Focus on Cuba: Cuba's Economy in the Doldrums

An Information Service of the Cuba Transition Project. Institute for Cuban and Cuban-American Studies. University of Miami.

Issue 43. June 18, 2003. Staff Report, Cuba Transition Project.

Sources: Carmelo Mesa-Lago, The Slowdown of the Cuban Economy in 2001-2003: External Causes or Domestic Malaise? (University of Miami: Institute for Cuban and Cuban-American Studies, 2003); "Economistas cubanos vaticinan dificultades en el 2003," AP, Havana, 27 May 2003; "Kirchner y Castro analizan la deuda que Cuba mantiene con Argentina," Europa Press, Buenos Aires, 27 May 2003; "Cuba es el primer pais de la lista de morosos de Espana," Europa Press, Madrid, 11 May 2003; America Economica Internacional, "Venezulea y Cuba logran un acuerdo para refinanciar la deuda petrolifera," 21 April 2003; Marc Frank, "Cuba's 2002 trade plunges 13.9 percent," Reuters, Havana, February 24, 2003; Oscar Espinosa Chepe, "Crece la deuda externa cubana," CubaNet, Havana, 6 February 2003; Marc Frank, "Cuba said to miss Japan, Mexico debt payments," Reuters, Havana, October 25, 2002; Juan O. Tamayo, "Panama merchants pinched by Cuba's payment problems," The Miami Herald, September 21, 2002; "Foreign investment in Cuba falls, EU wants reform," Reuters, Havana, July 8, 2002; "Spain pledges to back Cuba in any debt talks," Reuters, Madrid, February 3, 1999

Cuba's Economy in the Doldrums

According to Havana's own Center for the Study of the Cuban Economy, 2003 is expected to be "a difficult year" with no more than 1.5 percent growth projected by the regime's economic planners. Most economic indicators are pointing downward and recent trends do not augur well for Cuba's immediate future.

Official hard-currency foreign debt, as reported by the Banco Central de Cuba, reached a record-high US$12.210 billion by late 2002.

Havana defaulted in October 2002 on a US$750-million refinancing agreement with Japan's private sector after having signed a debt restructuring accord with Tokyo in 1998. Japan, Cuba's single largest creditor, had expected to see the first payments in 2003 on part of the US$1.7 billion owed to Japan by the Castro regime.

Nestor Kirchner, Argentina's new president, raised the issue of Cuba's longstanding US$1.58 billion debt with Buenos Aires during his meeting with Fidel Castro on May 26.

Cuba suspended all payments in October 2002 on US$380 million owed to Bancomext, the Mexican government's export financing bank. According to Bancomext, "First, they [the Cuban government] unilaterally cancelled debt guarantees that took us years to negotiate. Then they missed a multimillion dollar June [2002] payment without even giving an explanation." (1)

Cuba's petroleum debt with Venezuela's PDVSA rose to US$266 million by May 2003. CUPET, Cuba's state-owned and operated oil company, has fallen behind on payments to PDVSA repeatedly since Fidel Castro and Hugo Chavez signed a trade agreement in October 2000. PDVSA supplies approximately 35 percent of the island's oil under generous financing terms that amount to a 25-percent price subsidy over five years. Due to the value of petroleum exports, Venezuela is now Cuba's leading trade partner.

In 2002, Cuba fell into arrears on US$100 million in short-term credit lines from Panamanian banks and trading companies based in the isthmus's Colon Free Zone. Cuba has traditionally circumvented the U.S. trade embargo by sourcing American consumer goods and technology through Panama-based suppliers. Panamanian lenders have also helped to finance Cuba's sugar crop in recent years.

In May 2003, Madrid acknowledged in response to a Spanish parliament inquiry that Cuba is Spain's top foreign debtor government, presently in default on an estimated US$816 million.

France's export financing agency, COFACE, has suspended Cuba's US$175-million credit line after Havana fell more than a year behind on annual loans for the purchase of French agricultural products and capital goods in 2001.

The Italian government withdrew a proposed US$40 million aid package in early June 2003 in response to Fidel Castro's crackdown on internal dissent. The Cuban government had already accumulated a short-term debt of US$73 million with Italy. Rome, which will assume the presidency of the European Union (EU) in July 2003, has also called for an EU embargo on all non-humanitarian assistance to Cuba.

Citing chronic delinquencies and mounting short-term debts, Moody's lowered Cuba's credit rating to Caa1 -- "speculative grade, very poor" -- in late 2002.

Direct foreign investment in Cuba dwindled to a record-low US$38.9 million in 2001, with no improvement reported in 2002. Europeans, Havana's leading source of investment capital, have grown increasingly frustrated with Cuba's red tape and arbitrariness in dealing with investors. European embassies in Havana jointly presented a detailed list of grievances and suggestions to the Cuban government in 2002. However, Marta Lomas, Cuba's foreign investment minister, told diplomats that "Cuba is not changing the rules" and that European businessmen "knew them [the rules] when they arrived." (2)

Tourism, the island's leading industry and source of foreign exchange, dropped by 5 percent in 2002.

The sugar industry, downsized in 2002, expects a dismal 2-million ton output for the 2002-2003 sugar cane harvest season, the lowest production on record since 1933.

The island continues to increase dependence on imports and ran a US$2.725 billion trade deficit in 2002. Values of major export commodities, particularly sugar, have fallen, leaving Cuba's state coffers low on foreign exchange and burdened with obligations on high-interest, short-term loans to pay for imported foodstuffs, petroleum, and other essentials.

Living conditions have deteriorated as evinced by an acute housing shortage estimated at 1.66 million dwellings. At least 13 percent of the population is clinically undernourished as the state food rationing system now provides for only a week to ten days of basic alimentary needs. Unemployment has reached 12 percent, based on official data, and as many as 30 percent of workers are displaced or underemployed. With real wages down nearly 50 percent since 1989, and average salaries of US$10 per month, university enrollment has fallen 46 percent as would-be college students opt for more lucrative jobs in the tourism industry. Cuba is projected to have Latin America's oldest population by 2025 with the island's demographic growth rate now at 0.2 percent. The elderly are already the most vulnerable as real pensions have declined by 42 percent and most pensioners survive on the equivalent of US$4 per month.

According to one Japanese creditor, "[The Cuban government] told us...there was no way they could make the scheduled payments next year [in 2003]." Francisco Soberon, president-minister of the Banco Central de Cuba, has admitted as much: "The proposed conditions are absolutely impossible for us. They would cause a social explosion." (3)


  1. Statement quoted by Marc Frank, "Cuba said to miss Japan, Mexico debt payments," Reuters, Havana, October 25, 2002.
  2. Marta Lomas, Cuba's foreign investment minister, quoted by European sources in "Foreign investment in Cuba falls, EU wants reform," Reuters, Havana, July 8, 2002.
  3. Statements by an anonymous Japanese creditor and by Francisco Soberon, head of the Central Bank of Cuba, quoted in Marc Frank, "Cuba said to miss Japan, Mexico debt payments," Reuters, Havana, October 25, 2002.


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