With 20,000 Cubans in Venezuela (the estimated figure in 2005) and assuming an opportunity cost to the Venezuelan state of US$40,000 per Cuban (i.e. what it would cost the Venezuelan government to replace the Cubans if they left), the exchange would be roughly equal to oil at US$25 per barrel. This assumes, as is indeed the case, that Cuba does not import other professionals to take the place of those that have left. With a smaller number of Cubans (there are believed to be only 15,000 in Venezuela today) and oil at US$100 per barrel, the plan is clearly generous to Cuba, although the reduction in the number of doctors on the island causes some problems. . The excess supply of medical staff 15 years ago is much less marked today as a result of all the Cubans working abroad. In addition, Venezuela has refurbished a major oil refinery in Cuba, recently opened, and charter planes each day bring supporters of President Chávez for holidays in Cuba.

The Cuban Economy

Despite the advantages conferred by the Venezuelan agreement, there are still numerous problems faced by the Cuban economy. The major disappointment for Cuba has been the decline of the tourist industry (despite the increase in arrivals from Venezuela), as the tourist industry is now by far the biggest source of foreign exchange. After reaching two million visitors a year in 2006, on par with the Dominican Republic and Jamaica, the numbers have fallen by at least 10 percent. This is hardly catastrophic, but the fact that Cuba has the lowest number of repeat visitors in the Caribbean is not good news. The tourist industry would clearly be boosted by an easing of the travel ban from the United States, which is possible from 2009 onwards. However, a complete end to the ban would lead to restrictions on arrivals rather than departures. The present Cuban government will proceed cautiously before allowing unlimited travel from the United States.

In addition, the global rise in food prices has hit Cuba hard. A high proportion of Cuba’s food is imported and price increases have been passed on directly to consumers. In addition, foreign exchange must be found to purchase the goods. With the global credit crunch affecting the terms on which Cuba can borrow short term, the last few months have been uncomfortable for those consumers without access to hard currency.

It would not be difficult to continue listing the difficulties faced by the Cuban economy. The level of inefficiency in the past has been so great that it has not been difficult to achieve progress as a result of the greater availability of foreign exchange. For example, the value of Cuban imports as reported by the IMF has doubled since 2002. Indeed, the Cuban macroeconomic panorama has been transformed in the last few years. Although Cuba no longer publishes GDP figures under the UN System of National Accounts, preferring instead an accounting system that gives more weight to public services, there is no doubt that progress has been made. Growth exceeded 10 percent in 2005 and 2006 and has been estimated for 2007 at 7.5 percent by the Ministry of Economy and Planning. This cumulative rise of 30 percent in three years is perhaps exaggerated, but not massively so. There are four years at the beginning of this decade when both sets of accounts were published simultaneously, suggesting that the Cuban growth figures should be discounted by 20 percent (i.e. 10 percent growth becomes an increase in GDP of 8 percent). For the first time since the collapse of the Soviet Union, it is possible to talk about growth rather than recovery of the Cuban economy.

Most of the growth has come from public consumption, public investment, and exports rather than household consumption (always the poor relation in Cuba). Calculating household consumption is difficult because of the use of two legal currencies in Cuba: national and convertible pesos with an exchange rate of roughly 25 to 1. However, nominal wages in national (i.e. inconvertible) pesos have risen while a growing proportion of the labor force now receives a supplement in convertible pesos. The US dollar, legalized in 1993, is now illegal again so that payments must be made in Cuban money. National pesos are used to buy items on the ration book at massively subsidized prices while other items are purchased with either national or convertible pesos. The improvement in Cuba’s economic fortunes has accelerated the government’s aspirations to phase out the ration book and merge the two currencies, although this is still some distance in the future.

Over the last few years, there has been modest improvement in living standards among ordinary Cubans. Private consumption of goods is still low by Caribbean standards, but it is higher than it was. The new leadership would probably move faster in terms of labor market reforms if Fidel–always a fierce opponent of income inequality–was completely out of the picture, but there have been changes and they may well accelerate after a new president is installed (the most pressing is to widen the scope for self-employment and small businesses as well as allowing the direct employment of workers by foreign investors). Cuban grumbling about economic hardship has not ended, but these days the complaints are just as often about petty restrictions on travel, lack of opportunities for the self-employed, and the absence of jobs commensurate with the level of education.

These are all issues that can, and probably will, be addressed by the new leadership. There may even be a modest improvement in the human rights situation, although the recent promise to sign two UN conventions on human rights, which would have committed Cuba to free trade unions among other things, turned out to be a false dawn. What is unlikely to change under the new leadership is the political situation that resists any calls for multi-party democracy and free elections. The handful of brave Cubans campaigning in favor and risking imprisonment for doing so are likely to remain isolated. Most Cubans do not believe the state propaganda that labels such people mercenaries financed by the United States, but as far as one can tell, the number of Cubans willing to risk their position by openly supporting the dissidents is still small. This will change, but Cubans in the main have other priorities in the near term.