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Cuba: an economy that lives in the past

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It's a former Soviet ally that toyed briefly with a little free enterprise. Its people are some of the poorest in the hemisphere. Condoleezza Rice, President Bush's choice as secretary of State, has just labeled it one of six "outposts of tyranny" in the world.

That's Cuba, still clinging to its communist ways. And it has the economy to show for it. A bright spot - a new oil discovery - lifted hopes for the island nation last month. But don't count on a big change - unless there's a bigger find by Spain's largest oil company, Repsol, drilling in a separate offshore tract.

Cuba has still not fully recovered from the loss of Soviet subsidies more than a decade ago. A communist regime, combined with an economic embargo by the United States, have pushed Cubans to the bottom of the rung in the Western Hemisphere, somewhere between Haitians and Guatemalans.

Indicating the importance of the oil find, President Fidel Castro announced last month that two Canadian energy companies had discovered oil in the Gulf of Mexico north of Cuba. He said there were 100 million barrels of reserves, with production possible as soon as next year. But the find so far isn't nearly big enough to replace imports of Venezuelan oil - up to 53,000 barrels a day.

From a purely economic standpoint, the Cuban economy has recovered only partially from the huge damage caused by the end of Soviet support. Total Soviet assistance - huge loans and heavily subsidized exchanges of Cuban sugar for so much Soviet oil that Cuba could export a surplus beyond its own needs - amounted to an average $4.3 billion a year in 1986-90, according to an International Monetary Fund paper.

That was equivalent to 15 percent of Cuba's gross domestic product (GDP) if converted at the official rate of 1 peso per US dollar, much more with a more realistic exchange rate.

By 1993, Cuba's GDP had fallen by a third, estimates Carmelo Mesa-Lago, economist emeritus at the University of Pittsburgh. When Mr. Castro saw a threat to the political stability of his regime, he timidly allowed a little free enterprise. The economy revived considerably. With a small, growing private sector, income inequality ballooned - from 5 to 1 in 1989 to 2,500 to 1 in 2001, the Cuba expert calculates.

In 1996, Castro virtually halted the reforms and the capitalist pep faded. So by 2004, the Cuban economy remained 12 to 15 percent below 1989 GDP levels, Mr. Mesa-Lago says.

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