COLUMN

REGRESSION AND RECOVERY

With the people's unwavering faith in the system, Cuba marches on undeterred by the "double-blockade" it faced after 1989 - one imposed by the U.S. and the other created by the collapse of a crucial trade partner, the Soviet Union.

C.P. CHANDRASEKHAR
recently in Havana

WALKING down the Malecon, Havana's magnificent seafront drive, one cannot but be reminded of Cuba's history as well as its current predicament. On the one side is old Havana, with its spectacular Spanish colonial architecture. Some of the buildings retain their grandeur, others have been renovated in admirable fashion, and yet others, which house ordinary Cubans, are in a state of obvious disrepair. This "Spanish quarter" of the city, crowded with both tourists and the local population, speaks not merely of a grandiose and inequitous past, but also of the struggle over the last four decades to build an egalitarian and modern nation out of what was virtually a slave society.

On the other side of the Malecon lies the ocean. Its vastness at times generates a defensive response, imaged by a hill-top fort built against hostile seafarers. But at other times the waves solicit adventure, holding out the promise of opportunities that could be immense, even if yet unknown and fraught with danger. In Cuba's journey into modernity, both these elements have obviously played a role. The strain of defensiveness has been most visible in its relationship with the United States, which has never got over its loss of indirect tutelage over this small island, and has kept in place and intensified an unseemly economic blockade for the last four decades.

But the need to reach out across the ocean has always remained. First, it was seen in the desire to spread the revolution to and build new friendships with other nations in the world. Second, it was manifest in the close relationship with the Soviet Union which proved rewarding not merely in the form of a strategic ally against the U.S. but also through an economic relationship that offered Cuba material aid and immense trade opportunities on terms that were more favourable than most developing countries have received. Third, in the desire to expand trade, welcome tourists and attract foreign investment during the "Special Period in Peacetime", which the Government was forced to declare after the collapse of the Soviet Union.

AT the point of time after the Revolution when Fidel Castro made the decision to build close ties with and learn from the Soviet Union, few people thought of the possibility that that nation and its system would disintegrate. The collapse of the Soviet Union in late 1989 and 1990 and the sudden end to Cuba's beneficial relationship with it, brought home the danger of overseas dependence in brutal fashion. The figures are telling. From a peak of 19,585.8 million pesos (at 1981 prices) the country's gross domestic product (GDP) fell by more than a third to touch 12,776.7 million pesos in 1993.

The collapse in GDP was a result of the collapse of trade relations with countries of the Soviet bloc. In response to the U.S. trade embargo, Cuba joined the Soviet bloc's international trade alliance. That integration had two consequences. First, Cuba chose to remain a predominantly agricultural economy, relying on imports to meet its requirements of manufactured goods. Second, agriculture reflected a tendency towards monocrop production, with a heavy dependence on sugar as an export crop. According to Peter Rosset, executive director of Food First, in 1989 land under sugar cultivation was three times as much as that under food crops, and sugarcane accounted for 20 per cent of agricultural production. This was not merely the result of the structure of production under colonialism, but also the consequence of the large market offered by the Soviet bloc for Cuba's sugar exports at prices which, during the 1980s, were on average 5.4 times higher than world prices. In return for those exports at favourable prices, Cuba received petroleum which could be re-exported to earn hard currency. The net result was that imports accounted for 57 per cent of the total calories in the average Cuban diet.

The loss of revenue from sugar export that followed the Soviet collapse reduced export revenues from $5,399.9 million in 1989 to $1,156.7 million in 1993. This meant that after taking into account dollar inflows in the form of remittances, for example, imports had to be massively curtailed, falling from $8,139.8 million in 1989 to $2,008.2 million in 1993. The consequences were disastrous for the highly import-dependent production structure. Reduced access to fertilizers, pesticides, industrial inputs and oil forced a sharp cutback in domestic production. It also impacted heavily on the quality of life by generating shortages of food and medicines and by disrupting transportation. The survival of Cuba as an independent nation seemed impossible without access to a dollar lifeline, and that lifeline appeared completely absent given the U.S. economic blockade.

CUBA'S response to this impossible challenge took two tracks. First, it struggled hard to meet its egalitarian goal of providing basic necessities to all. Second, it recognised the premium on the dollar, and decided to make the earning and saving of every dollar a national goal. However, beyond a point, it was clear, the success of the first of these goals was dependent on the success of the second. That success in turn required exploiting to the maximum Cuba's human, mineral and natural resources; reducing dependence on imports wherever possible; and diversifying sources for dollar earnings away from sugar, which before the Special Period contributed between half and three-fourths of Cuba's earnings from exports.

The challenge of raising domestic production was the greatest in agriculture, which involved a shift from a high to a low-input based, self-reliant agricultural production system. It was clear rather early into the Special Period that the large, state-owned farms, the granjas estatales, which accounted for 75 per cent of the nation's agricultural land in 1992, were the least flexible and the least capable of the required adjustment. Land under small individual and cooperative farms accounted for as much as 40 per cent of domestic food production. These small farms were not merely more adaptable and innovative, but also less mechanised and less dependent on fertilizers and pesticides. As a result, in the initial years of the Special Period, while the small-farm sector raised production levels, in the state farms there was little sign of recovery from the collapsed yields. For example, while sugar harvests averaged seven million tonnes in the dominantly state farms between 1981 and 1990, production dropped to an average of five million tonnes a year during 1991-1995 and fell further to four million tonnes a year during the 1997-98 season.

Responding to this, the Cuban Government chose to go in for a major institutional change in 1993, converting the state farms into Basic Units of Cooperative Production (UBPCs), which are worker-owned enterprises or cooperatives. Under the new system, collectives of workers acquire the user right of state farmlands for free and in perpetuity to be run by themselves, but are required to meet production quotas for key crops. They are, however, permitted to sell (as of 1994) in the farmers' market produce in excess of quotas. As of now, such UBPCs account for more than 90 per cent of cane cultivation and close to half of non-cane cultivable land.

CHRISTOPHER LOVINY/GAMMA
Havana at dusk, along and near the Malecon, its seafront drive.

While success with the transition has varied across the country, there are signs of greater flexibility and innovativeness in rural Cuba. The Government has combined this transformation of rural Cuba with encouragement to organic and urban farming. The incentives provided to this sector have resulted in a virtual boom in the conversion of vacant plots and backyards into urban vegetable gardens; the produce is sold from private stands at extremely reasonable prices, often lower than those prevailing in the farmers' markets. The net result of all this has reportedly been that by mid-1995, Cuba had virtually overcome its food shortage. In the 1996-97 season Cuba recorded its highest-ever production levels for ten of the 13 basic food items in the Cuban diet. This has indeed been the most remarkable element of success in the efforts launched during the Special Period.

THE transformation has been dramatic outside of agriculture as well. And crucial to that transformation has been a willingness to open doors to foreign investors. So long as such investors set up new greenfield projects, bring in financial resources, contribute new technologies or new markets, or enhance tourist arrivals, they are welcomed and provided national treatment. Foreign ownership, which was earlier restricted to 49 per cent, can now go up to 100 per cent. Foreign firms are allowed to repatriate profits and have the freedom to transfer capital from liquidation abroad. They are assured of protection of patents and all other forms of intellectual property. As a result of these measures, around 700 companies have invested $2.5 billion in Cuba between 1990 and 1997, despite the constraints created by the U.S.' Helms-Burton Act. This meant that per capita foreign investment flow into Cuba during the 1990s was at $227, higher than the figure recorded in Brazil - $222. Such investment has been crucial to industrial revival.

The two industrial sectors that have shown significant progress leading to the earning and saving of foreign exchange are nickel and oil extraction.

Nickel production, which stood at 46,600 tonnes in 1989, crashed to 26,900 tonnes in 1994. But after that, this sector has registered a dramatic recovery, with production rising by 128.6 per cent over the next three years to touch 61,500 tonnes. Oil production, which stood at 718,400 tonnes in 1989, declined to 526,800 tonnes in 1991, before rising sharply to 1.5 million tonnes in 1997. Crucial to the revival in these areas was the decision to associate with foreign companies, such as Sherritt of Canada in the case of nickel, to access capital, technology and, in the case of exportables, markets. Nickel exports contributed 23 per cent of Cuba's export earnings in 1997.

To strengthen the export drive, the Government did away with state monopoly over the export trade. This resulted in the emergence of state enterprises, trading companies and joint ventures authorised to carry on foreign trade. The move is expected to increase the responsiveness of the system to the requirements of external markets and to new trade opportunities. Exports, however, have been slow to recover, rising from the 1994 low of $1,314.2 million to $1,859.9 million in 1997, which is still just above a third of its 1989 value. But there are signs of diversification.

While the socialist bloc accounted for as much as 89 per cent of Cuba's exports in 1989, the geographic distribution of trade in 1997 showed that 41 per cent went to Europe, 40 per cent to Latin America, Canada and the Caribbean, 14 per cent to Asia, 4 per cent to Africa and 1 per cent to Oceania.

ALAIN MOROVAN/GAMMA
Cuban President Fidel Castro.

THE area where the contribution to new incomes and foreign exchange earnings has been dramatic is tourism. Tourist arrivals, which stood just above 1 million in 1996, rose to 1.17 million in 1997 and 1.4 million in 1997 (or about an eighth of the domestic population). Hard currency earnings from tourism in 1997 are estimated at $1,531.3 million, which amounts in peso terms to about a third more than the GDP of the country. However, the tourism business, being dependent on foreign capital for investments and imports for supplies, is known to be highly import-intensive; so the net foreign exchange earning is reportedly estimated at about a quarter of gross inflows. But even that figure works out to about a third of the GDP.

While these developments have helped the GDP recover in recent years, the recovery has been slow. After the GDP fell by more than a third to touch 12,776.7 million pesos in 1993 (at 1981 prices), there has been a slow but consistent turnaround, with GDP climbing to 14,572.4 million pesos by 1997. But, even allowing for an anticipated growth of 3 per cent in 1998, the GDP is still only around three-fourths of its 1989 value.

The Cuban Government saw the Special Period as an unavoidable response to the "double-blockade" the nation faced after 1989 - one imposed by the U.S. and the other created by the collapse of a crucial trade partner. A decade down the line the task of facing up to that challenge and restoring normalcy remains unfinished. The only solace is that the Cuban people have not lost faith, treating this as one more struggle among the many which they as Cubans have learnt to continue. What is more, they also recognise that this battle will generate as many new problems as the old ones it would resolve.