture is covered in the 1st quarter 2000 issue, pp. 25–6.

28 The Cuban government does not publish details of these investments, although press reports in the Cuban and foreign press occasionally refer to them. Press reports of investments in Iran, Malaysia, South Africa and Namibia are cited in a December 2003 report by the University of Miami's Cuba Transition Project at http://www.cubanet.org/ref/dis/12230301.htm. In the same month, Trabajadores (27 December 2005) reported that a bilateral collaboration agreement in biotechnology had been signed with China, and since then, according to officials interviewed at the Ministerio de Comercio Exterior, a series of investments in biotechnology and health care have been undertaken in China.

29 At the end of June 2008, according to a report of the National Assembly's economic commission reported in the Communist Party newspaper, Granma, on July 9th (http://www.granma.cubaweb.cu/2008/07/09/nacional/artic01.html), the figure was 234, up from 230 six month before, suggesting that, what one official described as the ‘weeding out process’, may be over.

30 Reported in Granma, 21 December 2007, http://www.granma.cubaweb.cu/secciones/petrocaribe/de-la-iv-cumbre/art19.html

31 Granma, 9 June 2008, http://www.granma.cubaweb.cu/2008/06/09/nacional/artic03.html

32 A summary of current Cuban inward FDI priorities is provided in Cuba Absolutely, a website prepared by and aimed at foreign investors: http://www.cubaabsolutely.com/business/investment.html

33 Agreements with foreign investors have been tracked in the Economist Intelligence Unit's monthly Cuba Country Report.

34 Officials interviewed on this subject included an adviser to the Minister of Foreign Investment and Economic Cooperation in March 1995 and an adviser to the Minister of the Economy and Planning, August 1999.

35 This economist, who worked for the Centro de Investigaciones de la Economía Mundial (CIEM) assisted in the National Assembly's economic commission, and participated in local meetings in which the draft law was explained and discussed.

36 Interview with an official within the Ministry of Tourism, July 2007.

37 As a Cuban official working for the Free Trade Zones explained in an interview in 1997, the zones were intended to provide employment but avoid reinserting Cuba into the global economy as a low-wage manufacturer. The justification given for setting the minimum monthly payment per Cuban employee higher than that of competitors in the region was that the level of education of Cuban workers was higher. Companies pay for labour in hard currency, while workers are paid in Cuban pesos.

38 Between 1995 and 2007 a series of interviews were conducted with officials from the Cuban Central Bank (the Banco Nacional de Cuba until 1997; thereafter the Banco Central de Cuba), and three interviews were conducted with representatives of creditors (one official in 1996 and three private, in 1998 and 2001).

39 Published in the Central Bank's annual Economic Report and the Anuario Estadístico de Cuba, published on the web by the Oficina Nacional de Estadísticas, at http://www.one.cu.

40 There are no published data on the amount of interest arrears accumulated on the pre-1990 debt stock, but even if (as a Central Bank official affirmed) some of the debt carries no interest, the annual rate of increase of interest arrears is likely to have been at least 2.5 per cent of the debt stock.

41 Data are from the Banco Central de Cuba, annual Economic Report. A gap in the series in 2002–2003 is filled with data from CEPAL, Cuba: evolución económica durante 2006 y perspectivas para 2007 (Mexico, 2007), p. 33. In 1994, the increase in the debt stock was only 3.4 per cent. In 2003, the US dollar's trade-weighted value fell by more than 10%, increasing the dollar value of the debt that was denominated in other currencies. The Central Bank reported that in 2000, 70 per cent of the debt was denominated in currencies other than the dollar. No later figure is available, but given the efforts made by the US authorities to prevent third country lenders from using US dollars in Cuba-related transactions, it is likely that the proportion of debt that was non-dollar denominated had risen to more than 70 per cent by 2003. The currency adjustment in that year is therefore likely to have increased the dollar value of the debt stock by more than the 3.7 per cent rise reported, suggesting a net outflow of foreign lending in that year.

42 In 1998 a large investment in facilities for generating electricity from gas and the start of the digitalisation of the telephone network coincided with the acceleration in hotel building from an average of 1,700 new rooms per year in 1993–1997 to 3,500 in 1998 and 3,100 in 1999 (ONE figures).

43 The ONE's Anuario Estadístico de Cuba shows sugar output down by 24 per cent in the 1997/08 harvest year (from 4.3 million tonnes to 3.3 million) and 1998 sugar export earnings 30 per cent below their 1997 level, at US$599 million.

44 ONE figures show that between 1990 and 1994 imports from France quadrupled to US$215 million, those from Mexico trebled to US$250 m and those from Holland doubled to US$42 million, while imports from Spain rose by 25 per cent to US$226 million, from Canada by 35 per cent to US$83 million and from Italy by 20 per cent to US$110 million.

45 The evolution of Cuban creditworthiness has been tracked by the Economist Intelligence Unit's Country Risk Service reports (http/www.eiu.com).

46 Details of Cuba's Banking and Financial System are on the Banco Central de Cuba website, http://www.bc.gov.cu/Espanol/legislacion.asp

47 Interest rates on Chinese trade credits, according to a senior Cuban Central Bank source, were less than half those offered by European creditors; Venezuelan credits for oil purchases included both deferred repayments and concessionary interest rates.

48 Debt statistics are published by ONE, in its Anuario Estadístico, Cuba, 2006, at http://www.one.cu/aec_web/paginas_de_tablas/p_vii/vii_11_12.htm. Debt estimates of 2007 are the author's estimates based on incomplete data from BCC, Economic Report 2007, p. 38.

49 Listing particulars dated 30 March 2006, prepared by the Banco Central de Cuba. The listing was announced by the London Stock Exchange on 6 April 2006, at http://www.londonstockexchange.com/LSECWS/IFSPages/MarketNewsPopup.aspx?id=1195766&source=RNS

50 London Stock Exchange Regulatory Announcement, 15 May 2007, at http://www.londonstockexchange.com/LSECWS/IFSPages/MarketNewsPopup.aspx?id=1482996&source=RNS

51 Antonio Villaverde Areces, ‘Experiencias en la estructuración de emisiones de bonos del Banco Central de Cuba’, Revista del Banco Central de Cuba, no. 2 (2007), p. 27.

52 Quoted in Villaverde, op cit.

53 Carlos Lage: Interview in El Sol, Mexico, published in Granma, Havana, 28 and 29 May and 1 June 1993. Quoted by Miguel Figueras, Economía Cubana: Boletín Informativo, January 1994, p. 17.

54 A useful attempt at ‘synthesising lessons from transition’, including an overview of the literature on the subject, is provided by Gérard Roland, Transition and Economics: Politics, Markets and Firms (Cambridge, Mass. 2000).

55 An influential work on the Chinese case is that of Yingyi Qian, ‘How Reform Worked in China’, in Dani Rodrik (ed.) In Search of Prosperity: Analytical Narratives on Economic Growth, (Princeton, 2003), pp. 297–333.

56 Pedro Monreal, ‘Racing Once Again to Catch up: Debating Prospects for Development in Cuba’, introduction to Development Prospects in Cuba: An Agenda in the Making (London, 2002), pp. 1–6, Quote p.1.