c h a p t e r 1 The Cuban Economy in the Twenty-first Century

Facing a deep economic crisis of meltdown dimension in the first half of the 1990s,Cuba’s leadership modified its basic development strategy with a variety of insti-tutional and policy innovations. By 1995 the Cuban economy had begun to recover, al-though by 2003 it still had not achieved the precrisis levels of 1990 or 1985. The econ-omy was also hurt by the impact of the international economic slowdown of 2001–2, which was even further intensified by the aftermath of the 11 September 2001 terror-ist attack in New York. Since 1994 Cuba’s economic performance has been mixed, with some positive re-sults and some continuing problems. Certain policy and institutional innovations seemed to be functioning well at this time, while others did not. Key elements of the crisis have been resolved effectively, notably the fiscal crisis and the suppressed infla-tion that resulted from the “monetizing ” of the fiscal deficit from 1990 to 1993. Sec-tors of the economy have performed admirably, notably tourism, nickel, petroleum extraction, and electricity generation. Food production and availability and levels of investment have improved somewhat, but further significant improvement is possi-ble and desirable. However, there are important economic problems that have not been handled effectively: the dual monetary and exchange rate system; the failure to diversify and expand merchandise exports; the inability to revive the sugar sector, leading to the shock therapy of August 2002; the mismanagement of the policy envi-ronment for the microenterprise sector; the reduction in the real value of budgetary revenues devoted to education, health, and public services, generally leading to major reductions in real income levels for people working in these sectors; and the inability to significantly recover the material standard of living that existed prior to 1985. Are Cuba’s economic policy initiatives of the 1990s functioning effectively now in the 2000s in order to achieve an enduring recovery while maintaining previous ad-3 vances in social areas? Has a solid foundation for sustainable recovery with equity for the coming decade now been established in Cuba? Are further types of policy innova-tions or changes necessary in Cuba to achieve sustainable growth with equity