Cuba’s Debt Crisis:
Foreign Debt, Unemployment, and Migration
A decade ago the influential British journal The Economist described Cuba’s foreign debt—then estimated at $12 billion—as “slippery, shapeless and slow to be repaid” (1).
Today, the approximately $72 billion in foreign debts and claims against the Cuban government (Table I) amount to an unbearable burden and surreal sum to repay for a country with an economic output barely one-fifth the size of Greece’s own bankrupt economy, and an unemployment rate far higher than Europe’s worst, Spain (Table II).
Yet Cuba’s silent crisis has received virtually no media attention in the U.S. or Europe by comparison with the EU’s debt debacle, even though the predominantly European members of the Paris Club collectively hold over $30 billion in Cuban debt, virtually all of it in default or arrears.
(2) Separately, Havana owes the Russian Federation some $27 billion in outstanding trade credits and loans granted by the Soviet Union and now claimed by Russia. While Russia has refused to forgive its Soviet-era debts it has, nonetheless, extended more than $1 billion in new government-guaranteed financing for trade with Cuba since the 1990s.
Table I. Cuba’s Foreign Debt, 2010
Venezuela Will Surpass Russia as Largest Creditor by 2015
Then there is the debt with Caracas, which in the last decade has afforded Cuba upwards of $15 billion in crude oil and refined fuel to keep the lights on and the buses running in Havana. Despite assertions by the Cuban government that it pays for Venezuelan oil with healthcare providers, school teachers, technicians of all sorts, athletic trainers, and other Cuban human capital assigned to a variety of missions in Venezuela, the fact remains that Caracas compensates Cuba in cash for such services, in violation of the original terms of the “Cuba-Venezuela Integral Cooperation Accord” of October 2000.
(3) The accounting for the oil shipped to Cuba has been subsumed since December 2004 into annual bilateral cooperation agreements (4) and multilateral aid pacts between Caracas, Havana, and other ALBA (5) member states (Bolivia, Ecuador, Nicaragua, and several English-speaking Caribbean islands).
We estimate that Cuba’s multi-billion dollar bill for Venezuelan crude has been deferred for at least 17 years, with Caracas having no intention of actually collecting payment in hard currency so long as Chávez and the Castro regime remain in power. The Cuban government nominally “pays” for the oil “sold” by PDVSA, Venezuela’s state-owned oil company, with unsecured IOUs issued by Cuba’s national bank. At current market prices, the Cuban economy’s chronic dependence on Venezuelan crude and credit burdens Cuba with an additional $3.6 billion in debt annually. By 2015 Caracas will have surpassed Moscow as Havana’s single largest creditor with $30 billion at stake in the Castro regime.
Debt Burden at 125 % of GDP
By now the reality of a massive foreign debt that will not go away, and continues to grow with each passing year, has caught up with the Castro regime. With a debt burden equivalent to 125 percent of Cuba’s gross domestic product (GDP) in 2010 (Table II), Havana finds itself between a rock and a hard place.
Just as Raúl Castro attempts to restructure Cuban communism along pragmatic Chinese lines, securing the one-party communist state while attracting foreign capital into strategic export-oriented industries, Cuba struggles to generate enough hard currency revenue to pay for essential imports.
In fact, without the soft credits and long-term flexible financing provided by Venezuela, China, Brazil, Iran, Vietnam, and a few other strategic allies, the Cuban economy would collapse. Whether Raúl Castro will prove to be Cuba’s Deng Xiaoping or its unwitting Gorbachev will largely depend on how quickly and effectively he can turn Havana into a Beijing in the tropics.
Yet in spite of expanding self-employment options and leasing state-owned lands to would-be farmer-entrepreneurs, for now the state cannot function without soft credit from political allies to import just about every basic input and consumer good: rice from Vietnam, oil from Venezuela, buses from China.
Although the Castro regime has managed to stay afloat over the last 20 years by selectively borrowing, renegotiating, deferring, and defaulting on debts to a diverse group of creditors and countries, if Havana should lose access to government-backed loans, trade credits, and other forms of long-term financing and subsidies currently offered by Beijing, Brasilia, Caracas, Hanoi, Moscow, Tehran, and other diehard patrons of the Castro regime, the island’s vulnerable economy would face imminent ruin.
Havana: The “Athens” of the Americas
Just how severe is Cuba’s debt crisis? In Table II we compare macroeconomic data on Cuba with corresponding figures for the most heavily indebted European countries that have required financial bailouts.
Cuba, with a foreign debt that reached 125 percent of GDP in 2010, surpassed Iceland, Portugal, and Ireland in terms of indebtedness relative to the size of the country’s economic productivity. While Greece and Cuba are nearly equal in population size Athens’ debts (equivalent to 144 % of Greek GDP) overshadow even Havana’s.
Nevertheless, Greece shows signs of life when measured against Cuba’s moribund economy. The 11.3 million people of Greece generated over $300 billion in goods and services, and the country earned a modest $21 billion in hard currency through exports. Cuba’s $58 billion economy, by comparison, exported a mere $3.3 billion in 2010. The Cuban economy simply has no way out but to start from scratch and grow its way out of debt.
Yet if the Greeks, with a GDP of $305 billion, face national bankruptcy and years of austerity measures then Havana, which defaulted on its hard currency debts to Western creditors in 1986 (6), will have to do more than just successfully replicate Beijing’s economic achievements in terms of attracting large sums of foreign capital into export-oriented industries. More than paper policies, the regime will also have to stimulate, or shock, workers into productivity in order to convert easy-going Cuban compañeros to the work ethic and expectations of their Chinese comrades.
(7) The termination of guaranteed wages for the unemployed (8) and the projected elimination of 500,000 jobs from official payrolls by the end of 2011 are likely but the first shocks to which Cuba’s formerly complacent labor force will be subjected. (9)
Table II. Cuba v. Europe: Comparative Macroeconomic Data, 2010
*Ranked by indebtedness
Sources: U.S. Central Intelligence Agency, The World Factbook, 2010 data, https://www.cia.gov/library/publications/the-world-factbook/index.html (accessed July 2011). Estimate for Cuba’s actual unemployment rate from Carmelo Mesa-Lago, “El desempleo en Cuba: De oculto a visible,” Espacio Laical (4/2010), http://www.espaciolaical.org/contens/24/5966.pdf.
Unemployment: 45 % by 2015
To the degree that Raúl Castro’s reforms succeed in liberalizing Cuba’s labor market the government will then have to figure out what to do with hundreds of thousands of formerly subsidized workers accustomed to non-productive roles at bloated ministries and state-run enterprises.
While many individuals may be incentivized by higher wages or better prospects as self-employed service providers, vendors, and would-be farmer-entrepreneurs (10), the sudden downsizing of the public sector has exposed an actual unemployment rate estimated at above 25 percent, and rising.
(11) Furthermore, Cuba’s structural unemployment problem can only be expected to worsen in the near term while the government continues to let go of as many as 1.3 million surplus workers in the next few years. The state’s need to rapidly cut costs and enhance productivity will unleash an avalanche of public-sector workers onto the streets and exacerbate the shortage of jobs far beyond what the island’s real economy, dependent on tourism and remittances, could offset even in the best of circumstances.
Last year, when the lay-offs began, the actual number of Cubans without a sustainable, productive occupation (whether nominally employed or otherwise) had already reached about 1.3 million (12). Although the government announced in March 2011 that it would delay its initial deadline for the downsizing of the state’s payroll, it intends to transfer 200,000 workers per year into the ranks of the self-employed over the next five years. (13)
Moreover, the term “self-employed” increasingly serves as a euphemism for those who have lost their state-subsidized jobs and must now scramble to find any alternative source of income. We estimate that, as the regime presses on with its economic reform policies, the country’s real, street-level unemployment rate will exceed 30 percent in 2011. Ultimately, actual unemployed and underemployed workers may account for as much as 45 percent of the Cuban labor force by 2015. (14)
In the words of Lenin’s provocative pamphlet, what is to be done? For many Cubans the answer lies in a place rather than in politics: Miami. For Havana, however, the mass migration of unskilled, unemployable and unproductive segments of the workforce to the South Florida region may also serve its own purposes in the ongoing standoff with Washington.
Much as Fidel Castro outmaneuvered and embarrassed multiple U.S. administrations (Republican and Democrat alike), and won strategic concessions, through the use or threat of migration as a foreign policy weapon, Raúl Castro could quietly but effectively shift over a million surplus workers across the Florida Straits, and transfer the socio-economic costs and political consequences of the regime’s policies to Miami-Dade, Tallahassee, and the White House.
Cuba’s Two and a Half Million Displaced Workers: ¿Bienvenidos a Miami?
In fact, the decade that just concluded set a new immigration record as more than 274,000 Cubans obtained legal permanent residency in the United States from 2000 to 2009. This silent, steady surge in U.S.-bound emigration overtook the previous peak period of the late 1960s-early 1970s (when some 256,000 refugees fled the island).
(15) The magnitude of this migration also suggests that we are witnessing a massive movement of population no longer propelled by individual ideological convictions, collective class struggles (e.g., Revolution, communism, expropriation, etc.), or even singular historic events (e.g., Mariel boatlift), but rather by underlying structural and socio-economic factors.
At the current rate (16) we estimate that some 400,000 Cubans (a 46 percent increase over the preceding decade) will emigrate and resettle permanently in the United States (80 percent within the state of Florida alone) between 2010 and 2019.
This projection does not, however, take into account the impact of large-scale, long-term unemployment on emigration in the years to come, which could draw on at least 2.5 million displaced and discouraged workers.
In the post-Soviet “Special Period” of the early 1990s the Castro regime attempted to instantly “create” jobs by transferring about 800,000 employees from state-owned enterprises to an expanded “self-employment” sector, which in turn largely caters to the tourism industry, or to government-subsidized small-scale urban farming. This experimental intervention in the labor market, without addressing the Cuban economy’s fundamental problems, resulted in an actual unemployment rate approaching 50 percent of the total workforce by 1995 (17), or the equivalent of two and a half million idle and underemployed workers today.
A diplomatic cable sent to Washington in February 2010 from the U.S. Interests Section in Havana warned senior officials at the State Department, Central Intelligence Agency, National Security Council, U.S. Coast Guard, and the European Union, among others, that the Cuban government’s debt burden could prove “fatal” to the island’s economy by 2013.
(18) Ultimately, Washington may have to accept an indirect and tacit bailout for the Castro regime by absorbing Cuba’s surplus labor through a continuous flow of mass immigration in the coming years, or contend with the dreaded political and humanitarian consequences of severely restricting Cuban migration to the United States and inducing a high-stakes crisis in Havana.
What then is to be done with several million unemployed Cubans? While Washington simultaneously fears and evades this question, and Miami keeps hoping for a spontaneous uprising, it appears the Castro regime has already decided and once again taken the initiative: ¡a Miami!
If so, the brewing demographic tidal wave from Cuba will not only transform the character and composition of the Cuban-American community but permanently shift the balance of power from Miami to Havana. Once the exile capital of a vanished Cuba, a politically vanquished Miami will turn into a de facto dependency, economic enclave, and cultural extension of Raúl Castro’s Havana.
Notes
1. The Economist, “Cuba’s debt: Slippery, shapeless and slow to be repaid,” May 17, 2001.
2. Cf. Club de Paris/Paris Club, Annual Report 2010, p. 48.
3. Cf. “Convenio Integral de Cooperación entre la República de Cuba y la República Bolivariana de Venezuela,” Caracas, October 30, 2000, http://www.gobiernoenlinea.ve/ (accessed July 2011).
4. In June 2011, Caracas and Havana signed their 11th annual cooperation agreement based on the 2000 accord. The Venezuelan government will fund $1.3 billion in joint ventures and programs with Cuba. Cf. Granma Internacional, “A unique cooperation mechanism between the two countries,” Havana, June 14, 2011, http://www.granma.cu/ingles/cuba-i/14junio-CUBA-VENEZUELA.html (accessed July 2011).
5. ALBA, or the “Bolivarian Alliance for the Peoples of Our America,” encompasses aspects of both a political alliance and an economic integration treaty. The founding document, originally between Cuba and Venezuela, was signed by Fidel Castro and Hugo Chávez in December 2004. Typically, Caracas contributes most of the financing for multilateral ALBA projects and investments while Havana provides the personnel and services, either abroad or within Cuba. Cf. ALBA: Alianza Bolivariana para los Pueblos de Nuestra América, http://www.alianzabolivariana.org/index.php (accessed July 2011). A representative example can be seen in recent energy cooperation agreement between Ecuador and Cuba. Since 2006, Cuba has exported, installed, and managed “containerized” mini-power plants (diesel-powered generators) at multiple sites in Ecuador at an estimated cost of $450 million. The funding (including $5.6 million for Cuban consulting services) has been provided by the Ecuadorian government, an ALBA member. Cf. “Cubanos reconvertirán centrales térmicas,” La Hora (Quito, Ecuador), Nov. 12, 2006, http://www.lahora.com.ec/index.php/noticias/show/498403/-1/Cubanos_reconvertir%C3%A1n_centrales_t%C3%A9rmicas.html (accessed July 2011); “Ecuador expands power agreements,” Cuba Standard.com,
July 24, 2011, http://www.cubastandard.com/2011/07/24/ecuador-expands-power-agreements/ (accessed July 2011).
6. Matthew Pickles, “Cuban Debt Basket case or high performer?” Cuba Absolutely (Feb. 2008), http://www.cubaabsolutely.com/articles/ (accessed July 2011).
7. Cf. “Person of the Year 2009: The Chinese Worker,” Time (Dec. 16. 2009), http://www.time.com/time/specials/packages/article/. See also Xinhua, “Chinese workers draw world’s attention for their fortitude, again,” Zouping, Shandong (China), Dec. 2, 2010, http://news.xinhuanet.com/english2010/ (accessed July 2011).
8. Fernando Ravsberg, “Cuba elimina subsidio al desempleo,” BBC Mundo, Havana, February 3, 2010. See also Global Studies Initiative, “Cuban government withdraws payments to the unemployed, under intense economic pressure,” March 9, 2010, http://www.globalsubsidies.org/en/subsidy-watch/analysis/cuban-government-withdraws-payments-unemployed-under-intense-economic-pres (accessed July 2011).
9. Marc Frank, “Cuban state layoffs move slowly, workers uneasy,” Reuters, Havana, March 8, 2011.
10. Julio Martínez Molina et al., “Self-Employment Takes Off in Cuba,” Juventud Rebelde (Cuba), March 22, 2011, http://www.juventudrebelde.co.cu/cuba/2011-03-22/self-employment-takes-off-in-cuba (accessed July 2011); Mary Murray, “Cubans begin to enjoy making money,” NBC News, May 6, 2011, http://www.msnbc.msn.com/id/42865436/ns/world_news-americas/t/cubans-begin-enjoy-making-money (accessed July 2011).
11. Cf. Carmelo Mesa-Lago, “El desempleo en Cuba: De oculto a visible,” Espacio Laical 4/2010 (Cuba), http://espaciolaical.org/contens/24/5966.pdf (accessed July 2011).
12. Ibid. See discussion and tables on pp. 60, 62. Mesa-Lago estimates that actual unemployment in 2010 had reached 26.9 %, or over 1.3 million of Cuba’s estimated 5.1 million working-age adults.
13. Cf. “Cuba está en quiebra y eliminará unos 200.000 puestos de trabajo al año,” El Diario Exterior (Madrid), July 20, 2010.
14. Previous efforts by regime planners to spur the economy with market-oriented reforms, including the legalization of home-based restaurants (paladares) and private homes converted into family-run inns (casas particulares) to cater to the post-Soviet boom in tourism, produced just over 144,000 private sector jobs between 1989 and 2005, or less than 10,000 per year. Meanwhile, actual employment had burgeoned to 40 percent by the mid-1990s. See the study by Mesa-Lago, op. cit., pp. 60, 63.
15. Cf. “Cuban Migration to South Florida: Impact and Implications,” Cuba Focus, Oct. 9, 2009, http://ctp.iccas.miami.edu/FOCUS_Web/Issue114.htm (accessed July 2011). Total figure for the decade includes 38,954 new permanent legal residents of Cuban origin in U.S. fiscal year 2009. See Randall Monger and James Yankay, “U.S. Legal Permanent Residents: 2010,” Annual Flow Report (Washington, D.C.: U.S. Department of Homeland Security, Office of Immigration Statistics), March 2011 http://www.dhs.gov/xlibrary/assets/statistics/publications/lpr_fr_2010.pdf (accessed July 2011).
16. The United States has admitted an average of 40,000 new legal permanent residents of Cuban origin annually since Raúl Castro assumed power. Cf. data for fiscal years 2008-2010 in Monger and Yankay, “U.S. Legal Permanent Residents: 2010,” op. cit., p. 4.
17. Estimated actual unemployment in 1995 by independent Cuban economists. Cf. J. M. Perry, L. A. Woods, and J. W. Steagall, “Alternative Policies to Deal with Labor Surpluses During the Cuban Transition,” Proceedings of the Association for the Study of the Cuban Economy, Vol. 6 (August 1996), http://www.ascecuba.org/publications/
18. Cf. U.S. Interests Section, Havana, “10Havana84: Key Trading Partners See No Big Economic Reforms,” February 9, 2010, WikiLeaks (December 16, 2010), http://www.wikileaks.ch/cable/2010/02/10HAVANA84.html (accessed August 2011). See also Jens Erik Gould, “Cuba Debt Load May Become ‘Fatal’ to Economy in Two Years, U.S. Cable Says,” Bloomberg, Dec. 10, 2010, http://www.bloomberg.com/news/2010-12-10/cuba-debt-load-may-become-fatal-to-economy-in-two-years-u-s-cable-says.html (accessed August 2011).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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