VI. THE DE-DOLLARIZATION PROCESS
In November 2004, a Resolution from the BCC rejected the use of the U.S. dollar as legal tender (since its acceptance in 1993) and decreed that only convertible pesos (introduced in 1994) would be accepted by all state entities, such as hard currency shops, hotels, restaurants, bars, cafeterias, taxis, auto rentals, and so on. The Resolution decreed that state and mixed enterprises would no longer be authorized to make dollar bank deposits in cash; instead, they must use convertible pesos for business. Cuban citizens, foreign tourists, and senders of remittances who need to convert dollars to convertible pesos were to be charged a 10% fee (gravamen) at exchange houses, banks, hotels, and hard currency shops. Existing banking accounts in dollars (held by individuals, diplomats, national enterprises, and joint ventures) would be forbidden from receiving new deposits or transfers in dollars. However, newly opened accounts in dollars would be allowed, and withdrawals from such accounts would be permitted without charge, as well as the receipt of interest from CDs. Canadian dollars, Euros, British pounds, and Swiss francs would be converted without the 10 percent charge, and bank accounts in those four foreign currencies would be permitted to receive deposits and transfers in said currencies (“Resolución 80” 2004).

The BCC Resolution states that “the population can keep, without any restriction, as before, U.S. dollars . . . in any quantity” and that the measures “do not imply any type of limitation on dollar possession.” Such assurances were intended to calm the population, but it is obvious that, since November 2004, tough restrictions have been implemented on the use of the dollar, which now can only be legally used for five functions: (1) hoarding it under mattresses for potentially bad times (some experts estimate that as much as US$500 million are now being hoarded); (2) changing it for convertible pesos, paying the 10 percent fee; (3) maintaining it in a banking account that cannot receive new deposits in dollars, and withdrawals are charged with the 10 percent fee (if a new bank account were opened before the deadline, then such account could accept dollar deposits); (4) keeping it in banking deposits and CDs in dollars that can be cashed and earn interest in dollars—between 1.5 percent and 2.75 percent—without the 10 percent fee; and (5) charging it to credit cards in dollars that are not taxable. The following section analyzes three probable causes of the restrictive dollar measures, as well as their effects on the government and the people in the short, medium, and long terms.

A. Causes of De-Dollarization

1. The Official Explanation
According to the Central Bank's Resolution, the cause of the measures was U.S. government pressure on foreign banks to prevent Cuba from making deposits in dollars in order to fulfill its financial obligations, as well as the U.S. State Department's creation of the “ Cuban Assets Targeting Group” to stop the flow of hard currency. The background is that the Union de Banques Suisses (UBS), the biggest bank in Switzerland , accepted deposits from the Cuban government for seven consecutive years, totaling $3.9 billion dollars, and sent false reports to the Federal Reserve Bank of New York . When the latter discovered these deposits, it imposed a fine of $100 million on the UBS; additionally, several Federal Reserve Bank of New York employees have been fired and are under investigation. The BCC Resolution adduces that such deposits came from the government's collection of dollars from tourists and the Cuban population's purchases in TRDs. An accusation that the UBS deposits came from drug money laundering has been rejected by Cuban authorities. The official explanation does not justify the 10 percent fee, although the Resolution feebly argues that said fee is a “compensation for the costs and risks caused to the national economy by the handling of dollars” and for the tightening of the U.S. embargo.

The Cuban government will keep receiving dollars—even more than before the measures were enacted, at least in the short run—and it is not clear what it is going to do with them. The government can use dollars to buy U.S. food and agricultural products or deposit them in some foreign banks not subjected to American pressure, in order to finance dollar imports. Castro has denied that revenue from the 10 percent fee will be used for commercial transactions and has asserted that it will be used only to support the convertible peso (cited by Mayoral 2005).

2. A Step toward Peso Convertibility?
Monetary duality (in pesos and dollars) has been a growing governmental concern because it impedes control of a large sector of the economy and creates “market segmentation” (rationing, free agricultural markets, TRD, and so on), as well as increasing inequality between those who receive remittances and those who do not. ECLAC (2004b) asserted that the monetary duality softened the effects of the crisis but is a “temporary solution” that has generated social inequalities, a decline in activities conducted in pesos in the domestic demand, and high costs of imports for activities in hard-currency. Hence, ECLAC recommended two goals: “eliminate monetary duality” and “reach peso convertibility” (2004b).

In November 2004, Castro stated that Cuban currency “is beginning to be accepted by international companies [and] now we have a really convertible peso whose value we will guarantee and defend” (Castro 2004a). On March 17, 2005, Castro decreased by two pesos the exchange rate of the peso for the convertible peso, a 7 percent change, but the rate works in opposite ways: the convertible peso that was exchanged for 26 pesos is now exchanged for 24 pesos, while the buying of a convertible peso decreased from 27 to 25 pesos. (That is, if you exchange 1 convertible peso, you receive 24 “regular” or “common” pesos, but if you want to buy 1 convertible peso, you pay 25 regular pesos. The 1 extra peso is commission charged by the BCC for the exchange.) Castro declared, “With this measure, we move in the strategic direction of strengthening the national currency. . . . The fate of the empire's [ U.S. ] currency is to devalue; the rate of the Cuban currency . . . is to gain in value” (2005d). The BCC argued that the decrease of two pesos in the exchange is part of “a progressive, gradual and cautious reevaluation of the national currency” (“Acuerdo 13” 2005). Starting on April 9, 2005, the value of the convertible peso vis-à-vis the U.S. dollar and other hard currencies will be increased by 8 percent, leaving untouched the peso/convertible peso rate (“Acuerdo 15” 2005; Castro 2005e). The value of the dollar versus the convertible peso has actually been reduced by 17 percent when combining the new exchange rate and the 10 percent fee ($0.83), adding new pressure for those who have dollars to exchange them for convertible pesos before the deadline.

Some Cuban economists have interpreted these measures as positive steps in reaching the convertibility of the Cuban peso (EFE 2005c).

At first glance, one could conclude that all these measures are indeed significant steps toward the convertibility of the peso, but there are seven important counterarguments:

1. What peso convertibility are Cuban authorities talking about: that of the common peso or that of the convertible peso or both?

2. The cut in the exchange rate by two pesos has had opposite effects: a minority (38 percent) of the population, those who only have pesos, are happy because they save two pesos in buying convertible pesos, but the majority (62 percent), who either have dollars or convertible pesos, are upset because they are losing two pesos when changing both currencies into common pesos and $0.17 per dollar when changing dollars into convertible pesos (EFE 2005c).

3. The exchange measures did not meet the two ECLAC goals because they would require a complete substitution of the dollar for one single peso currency, whose value reflects supply and demand in the international market, something that would demand profound structural transformations, which are in opposition to the recentralization measures already explained.

4. The exchange rate of the “convertible” peso is set arbitrarily by the Cuban government: equal to one dollar until April 9 (actually $1.11 with the 10 percent fee) and at $1.08 after the appreciation (actually $1.19 with the 10 percent fee).

5. At the new exchange rate of the convertible peso for 24 pesos, if the “convertible” peso were indeed traded in the international market, it would be exchanged for $.04 cents instead of the officially set $1.08.

6. Castro and the BCC have not provided any evidence that the convertible peso “is beginning to be accepted in the international market.”

7. The Euro, the Canadian peso, the British pound, and the Swiss franc continue to circulate in Cuba , and their circulation will probably increase in the future. Therefore, instead of three legal tender currencies (the dollar, the convertible peso, and the peso) there are now seven.

Because of all of the above reasons, the cut in two pesos decreed by Castro was just a symbolic, political decision geared to the outside world and a minority of Cubans who only have pesos, but it will not have any relevant economic effect, and certainly it is not a significant step toward real peso convertibility.

3. Underlying Causes
The BCC Resolution's measures can be interpreted as another step toward the recentralization process—as discussed, the closing of spaces to the private sector and the strict control of hard currency. However, the principal reason is the severe and growing scarcity of hard currency, due to the failure of Cuba 's economic policies and its huge external debt with the Club of Paris since 1986, as well as with many other countries. Cuba's total hard currency debt was estimated at $13.3 billion at the end of 2004, while the debt in not convertible currency (that is, the currency used by the former socialist countries) with Russia, Romania, Hungary, and Poland, excluding other Eastern European countries, was calculated at $22.1 billion, for a total debt of $35.4 billion, a per capita hard currency debt of $1,776 and a total per capita debt of $3,100 ( Cuba Facts 2005). Because of this debt and defaults with a dozen countries, it is extremely difficult for the Cuban government to get credit and, when it does, it is short term and charged at a very high interest rate. The scarcity of hard currency has been aggravated by several problems: continuous deterioration in the terms of trade; a merchandise trade deficit of about $3 billion from 2000 through 2004; a decline in foreign direct investment from 2001 through 2004; cash purchases of food and agricultural products from the United States that reached a cumulative total of $1 billion at the start of 2005; extensive imports of equipment, spare parts, and goods in 2004 due to the electricity crisis and subsequent paralysis of great parts of the tourist sector; the conflict with the European Union during 2003 and 2004 that postponed Cuba's entrance into the Cotonou Accord and reception of economic aid from EU; and the UBS scandal, which constrains Cuba's deposits of hard currency, regardless of their sources (several of these reasons were given by ECLAC 2004c). The Cuban government has rejected the notion that the BCC Resolution's measures were a result of hard currency scarcity, and Castro has asserted that “no revenue from Resolution 80 will be used in commercial transactions but only to guarantee the value of the convertible peso” (cited by Mayoral 2005).

B. Effects of De-Dollarization

1. Positive Effects for the Government in the Short Run
Despite official declarations that the new exchange measures are not intended to collect hard currency, in the short run they have generated a substantial flow of dollars through two ways: the 10 percent fee charged to convert dollars into convertible pesos and the appreciation of the convertible peso by 8 percent. The amount of remittances annually sent to Cuba range from US$400 million to $1 billion. If we assume that all remittances are exchanged for convertible pesos, that would generate from $76 million to $190 million for the government. In addition, the BCC will exert more control on dollar accounts; for instance, impeding new deposits in dollars in existing accounts, restricting withdrawals, and imposing the 10 percent fee on withdrawals from old dollar accounts and foreign representatives.

According to the president of the BCC, the number of new bank accounts opened in dollars rose ten times between October 18, 2004 (when the measures were announced on TV), and November 14, 2004, because when accounts were opened before the deadline, dollars could be withdrawn in cash or convertible pesos without paying the fee. That transaction was beneficial to those who had a modest sum in dollars that would have to be spent in the short run in the TRD in order to avoid losing 10 percent of its value. In that manner, the government captured more dollars. Additionally, the number of people changing dollars to convertible pesos in government exchange agencies (Casas de Cambio—CADECA) rose by 30 times the day after the announcement; if they had waited until the day after the deadline, they would have lost 10 percent of the dollar's value due to the exchange fee. Conversely, it is highly probable that those who had hoarded large amounts of dollars kept them under the mattress (without opening bank accounts or changing dollars in CADECA before the deadline), in order to impede the government from knowing how much they have and as a way to keep hidden dollars secure to be able to exercise more options in the future.

2. Negative Effects for the Government in the Middle and Long Terms
In the medium and long term, the BCC Resolution's measures could generate several negative effects for the government. Cubans who have plenty of dollars hoarded will try to buy items on the black market (which had been significantly reduced by the CADECA and TRD), creating more incentives for people to steal from the state in order to sell scarce goods. The black market can now sell goods at lower prices than the TRD because most supplied goods are free (they are stolen), prices in the TRD were raised by 10 percent to 30 percent in March 2004, and the Resolution further increased such prices by 10 percent due to the exchange fee. The decline in black market prices might also attract those who receive modest remittances, to save the 10 percent fee and to avoid the loss of 8 percent in dollar depreciation. In February 2005, in an article published in Cuba , I predicted a surge in the black market and that the government would launch a campaign against it and impose severe sanctions to offenders (Mesa-Lago 2005b).

On March 17, 2005, Castro stressed the need to rid the country of the black market, saying that such illegal sales compromised a system of distribution beneficial to all the people: “We must do away with the scheming. . . . We have the most just cause, the best [political] system and we are squandering it . . . the state has to guard and educate.” He exhorted the armed forces, the Ministry of Interior, the Union of Communist Youth, and the Committees for the Defense of the Revolution to impede robberies and the channeling of goods into the black market (Castro 2005d). Castro had previously criticized the dollar sales of medicines in the streets, although those medicines are difficult to find at subsidized prices; he threatened that the government would not stay [standing immobile] with its arms crossed (Castro 2005b). But Cuban history shows that punitive measures against the black market are difficult to implement, which is the main reason why the free circulation of the dollar and the TRD were introduced.

In addition, the black market in Cuba that existed to buy and sell dollars was significantly reduced by the establishment in 1995 of CADECA. Although the BCC Resolution does not specify how dollars may be purchased, Cuban authorities have stated that the practice of buying dollars with pesos or convertible pesos continues, albeit paying the 10 percent fee for each transaction. It is probable, however, that eventually only the exchange of dollars in convertible pesos will be permitted. The Resolution's measures will probably lead to a scarcity of dollars in the domestic market together with an increase in the demand for dollars (from those who travel abroad or give dollars to Cuban visitors to the United States to buy goods there, and so on), therefore, generating strong incentives for the reactivation of the black market in dollars. If that happens, the price of the dollar in such a market would rise. The president of the BCC has asserted that there will not be an increase in the black market because the population has “trust” in the government and its currency, and yet Castro's statements about the black market, cited above, contradict him.

The BCC Resolution did not mention dollar remittances, but they continue to be received, at least for the time being, although the government charges the 10 percent fee when dollars are exchanged for convertible pesos. The government recommends to those who receive remittances (62 percent of the population, according to ECLAC 2004c) that they ask their relatives abroad to send remittances in any of the four authorized currencies to avoid paying the 10 percent fee for exchanging dollars. But the majority of Cuban exiles live in the United States , and it is easier for them to send dollars. Furthermore, the only agency authorized by the U.S. government to do transfers to Cuba is Western Union , which only accepts dollars. For the immense majority of Cubans abroad, therefore, the maximum amount in remittances annually allowed of $1,200 is reduced to $1,080 when exchanged into convertible pesos. Cubans abroad who are able to send Euros or other authorized currencies into Cuba have to pay a hefty commission for the exchange. The restrictions imposed by both the Cuban and U.S. governments may provoke a decrease in the amount of remittances.

Out of the total number of tourists who visited Cuba in 2003, 58 percent were Canadian, and the rest were mainly from the Euro or British pound zones; hence, the Resolution will not affect them. Only 4 percent of tourists who went to Cuba in 2003 traveled from the United States . The new 10 percent fee for exchanging dollars will certainly make any future vacations to the island more expensive for Americans. The restrictions imposed by the U.S. government, however, have reduced the number of Americans traveling to Cuba by 50 to 70 percent (and reduced the number of Cuban Americans by 38 percent); hence, the effect of the Resolution would be secondary for these visitors. About 7 percent of total tourists in Cuba were Latin Americans from the dollar zone, so the Resolution might have a negative impact on them, because they are low-income tourists seeking cheap vacations.

Authorized credit cards in dollars continue to be valid and not subjected to the 10 percent fee because—according to the Resolution—they do not involve costs or risks associated with transactions in cash. But the Cubans are using an ingenious trick to circumvent the restrictions: those who have dollars and want to buy something in the TRD deliver dollars in cash to another person who has a credit card and buys the merchandise in exchange for a gift smaller than the value of the 10 percent fee. If these operations increase and become widely known, the government will try to regulate the use of credit cards or charge the 10 percent fee to them as well, with negative economic consequences for the state.

3. Adverse Effects on the Population and Potential Future Measures
The Resolution's measures will further reduce the population's consumption in Cuba . Adjusted for inflation, personal consumption declined 40 percent from 1999 through 1993 and, in 2000, was still 22 percent below the 1989 level. ECLAC (2004c) acknowledges that in 2002 the pre-crisis level still had not been recovered. Before the crisis of the 1990s, the rationing quotas that covered, albeit frugally, one month of food needs, now only cover from one week to ten days, forcing people to buy the food they need through the end of the month in the free agricultural markets and the TRD. Prices in agricultural markets rose by 23 percent in 2002 and increased again in 2003 and 2004; the TRD raised their prices between 10 percent and 30 percent in March 2004. The Resolution imposed an additional de facto increment of 10 percent in TRD prices; therefore, prices jumped anywhere between 21 percent to 43 percent in 2004.

When decreeing the convertible peso's appreciation by 8 percent, the BCC said that it was “for the time being,” suggesting that new appreciations will occur (“Acuerdo 15” 2005). New restrictions in the future may include compulsory exchange of all dollars into convertible pesos, elimination of bank accounts and certificates of deposit in dollars, control of credit cards in dollars or charging them with the 10 percent fee, and completely prohibiting the possession of dollars.

VII. CONCLUSIONS
This paper has demonstrated that Cuban claims of an economic growth rate of 5 percent and the virtual achievement of full employment with a 1.9 percent unemployment rate, both in 2004, are statistical fabrications geared to show that Castro's reversal of the market-oriented reforms and his recentralization policies are generating strong economic positive effects. The record-breaking number of tourist arrivals and gross revenue generated from tourism in 2004 were indeed good news, but they must be tempered by the following caveats: a dramatically decreasing rate of tourist arrivals in the last five years; a target of 2 million tourists that took six years to be accomplished and a goal of $2.6 billion in revenue that has not yet been attained; the need to deduct high costs of inputs from tourist gross revenue; and declining occupancy rates, length of over-night stays, and average expenditures.

It is too soon to reach a solid conclusion on the real significance of the discovery of new oil deposits, but the officially estimated size of the Santa Cruz deposit is quite small and, although the crude is reported to be of better quality than that extracted from current deposits in exploitation, it still has to be mixed with crude that is lighter with less sulfur content. Furthermore, estimates of the size and quality of the crude were based on merely six days of extraction, but despite that, more than three months have elapsed since Castro announced the oil discovery (halfway through the stage of experimental production), and no additional information on size and quality of said deposit has been published.

The good domestic news reports, therefore, are bogus, exaggerated, or suspicious. Conversely, the bad news on the domestic economy is well documented and catastrophic. First, the combined loss of $3 billion from two hurricanes and the worst drought in the last century surpassed the $2.2 billion earned from tourism by 33 percent.

Second, a 2004–2005 sugar harvest between 1.5 and 1.7 million tons, the lowest since 1905, should result in a loss from $100 million to $200 million. Cuba will not be able to take advantage of higher sugar prices in the world market because most of the sugar produced for export was contracted previously at low prices; furthermore, it will be almost impossible to meet domestic needs of 700,000 tons (about half of the harvest), hence forcing continued imports of sugar at high prices.

Third, the grave electricity crisis led to losses, from the many industries that had to close and a downturn in the tourism market, estimated at $200 million, plus the cost of additional imports that aggravated the merchandise trade deficit.

Fourth, Castro's ill-conceived economic policies have been unable to recover the GDP per capita of 1989; the output of nine key agricultural products in 2003 were from 20 percent to 73 percent below their levels of 1989, and while output of oil and nickel have surpassed earlier levels, production levels in six crucial industrial lines (cement, electricity, steel, textiles, fertilizers, and cigars) were from 65 percent to 85 percent below their pre-crisis levels or remained stagnant.

Despite such disastrous economic policies and their results, since 2003, Castro has launched a process of recentralization of decision making that reverses all the advances made by his government's market-oriented reforms undertaken from 1993 through 1996. This process of going back to a more centralized model deepened in 2004 and in the winter of 2005 and includes the following measures:

•  banning state enterprises from conducting transactions and from providing 87 services in hard currency;

•  requesting such enterprises to get approval from the BCC for all hard currency imports and paying a tax between 1 percent to 2 percent on the value authorized;

•  disbanding decentralized enterprises that were allowed to conduct foreign trade and retaking control of other enterprises by MINCEX;

•  forcing all enterprises (including the Cuban share in mixed enterprises and joint ventures) to deposit all hard currency income in a single account at the BCC and requesting its permission for all transactions involving hard currency and convertible pesos, as well as permission to sign checks for more than 5,000 convertible pesos;

•  obligating state enterprises to prepare weekly budgets in advance and submit them for BCC approval; and

•  taking control of previously decentralized tourist enterprises and imposing absurd controls on all tourist personnel.

In addition to the above, the small private sector has been further reduced by cancellation or suspension of permits for self-employed activities, which has led to a significant reduction in numbers of those workers. While economic decisions are increasingly concentrated in fewer hands, it is absurd that the president of the nation wastes five and one-half hours giving a speech on TV and radio explaining how to use a pressure cooker, giving recipes to housewives, and explaining how to save electricity, for example, by putting black beans in water the night before cooking them (cited by Alfonso 2005).

Castro's previous experiments with centralization and movement away from the market consistently led to dreadful economic effects, and the new measures are already creating serious problems, such as delays in receipt of needed imports, creditors who have been unable to collect payments, time taken from attending to tourists by hotel managers who must prepare detailed weekly bureaucratic budgets; a 37 percent decline in the number of active joint ventures and a 77 percent decrease in foreign direct investment.

As on previous occasions, Cuban authorities have justified recentralization measures as needed to control corruption, profligacy, and lack of discipline; confront U.S threats to the Cuban economy; correct inequalities; and restore revolutionary morale. The real reason, however, is probably Castro's urge to secure a tight transition after his death to his brother Raúl and the Communist Party. Decentralization of economic decision making on the part of thousands of managers and those who have run the tiny but dynamic private sector, altogether including hundreds of thousands of individuals, involved a risk that these people would eventually resist the continuation of totalitarian control. Once again, the regime's stern quest for political survival has trounced economic logic and the welfare of the people.

Another important reversal of the market-oriented reforms of 1993–1996 has been the banning of the dollar as legal tender and its substitution by the convertible peso; the 10 percent exchange fee for dollars, combined with the 8 percent increase in the value of the convertible peso, results in a raise in the rate of exchange from par to $1.19 per one convertible peso. De-dollarization measures are officially justified by the Cuban government to counteract U.S. pressures on foreign banks to impede Cuban dollar deposits made to fulfill international financial obligations, as well as to take a significant step toward making the peso fully convertible. The first argument is true, but it results from the Cuban government's deposits of money-laundered funds that prompted the UBS scandal, while the second justification (peso convertibility) has been refuted in this paper with seven solid reasons. Actually, the principal cause of the de-dollarization is the Cuban government's severe lack of liquidity, due to it enormous foreign debt and multiple defaults, which have created an urgent need to obtain hard currency. The banning of dollar transactions is also another step in the process of economic recentralization and central control of hard currency. In the short run, the new measures have generated more dollars for the Cuban government through the 10 percent fee, the BCC's major control of dollars accounts, an increase in the number of new dollar accounts opened, and an increase in exchanges in CADECA and other authorized agencies. Nonetheless, the de-dollarization and re-centralization will not solve the grave structural problems of the Cuban economy, such as the enormous deficit in its merchandise trade balance, the scarce and costly access to foreign credit, and the chronic insufficiency of hard-currency. In the medium and long terms, the Cuban government may experience some adverse effects from its policies, such as the resurrection of the black markets in goods and dollars, a possible reduction in remittances, a decline in Latin American tourism, and increased use of credit cards to evade the dollar exchange fee. The Cuban people are the ones who have suffered and will continue to suffer from the government's policies, due to a new increase of 10 percent in the TRD prices, which further reduces personal consumption, and they face the uncertainty of new restrictions in the future, such as a total ban on the possession of dollars.

The principal external bonanza for Cuba is Venezuelan President Hugo Chávez's government's significant, increasing, and largely free buttressing of Castro and the Cuban economy, which is approximating the support given in the past by the former Soviet Union: (1) 44 percent of Cuba's oil needs are being supplied by Venezuela at half the world market price (amounting to a subsidy of $800 million in 2005), yet the Castro government has hardly paid for any of it, incurring a $2.5 billion cumulative debt; (2) Venezuela transfers ownership of millions of dollars' worth of oil to Cuba that is not actually delivered to the island but is sold on the world market, for which Cuba receives the income; and (3) Venezuela has made potential commitments to invest hundreds of million dollars in all kinds of production and infrastructure projects on the island, particularly in nickel and stainless steel production and oil refining. Only for political reasons (as for the Soviet Union before), Chávez is willing and so far is capable of supporting the heavy and increasing Cuban burden, based on the record high prices of oil on the world market and his control of the opposition and news media. However, if a world recession occurs or the world's petroleum supply increases significantly, the price of crude oil would decrease, thus lessening the ability of the leader of the Bolivarian Revolution to shore up his counterpart in Havana . If a recession or boom in oil supply does not occur and if Chávez stays in power and Castro's luck continues unabated, Venezuela could fully replace the defunct USSR as Cuba 's economic subsidizer.

China 's short-term economic aid, granted in gifts, credits, and deferral of Cuba 's debt totals about $200 million (75 percent of it to buy TV sets), a relatively small amount compared with President Hu Jintao's trade agreements and investments in other Latin American countries. The two most important deals, however, are over the long term and in the nickel industry: a $500 million credit to resume construction of the ferronickel plant left unfinished by the USSR and some of its former East European partners and a potential $1.3 billion investment to exploit a new nickel deposit. The two projects combined would produce 72,000 tons of nickel, doubling Cuba 's current output (to this should be added a possible 16,000 tons resulting from Sherritt's planned expansion). The first project is scheduled for a 25-year period, and the second involves just the initiation of feasibility studies; furthermore, if Cuba 's antiquated, energy-intensive technology of the 1940s is involved in these projects, nickel production would be very expensive and would demand substantial price subsidies from China . Even if both projects materialize and use a more advanced technology, due to their long time spans, they will not solve Cuba 's urgent economic problems. Furthermore, the conflict between the successful Chinese market-socialist model and Cuba 's doomed, centralized antimarket model raises doubts about how long China would be willing to invest in and subsidize the Castro regime far beyond some political gains and a supply of nickel that could be obtained more cheaply and efficiently from other producing countries.

The net balance of U.S. policy appears to be positive for Castro: the restrictive measures imposed on Cuban Americans and travel to Cuba have had a minor impact on the Cuban government (which, in turn, has used the measures as an excuse to impose tougher measures on Cubans) but have had negative effects on the people and have reversed the increasing good will between Cubans on the island and the diaspora. Conversely, the opening of trade for agricultural products and medicines has made the United States Cuba's number-one food supplier and Cuba the third largest U.S. agricultural importer in Latin America . Furthermore, the trade opening has created a split among opposing interest groups within the U.S. administration, as the Cuban government successfully forced U.S. exporters to join it in weakening the embargo.

The EU's new approach to Cuba is an oxymoron: the Brussels Declaration contains the noble principles of defense of human rights, urgent and unconditional liberation of imprisoned dissidents, and fortified dialogue with the peaceful opposition, while apparently withholding economic aid until results in Cuba are evaluated. The EU's performance-based approach is likely to collide with a stubborn, aging, unwell Castro, who has said that he does not need Europe (particularly now with Chavez's help) and has often rejected lessons on economic and democratic reforms from well-intentioned foreign leaders and nations. An important test for the EU policy has been passed, as Castro allowed dissidents to hold the Assembly to Promote Civil Society in Havana on May 20, 2005: however, he created friction by expelling from Cuba and blocking the participation of many foreign observers and individuals. A pending test is whether the government escalates attacks on the peaceful demonstration by the spouses and mothers of prisoners of conscience (Damas de Blanco) demanding their loved ones' liberation. The EU evaluation of the new policy, to be held in July 2005, will take into account the outcome of these tests.

I would like to answer this essay's initial question, whether the mix of good and bad news in 2004–2005 will save or damn Cuba 's economy, by using an extended metaphor. On the domestic front, the proven, catastrophic bad news overwhelmingly overcomes the bogus, exaggerated, or suspicious good news. The antithesis of King Midas, Castro transforms everything he touches with his futile economic policies into dung. However, the Maximum Leader's amazingly good luck continues to provide him with external guardian angels (first the USSR , now Venezuela , and, to a lesser extent, China ) that protect him from his disastrous mistakes at very high costs to the people. So, on the international front, the good news appears to overshadow the bad, as Cuba 's weak economy is generously subsidized by Venezuela . The questions are, how long will such largesse last, and when will it reach a level that becomes unsustainable for Venezuela Castro continues to blame the U.S. capitalist-empire devil for Cuba 's economic troubles. The EU could either turn into another devil—if it holds to the defense of human rights and liberation of dissidents while withholding economic aid—or become another guardian angel—if it does not honor its principles and gives economic aid to Castro should he fail to uphold the EU's human rights provisions. Ultimately, Venezuelan aid will not save Cuba 's economy from damnation—in the same manner that the Soviet Union did not—unless current policies are reversed again in the direction of the market, an unlikely prospect while Castro remains alive.

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“Casi Dos Millones de Cubanos Enfrentan Desabastecimiento de Agua.” 2005. Encuentro en la Red (Madrid), February 22.

Castro, Fidel. 2002. “Discurso en la Clausura del IV Encuentro Internacional de Economistas, Palacio de las Convenciones.” Havana: Consejo de Estado, February 15, versión taquigráfica.

______. 2004a. “Mesa Redonda Informativa.” Havana, TV, November 17.

______. 2004b. “Buenas Noticias para Finalizar el Año.” Granma , December 25.

______. 2005a. “Clausura del Encuentro Internacional sobre Globalización y Problemas del Desarrollo.” Granma , February 12.

______. 2005b. “Discurso a los Trabajadores de la Salud.” Havana, TV, February 14.

______. 2005c. “Clausura en el Acto por el Día Internacional de la Mujer.” Havana , TV, March 8.

______. 2005d. “ Mesa Redonda Informativa.” Havana , TV, March 17.

______. 2005e. “Nosotros si Podemos y lo Estamos Demostrando.” Granma , March 25.

“Circular 2000.” 2004. Havana: Ministerio de Economía y Planificación, April 1.

“Circular Especial 5.” 2004. Havana: Ministerio de Comercio Exterior, May 17.

Comité Estatal de Estadísticas (CEE). 2004. Anuario Estadístico de Cuba 2003 . Havana: CEE.

Cuba Facts . 2005. University of Miami , ICCAS, No. 8, February.

“Declaración de Alimport.” 2005. Havana, February 25.

Delgado Covarrubia, Ariel. 2005. “La Peor de Todas.” Cubanet News, March 16 and 17.

Economic Commission for Latin America and the Caribbean (ECLAC). 2004a. Cuba: Evolución Económica Durante 2003 y Perspectivas para 2004 . México D.F.: LC/MEX/L.622, August.

______. 2004b. Política Social y Reformas Estructurales: Cuba a Principios del Siglo XXI . Coordinadores Elena Álvarez y Jorge Máttar. México DF: CEPAL/ INIE/PNUD, April.

______. 2004c. Preliminary Overview of the Economies of Latin America and the Caribbean . Santiago, December.

EFE. 2005a. “Averías y Falta de Caña Perjudican la Zafra en la Isla.” Havana, March 6.

______. 2005b. “La Sequía Afecta a Dos Millones.” Havana, March 12.

______. 2005c. “Castro Revaloriza la Moneda Nacional.” Havana, March 19.

______. 2005d. “Europa Insiste en que se Haga una Apertura.” Havana, March 9.

______. 2005e. “Embajadores de la UE se Reúnen con Disidentes.” Havana, March 22.

“Eficiencia Industrial Será Premisa en la Próxima Zafra.” 2004. Granma , December 13.

Frank, Marc. 2004. “Cuban Communists Launched Crackdown.” Financial Times , July 5.

“El Gobierno y la Empresa Canadiense Sherritt Firman un Acuerdo para Ampliar la producción de Níquel.” 2005. Encuentro en la Red (Madrid), March 7.

González Gutiérrez, Alfredo. 2003. “El Sistema de Planificación y Circulación Monetaria Dual en la Etapa Actual.” Economía y Desarrollo , Edición Especial (December): 11–21.

“La Habana Condiciona Posibles ‘Gestos Claros' al Voto de la UE en Ginebra.” 2005. Encuentro en la Red , March 9.

Jiang, Shixue. 2002. “Las Reformas Económicas de Cuba Desde la Perspectiva China.” Beijing: Instituto de Estudios Latinoamericanos, Academia Nacional de Ciencias de China. Citado por Andrés Oppenheimer, “Los Consejos de China a Cuba,” El Nuevo Herald , March 3.

Marin, Mar. 2005. “Oposición ve Igual Retórica en Castro.” El Nuevo Herald , February 3, 13A.

Mayoral, María Julia. 2005. “Fortalece el País su Moneda Convertible.” Granma , March 19, http://www.granma.cubaweb.cu.

Mesa-Lago, Carmelo. 2000. Market, Socialist and Mixed Economies: Comparative Policy and Performance— Chile , Cuba and Costa Rica . Baltimore: The Johns Hopkins University Press

______. 2005a. “Problemas Sociales y Económicos en Cuba Durante la Crisis y la Recuperación.” Revista de la CEPAL (Santiago), forthcoming in August.

______. 2005b. “El Fin del Dólar, Causas y Efectos.” Vitral (Pinar del Río), No. 65 (January-February): 50; http://www.vitral.org.

Mesa-Lago, Carmelo, and Jorge Pérez-López. 2005. Cuba 's Aborted Reform: Socioeconomic Effects, International Comparisons and Transition Policies . Gainesville : University Press of Florida (forthcoming in the fall).

Musa, Arnaldo. 2004. “Inauguran Foro de Inversión y Comercio Cuba-China.” Granma , November 23.

“Nota Oficial.” 2004. Granma , October 14.

Ocando, Casto. 2005. “Deuda del Régimen con Venezuela por Factura Petrolera Superó el Año Pasado la Barrera de de $2,500 Millones de Dólares.” El Nuevo Herald , February 20, 1A, 2A.

Pérez Oliva, Enrique. 2005. “El Duro Rebusque de los Cubanos.” El País (Cali), February 7.

Ramos Lauzurique, Arnaldo. 2003. “ Cuba Está Muy Bien.” Holguín: unpublished report on the Cuban economy sent from prison, December 27.

“Resolución No. 379.” 2003. Havana: Ministerio de Finanzas y Precios, June 20.

“Resolución No. 65.” 2003. Havana: Banco Central de Cuba, July 16.

“Resolución No. 11.” 2004. Havana: Ministerio del Trabajo y Seguridad Social, March 13.

“Resolución No. 54.” 2004. Havana: Ministerio de Finanzas y Precios, March 15.

“Resolución No. 80.” 2004. Havana: Banco Central de Cuba, October 23.

“Resolución No. 92.” 2004. Havana: Banco Central de Cuba, December 29.

“Resolución No. 10.” 2005. Havana: Ministerio del Turismo, January 19.

Reyes, Gerardo. 2005. “España no Olvidó a los Disidentes; Dicen Funcionarios.” El Nuevo Herald , March 20, 25A.

Rodríguez, José Luis. 2004. “Informe a la Asamblea Nacional sobre los Resultados Económicos de 2004 y el Plan Económico Social para 2005.” Havana , December 24.

San Martín, Nancy . 2005. “ U.S. Cuba Expert Quits.” The Miami Herald , March 16, 10A.

Sánchez, José F. 2004. “Havana: La Nueva Cuba.” Press release, December 28.

U.S. Department of Commerce. 2004. “Cuban Assets Control Regulations: Interim Final Rule.” Federal Register, 69, No. 119 (June): 34565–34567.

Varela, Juan. 2005. “Responde el Rendimiento, Pero no es Todo.” Granma , February 20.

“With Help from Oil and Friends.” 2005. The Economist , January 15.

See Introduction, Chapters I and II
See Chapters III, IV and V

Octubre 20, 2005
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