¿Viva la Revolución?

How has Cuba’s socialist economy weathered the recession?

Fidel Castro

The Cuban government announced plans on Monday to eliminate 500,000 jobs over the next six months while loosening restrictions on private enterprise. Cuba has one of the most tightly managed economies in the world—even cobblers and gas station attendants are in the government’s employ. Has their old-school socialist system protected them during the global economic downturn?

It depends on whom you ask. Officially—that is, according to the Cuban government statistics on which international bean counters rely—the Cuban economy has done relatively well. GDP rose in both 2008 and 2009, compared with U.S. contraction over the same period. The only European Union economy to fare better than Cuba last year was Poland, if you believe the government’s numbers. Many economists, however, do not, because the observable realities suggest Cuba is struggling more than ever. Last February, they froze the bank accounts of foreign companies operating inside the country. (They recently offered to pay back the hundreds of millions of dollars over five years at a paltry 2 percent interest.) Imports from Canada, the country’s second-largest trading partner, dropped 60 percent in 2009. Food and medicine imports from the United States sank 25 percent. The price of nickel, one of Cuba’s leading exports, dropped more than 60 percent from 2007 to  2009. Three hurricanes in 2008 inflicted more than $10 billion  damage.

On the bright side, the Castro brothers have smartly cultivated economic relationships with foreign governments sympathetic to Cuba’s cause—mainly being a thorn in the side of the United States. These ideological alliances can be valuable in tough times. Venezuela, for example, sends more than 100,000 heavily subsidized barrels of oil a day. In exchange, 20,000 highly-trained Cuban doctors help out in the Venezuelan countryside. Iran has loaned the island nation nearly $300 million, probably with no expectation of ever getting paid back. With these kinds of sweetheart deals, economists can’t say with perfect certainty that the official economic numbers are bunk.

Bonus Explainer: Did Cuba experience a housing bubble? Not exactly. By law, Cubans cannot sell their homes, they can only trade houses of equal value with government approval. In practice, the trades usually involve cash under the table, and anecdotal evidence suggests these payments have surged over the last few years. This is due in part to speculators trading up to higher-value housing in hopes that they will be able to sell for an enormous profit when the Castro brothers are gone and the economy opens up. For the most part, however, the Cuban price-surge isn’t comparable to the U.S. bubble, since rising prices there are largely driven by a housing shortage. The country needs 500,000 to 1 million additional units, but only has the machinery, manpower, and raw materials to build 50,000 per year.

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Explainer thanks Roger Betancourt of the University of Maryland and John Kavulich of the U.S.-Cuba Trade and Economic Council.

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