Center for International Policy

January 31, 2007

Cuba's Economy Is Recovering, But Hardships Remain

By Bill Rodgers
Washington, DC

The fate of Cuba's ailing leader, Fidel Castro, has focused renewed attention on his communist nation and generated speculation about the Caribbean island's political and economic future. Cuba's economy -- now largely dependent on tourism and subsidies from Venezuela -- grew by eight percent in 2005, according to independent estimates, and continued expanding in 2006. This growth comes after years of stagnation following the collapse of the Soviet Union, Cuba's patron, in the early 1990s. VOA's Bill Rodgers reports.

Tourism is now the mainstay of the Cuban economy. The island's natural beauty, its Afro-Caribbean culture, and historic sites attract hundreds of thousands of foreign visitors each year.

Tourism has replaced sugar as the communist nation's top earner of foreign exchange. The sugar industry -- despite production drives that began in the 1960s -- has fallen victim to communism's inefficiencies.

Fidel Castro implanted communism in Cuba with the support of the former Soviet Union shortly after he came to power in 1959. Once heavily subsidized by Moscow, the Cuban economy is only now recovering from the collapse of the Soviet Union in 1991, thanks in large part to financial support from leftist Venezuelan President Hugo Chavez who has forged close ties with Mr. Castro.

But Cuba expert Wayne Smith, of the Center for International Policy, says Venezuela's help is just one factor contributing to the current expansion of the Cuban economy. "It is not simply that they get cheap Venezuelan oil. They have something like 14,000 Cuban medical personnel in Venezuela, for which they are paid handsomely. And they have a new relationship with China. They have a new oil field, it hasn't come in yet, but there are other countries already bidding for drilling rights. And the price of nickel, which is Cuba's leading export, is at an all-time high so everything is going in their favor."

But not well enough for most Cubans, who can only find ample supplies in hard-currency stores and can only buy them if they have access to foreign currency. So while economic growth is up, Ian Vasquez of Washington's Cato Institute says most Cubans are not benefiting. "The ration cards only last several days a month. There aren't the products that most Cubans used to be accustomed to during the time of the Cold War, and so very basic needs, including basic health needs, are not being adequately provided by the state because the state has not had the money to provide it."

For years, Mr. Castro blamed the U.S. economic embargo for his country's economic troubles, but most experts say the fault lies in the communist system.

Despite the embargo, Cuba in recent years has been allowed to buy food from the United States on a cash-only basis. And European and other foreign companies have ignored the U.S. sanctions by investing in Cuba, primarily in the tourism industry.

Cuba's military, led by Fidel's brother, Raul, is involved in tourism and other businesses -- a trend that could accelerate after the elder Castro leaves the scene, according to Wayne Smith: "The Cuban armed forces have been deeply involved in the economy and especially in the tourism industry, in which they've shown themselves excellent businessmen [and] made great profits. I would expect that the armed forces will continue that role, and that the kind of situation they will encourage will be one with greater and greater reforms."

As Fidel Castro's designated successor, speculation has centered on what defense chief Raul Castro might do in a post-Fidel era. Raul is said to admire China and its economic reforms. But such a policy also poses risks, says Cato's Ian Vasquez. “The more that an economy is liberalized, the more that people become independent from the state. So they have a classic dilemma. They either continue with liberalization and lose political control, or they crack down and risk instability, political instability. And I think that's the way Cuba is headed under Raul Castro."

But for now, these scenarios are in the future as Cubans try to make ends meet while they wait to see what happens to their long-time ruler.

As Produced by Voice of America