THE SLOWDOWN OF THE CUBAN ECONOMY IN 2001 2003 EXTERNAL CAUSES OR DOMESTIC MALAISE Carmelo Mesa Lago INTRODUCTION At the start of the 21st century the Cuban economy seemed to continue its long slow recovery after the severe crisis of the 1990s but in 2001 2003 there was a significant slowdown in the Cuban economy and it is important to analyze its causes Cuba authorities blamed external factors for the slowdown 1 the terrorist attacks of September 11 2001 and the war in Afghanistan provoked a drastic decline in tourism while the 2001 world recession and the sluggish 2002 recovery also reduced international travel 2 world prices of nickel fell in 2001 because of the recession and prices of sugar continued their decline in 2001 2002 while world oil prices decreased in 2001 but jumped in 2002 3 hurricane Michelle hit the island in November 2001 causing damages estimated at 1 866 million pesos tantamount to 6 6 of GDP one year later hurricanes Isidore and Lili stroke the western part of Cuba causing damages of 713 million pesos 4 of GDP 4 Russia shut down its surveillance base in Lourdes and stopped paying an annual fee of 200 million 5 the political situation in Venezuela deteriorated in 2002 2003 and oil deliveries were halted in April September and December January and 6 mainly because of the deceleration in the Cuban economy and lack of payment to creditors hardcurrency loans became even tighter and costlier On the other hand it can be argued that domestic factors particularly the virtual paralysis and even regression of the market oriented reforms since 1996 have been responsible for the slowdown and that the external factors just aggravated existing problems Mainly based on Cuban statistics and publications this essay evaluates Cuban economic and social performance in 2001 2002 The situation in these years is contrasted with that in 1989 prior to the crisis and 1993 the worst point in the crisis The analysis of socioeconomic performance includes macroeconomic external sector physical output and labor and social indicators In addition 1998 2002 goals and 2001 and 2002 targets are contrasted with actual performance while prospects for 2003 are examined 1 The question of whether the slowdown has been the exclusive result of external factors is discussed at the end of the essay I ECONOMIC AND SOCIAL PERFORMANCE This section compiles Cuba s key socioeconomic indicators based on official statistics from state agencies such as the Oficina Nacional de Estad sticas ONE the Banco Central de Cuba BCC and various ministries Other data come from Cuban economists whose academic output has expanded significantly the Economic Commission for Latin America and the Caribbean ECLAC and other U N agencies and newspaper articles mainly published in Cuba 1 The author gratefully acknowledges substantial valuable comments from Dr Jorge P rez L pez on a previous version of this essay as well as data supplied by him all of which significantly contributed to improve the essay For antecedents see Mesa Lago 2001 P rez L pez 2002 1 The statistical series start in 1989 the year before the crisis began show their worst point in 1993 and a recovery in 1994 2002 for an analysis of recent Cuban statistics see Mesa Lago 2001b Comparisons are made between 1989 and 2001 2002 as well as with Latin America whenever possible A special section deals with Cuba s revised GDP series and the government criticism of the GDP methodology and proposal to develop a new measure of economic activity A Domestic Macroeconomic Indicators 1 Growth GDP growth steadily slowed down from 6 2 in 1999 to 5 6 in 2000 3 in 2001 and 1 1 in 2002 Table 1 2 Cuba s annual growth rate in 1990 2000 averaged 1 2 the lowest in the region ECLAC 2000b 3 In 2001 Cuba s GDP in constant prices of 1981 was 13 below the level of 1989 and in per capita terms was 18 below see Tables 1 and 2 Citing ECLAC 2002c the Cuban Minister of Economics and Planning has stated that Latin America lost half a decade of growth in 1997 2002 but Cuba lost 13 years in 1990 2002 Cuba s GDP growth rate in 2002 ranked among the lowest nine in the region Furthermore at the average growth rate of 1994 2002 it would take four more years to recover the absolute level of GDP in 1989 and seven more years to recover the per capita level TABLE 1 CUBAN MACROECONOMIC INDICATORS 1989 2002 in percentages Indicators 1989 GDP growth ratea 1 2 GDP per capita pesos Gross capital GDP a a 1 852 26 7 1993 14 9 1 172 5 4 1994 0 7 1 175 5 5 2001 1989 f 1995 1996 1997 1998 1999 2000 2001 2002 2 5 7 8 1 290 2 5 1 2 6 2 5 6 3 0 1 1 13 1 531d 18 1 201 7 2 8 2 1 317 9 5 1 327 9 4 1 405 10 3 1 478 1 518 13 2 13 3 e 5 0 n a 51 n a 19 7 25 7 11 5 4 9 1 9 2 9 2 9 2 3 1 4 Monetary liquidity GDPc 21 6 73 2 51 8 42 6 42 0 41 1 40 6 38 8 37 9 41 0 42 5 90 Fiscal balance GDPc 7 2 33 5 7 4 3 5 2 5 2 0 2 3 2 4 2 5 2 7 3 1 62 Inflation rate b a At constant 1981 prices in 2001 was shifted to 1997 prices see text and the 2002 rate is not comparable b Annual variation of the CPI c At current prices d Author s estimate based on the GDP and population rates e According to ECLAC 2002c there was a deterioration of 0 9 f Most 2002 data are not comparable with previous series Sources CCE 1991 ONE 1998 to 2002 BCC 2000 to 2002 ECLAC 2001a 2001b 2002b 2002c Rodr guez 2002 2 Change in GDP Series and Cuban Criticism of GDP Methodology Cuba s GDP series at constant prices since 1985 was based on the structure of prices in 1981 an abnormal year due to its high inflation rate such base was maintained for 16 years which prompted criticism from foreign scholars and ignored recommendations on the National Accounts System made by the United Nations In 2001 the base year was shifted from 1981 to 1997 and the new series was recalculated only to 1996 BCC 2002 A Cuban economist have noted four significant problems resulting from that shift a comparisons between the 1981 and 1997 series are impossible prior to 1996 b the series of current prices is different but should not be because current prices did not change c significant increments in gross capital formation have resulted as much as 146 2 3 Cuban economist Espinosa 2003a analyzed several components of GDP and concluded that it decreased in 2002 ECLAC did not publish period averages in its 2001 and 2002 reports 2001b 2002c 2 in one year and d the series on main components …
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