Cuba’s New Penchant for Private Business

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For more than 50 years Socialism has been the economic policy of Cuba with approximately 85% of the Cuban workforce employed by the state today. However, change is on the horizon.

In 2008, Raul Castro, younger brother of Fidel Castro, was voted in as President. Since then, he has introduced many economic reforms. Now though, there is a new urgency to adopt these reforms as Cuban communists are now saying that nearly half of all economic activity will shift to the private “non-state” sector in the next four to five years.

Possible Loss of Venezuelan Support

One reason for this pressing desire for change is the failing health of Venezuelan President, Hugo Chavez. Chavez is Cuba’s biggest financial benefactor. He provides Cuba with two-thirds of its oil and more than $5 billion a year in exchange for a number of Cuban doctors and other professionals who now work in Venezuela.

With Chavez ill enough with cancer that he has prayed on national television for Jesus to spare his life, and his impending battle for re-election in October, Cuban economists like Paul Vidal say it’s clear that economic reforms must move more rapidly as a loss of support from Venezuela would send Cuba into recession.

Vidal says, “Cuba’s economy is small, and from a political-economic standpoint, it’s closed, with a high level of dependency on access to hard currency for growth.”

This is a result which may take some time to come to fruition though. Vidal and other economists believe the damage to the economy wouldn’t be as severe as the sudden demise of the Soviet Union was. Due to Cuba’s more interdependent relationship with Venezuela, it may be a while before their two-way trade comes undone, even with Chavez no longer in power.

More Openness Needed

The possibility of this relationship unravelling has led to mounting pressure on Castro to broaden the reforms. Those entrepreneurs already operating in the country do so with limited resources: they can’t have direct contracts with foreign suppliers or wholesalers, and there are only about 200 types of trades and businesses which can receive licenses from the government.

While Cuba’s economic outlook may seem bleak without the possibility of Venezuelan support, it remains uncertain and there is the possibility of new lifelines. Many foreign companies are starting to drill for oil off of Cuba’s north coast. If deposits are found, Cuba could get access to fresh lines of credit immediately, even if the crude oil could take years to be brought to market.

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