The Cuban economy  today:
Salvation or Damnation?

by
Carmelo Mesa-Lago
Distinguished Service Professor Emeritus of Economics
University of Pittsburgh

University of Miami
Institute for Cuban and Cuban American Studies
Cuban Transition Project

INTRODUCTION
In 2004 and the winter of 2005, the news on Cuba 's domestic and external economy was both positive and negative. On the domestic positive side were an alleged growth rate of 5 percent; an unemployment rate of 1.9 percent, that is, virtually full employment; the arrival of 2 million tourists and record-breaking revenues from tourism; and the discovery of new oil wells. Equally positive on the external front were donations, credits, investments, and lucrative trade and economic agreements with China and, particularly, with Venezuela .

Conversely, on the domestic negative side were $2 billion in losses due to hurricanes, the worst drought in the last century, the lowest sugar harvest since 1905, and the electricity crisis. External factors played ambiguous roles: the U.S. government's restrictions on travel and remittances were offset by President Fidel Castro's success in convincing U.S. exporters to lobby against the embargo and in favor of opening further their trade relations with Cuba; the reestablishment of “normal” relations with the European Union, conditioned by disagreements on human rights issues and the lack of economic aid; and the potential entry of Cuba into Mercosur, so far blocked by the nation's lack of democracy. In addition, Cuba reversed the timid economic reforms of 1993–1996 and imposed a series of drastic measures to recentralize economic decision making, ban the circulation and use of the dollar, and further reduce the small private sector. What is true, and what is myth or exaggeration about the positive news reported? To what degree would the actual positive events be offset by the negative ones? What would be the impact of reversing the economic reforms? This paper discusses all of these important issues and draws conclusions from them.

I. GOOD DOMESTIC NEWS
This section discusses four officially reported Cuban economic achievements in 2004: a very high economic growth rate; a reduction of unemployment to 1.9 percent, one of the lowest rates in the world; the record arrival of 2 million tourists, yielding more than $2 billion in revenue; and the discovery of new oil deposits.

A. Strong Economic Growth
Cuba 's gross domestic product (GDP) growth steadily slowed down: 6.2 percent in 1999, 5.6 percent in 2000, 3.0 percent in 2001, and 1.5 percent in 2002, with an improvement to 2.6 percent in 2003. The annual growth rate for the decade 1990–2000 averaged (minus)-1.2 percent, the worst performance in Latin America . In 2001, Cuba 's GDP at constant prices of 1981 was still 13 percent below the level of 1989 and, in per capita terms, was 18 percent below the 1989 level (Mesa-Lago and Pérez-López 2005). According to the official report, Cuba 's GDP grew 5 percent in 2004 (Rodríguez 2004), slightly below the regional average of 5.5 percent (ECLAC 2004c). An intriguing question is how that growth rate was achieved despite significant losses due to two hurricanes, the worst drought in a century, a poor sugar harvest, an electricity crisis that shot down several industries (see sections III-A, III-B, and III-C of this paper), and high oil prices, as well as declines in foreign direct investment (FDI), capital formation, travel of Americans to Cuba, and possibly of remittances—the last two results of tightening by the Bush administration.

The UN Economic Commission for Latin America and the Caribbean (ECLAC) estimated (2004a; 2004c) Cuba 's growth rate in 2004 at 3 percent, although it did not publish the inflation rate, hence raising the question on how GDP at constant prices was calculated. The Economist also estimated a 3 percent GDP growth rate in 2004 (“With Help …” 2005). How can a difference of 2 percentages points between the Cuban and the external figures be explained? And how was Cuba , despite all its grave economic difficulties, able to surpass by almost twice, its growth target of 2.6 percent set for 2004?

The official rate is bogus due to several reasons: (1) the shift in the calculation of GDP in constant prices from its previous 1981 base to a 1997 base starting in 2001 resulted in an increase of 60 percent in the value of GDP in each year of the period 1996–2000 (the five years for which both series are available); (2) in 2001, Fidel Castro, Minister of Economics and Planning José Luis Rodríguez, and other economic authorities began to criticize the international methodology to estimate GDP, and Castro (2002) said, “GDP tells us very little. What purchasing power has a salary in light of social policies. . . . All are lies and distortions.”; (3) in 2002, Minister Rodríguez used the purchasing power parity of the peso, compared with other currencies to buy a given basket of goods, to calculate a GDP that was 109 percent higher than using conventional exchange rates; (4) in 2003, Rodríguez gave two figures of GDP growth: one based on the international methodology was 2.6 percent; another adding the value of free social services and consumption subsidies to the population was 3.8 percent (for details see Mesa-Lago and Pérez-López 2005).

A Cuban economist who asked to remain anonymous explained how some of the calculations were done to estimate the value of free social services: “We performed a given number of heart surgeries; how much they would cost if prices in foreign countries had being used? We offered an English course on television; how much would have cost if it had been sold in cassettes in a given foreign country?. . . The result is that we don't know the real situation of the Cuban economy.” A diplomat who lives in Havana said, “The Cubans have the right to make those calculations, but if they want to be compared with the rest of the world, they must apply the accepted international methodology or at least publish two figures” (Arreola 2005).

In my opinion, the two GDP growth rates available for 2004 reflect the dual calculation explained above: the 3 percent rate given by ECLAC and The Economist is possibly based on the conventional methodology, while the 5 percent rate given by Cuba is inflated to add the value of free social services and price subsidies. Significantly, if the overestimation of GDP annually detected in the period 1996–2000, due to the shift in the base year, still continues, the 3 percent rate is 60 percent inflated and once adjusted would be reduced to 1.2 percent. The reason that Cuban officials are doing all these statistical manipulations is to show that the declining rates in 1999–2002 have been reversed and the new Cuban centralization policies are generating an economic recovery instead of stagnation or decline. At the end of 2004, Minister Rodríguez (2004) declared to the National Assembly that the “new method” invented by the Cubans “still reflects only part of the social services provided in our country [hence] these calculations will continue to improve, steadily raising their precision and quality.” One could add: and artificially raising the GDP, too.

B. Full Employment
In 2002, Castro declared, in an international meeting of economists, “The category of unemployed must disappear. There will be no more unemployment. . . . We have promised a guaranteed job to all the youth. Unemployment at the end of this year will be between 3 percent and 3.5 percent” (2002). The rate was officially given as 3.3 percent of the labor force at the end of 2002, and a new decline to 2.3 percent was reported in 2003. According to Minister Rodríguez (2004), open unemployment in Cuba further decreased to 1.9 percent in 2004, tantamount to full employment. ECLAC (2004c) gave a rate of 2 percent, still the lowest in Latin America and the Caribbean , and one of the lowest in the world. The Cuban official unemployment rate has steadily declined from 7.9 percent in 1995, despite the fact that in that year the Cuban Confederation of Workers (CTC) estimated that there were from 500,000 to 800,000 unneeded workers in the state sector, a surplus miraculously cut by 97 percent in 1997. Furthermore, after a modest expansion, the private sector that could generate new jobs has contracted since 2002; 219,000 sugar workers were dismissed in that year due to the restructuring of the sugar industry (Mesa-Lago and Pérez-López 2005).

An independent Cuban journalist cites reductions in jobs or time of work that made that feat even more amazing: the electricity crisis of 2004 led to the shutting of 107 industries and a number of hotels; the 2004–2005 sugar harvest was delayed from December to January, and only 56 sugar mills operated (23 less than in 2004); to save electricity, the working day was reduced by 2.5 hours per week from October 25, 2004, to February 28, 2005, and the number of self-employed workers shrank by 43 percent in 1997–2003. According to the journalist, the miracle is accomplished with unemployment figures elaborated upon by the Ministry of Labor and Social Security (MTSS), based on reports from municipal offices on persons requesting employment. However, very few people do this because once they are identified as searching for a job, they come under enormous pressure from the MTSS, the municipal offices, and the Committees for the Defense of the Revolution to work in agriculture. Instead, they just go into the informal economy (Brito 2005). The same explanation was given by Cuban independent economist Ramos Lauzurique (2003).

Significant contradictions in official data on employment and unemployment are analyzed elsewhere. Suffice it to say here that, in 2002, the government counted as “employed” 764,000 people who (1) were paid to study, (2) were dismissed from their jobs and being retrained, (3) received unemployment compensation at home because of shut down enterprises, or (4) worked part time in backyards and urban gardens. All these people equaled 16 percent of the labor force, and, because they are counted as employed, the unemployment rate was artificially cut (Mesa-Lago 2005a).

C. Record-Breaking Tourist Arrivals and Revenue
The number of foreign tourists rose from 270,000 in 1989 to 1.77 million in 2000, but tourism stagnated in 2001, and the number declined to 1.69 million in 2002 because of the September 11, 2001 terrorist attacks. Then it rose to 1.9 million in 2003. Gross revenue from tourism increased from US$1.1 billion in 1995 to $1.9 billion in 1999, stagnated for three years, declined to $1.7 billion in 2002, and recovered to $2 billion in 2003. The government announced the record 2.05 million tourists with gross revenue of $2.25 billion in 2004 as a great victory. Targets set for 2005 are 2.29 million tourists and a “higher” gross revenue (Rodríguez 2004).

The tourism achievement in 2004 should be tempered with several caveats. During the five-year period from 1994 through 1999, the number of tourists rose at an annual rate of 24.8 percent, and gross revenue rose at an annual rate of 33.2 percent. In contrast, during the five-year period from 2000 through 2004, the annual rates of growth slowed down to 3.1 percent for number of tourists and 3.2 percent for gross revenue. It is true that the island had a relatively low number of tourists and low gross revenue in 1994; it is also true that reactions to the September 11, 2001 events slowed down growth for the past five years—yet, Cuban growth rates compared with other countries in the Caribbean are still quite low.

Second, participants in the Fifth Party Congress set a target of 2 million tourists for 1998–2002, which was unfulfilled by 16 percent, and a target of $2.6 billion gross revenue from tourism, which was not met by 31 percent. The target of 2 million tourists was set again for 2001, with a more modest $2.2 billion in revenue, and both were unfulfilled by 10 percent and 18 percent; in the following two years, both targets were significantly reduced and barely met. It eventually took Cuba seven years to reach the number of 2 million tourists, but the goal of $2.6 billion in revenue still had not been met by 2004.

Third, revenue figures are gross, and no systematic data are available on the value of imported hard currency inputs to cater to foreign tourists—necessary to calculate net revenue from tourism. The few available figures are contradictory, ranging from 35 percent to 65 percent; gross revenue, therefore, must be adjusted do wn by that factor. A Cuban scholar has argued that the nation must produce domestically a larger share of the inputs required by the tourism industry or the sector will demand imports valued at $3 billion per annum, roughly the magnitude of the annual overall merchandise trade deficit from 2001 to 2003. Until Cuba is capable of providing its needed inputs domestically, the multiplying effect of the tourist industry will not take place.

Fourth, the occupancy rate of hotel rooms for international tourists declined from 78 percent in 1997 to 69 percent in 2001 and to 50 percent in 2002. Average expenditures, average length of overnight stays at hotels, and average receipts per visitor have all declined since the mid-1990s (Mesa-Lago and Pérez-López 2005).

D. The Discovery of New Oil Deposits
As a result of foreign investment, crude oil production in Cuba steadily increased: from 1.4 in million tons in 1997 to 3.69 in million tons in 2003, more than five times the output level of 1989 (a decline was officially reported in 2004 without providing a figure). Until December 2004, all the oil that had been discovered and was produced in Cuba was of bad quality (heavy with high sulfur content), making it unsuitable for export and only usable for domestic consumption. The latter use, however, damaged thermoelectric plants, forcing costly maintenance and repairs, and the failure to do so provoked the breakdown of the Antonio Guiteras plant in 2004 and subsequent electricity crisis. In the summer of 2004, many had high hopes of a significant high-quality oil discovery in an offshore area about 30 kilometers northeast of Havana in the Gulf of Mexico . Spanish oil company Repsol YPF, which had been awarded the right to explore in that area, leased a Norwegian exploration platform, at a cost of $195,000 per day, to carry out the deep water exploration. Frustrating that hope, in August 2004, Repsol YPF confirmed the existence of high-quality oil but explained that the deposit was considered noncommercial, because of insufficient quantities to justify exploration and production expenditures. Nevertheless, the Spanish firm kept drilling a 4,132 square mile track, hoping for best results (Mesa-Lago and Pérez-López 2005).

In December 2004, Castro announced to the National Assembly that the association Sherritt-Pebeco had found a “very promising” deposit in Santa Cruz, in an offshore area 55 km east of Havana (close to the Repsol YPF site) that had extracted 1,000 tons of crude between December 14 and 19. The baptized “Santa Cruz 100” well was preliminarily estimated to have a deposit of 20 square km of crude “of 18 degree API, lighter that the crude from Varadero and Yumurí [deposits already in exploitation], and with less than 5 percent of sulfur content [although] it has to be mixed in a proportion of 20 percent with crude lighter and with less sulfur content.” The Santa Cruz 100 well was closed to “investigate its characteristics” and will be reopened and maintained in “experimental production for several months [including perforation of two evaluation wells east and west of Santa Cruz 100 in the first semester of 2005], with the purpose of observing its behavior and determine more precisely the parameters of the deposit.” And yet, “a preliminary estimate of the extractable reserves of the deposit indicates a minimum of 100 million barrels, approximately 14 million tons.” If the deposit size and characteristics of the crude are confirmed, a “stage of development” will take place in 2006–2007; three other wells would also be drilled in Tarará, Guanabo, and Jibacoa, which are expected to have the same features of the Santa Cruz deposit (Castro 2004b).

This recent oil discovery certainly is good news for the dismal Cuban economy, but some caveats are in order. First, there are questions about the accuracy of a “preliminary estimate” of the size of the deposit, based on six days of extraction of 1,000 barrels and taking into account that an experimental production of six months is needed to determine more precisely the parameters of such a deposit.

Second, the issue of the quality of the oil discovered and the fact that it has to be mixed with better quality crude must be considered. Castro's full speech to the National Assembly was not published, only a summary of its good news. A Cuban independent journalist reported that Castro said the crude was “semi heavy” (Sánchez 2004), while The Economist stated that it is “a small field” and the “oil is heavy” (“ Cuba 's Economy…” 2005).

Third, if indeed the deposit contains 14 million tons of crude, it would supply Cuba 's total oil need for 18 months. At its peak in 1985, Soviet crude delivery for that one year was 8 million tons, tantamount to 57 percent of the preliminary estimated size of the whole Santa Cruz deposit (Mesa-Lago 2000). Notably, since the announcement of the discovery was made, no news has been published on the progress of the experimental production in the first semester of 2005.

II. GOOD NEWS ON THE EXTERNAL FRONT
Two significant positive external events have aided Cuba economically and may even help more in the future: the trade agreements with Venezuela and China .

A. Agreements with Venezuela
With Venezuela's President Hugo Chávez's favorable disposition toward Cuba, the country has truly enjoyed a bonanza, due to the highly beneficial five-year trade agreement signed in October 2000 (renewable for other five years) with Venezuela's state oil corporation PDVSA to deliver to the island 53,000 barrels of oil daily, equivalent to 2.7 million tons of oil per annum, supplying about 30 percent of domestic needs, under the following terms: 80 percent of imports are payable in 90 days at prevailing world market prices, while the remaining 20 percent are payable in 5 to 20 years at the average annual oil price, but up to one-fifth of the 20 percent can be paid through medical, educational, and sports services. This agreement has partially protected Cuba from record world market petroleum prices. It is estimated that over the five years of the agreement, Cuba will receive about $2.6 billion in oil and in proceeds from reselling some of the oil. Cuban brokers in cooperation with PDVSA have already resold a portion of the Venezuelan oil at market prices, earning a juicy profit for Cuba . Despite those beneficial conditions, at the end of 2001, Cuba had a debt of $95 million for unpaid oil deliveries, and PDVSA suspended shipments in April 2002, an action that led Chávez to dismiss the president of that corporation.

The brief overthrow of Chávez resulted in irregular deliveries, but normal shipments were resumed in September 2002, after Cuba agreed to restructure its oil debt, which by then had grown to $142 million. The general strike in Venezuela from December 2002 to January 2003 led to new delivery interruptions and widespread blackouts in Havana . In March 2003, the general auditor of Venezuela estimated the Cuban oil debt at $266 million; later another estimate set such debt for 2001–2003 at $752 million, tantamount to 80 percent of the total debt owed PDVSA by its foreign clients. In 2004, PDVSA reportedly increased deliveries to Cuba from 53,000 to 78,000 barrels per day (from 2.7 million tons to 4 million tons per annum). Cuba 's cumulative oil debt to Venezuela projected for 2004 was $992 million. The Venezuelan government claimed that Cuba had honored the terms of the agreement, and Cuba 's Ministry of Foreign Trade ratified this statement, adding that Cuba was not in arrears (Mesa-Lago and Pérez-López 2005). Cuba 's output of crude oil decreased in 2004, aggravating the need for imports (Rodríguez 2004).

A second bonanza, greater than the first, occurred on December 14, 2004, when Cuba and Venezuela signed new, wider economic and trade agreements with the following terms: (1) economic integration of both countries, including the opening of banks in each and reciprocal banking credit contracts to facilitate payments in financial and commercial transactions; (2a) in both countries elimination of trade tariffs, (b) exemption of tax on profits from investment in state and mixed enterprises (also private enterprises in Venezuela) during the period of investment recovery, with air and shipping lines receiving the same treatment (Venezuela provides Cuba with infrastructure and equipment related to air and maritime transportation), and (c) Venezuela may have 100 percent ownership of its investments in Cuba (an exceptional concession, as Cuba usually keeps 51 percent of ownership in all foreign investment); (3) the price of oil will continue as in the first agreement, but Cuba guarantees to pay a minimum of $27 per barrel (about one-half the current world price), and Venezuela will increase oil supplies in 2005 to meet all Cuba's needs in excess of domestic production ; (4) the tens of thousands of Cuban physicians, nurses, teachers, and sport trainers working in Venezuela will train people there, and their salaries will now be paid by Venezuela (before this agreement such salaries were paid by Cuba as a way to reimburse Venezuela for part of the oil received); (5) Cuba will provide 2,000 annual higher education fellowships to Venezuelans, while Venezuela will transfer technology on energy and award Cubans all the needed fellowships in this field; (6) Venezuela will finance Cuban projects in agriculture and industry, infrastructure, energy, paving of streets, construction of aqueducts and sewage treatment facilities; and (7) negotiations are on the way for additional agreements on the following: Venezuela would supply 590,000 tons of coal annually for the ferronickel plant with China; a joint enterprise to produce stainless steel would be established by Cuba, China, and Venezuela; Canada's Sherritt International Co. and Venezuela would built a coal thermoelectric plant in Mariel; and PDVSA would buy part of the oil refinery in Cienfuegos unfinished by the Soviet Union (“Acuerdos…” 2004; “Castro 2004b).

In February 2004, it was confirmed that Venezuela was supplying Cuba with 78,000 barrels of crude oil of top quality and oil derivatives daily (rather than the 53,000 of the first agreement), with an average value of $1 billion annually. Only part of that oil was actually delivered to the island; most of it is negotiated by PDVSA and Cuban brokers and sold to El Salvador , Guatemala , Honduras , Nicaragua , and Panama , with dollar earnings transferred to Cuba . It was also estimated that Cuba 's oil debt with Venezuela had reached $2.5 billion before the end of the five-year agreement in October 2005 (Ocando 2005).

Venezuela is rapidly approaching the amount of virtually free aid that the Soviet Union provided Cuba in the 1980s, before the downfall of socialism: (1) at 78,000 daily barrels delivered to Cuba in 2005 (4 million tons), Venezuela is supplying at least 44 percent of Cuba's oil needs; (2) as of the end of 2004, Cuba is expected to pay $27 per oil barrel, less than half the current world market price, which will result in a subsidy of $800 million in 2005, similar to that granted by the USSR at the peak of the oil price subsidies from 1975 to 1982 (Mesa-Lago 2000); (3) but Cuba is not actually paying for all oil deliveries, as the unpaid debt averaged $600 million annually from 2000 through 2004, a sum that will surpass $2.5 billion in 2005; (4) like the USSR in previous years, Venezuela is transferring millions of dollars to Cuba for the value of undelivered oil that is sold to third countries; (5) Venezuela is paying the salaries of tens of thousands of Cuban personnel working there, even though Cuba was expected to pay such salaries according to the oil agreement of 2000; (6) the 2004 agreement commits Venezuela to provide millions of dollars to finance Cuban projects in agriculture, industry, energy, paving of streets, and water and sewage infrastructure (badly in disrepair in Cuba), without published specifications on amounts, interest, and repayment of principal; and (7) if current negotiations between the two countries are successful, Venezuela will invest hundreds of millions of dollars more to supply coal for the Chinese nickel plant (hence compensating Cuba and China for the high cost of nickel extraction, see section below), stainless steel production, and an oil refinery.

B. Agreements with China
Due to political divergences in the past and their two significantly diverse economic models (market socialism in China and centralized command socialism in Cuba ), the two countries have been at odds many times. Despite their differences, in 2003 China was Cuba 's fourth trade partner, with 7 percent of total transactions, after 14 percent with Venezuela , 13 percent with Spain , and 8 percent with Canada . In addition, China provided credits from 1990 through 1994 for imports and construction of a factory to build bicycles and fans, as well as imports of pharmaceutical products and equipment. About 61 percent of Cuba 's total exports to China are nickel (an important raw material needed in China 's booming economy); the rest are sugar, tobacco, fish and seafood, and rum ( Juventud Rebelde , December 21, 2004). In 2004, an Entrepreneurial Committee was established by the two countries, and 37 representatives of China 's large enterprises visited Cuba to discuss projects on electronics, telecommunications, biotechnology, and pharmaceuticals (Musa 2004).

In November 2004, as part of his tour of several countries in Latin America, Chinese President Hu Jintao went to Havana, met with Fidel and Raúl Castro, and signed several beneficial trade and aid agreements, including the following: (1) a deferral for 10 years of the payment of Cuba's financial obligations to China accrued from 1990 through 1994, estimated at about $37.8 million; (2) a donation of $6.1 million to purchase Chinese textiles; (3) a credit of $6.1 million to be paid in 15 years with a grace period without interest in the first five years, to buy materials and spare parts for hospitals, clinics, and dental and optical units (the combined value of the first three agreements was officially reported as $50 million); (4) a credit to buy one million TV sets in China to be paid in 8 years with a 2-year grace period at 5.89 percent interest (the amount of this credit is undisclosed but might be about $150 million); (5) a credit of $500 million from Chinese banks toward the creation of a mixed enterprise (51 percent Cuban and 49 percent Chinese) to resume construction of the ferronickel plant left unfinished by the USSR [and other Eastern European countries; this is most likely the Camariocas plant], with a capacity to produce approximately 22,500 tons of nickel [per year] for a period of 25 years; the loan shall be paid in 15 years with a grace period during construction (Cuba will export to China 4,000 tons of nickel annually from 2005 through 2009 at undisclosed prices); (6) studies will be started to establish a mixed enterprise (51 percent Cuban and 49 percent Chinese) in a new nickel deposit in San Felipe, Camagüey, which would produce 50,000 tons annually, with an investment of $1.3 billion provided by Chinese banks; (7) an oil exploration contract with China's Petroleum and Chemical Corporation (SINOPEC), although Castro has warned that the Chinese do not have experience in exploration in deep waters; (8) other potential credits are under discussion for refurbishing and modernizing Cuban hospitals for domestic and foreign patients and infrastructure works such as ports, railroads, ships, and oil and nickel equipment, and (9) the building of a Chinese hotel in Cuba, although few Chinese tourists currently come to the island (Castro 2004b).

The most important of these agreements are those related to nickel exploration and extraction. If the Chinese investment in this industry materializes, the combined production of the unfinished plant and the new one would be 72,000 tons annually, thus almost doubling current nickel output of 77,000 tons. This would result in a significant expansion of the installed capacity, contrasted with Canadian investment in that industry that, until the end of 2004, basically concentrated in refurbishing installed capacity in the Nicaro and Moa plants built by the United States in the 1940s and 1957 respectively. It is not clear from Cuban reports, however, what the time span will be to get the two plants in operation, and there is a crucial question about their technology. The Soviet-built Che Guevara plant in Punta Gorda copied Nicaro's antiquated, energy intensive technology (it consumes 18 tons of oil for each ton of nickel produced, contrasted with a ratio of 5 tons of oil to 1 ton of nickel in the more modern Moa plant), which was extremely costly after the cheap, unpaid Soviet oil ceased to arrive in Cuba and world market oil prices spiraled. The Che Guevara plant was shut down in 1990 due to oil scarcity and reopened later, but its output is smaller than in the other two plants. Construction of the Camariocas plant, also located in Moa, was started in 1984 by the Soviet Union and five Eastern European countries but was never completed. Cuban efforts with foreign partners tended to be unsuccessful; this plant used the same outdated technology of the Che Guevara plant (Mesa-Lago 2000). If China is indeed planning to invest $500 million to complete the Camariocas plant using the older technology, costs would be very high, forcing the Chinese to subsidize nickel prices as the Soviets did before.

In December 2004, Castro reported an agreement under discussion with Sherritt International for a $1 billion investment to expand the installed capacity of the Moa plant and increase its output by 53,000 tons annually, from 32,000 to 85,000 tons. He added that, combined with the Chinese investment in the new plant, nickel output will double (Castro 2004b). In March 2005, it was reported, however, that the agreement actually signed was to invest $450 million (50 percent Sherritt and 50 percent Cuba) in the existing Moa plant to increase output by only 16,000 tons annually (“El Gobierno…” 2005). The combined expected results of the Chinese committed credit and Sherritt investment would be an increase of 38,500 tons of nickel in the next 10 to 25 years, 50 percent more than current output of 77,000 tons.

Do these beneficial agreements mean that China supports Cuba 's state centralized economic model? The answer is a resounding “no,” according to a document from the Institute of Latin American Studies of the China Academy of Sciences, published before the recentralization process was accelerated in Cuba . It compares the economic success of China, based on a vigorous market-oriented reform since 1978, with Cuba's stagnation, resulting from timid reforms, and offers some important lessons to the Cuban leadership: openly embrace and speed up the pace of economic reforms; be more liberal in ownership restructuring (for example, privatize agriculture and state enterprises in industry and other sectors); take a more tolerant attitude toward the nonstate sector; and stimulate people's initiative and allow some to become rich in order to promote economic growth (IELA 2002). China 's concessions to Cuba are relatively small compared with investment and trade pacts signed by President Hu Jintao in the fall of 2004 with several countries in Latin America . China is taking a pragmatic attitude, that is, to obtain needed nickel from Cuba , as well as to show the Chinese Communist Party and leftists around the world that it helps Cuba vis-à-vis the Colossus of the North.

See Chapters I I I, IV and V
See Chapters V I, V I I  and Conclusions

Octubre 20, 2005
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