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Economy of Cuba

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Through Cuba, Developing country and Government debt

In the 19th century, Cuba was one of the most prosperous pre-industrial Latin American countries with the export of tobacco, sugar, and coffee. At the Cuban Revolution of 1953–1959, during the military dictatorship of Fulgencio Batista, Cuba was on a growth trajectory within Latin America. During the Cold War, the Cuban economy was heavily subsidized – 10% to 40% of Cuban GDP in various years – by the Eastern Bloc, due to their geopolitical alignment with the Soviet Union. Cuba endured severe economic downturn when the Soviet Union collapsed, with GDP declining 33% between 1990 and 1993. A protracted economic malaise known as the Special Period overcame Cuba from 1991 to 2001. The Cuban economy rebounded in 2003 with marginal liberalization and foreign support from Venezuela, China, and Russia. The United States has maintained an economic embargo against Cuba since 1960 due to geopolitical tensions.

History

Colonial and Republican period (1870–1959)

Although Cuba belonged to the high-income countries of Latin America since the 1870s, income inequality was high, accompanied by capital outflows to foreign investors. In the early half of the 20th century sugar, tobacco, and coffee exports, along with tourism from the U.S. provided the country with rapid growth.

Before the Cuban Revolution, in 1958, Cuba had a per-capita GDP of $2,363, which placed it in the middle of Latin American countries at the time, according to the Maddison Project. PBS quotes a better ranking for Cuba of 5th in the Western Hemisphere during the early 20th century, and gives high ratings for life expectancy, literacy and per capita ownership of automobiles, telephones, and television sets. According to the UN, between 1950 and 1955, Cuba had a life expectancy of 59.4 years, which placed it in 56th place in the global ranking.

Its proximity to the United States made it a familiar holiday destination for wealthy Americans. Their visits for gambling, horse racing, and golfing made tourism an important economic sector. Tourism magazine Cabaret Quarterly described Havana as "a mistress of pleasure, the lush and opulent goddess of delights". Cuban dictator Fulgencio Batista had plans to line the Malecon, Havana's famous walkway by the water, with hotels and casinos to attract even more tourists. The country was highly dependent on its sugar production.

In the late 1950s, Cuba's oil sector was controlled by three large international oil companies: Standard Oil of New Jersey (Esso), Texaco, and Royal Dutch Shell.

Revolutionary era (1959–present)

The Cuban Revolution under the leadership of Fidel Castro brought a sharp break with earlier economic, social and political policies in Cuba, introducing a planned state-run command economy, an alliance with the Soviet Bloc, and a trade embargo by the United States that ended trade and tourism with that country. Cuba moved down the world income distribution after the revolution and as of 2012, per capita income appear to be below the peak of Cuba's pre-revolutionary levels.

Early economic planning (1959–1967)

On 3 March 1959, Fidel Castro seized control of the Cuban Telephone Company, which was a subsidiary of the International Telephone and Telecommunications Corporation. This was the first of many nationalizations made by the new government; the assets seized totaled US$9 billion.

After the 1959 Revolution, citizens were not required to pay a personal income tax. The government also began to subsidize healthcare and education for all citizens; this action created strong national support for the new revolutionary government.

The USSR and Cuba reestablished their diplomatic relations in May 1960. When oil refineries like Shell, Texaco, and Esso refused to refine Soviet oil, Castro nationalized that industry as well, taking over the refineries on the island. Days later in response, the United States cut the Cuban sugar quota completely; Eisenhower was quoted saying "This action amounts to economic sanctions against Cuba. Now we must look ahead to other economic, diplomatic, and strategic moves." Cuba and the Soviet Union signed their first trade deal that year, in which Cuba traded sugar to the Soviet Union in exchange for fuel. On 7 February 1962, Kennedy expanded the United States embargo to cover almost all U.S. imports.

Using machinery and equipment provided by the Soviet Union and other socialist countries, from 1959 to 1963, the Cuban government attempted to implement import substitution industrialization. This approach was deemed to have failed by 1964 and Cuba resumed an export strategy focused on sugar. The economy remained inefficient and over-specialized in a few commodities purchased by the Eastern Bloc countries.

By the late 1960s, Cuba became dependent on Soviet economic, political, and military aid. It was also around this time that Castro began privately believing that Cuba could bypass the various stages of socialism and progress directly to pure communism. General Secretary Leonid Brezhnev consolidated Cuba's dependence on the USSR when, in 1973, Castro caved to Brezhnev's pressure to become a full member of Council for Mutual Economic Assistance (Comecon). Comecon deemed Cuba one of its underdeveloped member countries and therefore Cuba could obtain oil in direct exchange for sugar at a rate that was highly favorable to Cuba. Hard currency Cuba obtained from re-exporting oil facilitated Cuba's importation of goods from non-Comecon countries and facilitated its investments in social services.

1968–1990

In 1970 as part of the Revolutionary Offensive economic campaign, Fidel Castro attempted to motivate the Cuban people to harvest 10 million tons of sugar, in Spanish known as La Zafra, to increase their exports and grow their economy. Despite the help of most of the Cuban population, the country fell short and produced only 7.56 million tons. In July 1970, after the harvest was over, Castro took responsibility for the failure, but later that same year, shifted the blame toward the Sugar Industry Minister saying "Those technocrats, geniuses, super-scientists assured me that they knew what to do to produce the ten million tons."

During the Revolutionary period, Cuba was one of the few developing countries to provide foreign aid to other countries. Foreign aid began with the construction of six hospitals in Peru in the early 1970s. Between 1970 and 1985, Cuba sustained high rates of growth: [Cuba] was actually following the World Bank recipe from the 1970s: redistribution with growth". Foreign aid expanded later in the 1970s to the point where some 8000 Cubans worked in overseas assignments. Cubans built housing, roads, airports, schools, and other facilities in Angola, Ethiopia, Laos, Guinea, Tanzania, and other countries. By the end of 1985, 35,000 Cuban workers had helped build projects in some 20 Asian, African, and Latin American countries.

For Nicaragua in 1982, Cuba pledged to provide over $130 million worth of agricultural and machinery equipment and some 4000 technicians, doctors, and teachers. Over the course of the 1980s, Cuba provided approximately 90,000 tons of oil to Nicaragua per year to support the Sandinista revolution. From 1986 through 1990, Fidel Castro began the Rectification Process in an effort to decrease market elements in the economy.

In 1986, Cuba defaulted on its $10.9 billion debt to the Paris Club. In 1987, Cuba stopped making payments on that debt. In 2002, Cuba defaulted on $750 million in Japanese loans.

The 1980s was an era of low poverty. In the mid-80s, no more than 6% of Cubans were poor (poverty being defined as a state of not being able to satisfy basic needs with earned income). In comparison, the poverty rate throughout Latin America in that era averaged more than 40%, and in some countries more than 70%.

Special Period (1991–1994)

In 1991 an extended period of economic crisis began in Cuba primarily due to the dissolution of the Soviet Union and the Comecon. This era was referred to as the "Special Period in Peacetime", lateusly in 1990 and 1991 and did not recover for five years. Cuba had been insulated from world sugar prices by Soviet price guarantees.

Malnutrition resulted in an outbreak of diseases. Although the collapse of centrally planned economies in the Soviet Union and other countries of the Eastern bloc subjected Cuba to severe economic difficulties, which led to a drop in calories per day from 3052 in 1989 to 2600 in 2006, mortality rates were not strongly affected thanks to the priority given on maintaining a social safety net. The Cuban economy began to improve again following a rapid improvement in trade and diplomatic relations between Cuba and Venezuela following the election of Hugo Chávez in Venezuela in 1998, who became Cuba's most important trading partner and diplomatic ally.

Reforms and recovery (1994–2011)

The government undertook several economic reforms to stem excess liquidity, increase labor incentives, and alleviate serious shortages of food, consumer goods, and services. To alleviate the economic crisis, the government introduced a few market-oriented reforms, including opening to tourism, allowing foreign investment, legalizing the U.S. dollar, and authorizing self-employment for some 150 occupations. These measures resulted in modest economic growth. The liberalized agricultural markets were introduced in October 1994, at which state and private farmers sell above-quota production at free market prices, broadened legal consumption alternatives, and reduced black market prices.

Government efforts to lower subsidies to unprofitable enterprises and to shrink the money supply caused the semi-official exchange rate for the Cuban peso to move from a peak of 120 to the dollar in the summer of 1994 to 21 to the dollar by year-end 1999. The drop in GDP halted in 1994 when Cuba reported 0.7% growth, followed by increases of 2.5% in 1995 and 7.8% in 1996. Growth slowed again in 1997 and 1998 to 2.5% and 1.2% respectively. One of the key reasons was the failure to notice that sugar production had become uneconomic. Reflecting on the Special Period, First Secretary of the Communist Party of Cuba Fidel Castro later admitted that many mistakes had been made, "The Soviet Union collapsed, oil cost $40 a barrel, and sugar prices were at basement levels, so why did we not rationalize the industry?" Living conditions in 1999 remained well below the 1989 level.

Due to the continued growth of tourism, growth began in 1999 with a 6.2% increase in GDP. Growth then picked up, with a growth in GDP of 11.8% in 2005 according to government figures. In 2007 the Cuban economy grew by 7.5%, higher than the Latin American average. Accordingly, the cumulative growth in GDP since 2004 stood at 42.5%.

Starting in 1996, the government imposed income taxes on self-employed Cubans. Cuba ranked third in the region in 1958 in GDP-per-capita, surpassed only by Venezuela and Uruguay. It had descended to 9th, 11th, or 12th place in the region by 2007. Cuban social indicators suffered less.

Every year the United Nations holds a vote asking countries to choose if the United States is justified in its economic embargo against Cuba and whether it should be lifted. 2016 was the first year that the United States abstained from the vote, rather than voting no, "since 1992 the US and Israel have constantly voted against the resolution – occasionally supported by the Marshall Islands, Palau, Uzbekistan, Albania and Romania". In its 2020 report to the United Nations, Cuba stated that the total cost to Cuba from the United States embargo is $144 billion since its inception.

Post-Fidel Castro reforms (2011–2021)

In 2011, "[t]he new economic reforms were introduced, effectively creating a new economic system", which the Brookings Institution dubbed the "New Cuban Economy". Since then, over 400,000 Cubans have signed up to become entrepreneurs. As of 2012 the government listed 181 official jobs no longer under their control—such as taxi driver, construction worker and shopkeeper. Workers must purchase licenses to work for some roles, such as a mule driver, palm-tree trimmer, or well digger.

Around 2000, half the country's sugar mills closed. Before reforms, imports were double exports, doctors earned £15 per month, and families supplemented incomes with extra jobs. After reforms, more than 150,000 farmers could lease land from the government for surplus crop production. Before the reforms, the only real estate transactions involved homeowners swapping properties; reforms legalized the buying and selling of real estate and created a real estate boom in the country. In 2012 a Havana fast-food burger/pizza restaurant, La Pachanga, started in the owner's home; as of 2012 it served 1,000 meals on a Saturday at £3 each. Tourists can now ride factory steam locomotives through closed sugar mills.

In 2008, Raúl Castro's administration hinted that the purchase of computers, DVD players, and microwaves would become legal. Monthly wages remain less than 20 U.S. dollars. Mobile phones, which had been restricted to Cubans working for foreign companies and government officials, were legalized in 2008. In 2010 Fidel Castro, in agreement with Raúl Castro's reformist sentiment, admitted that the Cuban model based on the old Soviet centralized planning model was no longer sustainable. The brothers encouraged the development of a cooperative variant of socialism – where the state plays a less active role in the economy – and the formation of worker-owned co-operatives and self-employment enterprises.

To remedy Cuba's economic structural distortions and inefficiencies, the Sixth Congress approved an expansion of the internal market and access to global markets on 18 April 2011. A comprehensive list of changes is:

  • expenditure adjustments (education, healthcare, sports, culture)
  • change in the structure of employment; reducing inflated payrolls and increasing work in the non-state sector
  • legalizing 201 different personal business licenses
  • fallow state land in usufruct leased to residents
  • incentives for non-state employment, as a re-launch of self-employment
  • proposals for the formation of non-agricultural cooperatives
  • legalization of the sale and private ownership of homes and cars
  • greater autonomy for state firms
  • search for food self-sufficiency, the gradual elimination of universal rationing and change to targeting the poorest population
  • possibility to rent state-run enterprises (including state restaurants) to self-employed persons
  • separation of state and business functions
  • tax-policy update
  • easier travel for Cubans
  • strategies for external debt restructuring

On 20 December 2011, a new credit policy allowed Cuban banks to finance entrepreneurs and individuals wishing to make major purchases to make home improvements in addition to farmers. "Cuban banks have long provided loans to farm cooperatives, they have offered credit to new recipients of farmland in usufruct since 2008, and in 2011 they began making loans to individuals for business and other purposes".

The system of rationed food distribution in Cuba was known as the Libreta de Abastecimiento ("supplies booklet"). As of 2012 ration books at bodegas still procured rice, oil, sugar, and matches above the government average wage of £15 monthly. Raúl Castro signed Law 313 in September 2013 to set up a special economic zone, the first in the country, in the port city of Mariel. The zone is exempt from normal Cuban economic legislation. On 22 October 2013, the government eventually announced its intention to end the dual-currency system. The convertible peso (CUC) was no longer issued from 1 January 2021 and ceased circulation on 30 December 2021.

In February 2019, Cuban voters approved a new constitution granting the right to private property and greater access to free markets while also maintaining Cuba's status as a socialist state. In June 2019, the 16th ExpoCaribe trade fair took place in Santiago. Since 2014, the Cuban economy has seen a dramatic uptick in foreign investment. In November 2019, Cuba's state newspaper, Granma, published an article acknowledging that despite the deterioration in relations between the U.S. and Cuban governments, the Cuban government continued to make efforts to attract foreign investment in 2018. In December 2018, the official Cuban News Agency reported that 525 foreign direct investment projects were reported in Cuba, a dramatic increase from the 246 projects reported in 2014.

Modern Cuban economy (2021–present)

Cuba's GDP dropped more than 10% from 2018 to 2024. The modern Cuban economy continues to face challenges related to an ongoing energy crisis, foreign trade sanctions, and limited tourism. The Cuban economy was negatively affected by the COVID-19 pandemic from 2020 to 2022, with sudden drops in remittances and tourism. In February 2021, the Cuban government authorized private initiatives in more than 1,800 occupations.

In 2020, the country's economy declined by 11%, the country's worst decline in nearly 30 years. Cubans have faced shortages of basic goods as a result. The Cuban economy received large-scale foreign investment from Venezuela, China and Russia, while the United States sharply tightened their embargo against Cuba in 2025. Cuba has been in an economic recession since 2020, with GDP contracting 1.1% and inflation at 24% in 2024. The halt of Venezuelan oil shipments, following the United States' intervention in Venezuela in January 2026, worsened Cuba's severe energy crisis.

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