2005
Index of Economic Freedom: Cuba
The
Heritage Foundation,
January, 2005.
Quick
Study
Trade Policy 4.0
Fiscal Burden 4.4
Government Intervention 4.5
Monetary Policy 2.0
Foreign Investment 4.0
Banking and Finance 5.0
Wages and Prices 5.0
Property Rights 5.0
Regulation 4.0
Informal Market 5.0
Population:
11,263,720
Total area: 110,860 sq. km
GDP: n/a
GDP growth rate: 1.1%
GDP per capita: n/a
Major exports: seafood, nickel, tobacco,
sugar
Exports of goods and services: n/a
Major export trading partners: Netherlands
19.8%, Russia 18.7%, Canada 14.8%,
Spain 9.8%, China 7.5%
Major imports: machinery and equipment,
chemical products, food, consumer
goods
Imports of goods and services: n/a
Major import trading partners: Spain
11.8%, China 8.2%, Italy 6.3%, France
5.2%, Mexico 5.0%
Foreign direct investment (net): n/a
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Cuba
Rank:149
Score:4.29
Category:Repressed
Cuba's command economy is sustained increasingly
by partnerships with foreign businesses
and other countries. According to the University
of Miami's Institute for Cuban and Cuban-American
Studies, because the flow of investment
to the island has slowed, the government's
hotel holdings include ventures with foreign
partners in other countries like Mexico.
Venezuela agreed to sell oil to Cuba at
concessionary prices in 2000, and shipments
of petroleum and gasoline have increased
from 53,000 to 80,000 barrels per day, allowing
Cuba to resell some in the world market
for hard currency. Remittances from Cuban
exiles living abroad have contributed to
the economy, though a tightening of the
U.S. embargo aims to reduce that revenue
substantially. Cracking down on citizens
receiving remittances from American relatives,
Castro shut down state "dollar stores,"
which offer rationed goods beyond basic
staples, in May 2004 and later reopened
them with prices marked up 20 percent. The
Labor Ministry has stopped licensing 40
categories of self-employment. The Economist
Intelligence Unit predicts that an improving
global economy could boost Cuba's economic
growth by 3 percentage points, but an unrealistic
exchange rate and the lack of any effective
rule of law continue to make Cuba a risky
place in which to do business. Cuba's fiscal
burden of government score is 0.1 point
worse this year, and its trade policy and
monetary policy scores are 1 point worse.
As a result, Cuba's overall score is 0.21
point worse this year.
Trade Policy
Score:4.0
According to the World Bank, Cuba's weighted
average tariff rate in 2002 (the most recent
year for which World Bank data are available)
was 9.4 percent, up from the 8.2 percent
reported in the 2004 Index. As a result,
Cuba's trade policy score is 1 point worse
this year. The government inspects and approves
most imports. In many cases, customs officials
also confiscate imports (especially scarce
goods like electronics) for their own use,
and such corruption enjoys official sanction.
Fiscal Burden
Score:4.4
According to information from the Pi Management
Association, Cuba's top income tax rate
is 50 percent and its corporate tax rate
is 30 percent. In 2002, based on data from
the Economist Intelligence Unit, government
expenditures as a share of GDP increased
by 2.7 percentage points to 56 percent,
compared to a 2 percentage point increase
in 2001. On net, Cuba's fiscal burden of
government score is 0.1 point worse this
year.
Government Intervention
Score:4.5
The World Bank reports that the government
consumed 23 percent of GDP in 2002. In 2001,
based on data from the Economist Intelligence
Unit, Cuba received 11.05 percent of its
total revenues from state-owned enterprises
and government ownership of property. The
state, however, produces most economic output
and employs most of the labor force. "The
industrial sector
is dominated by large
state-owned enterprises," according
to the United Nations, and the EIU reports
that the state employs more than 75 percent
of the labor force. Based on the apparent
unreliability of the figure for government
revenues, 1 point has been added to Cuba's
government intervention score.
Monetary Policy
Score:2.0
Data from the Economist Intelligence Unit
indicate that from 1996 to 2003, Cuba's
weighted average annual rate of inflation
was 4.21 percent, up from 1.84 percent from
1995 to 2002. As a result, Cuba's monetary
policy score is 1 point worse this year.
Foreign Investment
Score:4.0
All investments must go through the state,
and licensing is required for all businesses.
Cuba's constitution still outlaws all foreign
ownership of property and real estate, and
the number of foreign businesses operating
in the country has fallen from 403 in 2002
to 342 in 2003. According to the Economist
Intelligence Unit, "The decline in
the number of joint ventures reflects the
gradual shift in policy, as the authorities
have subjected each proposal, as well as
each existing enterprise to close scrutiny
.
Apart from a conventional audit, these reviews
explore whether the state's original objectives
for establishing the enterprise are being
met."
Banking and Finance
Score:5.0
The government controls all banking activity.
A monetary policy committee created in 1999
meets weekly to determine domestic interest
rates. In mid-2003, the central bank's control
over hard currency was strengthened by a
new law under which transactions between
Cuban enterprises must be carried out in
peso convertibles rather than U.S. dollars.
According to the Economist Intelligence
Unit, "These enterprises now have to
apply to banks for hard currency, a procedure
similar to that of other countries with
exchange controls." The new law has
permitted over a dozen foreign banks to
open representative offices but does not
allow them to operate freely. Some changes
also have been introduced in the insurance
sector, among them the introduction of new
insurance products such as travel and medical
insurance, but the government fully controls
this sector as well.
Wages and Prices
Score:5.0
The government sets virtually all wages
and prices, as well as numerous minimum
wages that vary according to occupation.
"Freely determined prices exist only
in limited areas of economic activity,"
reports the Economist Intelligence Unit,
"and these prices remain severely distorted
by the dual exchange rate system as well
as by state restrictions on the scope of
markets and fixing of prices elsewhere.
Most inter-enterprise and final prices remain
fixed by the planning authorities."
Property Rights
Score:5.0
Private ownership of land and productive
capital by Cuban citizens is limited to
farming and self-employment. According to
the U.S. Department of State, "The
Constitution
explicitly subordinates
the courts to the ANPP [National Assembly
of People's Power] and the Council of State,
which is headed by Fidel Castro. The ANPP
and its lower level counterparts choose
all judges
. The law and trial practices
do not meet international standards for
fair public trials."
Regulation
Score:4.0
Cuba's government regulates the entire economy.
Private entrepreneurship exists, but it
is heavily regulated. According to The Economist,
"Cuba, out of necessity, has allowed
capitalism into its socialist system. But
it then keeps capitalism down
with
a mass of complex and sometimes contradictory
rules and regulations. Just when [investors]
find out how things work, the rules change
again." In addition, "except for
food service operations
assistants
and employees are not permitted
. [P]rivate
taxis are barred from picking up passengers
at tourist hotels or airports
. [T]eachers
may not work as private tutors." According
to the same source, however, "In some
cases, the legal framework eventually changes
to accommodate the gray-market private sector."
Informal Market
Score:5.0
Cuba's informal market is huge. Even basic
economic activities-including the sale of
milk and bread, transportation services,
currency, and housing-are performed in the
informal market. According to the Economist
Intelligence Unit, "A sophisticated
black market [in real estate] has emerged
involving Cubans at all levels, from poor
householders seeking payment in return for
trading a large home for a smaller one to
large-scale speculative developers who have
accumulated substantial wealth." The
Washington Times reports that "the
black market
accounts for 50 percent
of all retail transactions."
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