Reposted from The Globe and Mail
By Martin Hutchinson
Cuba has unveiled a Hugo Chavez hedge: economic reform. A senior Communist Party official says the island nation plans to shift nearly 50 per cent of output to the “non-state” sector. As its last rich patron, the Venezuelan President, battles cancer, Cuban President Raul Castro may finally see the writing on the wall. If he can successfully reduce the state’s role in the economy and relax restrictions on capitalist activities, the country’s future won’t be North Korea or even Vietnam – but rather Turkey.
Cuba’s GDP isn’t easy to pin down. The World Bank and IMF don’t publish figures for it, though the CIA estimates the output at a substantial $9,900 (U.S.) per capita, based on purchasing power parity with real growth of 1.5 per cent. All that tourism, tobacco and sugar generates more per person than in some emerging markets like Vietnam, which is growing faster but whose comparable economic output rate is just $3,400. Cuba even beats China, whose GDP per capita is estimated by the IMF at $8,400.
And despite rating near the very bottom with North Korea on the Heritage Foundation’s Index of Economic Freedom, Cuba scores comparatively well on Transparency International’s Corruption Perceptions Index, where it ranks 61st, ahead of South Africa and all four BRIC nations. That means in at least some ways Cuba is somewhat further along than either China or Vietnam were when they began their moves toward free-market systems.
Mr. Chavez may be the catalyst for Havana to push things along even more. A new Venezuelan regime, whether Mr. Chavez succumbs to poor health or a more business-friendly opposition, risks jeopardizing Cuba’s cheap supply of oil. It may only be worth some 2 per cent of GDP, according to Breakingviews estimates.
Market liberalization, on the other hand, could lead to more tourism. Better trade relations for Cuba with the United States also would make it more like Turkey’s ties to the European Union. Given that Turkey is 50 per cent richer than Cuba on a GDP per capita basis, Mr. Castro might find that, in the long run, free markets pay better than sugar-daddies.
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