Cuban Restructuring: The Economic Risks Emily Morris CUNY - - PowerPoint PPT Presentation

Cuban Restructuring: The Economic Risks

Emily Morris CUNY Colloquium: Economic Transformation in Cuba May 21st 2012

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Economic risks

• 1. Unemployment

l the cost of higher productivity?

• 2. Monetary instability

l prices, exchange rate

• 3. Fiscal crisis

l loss of capacity for social protection?

• 4. Stagnation

l is Cuba stuck?

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Actualización in perspective: Growth performance

• 15.0
• 10.0
• 5.0
• 5.0

10.0 15.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Real GDP growth, %

Crisis & instability Stabilisation & recovery Boom ̶ and its limits

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An achievement, but not a success

Unemployment: the cost of higher productivity?

20 40 60 80 100 120 140 160 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Index, 1990 = 100 Real GDP Employment Average productivity per worker

Disguised unemployment as survival strategy Job creation through growth Over-full employment? Subsidised Underemployment?

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Low risk: official policy commitment employment subsidy

Monetary instability: prices

50 100 150 200 250 300 350 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Index, 1990=100 Cost of living ? Nominal average wage Average real wage ?

Shortages & rations: sharing hunger Stabilization & recovery: improvement Inflation low BUT prices controlled & real wages low

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Low risk: price liberalisation slow due to public fears

Monetary instability: exchange rate

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$:CUP Black market rate collapse = shared hardship unorthodox stabilisation and legalisation CUP:CUP stable But gulf between ‘official’ and ‘Cadeca’ rates

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Low risk of exchange rate collapse – but is appreciation needed?

Monetary imbalance: exchange rate

10 20 30 40 50 60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$100 as multiple of average monthly wage at Cadeca rate Black market rate collapse = US$ privilege Stabilisation and legalisation CUP stable BUT still very weak

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Fragmented economy: official & unofficial prices, wages, exchange rates

Fiscal crisis: loss of capacity for social protection?

• 40
• 20

20 40 60 80 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % of GDP Spending Revenue Balance

Big Government; monetised deficit Fiscal rectitude Spending surge & readjustment: The institutional test

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Low risk of fiscal crisis: commitment, institution-building

Stagnation: is the Cuban economy stuck?

• Unemployment: low risk - high commitment to

full employment

Ø slow productivity growth = bad for growth

• Inflation: low risk - fear of rising cost of living

Ø distorted prices persist = bad for growth

• Fiscal crisis: low risk - discipline and high taxes

Ø squeeze on public and private investment = bad for growth

• So where is growth coming from??

v Disruption is necessary; can it be managed?

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Cuban Restructuring: The Economic Risks

Managing risk: an evolutionary-institutional process emily.morris@sas.ac.uk

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