Cuba: the Looming Crisis

By Fernando Ravsberg

Photo: Raquel Perez Diaz
Photo: Raquel Perez Diaz

HAVANA TIMES – Since Raul Castro announced at a session of the National Assembly that there will be economic problems, speculation hasn’t stopped about a new crisis like the one experienced in the 90s. However, the situation today is very different from that Cuba.

The country will participate in a forced savings plan, but the economy is stronger: there are more business partners, new economic sectors and more foreign exchange earnings. Nonetheless there will be hardships for both the general population and entrepreneurs.

The Cuban economy contracts as a result of low oil prices, a paradox in a country that imports crude. The problem is that Venezuela reduced shipments [under highly favorable terms] by 20% in the first half of this year.

Shortages in Cuban stores are a direct effect of reducing imports.
Shortages in Cuban stores are a direct effect of reducing imports.  Photo: Raquel Perez Diaz

The effects of the energy crisis are already being felt in the country.  Economic growth [in the first semester of 2016] slowed to 1%, half what was planned. This was due to a drop in imports – some US $2.5 billion less according to Marino Murillo, the architect of reforms.

In addition, Murillo announced that the government will suspend 17% of the investments planned for this year and not make use of the loans granted to Cuba by banks, governments and private lenders. This data is more than enough to indicate a strong contraction.

A plan is already in motion to save 30% of fuel, with cuts at state enterprises. The least productive end their work day at noon, and the air conditioning of businesses, banks and institutions must be turned off for several hours a day.

President Raul Castro said that the population would not be affected. However, the fact is that neighborhoods are already seeing sporadic power cuts, although very distant from the 90s, when there were blackouts of more than 8 hours daily.

A tough year for Cuba

Reducing fuel to companies in Cuba will raise the cost of private transportation because of reduced stocks on the black market, where prices have doubled.
Reducing fuel to companies in Cuba will raise the cost of private transportation because of reduced stocks on the black market, where prices have doubled.  Photo: Raquel Perez Diaz

The year 2016 is turning out to be a rough one. Cuban government finances suffer from the acquisition of oil at market prices, while they must pay their debt with the Paris Club and other international creditors.  If they don’t meet their obligations, interest will once again skyrocket.

Cuban negotiators managed to eliminate most of the old interest but with a commitment to pay the agreed-upon amount on time. Compliance will allow Cuba to access soft loans, which could involve more than a 30% savings on imports.

Those who might fail to collect their debts this year and certainly in the first half of 2017 are some of Cuba’s current providers, mostly small intermediary companies from Europe, Canada and Latin America.

Raul Castro announced in the mid-year parliament session: “there have been some delays in current payments to suppliers. In this regard, I wish (…) to ratify the commitment of the government to pay the outstanding debts.”

Reducing imports, the debts with suppliers and fuel savings will affect the lives of ordinary people. Power outages have already begun, there will be fewer products in food stores, fewer construction materials and transport will be more expensive.

Although the government has set caps on prices charged by private transportation, these will seek ways to raise fares. Most of the fuel used comes from the black market, where the cost of a liter of diesel has doubled.

Cuba partnered with foreign companies and currently draws 50 thousand barrels of heavy oil used in its power plants, adapted to the type of crude. Photo: Raquel Perez Diaz
Cuba partnered with foreign companies and currently draws 50 thousand barrels of heavy oil used in its power plants, adapted to the type of crude. Photo: Raquel Perez Diaz

The differences with yesterday’s Cuba

President Raul Castro said the country would not return to the crisis of the 90s, “We do not deny that hardships may occur, even greater than at present, but we are prepared and better able to reverse them than before.”

Certainly the present situation is different. Cuba today has a diversified trade, while at the outset of the 90s exchanges had been almost exclusively with the Soviets, from which the island also received 100% of its fuel at subsidized prices.

Currently 50 thousand barrels of Cuban oil is produced per day, and this is used at power plants. Venezuela continues to send about 80,000 barrels of oil, some oil is also imported from other countries, prices are low and there are more sources of renewable energy.

During the past 25 years, a thriving tourism industry – non existent in the 90s – has developed.  It will bring in about 4 million visitors from around the world in 2016, a figure that will skyrocket if and when the US removes the ban on tourism to Cuba for US citizens.

Family remittances have tripled, reaching an amount close to US $2.5 billion a year. The cigar industry has gained market space and prestige in the world already reaching peak production. And the manufacture of cigarettes for export expands.

Even though renewable energy sources produce only a small fraction of the country’s energy, they didn’t exist in the 90s. Photo: Raquel Perez Diaz
Even though renewable energy sources produce only a small fraction of the country’s energy, they didn’t exist in the 90s.

But the “crown jewel” of the Cuban economy is the sale of professional services, with around US $8 billion in revenue. This comes mainly from the contracts with Venezuela, and Brazil’s “More Doctors” program.

In addition, the island has thousands of health workers, teachers, engineers, architects and coaches in Africa, which provide hundreds of millions of dollars more. In some cases they work in Cuban laboratories located in different countries of the region.

Undoubtedly, the most profitable economic investment made by the Cuban Revolution was in education, training more than a million university graduates. The paradox is that it was not intended as a source of income.

20 thoughts on “Cuba: the Looming Crisis

  • July 21, 2016 at 2:53 pm
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    Cuba is hell on earth. I’ve never known anywhere that can deliver bad news every damned week!

    Reply
    • July 21, 2016 at 7:05 pm
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      For crying out loud… It’s this kind of silly over-the-top rhetoric that completely dilutes the very real issues that Cuba faces.

      There are dozens and dozens of hellholes all over the world that are WAY worse than Cuba is right now.

      Mindless exaggeration is pointless for real discussion.

      Reply
      • July 22, 2016 at 12:03 pm
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        Thanks Eden,
        What these right-wing pro-imperialist posters always fail to note is that for well over 50 years the USA has tried to crush Cuba’s alternative to free enterprise capitalism via the economic embargo as designed by Asst Sec-Of-State Lester Mallory back then and instituted by the government of the United States. .
        This in the only way Mallory said could accomplish the overthrow of the Cuban revolution because the Cuban people supported the revolution and Impoverishing the entire island and having the Cuban people turn on their government would be the only way short of a forbidden second invasion could accomplish .
        The mindless chatter from the two posters above is just that.
        They do not understand U.S. foreign policy history and I would wager they are part of the 67% polled in a CBS/NYT survey who could not accurately define socialism while 75% of those surveyed viscerally opposed it .
        My guess is they believe that because the country is a dictatorship led by the Communist Party that Cuba is either communist or socialist when it is neither and is a form of state capitalism .
        So , you cannot really talk rationally to these people because their belief sets have no basis in fact .
        It’s like teaching trying to teach pigs to sing : it annoys the pigs and wastes your time .
        Or, if you’re biblically inclined, I believe it is Matthew 11:17 that applies , something about casting your pearls before swine

        Reply
        • July 22, 2016 at 2:17 pm
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          I observe with amusement Mr. Goodrich that you are back pedaling your socialist bicycle. Has anyone other than yourself ever managed to “accurately define socialism”? You have been writing for years that Cuba is not socialist, so why the change?
          Speaking of socialist bicycles, you should make an initial visit to Cuba and try picking up one of the over one million Chinese iron framed bicycles imported quite a lot of years ago the weight of which has to be experienced to believe. If you think the Cuban cars are antique, you should try those bikes!
          I now await your repetitive regurgitated discourse upon “STATE CAPITALISM”!

          Reply
          • July 26, 2016 at 7:49 am
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            Those Forevers and Flying Pigeons are what the Vietminh used to transport cargo on on the Ho Chi Minh trail, on their way to defeating a murderous Superpower.

          • July 26, 2016 at 9:52 am
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            The folly of US policies in Vietnam is I think accepted by the world at large. The US actually rejected advice given to them by the British to operate a campaign similar to that which the UK followed in the ten year war in Malaya – which was successful. Malaya is now a free country and the people do not bear the burden of communism.
            Have you tried picking up one of those Chinese bikes?

    • July 21, 2016 at 9:40 pm
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      Bad news keeps the gringos happy.

      Reply
      • July 22, 2016 at 12:01 am
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        In Cuba the term is Yuma.

        Reply
  • July 21, 2016 at 7:44 pm
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    Why is Cuba not taking advantage of new solar technology for energy? Seems like a no brainer to me.

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    • July 22, 2016 at 4:24 am
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      Absolutely right. It should be illegal to have air conditioning without commensurate solar panels; the two are 100% compatible. And with so much farmland unused and so many exposed hillsides, Cuba could eliminate its dependence on oil. Who makes almost all of the world’s solar panels? Cuba’s long-time ally, China. Come on Castro, make the connection

      Reply
      • August 28, 2016 at 1:29 am
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        Simple allow anyone who has overseas friends to be allowed to a solar panel 4 deep cycle batteries a freezer or a fridge, two rechargeable flashlights and a microwave of 700 watts or less and a e bike with no tariff or duties if they put a solar panel of at least 3000 watts with foreign money. Example relations in the USA.

        Reply
    • July 22, 2016 at 6:58 am
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      Investment CUPs get diverted to food consumption.

      Reply
    • July 22, 2016 at 8:49 am
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      Cuba is investing in solar power: http://www.havanatimes.org/?p=116633

      However, photovoltaic solar panels are not yet economical when one considers the return on investment. There are other applications of solar energy which are more economical, such as using reflectors & ovens which capture heat from sunlight. These can be used effectively as dryers in agriculture or for heating water for hotels and homes.

      As for using solar power to run an air conditioner, consider the power requirements. A small window AC unit, 12,000 BTU’s, draws 1060W of power. A 1.12KW off-grid solar power system costs $6,240. Very few people in Cuba have that kind of money.

      The idea that Cuba could eliminate it’s dependence on oil by switching to solar panels is not based on reality. Think about the cost of converting all trucks, cars, busses, trains, & boats to electric motors, and the cost of building charging stations. Wealthy nations don’t have that kind of capital to invest in solar. No way would Cuba have the money to do it.

      Reply
      • July 22, 2016 at 11:49 am
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        Thanks for a very informative post.
        Solar technology is advancing very rapidly and is already cheaper than fossil fuels in many markets where fuel costs are relatively high.
        The advanced photovoltaics that will come well within ten years will provide the world with very inexpensive and plentiful electricity which in turn can split water into oxygen and hydrogen and hydrogen can be used to power combustion engines completely without pollution.
        At present , underdeveloped and under-resourced nations are locked into buying fossil fuels they can’t afford.

        Reply
        • July 23, 2016 at 4:25 am
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          I would hope that one of the first things Cuba does with its new found access to purchasing communications equipment is to invest in Smart Grid technology as well as food distribution. These should be the priorities for use of communications technology rather than mindless gossip.

          Reply
    • July 22, 2016 at 4:41 pm
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      The tiny resort that I visited this year has solar panels but I do not know how many resorts use them other than the one near Manzanillo. I wondered about this very thing too.

      Reply
  • July 22, 2016 at 4:49 am
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    It seems to me that history keeps repeating itself. First reliant on the US then the Soviets then Venezuela now back to the US. With all that so called education they haven’t learned a thing.

    Reply
  • July 23, 2016 at 11:40 am
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    You can not rum a huge mine on solar.

    Reply
  • July 28, 2016 at 12:20 pm
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    The articles states that the largest source of income is human labor overseas. This begs the question, with so many smart well educated people in Cuba, why is their economy so weak? Is it the heat? Something is keeping Cuba poor and it has been going on for over a century. Some real good research is needed to solve this mystery.

    Reply
    • July 28, 2016 at 7:26 pm
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      The answer is quite simple and much has been written about it. What is keeping Cuba poor is the communist central planning model and an octogenarian leadership that cares only about maintaining control.

      Reply

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