Country Report Cuba

Outlook for 2008-09

• Although the new president, Raul Castro, is introducing a number of reforms, the Economist Intelligence Unit expects gradual, rather than sudden, political (and economic) change.
• There will be no easing of tensions with the US in 2008, but some rapprochement is possible from 2009, depending on the outcome of the US presidential election in November 2008.
• The government has started to introduce a series of reforms to improve economic management, but progress will be constrained by conservatism and its commitment to full employment.
• A strategy for moving towards a single currency and single exchange rate is under way, but until this objective is achieved, the economy will continue to be plagued by dislocation and perverse incentives.
• We expect growth to moderate in 2008-09, and it will remain below potential as a result of continued US sanctions and restrictions on private investment.
• A small current-account deficit is forecast, as a widening goods trade deficit is partly offset by larger services and current-transfers surpluses.

Monthly review

• The president and acting head of the Communist Party, Raul Castro, has announced that the next party Congress will take place at the end of 2009 and has reshuffled party posts in preparation for a policy review.
• The death penalty has been commuted for all but “terrorist” offences, encouraging those within the EU who are arguing for the lifting of diplomatic sanctions (introduced in 2003) in order to facilitate “constructive engagement”.
• Official US policy is unaltered, but shifts in the debate have suggested an increase in the likelihood of a fundamental review in 2009.
• Several changes in agricultural policy have been announced, designed to boost output and reduce reliance on imports. However, the emphasis has remained on domestic reforms, rather than an opening to foreign investment.
• Salary and pensions increases have been announced in an attempt to raise disposable incomes, but the government has emphasised the need to boost productivity.
• No new economic data has been released, but repeated references to rising food costs suggest that higher-than-expected import costs will threaten the government's economic targets in 2008.

SOURCE: Country Report