Event
Just nine weeks after being re-elected for a new six-year term, Venezuelan president Hugo Chavez has admitted that the cancer he claimed to have beaten has returned and that he needs to undergo further treatment in Cuba.
Analysis
Mr Chavez has admitted for the first time that he might not survive or be fit to continue in the presidency, and designated vice-president Nicolas Maduro to succeed him if required. Mr Chavez's electoral victory in October was welcomed in Cuba as it was presumed it would provide the island with a measure of economic stability over the medium term. That has now been cast into doubt again. Cuba's dependence on Venezuela has increased sharply since 2004, when Venezuela accounted for around 10% of total trade (goods and services). It now accounts for around 40%, according to our estimates, and supplies most of Cuba's fuel imports on subsidised terms.
Under Venezuela's constitution, if Mr Chavez should die or fail to appear to be sworn in as president on January 10th it would trigger another election. Should he be forced to step down in the first four years of his term, fresh elections must be held. This would open the door for a further challenge by opposition candidate Henrique Capriles, who has been shown in past polls to be capable of beating Partido Socialista Unido de Venezuela (PSUV) candidates other than Mr Chavez.
Political uncertainty in Venezuela will transpose itself to Cuba and again raise the spectre of an erosion of Venezuelan support. A lack of information on Mr Chavez's condition makes assessing the gravity of his cancer impossible. However, were he not to serve out a full term, the possibility remains that power would be transferred smoothly to Mr Maduro. In such an event, support for Cuba would not be significantly affected. In the event of the opposition gaining power, we would still not expect an immediate and complete termination of bilateral relations. For political reasons, it is likely that the removal of the Cuban medical professionals, who are staffing much of Venezuela's public health service as part of the oil deal, would be gradual. Cuba would therefore have some time to redeploy them, partly offsetting the lost income.
December 14, 2012
Raúl Castro Ruz
Raúl Castro had served as deputy to his older brother, Fidel, for 30 years before becoming president in February 2008, when Fidel announced his retirement. At 81, Raúl can be considered only a temporary successor. Lacking his brother's charisma and unquestionable authority, he has adopted a more collegiate style of leadership, with broader public debate and efforts to strengthen state institutions. He has replaced most ministers since he assumed office in February 2008.
Fidel Castro Ruz
After leading the country for almost 40 years, Fidel Castro formally relinquished the presidency in early 2008 and confirmed that he had ceased to be First Secretary of the PCC in early 2011, although Raúl had been deputising in both roles since 2006. He is physically weak, and rarely makes public appearances, but continues to grant audiences to favoured foreign leaders. For as long as his health permits, he will influence policy discussions through informal channels and articles in the official press.
José Ramón Machado Ventura
Mr Machado Ventura became first vice-president in February 2008, and second secretary of the PCC in April 2011, making him the official deputy to Raúl Castro in both posts. He was trained as a medical doctor before joining the guerrilla campaign that culminated in the 1959 revolution. As he is 81 years old, he may be replaced in 2012-16.
Ricardo Alarcón de Quesada
Mr Alarcón de Quesada has served as Cuba's ambassador to the UN and he is now president of the National Assembly. He has proved to be a political survivor and has considerable authority, but his age (75) reduces the chance of him assuming the presidency.
Marino Murillo Jorge
Mr Murillo, who is a generation younger than the old guard, has been one of the most rapidly-promoted figures in the government since Raúl Castro assumed the presidency. He was appointed minister of the economy and planning, and a vice-president of the Council of Ministers in March 2009. He also has responsibility for oversight of implementing the guidelines for economic policy approved at the April 2011 congress. To free him up for this task, he was replaced by his deputy (Adel Yzquierdo Rodríguez) as economy and planning minister. At the Congress he also became a member of the PCC's Politburo (executive body).
Gladys Bejerano Portela
In December 2009 Ms Bejerano was made the first female vice-president of the Council of State since 1959. She had assumed the new post of comptroller-general in August 2009, having previously headed the Ministry of Audit and Control. In the context of the intensified effort to improve accountability and tackle corruption, her role has become increasingly powerful. Ms Bejerano, who is in her mid-60s, has been working in related fields for many years, and is regarded as a competent and effective administrator. Since she took the job she has overseen investigations into a series of high-level corruption scandals that have resulted in convictions. Her international profile has grown in recent months, as she has begun to appear at international events as the government's representative, and in June 2011 she assumed the presidency of the Organisation of Latin American and Caribbean Supreme Audit Institutions (OLACEFS).
Dissidents
Each of the most prominent dissidents heads a separate organisation: Laura Pollán is leader of the Damas de Blanco (Ladies in White), a group representing the families of political prisoners; Elizardo Sánchez heads the Comisión Cubana de Derechos Humanos y Reconciliación Nacional (Cuban Commission of Human Rights and National Conciliation); Osvaldo Payá the Movimiento Cristiano por la Liberación (Christian Liberation Movement) and Proyecto Varela (Varela Project); Marta Beatriz Roque the Instituto Cubano de Economistas Independientes (Institute of Independent Economists); Vladimiro Roca the Asamblea para la Promoción de una Sociedad Civil Alternativa (Assembly for the Promotion of an Alternative Civil Society); Hector Palacios the Partido Liberal; Eloy Gutiérrez, Cambio Cubano (Cuban Change); Óscar Elías, the Fundación Lawton por los Derechos Humanos (Lawton Foundation for Human Rights); and Manuel Cuesta, the Partido Arco Progresista (Progressive Arch Party). Other notable dissidents include Darsi Ferrer, a doctor, Guillermo Fariñas, a journalist, Óscar Espinosa Chepe, an economist, and Yoanni Sánchez, a blogger. While these figures are well-known outside Cuba, they are unlikely to assume prominent national roles in the medium term.
July 27, 2012
Official name
Republic of Cuba
Form of government
Centralised political system, with close identification between the PCC and the state
Head of state
The president, Raúl Castro, took over from his brother, Fidel, on February 24th 2008
The executive
The Council of Ministers is the highest executive body; its Executive Committee is composed of the president, the first vice-president and the vice-presidents of the Council of Ministers
National legislature
National Assembly of People's Power; 614 members elected by direct ballot; the Assembly meets twice a year, and extraordinary sessions can be called
Legal system
A People's Supreme Court oversees a system of regional tribunals; the Supreme Court is accountable to the National Assembly
National elections
Provincial and national assemblies: last elections January 20th 2008; next elections due in January 2013
National government
The organs of the state and the PCC are closely entwined, and power devolves principally from the Executive Committee of the Council of Ministers
Main political organisation
The Partido Comunista de Cuba (PCC) is the only legal political party. Official "mass organisations" (including labour unions and organisations for students, women and farmers) are a feature of the Cuban political system
President of the councils of state & ministers: Raúl Castro Ruz
First vice-president: José Ramón Machado Ventura
Vice-president of the Council of Ministers: Marino Murillo Jorge
Secretary of the Council of Ministers: José Amado Ricardo Guerra
President of the National Assembly: Ricardo Alarcón de Quesada
Key ministers
Agriculture: Gustavo Rodríguez Rollero
Communications & information: Medardo Díaz Toledo
Culture: Rafael Bernal Alemany
Defence: Leopoldo Cintra Frías
Economy & planning: Adel Yzquierdo Rodríguez
Energy & mines: Tomás Benítez Hernández
Finance & prices: Lina Pedraza Rodríguez
Foreign relations: Bruno Rodríguez Parrilla
Foreign trade & investment: Rodrigo Malmierca Díaz
Higher education: Rodolfo Alarcón Ortíz
Industry: Damar Maceo Cruz
Interior: Abelardo Colomé Ibarra
Justice: María Esther Reus González
Labour & social security: Margarita Marlene González
Public health: Roberto Morales Ojeda
Science, technology & the environment: Elba Rosa Pérez
Sugar: Celso García Ramírez
Tourism: Manuel Marrero Cruz
Transport: César Ignacio Arocha Masid
Central Bank president
Ernesto Medina Villaveirán
December 13, 2012
Outlook for 2013-17
Review
December 13, 2012
Fact sheet
| Annual data | 2011 | Historical averages (%) | 2007-11 |
| Population (m) | 11.2 | Population growth | 0.0 |
| GDP (US$ m; market exchange rate) | 60,794 | Real GDP growth | 3.6 |
| GDP (US$ m; purchasing power parity) | 120,370 | Real domestic demand growth | 1.9 |
| GDP per head (US$; market exchange rate) | 5,406 | Inflation | 3.2 |
| GDP per head (US$; purchasing power parity) | 10,704 | Current-account balance (% of GDP) | -0.6 |
| Exchange rate (av; official) CUP:US$ | 0.98 | FDI inflows (% of GDP) | – |
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Background: Cuba gained independence from Spain in 1899. The first constitution in 1901 gave the US strong influence over the island, as well as control over the Guantánamo naval base, which it retains today. Following the overthrow of the military government of Fulgencio Batista by a revolution led by Fidel Castro in 1959, relations with the US quickly turned sour, and Cuba joined the Soviet bloc. Since 1990 Cuba has reintegrated into the global economy, but unilateral US economic sanctions remain in place. Fidel Castro stepped down from the presidency for health reasons in July 2006 and in February 2008 the National Assembly confirmed his deputy and brother, Raúl, as his replacement.
Political structure: The Partido Comunista de Cuba is the only legal political party and the leadership remains dominated by the individuals who led the 1959 revolution. Opposition activists face harassment and are prosecuted for a range of offences. The government describes the political system as a “participatory democracy”, with a range of official “mass organisations”, as well as a system of elected national, regional and local government assemblies.
Policy issues: The economy has been predominantly state-owned since the 1960s, with private-sector activity limited to agriculture, a limited range of small service businesses and foreign participation in joint ventures. Since 1990 major changes have expanded the role of markets and in 2010 a strategy for expanding the private sector was unveiled. There is a dual currency system in place: the Cuban peso (CUP) is used for most domestic transactions and the convertible peso (CUC) for transactions in the tourism and domestic retail sectors, but a wide gulf between the official and unofficial rates has fuelled a large informal economy, which includes an extensive black market in stolen goods. The government continues to resist pressure for a “transition” to a market economy, but has begun a process of gradual and partial economic liberalisation.
Taxation: In line with an economy that is predominantly state-owned, the tax system is unorthodox. Only the small private sector and those earning hard currency (or convertible pesos) pay income taxes. Sales in convertible-peso outlets are subject to a high retail margin, which amounts to a sales tax. State enterprises and joint ventures are subject to social security contributions and profit taxes (between 30% and 50%, but with exemptions). State companies pay aportes, the equivalent to dividends on profits payable to the state as owner, set at the discretion of the planning authorities.
Foreign trade: Foreign trade is conducted entirely through state entities or joint ventures. The Economist Intelligence Unit estimates that, after small surpluses in 2009-10 as a result of a sharp drop in imports, the current account slipped back into deficit (equivalent to 0.3% of GDP) in 2011.
| Major exports 2010 | % of total | Major imports 2010 | % of total |
| Nickel | 25.8 | Fuel | 42.5 |
| Medicines | 10.7 | Food | 15.3 |
| Oil products | 40.9 | Machinery & equipment | 15.7 |
| Sugar and sugar products | 5.8 | Chemicals | 9.1 |
| Leading markets 2010 | % of total | Leading suppliers 2010 | % of total |
| China | 14.7 | Venezuela | 40.4 |
| Netherlands | 7.8 | China | 11.5 |
| Canada | 13.9 | Spain | 7.4 |
| Venezuela | 37.6 | Brazil | 4.2 |
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December 13, 2012
Data and charts: Annual trends charts
December 13, 2012
Cuba: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: Political uncertainty is on the rise, as an increasing role for private enterprise and free markets for goods and some services imply major adjustments to Cuba's institutional structure, at the same time as power begins to shift to a younger generation of political leaders (the president, Raúl Castro, is 81). A change of leadership in 2013-17 is likely. This is expected to entail the promotion of younger politicians, rather than large-scale changes to the tightly controlled political system. Measures to strengthen institutions and further stamp out corruption are also expected. This reflects the fact that, whoever takes over the presidency, political institutions will be more important than they have been under the unchallenged authority of the Castro brothers. Although these reforms will be implemented in a gradual and controlled manner, they nevertheless raise the level of uncertainty, particularly as political changes will follow from the government's continuing to introduce far-reaching economic reforms. The Economist Intelligence Unit's forecast is based on the assumption that the transfer of power will be relatively smooth, as was the handover from the former president, Fidel Castro, to his younger brother, Raúl, in 2006-08. However, with a less centralised power structure, there will be greater potential for factionalism in the longer term.
ELECTION WATCH: Identifying future leadership candidates is notoriously difficult, owing to Cuba's closed system of governance. However, Raúl Castro's preference for efficient operators and his trust in the armed forces makes former army officers who now hold government positions--such as the defence minister, Leopoldo Cintra Frías, and the interior minister, Abelardo Colomé Ibarra--likely contenders. Elections for the national and provincial assemblies are held every five years, and are due in January 2013. Up to eight candidates are nominated for each seat, and the eventual appointee is selected through a system of nominations and meetings. In the absence of multiparty alternatives, voters accept the official candidate list (a "united vote"); select some candidates and not others (a "selective vote"); post a spoiled or blank ballot; or abstain. The turnout and the proportion choosing a united vote (97% and 91%, respectively, in 2008) are seen as signs of confidence in the electoral process, and so the authorities strive to persuade people to vote, both before the elections and on polling day. We do not expect a major overhaul of the electoral system in 2013-17.
INTERNATIONAL RELATIONS: The re-election of Barack Obama as US president in November 2012 reduces the risk of a sharp deterioration in US-Cuban relations. However, with the Republican Party retaining its majority in the US House of Representatives (the lower house), prospects for a further relaxation of sanctions are dim. Cuba's rejection of US conditions for the removal of sanctions will further hinder any softening of US policy, as will an influential US-based anti-Castro lobby. Support from Venezuela, primarily through the supply of subsidised oil in exchange for the services of Cuban doctors, will remain vital to the Cuban economy. However, the recurrence of Venezuelan president Hugo Chávez's cancer in December raises the risk of a change of leadership in 2013-17, which could jeopardise future Venezuelan subsidies. Partly to mitigate this risk, Cuba is strengthening ties with China (already an important trade partner and creditor). EU foreign ministers showed an increased willingness in recent months to examine ways of improving relations with Cuba, with a view eventually to restoring official co-operation. However, an easing of the EU's "common position"--which makes official co-operation conditional on political reform--is unlikely in 2013-17, given strong resistance from individual member states (the Czech Republic, Hungary and Poland). Some scope will remain to improve bilateral relations with individual members, particularly if their companies have business interests in Cuba. However, as with the US, we expect relations with the EU to stagnate in 2013-17.
POLICY TRENDS: Liberalising economic reforms should provide support to the economy in the medium to long term. Major restructuring aims to reduce the state payroll by over 1m workers, expand private-sector activity, tackle widespread low-level corruption, boost productivity and gradually eliminate the ration system. This has been accompanied by reforms to foster private enterprise by expanding co-operatives outside the agricultural sector, as well as the introduction of a legal car and housing market. Nevertheless, progress remains uneven and other reforms (such as improved credit provision and closer alignment of the dual exchange rates) have lagged. We expect a gradual improvement in bank lending and greater scope for private enterprise and foreign investment, although Cuba's infrastructure deficiencies will remain significant. Cuba's main external vulnerabilities lie in its reliance on Venezuelan subsidies and nickel exports as a source of foreign exchange. Although we expect nickel prices to fall in 2013, the decline will not be as sharp as in 2009--when a slump in prices forced fiscal retrenchment, import compression and delays in debt repayments--and so the authorities should not have to resort to dramatic adjustment measures.
ECONOMIC GROWTH: There is huge scope for catch-up in terms of economic efficiency and development of new private-sector activities. However, in the context of persistent weakness in the global economy and the expectation that the positive impact of economic reforms will take some time to materialise, we expect real GDP growth to be moderate in 2013-17, averaging 4.4%, up from an estimated 3% in 2012. This remains well below the levels that prevailed before the 2008 global financial crisis. We do not expect damage from Hurricane Sandy to impact negatively on growth over the short term, as key infrastructure around Santiago, such as the oil refinery, was not severely affected. Furthermore, additional government spending on repairs is likely to stimulate the economy, neutralising the storm's effect.
INFLATION: The government will continue to influence inflation directly (by using price controls and regulating the limited areas of free-market activity) and indirectly (by controlling monetary emission), but, as goods are removed from the ration system, the rate of inflation will rise, at least in the short term. The creation of new businesses will exert downward pressure on prices, but this will be offset by the gradual removal of subsidies, which will increase the average cost of basic goods. The official inflation index currently fails to reflect fully the rise in the cost of living as a result of the shift away from rationed supplies to a greater reliance on markets. Assuming that the consumer price basket is changed to reflect this shift, inflation will rise in 2013 to an average of 6% as the process of currency adjustment starts. We then expect inflation to fall, to an annual average of 4.3% in 2014-17, as the effects of currency adjustment subside, competition intensifies and output expands. This benign scenario could be threatened if competitive markets fail to emerge, if the adjustment process is prolonged or if the government is forced to raise sales taxes to compensate for a shortfall in direct taxes.
EXCHANGE RATES: Efforts have been under way for some time to improve integration between the hard-currency (CUC) and domestic-currency (CUP) areas of economic activity, as part of a strategy to unify the two currencies. Our forecast assumes that the realignment of the official and unofficial CUP:CUC exchange rates will begin in 2013. Currently, the CUP can be exchanged for the CUC only at the unofficial, or Cadeca, rate for personal transactions. Furthermore, neither unofficial nor official exchange rates, which are widely divergent, are close to purchasing power parity level (the real exchange rate, adjusted for local price variations). This distorts the labour market and creates an obstacle to the integration of the domestic and external economies, acting as a barrier to the growth of the economy. Our forecast assumes that the revaluation process will occur in stages, but sudden unification is also possible. This would create adjustment difficulties in the short term, but would improve dynamism in the domestic economy in the long term.
EXTERNAL SECTOR: We expect a moderate current-account deficit in 2013-17 (averaging 1% of GDP) as import spending outstrips export growth. However, the need to build up reserves for eventual exchange-rate unification will ensure that the government keeps the deficit at a manageable level. The goods trade deficit is forecast to fall marginally as a share of GDP, from 12.4% of GDP in 2012 to 11% of GDP in 2017, reflecting both a rise in domestic productivity and greater export capacity (particularly of nickel, the largest foreign-exchange earner). The services surplus will fall in 2013 as tourist arrivals weaken, before picking up firmly from 2014. Although falling marginally as a percentage of GDP, it will remain large, owing partly to sustained earnings from the export of medical services to Venezuela. The current transfers surplus is forecast to rise in line with increasing US remittances, compensating for a larger income deficit related to growing profit repatriation as nickel exports rise from 2013. Inward foreign direct investment (FDI) is expected to rise from an estimated US$740m in 2011 to a peak of US$800m in 2015. This will remain well below potential, owing to strict regulation by the authorities. There are no official data on international reserves, but we assume that they will rise firmly.
December 03, 2012
Country forecast overview: Highlights
Country forecast overview: Key indicators
| Key indicators | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Real GDP growth (%) | 3.0 | 4.6 | 4.1 | 4.4 | 4.3 | 4.4 |
| Consumer price inflation (av; %) | 5.5 | 6.0 | 4.8 | 4.4 | 3.9 | 4.2 |
| Budget balance (% of GDP) | -3.6 | -3.6 | -3.4 | -3.3 | -3.3 | -3.1 |
| Current-account balance (% of GDP) | -0.3 | -0.6 | -0.8 | -1.1 | -1.2 | -1.3 |
| Official exchange rate CUP:US$ (av) | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
| Official exchange rate CUP:€ (av) | 1.28 | 1.26 | 1.25 | 1.24 | 1.26 | 1.26 |
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December 13, 2012
Land area
110,000 sq km (mainland 105,000 sq km; Isle of Youth 2,000 sq km; keys 3,000 sq km)
Population
11.2m (December 2010)
Climate
Sub-tropical; average temperature 25°C, average relative humidity 81%
Weather in Havana (altitude 24 metres)
Hottest month, August, 24-32°C (average monthly minimum); coldest months, January and February, 18-27°C; driest months, January and February, 38 mm average rainfall; wettest month, September, 183 mm average rainfall
Weights and measures
Metric system; also old Spanish units. Sugar is often measured in Spanish tonnes of 2,271 lbs and there is a Cuban quintal of 101.4 lbs made up of 4 arrobas. For area measurement, one Cuban caballería equals 13.4 ha or 33.16 acres
Currency
There are two domestic currencies: the Cuban peso (CUP), in which prices and wages are denominated within the domestic economy; and the convertible peso (CUC), used in "hard-currency" retail outlets. One peso (Cuban or convertible)=100 centavos (Cuban or convertible). The official exchange rates, used in national income, fiscal and enterprise accounting aggregates are CUP1:CUC1 and CUC1:US$1. An "unofficial", but legal, CUP:CUC exchange rate is used for personal transactions. This rate is supposed to be freely floating, but has de facto become pegged. At the end of 2011 this rate was CUP24:CUC1. US dollars exchanged for convertible pesos within Cuba are subject to a 10% commission charge; there is no such charge for the conversion of other currencies into convertible pesos. Since 2002 euros have been accepted in some tourist resorts
Time
5 hours behind GMT (April-October, 4 hours behind GMT)
Public holidays
January 1st; May 1st; July 26th-27th; October 10th; December 25th
March 27, 2012