Cubans Feel Effects of Faltering Economy

Hard Times in Havana

Cuba - Economy
A man reads in downtown Havana, framed by pigeons. Agence France-Presse reports the Cuban government is trying to populate tourist destinations with pigeons as a means of attracting more visitors (Photo: AFP).

Cuba has been battered by three hurricanes in the past 11 months. Its tourist industry is mired in a post- 9/11 slump. Foreign currency isn’t coming into the island at its old levels. Prices for sugar and nickel—Cuba's two top exports—are depressed on the world market. Even without a plague of locusts and frogs, a list of Cuba's current economic woes reads like a biblical curse.

“Bad, real bad,” says Amado, a doorman at a tourist hotel in Old Havana, when asked how things are going. “It was a long, hot, slow summer.”

After five years of sustained economic growth of 4-6 percent annually (GNP), the Cuban economy had already cooled to 3-percent growth in 2001, according to a report issued in May by Cuba's Central Bank. But Cuba's economic prospects for this year are downright dismal, as each of the island's principal sources of foreign revenue are flagging. The Cuban government has yet to publish any year-to-date economic data for 2002, a sign many economists here have interpreted to mean that little, if any, economic growth is expected this year.

In the meantime, the Cuban government's economic planners have been scrambling to find new sources of cash, raising prices on consumer goods such as electronics, clothing, and nonessential food items. Austerity measures, including mandatory 10-percent cuts in electricity consumption, have been adopted at many government ministries. Rumors continue to circulate that the government plans to raise gas prices from US$2.60/gallon to nearly US$4/gallon.

“I don't know what I'll do if gas goes up,” said an unlicensed taxi driver who negotiates Havana's streets in a ramshackle Russian-made Lada. “I'll have to get a rickshaw.”

Both the government and those who have been immediately affected by the decline in Cuba's dollar economy are eagerly awaiting the upcoming tourist “high season,” December to April, when foreign tourists (mostly Canadians and Europeans) flee their colder climes for Cuba's beaches. But a disappointing 2002-2003 appears all but unavoidable: In an Oct. 27 speech, Cuban President Fidel Castro cited a 15-percent drop in the number of foreign visitors relative to the previous year. If the trend continues, it will be the first time that Cuba's tourist industry has registered a contraction since it began aggressively expanding in the early 1990s.

After tourism, Cuba's second most important source of foreign currency has been the steady stream of cash remittances sent to the island from the roughly 1.5 million Cubans abroad, estimated at US$600-900 million annually. While the Cuban government itself does not publish statistics on cash remittances to the island, other governments in Central America and the Caribbean have reported a 25-percent decrease in these payments as unemployment in the United States continues to rise.

Cuban families that depend on remittances from the United States are in some ways the most vulnerable to the effects of recession there. Ramón Benitez, 33, who requested to be identified by a pseudonym for this article, is one example. His older brother Pepe left Cuba on a raft in 1994 and found work at Miami International Airport as a baggage handler. At first, he sent US$100-200 every month back to Cuba. But within months of the Sept. 11, 2001, terrorist attacks, Pepe was laid off and stopped sending remittances. Now it's been over six months since the brothers have spoken. “He just stopped calling,” Ramón says, shaking his head. “It's as if he's ashamed to talk to us.” Ramón now struggles to support his mother, wife, and two children, in addition to his brother's children, by hustling black-market goods.

In the Cuban countryside the situation is no less bleak. Seventy of Cuba's 156 sugar mills have been shut down in recent months by the Cuban Sugar Ministry in an effort to make the industry more profitable. While some economists have applauded the government's market-driven decision, others fear for the future of the hundreds of thousands of workers who have spent their lives cutting cane and working in the mills. As compensation for the layoffs, the government has promised to continue paying full salaries to the workers while they are retrained to work in other types of agriculture or industry. But with hundreds of thousands of workers receiving salaries and producing nothing, the Cuban government's financial troubles are only likely to get worse.

Much of rural Cuba has also been affected by the three hurricanes that have struck the island in the past year. In November 2001, Hurricane Michelle's 140 mph winds tore a wide swath across central Cuba, destroying thousands of homes and wreaking hundreds of millions of dollars in damages. Last September, in a span of less than two weeks, Hurricanes Isidore and Lili blasted the provinces of Pinar del Rio—Cuba's principle tobacco-growing region—and the Isle of Youth, leveling homes and ruining crops there as well.

Yet despite their recent struggles, nearly all Cubans are quick to point out that the current crunch is only a bump in the road compared to the first years of the “Special Period,” the euphemism coined by Castro to describe the belt-tightening economic pit Cuba fell into when the Soviet Union disintegrated in 1991. Virtually overnight, Cuba lost 85 percent of its foreign trade and suffered an economic contraction of a whopping 35 percent as production came to a grinding halt.

The island's economic situation bottomed out in 1993, and the Cuban government was forced to implement a series of market-based reforms that legalized the U.S. dollar, opened the island to foreign investment, and licensed hundreds of forms of “self-employment.” Inequalities between those with access to dollars and those without access grew, as Cubans working in the traditional economy can still expect to earn US$10-$15 monthly while tour guides and hotel bellhops working in the dollar-based economy may receive 20 times that.

By 1995, the economy began to grow again, reaching a peak of 6 percent growth in 1999 and 2000. But much of the optimism inspired by that growth has now faded, and those who thought the “Special Period” was finally coming to an end are joking about the new impending economic crunch, calling it “The Extra-Special Period.”

There have been some positive developments for Cuba in the past year. In September 2002, hundreds of U.S. companies came to Havana's Agricultural Trade Fair hoping to sell food to the Cuban government. Many succeeded, securing new contracts worth US$90 million. Havana already imports roughly US$915 million annually in foodstuffs, and Cuban government officials claim the country can save 10-20 percent by making their purchases in the United States, where prices are more competitive and shipping costs are much lower.

The advantages of Cuba's incipient trade relations with the United States extend beyond the financial realm though. “The new food purchases have been both a psychological and political stimulus,” explained Jorge Mario Sánchez, an economist with the University of Havana. “Psychologically, the food purchases have given U.S. companies the green light and maintained their commercial interest, and politically, they have helped to offset the Bush administration's hard-line stance on its Cuba policy.”

Though food and medicine are exempt from the trade embargo the United States has maintained against Cuba since the early 1960s, Washington still forbids U.S. banks from financing sales to Cuba, and demands that all transactions with the island's communist government be cash-only. Other U.S. laws, such as the 1992 Cuba Democracy Act, or the “Torricelli Law” as it's known in Cuba, seek to discourage other countries from trading with the island at all, by preventing, for example, any cargo ships from docking in the United States that have called at Cuban ports within the previous six months. The Cuban government claims the U.S. embargo has resulted in billions of dollars in damages to the island's economy over the course of the last four decades.