THE CUBAN ECONOMIC SITUATION AND PROSPECTS (S-08638)

Created: 9/29/1975

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KEMORANDUMHE RECORD

SUHJECT: Cuban Economic Situation ond 1'rowpccts

Tlie attached report on tho Cubanand Prospects was centon5 for inclusionannex in: v

Attachment: As

Cuban Economic SYiuu'Cions and Prospects Current Economic oltuculcn

Cuba's economic situation brightened considerably4esult of record world sugar prices andeconomic policy changes underway Real GNP rose aboutut part of the increase reflected the recovery from poor sugar crops and lagging2

Sugar production and construction accounted for racst of the economy's iirprovanent last year. Sugar outputtoillion tons,3 and one-third above the2 harvest. Return of normal weatherajor role in the upturn, as did ongoing rationalization and mechanization efforts which permitted an increase in labor productivity.

Construction activity rose aneflecting Havana's heavy investment program. Expansion of infrastructure particularly in the rural areas accounted for much of constructions growth. Industrial constructionstrong however and the bcleagurcd housing industry, which has been receiving increased attention in recent years,light gain.

u. The non-eugar sectors of agriculture and industry lagged behind the economy's general growth. Crops other than sugar made only minor gains and industrial performance was mixed. Fuel, petroleum refining and electric power output rose significantly and light industryodest Output in mining and building pateriaIsowever.

Improved management and expanded import capacity were important factors in Cuba's stronger economic Since the disruptive ugar drive, Havana has been implementing widespread rationalization measures including more orthodox planning und cost accountinggreater use of material incentives to encourage-worker productivity, and strictly enforced anti-vagrancy laws to reduce worker absenteeism. In addition, progressive mechanization of the sugar harvest has reduced the disruptive use of "volunteer" cane cutters fron other sectors of tho economy.

Improved import capacity was due primarily to an unprecedented rise in sugar prices and to larger sugar shipments. Total export earnings soaredouble3mttorts also rose steeply;but not

as much as exports^and Cuba achieved its first trade surplus since Castro took power. See Table I

Sugar more than ever dominated the composition of exports, accounting forf the totalickel, shellfish, citrus, and tobacco accounted for the. Capital goods and transportion equipmentto dominate imports but larger imports of petroloum, foodstuffs, construction materials and other intermediate goods were evident during the year, as well.

High world sugar prices and the strengtheningeconomy enabled Havana to expand its commercial lies

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with nor.Conunanist countries, These- countries accounted forf total Cuban trade4 comparedverage. Eager to exploit the expanding Cuban market* Argentina, Spain, ranco, and Canada have extended2 billion in long-ternscredits in the last two years^-most of which has yet to be drawn.

9. Nevertheless, Havana reirair.ed closely tied to the USSK end,anncr extent, the other Communist countries. The USSH accounted for about two-fifths of total Cuban trace*roviding virtually all of Cuba's petroleum needsajor shaie of itb capital good and foodstuff imports. Soviet aid totaled5 million inynentiand development credits and5 million in subsidized petroleuia prices. Other Conmunist countries accounted for about one-fifth of Cuba's trade, but provided little fixancial assistance. Outlook

he Cuban economy, probably will continue to grow slowly over the next couple of years. Continued Soviet and stapped-up non-Communist assistance will enable Havana toigh rate of investment and thei maturing Castro regime is not likely to interrupt the economy's momentum by shifting itsgane plan as it was prone to do in the past. Growth will be considerably below theannual target set out in Cubian first Five Year Flan, however.

production5babiyinillion tons range because of adverse

however, should rise to

illionillion tonsesult oftinued modernization of the industry and the return of normal weathar. other sectors should continue to grow steadily as the investment program continues tc develop both infrastructure and industry. Cuba's first Five Year Plan to begin next year reportedly calls for investmentillion overeriod.

trade balance will deteriorateackeficit in subsequent years. 5esultncrease in the price the USSR for Cuban sugar, exports probably will stagnatedecline6rimarily because ofsugar prices. Non-sugar exports, will risethis period but major gains are nothen large expansion projects in the nickelare completed. Imports, on the other hand, areto jump sharply5 and continue to grow in two years. Because earnings from tourismwill offset only part of the projected tradewill again have to rely on capitaltho form

of trade and development aid to cover the expected current account deficits.

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Despite. the projectedvemoiit,

believe there is little likelihood that Cuba willonsumer society during this decade. The accent on investment allows little room for significant consumption increases during the next several years. While some consumer items, particularly luxury goods, will probably be made available in greater quantities, most basic items will continue to be strictly rationed and the Cuban lifestyle will remain Spartan by Western standards. Cuba-USSR Economic Relations

Cuban econony rem Inn closely tied to theis Havana's most important tradingabout two-fifths of total Cuban trade Itall of Cuba's petroleum needsaajor 3herecapital goods and foodstuffs. illion in Soviet development andto bolster its lagging import capacity. Inreceived0 million in sugar subsidy paymentsillion in petroleum subsidies followingin world oil prices 2 MoscowCuba's inability to repay its debt and agreedamortization and interest6 with repayment

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the domestic scene, Soviet influence inhas increased sharply since the disastrousdrive. Moscow has exerted strong pressures on Havana

to implement more orthodox planning procedures and improve economic management. It has also urged greater reliance on the pricing mechanism and material incentives, thus chipping away at tho some of the basic tenets of the Cuban revolution. To help implement these measures, the number of Soviet technical advisors in Cuba has greatly increased.

USSK will remain Cuba's most importantover the next few years and willajor roleits Kive Year Plan beginningG. Undersigned Protocol for Coordination ofPlans, Moscow reaffirmed its commitment toCuban economy. It will assist in the development ofbranches of the economy and will provide forsupplies, piobably at prices below world market levels.

esult, indirect support in the form of sugar and petroleum subsidies will remain substantial. In addition, Moscow will continue to extend significant amounts of development aid both unilaterally and in conjunction with other CEMA members.

of Soviet assistance would requirecutback in Cuban imports and cause ths economyor actually decline. If Soviet sugar subsidiesexports would decline0 millions much0 million On tho othertermination of subsidized oil prices would add someannually to Cuba's import bill if it attempted current volume of ourchascc abroad.

Cuba-US Trade Prospects

18. Tho prospects forP bilateral trade, if the US embargo in lifted, art modest at best and do not indicate

a return to pre- "evclutior. levels. Even though the geographical

proximity aixl compleAior.tarity ol the two economics make them natural trading partners, Cuba is closely aligned with the

ancjeconoiiiic roaflons would not reduce these ties to anydegree. The potential foruban tradr* is further inhibited by Cuba's limited hard currency earnings nnd strong competition by other trajor industrial non-Communist counties. Finally, trade would not benefit fromnvestment in Cuba as it did in the period before the revolution.

Nevertheless, Cuba wouldew, although relatively small, market for US goods and technology. Cuban officials reportedly retain an affinity for US know-how and are not unaware of the potential savings in transportation costs in shifting to the US market. Given normal commercial credits, wo believe that between one-quarter and one-half of Cuban imports from the non-Corrjnunist worldestimated at0 billionould eventually originate in tho US. Uecause of Cuban emphasis on investment, Havana will be primarily interested in all kinds of capital goods and technology as well as replacement parts for US machinery and equipment already in Cuba.

In return Havana could sell to tho United States sugar, tobacco aid tobacco products, nickel, and shellfish.

After meeting ita annual obligations to the Cowamnist markets, Havana hasillion tons of sugar available for sale on the world free market. Of this amount, wo believe that Cuba would initially be willing to send uponsworth5 million at current world pricesto the United States. Sales of non-sugar items could bring total Cubansalcs to the US to0 million initially. Over the longer run, Cubanales to the US could rise toillion tons annually, but Havana will avoid its former dc-pendenco on the US market as an outlet for its sugar.

21. Renewed trade with the US is not likely toignificant impact on Cuban growth prospects. The US embargo has lost much of its effect over time and Cuba has secured alternative markets and sources of supply. Nevertheless Cuban access to US-made spare parts and high quality US goods and technology would case remaining maintenace probelms and provide some initial boost in economic activity in certain sectors. Its impact on the vital agricultural sector, for example, would be marginal, however. Moreover, any Cuban trade with the US would largelyhift in Cuban sales and purchases from other non-Communist countries and would not leadignificant increase in Cuban import capacity. Renewal of Cuba-US trade, however, would result in some savings in transportation costs for importedformerly purchased elsewhere and wouldound base for expansion of tho Cuban tourisL industry.

CIA/Oer

eptember5

Original document.

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