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With a colonial economy based primarily on sugarcane, Cuba grew into a rich producer and exporter of sugar during the 19th century. Foreign investors, especially from the United States, invested in Cuba to take part in the lucrative sugar market. This investment resulted in much of Cuba’s sugar revenue leaving the country, making foreign investors and a small Cuban elite wealthy. However, large segments of the Cuban people did not benefit economically from Cuba’s sugar market.
After the Cuban Revolution of 1959, the government of Fidel Castro promised to address perceived economic inequities within the country and between Cuba and the United States. Castro nationalized large agricultural estates, sugar refineries, foreign industrial and mining firms, and privately owned urban properties. These policies were not well received by U.S. government officials, and in 1960 U.S. president Dwight D. Eisenhower severed diplomatic relations with Cuba.
Also in 1960, Eisenhower issued an executive order implementing a partial trade embargo to prohibit the importation of Cuban goods. The Congress of the United States institutionalized the embargo in 1961 with the passage of the Cuban Democracy Act. In return, Castro nationalized an estimated $8 billion in U.S. assets. U.S. hostility toward the Castro government encouraged an economic alliance between Cuba and the USSR, the world’s leading Communist nation. The USSR offered Cuba generous subsidies and trade agreements that provided agricultural machinery, crude oil, and technological instruction in exchange for Cuban sugar. Cuba became one of the USSR’s closest allies.
Despite its alliance with the USSR, Cuba suffered economic mismanagement, and it relied too heavily on sugar. Its economic problems became even more serious after 1989, when Communist governments began to collapse in Eastern Europe and the USSR reduced its aid to Cuba as well as its trade with the island. Cuba’s gross domestic product (GDP) fell at least 35 percent from 1983 to 1993, with the steepest decline between 1990 and 1993. From 1989 to 1992, imports fell from $8 billion to $2.2 billion.
By the mid-1990s the Cuban economy began to recover from its free fall, and the government focused its fiscal policies on increasing productivity and cutting costs. It also turned to foreign investment to help the country upgrade its aging infrastructure and develop new industries. These efforts helped reduce public-sector spending and the deficit. The economy also began to move away from its reliance on sugar as the government decreased sugar production. As the 21st century began, Cuba’s economy had become less dependent on agriculture and instead began to rely more heavily on tourism and biotechnology.
After the U.S. embargo shut down medical supplies, Castro invested $150 million in the construction of the Genetic Engineering and Biotechnology Center. This state-of-the-art research lab has invented cholesterol-lowering drugs, detection tests for acquired immunodeficiency syndrome (AIDS), a meningitis vaccine, remedies for hepatitis B, and other pharmaceuticals. Industrial manufacture of these medicines has exceeded domestic demand. Cuba has partnered with other nations to develop and export its pharmaceuticals.
Forestry and Fishing
Cuban forests were indiscriminately cut and reduced from more than 40 percent of the total land area in 1945 to less than 10 percent in 1960. The government undertook a reforestation program in the mid-1960s, and in 2005 forests covered 24 percent of the island. Almost all of the timber harvest is made up of hardwoods. Forested lands are located in western and eastern Cuba.
The fishing industry traditionally comprised small independent operators banded into cooperatives. The government, however, has developed a large deep-sea fleet. In the 1980s the government streamlined its administration of the industry and insisted that the fishing fleet support its own operations with money raised by the overseas sale of their catch. Cuba exports shrimp, red snapper, and tuna, and shellfish is one of Cuba’s most lucrative export items.
Manufacturing has never played a major role in Cuba’s economy, largely because most financiers opted to invest their money in the lucrative sugar industry. Sporadically throughout the 20th century, Cubans tried to diversify the economy in order to create new avenues for income and additional opportunities for employment and technology. However, Cuba hindered efforts to diversify with poor planning and management. In addition, the U.S. economic blockade hurt these efforts.
In the early 1970s, Cuba undertook a program to automate its sugar industry. The dairy and cattle industries were also streamlined. Other major manufactures include cement, steel, refined petroleum, rubber and tobacco products, processed food, textiles, clothing, footwear, chemicals, and fertilizer.
From 1990 to 2000 Cuba greatly increased its production of crude petroleum. As a result, Cuba’s petroleum imports dropped significantly. Cuba also boosted its production of natural gas from 32.3 million cu m (1.14 billion cu ft) in 1990 to 350 million cu m (12.4 billion cu ft) in 2003. Most residential dwellings have working electricity, but blackouts caused by old equipment and scarce fuel supplies occur with some frequency.
Currency and Banking
The Cuban peso is the national currency and has had an official conversion value of 1 peso to the U.S. dollar. The black market is a better indicator of the real value of the peso. In 1989 the black-market value was 5 pesos for 1 dollar, and in 1994 it fell to 120 pesos to 1 dollar. In 1997 that rate was 30 pesos per dollar. As the Cuban economy stabilized in the early 21st century, the black-market rate for pesos declined. After its legalization in 1993, the U.S. dollar became the preferred currency in Cuba, and some items were bought and sold only for dollars. However, the Cuban government imposed new restrictions on use of the U.S. dollar in October 2004, requiring conversion to the peso for business transactions. The Central Bank of Cuba regulates fiscal policies and currency valuation.
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