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The Economist Intelligence Unit

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21 Basic data

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

0 km 50 100 150 200

0 miles 50 100

© The Economist Intelligence Unit Limited 2009

Main railway

Main road

International boundary

Main airport

Capital

Other town

Florida Nuev

Esmeralda

Cardenas

Varadero

Matanzas

Artemisa

Clara

de Cienfuegos

Placetas

Bayamo

Baracoa

Moa

Nuevitas

Júcaro

Ciego

Avila

Santa Cruz del Sur

Jaguey

Grande

Surgidero de

Barabanó

Nueva Gerona

Las Tunas

Guantánamo

Niquero

Manzanillo

Santiago de Cuba

Grand Cayman

Isla de la Juventud

Archipiélago de Sabana

THE BAHAMAS

HAITI

JAMAICA

CARIBBEAN SEA

Archipiélago de las Canarreos

Sta Guanabacoa

(To UK)

Little Cayman

Cayman Brac

Cayo Largo

Cauto R.

Salado R.

Hanabana

R

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Executive summary

Highlights

not expect major further political or economic change at least until after the

next Communist Party congress in late 2009.

restrictions on travel and remittances by Cuban-Americans to Cuba, but we

assume that further normalisation of bilateral relations will be limited.

will cautiously reform management through decentralisation, price

adjustments and greater management accountability and material incentives.

the fiscal deficit below 4% of GDP in 2010, after a forecast widening to 7.2% in

2009.

until this objective is achieved dislocation and perverse incentives will

impede economic efficiency.

growth weakens. The current-account deficit will narrow from 4.9% of GDP in

2008 to an average of 2.6% of GDP in 2009-10, as the trade deficit shrinks.

responsibility for the busy schedule of engagements in the ongoing efforts to

strengthen international ties.

Congress, and although it has wide support, it still faces entrenched resistance

from influential figures.

measures at, or even before, a Summit of the Americas to be held on April

17th-19th in Trinidad and Tobago.

commentator, reported that state spending had been cut by 6% for 2009. The

fiscal retrenchment comes in response to a collapse in global nickel prices.

responsibility for buying produce and supplying the ration system moving

from the ministry of agriculture to the ministry of domestic trade.

sign that the government has trimmed its growth expectations for 2009.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Outlook for 2009-10

Political outlook

A cabinet reshuffle on March 2nd had been widely anticipated, but the removal

from the cabinet of Carlos Lage Dávila and Felipe Pérez Roque, two figures that

had been widely identified as the most likely future presidents, came as a

surprise. The result of their removal is that the current president, Raúl Castro,

has increased his authority but has no obvious successor. Mr Castro’s stated

aim is to strengthen the institutions of government, and the reshuffle has

brought new figures in to senior positions. Several recently-promoted figures,

including Ricardo Cabrisas, vice-president of the Council of Ministers; Rodrigo

Malmierca, head of the new Ministry of Foreign Trade and Investment; and

Lina Pedraza, the new minister of finance, seem set to grow in influence.

Mr Castro has suggested that there will be significant economic reforms in the

near future, but such change is likely to follow agreement on the principles of a

strategy at the next congress of the ruling Partido Comunista de Cuba (PCC) at

the end of 2009. Before that happens, the Economist Intelligence Unit expects

minor reforms only. To the extent that tensions with the US ease, we expect a

relaxation of state censorship and a broadening of public debate. Changes in

the PCC leadership will be made at the congress, with some of the generation

that led the 1959 revolution to be replaced by younger figures.

Although the transition of power from the former president, Fidel Castro, to his

brother Raúl was managed smoothly, there are still risks to stability arising from

the post-Castro transition. The ongoing process of replacing the unchallenged

authority of the Castro brothers with a new balance of power among

institutions and individuals could create internal tensions over policy. If the

authorities fail to respond to public frustrations, there is a possibility that

dissent could strengthen sufficiently to present a significant threat to the

political system, although this is not our central forecast scenario.

US policy towards Cuba will change under the new US president, Barack

Obama, but the extent of change remains uncertain. Some restrictions on travel

for Cuban-Americans and remittances have already been eased, but a more

comprehensive removal of economic sanctions and lifting of restrictions on

tourist travel will be more contentious. Preliminary negotiations are likely to

commence in the coming months, but these could flounder on the issue of

conditionality. Senior policy advisors in the US have suggested that the US

might take the radical step of offering negotiations with Cuba without preconditions,

but the administration has not made such a commitment. In the

meantime, the Cuban government will continue to nurture ties elsewhere. We

expect relations with Venezuela, China, Russia and other developing countries

to strengthen further, although tensions could arise if agreements with these

countries are curtailed by the global economic slowdown. Following the

restoration of EU co-operation in October 2008, relations with the EU, although

still vulnerable to setbacks, will be closer in the forecast period than they have

been in recent years.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Economic policy outlook

Given the challenges it faces in terms of fiscal pressures, monetary imbalance

and a need to raise productivity, we expect the Cuban government to continue

a process of macroeconomic adjustment and economic reform. Weaker GDP

growth may slow the pace of reform, as it reduces the scope for noninflationary

price and wage adjustments. The pace of change will also be

constrained by ideology and a need to build consensus for changes that will

squeeze out sources of earnings derived from black markets. Although we

expect some continued expansion of the scope for legal private enterprise, rapid

market liberalisation of the type experienced in the "transition" economies of

the former Soviet bloc will remain off the agenda. The government’s main

objective will be to improve incentives to lift productivity. To contain growth of

the fiscal deficit there will be retrenchment in 2009, including the

postponement of some of the planned infrastructure investment projects that

are not supported by official external financing. Monetary imbalances will

continue to complicate policy management. A strategy for moving towards a

single currency is under way, but our forecast assumes that the dual exchangerate

system will remain in place throughout 2009-10, presenting a barrier to the

integration of the domestic and external sectors.

Following a widening of the central government deficit in 2008, to an estimated

6.7% of GDP from 3.2% in 2007, the authorities will fail to prevent a further

increase in the budget shortfall in 2009. The main cause of the larger deficit will

be a sharp fall in revenue, from an estimated 67.1% of GDP in 2008 to 58.4% in

2009, mainly on the back of a decline in earnings from nickel. Expenditure will

also fall, from an estimated 73.8% of GDP in 2008 to 65.7% in 2009, reflecting

lower global food and fuel prices, which will ease the burden of subsidies.

However, expenditure will not fall rapidly, as the cost of reconstruction work

associated with storm damage incurred in 2008 will sustain spending

pressures. Consequently, the fiscal deficit is forecast to widen to 7.2% of GDP. A

moderate rebound in nickel prices in 2010 should prompt a pick-up in revenue,

while pressures on expenditure will ease, allowing a reduction of the deficit, to

4% of GDP.

Changes in the monetary system over the past four years have increased the

role of the Banco Central de Cuba (BCC, the Central Bank) in the management

of the economy. The Central Bank has been charged with maintaining the

balance between the demand and supply of the two currencies currently

circulating within the domestic economy: the Cuban peso (CUP) and the

convertible peso (CUC). With a still substantially state-controlled economic

system, the Central Bank has at its disposal powerful direct instruments, such as

credit controls, wage levels, price adjustments and influence over the quantity

of goods and services available. However, a large informal economy and the coexistence

of different markets with divergent prices will complicate monetary

management. In response to a decline in domestic food production in late

2008, the monetary authorities have held back anticipated increases in nominal

wages in order to keep inflation and the "unofficial" (but legal) exchange rate

used for personal transactions in check. Official policy is to keep real wages

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

rising only as fast as growth in domestic agricultural and industrial production

in 2009-10. Adjustments designed to bring prices more in line with global

relative prices will continue.

Economic forecast

(% unless otherwise indicated)

World 5.0 3.1 -1.5 2.0

OECD 2.7 0.9 -3.5 0.3

EU27 2.8 0.9 -3.3 -0.3

US$:€ 1.369 1.470 1.320 1.385

US$ 3-month commercial paper rate 5.06 2.18 0.30 0.70

Oil (West Texas Intermediate; US$/b) 72.3 99.6 40.8 51.0

Sugar (US cents/lb) 10.1 13.1 13.1 14.1

Nickel (US$/lb) 17.0 9.6 5.2 7.7

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

The downturn in the world economy is set to be the sharpest since the second

world war, and possibly since the 1930s global depression. At market exchange

rates, we expect the global economy to contract by 2.6%. At a weak 1%,

expansion in 2010 will be slower than that seen in the year following either the

1991 or 2001 global recessions and could well undershoot the big downturn in

1981-82. The downturn entails a synchronised recession in all of the world’s

major developed economies and a deep crisis in global financial markets. The

global financial system remains highly stressed, with credit markets

characterised by high levels of risk aversion and stockmarkets under continued

pressure. Although economic sanctions mean that Cuba is less directly exposed

to the US recession through trade linkages than the rest of Latin America, the

global slowdown is hitting the island, mainly through its negative impact on

nickel prices and tourist arrivals. In 2009-10, the main risk is that a sharp

economic recession in Venezuela disrupts financial and logistical assistance to

Cuba. If global oil prices remain low, as we assume, Venezuela’s capacity to

import Cuban services or invest in new industrial capacity will wane. The

continuation of projects now in the pipeline will depend upon continued

strong political commitment from the Venezuelan president, Hugo Chávez.

We expect GDP growth in 2009-10 to weaken. After average annual growth of

10.2% in 2005-07, the pace of GDP growth slipped to 4.3% in 2008, as a squeeze

on external finance arising from high food import prices and falling nickel

prices was exacerbated by hurricane losses. The impact on tourism from falling

consumer spending in its main markets will be offset by an increase in visitors

from the US, thanks to the relaxation of some of the US restrictions. Despite

damage from hurricanes in 2008, agricultural output will rise thanks to

structural reforms, including the distribution of idle lands that began in

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

September 2008. Manufacturing output will rise over the forecast period, helped

by investments in energy and transport infrastructure and industrial capacity.

However, monetary imbalances, price distortions and restrictions on private

enterprise will continue to inhibit the growth of domestic industry.

We expect domestic demand growth to outpace that of external demand. Real

disposable incomes in the formal sector will be lifted by greater use of

incentives payments, but the rate of increase will not be allowed to run ahead

of improvements in productivity. We assume that inflows of external financing

and income from services exports will weaken against the backdrop of a

deteriorating external economic climate, reducing resources to finance planned

investment. Most of the risks to this forecast stem from the external

environment, owing to heavy dependence on tourism, nickel and links with

Venezuela and China, although radical policy shifts, such as sharp exchange

rate or price adjustments, could also create damaging economic disruption. Our

forecast assumes that US sanctions will be eliminated only gradually, with the

relaxation of restrictions on travel to Cuba only applying to Cuban-Americans.

A bolder change in US policy could provide a strong boost for the Cuban

economy, particularly for the tourist industry.

Official year-end inflation in 2008 was reported to be only 0.8%, as inflation

was suppressed at the end of the year by price caps in the free markets, while

the government absorbed the higher cost of food imports sold on the ration.

Average inflation was higher, at 3.4%. For Cubans with sufficient income to buy

non-essential items, the increase in the cost of living was greater, as the

government increased the prices of petrol and imported goods. Prices in black

markets, which are not included in the official figure, are also likely to have

risen. During the forecast period, the government will continue to influence

inflation directly by using price controls and regulating the limited free markets,

and indirectly by controlling monetary emission. Although the prices of many

basic goods are fixed by the government, prices of goods sold in agricultural

markets are determined by supply and demand. As more goods are sold at

international prices in CUC shops and less at fixed or regulated prices, inflation

will rise, to an average of 5% year on year during the forecast period.

The Cuban peso (CUP) can only be exchanged for the convertible peso (CUC)

for personal transactions, and neither unofficial nor official exchange rates,

which are widely divergent, are close to purchasing power parity level for the

economy as a whole. This distorts the labour market and creates an obstacle to

the integration of the domestic and external economies, thus acting as a barrier

to the growth of Cuba’s domestic economy. Efforts are under way to improve

integration between the hard-currency and domestic-currency areas of

economic activity, as part of a strategy eventually to unify the two Cuban

currencies. Our forecast assumes that the convergence process will be gradual,

with steady improvement in the purchasing power of the Cuban peso within

the domestic economy eventually being followed by the start of a process of

revaluation for the unofficial rate beginning in 2010. However, abrupt

unification is possible. This would create adjustment difficulties in the short

term, but would improve dynamism in the domestic economy in the long term.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

The current-account deficit is forecast to narrow from 4.9% of GDP to 3% of GDP

in 2009. A fall in the trade deficit is the main factor driving the overall

narrowing of the deficit, as a decline in export earnings from nickel is more

than offset by a reduction in import prices. The surplus on the services account,

which swelled rapidly in 2005-08, will narrow in 2009-10, with a downturn in

earnings from tourism and professional services. Gradually rising net profits

outflows will widen the income deficit. Coupled with a widening of the trade

deficit in 2010, as import spending picks up, the current-account deficit is

forecast to widen to 4% of GDP. Our forecast assumes that an easing on

restrictions on remittances from the US will lift inflows of current transfers to

US$1.1bn by 2010. A more radical shift in US policy could bring faster growth in

both remittances and tourism earnings, but this is not our central forecast. Non-

OECD countries have accounted for most of the new foreign direct investment

(FDI) and officially backed trade and project credits that financed the currentaccount

deficit in 2008. However, deteriorating global conditions will mean this

is not the case during the forecast period. There are no official data on the level

of international reserves, but we estimate that they fell in 2008 by US$800m to

US$3.9bn and will continue to fall, to US$2.9bn in 2010, as the capital-account

surplus is insufficient to cover the current-account deficit.

(% unless otherwise indicated)

Real GDP growth 7.3 4.3 3.0 3.8

Industrial production growth 3.6 b 1.9 3.1 4.5

Gross agricultural production growth 18.0 1.5 7.0 6.8

Unemployment rate (year-end) 1.8 1.6 1.6 1.5

Consumer price inflation (av) 6.4 b 3.4 4.8 5.3

Consumer price inflation (year-end) 2.8 b 0.8 4.7 5.2

General government balance (% of GDP) -3.2 -6.7 -7.2 -4.0

Exports of goods fob (US$ bn) 3.7 3.8 2.8 3.1

Imports of goods fob (US$ bn) 10.1 14.5 12.1 13.0

Current-account balance (US$ bn) 0.4 b -2.7 -1.7 -2.4

Current-account balance (% of GDP) 0.8 b -4.9 -3.0 -4.0

External debt (year-end; US$ bn) 17.8 b 19.6 18.9 20.3

Official internal exchange rate CUP:CUC (av) 1.00 1.00 1.00 1.00

Unofficial internal exchange rate CUP:CUC (av)d 24.00 24.00 24.00 21.15

Official external exchange rate CUC:US$ (av) 0.93 0.93 0.93 0.93

Unofficial external exchange rate CUP:US$ (av)e 22.22 22.22 22.22 19.58

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

d Available only domestically, for personal transactions. e "Unofficial" exchange rate used

domestically, for personal transactions. Since 1994 Cuban pesos (Ps) have been exchangeable for

convertible pesos (CUC) or US dollars legally, in state-run exchange houses, known as Casas de

Cambio (Cadecas).

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Monthly review: April 2009

The political scene

In the weeks since the government changes in early March (March 2009, The

political scene), the government appears to have been preoccupied with

international relations, with no new reported domestic initiatives. No further

details have been released about the reasons for the removal of two of the most

senior government figures, Carlos Lage and Felipe Pérez Roque, from their

The new minister of foreign affairs, Bruno Rodríguez, has swiftly assumed

responsibility for the busy schedule of engagements in the ongoing efforts to

strengthen international ties. On March 17th-18th he greeted Louis Michel, the

EU Aid Commissioner, who was in Cuba to discuss new EU-Cuba development

programmes, in the wake of the October 2008 decision to restore official cooperation.

He also met the president, Raúl Castro, plus Rodrigo Malmierca

(who, as minister of foreign investment and economic co-operation, added the

foreign trade portfolio to his responsibilities in the March 2nd government

reshuffle) and Ricardo Cabrisas (the vice-president of the Council of Ministers

with responsibility for oversight of foreign economic relations). Discussions

included the possibility of EU-Cuban collaboration in medical aid programmes

to third countries. Other visitors to Cuba have included the foreign ministers of

Panama and Dominica (March 16th and 22nd).

The high level of diplomatic activity in the past few months has coincided with

the change in the US administration. The activity has included a stream of visits

by Latin American and Caribbean leaders, which seems designed to

demonstrate to the new US president, Barack Obama, that if he fulfils his

electoral promise to seek engagement, Cuba is negotiating from a position of

relative strength. With the announcement on March 18th of the reestablishment

of full diplomatic ties with both Costa Rica and El Salvador the

US is, for the first time since 1961, the only country in the region without

normal relations with Cuba. In the case of El Salvador, the decision arose from

simply reflects the end of bilateral bitterness of the past.

Within the US, the new government.s plans for Cuba policy have yet to be fully

revealed. Although some of the measures introduced by the previous

government were removed in February (March 2009, The political scene), one

of them.a requirement for pre-payment for US food exports to Cuba.remains

in place. A bill to lift the travel ban has been submitted to the US Congress, and

although it has wide support, it still faces entrenched resistance from influential

figures. There is widespread expectation that Mr Obama might announce

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

additional measures at, or even before, a Summit of the Americas to be held on

April 17th-19th in Trinidad and Tobago. Among the restrictions that might be

lifted are impediments to US agricultural and medical exports to Cuba; a new

initiative to mark the start of exploratory discussion is also possible.

Expectations of a change in policy have been fuelled by a shift in Cuba.s

international position, with normal diplomatic relations now with all the other

countries in the region, the EU having restored official co-operation in 2008 and

Cuba.s relations having strengthened with other major partners, including

China and Russia. However, when questioned in late March about his

government.s policy, the US vice-president, Joe Biden continued to refrain from

making any firm commitments.

International considerations appear to be influencing the behaviour of both

dissidents and the government. Dissidents have been seeking to ensure that

foreign visitors are aware of their plight, while the government appears to be

trying to avoid being seen to be cracking down on its opponents. In an annual

demonstration to mark the anniversary of mass arrests of more than 75

dissidents in 2003, the Damas de Blanco (Ladies in White, representing families

of political prisoners) assembled in front of the Supreme Court in the centre of

the capital, Havana. As in previous demonstrations, the foreign press were

invited. The authorities. response was relatively mild. The protest was broken

up by a counter-demonstration of government supporters and forcibly removed

by the police, but there were no arrests.

In a further development that may be linked to uncertainty regarding the

impact of political change in the US, on March 23rd Gisela Delgado, the leader

of the Projecto de Bibliotecas Independientes de Cuba (Independent Library

Project of Cuba), announced that the group had broken ties with their US-based

founders, Humberto Colás and Berta Mexidor Velázquez. Mr Colás and

Ms Mexidor, both exiles, run a Florida-based support group, known as

Bibliotecas Independientes (Independent Librarians) which, since 2005, has

received funding from the US National Endowment for Democracy (NED).

Ms Delgado appears to be seeking to distance her project from the NED, which

has been accused of acting as a vehicle to undermine left-wing governments

abroad. The move might be based on a calculation that the Obama

administration may be less enthusiastic than its predecessor about the activities

of the NED, as well as the knowledge that the acceptance of support from the

NED makes her project vulnerable to the charge of being influenced by a

foreign power, which can be used by the Cuban government both to alienate

the Cuban public from dissidents and as a basis for prosecution.

The Economist Intelligence Unit’s 2008 democracy index ranks Cuba 125th out of 167 countries, putting it among the 51

countries considered "authoritarian regimes". Cuba is placed towards the top of this grouping (which includes countries

ranked 117th to 167th), but it is the only Latin American country in this category, which is dominated by African and Middle

Eastern states.

Cuba has retained its one-party communist political system following the collapse of the Soviet Union, but it has

introduced some changes. In a constitutional reform of 1992, elections were introduced for the legislature, known as the

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Asamblea Nacional de Poder Popular (ANPP, National Assembly of Popular Power), and there have been several

amendments to the procedures for selecting political representatives at local and national level. Between two and eight

candidates per constituency are nominated through a process of commissions and public meetings. There is only one

candidate per seat. Voters choose either to approve or reject the candidates finally selected, who must obtain 50% of valid

votes. Candidates are not required to be members of the PCC, but in practice the party retains extensive influence over the

selection of candidates, owing to the large numbers of party members who are active in the process, even though it is not

formally involved in the nomination process. This dominance of the PCC contributes to Cuba’s weak score for "electoral

process" (1.75 out of 10). The government describes its political system as participatory, in contrast to the representative

model of liberal democracy. However, in spite of changes the scope for debate is still set by the political leadership.

Cuba also scores poorly for "civil liberties". Opposition activities are suppressed by the Cuban authorities, under laws

forbidding .enemy propaganda., .disrespect. and .acts against the independence or territorial integrity of the state., as well

as public-order legislation. It is estimated that there are around 200 political prisoners in Cuba. Although estimates do vary

wildly, all estimates remain well below those during the first decade of the Castro government, when the range was

between 2,000 (a Cuban government figure) and 20,000 (as estimated by the US Central Intelligence Agency; CIA).

Cuba scores better for "political culture" and "political participation". There is an established system of broad consultation,

which has increased the level of participation in national policy debates. A host of approved national organisations, apart

from assemblies linked to the National Assembly, encourage grass-roots involvement. These include forums for farmers,

women, students and industrial workers. Restrictions on religious organisations have been relaxed, and party membership

has been opened to religious worshippers.

The full democracy index can be found at: www.eiu.com/DemocracyIndex2008

Cuba 3.52 125 1.75 4.64 3.89 4.38 2.94 Authoritarian

Note. Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair

competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our

"thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of

which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60

The category indexes are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments

to the category scores are made if countries fall short in the following critical areas for democracy:

The index values are used to place countries within one of four types of regimes:

The full methodology for the index and related discussion can be found at www.eiu.com/DemocracyIndex2008.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Economic policy

There have been no major government announcements about changes in

economic policy, but the state-controlled media have reported significant

measures, amounting to retrenchment and decentralising reforms. At the end of

March, Ariel Terrero, a television announcer who is known as an economic

commentator, reported that state spending had been reduced by 6% for 2009. If

this cut is to be imposed across the board, as the announcement suggested, it

would imply that nominal expenditure will be 2% below the 2008 level. The

fiscal retrenchment comes in response to a collapse in global nickel prices.

Although prices fell throughout 2008, the pace of the decline has accelerated in

2009, with prices dropping by more than 60% year on year in the first few

months of the year. The other reason provided for the spending cut was an

anticipated downturn in tourism later in the year. Although advance bookings

for the coming months have been strong, there are concerns about arrivals in

late 2009, when the 2009/10 high season begins.

The decentralising changes are being introduced in the financial system and

food distribution network. The financial reform has so far only been reported

by unofficial Cuban sources; they suggest that controls on state companies.

hard-currency transactions have been loosened. It appears that the CUC10,000

lower limit on hard-currency payments requiring permission from the foreignexchange

commission of the Banco Central de Cuba (BCC, the Central Bank)

has been raised. It is not yet clear at what level the new lower limit has been

set. The change will be welcomed by both domestic enterprise managers and

international investors, as it will reduce bureaucracy and ease central control.

Although joint ventures with overseas firms were exempted from the

requirement, there had been complaints that the system had delayed payments

from Cuban state enterprises.

A major overhaul of the food distribution system was announced in a short

report on state television in late March. The state entity responsible for buying

produce from farmers and supplying the ration system and other state supplies,

known as Acopio, has been moved from the Ministry of Agriculture to the

Ministry of Domestic Trade. The entity, which handles 90% of farm output, has

been the subject of much criticism for many years, for inefficiency, the low

prices paid and wastage. In the past month there have been reports that it has

failed to cope with a surge in output of tomatoes, leaving tonnes of produce to

rot. The transfer from the agriculture to the domestic trade ministry appears to

be part of a wider shift from state distribution towards a greater role for the

market. In the same statement, it was announced that the number of markets

selling state produce would be increased from 156 to 300. The prices in these

markets tend to be lower than market prices, but they move in line with them

and are far higher than the fixed prices of goods sold on the ration.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

(CUP per kilo, Jan-Feb 2009)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

State Non-state

Other Citrus Other fruit

grains

Corn on the

cob

Fresh Rice

vegetables

Plantains and

bananas

Root

vegetables

The change in the distribution system seems to be part of a general overhaul of

agriculture, the urgency of which was underlined by the rise in world food

prices in 2008. The overhaul has included a process of redistributing land that

began in September 2008 (October 2008, Economic policy). So far, according to

local officials, 560,800 hectares have been distributed to 56,000 applicants. The

productivity gains from the redistribution are not expected to be immediate, as

more than half of the land is infested with a thorny bush called marabú. In

addition, 80% of the applicants have not previously owned land and will need

invest in new equipment and learn new skills.

Economic performance

The announcement that state spending plans have been curtailed (see

Economic policy) is a clear sign that the government has trimmed its growth

expectations for 2009. The official estimate was 6% as recently as December

2008, but the then minister of the economy, José Luis Rodríguez, warned that

there was an exceptionally high degree of uncertainty for 2009, given the global

economic slowdown. Although the closed nature of Cuba’s economy has

meant that it has been shielded from turbulence in global financial markets, the

deteriorating fiscal situation is taking its toll on the domestic economy, with

reports of an increase in payments delays, while the foreign press has cited

industry sources reporting cuts in production in some industries because of an

inability to pay for imported inputs. Cuts in public spending also imply

planned reductions in the output of some goods, particularly those destined for

investment programmes.

That said, there are still several factors that point to a reasonably strong

performance during 2009, particularly compared with many other countries

that are expecting sharp contractions this year. There has been a strong start to

the year in the agricultural sector, thanks mainly to favourable weather

conditions and government support for planting short-cycle foods in the wake

of the severe hurricanes of 2008. And while there are concerns that investment

in infrastructure and heavy industry might be threatened by the drying up of

global liquidity, most of the externally-financed projects under way in the

current year appear to be unaffected so far. Among these is a planned

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

exploratory well in Cuba.s deep water Mexican Gulf territory to be carried out

by Repsol (Spain). The company confirmed on March 11th that it is preparing to

drill its second well later this year (the first, in 2004, found good quality oil but

not in commercial quantities), with its partners, Norsk Hydro (Norway) and

ONGC Videsh (India).

The government appears to be ready to welcome new foreign investment in the

energy sector. On March 17th, an official from the Ministry of Basic Industry

announced intensified efforts to search for offshore oil in the Gulf of Mexico in

partnership with international investors. In 1999 Cuba divided its 112,000-

sq km deep-water Exclusive Economic Zone (EEZ) of the Gulf of Mexico into 59

blocks for offshore exploration. Of these blocks, 21 are currently under contract

with seven foreign companies. A consortium of five Russian energy firms is

studying the area and is considering the possibility of leasing up to 15 blocks for

oil exploration activities. Negotiations for leasing other blocks are reportedly

being conducted with Chinese and Angolan companies.

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Data and charts

Annual data and forecast

Pl ea se se e g ra p hi c b el ow

Nominal GDP (US$ m) 35,083b 40,286b 46,601b 51,331b 54,678 56,907 59,374

Nominal GDP (Official CUP m) 38,203 42,644 52,743 58,604 62,705 67,609 73,783

Real GDP growth (%) 5.8 11.2 12.1 7.3 4.3 3.0 3.8

Private consumption 1.5 0.4 18.7 1.5 -4.4 3.4 5.3

Government consumption 8.6 10.4 7.9 10.5 7.9 3.1 3.0

Gross fixed investment 13.5 33.0 26.0 2.4 7.1 4.0 5.0

Exports of goods & services 19.0 47.5 1.3 13.8 16.9 2.2 0.0

Imports of goods & services 13.0 25.8 20.4 -1.1 2.5 1.7 2.9

Agriculture 0.2 -11.6 -6.0 18.0 1.5 7.0 6.8

Industry 3.2 5.0 12.1 3.6 1.9 3.1 4.5

Services 7.0 15.2 13.0 8.0 4.4 2.8 3.4

Population (m) 11.2 11.2 11.2 11.2 11.2 11.2 11.2

GDP per head (US$ at PPP) 6,174b 7,085b 8,196b 9,031b 9,620 10,012 10,445

Recorded unemployment (av; %) 2.3 2.0 1.9 1.8 1.6 1.6 1.5

Public-sector revenue 49.3 59.1 60.0 65.0 67.1 58.4 58.9

Public-sector expenditure 53.0 63.7 63.2 68.2 73.8 65.7 62.9

Public-sector balance -3.7 -4.6 -3.2 -3.2 -6.7 -7.2 -4.0

Net public debt 39.3b 36.0b 35.7b 34.7b 35.8 33.3 34.1

Exchange rate official CUC:US$ (end-period) 1.00 0.93 0.93 0.93 0.93 0.93 0.93

Exchange rate unofficial CUP:US$ (end-period)d 26.00 23.13 22.22 22.22 22.22 22.22 19.58

Consumer prices (av, %) 0.4b 3.3b 5.1b 6.4b 3.4 4.8 5.3

Stock of money M2 (% change) 7.7 35.5 2.5 7.5b 4.4 4.3 4.4

Trade balance -3,283 -5,235 -6,330 -6,381 -10,720 -9,315 -9,897

Goods: exports fob 2,332 2,159 2,925 3,701 3,780 2,784 3,143

Goods: imports fob -5,615 -7,394 -9,498 -10,083 -14,500 -12,099 -13,040

Services balance 2,710 6,375b 6,456b 7,899b 8,404 7,825 7,752

Income balance -650 -633b -618b -894b -780 -814 -836

Current transfers balance 974 -367b 278b -212b 405 576 627

Current-account balance -249 140b -215b 412b -2,691 -1,727 -2,353

Debt stock 13,789b 14,485b 16,616b 17,829b 19,581 18,938 20,254

Debt service paid 957b 875b 1,116b 1,272b 1,566 1,873 1,763

Principal repayments 443b 518b 605b 743b 1,007 1,176 1,105

Interest 515b 357b 511b 529b 559 697 659

Total international reserves 2,247b 2,747b 3,747b 4,747b 3,947 3,147 2,947

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d "Unofficial" exchange rate used domestically, for

personal transactions. Since 1994 Cuban pesos (Ps) have been exchangeable for convertible pesos (CUC) or US dollars legally, in state-run

exchange houses, known as Casas de Cambio (Cadecas).

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Annual trends charts

Pl ea se se e g ra p hi c b el ow

(% of GDP)

(% of exports of goods & services)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

(% change)

(av; %)

(share of total) (share of total)

China

25.1%

Other

19.9%

Venezuela

12.2%

Canada

26.3%

Netherlands

11.8%

Spain

4.6%

US

5.8%

Other

42.7%

Canada

4.3%

Venezuela

22.3%

China

15.1%

Spain

9.8%

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Cuba Latin America World

2004 05 06 07 08 09 10

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Cuba Latin America World

2004 05 06 07 08 09 10

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Cuba Latin America

2004 05 06 07 08 09 10

0

50

100

150

200

250

Cuba Latin America

2004 05 06 07 08 09 10

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Monthly trends charts

Pl ea se se e g ra p hi c b el ow

(US$/metric tonne)

(US$/b; av)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

Jan

09

Jan Apr Jul Oct

08

Jan Apr Jul Oct

07

Jan Apr Jul Oct

06

Jul Oct

2005

20

40

60

80

100

120

140

Jan

09

Jan Apr Jul Oct

08

Jan Apr Jul Oct

07

Jan Apr Jul Oct

06

Jul Oct

2005

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Comparative economic indicators

Pl ea se se e g ra p hi c b el ow

(US$ bn)

(% change, year on year)

(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

(US$ '000)

0 200 400 600 800 1,000 1,200 1,400 1,600

Nicaragua

Honduras

Paraguay

Bolivia

El Salvador

Panama

Costa Rica

Uruguay

Guatemala

Ecuador

Peru

Chile

Colombia

Venezuela

Argentina

Mexico

Brazil

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Nicaragua

Bolivia

Honduras

Paraguay

Guatemala

El Salvador

Ecuador

Peru

Colombia

Costa Rica

Panama

Brazil

Argentina

Uruguay

Mexico

Chile

Venezuela

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Brazil

Mexico

Peru

Colombia

El Salvador

Uruguay

Ecuador

Argentina

Chile

Panama

Paraguay

Guatemala

Honduras

Costa Rica

Bolivia

Nicaragua

Venezuela

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Mexico

Colombia

Costa Rica

Nicaragua

Chile

El Salvador

Honduras

Guatemala

Venezuela

Ecuador

Brazil

Paraguay

Bolivia

Argentina

Panama

Peru

Uruguay

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Country snapshot

Basic data

110,000 sq km (mainland 105,000 sq km; Isle of Youth 2,000 sq km; keys

3,000 sq km)

11.2m (2007, year-end, official estimate)

Sub-tropical; average temperature 25°C, average relative humidity 81%

Hottest month, August, 24-32°C (average monthly minimum); coldest months,

average rainfall; wettest month, September, 183 mm average rainfall

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

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. 1 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 93 convertible pesos: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 in unofficial effect become pegged. At the end of 2007

this rate was CUP24:CUC1. The CUP:US$ exchange rate at end-2007 was

therefore CUP22.2:US$1. 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

5 hours behind GMT (April-October, 4 hours behind GMT)

January 1st; May 1st; July 26th-27th; October 10th; December 25th

Monthly Report April 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Political structure

Republic of Cuba

Centralised political system, with close identification between the PCC and the state

The president, Raúl Castro, took over from his brother, Fidel, on February 24th 2008

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 Assembly of People’s Power; 614 members elected by direct ballot; the Assembly

meets twice a year, and extraordinary sessions can be called

A People’s Supreme Court oversees a system of regional tribunals; the Supreme Court is

accountable to the National Assembly

Provincial and national assemblies: last elections January 20th 2008; next elections due in

January 2012. Municipal elections: last held October 2007; next due in April 2010

The organs of the state and the PCC are closely entwined, and power devolves principally

from the Executive Committee of the Council of Ministers

The Partido Comunista de Cuba (PCC) is the only legal political party

Francisco Soberón Valdés