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U.S. Department of State

Diplomacy in Action

Cuba (03/25/10)


March 25, 2010

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 110,860 sq. km. (44,200 sq. mi.); about the size of Pennsylvania.
Cities: Capital--Havana (pop. 2 million). Other major cities--Santiago de Cuba, Camaguey, Santa Clara, Holguin, Guantanamo, Matanzas, Cienfuegos, Pinar del Rio.
Terrain: Flat or gently rolling plains, hills; mountains up to 2,000 meters (6,000 ft.) in the southeast.
Climate: Tropical, moderated by trade winds; dry season (November-April); rainy season (May-October).

People
Population: 11.2 million; 75% urban, 25% rural (official 2008 statistics).
Ethnic groups: 51% mixed, 37% white, 11% black, 1% Chinese (according to 2002 Cuban census).
Language: Spanish. Literacy--99.8% (25 years and older, according to Cuban Government sources).
Work force (5.07 million): Services (including education, health and social services)--42%; agriculture--19%; commerce and tourism--12%; industry--11%; transport, storage, and communications--6%; construction--5%; mining, electricity, gas and water--2%.

Government
Type: Totalitarian communist state; current government assumed power by force on January 1, 1959.
Independence: May 20, 1902.
Political party: Cuban Communist Party (PCC); only one party allowed.
Administrative subdivisions: 14 provinces, including the city of Havana, and one special municipality (Isle of Youth).

Economy
GDP (2009 official estimate, based on constant 1997 prices): $50.01 billion.
Real annual growth rate: 3.2% (2001); 1.4% (2002); 3.8% (2003); 5.8% (2004); 11.2% (2005); 12.1% (2006); 7.3% (2007); 4.1% (2008); 1.4% (2009).
GDP per capita income (2009 est., based on constant 1997 prices): $4,450.
Average monthly salary: $18.
Natural resources: Nickel, cobalt, iron ore, copper, manganese, salt, timber, oil, natural gas.
Agriculture: Products--sugar, citrus and tropical fruits, tobacco, coffee, rice, beans, meat, vegetables.
Industry: Types--sugar and food processing, oil refining, cement, electric power, light consumer and industrial products, pharmaceutical and biotech products.
Trade: Exports (2008)--$3.68 billion f.o.b.: nickel/cobalt, oil and oil derivatives, pharmaceutical and biotech products, sugar and its byproducts, tobacco, seafood, citrus, tropical fruits, coffee. Major export markets (2008)--Canada $767 million (21%); China $677 million (18%); Venezuela $415 million (11%); Netherlands $289 million (8%); Spain $197 million (5%); Singapore $118 million (3%); Netherlands Antilles $65 million (2%); Italy $64 million (2%); Russia $71 million (2%); others $656 million (18%). Imports (2008)--$14.249 billion f.o.b.: petroleum, food, machinery, chemicals. Major import suppliers (2008)--Venezuela $4.478 billion (31%); China $1.483 billion (10%); Spain $1.233 billion (9%); United States $801 million (6%); Canada $656 million (4%); Brazil $601 million (4%); Vietnam $520 million (4%); Italy $488 million (3%); Germany $378 million (3%); Mexico $369 million (3%); Russia $269 million (2%); others $1.06 billion (7%).
Official exchange rate: U.S. $1 = 0.93 Cuban convertible pesos.
Cuba has two currencies in circulation: the peso (CUP), and the convertible peso (CUC), both of which are fixed by the government. In April 2005, the official exchange rate changed from $1 per CUC to $1.08 per CUC (0.93 CUC per $1), both for individuals and enterprises. Individuals can buy 24 Cuban pesos (CUP) for each CUC sold, or sell 25 Cuban pesos for each CUC bought; enterprises, however, must exchange CUP and CUC at a 1:1 ratio. The Cuban Government taxes and receives 10% of each conversion of U.S. dollars into CUCs.

Official statistics are available from the Cuban Office of National Statistics. For alternative statistics, see the Economist Intelligence Unit.

PEOPLE AND RELIGION
Cuba is a multiracial society with a population of mainly Spanish and African origins. The largest organized religion is the Roman Catholic Church, but evangelical protestant denominations continue to grow rapidly. Afro-Cuban religions, a blend of native African religions and Roman Catholicism, are widely practiced in Cuba. Officially, Cuba was an atheist state from 1959 to the early 1990s, when the Communist Party lifted its prohibition against religious believers seeking membership and the constitution was amended (1991) to characterize the state as secular instead of atheist. In 1962, the revolutionary government seized and shut down all the private schools, including more than 400 Catholic schools. To date, the government does not permit religious education in public schools nor the operation of private primary or secondary schools of any kind.

Although the Cuban constitution recognizes the right of citizens to freedom of religion, religious groups experience various degrees of official interference, harassment, and repression. The Ministry of Interior engages in active efforts to control and monitor the country's religious institutions, including through surveillance, infiltration and harassment of religious professionals and practitioners. The most independent religious organizations--including the Catholic Church, the largest independent institution in Cuba today--continue to operate under significant restrictions and pressure imposed on them by the Cuban Government. The government restricts religious institutions' access to the media, the Internet, and printing presses; their ability to have full control of ordainments or adequate numbers of foreign priests or pastors to work in the country; and their ability to establish socially useful institutions, including schools and universities, hospitals and clinics, and nursing homes. All registered denominations must report to the Ministry of Interior's Office of Religious Affairs. Twenty-five denominations, including Presbyterians, Episcopalians, and one group of Methodists, are members of the Cuban Council of Churches (CCC), which comes under state control and oversight. Most CCC members are officially recognized by the state, though several, including the Evangelical Lutheran Church, are not registered and are recognized only through their membership in the CCC. Another 31 officially recognized denominations, including Jehovah's Witnesses and the small Jewish community, do not belong to the CCC. The government tends to be most tolerant of churches that maintain close relations to the state through the CCC.

Other Cuban religious groups--including evangelical Christians, whose numbers continue to grow rapidly--also have benefited from the relative relaxation of official restrictions on religious organizations and activities. Although particularly hard hit by emigration, Cuba's small Jewish community continues to hold services in Havana and has members in Santiago, Camaguey, and other parts of the island. See also the Department's report on international religious freedom for further information.

HISTORY
Spanish settlers established the raising of cattle, sugarcane, and tobacco as Cuba's primary economic pursuits. As the native Indian population died out, African slaves were imported to work the ranches and plantations. Slavery was abolished in 1886.

Cuba was the last major Spanish colony to gain independence, following a lengthy struggle begun in 1868. Jose Marti, Cuba's national hero, helped initiate the final push for independence in 1895. In 1898, the United States entered the conflict after the USS Maine sank in Havana Harbor on February 15 due to an explosion of undetermined origin. In December of that year, Spain relinquished control of Cuba to the United States with the Treaty of Paris. On May 20, 1902, the United States granted Cuba its independence but retained the right to intervene to preserve Cuban independence and stability in accordance with the Platt Amendment. In 1934, the Platt Amendment was repealed. The United States and Cuba concluded a Treaty of Relations in 1934 which, among other things, continued the 1903 agreements that leased the Guantanamo Bay naval base to the United States.

Independent Cuba was often ruled by authoritarian political and military figures who either obtained or remained in power by force. Fulgencio Batista, an army sergeant, organized a non-commissioned officer revolt in September 1933 and wielded significant power behind the scenes until he was elected president in 1940. Batista was voted out of office in 1944 and did not run in 1948. Both those elections were won by civilian political figures with the support of party organizations. Running for president again in 1952, Batista seized power in a bloodless coup 3 months before the election was to take place, suspended the balloting, and began ruling by decree. Many political figures and movements that wanted a return to the government according to the constitution of 1940 disputed Batista's undemocratic rule.

On July 26, 1953, Fidel Castro, who had been involved in increasingly violent political activity before Batista's coup, led a failed attack on the Moncada army barracks in Santiago de Cuba in which more than 100 died. After defending himself in a trial open to national and international media, he was convicted and jailed, and subsequently was freed in an act of clemency, before going into exile in Mexico. There he organized the "26th of July Movement" with the goal of overthrowing Batista, and the group sailed to Cuba on board the yacht Granma, landing in the eastern part of the island in December 1956.

Batista's dictatorial rule fueled increasing popular discontent and the rise of many active urban and rural resistance groups, a fertile political environment for Castro's 26th of July Movement. Faced with a corrupt and ineffective military--itself dispirited by a U.S. Government embargo on weapons sales to Cuba--and public indignation and revulsion at his brutality toward opponents, Batista fled on January 1, 1959. Although he had promised a return to constitutional rule and democratic elections along with social reforms, Castro used his control of the military to consolidate his power by repressing all dissent from his decisions, marginalizing other resistance figures, and imprisoning or executing thousands of opponents. An estimated 3,200 people were executed by the Cuban Government between 1959-62 alone. As the revolution became more radical, hundreds of thousands of Cubans fled the island.

Castro declared Cuba a socialist state on April 16, 1961. For the next 30 years, Castro pursued close relations with the Soviet Union and worked to advance the geopolitical goals of the Soviet Union, funding and fomenting violent subversive and insurrectional activities and participating in foreign interventions until the demise of the U.S.S.R. in 1991.

Relations between the United States and Cuba deteriorated rapidly as the Cuban Government expropriated U.S. properties and moved toward adoption of a one-party communist system. In response, the United States imposed an embargo on Cuba in October 1960, and, in response to Castro's provocations, broke diplomatic relations on January 3, 1961. Tensions between the two governments peaked during the October 1962 missile crisis.

GOVERNMENT AND POLITICAL CONDITIONS
Cuba is a totalitarian communist state headed by General Raul Castro and a cadre of party loyalists. Castro replaced his brother Fidel Castro as chief of state, president of Cuba, and commander-in-chief of the armed forces on February 24, 2008. Fidel Castro retains the position of First Secretary of the Cuban Communist Party (PCC). A pending Communist Party Congress, the first to have been held since 1997, has been indefinitely postponed. The Cuban Government seeks to control most aspects of Cuban life through the Communist Party and its affiliated mass organizations, the government bureaucracy, and the state security apparatus. The Ministry of Interior is the principal organ of state security and control.

According to the Soviet-style Cuban constitution of 1976, the National Assembly of People's Power, and its Council of State when the body is not in session, has supreme authority in the Cuban system. Since the National Assembly meets only twice a year for a few days each time, the 31-member Council of State wields power. The Council of Ministers, through its nine member executive committee, handles the administration of the economy, which is state-controlled except for a small private market sector. Raul Castro is President of the Council of State and Council of Ministers, and Jose Ramon Machado Ventura serves as First Vice President of both bodies. In total, there are five Vice Presidents in the Council of State and seven in the Council of Ministers.

Although the constitution theoretically provides for independent courts, it explicitly subordinates them to the National Assembly and to the Council of State. The People's Supreme Court is the highest judicial body. Due process is routinely denied to Cuban citizens, particularly in cases involving political offenses. The constitution states that all legally recognized civil liberties can be denied to anyone who opposes the "decision of the Cuban people to build socialism."

The Communist Party is constitutionally recognized as Cuba's only legal political party. The party monopolizes all government positions, including the Council of State and judicial offices. Though not a formal requirement, party membership is a de facto prerequisite for high-level official positions and professional advancement in most areas. A small number of non-party members have been permitted by the controlling Communist authorities to serve in the National Assembly. The Communist Party through its front organizations approves candidates for all elected offices. Citizens do not have the right to change the government.

Human Rights
Cuba's government controls all aspects of life through the Communist Party and its affiliated mass organizations, the government bureaucracy, and State Security Department. The latter is tasked with monitoring, infiltrating, and controlling the country's beleaguered human rights community. Despite having signed the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social, and Cultural Rights in February 2008, Cuba has yet to ratify either or meet the obligations assumed in these instruments, continuing to commit serious abuses and denying its citizens the right to change their government. Cuba is also a signatory of the Universal Declaration of Human Rights and sits on the UN Human Rights Council, yet routinely arrests citizens who seek to exercise internationally recognized fundamental freedoms.

The government incarcerates people for their peaceful political beliefs or activities. The total number of political prisoners and detainees is unknown, because the government does not disclose such information and keeps its prisons off-limits to human rights organizations and international human rights monitors. One local human rights organization lists more than 200 political prisoners currently detained in Cuba in addition to as many as 5,000 people sentenced for "dangerousness."

In the "Black Spring" of March 2003, the government arrested 75 human rights activists, independent journalists and opposition figures on various charges, ranging from aiding a foreign power to violating national security laws. Many of the 75 activists arrested in March 2003 participated in the Varela Project. Authorities subjected the detainees to summary trials and sentenced them to prison terms ranging from 6 to 28 years. Amnesty International identified all 75 as "prisoners of conscience." As of March 2010, 54 of the original 75 prisoners remained incarcerated. See also the Department's Country Report on Human Rights Practices for Cuba.

The government places severe limitations on freedom of speech and press, as noted by international non-governmental organizations (NGOs) such as Reporters Without Borders. The constitution provides for freedom of speech and press insofar as views "conform to the aims of a socialist society." In March 2008, demonstrators distributing copies of the Universal Declaration of Human Rights were attacked by an orchestrated mob and later detained. Despite the government's decision to permit Cubans to purchase personal computers, access to the Internet is strictly controlled and given only to those deemed ideologically trustworthy; Internet restrictions were tightened further in March and April 2008 to block access by Cuban citizens to certain independent websites.

Freedom of assembly is not constitutionally guaranteed in Cuba. The law punishes unauthorized assembly of more than three persons. The government also restricts freedom of movement and prevents some citizens from emigrating because of their political views. Cubans need explicit exit visas from their government to leave their country, and many people are denied exit permission by the Cuban Government, despite the fact that they have received travel documents issued by other countries.

Although the government has encouraged controlled forms of "constructive criticism," the Cuban Government continues to show little tolerance for unauthorized dissent. The Cuban Government utilizes short-term detentions to break up peaceful marches and demonstrations, and routinely resorts to organizing mobs of civilians to harass and physically attack the opposition, claiming that these are spontaneous citizen "counter-demonstrations."

Prison conditions are harsh and life-threatening. Although physical torture is rare, cruel treatment of prisoners--particularly political prisoners and detainees--is common. Prison authorities frequently beat, neglect, isolate, and deny medical treatment to inmates. Authorities often deny family visits, adequate nutrition, exposure to sunshine, and pay for work. Overcrowding is rife. In February 2010, political prisoner Orlando Zapata Tamayo died following a hunger strike of over 80 days, undertaken to call for the release of political prisoners and improvements in prison conditions. The government has so far refused to allow international monitoring of its prisons, including visits by the Red Cross and the United Nations.

The Cuban Government routinely violates international core labor standards. The law does not allow Cuban workers to form and join unions of their choice. The government-approved unions do not act as trade unions, promote worker rights or protect the right to strike; rather, they are geared toward ensuring that production goals are met. Some workers lose their jobs because of their political beliefs. Salaries are not high enough to meet food and clothing costs; consequently, many Cubans resort to small-scale embezzlement or pilfering from their employers.

NATIONAL SECURITY
With the loss of Soviet-era subsidies in the early 1990s, Cuba's armed forces have shrunk considerably, both in terms of numbers and assets. Combined active duty troop strength for all three services is estimated at 50,000 to 55,000 personnel (compared to some 235,000 on active duty 10 years ago) and much of Cuba's weaponry appears to be in storage. Cuba's air force, once considered among the best equipped in Latin America, no longer merits that distinction, though it still possesses advanced aircraft and weapons systems; the navy has become primarily a coastal defense force with no blue water capability. The Cuban army is still one of the region's more formidable, but it also is much reduced and no longer has the considerable resources necessary to project power abroad. Exchanges and visits with foreign military allies like Russia, China, and Venezuela have become common over the past few years.

The military plays a dominant role in the economy, particularly in tourism, civil aviation, foreign trade, and retail operations. The country's two paramilitary organizations, the Territorial Militia Troops and the Youth Labor Army, have a reduced training capability. Cuba also adopted a "war of the people" strategy that highlights the defensive nature of its capabilities. In this respect, and despite the drain on the country’s resources, the government has continued to hold national military drills in preparation for hypothetical military aggression from the United States. The government continues to maintain a large state security apparatus under the Ministry of Interior to repress dissent within Cuba.

ECONOMY

GDP Growth
Real gross domestic product (GDP) grew by 1.4% in 2009, according to official statistics. However, Cuba uses a unique “social” method for calculating GDP which makes its figures impossible to compare with any other country in the world. Nevertheless, the reported slow growth reflected a difficult 2009 and was significantly less than the 6% growth the Cuban Government had forecast, the 4.1% reported in 2008, and the 7.3% reported in 2007. The Cuban Government is forecasting a modest 1.9% growth in 2010.

Economic Structure
The Cuban Government continues to adhere to socialist principles in organizing its state-controlled economy. Most of the means of production are owned and run by the government and, according to Cuban Government statistics, about 83% of the labor force is employed by the state. An additional 5% of the labor force is employed by cooperatives closely connected with the state. Only 12% of the labor force works in the private sector, including private farmers, artists, and 142,000 self-employed ("cuentapropistas"), representing less than 3% of the entire workforce. More than 60% of the workforce is employed in non-productive sectors.

Challenges
The Cuban economy suffers first and foremost from a lack of productivity and an overdependence on the external sector. Cuba suffered a significant decline in gross domestic product of at least 35% between 1989 and 1993 as the loss of Soviet subsidies laid bare the economy's fundamental weaknesses. To alleviate the economic crisis, in 1993 and 1994 the government introduced a few market-oriented reforms, including opening to tourism, allowing some foreign investment, legalizing the dollar, and authorizing self-employment for some 150 occupations. These measures resulted in modest economic growth, although the official statistics are deficient and provide an incomplete measure of Cuba's real economic situation. From 2000 to 2009, Cuba experienced a series of severe economic disruptions, including lower sugar and nickel prices, increases in petroleum costs, devastating hurricanes in 2001, 2004, and 2008, a major drought in the eastern half of the island, increasing external debt, and stagnant or decreasing agricultural and industrial productivity. Significant economic assistance from Venezuela, and to a lesser degree China, has helped keep the Cuban economy afloat.

Living conditions in 2009 remained well below the 1989 level. Moreover, the gap in the standard of living is widening between those with access to convertible pesos and those without. Jobs that can earn salaries in convertible pesos or tips from foreign businesses and tourists have become highly desirable. It is not uncommon to see doctors, engineers, scientists, and other professionals working in restaurants or as taxi drivers. An estimated $1 billion in yearly remittances exacerbates the gap.

Prolonged austerity and the state-controlled economy's inefficiency in providing adequate goods and services have created conditions for a flourishing informal economy in Cuba. As the variety and amount of goods available in state-run peso stores has declined and prices at convertible peso stores remain unaffordable to most of the population, Cubans have turned increasingly to the black market to obtain needed food, clothing, and household items. Pilferage of items from the work place to sell on the black market or illegally offering services on the sidelines of official employment is common. A report by an independent economist and opposition leader speculates that more than 40% of the Cuban economy operates in the informal sector. Petty theft and corruption has reached such critical proportions that (now former) President Fidel Castro acknowledged it could bring the end of the revolution. In the last few years, the government has carried out an anti-corruption campaign, including the creation of a Comptroller General’s Office in 2009, repeated street-level crackdowns, and ongoing ideological appeals. So far, these measures have yielded limited if any results.

Venezuela
Fifteen years after the demise of the Soviet Union the Cuban Government found in Hugo Chavez’s Venezuela a new benefactor. The politically motivated preferential relationships with this country have replaced tourism as the main engine of growth for the Cuban economy since the second half of 2004. Its main component has been the exchange of medical services for oil at indexed prices and with a long-term financing of up to 40% at subsidized interest rates. The transfer of financial resources from Venezuela to Cuba has also materialized in credits for projects at concessionary interest rates, the creation of joint ventures and a large number of cooperation projects.

As a whole, the preferential economic relationship with Venezuela has allowed the Cuban Government to more than double its import capacity, which had historically been closely related to GDP growth, and to carry out multibillion dollar investments both in infrastructure and productive sectors. This factor, together with almost tripled nickel prices in the world market between 2004 and 2007 explains the high growth rates registered in this period, but also allowed (now former) President Fidel Castro to start reversing some of the liberalizing and decentralizing reforms introduced in the 1993-2003 period.

Economic Reform
In 2008, the government of Raul Castro announced several initiatives designed to increase revenues to the Cuban state by formalizing some business activities which were previously conducted in informal and illegal markets. Even in doing so, the Cuban Government is seeking tighter state control over the economy. The Cuban Government is aggressively pursuing a policy of recentralization, making it increasingly difficult for foreigners to conduct business on the island. Likewise, Cuban citizens are adversely affected by reversion to a peso economy and the dual currency regime in which Cubans are paid in pesos, but many goods are sold in "convertible pesos," worth approximately 25 times the regular peso.

In his February 24, 2008, inaugural address, Raul Castro said the Cuban Government would "advance in an articulate, sound and well-thought out manner" a series of measures that would raise the Cuban standard of living and tie individual prosperity to individual initiative and work performance. Castro also referred to excess "prohibitions and regulations," the simplest of which the Cuban Government would start removing "in the next few weeks." More complex "reforms," he said, could only be introduced after changes to certain legal regulations. This followed Castro's July 26, 2007, speech on economic development, in which he asserted that tackling problems in milk production would address some of Cuba's main economic challenges. On July 12, 2008, Raul Castro placed caveats on many of these initiatives by noting that global economic factors may delay implementation, including for wage increases for Cubans. In his speech marking the 55th anniversary of the start of the Cuban revolution on July 26, 2008, Raul Castro further tamped down expectations for change by warning that the global economy could delay his economic adjustments.

Since February 2008, Raul Castro's government has announced it would pursue the following initiatives: Expanding access to public land for private farmers; eliminating or reducing excessive subsidies, including food rations and subsidized lunches in workplace cafeterias; reducing inflated employment rolls; permitting some Cubans to own their homes; increasing wages and retirement pensions; raising the retirement age; upgrading public transportation systems and infrastructure; new licenses for private taxis to operate; limited deregulation of the construction industry; expanding access to certain previously restricted consumer goods (like cell phones, computers, microwaves, toasters, DVD players, motorcycles, air conditioners, electric ovens, and agricultural supplies and tools); consolidation and modernization of Cuba's family doctor program; and launching a new 24-hour television station to include mostly foreign-produced content.

A structured economic policy with a coherent and predictable program is still absent. The reforms introduced so far, at a very slow pace, have been insufficient to reverse the deep systemic crisis first brought to light with the departure of Soviet economic support. The defects in the Cuban economy were further exposed by the world economic crisis in 2008 and 2009 and the catastrophic effects of the worst hurricanes in Cuban history in 2008, and the government has yet to propose a comprehensive plan for economic recovery.

Key Sectors
Exports of professional services, mainly doctors and nurses to Venezuela, has been the main source of hard currency revenues for the Cuban economy since 2005.

Sugar, which was the mainstay of the island's economy for most of its history, has fallen upon troubled times. In 1989, production was more than 8 million tons, but by 2009, it had fallen to under 2 million tons. Inefficient planting and cultivation methods, poor management, shortages of spare parts, and poor transportation infrastructure combined to deter the recovery of the sector. In June 2002, the government announced its intention to implement a "comprehensive transformation" of this declining sector. Almost half the existing sugar mills were closed, and more than 100,000 workers were laid off. The government promised that these workers would be "retrained" in other fields, though it is unlikely they will find new jobs in Cuba's stagnant economy. The sugar sector has continued to decline since the restructuring, with output registering a downward trend and averaging just 1.6 million tons from 2003-2009.

Tourism figures prominently in the Cuban Government's plans for development, and a top official casts it as at the "heart of the economy." Havana devotes significant resources to building new tourist facilities and renovating historic structures for use in the tourism sector. Roughly 1.7 million tourists visited Cuba in 2001, generating about $1.85 billion in gross revenues; in 2003, the number rose to 1.9 million tourists, predominantly from Canada and the European Union (EU), generating revenue of $2.1 billion. In 2004, the number of tourists to Cuba crossed the 2 million mark (2.05 million), including the so-called "medical tourists" from other Latin American countries seeking medical treatment at Cuban facilities. Since 2004, the volume of tourists has remained relatively consistent, at 2.32 million (2005), 2.2 million (2006), 2.1 million (2007), 2.35 million (2008), and 2.42 million (2009). Tourism revenue, however, fell 11% in 2009 due to visitors traveling for less time and spending less money per person.

According to the Cuban Ministry of the Basic Industry (MINBAS), nickel became the leading export and the top foreign exchange earner in 2007, valued at approximately $2.8 billion. Nickel extraction in 2007 was 2.2% higher than in 2006. The main market for nickel exports is China. Cuba produced between 75,000 and 76,000 tons of nickel in 2007. The Cuban Government predicted that nickel and cobalt production would reach a record 80,000 tons in 2008. However, by mid-2008 a significant drop in the world nickel price reduced production sharply. Nickel revenue fell 47% to $1.5 billion in 2008.

Cuba's pharmaceutical and biotechnology industry is another emerging sector, ranking third in foreign sales behind nickel and oil products, and ahead of traditional products such as tobacco, rum, and sugar. Exports of pharmaceutical and biotech products averaged between $300 and $350 million from 2007-2009.

Remittances also play a large role in Cuba's economy. Cuba does not publish accurate economic statistics, but academic sources estimate that remittances total from $600 million to $1 billion per year, with most coming from families in the United States. U.S. regulation changes announced in April 2009 allow unlimited remittances to family members; they still cannot be remitted to certain Cuban Government officials and members of the Cuban Communist Party; and the total amount of family remittances that an authorized traveler may carry to Cuba is now $3,000. The Cuban Government captures these dollar remittances by allowing Cuban citizens to shop in state-run "dollar stores," which sell food, household, and clothing items at a high mark-up averaging over 240% of face value.

Beginning in November 2004, the government mandated that U.S. dollars be exchanged for "convertible pesos"--a local currency that can be used in special shops on the island but has no value internationally--at an 8% exchange rate conversion plus up to 2% in fees. In addition, the Cuban Government levies a 10% tax on every conversion of U.S. dollars (and only U.S. dollars). This results in nearly 20% in fees that disproportionately affect Cubans who receive remittances from relatives in the United States.

Foreign Investment and Debt
To help keep the economy afloat, Cuba has actively courted foreign investment, which often takes the form of joint ventures with the Cuban Government holding half of the equity, management contracts for tourism facilities, or financing for agricultural crops. A new legal framework laid out in 1995 allowed for majority foreign ownership in joint ventures with the Cuban Government. In practice, majority ownership by the foreign partner is nonexistent. The number of joint ventures increased from 1990 to 2002, reaching a peak of 403. Since 2002, the number of joint ventures has steadily declined to 218 in 2009. Responding to this decline in the number of joint ventures, a spokesperson for the Ministry of Foreign Investment explained that foreign investment is not a pillar of development in and of itself. Moreover, the hostile investment climate, characterized by inefficient and overpriced labor imposed by the Communist government, dense regulations, and an impenetrable bureaucracy, continue to deter foreign investment. Another negative factor surfaced by the end of 2008 when the Cuban Government, facing a cash crunch, sought to renegotiate outstanding commercial debts and opted to freeze funds deposited in Cuban banks by foreign investors and suppliers. Investors are also constrained by the U.S.-Cuban Liberty and Democratic Solidarity (Libertad) Act that provides sanctions for those who "traffic" in property expropriated from U.S. citizens.

Cuba's precarious economic position is complicated by the high price it must pay for foreign financing. The Cuban Government defaulted on most of its international debt in 1986 and does not have access to credit from international financial institutions like the World Bank, which means Havana must rely heavily on short-term loans to finance imports, chiefly food and fuel. Because of its poor credit rating, an $18 billion hard currency debt, and the risks associated with Cuban investment, interest rates have reportedly been as high as 22%.

Private Sector
In an attempt to provide jobs for workers laid off due to the economic crisis and bring some forms of black market activity into more controllable channels, the Cuban Government in 1993 legalized self-employment for some 150 occupations. This small private sector is tightly controlled and regulated. Set monthly fees must be paid regardless of income earned, and frequent inspections yield stiff fines when any of the many self-employment regulations are violated.

A 2004 UN Economic Commission on Latin America and the Caribbean (ECLAC) report recommended that Cuba "redesign the parameters of competition in the public, private and cooperative sectors [and] redefine the role of the state in the economy." It recommended more flexibility in self-employment regulations, property diversification, economic decentralization, and a role for the market. Rather than expanding private sector opportunities, from 2003-2007 the government stopped issuing new licenses for most categories of self-employment, and tried to squeeze more of these private sector entrepreneurs out of business. Many have opted to enter the informal economy or black market, and others have closed. These measures reduced private sector employment from a peak of 209,000 to 142,000 in 2009. Some recent moves have allowed greater room for private businesses in a very limited number of areas (taxis, barber shops).

FOREIGN RELATIONS
Cuba has an activist foreign policy and aims to find new sources of trade, aid, foreign investment, and political support, as well as to promote opposition to U.S. policy toward Cuba, especially trade sanctions and the 1996 Libertad Act. Cuba has relations with over 160 countries and has civilian assistance workers--principally physicians and nurses--in more than 20 nations. In late 2008, Cuba was invited to join the “Rio Group” of Latin American and Caribbean countries, and in March 2009 Costa Rica and El Salvador announced plans to establish diplomatic relations with Cuba.

Since the end of Soviet backing, Cuba appears to have largely abandoned monetary support for guerrilla movements that typified its involvement in regional politics in Latin America and Africa, though it maintains relations with several guerrilla and terrorist groups and provides refuge for some of their members in Cuba. Cuba's support for Latin guerrilla movements, its Marxist-Leninist government, and its alignment with the U.S.S.R. led to its isolation in the hemisphere. Cuba is a member of the Organization of American States (OAS), although its present government was excluded from participation in 1962 due to incompatibility with the principles of the inter-American system. In 2009, the OAS passed a resolution that ended Cuba’s 1962 suspension, but conditioned Cuba’s re-entry into the OAS on its meeting human rights and democracy standards consistent with the principles, purposes, and practices of the OAS. Cuba has rejected the offer to join the OAS. Cuba hosted the Non-Aligned Movement (NAM) summit in September 2006 and held the NAM presidency until 2009.

Throughout the 1970s and 1980s, Cuba expanded its military presence abroad, spending millions of dollars in exporting revolutions; deployments reached 50,000 troops in Angola, 24,000 in Ethiopia, 1,500 in Nicaragua, and hundreds more elsewhere. In Angola, Cuban troops, supported logistically by the U.S.S.R., backed the Popular Movement for the Liberation of Angola (MPLA) in its effort to take power after Portugal granted Angola its independence. Cuban forces played a key role in Ethiopia's war against Somalia and remained there in substantial numbers as a garrison force for a decade. Cubans served in a non-combat advisory role in Mozambique and the Congo. Cuba also used the Congo as a logistical support center for Cuba's Angola mission. In the late 1980s, Cuba began to pull back militarily. Cuba unilaterally removed its forces from Ethiopia, met the timetable of the 1988 Angola-Namibia accords by completing the withdrawal of its forces from Angola before July 1991, and ended military assistance to Nicaragua following the Sandinistas' 1990 electoral defeat.

EU-Cuban diplomatic relations suffered as a result of the March 2003 crackdown on dissidents. In June 2004, EU members reacted to the crackdown by imposing restrictive measures on Cuba, inviting dissidents to national day celebrations, and suspending high-level meetings between EU members and the Cuban Government. In January 2005, the restrictions were suspended in an effort to re-engage the government as a means of advancing the EU's policy of encouraging reform while preparing for the transition. The restrictive measures were formally dropped in June 2008, but the EU established a set of criteria by which to track the Cuban Government's performance on human rights. In June 2009, it affirmed its commitment to dialogue with Cuba on political issues, but criticized continuing human rights abuses by the Cuban Government and noted that Cuba had made little progress in meeting the criteria established by the EU.

Canada maintains a robust trade and investment relationship with Cuba, with a large presence by the Canadian mining firm Sherritt Corp. Some Sherritt operations take place on property confiscated from American investors, subjecting officers of Sherritt to Libertad Act sanctions. Canada is also the source of the largest number of foreign tourists who visit Cuba each year.

Spain is among the most important foreign investors in Cuba. The Zapatero government has continued Spain's longstanding policy of encouraging further investment and trade with Cuba. Cuba imports more goods from Spain (almost 13% of total imports) than from any other country. Spanish economic involvement with Cuba is exclusively centered on joint venture enterprises that provide financial benefit to the Cuban Government through state-owned firms.

Cuba's bilateral relationship with Venezuela has helped keep the Cuban economy afloat. The "Integral Cooperation Accord" signed by Fidel Castro and Venezuelan President Hugo Chavez in October 2000 laid the groundwork for a quasi-barter exchange of Venezuelan oil for Cuban goods and services that has since become a lifeline for Cuba. For Cuba, the benefits of the cooperation accord are subsidized petroleum and increased hard currency flows. The original agreement allowed for the sale, at market prices, of up to 53,000 barrels per day of crude oil and derivatives (diesel, gasoline, jet fuel, etc.) by PDVSA, Venezuela's state-owned petroleum company, to its Cuban counterpart, CUPET. The number of barrels of oil Venezuela began selling to Cuba has risen to over 90,000 barrels daily. Under the accord, PDVSA extended preferential payment terms to CUPET, including 90-day short-term financing instead of the 30 days offered to its other customers and, in lieu of a standard letter of credit backed by an international bank, PDVSA accepted IOUs from Cuba's Banco Nacional, the central banking entity responsible for servicing Havana's foreign debt. In August 2001, Venezuelan President Hugo Chavez amended the 2000 accord to allow Venezuela to compensate the Cuban Government in hard currency for any and all Cuban products and services originally intended as in-kind payment for Venezuelan oil. As a result, Cuban exports of goods and services to Venezuela climbed from $34 million in 2001 to more than $150 million in 2003. Venezuelan ministries are contracting with Cuba for everything from generic pharmaceuticals to pre-fabricated housing and dismantled sugar mill equipment. On April 28, 2005, Chavez and Castro signed 49 economic agreements in Havana, covering areas as diverse as oil, nickel, agriculture, furniture, shoes, textiles, toys, lingerie, tires, construction materials, electricity, transportation, health, and education. Venezuela is also committed to sending more than $400 million in various products duty-free to Cuba and plans to open an office of state-owned commercial Venezuelan Industrial Bank (BIV) in Havana to finance imports and exports between the two countries, while Cuba will open an official Banco Exterior de Cuba in Caracas. Increased economic engagement along with the rapid growth in Cuban sales to Caracas has established Venezuela as one of the island's largest export markets.

A series of recent economic agreements between Cuba and China have strengthened trade between the two countries. Sino-Cuban trade totaled more than $525 million in 2004, according to China Customs statistics. This represents an increase of more than 47% over 2003. Most of China's aid involves in-kind supply of goods or technical assistance. During President Hu-Jintao's visit to Cuba in November 2004, China signed investment-related memorandums of understanding (MOUs) estimated at more than $500 million, according to press reports. If these MOUs are fully realized, they would represent a sharp increase in known Chinese investments in Cuba. In addition to these MOUs, a number of commercial accords were signed at the first-ever Cuba-China Investment and Trade Forum. China also plans to invest approximately $500 million in a nickel operation in Moa in the eastern province of Holguin. According to the MOU, Cuba will own 51% of the enterprise and Chinese-owned Minmetals the remaining 49%. Chinese and Venezuelan economic support, including investment and direct aid, have given Cuba the space to eliminate many of the tentative open market reforms Cuba put in place during the depth of its mid-1990s economic crisis.

The Russian prime minister visited Cuba in October 2006, signaling a new effort to expand trade and investment, albeit financed by Russian credit. Russia set aside, for the moment, more than U.S. $20 billion in Soviet-era debt, restructured post-1991 debt, and extended a new credit line to Cuba. The new credit line is for U.S. $355 million repayable over 10 years at an interest rate of 5%. The new credit is conditioned in that it must be used to purchase Russian cars, trucks, and planes, as well as to finance Cuban energy and transport infrastructure projects, including air navigation systems. Russia further agreed to restructure U.S. $166 million in debt accumulated since 1993. Both nations also signed an agreement on military equipment and technical services. Raul Castro made a state visit to Russia in February 2009 during which several additional trade agreements were signed.

U.S.-CUBAN RELATIONS
U.S. policy toward Cuba is focused on encouraging democratic and economic reforms and increased respect for human rights on the part of the Cuban Government. In April 2009, the United States announced the lifting of restrictions on family travel and remittances to Cuba, expanded the list of items eligible for humanitarian export to Cuba, and announced new regulations for U.S. telecommunications companies to expand the flow of information to Cuba. Though Cuba is subject to trade sanctions, the United States remains Cuba’s largest source of food and humanitarian aid. The United States is committed to supporting safe, orderly, and legal migration from Cuba through the effective implementation of the 1994-95 U.S.-Cuba Migration Accords.

All U.S. travel to Cuba must be licensed by the Department of Treasury's Office of Foreign Assets Control (OFAC), and must fall into one of twelve categories. Further information on the licensing process can be obtained from OFAC or at their website. All exports to Cuba must also be licensed by the Commerce Department's Bureau of Industry and Security (BIS). Further information on exports to Cuba can be found at the BIS website.

Principal U.S. Interests Section Officials
Chief of Mission--Jonathan Farrar
Deputy Chief of Mission--Charles Barclay
Political/Economic Counselor--Joaquin Monserrate
Consul General--Martha Melzow
Public Affairs Officer--Gloria Berbena
Management Officer--Karin Sullivan

The U.S. Interests Section is located at Calzada between L & M Streets, Vedado, Havana, switchboard: (53-7) 33-3551-3559, fax/general: 33-3700; Public Affairs: 33-3967, fax: 33-3869; hours: 8:30 a.m. to 5:00 p.m. Emergencies/after hours: 33-3026.
 



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