Updated 6 months, 4 weeks ago

Cuba’s economy: Caribbean contagion

QUEUES at petrol stations. Sweltering offices. Unlit streets. Conditions in Cuba’s capital remind its residents of the “special period” in the 1990s caused by the collapse of the Soviet Union. Today, the benefactor in trouble is Venezuela.

For the past 15 years Venezuela has been shipping oil to Cuba, which in turn sends thousands of doctors and other professionals to Venezuela. The swap is lucrative for the communist-controlled island, which pays doctors a paltry few hundred dollars a month. It gets more oil than it needs, and sells the surplus. That makes Cuba perhaps the only importer that prefers high oil prices. Venezuelan support is thought to be worth 12-20% of Cuba’s GDP.

Recently, the arrangement has wobbled. Low prices have slashed Cuba’s profit from the resale of oil. Venezuela, whose oil-dependent economy is shrinking, is sending less of the stuff. Figures from PDVSA, Venezuela’s state oil company, suggest that it shipped 40% less crude oil to Cuba in the first quarter of 2016 than it did during the same period last year. Austerity, though less savage than in the 1990s, is back. Cuba’s cautious economic liberalisation may suffer.


On July 8th Marino Murillo, the economy minister, warned the legislature that Cuba would lower its energy consumption by On July 8th Marino Murillo, the economy minister, warned the legislature that Cuba would lower its energy consumption by 28% in the second half of this year and cut all imports by 15%. The government has ordered state institutions to reduce their energy consumption dramatically. Television producers have been told to film outdoors to save the expense of studio lighting. Foreign businesses, some of which have not been paid by their government customers since last November, are being asked to wait still longer, though the government is negotiating to restructure sovereign debt on which it had defaulted.

It has cut off the supply of diesel to drivers of state-owned taxis and told them to look for other work for the next few months. “It’s entirely illogical,” says Hector, a driver. Tourism has surged since the United States loosened travel restrictions in 2014, which will partially offset the loss of Venezuelan aid. The cost of fuel is minuscule compared with the fares Hector’s American passengers pay.

A week after Mr Murillo, the government’s leading economic reformer, issued his warning to the legislature he was relieved of his ministerial duties, though he remains in the Politburo. His replacement as economy minister, Ricardo Cabrisas, is seen as a competent veteran.

The crisis seems to have slowed reforms of Cuba’s socialist economy, which were never rapid. Raúl Castro, who took over as president from his brother, Fidel, in 2008, has since allowed entrepreneurs to start small businesses, cut the state workforce by 11% and opened a free-trade zone for foreign firms at the port of Mariel. But Cuba still operates a price-distorting dual-currency system. Small businesses cannot buy from wholesalers or import products directly. Many foreign investments in such areas as sugar and tourism, which would bring in billions of dollars, are stuck in the planning stages. Venezuela’s lurgy should sharpen Cuba’s eagerness for the remedy of reform. It seems to be dulling it.

The Economist |