Download cuba and vietnam: a new analysis of economic reforms

1
CUBA AND VIETNAM:
A NEW ANALYSIS
OF ECONOMIC REFORMS
Editors
Rosario Domingo
Ruben Tansini
Authors
José Antonio Alonso
Mario Bergara
Victoria Pérez
Arturo Costales
Pablo Fernández
Gladis Alfonso
Georgina Cossio
Le Anh Son
Nguyen The Hien
Thai Doan Tuu
Tran Kim Hao
Swedish International Development
Cooperation Agency
Departamento de Economía
Facultad de Ciencias Sociales
Universidad de la República
Uruguay
2
This edition has been possible thanks to “Program for Training in Economics for
Government Officials of the Republic of Cuba” financed by Sida.
© José Antonio Alonso
© Mario Bergara
© Victoria Pérez
© Arturo Costales
© Pablo Fernández
© Gladis Alfonso
©
©
©
©
©
Georgina Cossio
Le Anh Son
Nguyen The Hien
Thai Doan Tuu
Tran Kim Hao
© This edition:
Department of Economics.
Faculty of Social Sciences
UDELAR, 2007.
ISBN 978 9974003910
Department
of Economics
Faculty
of Social Sciences
University of
Uruguay
Constituyente 1502/Piso 6
Montevideo
Phone: + (598-2) 4106449
Fax: + (598-2) 4106450
E-mail: [email protected]
http://decon.edu.uy
National Institute of
Central Institute of
Economic Research
Economic Management
(INIE)
(CIEM)
Ministry of Economy and Ministry of Planning
Planning of Cuba
and Investment
Vietnam
Calle 82 313 e/3a. y 5a.
Avenida, Miramar
Havana, Cuba
68 Phan Dinh Phung
Hanoi
Phone: + (537) 2038204
E-mail: [email protected]
Phone: + (844) 8437 861
Fax: + (844) 8456 795
www.ciem.org.vn
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Printed in Zonalibro
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Montevideo / URUGUAY
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Reproduction becomes expressly prohibited or transmission of this book, total or
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his authors’s previous authorization.
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Index
Presentation
5
Chapter 1: Trade Opening
and Development Strategy
José Antonio Alonso
15
Chapter 2: A Strategic Visión
of Economic Development in Uruguay
Mario Bergara
51
Chapter 3: Cuba: Scope and Challenges
of the Social Policy
Victoria Pérez Izquierdo
85
Chapter 4: Cuba: Agriculture and its Contribution
to Economic Development
Pablo Fernández y Arturo Costales
Chapter 5: Cuba: Fifteen Years of Tourism
Gladis Alfonso Nichar
131
155
Chapter 6: Cuba: The Development of Public Health,
Situation and Perspectives
Georgina Cossio Carricarte
193
Chapter 7: Vietnam’s Socio-Economic Development During
the Renovation Years: Achievements and Challenges
Le Anh Son
215
Chapter 8: Vietnam’s Achievements and Prospects
in Agriculture
Nguyen The Hien
231
4
Chapter 9: The Development of Tourism in Vietnam
Thai Doan Tuu
251
Chapter 10: Vietnam’s Enterprise Reform and Development
Tran Kim Hao
271
References
291
5
Presentation
This book was written in the framework of the “Program for Training
in Economics for Government Officials of the Republic of Cuba”, under
the Technical Cooperation Agreement between the governments of
Uruguay and Cuba, financed by the Swedish International
Development Cooperation Agency. It is the result of a seminar that
was held in Montevideo, Uruguay, and attended by specialists and
government officials from Cuba and Vietnam. Specialists from Sweden
and Uruguay also took part in those seminars and made a valuable
contribution to analyzing economic growth and development
experiences in Cuba and Vietnam.
When the “Program for Training in Economics for Government
Officials of the Republic of Cuba” first started in Montevideo, Uruguay,
in 1996, it did not include plans for research in the field of economics.
This research grew from the Cuban participants’ progress in
accumulating economic knowledge and from various areas of the
Cuban economy being identified as priorities for study. The program
was run in Montevideo, and since 1996 more than four hundred Cuban
officials have attended. It originally consisted of theoretical and
practical courses in economics, with an emphasis on fiscal and
monetary policy and on specific subjects in the financial area. It
also included postgraduate courses in economics and finance in Cuba,
and Cuban researchers studied on the Master of Economics program
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at the Department of Economics of the University of Uruguay. It
gradually became clear that there was a need to broaden the scope
of the teaching both in Cuba and outside it and teachers from
Sweden, Chile, Argentina, Spain, Italy and other countries joined
the program, and this, along with the accumulation of knowledge
in Cuban institutions, helped to generate a critical mass in Cuba
that made it possible to undertake research in a number of areas
of economics.
Two activities in particular on the “Program for Training in
Economics for Government Officials of the Republic of Cuba” stand
out for having helped to build this critical mass in economics scientific
production in Cuba. The first is Cuban students doing the Master of
Economics Program at the University of Uruguay: five have obtained
their Master’s degree and are now working in their specialized fields
in Cuba, and they are without doubt making a big contribution to the
growth of economic knowledge taking place in that country. The second
element is that research projects undertaken in cooperation with
outstanding international researchers in areas considered by Cuban
officials to be strategically important have yielded a wealth of
experience.
As was to be expected, these research projects have made an
important contribution to the processes of change that are under way
in Cuba not only because of their high quality but also because they
are pertinent to the situation in that country. What is more, this
accumulation of economic research has become a driving force in the
sharing of experience that has been taking place, for example, in the
seminars on “Economic Restructuring: Cuba and Vietnam”.
It seems logical and desirable to publish the results of these
research projects not only because the studies are academically
important but also because they constitute a useful contribution to
meeting the challenge of economic growth. In fact, in the framework
of the program, twelve books in the field of economics have been
published and have been incorporated as resource material on teaching
programs in various educational institutions in Cuba.
The seminars on “Economic Restructuring: Cuba and Vietnam”
were held in Stockholm, Sweden, in 2002, in Hanoi, Vietnam, in
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2003, and in Montevideo, Uruguay, in 2006. The dynamic of these
experience-sharing meetings is based on identifying subjects that
are important and relevant to development in Cuba and Vietnam,
and the studies presented at the meetings deal with these subjects
and analyze the experience of these two countries in the area in
question. In this way the experience in both countries is presented
with its good and bad points and there is discussion and sharing of
the lessons learned. This exchange of experience is aimed at helping
to strengthen the decision-making process in the area of political
economy in both countries.
The first seminar on “Economic Restructuring: Cuba and Vietnam”
was held in October 2002 at the Stockholm School of Economics of
Sweden. The participants at this meeting were four Vietnamese
researchers (Dr. Dinh Van An, President of the Central Institute for
Economic Management of the Ministry of Planning and Investment of
Vietnam (CIEM); Dr. Le Anh Son, Vice-President of CIEM; Dr. Nguyen
Quang Thai, Adviser to the Minister of Planning and Investment of
Vietnam (MPI) and General Secretary of the Vietnam Economic
Association (VEA); and Dr. Le Truong Son, Senior Official of the
Department of Foreign Economic Relations of the MPI of Vietnam);
two Cuban researchers (Dr. Noel Chaviano, Director of the Institute
for Research in Finance of the Ministry of Finance and Prices of Cuba,
and Nancy Quiñones MSc., researcher from the National Institute of
Economic Research of the Cuban Ministry of Economy and Planning);
five officials of the Government of Cuba (Dr. Mirta Villanueva, ViceMinister of the Ministry of Economy and Planning of Cuba; Ana
Castellanos (economist), Vice-Minister of the Ministry of Finance and
Prices of Cuba (MFP); Gilma Rodríguez (economist), Vice-Director of
the Central Bank of Cuba (BCC); Claudio Vigoa (economist), Director
of International Relations of the Ministry of Economy and Planning of
Cuba; and Mr. Jorge Payret, Cuban Ambassador to Sweden); Dr. Mats
Lundahl and Dr. Ari Kokko, professors at the Stockholm School of
Economics; Dr. Renato Aguilar, associate professor at the Department
of Economics of the University of Gothenburg of Sweden; Dr. Ruben
Tansini, Professor at the Department of Economics of the University
of Uruguay and coordinator of the “Program for Training in Economics
for Government Officials of the Republic of Cuba”; and Alejandro Claps,
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coordinator of the Seminar. This meeting made it possible for the
Cuban and Vietnamese researchers to reach a preliminary agreement
about areas for future research, and it was a forum for exchanging
experiences and information about the economic reforms under way
in both countries.
The second seminar on “Economic Restructuring: Cuba and
Vietnam” took place on 22-24 August 2003 in Hanoi, Vietnam. The
participants at this meeting were four Cuban researchers (Lazara
Blanco (economist), Director of the Foreign Trade Division of the
MEP; Dr. Noel Chaviano, Director of the Institute for Financial Studies
of the MFP; Isis Mañalich MSc, researcher at the National Institute of
Economic Research of the MEP; and Guillermo Gil (economist),
researcher from the Monetary Policy Area of the BCC); eleven
Vietnamese researchers (Dr. Nguyen Quang Thai, Adviser to the
Vietnamese Minister of Planning and Investment (MPI) and General
Secretary of the Vietnam Economic Association (VEA); Dr. Dinh Van
An, President of the Central Institute for Economic Management of
the Ministry of Planning and Investment (CIEM); Dr. Le Anh Son, VicePresident of the CIEM; Dr. Bui Ha, General Director of the Department
of Monetary-Finance at the MPI; Dr. Ho Quang Minh, General Director
of the Department of Trade and Services of the MPI; Mr. Vu Ngoc Duy,
Deputy General Director of the Department for Banking Development
Strategy of the Central Bank; Mr. Duong Xuan Hoi, Deputy General
Director of the Tourism Department of the Vietnam National Tourist
Administration; Mr. Tran Nguyen Nam, head of the Department of
Financial Markets of the Financial Research Institute at the Ministry
of Finance; Dr. Le Truong Son, senior official of the Department of
Foreign Economic Relations of the MPI; Mr. Nguyen Viet Ha, official
of the Department of Foreign Economic Relations of the MPI; Mr.
Nguyen Hoangh Linh, official of the Department of Foreign Economic
Relations at the MPI; and Mrs. Tran Thu Hang, Deputy General Director
of the Trade and Price Department of the General Statistics Office
of Vietnam); two Swedish researchers (Dr. Mats Lundahl and Dr. Ari
Kokko, professors at the Stockholm School of Economics); Dr. Ruben
Tansini, professor at the Department of Economics of the University
of Uruguay and coordinator of the “Program for Training in Economics
for Government Officials of the Republic of Cuba” and Alejandro
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Claps, coordinator of the seminar. There were also special guests:
Mr. Phan Quang Trung, Vice-Minister of Planning and Investment of
Vietnam; Mr. Bui Liem, Deputy Director of the Department of Foreign
Economic Relations of the MPI of Vietnam; Mr. Chu Van Oanh, ViceDirector of the Vietnam Investment Review of the MPI; Mrs. Helena
Sangelang, chargé d’affaires of the Swedish Embassy in Hanoi; Mr.
Fredesman Turro, Cuban Ambassador in Hanoi; and Dr. Martín Rama
of the World Bank Office in Hanoi, Vietnam.
The third seminar on “Economic Restructuring: Cuba and
Vietnam” took place on 16-17 March 2006 in Montevideo, Uruguay.
The participants at this meeting were five Cuban researchers
(Georgina Cossio Carricarte (economist), Director of the Social
Development Department of the Ministry of Economy and Planning
(MEP), Gladis Alfonso Nichar (economist) researcher at the National
Institute of Economic Research (INIE) of the MEP, Victoria Pérez
Izquierdo (economist) researcher at the National Institute of
Economic Research (INIE) of the MEP, Dr. Pablo Fernández and Dr.
Arturo Costales officials of the Agricultural Department of the MEP);
two officials of the Government of Cuba (Dr. Alfonso Casanova,
First Vice-Minister of the Ministry of Economy and Planning and Dr.
Rogelio Martinez, Vice-Minister of the Ministry of Finance and
Prices); and four Vietnamese researchers (Dr. Le Anh Son, VicePresident of the Development Strategy Institute (DSI) of the Ministry
of Planning and Investment (MPI), Dr. Tran Kim Hao, researcher at
the Central Institute for Economic Management of the MPI (CIEM)),
Dr. Thai Doan Tuu, General Director of the Department of Trade
and Services of the MPI, and Dr. Nguyen The Hien, researcher at
the Development Strategy Institute, MPI).
The Professor Mats Lundahl of the Stockholm School of Economics
of Sweden participated as discussant of the presented papers at this
seminar. Additionally participated as discussants of the presented
papers: Dr. Héctor Lescano (Minister of Tourism of Uruguay); Dr. Miguel
Fernández Galeano (Vice-Minister of Public Health of Uruguay); Dr.
José María Las Heras (General Director of Management of the Judiciary
Power of Cordoba, Argentina); Ec. Rosario Domingo (Department of
Economics of the Faculty of Social Science (FCS) of Uruguay); Ec. Tabaré
Vera (Department of Economics of FCS of Uruguay); Ec. David
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Glejberman (Department of Economics of FCS of Uruguay); MSc.
Gustavo de Armas (Department of Political Sciences of the FCS of
Uruguay); Dr. Claudio Sapelli (Director of the Post Degree Program in
Economics of the Catholic University of Chile); Eng. Juan Peyrou (official
from the Agriculture Ministry of Uruguay); Ec. Juan Cavada (ViceMinister of the Ministry of Development and Planning of Chile); Cr.
Luis Téllez (Sub-Director of Accounting Office of Chile).
The seminar was opened by an speech addressed by the VicePresident of Uruguay, Dr. Nin Novoa; and of the Ambassador of Vietnam
in Uruguay, Mr. Nguyen Ngoc Dien; of the Dean of the Faculty of Social
Sciences of the University of Uruguay, Dr. Enrique Mazzei; of the
Director of the Bank of the Republic of Uruguay, Ec. Juan José Cladera;
and of the First Vice-Minister of the Ministry of Economy and Planning
of Cuba, Dr. Adolfo Casanova.
On the closing of the seminar speech were addressed by: Dr. Mario
Bergara, Vice-Minister of Economy of Uruguay; Dr. Le Anh Son, VicePresident of the Development Strategy Institute of the Ministry of
Planning and Investment of Vietnam; Dr. Rogelio Martinez, Vice-Minister
of the Ministry of Finance and Prices of Cuba; Ec. Inés Terra, Director
of the Department of Economics of the University of Uruguay and of
Dr. Ruben Tansini, coordinator of the Training Program in Economics
for Government Officials of the Republic of Cuba.
This book is made up of ten chapters each of which is a separate
article. The first (“Trade Opening and Development Strategy”), by
José Antonio Alonso 1 , focuses attention on the key role that
governance and the country’s regulations play in the matrix of
conditions that will enable a country to develop and the limitations
imposed by the new regulatory structure of the World Trade
Organization. It is a review of economic growth and development
experience with a special emphasis on a discussion of how a national
economy can become integrated into the world economy, a question
which is especially important for countries’ economic progress. The
second (“A Strategic Vision of Economic Development in Uruguay”),
by Mario Bergara 2 , focuses attention on an economic and social
1 Professor at the Complutense University of Madrid (Spain).
2 Vice-Minister of Economic and Finance of Uruguay and Professor at the Department of Economics
of Faculty of Social Science of Uruguay.
11
development model which the main source of income in enterprises
is discovery and innovation and which could bring about a change in
the structure of production that generates a structure in which
ownership, income distribution, and the conditions of access to the
satisfaction of human needs in general are more equitable. It
incorporates into this model a strategic vision of development and
the pursuit of prosperity, aspects that are rarely found in the analysis
and design of public policies.
The rest of the book consists of four articles about the Cuban
economy and four about the Vietnamese economy. The first is “Scope
and Challenges of the Cuban Social Policy” by Victoria Pérez3 , which
analyzes the experiences and transformations in the Cuban social
policy, especially those that were initiated in the 1990s, and the
challenges involved. The second article, “The Evolution of Cuban
Agriculture and its Contribution to Economic Development” by
Arturo Costales and Pablo Fernández4 , presents an evaluation of
the changes in Cuban agriculture in the 1990s and their contribution
to economic development. The third article, “Fifteen Years of
Tourism in Cuba” by Gladis Alfonso 5 , is an analysis of the
transformation of the tourism sector since 1990. The last article
about Cuba, “Development of Cuban Public Health: Situation and
Perspectives” by Georgina Cossio6 , describes public health system
and its contemporary challenges.
Next come the four articles about Vietnam. The first, “Vietnam’s
Socio-Economics Development during the Renovation Years:
Achievements and Challenges”, by Le Anh Son7 , discusses Vietnam’s
socio-economic development from 1991 to the present time taking
account of some social problems that have arisen during this
3 Researcher at the National Institute of Economic Research (INIE) of the Ministry of Economy
and Planning of Cuba.
4 Agricultural Department of the Direction of Agroindustry of the Cuban Ministry of Economy and
Planning.
5 Researcher at the National Institute of Economic Research (INIE) of the Ministry of Economy
and Planning of Cuba.
6 Director of Social Development Department of the Cuban Ministry of Economy and Planning.
7 Vice-President of the Development Strategy Institute (DSI) of the Ministry of Planning and
Investment of Vietnam.
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development process as well as integration and Vietnam’s prospects
for the future. The second article, “Vietnam’s Achievements and
Prospects in Agriculture”, by Nguyen The Hien8 , analyzes the main
agricultural and rural development policies, their principal
achievements and some problems and challenges. The third article,
“The Development of Tourism in Vietnam” by Thai Doan Tuu9 , analyzes
the development of the tourism sector, its contribution to the national
economy, its general achievements and challenges, and its future
strategy. The last article about Vietnam, “Vietnam’s Enterprise Reform
and Development” by Tran Kim Hao10 , analyzes the reform of state
owned enterprises, the fostering development in the private sector,
the environment of foreign-invested enterprises, and the co-operative
economy development.
Lastly, as editor of this book, I would like to take this opportunity
to express my thanks to Rosario Domingo (economist) from the
Department of Economics of the University of Uruguay, who has
contributed not only to editing this book but also to quite a number
of others in the framework of the “Program for Training in Economics
for Government Officials of the Republic of Cuba”, and who has been
closely involved in setting up and running this program. I would also
like to express my gratitude to Alejandro Claps from Sweden, who
most efficiently coordinated the three seminars on “Economic
Restructuring: Cuba and Vietnam” that were held in Stockholm,
Sweden, Hanoi, Vietnam, and Montevideo, Uruguay. In addition I should
like to thank all those who took part in those seminars and in particular
professors Mats Lundhal and Ari Kokko from the Stockholm School
of Economics in Sweden who contributed with comments to the
papers that were presented and on the articles published in this
book. Last but not least I should thank Carlos Casacuberta (MSc)
and Dr. Rosanna Patrón from the Department of Economics of
Uruguay, who patiently read the articles in this book and made
8 Researcher at the Development Strategy Institute of the Ministry of Planning and Investment
of Vietnam.
9 General Director of the Department of Trade and Services of the Ministry of Planning and
Investment of Vietnam.
10 Researcher of the Central Institute for Economic Management (CIEM) of the Ministry of Planning
and Investment of Vietnam.
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very enlightening comments to the authors, and Laura Da Costa,
Carmen Estrades, Mariana Gerstenbluth and Ianina Rossi
(economists) from the Department of Economics of Uruguay, who
translated to Spanish the articles about Vietnam.
Dr. Ruben Tansini (PhD)
Coordinator of the Program for Training in Economics
for High Government Officials from the Republic of Cuba
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15
Chapter 1
TRADE OPENING
AND DEVELOPMENT STRATEGY
José Antonio Alonso1
Introduction
In current economic thinking, special attention is paid to the
advantages of trade as an instrument for progress. Trade enables a
country to specialize in areas where it is comparatively more efficient
(static comparison) and thus raise added well-being, and it is also
thought to stimulate progress in productivity and so allow countries
to grow at a faster rate (dynamic effects). There is less unanimity
about the second proposition and the empirical support for it is
subject to debate, but it is still highly regarded in the sphere of
recent political economy and it has even become one of the basic
recommendations for all reform in developing countries. In the more
extreme versions of the doctrine, trade opening is seen as a kind of
exorcism of evil spirits that all countries that want to develop
necessarily have to go through.
In fact, international experience shows that development is not a
spontaneous or immediate consequence of international opening. When
trade opening is implemented abruptly and not accompanied by any
specific policies, very often the immediate effect is a net erosion of
1 Complutense Institute of International Studies (Instituto Complutense de Estudios
Internacionales – ICEI) – Complutense University of Madrid, Spain.
16
the country’s productive capabilities, and this results in undesirable
economic and social consequences, at least in the short term. As time
passes, not all specializations, no matter how well-placed they may
be as regards comparative advantages, enable a country to attain the
same dynamic of expansion. If a specialization is based on trade
advantages that are not very dynamic or are highly vulnerable this
constitutes a risk for possible future economic growth. It follows that
a policy to promote industry and technology is the most promising
route to developing a country’s international specialization. In other
words, integration into the international economy may indeed be a
desirable objective, but this should not be at the expense of
undermining the promotion of productive and technological
capabilities. The experience of certain countries that have succeeded
not only in projecting themselves on the international stage but also
in making rapid changes to their exports shows that what is needed is
strategic policy in both these spheres. However, the effectiveness of
such a policy depends to a large extent on the quality of the institutions
that are already in existence and on the development possibilities
that are available. The former consideration focuses attention on the
key role that governance and the country’s regulations play in the
matrix of conditions that will enable a country to develop. The latter
aspect has to do with the limitations imposed by the new regulatory
structure of the World Trade Organization (WTO). In this chapter we
will analyze these aspects.
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1. TRADE LIBERALIZATION AND PRODUCTIVE ALLOCATION
Strictly speaking, trade liberalization should be understood as the
process of reducing the discriminatory effects that trade policy
generates between the domestic and the foreign market. With this
definition in mind it is easy to predict the effects that economic theory
attributes, from a static perspective, to this process. There will be a
re-allocation of the factors of production within the country, a shift
from the import substitution sector (in which the country is not
comparatively efficient) to the exportable goods sector (where the
country has comparative advantages). Moreover, if the country could
access to more efficient international production, consumers spending
opportunities would increase (the income effect), and as the relative
prices modify, the country’s goods consumption profile would change
(the substitution effect). Both effects, income and substitution, should
make for greater well-being in the world economy as a whole and also
in each and every country in the global market. And besides all this
there will be a change in the return on the factors of production in
that the price of factors that are used intensively in producing the
good a country specializes in will rise2 .
It follows from above that trade opening alters not only the relative
weight of the various sectors in an economy but also the factor
distribution of income in that country. This means that there will be
potential winners and eventual losers, and the latter are likely to
resist the changes and so affect the governance conditions of the
reform. This is an important aspect of the situation because it puts
the spotlight – both as regards theory and also in the practical
situation – on the political economy of trade opening, that is to say
on how the equilibrium between economic interests of different social
groups is upset.
From the perspective of a static comparison, trade liberalization
involves added well-being, but a wider view will also focus on the
path that adjustment takes, that is to say on the dynamic of the
process. For example, if productive re-allocation is hindered in certain
factor markets because of rigidities, the destruction of domestic
2 Note that to arrive at these results it is necessary to assume perfect competition.
18
capability in the import substitution sector that results from the
dismantling of protection might be greater than the creation of new
productive capabilities in the exportable goods sector, and this would
lead to de-industrialization and unemployment. In this situation, at
least for a time, there would be no increase in added well-being at
all, which would aggravate the cost of adjustment. This scenario is
far from being mere theoretical speculation. It has in fact been
substantiated in a number of cases where countries implemented trade
opening abruptly, such as Chile in the latter half of the 1970s and
Bolivia in the mid 1980s (after an initial structural adjustment), or in
the last decade in some of the formerly central planned economies.
These kinds of difficulties are more likely to occur in developing
countries. There are at least two reasons for this, first, because markets
and supply response to price changes are more inflexible, and second,
because the specialization areas characteristic of these countries tends
to be inter-industrial (rather than intra-industrial), and this exacerbates
the cost of change.
Another possibility is that trade opening might not yield long-term
benefits if there are specific factors in the supply side (or demand)
associated with the production of the exportable good. In this case a
fall in the production of the import-substitution good might not be
accompanied by increased production of the exportable good, and as
a consequence total well-being in the country would be less. So trade
opening forces a country to shift production towards new activities
rather than simply expanding activities that are already in operation,
and this is more complex and takes a longer time. In this kind of
situation the country would be seriously hindered from taking full
advantage of the opportunities resulting from its trade insertion. These
kinds of problems are more likely to arise if the specializations in
question are based on raw materials, where there are limits on the
supply (and in some cases on the demand) for the increase in production
and added value.
To sum up, trade opening leads to added benefits derived from
productive reallocation. Some of these benefits are one-off events,
but others can affect the country’s growth dynamic to the extent that
they might alter the rate of productivity growth. Apart from that, the
transition to a new equilibrium could also involve high costs, especially
19
when trade opening is implemented in an abrupt way and there are
rigidities in the markets of goods and factors. In the long run this
problem may be corrected, but in the short and middle run the economy
will have to bear the high costs resulting from opening, and this may
have serious repercussions in certain social sectors. If these costs have
to be borne in a situation in which institutional structures are fragile,
there may be stiff social resistance to trade opening, and this will
have an impact on the governance conditions of the reforms. In a
comparative static analysis all this is irrelevant, but in a real economy
what the path to change actually is can be crucial.
This leads us to the question of whether liberalization can be
managed in such a way as to minimize the costs of adjustment while
at the same time taking maximum advantage of trade opening. On
this point, three recommendations can be made:
(i)
First, it is better if the liberalization processes are gradual, so
that the agents who are affected will be able to adapt in
progressive stages to the resulting changes in costs. In fact,
economic development in countries that have been very
successful at liberalizing their trade, like Spain and more recently
China and Vietnam, seems to confirm this hypothesis. In all cases
it is important to send clear signals that the process is
irreversible, so that the fact that change is gradual does not
encourage stiffer strategic resistance from those sectors
negatively affected by the reform.
(ii)
Second, it may be good policy to accompany trade opening with
active measures designed to strengthen productive capabilities
in export sectors. This means working to make trade opening
compatible with an active industrial and technological policy
that promote the deployment of productive capabilities in export
sectors. Again there are numerous examples of countries that
have done this, like Korea, Taiwan and Spain itself.
(iii) Third, the country may resort to an active policy of attracting
foreign capital to strengthen the creation of its competitive
capabilities. In fact, attracting foreign capital has been part of
the policies developed by some successful economies in their
openness and international integration process.
20
It should be stressed that all these options have their drawbacks.
If the first option is adopted and the trade liberalization process is
prolonged, this may stimulate the formation of lobbies that will
pressure the government to put an end to reform or reverse it
altogether. This problem may also occur if the second option is chosen,
to the extent that policies to stimulate export capabilities may be
seen not as temporary measures but as part of a stable framework of
protection for the domestic market. The third option, foreign
investment promotion, involves the risk that economic life may split
into a kind of dual system, with a highly competitive internationalized
sector and a traditional domestic sector that is more geared to the
domestic market.
In the light of these considerations it would be a mistake to think
there is one optimal sequence that the process of international
integration should follow. Far from it, in fact two positions emerge.
They are, first, that it is essential to see openness as a desirable
component of a development strategy but it should not be seen as a
substitute for such a strategy, and second, that openness should be
understood as a process for governance, a process that requires quality
institutions to control and supervise the changeover and manage its
distributive tensions and social costs.
2. TRADE OPENING AND GROWTH
In addition to changing the allocation of resources, trade opening
may also become a motor for economic growth. The success achieved
by some of the Southeast Asian countries has led some authors to
assume that there must be a positive relation between trade opening
and economic growth. In the climate of the economic thought
prevailing in the 1980s, this supposition was easily transformed into a
universal recommendation that became one of the recipes that
international agencies were to adopt and promote.
The theoretical foundations of this relation involve factors that
are open to debate, since although static gains are easy to substantiate
the same cannot be said of dynamic gains. The reasons that are put
21
forward for these changes include those that relate trade liberalization
to: (i) more fully development of economies of scale as enterprises
operate in wider markets; (ii) more active process of technological
improvement in virtue of diffusion and imitation processes; (iii) access
to more efficient production technologies through the allocation of
more funds to pay for imported goods and equipment, and (iv) improved
management and less X-inefficiency, as competition in markets is more
intense. However, it is not easy to integrate these explanations into
the more traditional growth model derived from Solow (1956).
Nevertheless, the new theory of endogenous growth has put forward
additional arguments to underpin the alleged relation between trade
opening and growth in that it focuses on the role that trade plays in
technological innovation, the possibility to take advantage of scale
economies and externalities. Work has been done in this area by
Grossman and Helpman (1991), Rivera-Batiz and Romer (1991) and
Krugman (1990). There are various possible lines of argument. Firstly,
trade stimulates technological effort by generating and providing
access to new consumer products or new intermediate or capital
goods, and this allows production to become increasingly specialized.
Second, innovation depends to a large extent on the course of past
innovation, and trade opening allows countries wider access to the
international stock of knowledge so they benefit from externalities
and the effects of technological spillover. And lastly, since openness
allows to access to larger markets it increases the monopoly profits
of innovators and so reinforces technological progress and growth.
For all these reasons, there is held to be a direct relation between
economic openness and growth.
However, in the same tradition there are also theories that argue
for a relation yielding the opposite result. Redding (1999) presents a
model in which comparative advantage is made endogenous so
technological effort conditions the profile of the comparative
advantage, and this in turn determines the possibilities of future
technological progress. Trade opening means that the economy will
specialize in accordance with its static comparative advantages, but
it does not necessarily guarantee that these should coincide with the
sectors that have the greatest productivity growth potential in the
economy. Thus selective protection could increase well-being and
22
technical change as long as the government is able to correctly identify
the sectors in question. This very supposition is admitted by Grossman
and Helpman (1991) in their study of the integration of two economies
with two sectors with different growth rates.
Empirical studies confirm that the relation here is by no means
predictable. It is true that many analyses suggest a positive link
between foreign trade and economic growth, but this idea has not
escaped criticism. Some studies supporting the thesis that trade has
a positive impact on growth are Dollar (1992), Edwards (1998), Barro
and Sala-i-Martín (1995), Sachs and Warner (1995) and Greenaway et
al. (1998). Most supporting studies involve a cross-country analysis
and find that trade barriers have a negative impact on countries’
growth rates. The conclusions drawn by Ben-David (1993) and Sachs
and Warner (1995) go even further in that they suggest that trade
opening feeds a process of non-conditional convergence between
countries. Frankel and Romer (1999), utilizing geographical variables,
endorsed the notion that trade plays a role in the dynamic of
countries’ growth. The idea of a relation between trade and growth
was also reinforced by panel data analysis carried out by Vamvakidis
(1999) and Harrison (1996). Lastly, in a recent study, Dollar and Kraay
(2001) relate the link in time (rather than in extent) between trade
volume and growth. Their findings point to a significant relation
between the two variables, although the results are not so clearly
defined when other economic policy variables are incorporated as
endogenous variables.
Results in this sphere seem to be very strongly conditioned by the
way in which trade opening is measured, by the estimation procedures
followed, and by the model specifications adopted. The first of these
aspects was pointed out by Harrison (1996), among others, who showed
that not all measures of trade opening –and a number of different
ones are used– yield results that are significant in explaining growth.
As to the second aspect, Srinivasan and Bhagwati (1999) criticize crosscountry analysis as a way of determining the relation in question. The
third aspect is analyzed in an influential study by Rodríguez and Rodrik
(1999), who test the solidity and robustness of the studies by Dollar
(1992), Sachs and Warner (1995), Ben-David (1993), Edwards (1998)
and Frankel and Romer (1999), and conclude that these suffer from
23
serious limitations either because of the measures of opening that
are utilized or because they fail to establish a proper specification for
the growth function. Thus not only are Rodríguez and Rodrik (1999)
rather skeptical about the idea of a proven relation between opening
and growth, they also consider that the dedicated search for such a
relation is a futile exercise.
A notable forerunner of Rodríguez and Rodrik (1999) was a study
by Levine and Renelt (1992), who pointed out there were few solid
and reliable variables in the explanation of growth, and these did not
include opening to international trade. These authors suggested that
the effect of trade is manifested in an indirect way, through
investment. Sala-i-Martín (1997) carried out a new analysis of the
reliability of the parameters in a growth function, and found that out
of all the measures of opening examined only the one suggested by
Sachs and Warner (1995) turned out to be significant. Finally, in a
recent study, Vamvakidis (2002) scrutinized the relation from a
historical perspective using data from different sub-periods between
1870 and 1990, and he concluded that “...if there is a positive
correlation between trade and growth it only holds sway in recent
decades” (Vamvakidis 2002; 73).
It goes without saying that these results do not encourage even
the most critical theorists to believe that the contrary is true, that
protection is a mechanism that promotes growth. We have more than
enough evidence that protection exercised over a long period
negatively impacts on the dynamism of an economy. But what is being
suggested here is that it is doubtful that trade opening in itself
accelerates economic growth in an economy, except when it is
accompanied by and interacts with other kinds of policies. It is just
one more policy and it should be integrated into a wider development
strategy. And this wider strategy could in some cases include elements
that actually run counter to the general trend of the effort to liberalize.
In other words, temporary and selective measures to stimulate
domestic productive and technological capabilities may be compatible
with a strategy of trade opening.
In a recent study Baldwin (2003; 29) reviewed the relation in
question and came to a similar conclusion: “The evidence that a general
policy position of openness is preferable to long-run economic growth
24
than an inward-looking policy stance should not be interpreted,
however, as implying that no government interventions, such as
selective production subsidies or controls on short-term capital
movements, are appropriate at certain stages of development”.
3. TRADE OPENING AND INDUSTRIALIZATION
The observations in the paragraphs above should be unnecessary.
History shows that the countries whose development has been most
successful are those that have managed to combine a strategy of
international opening with an active and appropriate industrial policy
which has included selective protection measures.
From an overall generic perspective we can identify three broad
alternatives (that are not completely mutually exclusive) that a
developing country can adopt as a strategy to pursue growth and
industrialization in an increasingly inter-dependent world. First, it
can fully liberalize its economy expecting that the international market
will generate sufficient stimulus to feed investment. Second, it can
adopt a policy of attracting foreign capital by trying to make the
domestic market a profitable and attractive destination for
international investment. Third, it can base the changeover process
on domestic productive capabilities by stimulating the creation of
competitive advantages in its national industries.
There are very few examples of the successful application of the
first of these alternatives. The policy of non-intervention by the State,
macroeconomic stabilization and foreign opening (the basic
components of the simplest interpretation of the Washington
Consensus) seem to offer no guarantee that development will be
stimulated, even if some of the components involved may be desirable
objectives for an economy. When Amsden (2000) did a survey of
countries that developed successfully using this simple recipe he found
there were only two (Switzerland and Hong Kong), not enough to serve
as the basis for an effective strategy.
The second alternative involves using foreign capital to make up
for the shortfall in domestic capital for investment, so the strategy is
25
to attract foreign direct investment by creating an environment that
is suitable in terms of infrastructure, human capital and institutions.
The countries that have gone furthest along this road have used
promotion policies such as subsidies or tax exemption to make
themselves more attractive for the localization of foreign capital.
However, this strategy has not always yielded the results that were
expected. In some cases this was because the investment that came
into the country fell short of what was needed, and sometimes it was
because the investment did not have the hoped-for effect on the
economy as a whole. There are in fact a number of different factors
that conspire to undermine the effectiveness of this alternative. First,
the investment that goes to developing countries (especially to the
poorest) is rather limited, the flows are somewhat unstable, and most
of the funds are highly concentrated in a small number of countries.
Therefore, in practice, for a good part of the developing world, this
strategy is simply not a viable option. Second, even if large amounts
of funds get to a particular developing country, in many cases the
relationship between this foreign capital and the domestic productive
structure already in place is not enough. These developing countries
find it very difficult to derive externalities from foreign capital in areas
like technology that are crucial for fostering domestic industries. And
third, the competition to attract foreign direct investment has been drawn
the developing countries into a struggle to provide fiscal incentives,
and this has generated a whole range of tax exemption regimes that
impact negatively on the tax collection capability of the State.
In spite of its drawbacks this is still a viable strategy, and a number
of countries including Hong Kong, Malaysia, Ireland and China have
gleaned acceptable results from it. This is especially true in countries
that have implemented a selective policy trying to channel foreign
capital into specific industries and foster its positive effects in domestic
industries. However, contrary to what is sometimes trumpeted for
this strategy, in fact there are just few countries that have successfully
attracted foreign capital as a main force in national investment. In
Asia, which is the region most often cited as the paradigm case, only
in Hong Kong, Malaysia and Singapore did foreign investment amount
to more than 15% of the country’s total gross capital formation in the
thirty years from 1971 to 1999 (Chang, 2003).
26
In most of the countries that have been successful, including Spain,
progressive trade opening to international markets has been combined
with active policies to promote domestic production and trade
capabilities. This kind of policy includes not only generic measures
that are mainstreamed, such as supporting the development of
infrastructure or the training of human capital, but also more specific
measures geared to promoting competitiveness and to give support
to enterprises’ effort toward their international insertion. This kind
of strategy has had bad press in recent decades, and there are a
number of reasons for this. First, the general mood, derived from the
Washington Consensus, has been to trust in the free market. Second,
there is doubt about the ability of governments to make the right
selection when it comes to deciding which industries have the potential
to be successful in international markets. Third, regulatory intervention
could tend to stimulate unproductive rent-seeking strategies. These
things are all bound to happen, and they probably make the
effectiveness of intervention conditional upon the institutional and
competitive climate prevailing in the economy. In any case, it should
be stressed that the common factor in most of the success stories in
this sphere is that governments have intervened actively in various
ways to support domestic productive capabilities.
4. INTERVENTION AND MARKET DISTORTIONS
In the past, State intervention to support domestic production
was based on the infant industry argument, which has a long history
in economic theory. This was the argument behind protectionism in
the 19th century and also behind the import substitution strategy
that was dominant in many developing countries during the 1950s and
1970s. But in fact the infant industry argument in itself does not justify
any intervention at all. If capital markets function as they should,
there will always be a way to finance the investment an enterprise
needs to attain the minimum size for efficient operations. In a very
enlightening study, Baldwin (1969) dismantled a lot of the arguments
and circumstances that were used to justify the recourse to
27
protectionist measures based on the infant industry argument. But
this does not invalidate the use of selective protection mechanisms
since the core of the problem is that the market does not only have
one failure but many, and it makes them all at a time, thus such
accumulation of failures as a whole justify several intervention and
State regulation actions.
The starting point here is to question the markedly restrictive
nature of the presuppositions that underlie the notion of competitive
equilibrium. In the real world there are many factors that prevent the
market from operating with the efficiency that the theory presupposes.
With this in mind, State intervention to correct these defects can be
fully justified. The more outstanding failures in a free market include
the existence of public goods (certain elements of infrastructure for
example), externalities and increasing yields (as happens in the
technology area), markets with incomplete or asymmetrical
information (as is the case in credit and insurance), certain
investments being indivisible, and problems related to markets
coordination which affects different areas of the economy. These
kinds of problems affect all economies, but their impact is more
pronounced in developing countries.
To sum up, State intervention to promote productive and
competitive capabilities has played a crucial role in successful
development in many countries, and it can be justified by the fact
that there are market failures. Now, just because there is market
failure this does not mean that State intervention to correct the
situation will in fact lead to any improvement. For the treatment to
work, (i) the market failure and its causes will have to be correctly
diagnosed, (ii) the kind of intervention that will correct the market
failure will have to be correctly defined, and (iii) there will have to
be a searching analysis not only of the benefits that correct intervention
will yield but also of its possible negative impacts. Only when these
three aspects of the situation have been satisfactorily dealt with will
the State be able to plan its intervention to raise efficiency and bring
about added well-being. It is essential not only to have adequate
information but also to have institutions of quality capable of exercising
governance in the process and setting the framework of regulations
and suitable incentives. As Hausmann and Rodrik (2002) pointed out,
28
the policies implemented in Southeast Asia have worked better than
those applied in Latin America because the governments in question
were able to effectively combine incentives with enterprise discipline.
5. THE ROLE OF INSTITUTIONS
It must be clear from all that has been said above that a key
element in any development strategy is the quality of institutions.
The idea of “institutions” is open to a wide range of interpretations,
but generically they can be regarded as “The collection of rules of
behavior arising in a society that regulate and give form to human
interaction, partly because they help people to form expectations
about what others want to do” (Lin and Nugent, 1991). Some
institutions penalize, others are geared to fostering specific behavior,
and as a whole they make up lattice work of incentives and penalties
those condition agents’ responses and promote collective action.
Whether they are formal (laws and contracts, for example) or informal
(norms and customs), institutions help to limit the degree of
uncertainty with which people operate, and reduce the transaction
costs that prevail in a society.
There is nothing to guarantee that the institutions which are in
place at a given time in a society will provide the efficient responses
that are needed in the sense of promoting behavior which is considered
desirable in society. It may be that a country lacks the institutions
needed to promote specific changes, or that those that exist are
inadequate when it comes to providing suitable incentives (Chang
and Evans, 2000; Aoki, 2001). If a country is to promote development
it is essential to have institutions that align economic incentives with
the social benefits and costs of the process of change.
While empirical studies in this area are not conclusive they tend
to demonstrate that there is a relation between the quality of a
country’s institutions and the dynamic of its growth. This is the
conclusion reached not only by studies of the historical type, which
allude to the role of institutions in the style of countries’ economic
and social development (Sokoloff and Engerman, 2000; or Acemoglu,
29
Jonson and Robinson, 2000) but also in cross-country studies, which
are based on wide samples of countries (Knack and Keefer, 1995; Mauro,
1995; or Kaufmann, Kraay and Zoido-Lobatón, 1999). It is difficult to
obtain results that are more conclusive because of limitations on the
relevant empirical information and on identifying the direction of
causality, but the general impression is that institutional factors are
important in a country’s development possibilities.
With this in mind, it is pertinent to look at the relation between
economic opening and the quality of institutions and ask: Does openness
promote better-quality institutions? And we should also ask the inverse
question: Does economic opening require better-quality institutions
in order to be successful?
The intuitive answer to the first question is that international
opening imposes greater discipline on the way institutions behave, it
sets up a framework of increased competition, reduces profit-seeking
activities, increases the complexity and risk of collective responses,
favors the development of institutions, and fosters learning and
innovation in the institutional change process (World Bank, 2002).
These predictions have been confirmed in various studies including
Islam and Montenegro (2001) and Wei (2000) who found that opening
up to trade is a significant determinant in the quality of institutions.
But this causal relation also runs in the opposite direction in that
better-quality institutions facilitate the process of economic opening.
First, because a suitable institutional framework reduces transaction
costs, corruption and profit-seeking, and risk and uncertainty for the
economic agents involved (Anderson and Marcouiller, 1999). These
same factors could make the country more attractive to foreign
investors and so facilitate the opening of the capital account (Arteta,
Eichengreen and Wyplosz, 2001). Furthermore, if a country has a
suitable institutional framework this will facilitate the governance of
the process of opening and reduce the social conflict that all change
involves by coordination, and by providing compensation for social
agents.
In any case, even if there is a double relation involved in this, we
should not suppose that economic opening will spontaneously
guarantee the quality of institutions. There are too many examples of
30
openness being accompanied by deterioration in institutions for us to
suppose that the two processes (openness and improved institution
quality) are necessarily linked. In spite of the stabilizing and openness
efforts made by Latin American countries in the second half of the
1980s, today many countries in this region are in an ongoing crisis of
confidence in institutions and they lack legitimacy. In their different
ways, Argentina, Bolivia, Ecuador and Venezuela are all recent
examples of this phenomenon. This problem is serious in Sub-Saharan
Africa where there are numerous examples of countries with economic
and institutional deterioration while they tried to stabilize and open
their economy with structural adjustment plans. All in all, rather than
assuming there is an automatic relation here, it would be better for
countries to work on both processes at the same time and try to manage
economic opening while also developing institutions.
Where should the main institution-development effort be made?
Or, to put it another way: Which institutions play a key role in
facilitating the process of economic opening? Although there are other
taxonomic ideas about this (Rodrik, 1999a), here it will be considered
suitable to start off of basic State economic functions. In a market
economy the State has four main functions: (i) to establish the basic
framework of rules for economic activity (especially the property rights
and legal security for contracts); (ii) to execute the regulatory function
trying to correct market failures; (iii) to maintain macro-economic
stability to attenuate the negative impact of economic cycles: and
(iv) to make the distribution of income more egalitarian to legitimize
institutions and attenuate social conflict. This is a wide range, and
within the regulatory activity of the State we can consider different
spheres of activity: to promoting competition and that refered to
other market failures related to coordinating and fostering markets.
We can distinguish five main areas of State functions that have to
do with the market development:
(i)
First, to promote and guarantee “the basic economic rights”
that make up the framework of rules within which agents
operate. This is structured around defense of property rights
and the legal security of contracts.
(ii)
Second, “to promote competition” by correcting distortions that
affect proper participation in markets. It is in this sphere that
31
the State interventions to prevent the formation of monopolies,
regulate public services and encourage competition to allow
the market will function correctly could be considered.
(iii) Third, “to promote the coordination and fostering of markets”,
correcting distortions due to externalities, imperfect
information, problems of the coordination and indivisibility of
investment, and the provision of goods that are partially public
goods. This sphere of activity could include dealing with
environmental problems, financial and insurance regulations,
promoting technology, and industrial policy.
(iv)
Fourth, “to ensure that macro-economic stability is maintained”
so as to lessen the impact of cyclical disturbances and guard
against economic crises.
(v)
Lastly, “to promote social cohesion and manage redistributive
disputes in society” by modifying the distribution of income and
wealth for socially desirable goals. This involves employing
mechanisms to promote social cohesion, to redistribute the fruits
of progress and to protect people against adversity.
The question is how the creation of this institutional framework
can be fostered. The process of changing institutions is generally
perceived to be evolutionary, to be a gradual sequence over time, to
be highly dependent on the form of previous institutional infrastructure
(paths dependence), and to be conditioned by changes in the
environment and circumstances of the prevailing social and political
dynamic. However, there does not seem to be any convincing
comprehensive theory of institutional change. The idea that the
dynamic of the process of change in this area is self-selective and
leads to the survival of the most efficient institutions does not sit
well with the reality of the situation. And nor does the assumption
that changes in institutions stem only from struggle of interests or
from the rent-seeking behavior of agents, individuals or collectives in
the complex arena of the political market as the Public Choice school
theory supposes. The process of institutional change would seem to
be rather more complex than that, in that it involves not only material
but also cultural factors (different visions of the world) that are very
specific to social reality in each different case (Chang and Evans,
2000). This is what makes it difficult to “transplant” institutional
32
models that were in place previously in other countries or to generate
new institutional situations in a particular country.
Although knowledge about the processes of institutional change is
limited, there is some degree of consensus about a number of
principles. These can be briefly summed up as follows:
(i)
First, no institutional design can be considered universally
optimal since institutions are very specific to their environment.
This means that transplanting an institution to environments
that are different to where it came into being is not the best
way to create an efficient institution.
(ii)
Second, the best way to promote institutional change is not so
much to identify defects in the previous structure as to know
how a defect can be remedied, which has to do with the effective
existence of an alternative.
(iii) Third, when initiating improvements in institutions it is not
necessary to undertake wide-ranging reforms. It is enough to
make a change that is credible, and therefore sustainable, which
serves to modify agents’ behavior
(iv)
Fourth, institutions tend to gather together in institutional
complexes, so reform processes need to be to a certain extent
consistent over time, and there has to be a clear vision of the
coordination between and the hierarchies within these
institutions.
(v)
Fifth, for a policy to be sustainable the number of losers it
generates should be relatively small and the number of people
who benefit from the change should increase over time. It follows
that the political economy of reform is important.
(vi)
Lastly, the credibility of the organizations that have legal
authority to impose collective behavior is one of the most
important factors in the success or failure of the institutional
change.
From this group of factors it can be seen that reforms in the margin
are very important as a way of making institutional change viable and
attenuating resistances from social sectors that are potential losers.
Reforms in the margin can be useful to the agents as indicators of the
33
way change is moving reducing uncertainty about how the gains and
losses will be distributed.
To sum up, institutional change is usually slow, complex and
politically costly. This explains the emergence of what Quian (2003)
calls transitional institutions, formulas that adapt the existing
institutional framework to changes in the environment. In no way are
these in line with canonical formulas for optimal institutions, but by
trial and error they do allow inefficiencies to be corrected in a highly
specific process. The economic liberalization formulas in China through
a two-track procedure can be seen as examples of transitional
institutions (Lau, Quian and Roland, 2000), as can the “Village
Enterprises”, also in China, which amount to a compromise between
the market system and collective ownership (Quian, 2003). Other
examples of transitional formulas, albeit a far cry from precepts of
optimal institutional design in a market society, are the successful
formulas for social participation and control of rent-seekers derived
from tribal culture in Bostwana (Acemoglu, Jonson and Robinson, 2003),
and amalgams of trade opening and home market protection derived
from experience in the free trade export zone in Mauritius (Rodrik,
1999b). All these examples involve formulas that are very specific to
conditions in each country and markedly different from what
conventional opinion regards as optimal measures, but they are all
geared to gradually correcting inefficiencies in a way that has been
shown to work.
The examples above do not define any fixed response formula,
but they do highlight the fact that caution is needed with the notion
that there are optimal universally-applicable formulas, such as the
generalized prescription for trade opening that flowed from the
Washington Consensus. Changes in institutions may find inspiration in
some foreign model, but in the final analysis it is a very specific process
that is very connected to a local dynamic. As Rodrik (2003) concludes,
it is possible to create good institutions but this requires
experimentation, the will to break with orthodox thinking, and
attention to local conditions. And we can add another requirement to
this list, it also requires the time necessary for adaptation to take
effect. This is yet another indication that trade opening should be a
gradual process.
34
6. PRODUCTIVE CHANGE
To be able to handle market failures associated to development
process it is essential to have an adequate institutional framework. In
fact, institutions come into being as alternative mechanisms for
coordination and social allocation when the market is operating in an
inefficient way. One of these situations, as we have seen above, has
to do with countries’ trade insertion.
In this sphere, regulatory action should be geared to molding the
countries’ productive and trade specializations in such a way as to
create advantages that are more dynamic and sustainable. The trade
specialization of many developing countries has traditionally tended to
depend on primary commodity sectors, which are intensive in resourceexploitation or which employ a large unskilled workforce. However, the
analysis of international trade shows that these sectors are less dynamic
than those in which production is more intensive in technology or in
product differentiation (charts 1 and 2), so this specialization is a drag
on countries’ dynamic possibilities through trade.
In this framework, obstacles to change have a double origin. The
former are the internal difficulties that all economies have to go through
when they develop from a productive structure that is mainly based on
natural resources and unskilled workers to one in which technology and
more complex production systems play a much relevant role. To make
this transition the country needs a combination of investment in physical
and human capital, the ongoing promotion of technological capabilities,
to create efficient infrastructure, and to foster a climate of healthy
competition in markets. Promoting structural change, in trade policy,
calls for a careful mix of temporary selective import substitution policies
in harness with the active projection of its products into international
markets. At the same time, for these processes to be sustainable, social
and economic stability must be maintained so as to allow continual
growth to take place.
It is no easy task for a country to foster these complex processes
of change when it has a fragile institutional framework, especially
bearing in mind all the many market failures (externalities, dynamic
economies and investment complementarities) that go with developing
35
Chart 1
SHARES BY PRODUCT TYPE IN WORLD TRADE IN GOODS
Source: UN/DESA, based on Feenstra et al. (2005).
Chart 2
RATES OF GDP PER CAPITA GROWTH BY SPECIALIZATION PATTERN
(annual average rates %)
Source: DESA (United Nations).
36
technological capabilities, promoting human capital, and developing
new manufacturing activities with higher productivity. One aspect that
is absolutely vital is to develop technological capabilities, a difficult
objective due to the huge technology gap that face developing
countries from the start (table 1).
Table 1
TECHNOLOGY INDICATORS
Note: The values for the Middle-low and Middle-high income countries include countries
in transition. The average values for Middle Income(1) include countries in transition,
and Middle Income(2) is an average that excludes countries in transition.
Source: Alonso (2007) from World Bank (World Development Indicators, 2005).
In addition to these internal obstacles to change there are also a
wide range of problems that stem from the international environment.
Although the trade liberalization process that developing countries
have embarked on has had a positive impact on the cost conditions
that these economies operate in, it has also restricted these countries’
possibilities of using selective protection as part of industrial policy.
The WTO has been zealously working to extend competition to spheres
that are only indirectly connected with trade, and this has tended to
37
restrict the use of selective protection instruments (such as domestic
produced inputs for foreign enterprises that are established in a
country, or discriminatory fiscal measures in free trade zones) that
are geared to stimulating domestic production capabilities. In addition,
the restricted tendency of the normative on intellectual property rights
has been able to limit the technology diffusion processes, which are in
the base of the acquisition of capabilities by developing countries. All
these factors restrict the margins within which a developing country can
maneuver in pursuit of promoting technological and industrial change.
As a consequence of these difficulties, many of the middle income
countries have reinforced their production and export specialization
in primary goods. In a context of increasing openness and international
specialization, it is natural for a country that has an abundant
endowment of natural resource to try to exploit this advantage in its
foreign trade. But this should be seen as just one step towards a more
complex specialization pattern based on activities that can generate
more generalized technological change. Quite apart from the problems
traditionally associated with the evolution of the prices of basic
products (their variability, and the worsening of the real exchange
relation), a specialization based on natural resources is problematic
for reasons that stem from: (i) the limited relative dynamism that
this gives to sales, especially when seen from a wide time perspective;
and (ii) the difficulty to base on these activities a process of
accumulating technological capabilities that could spillover the whole
productive sector. The recently rise in the prices of a wide range of
basic products has strengthened the trend towards specializing in
sectors that are intensive in natural resources. This process, like
happened in the mid 19th century, could have costs in terms of
renouncing to future productive transformation towards more complex
technological sectors.
7. THE WTO AND DEVELOPING COUNTRIES
As was mentioned above, developing countries that are trying to
establish a development strategy compatible with the progressive
38
opening of their economies are today faced with a regulatory
environment that is more hostile than in the past. The creation of the
WTO implied a big step forward from its predecessor, the GATT, in
that more countries are involved, its negotiation agenda is wider, and
its decision-making capability and system for resolving disputes are
more demanding. But the developing countries are in an ambiguous
position with respect to the WTO. On the one hand they benefit from
the organization as a multilateral mechanism because it compensates
for the limited negotiating capacity they would have in a system of
bilateral relations, but on the other hand it is a hostile arena in which
to pursue their interests and needs.
Until the Uruguay Round of the GATT, a lot of the effort made by
the developing countries was geared to obtaining special and
preferential treatment in the system of international trade, preferably
by being granted unilateral concessions. UNCTAD supported this idea,
and as a consequence various Generalized Preference Systems came
into being. But in the end this strategy yielded poor results (Wang and
Winters, 1998). First, the concessions were not made in the sectors
that were most sensitive for the industrialized countries, and it is no
coincidence that these were the sectors where the developing countries
could consolidate their industrial development (textiles and garment
industry or footwear, for example). The second reason was that, in
most cases, the concessions were limited by quotas that were relatively
strict. The third reason was that the advantages derived from concessions
were gradually eroded by the progressive lowering of tariff barriers.
The consciousness that the concessions route was yielding such
poor results may be one of the reasons why developing countries sought
more active and direct involvement in negotiation forums as a way to
obtain favorable consolidated agreements, and this change of track
emerged for the first time at the Uruguay Round of the GATT. But
there is no doubt that other factors played a part in this change of
strategy, factors to do with changes in the regulation of trade and in
the composition of the developing countries’ trade flows. The efforts
these countries made from the mid 1980s onwards to liberalize and
open their economies made them more disposed to take an active
part in multilateral negotiations (table 2). Estimations indicate that,
on average, tariffs in developing countries fell from around 30% at
39
the beginning of the 1980s to 5% at the end of the 1990s, and there
was a similar fall in the premium rate on the currency exchange black
market. According to the Trade Restrictiveness Index drawn up by the
International Monetary Fund, 16 countries in Sub-Saharan Africa have
lower protection rates than the European Union (EU), and seventeen
Latin American countries are equally open, or more open, than the
United States. Hence the developing countries are in a better position
to take a part in a multilateral effort to liberalize trade.
Table 2
TRADE LIBERALIZATION INDEXES
Source: (1) Index of Economic Freedom 2006 (trade): The Heritage Foundation.
(2) Trade Restriction Index (TRI): World Bank.
(3) Average tariff rate 2002: World Bank.
The second factor behind this is progressive change in the
composition and orientation of trade flows. In the last twenty years
the weight of basic products in developing countries’ total exports
has decreased markedly while that of industrial manufactures has
increased. This shift cannot be generalized to all these countries, but
it is evident as an overall trend in global trade data. In 1965
unprocessed agricultural products accounted for 50% of developing
countries’ exports and manufactures for only 15%, but today the figures
are around 10% and 80%, respectively. Besides this, another change in
trade flows is that trade between the developing countries themselves
is on the increase. Between the mid 1960s and the end of the 1990s,
South-South trade rose from 17% to around 40%.
All these changes in the regulatory framework and in the
composition and orientation of trade, along with the conviction that
40
unilateral concessions are of limited value, have encouraged developing
countries to become more active in multilateral negotiation arenas.
This new attitude on the part of these countries is quite clear in the
current dynamic of negotiations in the WTO; they are forging alliances
and taking initiatives to defend their interests. The problem is that
this new activism is operating in a context that is more demanding in
terms of multilateral trade regulations, a context that stems from the
Uruguay Round of the GATT.
The regulatory structure has no doubt made progress in so-called
negative integration measures, related to the elimination of
discrimination among suppliers (tariff and also non-tariff barriers),
whose application requires limited institutional capabilities in a given
country. But perhaps the most important aspect of the current dynamic
in the WTO is the inclusion of measures of a positive nature, to
strengthen integration, and these sometimes have serious institutional
implications for the country (Finger and Schuler, 2001). These cover
areas like intellectual property rights (TRIPS), voluntary codes
(including customs valuation, eligibility for public contracts, and
product standardization), measures in the sphere of investment
(TRIMS), and the prohibition of foreign currency retention schemes.
The overall slant of this collection of regulations is manifestly
unfavorable for the developing countries. In the past, developed
countries could activate policies within the GATT to promote their
domestic production, but now these avenues have been limited by
WTO regulations, especially in access to intellectual property,
investment regulations and fiscal mechanisms to promote exports.
Measures are proposed in the framework of the TRIPS and the TRIMS
that are patently biased towards the interests of the industrialized
economies (which are the innovating and investing economies), and
whose economic justification is highly debatable. At the same time,
the questions that most concern the countries of the South, like
protection for agriculture, staggered tariffs, anti-dumping measures,
the liberalization of the textile market or the stabilization of export
income, are ignored.
One of the most controversial areas in the international trade
regulations prevailing today is the Agreement on Trade Related Aspects
of Intellectual Property Rights (TRIPS). This agreement was one of the
41
innovations of the Uruguay Round, and it was the first time that a
world system of minimum standards to protect and enforce intellectual
property rights was introduced. Although this measure came into force
in a way that was staggered depending on the development level of
each country, in the end all countries are given similar treatment. In
the early years of development, industrialized countries were not
handicapped with this restriction, and some of them even refused to
grant patents to foreigners while imported technology was being copied
and adapted. In fact, France, Germany and Japan did not grant
standardized protection patents until after 1960.
Similarly, the anti-development slant of the General Agreement
on Trade in Services (GATS) has been denounced in various forums.
There are three basic principles in this agreement: the most favored
nation system, no discrimination against foreign enterprises with
respect to home enterprises, and the prohibition on policies that
restrict access to markets. But while the developed countries want
commitments about the freedom of commercial presence (which is
indispensable in finance, telecommunications or energy, for example),
the developing countries are seeking commitments on the movement
of workers, which is necessary in services like construction or shipping.
The debate in the WTO about liberalizing trade in services began in
2000, and although the outcome is as yet uncertain, everything points
to eventual commitments that will favor the interests of the developed
countries. According to McCulloch, Winters and Cirera (2001), supply
through multinational enterprises established in other countries
accounts for 33% of the global trade in services, but that which involves
the displacement of workers amounts to only 1%.
The developing countries, as well as being up against this negative
bias in the regulations, are also faced with problems stemming from
the way the WTO is governed in that it is difficult for them to join and
to be represented in the decision-making processes. In principle, the
organization operates on a one country one vote system, which should
in theory mean that decision-making is democratic. Most decisions
are made by overall consensus, and all countries are represented in
the General Assembly. But the reality of the WTO is somewhat different.
First, not all countries are able to maintain delegations in Geneva or
actively participate in technical negotiations that can be very complex.
42
Second, the developed countries tend to build a prior consensus among
themselves and this excludes the developing countries and conditions
the agenda for the subsequent debate. And third, in some cases the size
of a country matters: such as in the resolution of disputes, for example.
However, all this does not mean that it is impossible to put policies
to promote productive and technological capabilities into operation.
It is true that this is more difficult today than it was in the past, but
the possibility is still there. The WTO has not gone all the way to the
full and complete removal of protectionist barriers, as is clear from
the fact that the developed countries are defending barriers to protect
their agriculture. Therefore margins for using protectionist measures
still exist, although they are narrower now than in the past. And it
would be naive to think that in the past the world allowed all kinds of
protectionist practices while today they are all penalized. There are
still interstices that developing countries should take advantage of,
in promoting regional integration policies, in supporting technological
efforts, or in resorting to protection or control in the sphere of capital
movements. In the past, countries that used protectionist measures usually
did it on the borderline of what was permitted by multilateral regulations,
and this is what today’s developing countries will have to do.
8. CONCLUDING REMARKS
Theoretical analysis and historical evidence both seem to suggest
that, in general, economic opening is good for efficiency and probably
for growth as well. Having an open regime can have a positive impact
on the quality of institutions, and it also tends to foster good
government in that it reduces discretionary powers, arbitrariness and
corruption. In addition, it opens up easier access to the international
flow of knowledge and acts as a stimulus to innovation and learning.
These are all very important positive factors, and in no way can they
be lightly dismissed.
However, although they are important consequences of openness
process they are not the only ones, and they do not occur automatically.
43
Quite the contrary in fact, judging from success stories in this field, it
would seem that the full enjoyment of these positive results depends
on a country employing a wider and more holistic development strategy
in which international insertion is just one component among several.
This strategy must be tailored to each country’s own specific situation,
capabilities and limitations. There is no such thing as a universallyapplicable formula for development that all countries should follow.
In an environment with many distortions, options that were initially
considered to be second best and a long way from some supposed
optimum strategy, may in fact generate effective improvement in
added well-being and foster the necessary conditions for good
governance in the reform process.
We can all share the general objective of a more open and
integrated world, but it is essential that countries should be allowed
margins of flexibility so as to be able to find their own way towards
this goal. There should be margins for maneuver in a wide range of
different areas like the time schedule and the scope of changes, the
institutional reforms that come about, and the accompanying domestic
policies that are put into operation.
To sum up, experience shows that for an economy to enjoy the
benefits of economic integration it is not enough just to lower tariff
barriers and liberalize the capital account, it is also necessary to have
an accompanying policy which involves a certain degree of public
intervention in very diverse areas. As Rodrik (1997) suggests,
globalization will be sustainable only if it is accompanied by policies
that give people the means to gain access to the benefits of
globalization. The State in each country is responsible for putting
these policies into operation, and the international economy should
generate the conditions that make these policies possible.
The general analysis in this study can be summed up in ten
propositions. This amounts to a recapitulation of the main ideas that
have been expounded here:
1. The rate at which openness takes place is as important as its
purpose. The more abrupt the reform process is, the higher are
the costs of adjustment. A strategy of gradual reform makes it
easier for agents to adapt to the new conditions of competition
44
in the market, and this reduces the costs of adjustment. This
gradual approach is applicable in many different spheres, but it
is especially important in the dissimilar sequence of opening in
the areas of trade and finance. Instead of operating in a rigidly
doctrinaire way, each State should set the timetable for its
reforms in accordance with the capabilities of its institutions
and the specific restrictions involved in each case. However,
one difficulty with the gradual approach is that it increases the
risk of reforms being reversed, and this is why openness should
be based on a broad social consensus. The countries that have
been most successful in their international insertion, including
Spain and a fair proportion of the Southeast Asian countries, are
examples of the virtue of adopt a gradual strategy in the opening
process as well as social support of this objective. The discipline
derived from having to conform to international agreements can
serve as an additional mechanism to support the changeover in
that it can help to neutralize resistance at home, but this
discipline will only operate if openness has been previously
accepted and internalized as a socially-desirable objective.
2. International opening generates winners and losers. In order to
promote a favorable consensus among the population there have
to be mechanisms that compensate in some way the social sectors
whose interests are damaged by economic opening. The fact
that the reform process is gradual might help in this to the extent
that the costs of adjustment are reduced, but it may be necessary
to set up compensatory mechanisms in the sphere of social policy
and in that of economic policy. If there is an active social policy
that maintains efficient nets of social protection, this may
cushion the population against the most damaging effects of
the reform since people’s basic needs will be covered. But it
may also be necessary to take measures to promote investment,
human resources training and the creation of export capabilities
so that, at least in the short and middle term, economic opening
does not cause a net destruction of production capabilities. If
the costs of adjustment are kept under control, it will be easier
to preserve social consensus for international insertion, and this
will help to give legitimacy to the institutions involved and
facilitate governance of the reform process.
45
3. History shows that successful industrialization based just on
international markets is more the exception than the rule: the
only good examples of this strategy are Switzerland and Hong
Kong. In all other cases of success a position in foreign markets
was attained through deploying the competitive capabilities of
an industry that had previously been geared to the domestic
market. The problem, then, as Amsden (2000) highlights so well,
is knowing how to transform domestic production capabilities
into export capabilities. The countries that have been able to
manage this changeover have been successful in their
international opening. This means that some temporary State
intervention can be justified, that is to say measures that foster
the creation of production capabilities in the domestic market
and that promote the subsequent development of export
capabilities. These kinds of measures can even be applied at
the same time, as parts of a holistic international opening
strategy that combines selective protection in certain sectors
with incentives to promote exports, and countries like Taiwan,
South Korea and Spain, for example, have managed to do this
well. Now, an effort to foster the creation of a national industrial
sector will lead nowhere unless this sector subsequently develops
the capability to compete in international markets. Therefore
the overall objective should be to develop production capability
that is able to compete in an increasingly open market
environment.
4. In the past, the theoretical basis for State intervention was largely
centered on the infant industry argument. However, as Baldwin
(1969) showed very well, the support this argument gives to an
active policy to promote industry is weak, except if we accept
other market failures such as asymmetric information in capital
markets, for example, that makes it impossible to reach minimum
efficient size. But in fact it is market failures, in the fullest and
most all-embracing sense of that term, that justify a certain
degree of intervention of the State. There may be failures
connected with externalities (pecuniary and technological), the
presence of public goods, the validity of incomplete or
asymmetrical information, problems of coordination, or the
presence of complementarities. These market failures justify
46
an industrial policy geared to correcting them. It goes without
saying that a fair proportion of the action taken to correct market
failures does not translate into the sphere of commerce, but
some action does translate, even if it is only indirect (through
indirect promotion mechanisms). On the other hand, these are
not problems that affect only developing countries, but they
tend to be more serious in such countries since, as we know, the
imperfections in these markets are greater.
5. When a market failure is detected this does not automatically
mean that corrective measures are needed or should be taken.
For a response to be effective it is necessary, first, to identify
the causes underlying this market failure, second, to plan the
most suitable way to handle the problem (since there are many
possible modalities of intervention), and third, to evaluate not
only the benefits that the intervention is expected to yield but
also the costs it will involve. Each of these three stages is fraught
with difficulties. In the first place, when some market failure is
detected the real factors behind it are not always known. As to
the second stage, even if the causes are correctly identified the
optimum regulatory response is not always found, largely because
of lack of knowledge as to the effect a certain regulatory measure
will have on how the agents in question behave. And finally, it is
often difficult to know in advance exactly what the collection
of direct and indirect costs of intervention will amount to, largely
because these are conditioned by parameters that are not
amenable to empirical observation. None of this makes
intervention impossible, but it does point to the need to be
prudent, to compile quality information before embarking on a
course of intervention, and to be open to modifying the measures
taken in a process of trial and error that is specific to each
individual case.
6. By its very nature intervention involves partial uncertainty, so it
is essential to have suitable institutions that are legitimate and
efficient to exercise governance over the processes of economic
opening and development, institutions that promote quality
collective action. Recourse to intervention can have contrasting
effects as regards the quality of institutions and governance of
47
the process. On the one hand, if intervention is geared to
minimizing the costs of adjustment and strengthening the
country’s capability to improve its chances of success in the
international market, it can make a positive contribution to the
sustainability of the process. It can contribute to preserving the
social climate and the framework of institutions that are needed
for good governance in the reform process. But, intervention
might also generate an inverse process to the extent that it
provides incentives for pressure groups to form and for rentseeking practices, thus feeding a process of ongoing intervention
that works to make the economy less efficient. There is no sure
antidote to this danger, and when it comes to intervention herein
lies the risk. The best that can be done is to foster the widest
possible consensus and remain firmly committed to the ultimate
objective of opening and international integration which must
govern the economic policy. In this is done successfully, opening
can be made to work as a way of imposing discipline on collective
behaves.
7. The chances for an international integration strategy to succeed
depend to a very high degree on the prevailing framework of
rules and regulations. In the past, developing countries pursued
a development strategy of linking their international integration
to obtaining unilateral preferences (such as those in generalized
preference systems), but this route did not turn out to be very
fruitful. History shows that unilateral concessions are subject to
many limitations such as concessions not applying to a high
proportion of the most dynamic products in the developing
country’s trade, concessions involving quotas that are subject
to discretionary restrictions, and, last but not least, the fact
that the real value of preferential treatment has been
progressively eroded by the generalized trend for international
trade tariffs to come down. In the light of all this it is no surprise
that these preferential schemes should have had a minimal
positive impact on development (Wang and Winters, 1998).
Another option that does not seem to have produced good results
is the developing countries’ move to pursue sub-regional
integration. In theory this would appear to be an attractive
formula, and recently an increasing number of initiatives of this
48
type have taken shape, but it has to be recognized that subregional integration schemes in the developing world have
performed poorly. This formula may serve as an additional
mechanism for international insertion, helping the countries
involved to coordinate their efforts and learn, but it does not
meet the need these countries have to operate in a more open
and multilateral arena. All this means that the developing
countries are compelled to operate in an environment of
consolidated preferences in a multilateral framework.
8. The multilateral framework that has come into being with the
WTO is markedly more hostile and restrictive to the possibility
of developing countries pursuing active policies in the spheres
of industry and trade. Resources and possibilities that the
developed countries enjoyed in the past, under the GATT system,
are now blocked by the WTO. This does not only affect trade,
where the demands of liberalization are increasing and unilateral
concessions are being annulled, but also in other fields that go
beyond trade and have to do with the conditions for investment,
intellectual property, and the rules for resolving conflict. It has
to be said that throughout its short life the WTO has operated
with a bias that is patently against the developing countries’
interests. Nevertheless, not all the routes to intervention to
promote a country’s production and technological capabilities
have been blocked. There are still margins, and not only in trade
(there is nothing to force a country to remove tariffs) but also in
regional policy, in the utilization of credit and in support for
R&D. The developing countries have to take advantage of the
opportunities that there are in the system currently prevailing
in the WTO, and integrate these into a coherent and effective
development strategy.
9. However, taking advantage of the possibilities offered in the
WTO as it is constituted at the moment, is not enough. It may
be worth trying to make some changes not only in the content
of current agreements but also in the way the institution is run,
so as to correct those current bias unfavorable to developing
countries. In the last analysis the WTO aim should be to manage
trade opening in such a way that it fosters development, rather
49
than fostering trade opening at the expense of development.
After all, the development of all countries would be the best
guarantee that markets continue to expand. The changes mooted
here would not just involve the review of some current trade
rules but also the change in the WTO mandate to move the
focus back to areas where a trade organization should operate,
and thus relinquishing its current regulatory dynamic into spheres
such as investment, intellectual property, competition, or public
auctions. It would also be necessary to review the way the WTO
is being run to make it more transparent, more geared to
integration, and more open to participation from developing
countries. The formal statute on which the WTO decision-making
processes are based, one country one vote, is far from the
dynamics of the actual decision-making process as recent
Ministerial Conferences reveal.
10. The last point of the list, of fundamental importance in this
whole study, is that margins of flexibility must be left open so
countries could decide not only the tempo of their international
integration but also the route they will take towards this goal.
Each country should find its own way of implementing reforms,
a way that takes into account its own capabilities and limitations.
There is no such thing as a universally-applicable optimum route
to trade opening, neither in time nor in space. The objective
has to be defined and interiorized in social decisions, but the
means to pursue this objective must be flexible, open to
experience, and adapted to specific conditions in each individual
case. As Martin Khor (2003) says, the target should not be so
much “maximum liberalization as suitable liberalization”.
50
51
Chapter 2
A STRATEGIC VISION
OF ECONOMIC DEVELOPMENT IN URUGUAY
Mario Bergara1
Introduction
In recent decades, the leading countries have evolved thanks to a
change in their pattern of accumulation. In this process the main
source of gains has become the discovery of new combinations of
resources, capabilities and skills, and the engine of growth has been
“creative destruction” (innovation: new products and processes that
make previous ones obsolete) and “creative accumulation” (research
and development as the driving force behind innovation). Regrettably,
this has not taken place in countries like Uruguay, where the sources
of income are still those of a mid 20th century society. Some of the
characteristics of Uruguay’s situation are as follows:
• Limited or differential access to ownership of the means of
production and resources, which, either ex ante or ex post,
restricts competition.
• Limited or differential access to exploit imperfect markets or
market “failures” through discriminatory State behavior that
promotes rent seeking activities. This is the case of regulated
markets, but not exclusively.
1 Vice-minister of Economy and Finance of Uruguay, Department of Economics - Faculty of Social
Science – University of the Republic, Uruguay.
52
• Firms’ capability to maintain or create barriers to entry into a
sector or against mobility within a sector.
Based on this scenario, which is absolutely schematic, the aim
should be to change the economic and social development model to
one in which discovery and innovation may be the main source of
enterprise profits. Although it seems obvious, this calls for agents to
concentrate on opportunities more than on resources. The same applies
if the aim is a change in the structure of production so that the new
development model generates a more equitable structure of ownership,
of income distribution, and, in general, of access to the satisfaction
of human needs. It is therefore essential to incorporate into this model
a strategic vision of development and the pursuit of prosperity, aspects
that are rarely found in the analysis and design of public policies.
To do this, we should bear in mind that defining a strategy consists
in determining a method to attain the main objectives of a process
that is essentially political. So it is crucial to have a structural focus
(with a middle and long term vision), in which it is necessary to take
into account manifold dimensions. As regards these dimensions, we
should focus on the relevant variables that condition the process, on
the time horizon involved in its evaluation, on the relevant scope and
geographical space, and on the actors that must play key roles in this
process. Besides, it has to be kept in mind that the real options for
strategic policy decisions depend on the margins of effective maneuver
that the makers of public policies and governments in general have.
53
1. INSTITUTIONS, THE RULES OF THE GAME,
AND THE SYSTEM OF INCENTIVES
At the very core of change, therefore, there must be a transformation
in enterprises’ behavior, a switch from opportunism and rent-seeking
to a entrepreneurship approach. The literature about the importance
of entrepreneurs’ behavior in economic growth is extensive, but as
yet little is known about why this behavior develops in certain contexts
and not in others. This is not to reduce the importance of competitive
pressures and market forces, based on the fact that the main
competitive weapon is not the price (since most markets have an
oligopolistic structure) but innovation. Entrepreneurs’ behavior is
determined by the matrix of payments for economic activity, and like
any other input this factor can be re-allocated from one activity to
another by a change in relative profitability. It is the prevailing rules
of the game that determine how entrepreneurs will act at a specific
situation. In general, how suitable a system of incentives is depends
on the kind of rules that there are in a society and on the capability of
the authorities to ensure these rules are complied with.
Another not insignificant aspect is that the rules that are usually
promoted are the same at all times and in all places, and the simple
acceptance of this “revealed truth” has led to countless errors in
economic policy in the developing countries. In fact, the rules of the
game do not have to be the same (and in fact they are not the same)
in Sweden as in the United States or as in Germany, to mention just
three examples that are markedly different. Besides this, there are
interferences with the rules being complied with, not only in developing
countries.
In economic science, there has been a rapid development of areas
focused on institutions and on forms of organization, linked to the
developments in agency theory, asymmetric information, incomplete
contracts, property rights, transaction costs, and the analysis of
institutions. Its importance is confirmed by the fact that two pioneers
in this area were awarded the Nobel Prize for Economics, Ronald Coase
in 1991 and Douglass North in 1993. This neo-institutionalism in
economics means a shift of focus in the problems of political economy.
The aim is to widen and modify the micro-analytic bases of economic
54
theory by taking account of the way in which political and economic
institutions affect the performance of economies over time.
Institutions set up the rules in a society and they are defined as
man-made restrictions that give form to interaction among agents.
They therefore structure the incentives in exchanges and human
relationships on the political, social and economic levels. Institutional
restrictions include not only what individuals are forbidden to do but
also the conditions under which they can engage in certain activities.
While simple exchange relationships can be based on contracts
relatively informal, more complex impersonal exchange requires more
complex contracts and also mechanisms to enforce them, based on
the participation of external agents and on a clear definition of
property rights. The fact that the information involved is costly means
that these transactions are also costly. These transaction costs are
linked to the attributes that give value to the object of exchange, to
the protection of property rights, and to activities that ensure that
contracts are complied with.
Politics and economics are inevitably involved in any interpretation
of economic performance. Economic and political models are specific
to a collection of institutional restrictions, and these vary over time
and between different economies. The way and efficiency in which
institutions resolve problems of coordination between agents depend
on factors such as agents’ motivation and preferences, the complexity
of the relevant context, and the ability of agents to understand and
organize the main elements of this context, specially the possibilities
of contracts being complied with.
The institutional framework includes formal and informal
restrictions. The latter are indissolubly linked to the cultural matrix
of a society. The way in which individuals process and utilize the
information they have is defined by the culture of a society.
Conventional behavior and norms are specific to different cultures.
An important aspect of the role that informal restrictions play is that
their reactions to changes in formal regulations are not immediate,
so they have to be borne in mind systematically and relatively
independently of formal restrictions.
Societies are becoming more and more complex so there is a
growing need for restrictions to be more formalized. Also, technological
55
progress tends to bring down the cost of monitoring at the time that
stimulates precise and standardized measures. The setting up and
development of legal systems to deal with increasingly complex
disputes leads to the imposition of formal regulations. To the extent
that the emergence of more formal regimes significantly reduces the
cost of keeping informed about, of monitoring and of enforcing
compliance with contracts, informal restrictions can provide feasible
solutions for exchange relationships that are relatively more complex.
Formal rules include legal-political norms, economic rules and
contracts. Broadly speaking, the first of these define the hierarchical
structure of the political and legal framework, the basic decision
making structure, and the characteristics of the control of the relevant
public agenda. Economic rules define property rights, that is to say
the set of rights about the use of and income derived from property,
and the ability to transfer an asset or a resource. Lastly, contracts
contain specific provisions about a particular exchange agreement.
The final structure of the rules depends, among other things, on the
diverse range of economic and political interests, and on the relative
bargaining power of each of the involved agents. In general, legalpolitical regulations give rise to a certain set of economic rules, but
the causality in this relation flows in both directions. Property rights
and individual contracts are specified, and compliance is enforced,
within a specific legal-political framework, but the matrix of economic
interests and bargaining power also affects the political structure. In
equilibrium, a given structure of property rights will be consistent
with the political framework prevailing in a society.
Contracts (both the collection of agents’ opportunities and the
forms of organization they involve) will reflect the structure of
incentives incorporated in the system of property rights. Contracts
are inherently incomplete for different reasons. The theory
distinguishes four kinds of problems in specifying a complete contract.
Two of these occur before the contract is signed, and the other two
arise a posteriori. First, the parties are faced with contingencies that
may not be foreseeable at the time of signing. Second, even if these
contingencies could be foreseen, it would be too complicated to
incorporate them into the wording of the contract. Third, monitoring
the contract, that is to say controlling that the parties respect the
terms laid down in it, always involves a cost, and this could be high.
56
Fourth, enforcing compliance with a contract also involves considerable
cost, if it is possible at all.
Institutions affect the performance of an economy, furthermore
understanding the way institutions change is a key factor in
understanding the historical evolution of a society. The impact of
institutions on exchange and production costs determines the way in
which and the extent to which institutions affect the economic process.
Institutions, along with the avaible technology, determine the
opportunities and transaction and transformation costs in an economy.
It follows that they also determine the possibilities and the potential
gains of economic activity. The main role of institutions is to reduce
uncertainty, as they establish a stable (but not necessarily efficient)
structure for interaction between people. They provide the structure
of incentives in a society, which are not usually set up to be socially
efficient: at least, formal rules are designed to serve the interests of
people with sufficient bargaining power to create new rules. In a
world in which there are transaction costs, this negotiating power
plays a key role in determining the direction of economic and
institutional change in the long term.
The process of designing and implementing public policies also
influences the results of those policies. The degree to which policies
are stable, adaptable, credible and transparent, among other
attributes, is influenced by the way they are proposed, discussed,
processed and implemented insofar as they are the result of the game
between the agents involved in the political sphere. The factors that
give form to institutionalizing policies, in particular, and to the
institutional environment in general, are added to historical and
idiosyncratic aspects in different countries, to set the limits within
which agents can move in a framework of inter-temporal and complex
political transactions.
2. CAPABILITIES
The fact that one enterprise can carry out activities more efficiently
than other is not necessarily the result of greater incentives, it may
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be because of skills and capabilities, and this is an area that economic
science has been developing in recent years. We can distinguish three
kinds of capabilities.
“Macro socials”, they are linked to capabilities that are constructed
collectively by society as a whole. There are a number of basic
capabilities connected to the standard of life in a society such as
education, food and health, and others that have to do with wellbeing in a more general sense like emotions, freedom of expression,
freedom of conscience, physical safety, security, and so on. Another
type of capabilities can be called “organizationals”, which have to do
with the ability in enterprises and institutions (including State
departments) to learn. This is a notion of capabilities that stems from
the developments of P. Drucker in administration sciences, or of Nelson
and Winter in economic science. These organizational capabilities are
usually built up through three kinds of learning: learning by doing,
learning by using and learning by seeking. Lastly there are “individual
capabilities”.
In an uncertain world in which capabilities, competencies and
knowledge differ between different agents, hierarchical institutions
can fulfill the function of coordination. The repertoire of production
routines in an organization constitutes the capabilities or competencies
the organization has. It follows that organizations that can create and
utilize higher-level capabilities or competencies will tend to perform
better than those that do not or cannot.
Some authors maintain that firms are made up of two parts that
are changing and well-differentiated. The first is the intrinsic core,
which consists of all the elements that are idiosyncratically synergic,
inimitable and non contestable. That is to say, capabilities that cannot
be duplicated, bought or sold, and that are combined to generate
unique results, which have more value than results that could be
generated separately. The second part of the organization is made up
of ancillary capabilities, which are contestable and may not be unique.
The limits of firms (the degree to which the ancillary capabilities are
internalized or exchanged in the market) depend on two factors: (i)
the strength of the organization’s capabilities themselves, relative to
those that could be bought (production costs); and (ii) the respective
transaction and governance costs involved in making or buying the
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capabilities. It is only to be expected that the intrinsic core and the
ancillary capabilities that make up an organization and their transaction
costs will change over time since they are based on knowledge.
Many academic studies focus on the nature of competencies; that
is on the habits and routines that individuals and organizations acquire
through practice. They define routines as the skills of an organization.
This means that when a firm develops it acquires a repertoire of
routines that are derived from the activities it carries out over the
years. In this sense there is a subtle difference between capabilities
and routines. The latter have to do with what an organization really
does, while capabilities also include what it could do if resources
were re-allocated. But besides the issue of the skills of physical capital
in a firm there is also a problem of organization. Since skills,
organization and technology are closely linked to the ways that routines
function, it is very difficult to establish exactly where one aspect
ends and the other begins. When the capabilities and routines in a
firm are idiosyncratic and the people incorporate them, they constitute
the essence of the firm in the short and middle term. But, if the
routines change rapidly or if there is a rapid and generalized change
in the personnel, the ability of the firm to deploy habitual routines
and capabilities would be undermined.
3. STRUCTURE OF PROPERTY AND INCOME DISTRIBUTION
It is worthwhile noting that the system to develop capabilities is
linked to incentives, and vice versa. Let us look at differential access
to property and resources as a source of income. Access is differential
because of the rules of the game reproduce the structure of property
ownership and the structure of income distribution in such a way that
access to property and resources is always limited and differential.
In modern countries, individuals find incentives to discover
opportunities for new combinations of resources and capabilities
because the rules of the game are designed in such a way as to generate
a distribution of income that allows a wide social base to have access
to resources. This would be the case of the policies to promote small
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and medium size enterprises, which disseminate power in society and
ensure certain limits on the concentration of property. But in addition,
the system of social, organizational and individual development of
capabilities allows motivated individuals to engage in this seeking of
opportunities.
Development in modern economics and its relation to the theory
of development show there is a relation between the structure of
property and the distribution of income, and the development of a
country. The distribution of wealth has an impact on economic
development through different channels. For example, it has an effect
through the financial system: if the distribution of wealth and income
is not polarized it is possible for more people to participate in the
financial system and this reduces risk (and therefore long term interest
rates in the economy) and reduces problems of agency in institutions.
The effect also operates through competitive pressure and productivity.
Access to resources or the availability of resources for a greater
proportion of the population also allows new enterprises to develop,
so there is less concentration in markets and greater competition and
therefore increased productivity. The presence in a market of more
competitors also has an effect because of economies of network, and
spillovers into other areas of the economy. For example, it affects
political support for institutions facilitating or impeding individuals
having access to resources. Some authors show that the initial
inequality is reproduced and perpetuated, as inequality imposes
restrictions on access to education and land, and even on the possibility
of exercising basic rights (the vote).
The inability of a less advanced society to generate changes in its
pattern of accumulation or in its prosperity strategy is linked to the
incapacity of that society to construct a system of development of
capabilities of all kinds through an adequate system of incentives
(the rules and the capability to enforce compliance with them) so
that knowledge and innovation could be the engine of the economy
which could drive changes in the structure of production, in the
structure of property and in the structure of income distribution as
basic elements for changes in the population’s access to the satisfaction
and enjoyment of human rights. Therefore, there will be no changes
in the development model if there are no changes in these two aspects:
rules of the game and capabilities.
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4. A VISION OF DEVELOPMENT IN URUGUAY
The government that came to power in 2005 stated that it would
work to improve the population’s wellbeing with the guiding criteria
of equity, through a holistic approach on development that included
institutional, economic and social aspects:
• As to institutional aspects, it is needed a move to new forms
and contents, both in the public and the private sphere. The
transformation in the public sector will include structural
components and improvements in the quality of human resources,
management and efficiency. In the private sector, on the other
hand, it is essential to have business training, to foster a culture
of competition and entrepreneurship as a creative engine, as
well as to inculcate a concept of corporate social responsibility
which operates widely and in a natural way.
• As regards economic aspects, the aim is to attain sustained
growth at a higher rate than in the past. Although Uruguay has
had occasional phases of accelerated growth it has not succeeded
in sustaining this for prolonged periods, with the result that in
the long term growth rate is relatively low.
• As to the social aspect, the main challenges are to combat
poverty, indigence and marginalization, with a short term
assistance plan (a Social Emergency Plan that is geared to
alleviating the problems of the neediest sectors of society, those
most affected by the 2002 crisis) and also restructuring middle
term social policies.
Economic and social development can only be sustained in societies
that have a stable and credible institutional framework. This “stability”
has various dimensions; it must be political-institutional, social, macroeconomic and micro-economic. Sustained progress is impeded if
countries are facing constant changes of political direction and social
convulsion, which usually translate into instability in the fiscal and
financial sphere, and where the rules are undefined or not complied
with. In addition, this approach requires a democratic framework with
a long term vision which involves certain basic political and economic
rules as State policies, that is to say, basic principles that remain
unchanged regardless of which political party is in power.
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The key factor in this strategic approach is “credibility”. It is
essential to lay down solid foundations that make rules credible,
and this means macroeconomic consistency, good fiscal management
(including the public income and expenditure account, and
professional administration of State debt) and a suitable monetary
policy. Only if a scheme guarantees the sustainability of fiscal
accounts and healthy management of public debt can it generate
confidence that the rules are going to be maintained and complied
with in the long term.
In order to pursue the main aims outlined above it is essential to
attain the intermediate objective of increased investment. The goal
of growth is defined for the long term, which has been below 2% in
the last 45 years and the aim is to raise it at around 3%. To archive
this, the investment ratio to gross domestic product (GDP), which
currently stands at 13%, has to rise to 20%. Macroeconomic stability
will have two real anchors and a monetary anchor. The real anchors
will be an increase in overall productivity in the economy and fiscal
discipline, and the monetary anchor will be ensured by the monetary
policy. Fiscal sustainability will be achieved by reducing the debtproduct ratio, by structural reforms that are part of the development
strategy, and by raising productivity and efficiency in public enterprises
(which also contributes to the real non-fiscal anchor insofar as they
are involved in various areas of goods and services in economic activity).
Monetary policy will also be supported by institutional policies that
promote a credible commitment on the part of the monetary authority
(the Uruguayan Central Bank) to the goal of low inflation.
One of the main components in this strategy is productive
specialization with high levels of quality. This has to do with the ways
in which the country is inserted in the world economy. A small country
cannot build its competitiveness around large scale production or
around a wide spectrum of goods and services. If it does not specialize
and if it does not try to sell quality and knowledge, it will be condemned
to having to compete on the basis of low remuneration for human
resources, and this would be in direct contradiction to the stated
objectives and the vision of equity that underlies these aims. The
strategy of specialization must be based on a modern and dynamic
vision of the factors that determine competitive success. The
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traditional static approach, which is grounded in the idea of
comparative advantages derived from the endowment of productive
factors, leads to the vision that achievements essentially depend on
reducing costs. But a more modern vision, on the other hand, allows
the possibility of developing dynamic competitive advantages, and in
this the central role is played by technical progress, investment in
research and development, and the construction of innovation
networks. From this point of view, the promotion of specific sectors
of the economy gives way to a more fruitful scheme based on promoting
activities that are at the core of productivity growth in enterprises,
whatever sector of the economy the enterprise may belong to (new
technologies, training human resources, quality certification for
products and processes, and so on).
Economic policy strengthens competitiveness when it makes a
contribution to improving conditions in the economic and social
context that enterprises work in. Therefore, the goal should be to
seek to improve policies of a horizontal kind that are complementary
to markets, and to the set of labor and social relationships. From
this perspective, State wage policy and the effective implementation
of collective bargaining about labor conditions, as well as having
their own objectives, are also ingredients of the context in which
business is done. Labor and social stability is an important component
of the climate for investment that is often overlooked. In addition,
it is necessary to promote a competitive environment and to create
positive externalities for enterprise’s competitiveness and
enterprising attitude.
In the government’s vision of development there is considerable
emphasis on complementarity and cooperation between the State and
the private sector. While the latter has an essential role to play in
investment for production, in the effective assumption of risk (for
which it is vital to have credible rules of the game) and in the
development of a culture of entrepreneurship, the public sector has
to contribute with the setting of rules, the enforcement of rules, and
participating in investment that will be important for development in
the long term. This aspect has already been initiated through setting
public expenditure priorities in the spheres of education, health,
security and infrastructure.
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5. STRUCTURAL REFORMS AND THE BUSINESS CLIMATE
With the intention to strengthen the business climate in the country,
various objectives have been set: (i) better-suited incentives through
rules that favor middle and long term savings and investment decisions,
(ii) elimination of distortions, as well as bringing coherence to the
promotion and stimulus regimes, (iii) greater transparency in
government action, specially in the information that the society
demands, and (iv) facilitation of trade and investment.
It is being promoted a collection of structural reforms that are
geared to improving the bases of middle and long term economic
growth, and making this growth process less volatile and less
vulnerable. These structural reforms are focused on content (modifying
and modernizing the rules, and promoting capabilities) and on the
way institutions are constructed in key areas of the economy, seeking
to strengthen social and human capital.
Public finances will be strengthened through a tax reform, a reform
in the administration of taxes, a reform in certain sub-sectors of the
social security system, and through modernizing the budget process.
In the financial system the plan includes changing the organization
charter of the Uruguayan Central Bank so as to strengthen its credibility
and autonomy in the monetary policy area, modernizing supervision
of financial entities to bring it more into line with international
standards, establishing a suitable framework to resolve insolvency in
financial institutions in a less traumatic way than the current liquidation
system, adopting measures to foster the de-dollarization of the
economy, and institutional strengthen of public banks, including the
Banco Hipotecario del Uruguay (Uruguayan Mortgage Bank) as part of
a general reorganization of the institutions responsible for access to
housing. In addition to all this, capital markets will be re-constituted.
The climate for investment will be improved and competitiveness
promoted through widening opportunities for investment by the private
sector in public services and infrastructure, the effective protection
of property rights, restructuring bankruptcy legislation, fostering
competition and competitiveness policies (outstanding among which
are designing and implementing a national innovation system, and
conglomerate and productive chain policies), promoting trade and
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quality policies, and promoting investment (of which the outstanding
one is an agency for assistance and promotion of the private sector,
that comes under the Ministry of Economy).
Social and human capital will be strengthened by setting up salary
councils for collective bargaining involving firms, workers and the
State, designing a national health system and national health insurance
to provide financial support for it, strengthening public education,
and improving access to housing for population with low resources.
So as to clarify and go deeper into these ideas, we shall outline
the main features of the reforms that are most important for the
investment climate. It should be borne in mind that most of the
following are based on official documents and legislative bills put
forward by the government.
5.1 The Tax System Reform
There is a commitment in the government’s plan of action to reform
the tax system, and success in this area is to a large extent a
precondition for being able to implement all the policies to improve
the Uruguayan people’s quality of life. This reform, which is
supplemented by the modernization of the tax administration agency
that is now under way, is geared to a new system based on the following
objectives:
• To promote “greater equity” in the tax structure, linking the
tax burden to the different social and economic sectors’ abilities
to contribute.
• To “improve efficiency” of the tax system, knowing that equity
and tax administration capabilities reinforce this aspect.
• To operate consistently with “stimulus to productive investment
and employment”, so the reform shall not be an obstacle to
productive and economic growth in the country.
Besides this, these objectives should be pursued in consistency
with the financial requirements of the State’s responsibilities in all
areas, especially in social and productive aspects, satisfying a desirable
condition of any tax system: “sufficiency”.
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The “basic pillars” of the tax reform can be classified according
to the following criteria:
• Simplification of the tax structure, thus doing away with a chaotic
muddle of taxes created as partial modifications based on patchy
visions and not on an integral approach.
• Rationalization, in pursuit of greater consistency in the
characteristics of the different taxes, based on a revision of the
tax base and exemptions from taxation, some of which have
weakened the tax structure as they serve partial and sectoral
interests, leading in many cases to greater inequality.
• The gradual introduction of a tax on the income of physical
persons will serve as an instrument to make the whole scheme
more equitable as it will take account of people’s ability to
contribute, and also it will extend coverage to include income
that is not taxed under the present system.
• A dynamic approach of fiscal responsibility which considers
strategically the necessity for the State to provide public
goods, and that this in turn will lead to a virtuous circle that
consists of reducing the tax burden to the extent that the
yield allows.
5.2 The Tax Administration Reform
The General Taxation Agency (DGI - Dirección General Impositiva)
is currently being reorganized through a modernization project aimed
at increasing effectiveness and efficiency, and this will mean radical
changes in its methods and procedures. One component in this process
is to develop a new administration model based on goal-oriented
management, which will enable the institution to better accomplish
its mission. The commitment to change the tax administration has
been reinforced by the restructuring of the DGI, a bigger budget
allocation, and a new regime of contract exclusivity for employees.
Besides this, there is now a formal management contract between
the Ministry of Economy and Finance and the DGI which lays down
quantifiable targets for a several-years period for the DGI, and specific
indicators for each target.
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In addition, the government is promoting effective coordination
between the taxation control agency (the DGI) with the social
security system (the Banco de Previsión Social) to make both
organizations more efficient and effective. In this area, the system
of “one stop service” will be extended unifying procedures for
taxpayers’registration, change and cessation, by coordinating
criteria, procedures and information. It is intended to develop
complete and wide-ranging information networks that not only
improve the service to the taxpayer but also make it easier to
cross reference information to ensure efficient control. Joint
supervision is implemented through coordinated schemes that
consider different kinds of taxpayer by sector and size, where large
taxpayer are constantly monitored, a mix of extensive and intensive
supervision is used for medium and small taxpayer, and where the
informal economy is included in the system. The administration of
coercive levying is strengthened by rationalizing and simplifying
the procedures involved, at the time it promotes fiscal awareness
in society through national tax education programs and training in
social responsibility and solidarity.
This improved coordination between public agencies goes beyond
tax collector agencies, it includes other institutions that can also benefit
from synergic information and joint action, such as the National Labor
Inspection Office (Inspección Nacional de Trabajo), which monitors
working conditions, the public insurance agency (Banco de Seguros del
Estado) due to its role in industrial accident insurance, and the National
Customs Authority (Dirección Nacional de Aduanas).
5.3 The Reform of the Customs Service
The customs service has been under pressure to modernize in
response to changes in domestic, regional and international trade
and regulations. In order to stimulate and consolidate the country’s
insertion in the region, and also in order to progress in different
negotiation processes outside the region, it is necessary to
modernize customs institutions and procedures to make them more
transparent, efficient and reliable for private agents in different
trade frameworks.
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The customs should help to make international trade more dynamic
by simplifying customs bureaucracy without affecting its fiscal powers.
Its two roles of monitoring traffic and facilitating trade are not in
conflict as long as management is based on intelligence and technology.
Uruguay’s development depends crucially on the efficiency,
transparency and international image of the customs, so this service
must modernize its procedures and technology. For customs
modernization to succeed, process reengineering and technology
investment will have to be accompanied by the strengthen of human,
organizational and material capabilities, as reforms must be solidly
based on the professionalism of its institution’s personnel,
specialization and permanent training. Besides this, the service will
have to seek cooperation with legitimate industry and commerce to
strengthen itself in the fight against smuggling and illicit trade. Lastly,
modernizing the customs will require changes in the law to bring
Uruguay into line with international regulations and World Customs
Organization recommendations. This organization has laid down a
Regulatory Framework to Ensure and Facilitate Global Trade that
involves a series of security and facility standards in world trade.
In the framework of the MERCOSUR a number of initiatives to
support regional integration that have already been agreed will have
to be implemented. These initiatives are geared to setting up
supervision instruments through effective information sharing among
different national customs services. Quite apart from risk management
methodology, the development of these tools will allow a technical
support framework to mature, and this in turn will open the way for
bilateral or multilateral information exchange agreements.
The processes and procedures in operation in Uruguay up to 2005
were based on a vision of the customs that was almost wholly focused
on levies, and there was little in the system to facilitate trade. What
was lacking, evidently, was a balance between the function of facilitating
trade and the function of exercising efficient control over trade, and
this bias was in violation of internationally recognized principles of
best practice, such as control based on risk analysis. The traditional
mission of the customs in Uruguay was to levy charges. But in a modern
customs service one of the main components of the mission must be to
facilitate trade, and this has to be balanced with the different aspects
of customs security that are needed in the modern world.
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5.4 The Central Bank and Financial Regulation Reform
The current organization charter of the Uruguayan Central Bank
(BCU) came into force in 1995, and since then the financial system in
the country has undergone important transformations, especially after
the crisis of 2002. Just as the organization charter of 1995 considered
the lessons learned from the 1980s banking crisis, so in December
2002 Law 17.613 implemented modifications in response to some of
the lessons learned earlier that same year. To remedy defects that
were laid bare by that crisis, the government is aiming at three groups
of new regulatory measures:
(i)
To make the BCU more autonomous by modifying the mechanism
whereby the directors are appointed and formalizing central
bank policy decision making processes.
(ii)
To strengthen financial supervision with a single superintendent
entity in charge of current financial supervision and improving
relations between this and the bank directors.
(iii) To create an administrative agency to safeguard deposits that is
independent of the BCU, with the authority to institute
alternative liquidation proceedings in insolvent institutions.
The general aim of the regulatory changes in the BCU’s autonomy
is to balance the need to render accounts to society according to its
mission on the one hand, with the capability to define with technical
criteria the way in which the available instruments are used to
achieve this. To attain this balance, the main requirement is for
new regulatory norms to bring about three kinds of innovation:
(i) definition of the bank’s goals and priorities; (ii) dissociation of
the designation of the directors and the electoral cycle; and (iii) to
make an explicit and rigorous account of Bank policy decisions, and
formalizing them.
The proposed changes will strengthen the financial supervision
and regulation necessary not only for the financial market to work
well but also to function effectively in preventing crises and correcting
them when they occur. Firstly, to respond to the real situation of the
markets in which the institutions in the different sectors (banking,
insurance, shares, and pension savings fund administrators) belong to
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conglomerate financial structures, the legislative bill proposes fusing
the various supervisory bodies to set up a single financial services
superintendent’s office within the BCU. At the moment, financial
supervision and regulation is performed by two different offices, the
Superintendent of Financial Intermediation Institutions and the
Superintendent of Insurance and Re-insurance, where there is also a
stock market and pension savings fund administrators’ management
office. Fusing these bodies into a single superintendent’s office will
help to set up a better suited regulatory and supervisory framework
for operations, incentives and risks of the different agents in the
market. It is also proposed that the BCU extends regulation and
supervision to other financial actors in the stock market.
The last point is to strengthen the financial security network. Law
17,613 of December 2002 establishes a mechanism of explicit deposit
insurance, so that if a bank goes bankrupt the deposit holders will
have compensation. To this end, a deposit guarantee fund has been
set up, which is financed from contributions of financial institutions,
and a specific superintendent’s office has been set up as a decentralized
unit within the BCU. This is an important step towards putting an end
to the old system of implicit and free deposit insurance when
institutions went bankrupt. The traditional implicit deposit insurance
made the banking sector more vulnerable and tended to exacerbate
problems of excessive risk-taking by the agents involved, which
weakened discipline in the market and made it more likely that the
government’s fiscal problems would spread to the banks. The proposed
modifications improve the mechanism for deposit insurance and
strengthen the financial system security net.
To improve the deposit insurance mechanism, it is proposed, when
banks have solvency problems, alternative procedures for liquidation
and for paying off the depositors. This mechanism will provide a more
efficient resolution of the problem as it will make it easier to merge
the problematic institution with another financial institution or let it
be taken over, so as to “keep the business going”, and thus minimize
the risk of possible loss of value. The mechanism also establishes a
safeguard for the resources of the guarantee fund itself in that the
alternatives to liquidation will not be allowed to generate costs to
the guarantee fund in excess of what would result from covering the
deposit guarantee.
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The plan also involves changes in the institutional design to make
the financial safety net stronger. It is proposed an autonomous body
separated from the BCU in charge of the administration of the deposit
guarantee fund, the Bank Savings Protection Corporation (COPAB Corporación para la Protección del Ahorro Bancario), which will also
be responsible for liquidations, a role that is currently played by the
BCU. The COPAB is to be outside the sphere of the BCU so as to shed
light on possible conflicts of interests among agents in the safety net
when it comes to decisions to close down troubled institutions. It is
promoted an early intervention of the regulator, avoiding delays in
decision making over liquidation proceedings that could end up causing
the depositors greater losses and exposing the other institutions in
the system to unnecessary risks. As a necessary consequence of this
separation of institutions, clear coordination mechanisms between
the two bodies are established.
5.5 Institutional Reform in Housing Policy
The structural crisis in the housing system has several dimensions.
As regards institutions, the public agencies involved in housing, set
up at different historical contexts, do not form an efficient system
to pursue a coherent and coordinated housing policy. The Ministry of
Housing, Territorial Zoning and the Environment (MVOTMA) has not
been able to satisfactorily play its role of organizer and housing
policy planner, and since the 2002 crisis the Uruguayan Mortgage
Bank (BHU - Banco Hipotecario del Uruguay), has failed in its basic
function of providing credit to enable people to access housing.
Regarding the social aspect, the present system does not guarantee
access to or retention of adequate housing for wide share of the
population, negatively affecting social fragmentation. The economic
and financial side of this question is that the modality of financing
from contributions from the formal sector based on taxes on income
and pensions, yields insufficient resources to meet the demand.
The financial deterioration of the BHU and the widespread problem
of arrears in repayments to the National Housing and Urbanization
Fund pose serious threats to the sustainability of the system in the
middle term.
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The new housing policy is an attempt to marry the State’s
responsibility for people’s social rights, including the right to housing,
to its role as a facilitator that mobilizes society’s resources (social,
economic, etc.). This policy implies a holistic approach coordinated
with social and territorial development policies, with the emphasis
on decentralization and participation, and especially on joint action
involving local government and based on systematic studies of the
demand for housing. The crucial element of the housing policy is
funding, and this affects not only social priority housing projects but
also the possibility for wide sectors of the population to have access
to mortgage credits.
The MVOTMA must assume the principal role in the sphere of
housing, formulating and implementing policies to guide the efforts
of other State agencies. The Ministry should also bring private agents
into the picture by channeling their efforts, stimulating and promoting
those that are in line with the official policy. The institutions in the
new public housing system plan is geared to supporting efforts towards
an improvement in the housing situation, taking account of the wide
socio-economic, age, ethnic, cultural and gender diversity of the
population. The MVOTMA is the center agency of this plan, in charge
of defining, designing and implementing housing policies, monitoring
and evaluating them, and controlling and supervising the public and
private agents involved in the housing sector. The National Housing
Agency (Agencia Nacional de Vivienda) is to be a decentralized service
responsible for implementing the urban housing and habitat policies
laid down in the five year plan, and the BHU is the State financial
institution responsible for facilitating access to housing by granting
credit for mortgages. This new institutional structure means that the
BHU’s role is re-defined and provided with the resources it needs to
run an effective mortgage service, and the National Housing Agency is
set up as a decentralized MVOTMA service.
This Agency’s main tasks will be: (i) to implement urban housing
and development programs in agreement with public and private
entities; (ii) to develop and manage financial instruments to facilitate
access to funds for housing; (iii) to operate in the real state market as
an investor and manager of undertakings in urban areas; and (iv) to
administer credit assets for housing.
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The BHU restructuring will correct its current economic and
financial weaknesses, which is essential for the institution’s role. A
new, financially healthy BHU, with far-reaching structural changes, in
its design and procedures, will help to strengthen the financial system,
and in the future it will avoid accumulation of fiscal contingencies,
such as those whose heavy costs had to be paid in the 2002 crisis. The
BHU will be a valid instrument to the extent that it can play its role
without having to systematically draw resources from the National
Treasury to maintain itself financially. As it is a key instrument, and
not just as an objective in itself, the BHU will be continually monitored
and evaluated, and it will be open to innovations to improve its
performance and further strengthen the whole system of financing
for housing.
5.6 Promoting the Capital Market
The framework for the stock market was set up ten years ago, and
the BCU was given the role of regulatory agency. Its powers were
more limited than those of the regulatory agencies in other segments
of the financial system, and also weaker than what is usually the case
in other countries, promoting a scheme where “self-regulation” of
the agents play a prominent role. The evolution of the market showed
that this was not the most suitable system to foster development.
This, in addition to the transformation of international markets in the
last ten years, made it necessary to completely overhaul the regulatory
framework of capital markets in Uruguay. The aim was to establish
better legal foundations to make markets more transparent,
competitive and efficient and provide suitable protection for investors.
One essential factor for a market to run smoothly is confidence.
Unfortunately, in the last ten years in Uruguay there have been
regrettable episodes that have eroded confidence in the sphere of
direct entrepreneurial financing, where intermediate financial
institutions played a central role in the market. This logic of financial
conglomerates is one of the reasons behind the current proposal to
bring regulation and supervision under the control of one central
agency, as it was mentioned. The outstanding episodes include cases
of fraudulent default of negotiable obligations, cases in which
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privileged information on investment funds was mismanaged,
deficiencies in the valuation of portfolios, and less than transparent
transactions between fund administrators and their shareholders. The
regulatory framework turned out to be inadequate and insufficient.
To make matters worse, the banking and general financial crisis of
2002 caused a widespread loss of confidence, and this was not helped
by the scant professionalism both on the part of issuers (information
on enterprises was extremely opaque) and on the part of brokers and
the stock market.
The economic development of the country requires an active and
vigorous capital market, and the first step must be to re-establish
confidence. This will only be possible if there is a new regulatory
approach, if private information is more transparent, if there is a
better guaranteed protection for investors, and if there is a specific
promotion of new financial instruments to diversify options to finance
productive projects.
As regards regulations, the government is proposing to make
important reforms to the regulatory system to bring Uruguay into line
with the best practices recommended by specialist organizations,
specially in basic aspects that determine the effectiveness of control
mechanisms: (i) the role of the regulatory agency; (ii) regulatory powers
to supervise brokers and agents in the stock market; (iii) defining
minimum requirements that these agents and brokers must meet to
receive authorization, in areas like capital, organizational structure,
procedures to handle reported malpractice, and the standardization
of information on their clients; (iv) the power to investigate and
penalize agents; (v) the criteria to disclosure information on issuers;
and (vi) protection for minority shareholders and unsophisticated
investors. It has to be developed a prudential regulatory scheme based
on the evaluation of risks, which supplement the approach of analysis
and evaluation of behavior.
5.7 The Budget Process Reform
Uruguay has already embarked on changing the process of the
government budget as part of the global transformation of the
State apparatus. For the formulation and implementation of the
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budget, the government’s priorities are based on a series of general
principles:
· Fiscal responsibility: maintaining a discretionary tool for adjusting
the budget to the fiscal possibilities.
· To foster savings and improve the use of budgetary credits:
establishing inter-temporal measures and making them flexible,
and linking budget decisions to specified targets.
· Orientation towards improved management: recognition of the
difficulties stemming from the floating debt, and promotion of
contract and commitments systems that have this improvement
as a goal.
· To promote transparency in the use of resources: universalization
of information and unified management of public funds.
The reform will also take account of the need to make institutional
modifications, based on diagnoses that revealed inconsistencies and
conflicts of objectives in the process of drawing up, passing,
implementing and controlling the budget. The correct definition of
roles and conflict of interests is of capital importance at the time of
organizational design of State agencies such as the Ministry of Economy
and Finance (which is currently working on setting up a specific
department to handle the drawing up and implementation of the
budget), the National Accounting Office, the Treasury, the Planning
and Budget Office, the Tribunal of Account’s, and so on.
5.8 Promoting and Defending Competition
Let us look at the conceptual bases of competition policies required
to promote competitive markets. Essentially, these policies must
guarantee the rules of the game. A crucial aspect is that public policies
to promote competition can only be conceived of as complementary
to the policy of opening up to foreign trade which historically has
taken place. In small countries, where markets are necessarily
concentrated for efficiency reasons, competition mainly comes from
abroad. So, open trade policy is the main factor of competitive pressure
in markets and on enterprises.
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There has been much debate about what the ultimate aim of a
competition policy is. Competition is an instrument; it is not an end
in itself. What it sought, in the final analysis, is an improvement in
the well-being of consumers, not just those of today but those of
tomorrow as well. That means it is necessary to foster the emergence
of markets that will contribute to well-being today, and promote
healthy investment to bring about well-being in the future.
This reform involves a kind of indirect State regulation to control
the exercise of power, in particular of what economists call “market
power”. This indirect regulation is basically a set of globally-applicable
rules which involves two groups of policies. First, there are policies
that “control behavior or conduct”. In this, there are two main
approaches: (i) there are practices that per se are anti-competitive;
and (ii) if they are suspected on being anti-competitive, this anticompetitive impact must be proven for the firm to be penalized, and
this must be within reasonable limits. The predominant trend
internationally is that conduct deserves to be penalized to the extent
that there is an anti-competitive impact. The main thrust of policies
to control conduct is to prevent what we call “abuse of dominant
positions”. The fact that some enterprises in the market have the
power to behave in such a way as to affect significantly the competitive
process makes these enterprises’ practices liable to be analyzed to
see if they really do have anti-competitive intentions and impact.
The second group of policies has to do with “structural control”. This
does not involve the analysis of conduct but of market structures, and
they focus on authorization of mergers and acquisitions in highly
concentrated markets.
Different kinds of behavior are penalized under competition
policies, including “collusion” between enterprises, which are
agreements to not compete. These agreements may be explicit or to
a certain extent tacit, but their main function is to fix parameters or
restrictions on conduct so that these agents do not compete, which
eventually works against the interests of the consumer. A second group
consists of “exclusion practices” such as blocking new competitors
from entering into the market, predation on competitors -using
illegitimate practices to expel competitors from the market- and
exclusivity contracts. The last one is a good example of conducts that
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are not anti-competitive per se but which can be used as an anticompetitive instrument under certain circumstances. A third kind of
conduct that is liable to be penalized is what we call the “abuse of a
dominant position”. In this, there may be included price discrimination
policies or tied sales.
One operational difficulty is that there are conceptual elements
that lead to observational equivalence but which may have different
interpretations. For example, certain processes of concentration could
be the result of previous anti-competitive practices, or they could be
the legitimate result of competition where the most efficient
enterprises acquire greater shares of the market. That is to say, there
is an observational equivalence and it can be seen that there is greater
concentration in the market, but this does not necessarily mean that
enterprises attained this dominant position through illegitimate
practices since legitimate competitive practices can also result in
enterprises obtaining greater market shares.
Up to now in Uruguay, promoting and defending competition has
not been a political priority. There is very little regulation in this
area, and its enforcement is problematic due to the characteristics of
the current legislation. The institutional strength of the competition
authority is obviously a very delicate matter, and there are weaknesses
in this in Uruguay. There is little experience of operations in this field,
and there are no clearly-defined rules of responsibility or transparency.
The culture of competition in the administration, in the economy and
in general in the country is very limited, and procedures, sanctions
and mechanisms in place are inadequate.
The proposed reform is not only pro-competitive, the idea is not
just to act on the defensive and react against anti-competitive
practices, it is also to promote active change, which requires a better
understanding of how markets in Uruguay work, and with this as a
basis, guidelines and policies to promote genuine competition in
markets can be formulated. This stance is not just re-active, it is also
pro-active. The plan is to set improved objectives for competition
policies, with a logic of case analyses based on economic theory and
international experience. The responsible agency is being reorganized
and given the power and resources it needs for this task. There is a
clear definition of responsibilities of the sectoral regulatory agencies;
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the relationship between the Promotion and Defense of Competition
Committee (Comisión de Promoción y Defensa de la Competencia)
and sectoral regulatory agencies is well defined. Besides this,
transparency rules (until now absent) have been incorporated and the
sanctions regime has been improved.
In this project, control of anti-competitive practices has been given
priority over those dealing with anti-competitive structures, but the
plan involves requirements that, under certain circumstances, previous
notice of concentrations must be given, and prior authorization will
be required when a monopoly situation emerges.
5.9 The Reform of Insolvency Laws and Business
Reorganization
Economic crises are an inevitable and natural consequence of
the market economy. Markets go through a natural process in which
new enterprises enter and others exit. Economic activity means that
new opportunities appear in some sectors and while other
opportunities slowly fade away in others. Enterprises usually operate
in a climate of relative uncertainty about their environment and on
the middle term viability of some of the projects they undertake.
Economic and financial results do not always go together, and their
maladjustment can make it difficult for enterprises to meet their
obligations. Entrepreneurial activity itself involves risks as to how
some or other project will turn out. It follows that the economic and
financial difficulties that enterprises have cannot be dissociated from
the activities they are engaged in, and should not be associated
with pathological behavior but seen as a natural consequence of the
economic life itself.
Enterprises need financial capital to operate, and this does not
necessarily have to come from financial entities. Very often it is the
enterprise’s own suppliers that give it credit, through so called
“commercial credit”. This credit is based on certain informal codes of
conduct in business and, if these fail, on formal instruments that
protect the parties’ rights. However, the way that these proceedings
are designed affects not only the result in formal instances but also
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the investment process itself, in which the agents involved seek
guarantees for their investments, or else simply withdraw or deny
financing to that enterprise.
Uncertainty in business requires clear rules and regulations which
ensure, as far as possible, the necessary predictability for genuine
investment processes. A part of these rules define the ways to deal
with enterprises in economic difficulties to mitigate the bad effects:
those that are not economically viable will be speeded on their way
out of the market, and those that are economically viable will be restructured. It follows that a vitally important ingredient for developing
an efficient and productive economy is to have adequate laws and
procedures for insolvency.
However, the legal procedures do not rule out the possibility that
a debtor and a creditor negotiate a viable solution to the firm. And in
fact, in the vast majority of cases, enterprises’ financial difficulties
are resolved with agreements between the debtor and some of its
creditors that do not involve recourse to insolvency proceedings, which
are always costly for both parties. Insolvency proceedings become
the only way to work out the situation when negotiation between
debtor and multiple creditors is complex or when the continuity of
the enterprise is in question.
The insolvency law cannot prevent a crisis from occurring, but it
can mitigate the costs for the economy by making sure that creditors
receive the maximum possible satisfaction in the circumstances (by
maintaining the value of the debtor’s assets and re-allocating these
assets rapidly), and by protecting the other economic agents involved
from possible unfair competition. An insolvency law has to be
opportune, fast and efficient: it must quickly take out the tumor or
apply the suitable therapy while the patient is still receptive to
treatment.
The objective of insolvency legislation reform and business
reorganization is to give enterprises in financial difficulties an
instrument that enable productive units that are economically viable
to survive, and to efficiently and equitably liquidate those that are
not, and in this way protecting investments, workers’ jobs, and healthy
and fair trade relations.
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Designing a procedure for dealing with insolvency is a big challenge
insofar as it calls for a delicate balance between the interests of the
diverse parties involved. It should always be borne in mind that the
insolvency procedure only comes into play when an enterprise finds it
difficult to pay its creditors, so it is clear that parties that undergo a
procedure of this type will necessarily have to make some kind of
sacrifice or concession. Another aspect to be taken into account is
the situation of the workers when an enterprise is in financial
difficulties. The proposal calls for a series of elements that, as far as
possible, try to mitigate the effects of firm’s insolvency on the workers
involved. To cover this facet, the proposal includes instruments
designed to protect the worker, delicately balanced with the economic
viability of the enterprise because only if a productive unit is viable
can jobs be saved.
The current insolvency regulations in Uruguay perpetuate a system
that is inefficient and perverse, as long as they are based on archaic
ideas, and in no way do they help towards the objectives mentioned
above. The procedures for handling enterprises’ insolvency (bankruptcy,
legal liquidation) predates the limited assets of the debtor in crisis,
so it is natural for the creditors involved to shy away from proceedings
of this kind. Nor find the debtor any incentive to enter into the
insolvency process because it would cause his enterprise to close down,
bar him from exercising his profession, condemn him to the loss of his
own patrimony, and in addition to all that there is an effect on his
personal freedom. In this way often a productive business unit, to
some extent viable, disappears from the economic landscape, suffering
a slow dismantling which involves job losses and adverse consequences
for all those dependent on it.
Insolvency procedures are also inoperative for preventive processes
(basically the concordat). It is almost unthinkable that a creditor should
initiate insolvency proceedings against a debtor, so there is no incentive
for debtors to resort timely to insolvency procedures. The fears of the
loss of credit involved in a concordat, makes the debtor to extend the
difficult situation beyond the point where there is still a solution. The
limit situation of concordat debtors and the little chance for creditors
to recover its credits determines that creditors are willing to agree
even to ruinous proposals or ones that are not viable at all, and this
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can lead to fraud in the form of concealed or simulated assets or
liabilities, or the purchase of adhesions and of credit, and these
maneuvers generally go unpunished. This situation also leads to debtors
languishing in a business sector, which compete with an unfair
advantage against other operators who do have to meet their
obligations on a regular basis, so very often an unresolved crisis in
one enterprise can spread to others in the same sector.
This panorama means that there is a retraction of credit, that
credit is more expensive, and that there is excessive recourse to real
guarantees, with the corresponding transaction and immobilization
costs. For all these reasons, a reform in insolvency proceedings is far
more than just a technical legal matter. It is a social and economic
priority, essential if the market is to have a workable system for dealing
with enterprises in crisis.
In Uruguay the regulations governing insolvency have remained
basically unchanged since the end of the 19th century. During the
20th century there were a number of legislative initiatives since it
was recognized that the system did not meet the debtors or creditors
needs, but except for a change in the law in 1926 none of these
attempts met with success. Recently, in 2001, some changes were
introduced and two special tribunals to handle insolvency proceedings
were set up. But solution of the problem of how to manage enterprises
crisis needs a total overhaul of the legal machinery. The main problem
of preventive concordats is not that they function badly but that they
are part of a system that functions badly as a whole. If the proceedings
for dealing with insolvency are not thoroughly reformed, it will be
impossible to overcome the total and absolute inefficiency that plagues
the whole area of insolvency law.
For these reasons, a general insolvency bill has been tabled, which
will supersede all prevailing regulations governing aspects of insolvency
including bankruptcy proceedings, legal liquidation, civil insolvency,
preventive and resolution concordats, and moratoriums.
The proposed reforms are based on nine fundamental principles:
(i)
To simplify the procedures.
(ii)
To implement a general and unified procedure.
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(iii) To facilitate access to the insolvency process.
(iv)
To provide a flexible framework within which the parties can
seek and make their own agreements.
(v)
To improve decision processes.
(vi)
To reduce the costs involved and the time the proceedings take.
(vii) To strengthen the judiciary and specialization in insolvency issues.
(viii) To keep viable production units in operation.
(ix)
To modify the regime of sanctions so as to generate the correct
incentives.
5.10 The Foreign Sector
The government has defined its priorities with regard to Uruguay’s
international insertion, which are correlated to basic objectives in
trade negotiations in general and in MERCOSUR negotiations in particular.
Here it is presented a brief overview of what these priorities are.
The strategy of sustained growth with equity requires suitable
conditions for productive investment to expand. In a small economy
the scale for efficient production depends on export insertion, and
therefore on access to foreign markets. The Uruguayan economy growth
requires a strong export dynamism. The main priority in foreign
negotiations is to obtain stable and predictable conditions of market
access, at all levels: regional, bilateral and multilateral.
Foreign negotiations are all part of the same effort, and the
different instances that are currently under way are complementary.
The foreign strategy must seek competitive insertion in the region
and in the world simultaneously, promoting the sales of products with
static comparative advantages and also products with high
technological content that exploit Uruguay’s dynamic comparative
advantages.
Deepening the process of MERCOSUR will imply to maintain its
identity as a bloc as well as the preferential status for reciprocal
trade. The creation and expansion of free zones will supplement the
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regional cooperation and integration process. The consolidation of
the MERCOSUR gives consistency to its position in negotiations with
third parties. Apart from this, preferential trade agreements with other
blocs or countries will reduce the costs of trade diversion implicit in
the consolidation of the MERCOSUR, specifically those stemming from
the full operation of a common trade policy. Overall, the consolidation
of the MERCOSUR will promote access not only to regional but also to
extra-regional markets, thanks to joint negotiations.
Thus one of Uruguay’s basic objectives in international trade
negotiations is to obtain better, more stable and more predictable
access to foreign markets. In line with this objective, since the
beginning of 2005 the new administration has made it a priority to
consolidate the integration process. The MERCOSUR is perceived as a
suitable instrument to promote access to regional and extra-regional
markets, which are essential for the expansion of investment and
employment. Uruguay has always seen the MERCOSUR as an open
regionalist process, and the construction of the customs union has
two components, one internal and the other external, which must
progress simultaneously. However, these negotiations have had little
real content, there has been an effort to project an image of dynamism
but what is in fact projected looks like increased uncertainty, and the
prospects of progressing to a real integrated market and to genuine
opening to other blocs and countries are not promising.
The MERCOSUR is a political project, which includes as a main
component a trade agreement that must be improved and developed
consistently with the other aspects of the regional integration. In no
way does this mean that economic considerations are to be given
priority over political ones, since the former are in fact part of the
latter. The MERCOSUR is an essential component in Uruguay’s long
term growth strategy, so the cost of stagnation, or even backsliding,
in the integration process is extremely high in that it affects vital
elements in Uruguay’s development strategy. To judge from actions
and behaviors on the part of the major partners in the MERCOSUR in
recent years, they do not seem to share this attitude, in a marked
asymmetry with the small countries which have limited domestic
markets and scant vertical integration to face the actual integration
process. If the current dynamic of the integration process continues
unchanged, with a leadership that takes little notice of the concerns
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and needs of the smaller economies, the small countries will pay a
high price in terms of lost opportunities for current and future growth,
from which generation of jobs and poverty reduction depends.
The MERCOSUR strategy needs to be functional to the development
strategy of all member countries. On the contrary, an integration
process which serves the strategy of only some members and where
positions are taken in function of the relative power of each country,
does not seem to be a propitious environment to develop Uruguay’s
strategy. If our societies increasingly perceive the MERCOSUR in this
way, resistance to it may increase to such a pitch that the political
commitment to regional integration cannot be maintained.
There is uncertainty in the MERCOSUR both at general level and
with regard to specific aspects. At the general level because it is not
clear which way the bloc is going in the immediate future, least to
say the period in which the strategic integration objectives that were
announced, and in many cases ratified but rarely fulfilled, will be
completed. As to specific aspects, in recent years there has been a
tendency to revert progress on trade agreements, which has caused
uncertainty about the conditions of access to regional markets for
different products and sectors. All the member countries have failed
to comply with some of the regulations that were agreed, which has
got worsen recently. The States themselves have failed to lead the
regional integration process, especially the bigger ones whose natural
role this should have been. Also arbitration and controversy mechanisms
have not been respected, which devalues these mechanisms and calls
their very justification into question, undermining the fragile
institutional structure of the MERCOSUR to its near collapse. All in all,
the MERCOSUR has failed to achieve one of its main aims, which is to
promote economies of scale, agglomeration and learning, factors which
are indispensable for industrial development and which are hindered
by the current size of these separate markets.
In the light of these considerations it is no surprise that the structure
per product of Uruguay’s exports is clearly dominated by comparative
advantages based on its natural resources.
Uruguay also has a wide margin for development based on value
added in the agro-industrial chains in which it is competitive
internationally. It is essential, if this advantage is to be properly
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exploited, for Uruguay to gain access to markets that demand these
kinds of products, but these markets tend to be heavily protected so
very often trade agreements are needed to export to them in significant
volumes. Therefore another vital element in Uruguay’s growth strategy
must be to pursue wide-ranging trade agreements with third party
countries that have high per capita income and big markets.
Negotiating as part of a bloc should improve a country’s bargaining
position, especially for the smaller members. However, this is one of
the benefits expected but not materialized from the MERCOSUR, as it
seems more disposed to champion defensive rather than offensive
interests. It is true that Uruguay standing alone is not very attractive
as a trade partner, but since the prospects of success in joint
negotiations are poor, the country should not renounce to it as a
component of its growth strategy.
After more than a decade, MERCOSUR negotiations with other blocs
and countries have produced no satisfactory results, and there are no
prospects of any real success in the short and middle term. On the
contrary, the situation has evolve towards a virtually infinite agenda,
where the agreements reached do not impact on Uruguay’s growth
rate. The agenda for negotiations is seriously unbalanced, where
political interests dominate over those with commercial or economic
impact.
All in all, Uruguay has not a domestic market big enough to sustain
a process of growth which, coupled with difficulties in access to regional
and extra-regional markets, places the country in disadvantage to
attract investors. It is clear that an extended market (which allows
industries based on scale economies and learning) and trade
agreements with third countries (which enables the country to develop
and export its traditional agro-industrial chains) must be basic
components in its strategy for growth.
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Chapter 3
CUBA: SCOPE AND CHALLENGES
OF THE SOCIAL POLICY
Victoria Pérez Izquierdo1
Introduction
The social achievements and levels of well-being that Cuban society
enjoys today are the result of the government’s will and commitment
to giving social policy priority within the development model.
Specialists in social questions from different parts of the world
wonder how such a small country, blockaded and with limited economic
development, has been able to achieve social indexes comparable to
those of the industrialized nations. The answer is simple, economic
and social policies are closely linked and social aspects of justice and
equity are involved in increasing economic development, so the people
of the country have benefited from greater levels of well-being.
In developing its human capital, Cuba has played a strong card.
This resource has been accumulating for more than 40 years, and now
in the new millennium the advantages derived from it can feed back
into the economy and influence other economic and social areas.
Knowledge is the engine driving the economy of contemporary Cuban
society.
1 Researcher at the National Institute of Economic Research (INIE) – Ministry of Economy and
Planning of Cuba.
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In this chapter we give a brief overview of the economic situation
in which Cuban social policies have developed, and then look at how
these policies were conceived and how they evolved. Finally, we
examine their most important results and analyze the challenges and
possibilities involved in increasing levels of well-being in Cuba, focusing
on the spheres of education, health and employment, which are of
special relevance in the Cuban development model2.
In spite of the good results that have been obtained in the social
sphere, there are still difficult problems to be faced because more
progress has been made in some areas than in others. When current
problems are resolved, the people will be better able to face the
challenge of economic development, which calls for healthy, wellnoutrished, qualified individuals whose basic housing and care needs
are satisfied3.
2 More information about the subjects dealt with in this paper can be obtained from the book
“Social Policy and Structural Reforms: Cuba at the beginning of the 21st Century” (INIE-PNUDECLAC, 2004).
3 See “Transformations of Social Management in Cuba” (INIE, mimeo).
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1. IMPACT OF SOCIAL POLICY IN CUBA
At all times the Cuban socialist development model has focused
on a close relation between the country’s economic base and the
social sphere, and development is conceived of as a process whereby
social and economic problems are dealt with at the same time (Ferriol,
Therbon, Castiñeiras, 2005).
At the start of the 1990s, the country was plunged into an economic
crisis unprecedented in its post-revolutionary history. Between 1989
and 1993 gross domestic product (GDP) fell by 35% and imports at
current prices fell by 75%4 . This crisis occurred because support from
the eastern European countries and in particular from the Soviet Union
was discontinued, and the economic blockade against the island
imposed by the United States was intensified. To cope with this crisis,
the government of Cuba implemented a package of economic and
social measures in the mid 1990s, and these have borne fruit in
economic recovery and reinsertion in international markets, and an
internal economy that functions more efficiently (Pérez, 2000). It is
important to examine the economic reforms that were implemented,
as conditioning factors on the results of social policy.
In the economic sphere, one of the main measures was to open
the Cuban economy to foreign capital, and the emergence of a new
sector made it possible to decentralize ownership and make relations
more flexible in the sphere of production with the appearance of
mixed enterprises, limited liability companies and foreign firms having
representation in Cuba. This provided an injection of dynamism into
trade and the incorporation of technology and material and financial
resources in a whole range of economic activities.
Other important measures have been adopted in the last ten years:
the holding of foreign currency was legalized, the dollar was allowed
to circulate, official currency exchange offices were set up, and also
a network of shops that enabled the State to recover the foreign
currency in circulation and redistribute it5 .
4 See Rodríguez (1999).
5 A group of INIE socio-economic research projects deal with the wide ranging reforms implemented
in Cuba in response to the economic crisis. For more information see Ferriol, A. et al. (1998).
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Other measures included setting up agricultural markets where
peasants can sell their products at market prices, opening industrial
markets to foster the sale of essential goods and articles which were
in short supply under the State system, and allowing more people to
be self-employed in high-demand productive activities and services.
These measures brought about considerable changes in the country’s
economy and had a big impact on society because they widened access
to food products and services for which demand was high.
Besides this, the government took other steps that have led to
important changes. First, to tackle the problem of some enterprises
having an unnecessarily large labor force, businesses were restructured
so as to redistribute human resources. This was done gradually so that
no worker would lose his or her social security protection, and so that
family economies would not be adversely affected. The second
government measure was to strengthen the link between a worker’s
income and what his or her work actually results in, by applying
incentive systems to stimulate hard work. This has involved
implementing measures such as making some payments in foreign
currency, making payments in kind, and allowing people to buy under
a special regime. All this has gradually stimulated the different groups
of workers and thus provided greater incentives to increase production
and raise efficiency.
In addition to these initial measures, which by the second half of the
1990s were consolidated and were producing results, there were also
changes in the economy that meant a slow but sustained increase in
GDP, which amounted to an 11.8% rise in 2005 and a 12.5% rise in 2006.
Although the economic situation has been difficult and pressing
economic reforms have been implemented, the government has never
lost sight of its priority objective, which is to maintain what has been
achieved in the sphere of universal social protection. In stark contrast
to what has happened in countries that undertook “neo-liberal” reforms
(González, 1998), where the first budget cuts were in education and
health, in Cuba budget allocations for these social services actually
increased during the period in question.
Even when the foreign financial situation was problematic and
acted as a brake on progress towards economic recovery, the
government undertook new social development projects like supplying
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gas to households in the cities of Havana and Santiago de Cuba,
widening the network of telecommunications and telephone services,
and increasing energy food consumption per person. These are just
some of the projects that show that the government has the political
will not only to raise production in the country but also to preserve
what has been achieved in the field of social services.
The recent experience of crisis has made for changes in the world
of production, in society and in culture that have enabled Cuba to
reinsert itself into the international economy and function more
efficiently as an economic unit. While the government was carrying
out these reforms it always maintained the principle of equity as its
top priority and tried to minimize possible negative effects on the
population as a whole. This is the outstanding distinctive characteristic
of the Cuban socialist development model.
Another important element in the good results of Cuban social
policy is that the economy is planned, which is what makes it different
from other development models. This characteristic is evident in all
the social and economic changes that have taken place. Policies in all
situations, geographical areas and institutions are coordinated. Also
there is democratic participation. This means that the changes
implemented have enjoyed wide-ranging support from the population.
The changes were gradual and relevant, and the people as a body
approved of them.
In 2001, the government widened the scope of change even further
and implemented more than 200 social programs, and this amounts to
a genuine revolution in social management. The strategic objective is
to raise the general integrated cultural level of the whole population
in what has been called “The Battle of Ideas”6 .
The systematic development of these programs has brought
unemployment down and made it possible to deal with individual
problems on a personalized basis, raise the quality of training and
improve health services.
6 This is a new concept of development for the new millennium. Social policy has a more
personalized focus and is geared more to those in need, and the new social programs have
helped to improve not only living conditions, social services and effective attention but also
equity in society.
90
Finally, at the end of 2005, the government implemented new
economic reforms that have an impact on social management. These
included increasing wages and pensions, offering household goods that
would lead to energy saving for the country, raising families’ quality
of life, and going ahead with a new housing program.
All the years of effort and work in social spheres like education
and public health are paying off as these sectors are now making
important contributions to the economy. Medical and education
services that reflect Cuba’s basic values of humanism and solidarity
among people are being exported and there is a considerable degree
of cooperation with countries that need this knowledge to improve
their levels of well-being. This has now become an important source
of earnings in foreign currency.
The country has put the emphasis on training human capital so
the people will be better prepared to cope with technological change
and the technologies of the information age in a world that is
increasingly dynamic, competitive and globalized. So although current
economic difficulties make it impossible to efficiently assimilate all
the education investment at the present time, in the middle term
this training will strengthen people’s ability to make knowledge the
new force that drives development.
2. THE CONCEPT OF CUBAN SOCIAL POLICY
Since the triumph of the revolution in 1959, Cuban social policy
has brought about far-reaching changes in the conditions of life of the
people, who before that time were in a hopelessly vulnerable situation.
Access to social services is universal and free, and the State has taken
responsibility for ensuring that benefits are available to all in an
equitable way.
The social model in Cuba is unique in the Americas. Every individual
has the right to have his or her basic needs satisfied, not as a consumer
but as a citizen. People are not seen as users or clients. The Constitution
reflects the right to work, to health care through free medical services,
91
the right to education, which is free at all levels, and the right to
protection7 .
Cuban social policy supports the values of solidarity, comradeship,
and selfless help, which contrasts with the egoism and individualism
prevalent in modern societies. Cuban social policy is geared to
achieving better results in each of the social spheres, that is to say
education, health, nutrition, housing, transportation, work, social
security and assistance, and others. When evaluating the results that
Cuba has achieved it is important to be aware of the fact that these
areas are complementary, which has been a key factor, and also that
each has been involved in a process of interaction with economic
policy throughout the period, which is particularly relevant when
considering times when material and financial resources were limited
due to the domestic crisis and the effects of the international
situation8 .
The government’s strategy was to use education as a touchstone
for progress in the other social spheres, since the acquisition of
knowledge would make it possible for those who are trained to
incorporate as active agents into other areas of social activity (Ferriol,
Therbon, Castineiras, 2005).
Another important feature of Cuban social policy is that the
emphasis is on fairness, not only so the whole population should have
equal access to the satisfaction of their needs but also in the sense of
offering greater opportunities of access to underprivileged social groups
unable to take advantage of existing opportunities.
Redistributive measures have made it possible to give preferential
treatment to women, children, the elderly and the rural population,
so that inequality has been kept within limits that society as a whole
considers acceptable. On occasions, the government has taken
decisions that favored social objectives above other aims that were
exclusively economic, and this is assumed as a basic act of citizens’
justice. In the past few years, in addition to the mentioned areas,
7 Constitution of the Republic of Cuba, Havana, 1997.
8 See Ferriol, A. (2000) for a more in-depth treatment of the philosophy of Cuban social policy
and the complementarity and contradictions in society and their connections with the economy.
92
social security and assistance are becoming more important since the
population of the country is aging.
State planning has made it possible to bring a complex collection
of activities and social policies into harmony, and this has involved
taking account of geographical factors and directing financial resources
towards the priority objectives of social policy at each stage so as to
meet the needs of different communities9 . It has been possible to
maintain continuity in this policy because the government is stable
and the levels of violence are low. The policy has been assessed and
adjusted at each stage. A number of programs to improve social services
were implemented recently and measures were taken to raise the
level of well-being of families.
When it comes to funding, the Cuban State has overall responsibility
for ensuring that social services are stable, and it makes adjustments
to social policy at any specific time in function of the interests of the
people, who actively participate in the process of change and decision
making. One distinctive feature of this social policy is that the ministers
who are specifically responsible for a certain area are not the only
ones involved in policy implementation, other public administration
bodies also participate, and so do political and social organizations
and families. This creates a network of actors and serves to enhance
the effectiveness of efforts geared to common objectives since each
actor contributes a specific element to the design, application and
evaluation of policies.
There are channels through which ordinary citizens can make
complaints about social services. To do this they can use political
channels that start with the Delegate of the Popular Power of the
local area, and then go to municipal, provincial or national authorities
if necessary. They can also complain directly to suppliers and directors
of the organization providing the service in question (INIE-PNUD-ECLAC,
2004). Since 1995, the execution of the budget has been decentralized
to the different regions.
9 State planning makes it possible to coordinate local needs and to allocate financial and material
resources in a differentiated way. Since 1995 budget execution has been decentralized to different
regions of the country.
93
At the end of the first five years of the millennium it is evident
that the modifications the government has made to social policy have
been conditioned by the need to make changes in the economic model,
and that these adjustments in the economy have yielded good results
in terms of Cuba’s economic performance and growth. Not only has the
principle that social services should be universal and free of charge
been maintained, but there is also a more active approach to identifying
people who are in need, and this has required flexibility and the seeking
out of more dynamic forms of management (INIE, 2005).
In recent years the main changes in social policy in Cuba have
been that attention is now more personalized, and services, while
still maintaining equity and social justice, are of better quality and
wider access. Under a new concept called the “Battle of Ideas” there
are more than 150 social programs in different social areas all of
which contribute in different ways to the goals explained above.
With the concept of social policy outlined here, Cuba has achieved
results that other countries with more resources and higher levels of
development have not been able to obtain. However, in Cuba there
are still some big challenges in areas that are important for the wellbeing of the family such as adequate nourishment, housing, personal
services, and public transport. It is no easy task to coordinate all
these dimensions and achieve complementarity, but what has been
achieved so far shows what a country with shortage of financial and
technological resources but with a considerable wealth of human
capital, can do. To resolve current problems and those generated by
new transformations is a challenge for a government whose social
policy is geared to the development of a fairer society and the
satisfaction of the demands of the people.
3. THE MAIN RESULTS OF SOCIAL POLICY (1990-2005)
Since the revolutionary triumph, the government has been able to
totally transform the social situation it inherited and to make
substantial progress towards social welfare with social justice. The
social model that was set up was confronted with the most serious
94
challenges in its history in the years after 1989. First, resources were
limited and this had severe impact in that the inputs needed to provide
social services were in short supply, and the most prominent symptom
of the country’s difficulties was that Cuba’s infrastructure was gradually
deteriorating.
Second, some macroeconomic measures and other economic
policies that had been adopted during the reform period, such as
the dual currency system and the segmentation of consumer markets
for goods and services10 , had had an adverse impact on Cuban society
in different spheres, especially in terms of equity and in impeding
social mobility. The economic crisis aggravated some of the difficulties
of the social model, such as the limits of the salary system as a labor
incentive and a certain degree of equality in access to consumer
goods11 , and these weaknesses were detected in the second half of
the 1980s.
Cuba went into a period of crisis in 1990, and the government’s
response as regards social policy was to keep workers in their jobs
and maintain their nominal incomes even when the economy
contracted abruptly, and to begin the gradual process of adjusting
employment as part of a general reorganization of business. It
guaranteed the nominal income of all pensioners through the social
security and benefits system, it imposed rationing on almost all
consumer goods in an attempt to make distribution as egalitarian as
possible, and it worked diligently to preserve to the maximum its
health and education programs (INIE-PNUD-ECLAC, 2004).
The social measures that were taken later on were designed to
develop a more efficient social policy (INIE, 1997), and this process
consisted of two stages. From 1993 to 2000 the aim was efficiency,
and the explicit goal was to preserve the country’s social achievements
in spite of the fact that resources for social development were abruptly
curtailed. This meant that some social objectives had to be postponed,
some service and assistance systems were redesigned, there was
decentralization, local institutions were modernized and enhanced,
10 A segmented market is one in which there are different forms of access, stratified rules for
buyers and sellers, different rules for setting prices, the use of different currencies in transactions,
and, in general, different mechanisms to capture the profits generated.
11 See INIE (1997) for more in-depth information on the results obtained in this development period.
95
and non profit institutions took on a different role in the management
and funding of social policy (Ferriol, Therbon, Castiñeiras, 2005).
In general during this period, social policy objectives were
maintained, but the most significant aspect of the new phase was the
government’s employment policy. The original conception was to have
full employment funded entirely by the State, and this was changed
to a more flexible framework that tolerates a certain level of
unemployment and strengthens the role of the State in protecting the
jobless, all of which had an influence on the people’s incomes12.
In the areas of decentralization and diversification of the agents
of social policy, management mechanisms were applied in schools
and hospitals, which acquired a more decisive role in the control of
resources; programs to achieve municipal self–sufficiency in food were
developed; and housing solutions were decentralized to the
communities. Social organizations and families increased their initiative
and participation in the efforts to revitalize and rebuild social projects.
In addition, new financial instruments came into use such as
providing medical services to foreign citizens and running international
postgraduate courses. In general, the government promoted measures
to help institutions finance themselves with their own resources. This
stage of social policy adjustment can be summed up as a search for
efficiency and for new sources of funds.
In the 2000-2005 period, the emphasis in social policy shifted to
incorporating new strategic social development objectives, in spite
of the fact that the country still had economic problems. The aim
was to promote development in harmony with the characteristics of
a globalized world. Thus, long term objectives were set, like
incorporating computer sciences into society and raising the general
culture of the population. It is important to note that, in spite of
limitations on economic resources, the new programs offer
opportunities to all on the basis of low costs.
Since 2000, social policy has been administered with a more
personalized approach. It is still a universal application system, but
now it has another dimension in that action is taken to make better
evaluations of the situation of potential beneficiaries. This means
12 See INIE (2003).
96
there is a selection process that takes a particular situation or condition
or need into account so that the attention provided can be more
suitable and efficient. A key aspect of this new concept is the
institutionalization of the social worker, whose function is to detect
and evaluate the problems of families in their communities.
In recent years, the social programs implemented in each sphere
of social development have made for an improvement in people’s
living standards based on increasing the quality of services, providing
more effective and personalized attention, and pursuing social equity
as an alternative to income inequality. We shall now examine the
progress that has been made in three priority areas of Cuban social
policy: education, health and employment.
3.1 Education
3.1.1 Education policy
Education has played an important role in the wide range of social
changes that have taken place in Cuba since 1959 in that it has helped
to build a citizen with solid technical and professional skills, and with
an ethical dimension. In the 1960s, measures were taken to reduce
illiteracy13 and the National System of Education was set up. This
provides complete and free access to education for all citizens
regardless of sex, race or social class. Action was taken to raise the
educational level of the people on a massive scale14 .
In the 1970s and 1980s there was a campaign to keep children in
school until at least the sixth grade, and when the National Education
System became consolidated it worked towards the achieving education
to the ninth grade for all Cubans. One objective of education policy
has been to obtain equal levels of development in all regions of the
country, and efforts to achieve this are still going on today with the
application of education policies and programs geared to broad
participation in society to achieve even higher goals.
13 A massive national literacy campaign began in 1961 with broad participation, and a law nationalizing
teaching was passed, which made the State responsible for providing free education services.
14 There was a campaign to reach sixth grade in the 1970s, and it paved the way for the
campaign for ninth grade in the 1980s.
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During the 1980s new measures were adopted to expand human
resources training, to improve the quality of the professional training
needed for economic development, and to develop the infrastructure
required to maintain universal education coverage15 .
At the beginning of the 1990s this sector, like the rest of the
economy, suffered from a lack of the material and financial resources
(mainly foreign currency) that would enable it to cope with the
problems mentioned above, and seeking such resources can in itself
be considered ambitious for a country in economic crisis. The Cuban
education system maintained its principles and achievements, namely
massive coverage free of charge, the combination of study and work
with educational purposes, coeducation that allows boys and girls
equal access, the principle that all of society should participate in
the tasks of education, and education managed to make progress in
terms of improving the quality of human resources training.
At the same time, there was a policy oriented to improving
organizational and functional aspects of the sector in order to achieve
greater equality in educational services. This organizational
improvement allowed to increase economic efficiency, to foster diversity
and to take full advantage of its financial and human resources.
One of the most important decentralization measures was that
greater autonomy was given to schools and headmasters. Since this
policy went into effect, results have improved since there is unity of
interests within each school (Pérez, 2004).
Similarly, in the face of the changes in the economy and the
international context, school syllabuses have been modified, new
subjects incorporated, and specialization profiles have been broadened
so as to produce versatile specialists with integrated skills who can be
placed in a variety of different work positions.
The system has taken pains to pursue a policy of re-training and
updating teaching staff, both in higher and middle level education.
There are numerous post graduate courses, master’s degrees and
training for teaching personnel, and also policies to encourage primary
school teachers to obtain university degrees, and this has been so
successful that today some 70% have obtained its.
15 See Pérez, V. (2000).
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Since 1997, changes have been made in the education system
geared to solving the problems of quality without renouncing the
principle of universalization, improving the relationship between the
educational unit system and contextual diversity, forging adequate
administrative links between central direction and decentralized units,
training teaching staff to solve educational problems scientifically (in
an objective, creative and participatory way, based on research), and
optimizing the teaching process.
In 2000, the main objective of the education system was to raise
the human development of all the Cubans, to promote a general and
holistic culture since early childhood, and to promote the acquisition
of knowledge. The emphasis has been on educating for life in line with
values that are in harmony with the Cuban social model, taking account
of student diversity, and integrating the students/pupils, the school
staff, the family, health personnel, social organizations and social
workers into this process16 .
Short and long term educational and social programs are being
implemented to increase the opportunities each child, adolescent and
adult has to access education, jobs, health, culture, etc. The objectives
of these programs are strategic in the sense that they have an impact
on the general level of knowledge, culture and qualifications, and this
has a positive influence on the quality of life of the population as a
whole (Álvarez, 2003).
At the present time an effort is being made to improve the quality
of primary schooling by limiting class numbers to no more than 20 pupils,
refurbishing existing classrooms and obtaining more classroom space.
In line with this objective, a course of training for emergent primary
teachers has been initiated, to ensure teaching personnel in schools,
especially in regions where there were weaknesses in this area. At the
same time, schools have been equipped with computers, television
sets and video players. All schools now have electricity, through different
alternatives, educational software and videos are being produced for
all levels, and special centers have been set up to exploit these systems.
Literature on these subjects has been published for school libraries.
Another objective was to improve the quality of basic secondary
education, and a series of educational programs have been implemented
16 See Pérez, V. (2004).
99
to achieve this. It was important to carry out school repairs because in
many cases the physical infrastructure was deteriorating. In 2001 and
2002 school capacity was increased: the aim was to double capacity,
and this goal was achieved in the 2003-2004 school year.
The training of an integral secondary school teacher (from seventh
to ninth grades in the general teaching system) has been a substantial
transformation, permitting that the maximum number of students
per classroom reduced to 15, which has fostered a more direct teacherstudent relationship. Thanks to the introduction of television sets and
videos it is now possible to use the educational channel as a support
of the teacher’s work. Teachers are now better qualified and computer
sciences have been added to the curriculum, and as a consequence
teaching quality and teacher training have both improved.
There are now programs to bring young people who dropped out
of education back into the classroom. Integrated holistic courses are
now run for young people between the ages of 17 and 29, and these
constitute a special form of employment. Courses are also available
for social workers, emergent primary school teachers and multidiscipline teachers at secondary schools, who also enjoy access to
audiovisual systems and an updated bibliography. Once students
complete their mid level studies they can chose a university course or
a job suitable to their new qualification.
At university level there are a number of new programs that will
undoubtedly foster the emergence of higher quality human capital. In
the first place, in line with the program to universalize higher education
and the general aim to decentralize the system even more, university
preparation has been divided into a group of specialized subjects in the
different regions of the country, thus increasing opportunities of access.
This has involved setting up university branches in every municipality in
the country, making use of secondary school facilities on the basis of an
alternating timetable, and having university professors and other
professionals residing in the community. These teachers may be on a
part time assignment, but they are properly qualified for this teaching
activity and willing to support the program (INIE, 2005).
The University for the Elderly caters to pensioners and housewives
who are interested in continuing their studies, and who wish to feel
useful to society through the different activities they carry out.
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Another new move is the program to set up facilities to extend
information technologies to all of society. The technical capability to
do this in all schools has been expanded, and now, children and young
people have access from an early age. This meant running accelerated
training courses for about 20,000 teachers of these subjects, and
making this technology available to all teachers and university
professors of the country. Enrolment in technological education has
increased sevenfold in the last four school years, and in higher
education there are now more university centers offering computers
as a main subject. In addition, a University of Information Sciences
has started to operate using the necessary technological equipment
to speed up the training of university professors in this area. The
national network of youth computer clubs 17 , which fosters the
development of these skills, has been extended and is now present in
all the communities in the country.
Cuba has supplied technical and financial assistance to other countries
and it has also set up two international university centers to train physicians
and sports professionals. It awards scholarships to study at these centers,
most of which go to students from Latin America and Africa.
Lastly, the most ambitious objective is to raise the general culture
of society in a holistic sense. With this in mind, an Educational
Television Channel was set up to show programs not only for
schoolchildren and young people but also for the adult population. In
addition, community culture is promoted through video rooms, culture
centers and computer-oriented community centers. The television
program University For All broadcasts courses on a range of subjects
including science and technology, the environment, art and literature,
world history, languages and geography. This makes it possible for
different sectors of society to broaden and update their knowledge
about a variety of subjects (INIE, 2005).
One of the aims of education policy has been to achieve equal levels
of development in all the different parts of the country. In recent years
the strategies and policies employed to pursue this objective have varied,
but the emphasis is on taking advantage of the potential that exists in
the country and preparing the general population for new economic
17 These were set up in all the municipalities in the country so that, from an early age, children
and young people have access to computer sciences.
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contexts in which science and technology have an important role and in
which economic development is based on acquired knowledge.
3.1.2 Results of the educational policy
In spite of the difficult economic conditions the country had to
confront in the 1990s, the education sector has always been a priority
for the Cuban State. The aim is not only to maintain free education
and equal access for everyone through high basic education coverage
but also to achieve higher values on education indicators (Pérez, 2000).
The results that have been obtained up to now (see table A.1 in the
statistical annex) are an example of what can be achieved when there
is the political will to make education a fundamental pillar of economic
and social development.
On average, education in Cuba lasts for nine years, and there is a
low percentage of residual illiteracy. Education coverage is 99.5% in
the 6 to 11 age group (chart 1), 98.6% in the 6 to 14 age group (which
includes basic secondary schooling), and 95.6% in the 6 to 16 age group.
Chart 1
CUBA: SCHOOL COVERAGE BY AGE GROUP
(percentage)
Source: Ministry of Education, 2006.
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The education system aims at continuity of studies by promoting
students from one level to another and by “rescuing” drop outs and
bringing them back into the system. All students who finish primary
school continue into basic secondary, which is also compulsory. Table
1 shows the results of post ninth grade studies at mid level. It can be
seen that there has been a shift towards studying at pre university.
Table 1
CUBA: POST NINE GRADE STUDIES
(percentage)
Source: Pérez, V. (2004).
Equality in education is not only geared to giving everyone an
equal opportunity but also to obtaining results that are roughly similar
in different schools. At all levels there are examples that confirm this
principle. For example, there are 1,200 rural primary education schools
that have only between one and five pupils, and 146 of them have
only one pupil. In all cases these establishments have teachers,
televisions, video players and computers, so that education can be
provided under conditions analogous to those prevailing in city schools.
Similarly, in tertiary education, besides regular teaching institutions,
there are more than 3,150 university centers distributed across every
municipality in the country, the aim being to bring education to the
community and make access more equitable.
The high quality of Cuban education was demonstrated when the
country registered the highest results in the region in an international
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study made by the Latin American Laboratory of Evaluation of
Educational Quality, coordinated by UNESCO in 1997. The study covered
12 Latin American countries, it evaluated student knowledge in
mathematics and language, and it analyzed factors associated with
educational performance18 . Cuba did not just come first in the ratings,
it won by a wide margin over the second placed country. Further
studies on school learning show that the use of audiovisual and
multimedia systems, and interactive teaching methods have yielded
good results in terms of education quality (Rodriguez, 2005) (chart 2).
The emphasis should now be put on evaluating the quality of secondary
education, where educational efficiency levels are lower (Pérez, 2004).
Another aspect of the panorama in Cuba is education for the
disabled. There is special education for children and young people
who are physically, mentally or behaviorally challenged, and they are
Chart 2
CUBA: 4th GRADE STUDENTS WITH
A RANGE OF BASIC COMPETENCIES
(percentage)
Source: Ministry of Education, Direction of Statistic and Planning.
18 See INIE (2005).
104
incorporated into society as much as possible and not set apart socially.
Cuba is very progressive in this sensitive field. Specialized education
is now a priority in National System of Education strategy, and the
technical equipment of the centers has improved. Current programs
make it possible to detect children in this category and provide this
service, which is now of better quality. There are 50,000 students in
the system, which has 435 centers19 .
In the 1997-2005 period there was a significant increase in the
number of teachers because the number of children per class was
reduced and other programs were in progress. In the 2004–05 school
year there were 257,000 teachers in schools, and of these some 88%
were directly involved in teaching. There were also 90,000 part time
or trainee teachers. Some 47% of teachers were in primary, 42% in
secondary schools and 11% in higher education. In fact there are more
university teachers as the total is swelled by the numerous professionals
who are contracted to teach under the scheme to provide universal
higher education coverage in all the municipalities of the country
(INIE, 2005).
It should be noted that 100% of primary school teachers have
degrees and 70% are university graduates in education, and in the
other levels of education more than 95% of the teachers are graduates.
These high levels have been achieved thanks to the network of higher
degree teaching institutes and the re–qualification and upgrading of
teachers20 .
In Cuba the State has overall responsibility for funding, and
education expenditure accounts for a sizeable slice of the national
budget. Current expenditure on education comes to 25% of the total
budget, and in 2005 it amounted to 10.5% of GDP (chart 3).
In 2005 some 72% of total expenditure on education went to the
primary and secondary schools21 .
19 There are 261 schools for the mentally retarded, 85 for the physically disabled, 41 for children
with behavioral problems, 16 for the deaf, 20 for the blind and strabismus, 9 for speaking
disorders, autism, and the recuperation of children with asthma and diabetes. All of these are
strongly supported with the resources for specialized equipment to improve the quality of the
service provided.
20 See INIE (2005).
21 Details on the information about education expenditure are given in table A-2 of the annex.
105
Chart 3
CUBA: EDUCATION EXPENDITURE RELATED
TO GDP AND BUDGET EXPENDITURE
(percentage)
Source: National Statistic Office and Ministry of Finance and Prices (2005).
The salaries of workers in the education system were raised in
the 1998 reform. There is a system of incentives based on the results
of evaluations of teacher performance and results achieved.
Implementing this scheme cost close to 250 million pesos. In 2005,
teachers were given another pay rise which was designed to give
special incentives to those obtaining a science degree, and this
gave more prestige to the profession and provided an economic
spur to those employed in the sector. These measures have benefited
470,600 workers in pre-school, secondary school and higher
education, and it has involved an increase of 260 million pesos in
annual expenditure on salaries22 . This is a good sign, but for some
professionals these salary increases are still not enough given the
present high cost of living23 .
22 See Economics Press Service, year 18, No. 22, November 30, 2005.
23 The impact of salary increases is variable because of the economic situation of the country,
the double currency, the incursion of different markets and the high prices of products and
services for those who do not receive dollars.
106
3.1.3 The main challenges for education
Education is a strategic sector in that it is a driving force in the
country’s economic development, but it is also an ongoing process,
and there is a constant challenge to improve quality and achieve
excellence.
The new education programs constitute a challenge for the
Cuban model because implementing them on a massive scale has
required efficiency and a considerable improvement in the quality
of education at all levels. Education programs need to be monitored
and evaluated.
The ongoing reform of the wage structure and salary increases
for teachers (which has meant that teachers are now receiving greater
recognition in society) ultimately depend on the country’s economic
growth and political decisions. The real salary that teachers receive
should increase their well-being. Besides this, one of the permanent
objectives of the national education system is that all institutions,
regions and teaching levels should work to re-train their teaching
staffs and make syllabus improvements.
Cuba is in the process of bringing about a transformation in education
in which not only the means to educate but also the concept of
education itself are changing. The main goal of the social efforts of
the Cuban government and State is to raise the cultural level of Cuban
society on a permanent basis, as a precondition for increased economic
development.
In this interrelation between education and development, the
country has put the emphasis on human capital and on the advantages
of acquired knowledge, as these factors will make people better
able to handle the shifting situations of the information age in a
modern, competitive, dynamic and globalized world where education
has become a strategic weapon in pursuit of the knowledge economy.
Since 2004, Cuba has not only collaborated with different countries
in education, it has also earned considerable income by exporting
education services.
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3.2 Health
3.2.1 Health policy
A fully functioning public health system is one of the greatest
achievements of the Cuban social model. Since the 1960s, the State
has taken full responsibility for providing and improving health and
welfare services for the whole population. Today, in spite of the difficult
economic situation of the country and the extra problem of the
economic blockade, free medical attention has been maintained and
measures have been taken to improve the quality of these services.
The main pillar of the system today is the ‘Family Doctor and Nurse’
program, which is geared to providing greater coverage and
personalized attention in local communities.
In the 1990s, to cope with the severe limitations on resources, the
Ministry of Public Health (MINSAP) developed the strategy of making
efficient use of what was available, trying to find new sources of
finance, and above all exploiting to the full the potential of doctors
as human capital in local communities, to attend the greatest possible
number of cases at the primary health level.
In the last few years the sector has concentrated on preventive
measures and recovery and recuperation. The main objective has been
to preserve what has been achieved in terms of coverage and quality
of attention and to take advantage of the potential of a qualified
labor force in the sector to radically change the habits and conditions
of life of different population groups.
The key aspects of this strategy are to strengthen intervention at
a local level, to adopt an inter-sectoral approach, to involve the
community, and to develop a new and speedier management style at
all levels of the national health system. Other priorities are to make
more efficient use of material, financial and human resources through
organizational and control measures, and to extend the application
of mechanisms to give workers incentives (INIE-PNUD-ECLAC, 2004).
In the early 1990s, five main strategic lines were established: (i)
to reorient the health system to primary attention based on the family
doctor and nurse; (ii) the revitalization of hospitals; (iii) the revival
108
of state of the art technology programs and activities at research institutes;
(iv) the pharmaceutical development of medicines; and (v) priority
attention to vital objectives of the system such as stomatology, optician
services and ambulances. Besides all this, there are other priority programs
that have full support and are part of the strategy of public health
development, namely maternity–infant care, the program for the
treatment of non-contagious diseases, and attention to the elderly24 .
Since 2001, as part of the “Battle of Ideas”, new programs have
been initiated to improve the quality of medical attention and to
decentralize services to bring them closer to the community. This
reduces the distance people have to travel for a diagnosis or to receive
treatment. In many cases, this decentralization of services has been
enough to meet existing demand.
One of the most important changes in the sector has been the
introduction of a new service modality, the integrated polyclinic. These
have tended to reduce the number of cases that reach the third and
costlier level of the health care service, hospitals. In addition, there
are now recuperation and physiotherapy services that can treat patients
in their own communities.
In recent years, new concepts have come into play with the
remodeling and enlargement of hospitals, new ambulances for the
Integrated System of Medical Emergencies, a new approach in
drugstores (to give more assistance and be less commercial), the import
of high-technology equipment for ophthalmological centers in the
country, and the development of genetics. Social programs in the health
sector involving nurses and training in technology have helped to
improve care in communities.
What is more, medical services are offered to a number of other
countries on the basis of the Cuban spirit of solidarity. The “Milagro”
program, initiated in 2004 to assist Venezuelan patients with eye
conditions, has already been extended to other countries in Latin
America and the Caribbean, and up to 2005 more than 172,000
operations were carried out. In addition, students from various Latin
American countries have been trained at the Latin American School of
24 See INIE (2005).
109
Medical Sciences, and this is still going on. Under this scheme the
Henry Reeve Detachment was set up, making thousands of Cuban
doctors available to give assistance to people in need after natural
disasters or in the case of epidemics.
3.2.2 Health policy results
The Cuban health system has a decentralized structure at all levels
and is managed by the State through the national budget. There is a
broad network of services in more than 18,000 institutions employing
380,600 workers. In 2005, the hospital network had a total of 267
institutions throughout the country with some 70,000 beds for medical
and social assistance, which amounts to 6.2 beds per thousand
inhabitants (MINSAP, 2005).
The health condition of the Cuban people is considered satisfactory
(see table A.3 in the annex), which is thanks to the fact that the
health sector has been given high priority in social policy. Life
expectancy at birth increased in the 2001–03 period and reached 77
years for the population as a whole (75 years for men and 79 for
women) (ONE, 2005).
Infant mortality in the last 15 years is shown in chart 4. In 2005 it
came down to 6.2 per 1,000 live births, which stands in stark contrast
to the 1958 figure of 60 infant deaths per 1,000 live births. Among
children under 5 years old the main cause of death is accidents. The
number of infants underweight at birth has been decreasing: it was
9% in 1993 and 5.4% in 2003, and results are similar in all the different
regions of the country.
The ratio of people to doctors has improved and now stands at 159,
which has made for better quality medical services, a better relationship
between doctors and patients and their families, and better treatment
of specific problems. As to stomatological services, the ratio in 2005
held steady at 1,066 people per stomatologist (MINSAP, 2005).
Cuba has an epidemiological profile similar to that of the developed
countries. Table A.4 in the annex shows the coverage of national
vaccination programs to give protection against 13 diseases. The main
causes of death are chronic non-contagious diseases. The five main
causes of death in the period have been heart disorders, malignant
110
Chart 4
CUBA: INFANT MORTALITY RATE
(per thousand live births)
Source: ONE (2005a).
tumors, vascular brain conditions, influenza and pneumonia, and
accidents25 . These causes account for 73% of all deaths.
In the last ten years various epidemics (neuropathy, conjunctivitis
and dengue) made their appearance, and to treat them the country
had to run specific programs with a new organizational design. This
involved high costs and required the support of the international
scientific community.
The programs developed with the support of family doctors have
been successfully completed throughout the country. It is clear that,
with decentralization, the health service can now provide treatment
that is more effective and timely. One result has been a reduction in
consultations at the secondary level (polyclinics) as now it is only
patients who really require treatment that go to these health centers.
This is due to the fact that, at the primary level, family doctors now
do more diagnostic, preventive and curative work.
25 Some specialists have noted that there is a link between the high number of deaths through
influenza and pneumonia and deficiencies in classification in medical records.
111
This policy has led to a reduction in hospital admissions. The
rate of admissions has fallen from 13.1 to 10.8 per 1,000 people.
Much of the work that hospitals did previously now falls to family
doctors, and there are more home consultations and treatment
administered by the family doctor and nurse. Polyclinics are also
treating more patients.
In 2005, out of a total of 71,000 physicians, 33,000 were family
doctors. There were 89,500 registered nurses in the country, which
amounts to 79.5 per 10,000 people (see annex 5). In 2005, there were
9 stomatologists per 10,000 people (INIE, 2006).
One of the of the Public Health Ministry’s main priorities is to
train human capital in the sector. Human resources training is a closed
system; in other words, the public health system trains its own
professionals and technicians. There is a decentralized network in
secondary education, university and postgraduate studies. This training
of professionals has a direct effect on the quality of the health services
provided. Initial enrollment for different medical specializations in
the last years is shown in chart 5.
Chart 5
CUBA: INITIAL ENROLLMENT PER HEALTH SPECIALITY
(percentage)
Source: MINSAP (2006).
112
The Health System is financed by the State, and it offers free
services to the whole population. This includes hospital care, inpatients and outpatients, treatment with the most complex
technologies if necessary, primary attention in polyclinics, the family
doctor service and medical centers, stomatological clinics, maternity
homes26 , and many other services besides. It covers the whole range
of promotion, prevention, cure and recuperation.
In addition, all diagnostic research is free of charge as are medicines
for hospitalized patients and outpatients, including specialized priority
programs such as those for pregnant women, oncology, tuberculosis,
and AIDS27 .
In spite of financial limitations, health expenditure has increased: in
2005 it came to about 6.9% of GDP. Health expenditure per inhabitant
have been rising steadily, from 125 pesos in 1997 to more than 230 in 2005.
In 1958 this indicator showed only 3 pesos per inhabitant (INIE, 2006).
In the last two years, with the development of new health programs,
Cuban medicine has made progress on many fronts. Today there are
more intensive care wards in hospitals, the polyclinics in the country
have been completely refurbished and new specialized services are
now available, the shortages of medicines in the pharmacies have
been tackled by Cuba itself producing medicines, and much else has
been done to improve the health service.
Furthermore, the sector has obtained important results, due to
the accumulation of a considerable stock of medical human resource
potential. This includes the Cuban system for the early detection of
auditory problems in children, thus making possible to avoid an
irreversible problem of communication. Another example is Estereoflex
equipment – which is entirely produced in the country – which makes
it possible to carry out difficult brain operations in greater safety.
26 For example, by means of the ultramicroanalytic system that was initiated in Cuba for the
mother-infant program, in the last 20 years almost two and a half million pregnant women have
been analyzed and 5,192 fetuses with congenital malformations have been detected.
27 In Cuba, the AIDS epidemic is rated as being slow since the incidence is low. Hospitalized
patients receive free medical attention and medicines, and a balanced diet with the suitable
proteins, vitamins and minerals. Psychological work with these patients is vitally important for
them to be able to learn to live with the condition and rejoin society to the extent that this is
possible (see Pérez, V., 2000).
113
These systems are part of a technological transfer program to several
countries, and the results have been very positive.
Thanks to the constant effort of researchers in the pharmaceutical
sector, the health system now has 541 new Cuban-produced
medicines, and this has had an economic impact in that it has led to
earnings for the country of over one billion dollars in the last ten
years. Two examples here are Heberkinasa, which is used in heart
attack prevention, and interferons, which are very effective against
infections and various kinds of cancer.
The internationally accepted biotechnological products produced
in Cuba are not only distributed in Cuba, they are also exported.
They include vaccines against meningococcica meningitis types B
and C and against influenza and hepatitis, monoclonal antibodies
and therapeutic vaccines against cancer, PPG, interferons, the factor
of epidermis growth, the factor of transference, and Melagelina
(INIE, 2006).
3.2.3 Challenges of the health sector
The main problem in managing the system is that finance is limited
because it is dependent on results in the economic and social model.
Cuban doctors, and indeed the whole workforce in the health sector,
are highly respected internationally. However, they have to work on a
large number of cases, under difficult conditions and with limited
resources, so the health service has to tackle the problem of how to
establish a level of remuneration that really corresponds to the effort
these professionals make, bearing in mind that medical services are a
vital component in improving the people’s well-being. It is necessary
to provide a real stimulus for these professionals.
Part of the strategy of the Cuban health system is to improve the
quality of medical and paramedical services and make the system
more efficient. The programs that have been implemented to do this
have resulted in a more personalized care, and in greater equity in
the health area. However, systematic evaluations are needed if the
system is to continue to improve in terms of efficiency and impact on
the population.
114
The service also faces other challenges, namely:
• To improve and stabilize the timely distribution of medicines.
Although progress was made in this area in 2005, it is still one of
the weak points of the system and causes irritation among the
population.
• To expand facilities for gerontological medical services. Cuba
has an aging population that requires specialized services, care
for this segment is very expensive and at the present time, in
spite of the efforts that have been made, it is still inadequate.
• To improve environmental and family hygiene so as to continue
to improve people’s health situation.
• To improve preventive medicine at the local level by working to
promote a varied and balanced diet in family food consumption
patterns. Prevention can help to lower the incidence of a number
of illnesses including artery hypertension, which is related to
cardiovascular diseases and acute myocardium attacks.
• To better educate the population so as to reduce risk factors
like a sedentary lifestyle and smoking.
3.3 Employment
3.3.1 Social policy of employment
In Cuba, employment and salary policy is an important part of
social policy. It has been built around a series of measures, which
were legalized in the 1989 Labor Code, which is still in force28 .
Since the 1960s, the basic objective has been full employment.
Unemployment should not constitute a social problem in the country and
the State is responsible for creating the necessary jobs. In addition, Cuban
employment policy aims to reconcile the supply of labor with the demand
from the economic sectors and different territories, and central
planning is used to achieve efficient use of the labor force. With this
in view, special priority is given to the training of qualified personnel.
28 Resolution 51 of the State Committee of Labor and Social Security of January 1, 1989.
115
Another key point in employment policy is job security: workers
are protected against arbitrary layoffs, their vacations are guaranteed,
there are measures to provide for hygienic conditions and safety in
the workplace, and there is full social security coverage (INIE-PNUDECLAC, 2004).
Another aim is to achieve fairness. This means equal pay for equal
work, and pay levels are maintained in a pre-established range to prevent
sex discrimination. There is a centralized and uniform system of
remuneration that consists of fixed scales and rates that reflect the
complexity of the job and the qualifications required, and there are
lists detailing job content and the requirements to fill each position.
During the 1980s the government issued a series of resolutions and
decrees to begin to decentralize employment policy to the various
regions. The offices of Municipal Management of Labor of the Popular
Power took over labor resources and established a system of direct
hiring. Besides this, a certain degree of self employment was permitted,
among other measures29 .
The acute economic crisis at the beginning of the 1990s led to the
restructuring of employment, and this necessarily meant job losses.
There was a gradual adjustment; initially jobs were protected and
the nominal income levels of workers were maintained, and as the
economy began to recover the workforce were redeployed. No worker
was left unprotected, although there was sub–utilization of the
workforce30 and real wages fell.
As regards direct foreign investment, the Law 77 of 1995 regulates
fiscal obligations and the labor regime of joint companies. Cuban
economic policy was modified to widen the range of self-employment
activities within non-State employment. This measure was extended
to include various economic activities and licenses were granted to
high level professionals31 . In the agricultural sector, a better form of
29 See MTSS (1984).
30 In this period, the sub-utilization or sub-employment of the workforce was linked to a lack of
resources for production due to shortages of raw materials and fuel, power cuts, and the subutilization of capacity, but not to sub-employment characterized by hiring for part time and/or
temporary work.
31 See Decree–Law 141 (1993), Joint Resolution No. 1 CETSS-CEF, Joint Resolutions Nos. 3 and 4
(1995) MTSS-MFP and Resolution No. 10 (1995), MTSS.
116
organization called Basic Units of Cooperative Production (UBPC) were
set up, and unused land was handed over to families or groups of
individuals working in cooperative.
During the period of economic recovery from 1995–2000,
employment and salary policy was gradually adapted to changes that
came in the wake of economic reforms. The main goals were to
eliminate sub-employment and raise labor incentives32 .
Since 1998, a process called “management improvement” began
to boost State companies and make them more competitive and
efficient by granting them more autonomy and promoting greater
worker participation in decision making. This is also a gradual process,
and today there are more than 500 enterprises in this situation, which
means that 16% of Cuban State companies are moving towards
increased efficiency and competitiveness through the greater
decentralization of management. However, there are internal and
external factors that work against efficient functioning in companies,
including weak management with respect to how production is
organized, shortages of inputs, insufficient attention to improving
working conditions, etc. These lead to low levels of productivity and
labor fluctuations (Ferriol, A. et al., 2005).
Resolution no. 6 of the Ministry of Labor and Social Security (MTSS)
covers the treatment and pay of workers who are made redundant33 .
A wage guarantee is provided for a period between six months and up
to three years, and the amount depends on the number of years
worked. Efforts are made to relocate workers, and once they are
placed in useful jobs they have the right to choose between 80% of
their previous wage or the standard pay for the new job.
At the same time, a decentralized program to create new jobs
was implemented with the aim of reducing unemployment in each
region, mainly among women and young people.
32 See INIE (2005).
33 In 1993 a new category of labor called disponible (available) was set up. It involved workers
who, through the process of work reduction in their institute or work place, were left without
employment and entered to the employment bureau. This is handled by the distributing offices
of each institution together with the Provincial Directions of Labor. This measure was a response
to the social aspects of employment, and it means guarantees for the worker.
117
In 2001, the goal of full employment regain the centre stage in
this policy, and a collection of programs came into operation. One
example is the integrated program for unemployed young people,
which consists of an investment in training, which does not have an
immediate short term effect on the economy but has a special positive
effect in that it boosts self esteem, citizen security and the
development of human capital.
There are other programs to create new jobs, associated to social
policy. These are, among others, the new services of social assistance
(Social Worker Training Program), the move to universalize university
and other educational programs, and health and culture programs,
which have created a considerable number of jobs. There were also
programs oriented to the creation of jobs in selected areas such as
urban agriculture, and also jobs for specific groups like women and
the disabled 34 . Another initiative was the novel idea of “study as
employment”, which has rescued young people who dropped out of
education and helped unemployed workers as result of economic
restructuring. The scheme provided a qualification that would help
the beneficiaries to find useful jobs. The most popular program among
young people is the initiative “study as employment” which is
destined to young people not connected with any kind of study or
employment.
One important change has been the application of special payments
and incentives for workers, as a supplement to their normal wages.
These additional payments mostly involve enterprises that generate
foreign currency and/or have met or exceeded production targets.
The additional remuneration can be in foreign currency, Cuban currency
or goods35 , and the scheme is implemented in a gradual way.
3.3.2 Employment policy results
In general, results in the labor area reflect government strategies
and policy objectives.
34 See INIE (2005) for more details about labor changes and the social programs implemented.
35 Incentives in goods means rewarding workers with clothing, footwear, cleaning and hygiene
products, and/or products for personal use.
118
The economically active population (EAP) is growing: in 2005 it
was 4.8 million people. Employment has also grown steadily, with an
increase of 343,200 in the 2000-2005 period, and the unemployment
rate decreased from 7.1% in 1997 to 1.9% in 2005 (chart 6). In 2005,
employment reached 4.7 million workers, 37% of whom were women.
Chart 6
CUBA: UNEMPLOYMENT RATE, 1997-2005
(percentage)
Source: ONE (2005).
One of the strategic initiatives the government took to cope with
the crisis involved making structural changes to the economy (Alvarez,
2002). The structure of employment by sector has changed and now
there are more jobs in the tertiary sector, in particular in community,
social and personal services, which increased and in 2005 accounted
for 39.4% of total employment. One factor in these results is that
many workers have been absorbed by the new social programs in the
country (see table A.6 in the annex).
The analysis of employment by forms of entreprise ownership
reflects the structural changes that have taken place since the 1980s.
In 2005, State employment continued to predominate with
approximately 76.6% of the total, while in 1989 some 90% of workers
119
were employed by the State. Employment in the cooperative sector
and self-employment activities came to 9.3% (table 2).
Table 2
CUBA: EMPLOYMENT STRUCTURE BY OWNERSHIP, 2002-2005
(percentage)
Source: ONE (2005).
The current structure of employment is the result of the
employment policy. Social activities make up a considerable proportion
of more than 150 programs that have been implemented, particularly
in the areas of education, health, employment and social assistance.
Besides these, there are programs to support the development of
sustained urban agriculture36 .
With all the employment programs that have been implemented,
and including all the modalities mentioned, in 2005 more than 380,000
new jobs were generated, and most went to women and young people.
Many of these jobs were created in the programs included in the “Battle
of Ideas”, where at the moment there are 173,000 students on integrated
and upgrading courses, and they receive a stipend of 150 pesos.
One of the main strategic objectives in economic development
policy is to raise productivity, which will help to finance the vast
social programs in the country. Since economic recovery got under
way productivity has grown, but this indicator should be monitored at
factory, establishment, enterprise or ministry level so that productive
efficiency and resource saving can be pursued at all levels.
36 It should be noted that study as a form of employment for young people between 17 and 30
who have dropped out of formal education and do not work, and workers who have not been
reinserted after redundancy (sugar cane workers and the textile industry), are classed as students
and not included in employment statistics.
120
Wages and worker income have a special place in Cuban
employment policy. Both these indicators have risen, they even
increased during the crisis, the so-called “special period”, which was
not permitted to have a negative effect on the provision of free and
universal health services or education, nor were subsidies for food,
electricity or medicines stopped. Pay rises have been linked to increases
in the levels of production and efficiency37 .
Wage levels have risen every year, and in 2005, after the salary
reforms, they increased to an average of 330 pesos per month (chart
7). In 2002 more than 1.15 million State workers were awarded pay
rises. These increases in wages have been in selected activities which
are those linked to exports that generate foreign currency, and to
production that increases consumption (mainly food). Pay incentives
have also been applied in activities that supply goods for tourism,
which has been the driving force of the economy and has revitalized a
series of connected activities and services (INIE, 2005).
Chart 7
CUBA: STATE WORKERS PAY PER MONTH, 2000-2005
(pesos)
Source: ONE (2005).
37 See INIE-PNUD-ECLAC (2004).
121
In May 2005 the minimum salary was raised, and this measure
benefited 1.6 million workers. The following month, some 85,700
workers in the education and health sectors also received wage rises.
In November of the same year there was another wage increase, this
time for the rest of the activities and the State Central Administration,
and in this case 2.2 million workers benefited. These measures
constitute an additional annual burden of some 2,847.3 million pesos
on the national budget (EPS, 2005).
In these reforms the minimum salary was raised to 225 pesos in an
effort to keep pace with high price levels. Average income in 2006
was 398 pesos per month. Apart from these increases, relatively large
payments were made to holders of a master’s degree (80 pesos) and
to holders of doctorates in science (150 pesos), and in both cases the
payments were additional to other specific increases that depended
on the professional position of the recipient. This measure is an
incentive to obtain qualifications, and there is no doubt that the
general population heartily approve.
Overall, workers have attained high levels of education, and this
is an advantage because they will be better able to cope with the
technological and organizational challenges they will have to face in
the future. It can be seen in chart 8 that 59.5% of workers have
completed their secondary or higher level studies, and this is a source
of strength in a context of economic re-structuring as it will make
Chart 8
CUBA: EDUCATION LEVEL OF EMPLOYEES, 2005
Source: ONE (2005).
122
Cuba more competitive as a country and smooth the way to adequate
insertion into the international economy.
3.3.3 Challenges in the sphere of employment
The employment structure in Cuba has undergone far-reaching
changes, which goes to show that, even with scant resources, it is possible
to achieve significant social progress such as unemployment reduction
so long as there is the political will to make the system work. However,
the country still has to face a number of important challenges including
raising productivity, becoming more efficient, raising production levels
to meet domestic and international demand.
The government’s strategy to develop high value added services
and to utilize society’s most valuable resource –the acquisition of
knowledge by workforce training– has been successful. However, to
feed this ongoing process the salary reform policy must be maintained
so that increased income from work can serve as an incentive to make
workers pursue greater efficiency, which in turn rebounds in greater
well-being. This reflects the double role of employment in Cuba, as a
vital factor not only in society but also in the economy.
In addition, the implementation of new social programs has meant
that the people are not only better prepared to face the technological
and economic challenges to come, but are also protected and feel
that their individual and family lives are safeguarded. However, the
Ministry of Labor and the other public agencies involved will have to
make systematic evaluations of the situation to gauge the viability of
these new programs in terms of costs and impact.
Another challenge connected to employment is that the
management of companies must be improved so that it is based on
economic rather than administrative principles. This is of prime
importance if the Cuban State companies are to operate properly.
This means that it is necessary to produce efficiently, to maintain
traditional exports and to continue to develop sectors that already
yield considerable income, such as education, health, computer
sciences and biotechnology, all of which have high added value. The
challenge is how to change from the exploitation of natural advantages
123
to exploiting acquired advantages, that is to say how to put human
knowledge at the service of economic growth and social welfare.
To sum up, Cuba has clearly demonstrated that the economy can
be reactivated with structural changes and with the active participation
of workers, who have been protected by State policies throughout
the period. The strategy has been to retrain available personnel rather
than to fall back on unemployment insurance, which does not help
workers to find new jobs. The emphasis is on trained human capital,
the creation of useful jobs in services, and increased efficiency in
industry, agriculture and construction through better technologies.
On these bases, an increase in production will make companies more
competitive in the international context.
The ideological foundations of Cuban employment and salary policy
are radically different from traditional employment systems in other
parts of the world, where market laws rule over the fate of workers.
This means that Cuba is faced with great challenges in its project to
combine social, collective and individual interests and guarantee
employment so it may play a double role, harmoniously combining an
economic and a social function.
4. CONCLUSIONS
Since the beginning of the new millennium, Cuban social policy
has been adjusting to new economic and social conditions, not only to
maintain the satisfactory results achieved previously but also to
increase the quality of attention to the population and to create
suitable conditions for future development.
In the period considered here, resources were limited and there
were other factors that restricted growth that were rooted in the
performance of the international economy and in internal difficulties.
In spite of all this, the government pursued its social policies in the
firm belief that social development is a necessary condition for growth.
Another important aspect of social policy is that it has been used to
pursue efficiency.
124
There have been problems of vulnerability, poverty and inequality,
and social policy makers have responded by taking account of the unequal
situations of potential beneficiaries, and trying to ensure that benefits
reach those who are most in need. This involves a new approach to
social policy: while not abandoning the principle of equal and universal
coverage, the focus now is on a style of social provision that is more
tailored to individuals. There are also new challenges to be faced to
do with the fact that the population of the country is aging.
These dimensions -financial weaknesses and the focus on the
population sectors most in need without abandoning the universality
of services- have meant that social policy has had to keep on developing
creatively and becoming more integrated. An analysis of the new social
programs since 2000 reveals some very promising possibilities as to
how services can be increased in spite of financial restraints. A future
evaluation of the impact of these programs may yield useful lessons
for other developing countries.
There are a number of characteristics in Cuban society that have
helped to make this social policy possible. In the first place, the
government has the political will to pursue these objectives. Also,
there are a collective commitment with a social project and the
advanced social development that was achieved before the economic
crisis of the 1990s. This worked in combination with the spirit of
solidarity that is so characteristic of the Cuban people and has provided
the strength to cope with these severe economic difficulties.
Second, Cuban society is highly institutionalized. It is organized
and it has a well-developed system of social and economic statistics,
and this makes it possible to evaluate situations using scientific criteria
and to monitor local conditions.
Third, the social measures that have been applied tend to unite
the government, social and political organizations, and families.
However, social measures alone are not enough to effectively tackle
the problems of poverty, inequality and vulnerability because economic
growth is also a necessary condition for social development.
Furthermore, although policy implementation may become more
efficient, it might be that there are simply insufficient resources to
continue with wide-ranging, holistic programs.
125
With this in mind, it seems clear that the economic reforms that
are under way should be continued. This agenda includes doing away
with the two-currency system, reducing segmentation in markets for
consumer goods and services, and restructuring the labor market.
At the present time there are more that 200 social programs in
operation, and these should be revised and assessed on a regular basis
to gauge their impact on the target population and obtain feedback
from society. In addition, since 2006 two new areas have come to be
priorities, housing and public transport. These sectors were not given
priority in social policy before 2005 as resources to improve them
were scarce. In the five years ahead the social policy makers will have
to improve the performance, scope and satisfaction of social demands
in these areas.
126
127
Statistical Annex
Table A.1
CUBA: EDUCATIONAL INDICATORS, SELECTED YEARS
Notes: (1) School course 1959-1960; (2) School course 1970-1971; (3) Census 1953;
(4) Census 1981; (5) includes schools of other institutions; (6) incomplete data, in
1959-1960 there were 230 schools at this level; (7) only private universities - State
universities did not work in that year.
Source: Statistical information of the MINED (2006).
128
Table A.2
CUBA: EXPENDITURE IN EDUCATION, BY PROGRAM 2001-2005
(million pesos)
Notes: (1) Includes social worker schools; (2) includes art trainer schools; (3) includes
administrative expenses; (4) includes 1.5 million pesos of expenditures for hurricane
damage costs.
Source: Ministry of Finance and Prices (2005).
129
Table A.3
CUBA: SELECTED HEALTH INDICATORS, 1958 AND 2005
Note: (1) 2004.
Source: MINSAP (2005).
Table A.4
CUBA: DISEASES PREVENTED BY VACCINATION,
YEAR OF ELIMINATION
Source: MINSAP, National Statistics Board.
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Table A.5
CUBA: FACULTATIVE STAFF OF THE PUBLIC HEALTH MINISTRY,
1996-2005
Source: ONE (2005).
Table A.6
CUBA: EMPLOYMENT STRUCTURE BY ACTIVITY,
2000-2005
Source: ONE (2005).
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Chapter 4
CUBA: AGRICULTURE AND ITS CONTRIBUTION
TO ECONOMIC DEVELOPMET
Pablo Fernández
Arturo Costales1
Introduction
Since the beginning of the Spanish colonization, Cuba’s economic
performance has been closely tied to the agriculture sector. The
domestic economic structure goes back to this colonial stage, and
before 1959 it was characterized by a high degree of external openness
which had its origins in the emergence of an agricultural structure
dependent on Spain. This became consolidated over time and it has
conditioned the country’s development.
Cattle farming began in the 16th century with the introduction of
livestock from the old world. It benefited from the abundant virgin
pastures and progressively expanded across the whole island. At that
time tobacco production also expanded; which was an indigenous
plant that was cultivated by the original population when the Spanish
came. Another crop developed was sugar cane, which was introduced
by Christopher Columbus.
Since those early days, these products have dominated the economy
of the island, and they gradually came to condition its economic and
political development.
1 Cuban Ministry of Economic and Planning.
132
Another structural feature associated with the evolution of the
agriculture in Cuba is that much of the land was held in large estates,
and this had its origins at the start of the colonial period. As time
passed this trend was not reversed but intensified, and large holdings
became the predominant form of land exploitation. As a consequence,
huge masses of peasants and agricultural workers were driven into
poverty and marginalized, and this situation was only rectified in 1959
when the Revolutionary State promulgated land reform laws.
It is impossible to understand the economic development of Cuba
without considering the history of the agricultural sector. In this
study we examine the role of the agricultural sector in national
economic development from a historical point of view and attempt
to define the role that this sector is called upon to play at the present
time in the new national and international economic context. We
will also identify the main problems and challenges facing Cuban
agriculture, focusing mainly on the situation after the drastic
structural adjustments made to the country’s economy at the
beginning of the 1990s.
In the first part of this study we give an overview of the general
characteristics of the island and a brief history of the agriculture in
Cuba. In the second part we analyze the agricultural policy in the
revolutionary period, and in the third section we examine the changes
that have taken place in this sector since the 1990s. In the fourth part
we present our final considerations.
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1. GENERAL CHARACTERISTICS AND BRIEF HISTORY
OF CUBAN AGRICULTURE
1.1 General Characteristics
The Republic of Cuba is the biggest island in the Caribbean, it is
strategically located between the two Americas, and it played an
important role in the conquest of the New World by Spain. It is 145 km
from the Florida peninsula, and it separates the Gulf of Mexico from
the Caribbean Sea.
The climate is humid and the land is tropical savannah. There are
two well-differentiated climatic periods, the dry season from November
to April and the rainy season from May to October. Annual average
rainfall is 1.059 mm, with 316 mm in the dry season and 1.375 mm in
the rainy season. Relative humidity is high at 81%. The average annual
temperature is around 25ºC (76ºF), and the warmest temperatures
are in the eastern part of the island.
1.2 Brief History
When the Spanish came to the island they set up cattle rearing as
their main economic activity. Land was distributed in vast circular
areas called “hatos” and “corrales”. Smaller areas of crop cultivation
grew up around the population centers. In the mid 15th century, sugar
and tobacco production spread into the cattle ranches and this
transformed the original Spanish agrarian structure. From the beginning
of the 1600s, the growth in production at the “estancias” made it
possible for the population of the main villages on the island to increase
as well as foreign market for agricultural products grew. Trade in these
products stimulated shipbuilding, and this in turn stimulated an
emerging timber industry.
In 1791 the slaves in Haiti revolted, and Cuba replaced this French
colony as a producer and exporter of sugar. The setting up of sugar
processing plants in Cuba meant a radical transformation in the
structure of agriculture and a decisive boom in the colony’s economy.
The vast estates that were used for cattle ranching and had areas of
134
forest and grassland were subdivided into smaller properties. The scale
of production increased and sugar cane became the specialized
product, and these trends accentuated the negative social and
environmental impacts of the economic structure. There were negative
externalities associated with this development, such as damage to
natural resources, particularly in the form of the destruction of forests,
and the over-exploitation of the soil, which created areas of
unproductive land. The process of concentration and centralization in
sugar production continued until the 1900s.
The liberation war against Spain started in 1898. At that time
United States intervened and set up a form of military occupation,
and this started the so-called neo-colonial period in 1902. Large
investments of North American capital flowed into Cuba to establish
giant sugar latifundium in the eastern half of the island, which until
then had been the area with least agriculture. In the first two decades
of the 20th century, the planting of sugar cane caused the most intense
deforestation in Cuba’s history, and by 1925 most of the extensive
plains of Cuba had been planted with sugar cane.
The unequal distribution of the agrarian property in this period
can be appreciated by analyzing the structure of land ownership in
the fifty years before the First Law of Agrarian Reformation. In that
period, 1% of owners held 47% of the total area. Cuba was recognized
as the Latin America country most concentrated with reference to
agrarian ownership (table 1).
Table 1
CUBA: DISTRIBUTION OF AGRARIAN OWNERSHIP IN 1958
Source: INRA (1964).
135
At the end of the 1950s, agrarian production operated as a semifeudal system and was similar to the so-called “plantation economy”
or “enclave economy”. It was based on agricultural techniques that
involved the massive use of agricultural workers on low wages. This
type of economy was a continuation of the cultivation system imposed
under the slavery system in the South of the United States.
The situation in Cuban agriculture in 1959, when the Revolution
took place, was of economic and political subordination to the United
States, scarcity of basic food, social inequity, and a high rate of
unemployment during “dead periods” (the months when there was no
sugar processing). Besides this, 20% of the total population was illiterate
(mainly in rural areas), and life expectancy was about 60 years, but
again, it was lower among the rural population.
The main challenges the Revolution faced in its early years were
to change these regressive production relationships in agriculture, to
diversify production, to overcome backwardness and marginality in
the rural population, and to confront economic and military aggression
from the United States.
2. AGRICULTURE POLICY IN THE REVOLUTIONARY PERIOD
2.1 Post-revolution Scenario
Before 1959 the agricultural sector was plagued by the bad use of
resources, and this applied to land, water, the labor force and technical
progress. Cuban agriculture badly needed to be made more dynamic,
and the first step was to implement land reform. This was part of the
revolutionary program, and it matured during the revolutionary
struggle. When the Cuban Revolution triumphed on January 1, 1959,
the government promulgated two agrarian reform laws which handed
over ownership of land to the peasants who worked rented land. These
laws considerably reduced farm size.
In May 1959, the first agrarian reform established the maximum
area of private land holdings at 400 hectares, and 40% of the arable
136
land was taken from foreign companies and large landholders and
appropriated by the State. There was a second agrarian reform law in
1963, and in it an upper limit of 67 hectares was established. The aim
was to suppress the class of large landowners and thus combat the
exploitation of small farmers. Another 30% of arable land was
appropriated, and in total more than 70% of land passed into the
hands of the State.
For more than thirty years, this ownership structure in agriculture
was unique to the socialist countries, where land reform was guided
by the distribution of ownership into small lots to the benefit of
enormous numbers of peasants, and where large landowners no longer
ruled. In the old Soviet Union and the other socialist countries in
Europe, the agricultural population amounted to more than 50% of
the total, and the share of the State in agricultural production was on
average no higher than 30%.
It is possible to identify some structural similarities between Cuba
and other Latin American countries in the period prior to 1959. It was
common for ownership to be concentrated in the hands of large
landowners who were mainly foreigners, and this system was not as
widespread elsewhere as it was in Cuba. This is why Cuban land reform
has set up a different system.
The four priority objectives of the far-reaching changes in Cuban
agriculture were: (i) to meet the growing food requirements of the
population; (ii) to expand and diversify sources of income through
exports; (iii) to obtain raw materials for the food processing industry;
and (iv) to eradicate poverty from the countryside. In pursuit of these
aims, a number of educational, cultural, and economic measures were
taken including literacy campaigns, the planned development of rural
communities, the provision of social and health services for farmers,
the construction of thousands of kilometers of new roads and the
extension of electricity to rural areas. The government’s will to make
changes is reflected clearly in the first decree of the first agrarian
reform law, which states:
“The progress of Cuba is based on the growth and diversification of
industry to take more efficient advantage of its natural and human resources,
and also on the elimination of heavy dependency on monoculture in
agriculture, which is a symptom of our inadequate economic development.”
137
2.2 Peasant policy
An element of social policy that has characterized the process of
agrarian change from the very beginning was respect for the wishes of
the peasants on small and medium-sized holdings who supported the
new economic program. In 1961 the National Association of Small
Farmers (ANAP) was founded: it is a non-government organization
and most peasants are members.
Another government measure was to promote peasants’
cooperatives, and most smallholders joined this kind of productive
organization. The first and most numerous type were the Credit and
Services Cooperatives (CCS) that came into being in 1962. In that the
peasants banded together to contract certain services from the State
and the banks, but each member retained ownership of his own land
and other assets.
In 1975, the First Congress of the Communist Party of Cuba resolved to set up a new type of cooperative called Agricultural Production
Cooperatives (CPA). These involve a higher degree of socialism in
collective entities in that the individual peasant agrees that land
and other assets should become the common property of the
members. The peasants who allowed their productive assets to be
absorbed into common ownership were compensated financially in
proportion to the revenues of the cooperative, and they received a
share when revenues and profits were distributed at the end of each
agricultural cycle.
At the present time there are 2,654 CCS in the country, with a
total area of 858,000 hectares and 153,600 members. There are also
1,116 CPA, with 693,000 hectares and 56,000 members. This
cooperative movement has been in a process of consolidation for more
than 30 years, and it has resulted in a significant improvement in the
peasants’ levels of life, not only economically but in social terms since
it has led to the creation of rural communities. The peasants have
also benefited from the extension of health and education services to
rural areas, including even the most remote places, the electrification,
the development of communications, and phytosanitary and veterinary
protection.
138
2.3 Structural Problems in the New Agricultural Pattern
In the 1970s there were already signs of competition for the main
resources (land, water, investments and inputs) among food producers
who supplied the domestic market and those generating export
products, mainly from sugar cane production. Since then there has
been a structural problem in connection with the use of land, and this
has continued up to the present time.
At the end of 2003, total agricultural land amounted to 6.6 million
hectares. Some 29% of this is used for export products (sugar, tobacco,
coffee and citrus fruit), 33% is devoted to pasture for cattle and 17%
to other food production. Of the remaining 22%, 7% is devoted to
other crops and 15% is idle. The cultivated area amounts to only 3.5
million hectares, of which 52% is destined to export crops and 31% for
the production of food.
The average agricultural area per inhabitant is 0.59 hectares, of
which 0.31 ha are under cultivation. Of this, 0.16 ha are devoted to
agro export products and 0.15 ha are for food and other crops.
After 1975, the emphasis of economic policy shifted towards
industrialization and this has taken workers from the land. But the
development of agriculture was not abandoned; it is still the main source
of foreign earnings. Therefore a new kind of competition has emerged,
the competition between industry and agriculture for manpower.
To compensate for the migration of workers to industry and other
more attractive sectors agriculture needed to introduce highly
mechanized productive systems, and capital intensive technologies
were adopted, resulting in sweeping changes in the technological
profile of agriculture.
Since this process began, the sector has become more dependent
on foreign sources of equipment, fertilizers, pesticides, foodstuffs
and fuel. Besides this, the domestic food market continued to be
dependant of imports, and in fact nearly half of the food Cuba
consumed came from abroad.
By the second half of the 1980s it had become difficult to
maintain the necessary levels of imported inputs for the agricultural
139
sector and imported food for direct human consumption. The
government’s response was to implement the National Food
Program, which covered all aspects of food consumption and aimed
at improving domestic supplies for domestic consumption. However,
the viability of this plan was conditioned by high import levels,
and the socialist countries in Europe could not satisfy Cuba’s demand
since they had already begun to encounter the structural and
political problems that finally generated the crisis of socialism in
Eastern Europe.
To analyze the importance of the agricultural sector in the national
economy, table 2 presents a comparison of the participation of this
sector in a group of macroeconomic indicators at the beginning and
the end of the period.
Table 2
CUBA: THE AGRICULTURAL SECTOR IN THE ECONOMY,
1959 AND 1989
(percentage)
Source: Fernández (1997).
The effort and resources invested in transforming agriculture in
the thirty years from 1959 to 1989 was not entirely successful in all its
objectives. Technical improvements were made on a massive scale,
mainly on State farms, but productivity and yields tended to be below
their potentialities. Organizational and management aspects in the
140
new production relationships lagged behind, and this was in fact the
main obstacle to higher productive efficiency and competitiveness in
the emerging agricultural model.
The organizational problems that were obstacles to efficiency
included the fact that state agricultural enterprises were excessively
large, and this tendency to gigantism hindered suitable and efficient
management of the productive process involved. The average surface
area of State enterprises in 1989 was more than 10,000 hectares,
while in the cooperatives it averaged 600 hectares.
As to management, administrative and centralized mechanisms
had priority over economic and financial mechanisms and did not allow
the latter to function properly as a provider of incentives for social
actors, and this resulted in that the new agricultural model performing
poorly. Thus, the sector became more and more dependent of imported
inputs and equipment, and food also had to be imported because
home production yield was insufficient.
By the late 1980s, all these factors combined to make it clear that
there was a certain level of stagnation in production, and subsidies to
the agricultural sector were progressively increased, mainly those going
to the public enterprises.
3. AGRICULTURE IN THE 1990s AND THE CHALLENGES
OF THE NEW MILLENNIUM
The exhaustion of the agrarian model that had already begun in
the preceding period was accentuated by the fall of socialism in Eastern
Europe at the beginning of the 1990s. Until that time these countries
had provided the main commercial support for the technical and material base of Cuban agriculture, and their collapse had a very adverse
impact on productive development in the sector. In fact, agriculture
was one the economic activities that suffered most from the fall of
socialism in Europe. The Cuban economy as a whole sank into deep
recession, and this sparked an abrupt and dramatic change in the
country’s international relations.
141
Between 1990 and 1994, Cuba’s gross domestic product (GDP) fell
by 33%, while gross agricultural product fell by 50%, and cattle
production, which was hit the hardest, decreased by 60%. This was
caused by a growing dependence on imported inputs of animal food,
which came up to nearly two million tons in 1989, a huge figure
compared to the annual 700,000 tons that were imported in the 1990s.
In the 1980s, Cuban trade with the socialist countries of Eastern
Europe accounted for 85% of the island’s imports, and the country
enjoyed advantages in terms of trade and credit facilities, and this
made it possible for Cuban imports from all origins to go as high as
8,000 million pesos by the end of that decade. But when socialism
came to an end in these countries this special relationship ceased,
and Cuban purchasing capacity was abruptly reduced by 75% (to about
2,000 million pesos in 1993). This had the most dramatic effect on the
performance of the main domestic sectors.
Between 1981 and 1990, the average of Cuban trade was 12,000
million pesos per year, but this fell sharply after 1990 and hit its lowest
point in 1993 when the total value of trade was only 3,200 million
pesos, 27% of the 1980s.
In recent years imports have again increased, and in 2004 they
came up to 5,600 million pesos. This has been financed by higher
revenues from services such as tourism, medical services for foreigners
or third countries, telecommunications and international passenger
air transport. Revenues from services more than doubled between
1993 and 2004, while income from the export of goods rose at a more
modest rate, from 1,157 million pesos in 1993 to about 2,180 million
pesos in the 2004. The registered surplus in the services balance has
compensated for the deficit in the balance of goods, so much so in
fact that, for the first time in recent years, there was even a surplus
in the current account of the balance of payments. In this period
commercial exchange increased and domestic economic performance
improved, the process of economic recovery is well under way and
prospects for the next few years seem to be good.
In 2005, Cuban GDP grew by 11.8%. A crucial factor in this was a
considerable rise in revenues from the export of services with high
added value, which is a result of cumulative investment in human
142
capital during the revolutionary period, and also increased revenues
from tourism and other services like telecommunications and air
transport. In addition, a group of industrial activities and services
that supply domestic demand are recovering well, which has made it
possible for home and government consumption to increase and for
stocks to be accumulated.
The structure of imports by product type is still characterized by
high levels (around 43%) for fuel and food (table 3). This underlines
how important increased agricultural production has been in the
process of economic recovery, since the rise in home production has
enabled the country to reduce to some extent expenditure on imports
of food to satisfy the home market.
Table 3
CUBA: STRUCTURE OF IMPORTS
BY PRODUCT GROUPS, 1990 AND 2004
(million pesos and percentage)
Source: ONE (1998 and 2005a).
There have also been changes in the structure of exports, mainly
due to a fall in revenue from sugar exports as a consequence of the
loss of the preferential prices that were obtained in the European
socialist markets, to low levels of production in recent years, and to a
fall in citrus fruit sales after the loss of those markets (table 4).
143
Table 4
CUBA: STRUCTURE OF EXPORTS
BY PRODUCT GROUPS, 1990 AND 2004
(million pesos and percentage)
Source: ONE (1998 and 2005a).
The share of exports of agricultural origin, which were of decisive
importance among domestic exportable goods in the past (87.7% in
1990), has shrunk dramatically (29.9% in 2004), due to the fall in
sugar exports.
These reductions have been a consequence of the recent decision
to restructure the sugar agro industry, which involved reducing its
industrial base by more than 50% and re-allocating that land to other
agro activities like cattle and alternative food production and forestry.
This policy has led to profound changes in the economy in general and
in the agricultural sector in particular.
In 1995, the overall downward trend in the economy was reversed
and a process of recovery got under way. This was the result of a new
government policy, and a group of economic measures were taken to
reactivate performance in some depressed sectors and to open up
144
new spaces in which the people were able to improve their income
stimulating domestic demand.
Some of economic policy measures that were applied after 1993
were as follows:
• Opening access to foreign investment as a way of finding new
markets, and obtaining competitive technology and sources of
funding to replace those lost with the fall of socialism in Eastern
Europe.
• The de-monopolization of foreign trade as economic relations
with other countries changed.
• The legalization of the holding of foreign currency in Cuba, a
measured designed to make it easier for the government to access
these funds.
• The authorization and expansion of self employment in a number
of activities to alleviate unemployment, which had become a
problem as a consequence of the recession.
To supplement these measures, changes were made in the planning
system, which up to that time had been based on old socialist theories
in which material aspects of the economy were given priority over
financial aspects. By the middle of the 1991-1995 period, the
government began to apply new methodological concepts that
restricted the scope of central administration decisions to global and
macroeconomic matters and gave more autonomy to economic actors
and agents, going over to a process that used financial instruments as
the basic tools in the new planning system.
3.1 Main Impacts of the Collapse of the European Socialist
Block on the Cuban Agricultural Sector
The “technification” of agriculture and the high level of imports
for this sector were possible thanks to trade and financial relations
between Cuba and the European socialist countries. This had been in
operation since the beginning of the 1970s in the framework of the
Council of Mutual Economic Aid (CAME).
145
The fall of socialism in Eastern Europe came as a severe shock to
the Cuban economy and it had very adverse effect on the agriculture
sector. Production was severely mauled, and technical support for the
industrial base of State farms was vanished. It became necessary to
take a number of measures in a context of structural adjustment to
stop the fall in agricultural production, and at the same time to introduce new technologies that were less dependent on foreign inputs
and more in line with the real possibilities of an economy that was
compelled to buy less from abroad.
The structural adjustment measures in the agricultural sector were
as follows:
• Creating cooperatives for considerable proportion of the land
that was under State administration, as part of an adjustment
in agrarian activity and as a formula to motivate producers
through the collective ownership of assets.
• Handing land over to individuals and families to exploit for the
production of export crops like tobacco and coffee, and for food.
• Reopening a free market for agricultural products to foster an
increase in food production.
• The decentralization of State administration in favor of
managerial and territorial economic agents.
• The development of a program of urban agriculture.
3.1.1 Structural changes in ownership relations
Basic Units of Cooperative Production (UBPC) were set up as
associations of agricultural workers from government enterprises. They
were allowed the use of land to exploit collectively, but they had to
pay for other connected assets like buildings, machinery and livestock,
although they were granted credits on very easy terms to be able to
do so. This was a complete change in ownership relations in the
agricultural sector.
There were 2,200 of these new cooperatives, and together with
the Cooperatives of Credit and Services (CCS), the Cooperatives of
146
Agriculture and Cattle Production (CPA) and an increase in the number
of individual producers, lead to a total change in the ownership
structure of land exploitation since State production ceased to be the
most common arrangement in this sector (table 5).
Table 5
CUBA: LAND HOLDING STRUCTURE, 1992 AND 2004
(percentage)
Source: ONE (1994 and 2005b).
It can be seen that the structure of land ownership has been almost
completely reversed since 1993. The fact that it is now non-State social
actors that dominate Cuba’s agricultural scenario has wrought big
changes in production relationships, not only as regards methods of
planning and administration, but also in the new socio-economic context
in which the State’s role has to be redefined to permit the laws of
economics to play a more active role in how production is regulated.
3.1.2 The agricultural market of supply and demand
The government re-introduced agricultural product markets
regulated by supply and demand as an incentive mechanism. This
trading space had operated previously, in a similar experiment in the
1980s, but the project was abandoned when certain trends emerged
that were contrary to the principles of the prevailing economic model
in those years in which the State dominated agricultural production
147
but did not participate in this market. Private producers were the main
suppliers, and a trend towards oligopolization began to make itself felt.
In this new version of the market any enterprise, no matter what
ownership system it has, can participate. This means that State farms,
cooperatives and individual producers can all offer their surpluses after
selling the required quota to the central State agencies. These State
organizations channel agricultural consumer products to the population
as a whole in a system whereby goods are traded under special regulations,
and also supply social programs like educational centers, hospitals,
maternity homes, old people’s homes and other welfare centers.
This market has been in operation for more than a decade, and it
has meant that there is a supplementary supply of food and other
products of agricultural and industrial origin which, in spite of price
levels and some operational problems, has contributed to improving
the country’s food supply in quantitative as well as in qualitative terms.
This structure has also worked to eliminate the informal food market
which came into being at the start of the severe economic depression
at the beginning of the 1990s, and reached alarming proportions when
the State supply of foodstuffs shrank.
3.1.3 Changes in administrative mechanisms
Before the crisis, the administrative mechanisms that held sway
were characterized by a high degree of centralization as regards
production decisions, and State control of the distribution of inputs
and the commercialization of final products. But when the agricultural
scenario was totally transformed as a result of changes in the land
ownership system and the emergence of a wide variety of productive
agents, the administrative mechanisms in force had to be adjusted to
suit the new structure which was made up of an increased number of
legal entities (enterprises) and natural persons (individual producers),
with great diversity in terms of the use of technologies and in natural
and human resources.
The situation generated a gradual decentralization in the
management of methods of production; it brought decision-making
closer to the grassroots level inherent in the new supply structure,
148
the use of resources, workers’ income, etc. However, there were severe
external financial restrictions that impeded decentralization in the
sphere of finance, and the basic decisions in this area are still taken
centralized by the State administration.
3.1.4 Urban agriculture
One of the main new initiatives to promote food self-sufficiency
has been urban agriculture. This form of agriculture was almost
neglected in Cuba when food was low priced, but when the shortages
started one response was urban garden development. At the beginning
of the crisis, people organized themselves to cultivate vacant lots,
backyards and rooftops in the cities, and in some cases animals were
reared inside houses in order to assure the family’s food supply.
Since the middle of the 1990s, urban agriculture has developed to
the extent that besides subsistence production it also now includes
commercial activities. It is based on the use of local resources with
minimum transportation costs for both inputs and products.
It can be found inside a radius of 10 km from the center of the
capital city in each province, up to 5 km from the center of municipal
capitals and up to 2 km around population centers of more than 10,000
residents. There is also local production around settlements of less
than 1,000 people.
The main objective of the Cuban urban agriculture movement is
to increase the daily consumption of vegetables to 300 grams per
person, the amount recommended by UN-FAO.
The organizational and administrative pillars of the urban
agriculture program are 28 sub-programs related to all aspects of animal and plant production in the country. These sub-programs include,
for example, the management and conservation of soils, the use of
organic matter, seed production, fresh vegetables, spices, fruit
production, rice production, grains and animal feed, apiculture,
livestock, aquaculture, product marketing and small agro-industries.
Taken together, Cuban urban agriculture has a systematic approach,
but each program is supervised separately in a way that meets its
specific needs with specialized technical assistance.
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3.2 Recent Evolution of Agricultural Production
In Cuba, like in many countries in the region, the agricultural sector is one of the main providers of employment and contributors to
the trade balance in goods, although its relative weight in GDP is
proportionally much lower (table 6).
Table 6
LATIN AMERICA AND THE CARIBBEAN: AGRICULTURE IN GDP,
EMPLOYMENT AND EXPORTS, 2002
(percentage)
Notes: (1) Population engaged in the agriculture / economically active population.
(2) In the case of exports of the countries of the Southern Cone, Andean
countries, Central America and CARICOM, it is the range of the index of
participation of the exports of agricultural origin in total of exports.
(3) 2004.
Source: FAO (2004).
As a result of general and specific measures analyzed before, the
downward trend in the alimentary situation stopped and a period of
recovery started, although still below the domestic requirements, since
the external dependence for alimentary supply continues to be significant.
But internal reserves exist in natural resources (land and water),
human capital and technologies, susceptible of more intensive use.
150
The macroeconomic results show a favorable evolution,
notwithstanding the agricultural gross product has been loosing
participation in total GDP (table 7)
Table 7
CUBA: EVOLUTION OF THE GDP AND OF THE AGRICULTURAL
GROSS PRODUCT, 1994-2004
(prices of 1997)
Note: (1) Estimated by the authors.
Source: ONE (1999 and 2005a).
As a consequence of the trends outlined above, food supply has
been increasing progressively and is now higher than in the years before
the recession, which goes some way towards ensuring stable food
security. By 2004 the average intake of calories per person had risen
to 3,300 kilo-cal/daily.
Agricultural production has adjusted its technological patterns to
a more sustainable system that is less dependent on imported inputs.
It is taking maximum advantage of local resources, both human and
material. This is the case in most branches of agricultural production,
and volumes of vegetables, grain and fruit (excluding citrus fruit)
(table 8) are now higher than they were in the 1980s. This has not
happened in cattle rearing, which is much more dependent on foreign
151
inputs such as feed, medications and fuel, and this has led to an
increase in imports of milk and meat to ensure adequate levels of
proteins for the population.
Table 8
CUBA: DYNAMICS OF MAIN
AGRICULTURAL PRODUCTS, 1993-2004
(percentage)
Source: ONE (1998 and 2005a).
Rural poverty was eradicated at an early stage. Although the
situation at the beginning of the 1990s was complicated, the
government’s policies and new measures to overcome recession
preserved intact its previous achievements in the sphere of poverty.
This was possible because the authorities resolved to do all they could
to maintain and consolidate what had been achieved in areas like
employment, health, education and social security. Data on
employment and income show that they succeeded. Employment in
the agricultural sector has increased in recent years as a result of the
incentives introduced in the package of reforms in the previous period.
Furthermore, income in the agricultural sector is also rising (table 9).
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Table 9
CUBA: RECENT TRENDS IN AGRICULTURAL EMPLOYMENT
AND INCOME, 2000-2004
Source: ONE (2004).
Another important aspect of the panorama is that the quality of
life in rural areas has improved, thanks to the extension and expansion
of the infrastructure of basic services such as potable water, electricity,
housing, educational facilities and public health. In spite of financial
limitations, these programs are all still in operation.
4. FINAL CONSIDERATIONS
The main priorities of the government that came to power in 1959
were to ensure food security for the whole population and eradicate
poverty in general and especially in rural areas. The public policies
that have been pursued to attain these objectives yielded good results
which have been preserved in spite of the difficulties that have plagued
the Cuban economy in recent years. The development strategies that
have been implemented at different times over more than four decades
have given the agricultural sector a relevant role in economic and
social programs developed in Cuba.
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At the present time, agriculture is still a strategically vital sector
for the performance of the Cuban economy. Its contribution to
generating not only revenues for the country but also employment
and consumption shows how important it is in the macroeconomic
picture. As long as agricultural production continues to recover, the
economy will be able to progress under favorable conditions and fully
emerge from the recession that started at the beginning of the 1990s.
There has been progress in the design and application of new
agricultural policies. The challenges facing this sector, and indeed world
agriculture as a whole, include the struggle to attain a high degree of
food self sufficiency and the need to control and limit the environmental
cost. These are difficult challenges for Cuba because it has to maintain
its achievements in the economic and social areas but has the
disadvantage that, at present, its economy has to face very severe and
restrictive financial limitations imposed from abroad. The main direction
of the efforts being made at the moment basically conforms to the
objective of financial, technological and environmental sustainability.
In spite of this, there are subjective and objective problems to solve,
nevertheless country’s agricultural system capacities are in tension,
and they respond to challenges amid difficulties.
There are other challenges in the area of agriculture: the sugar
agro industry needs to be restructured, home production of foodstuffs
must be raised to an import substitution level, consumption has to be
increased, exports ought to be more diversified, the productive
apparatus has to be reorganized, and the role of the State and of the
other economic agents in the sector must be re-defined.
The country has ample human capital, national infrastructure is
still strong in spite of the negative impact of the economic crisis,
ownership has been given a new form on a more realistic scale with
smaller economic agents and more decentralized control, so all in all
Cuba has a solid base to go forward.
Different formulas and organizational models are being studied
and new concepts of management are being tried, and there are now
more incentives that operate through price systems and economic
and material incentives to stimulate producers. The improvement of
rural life has been made a priority.
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Commercial and cooperative links in the agricultural sector have
been forged with a number of countries such as the Republic of Viet
Nam, and these are of mutual benefit to both nations. They are an
example of what can be achieved in the relationships between
countries when principles, common purposes and political will are
applied for the benefit of the whole population.
There is no doubt that the promising macroeconomic results that
the Cuban economy has obtained in recent years constitute a platform
that opens up new spaces and makes it possible to see new ways in
which domestic economic and social performance can be improved in
the future, in a regional context where national economies pursue
the principles of independence, cooperation and integration. In this
context, the agricultural sector could be part of the integrated agenda, as it is in the case of the “Bolivarian Alternative for the Americas”
(ALBA), which is an initiative to globalize solidarity and improve
people’s quality of life. In this scenario, improving agricultural results
under principles of efficiency and competitiveness are the main goals
in the strategy to meet the challenges outlined above.
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Chapter 5
CUBA: FIFTEEN YEARS OF TOURISM
Gladis Alfonso Nichar1
Introduction
In the period between 1990 and 2005 numerous economic changes
took place in Cuba, and one of the most important of these has been
the rapid expansion of the tourist industry. It has become one of the
most dynamic and important sectors in the country’s economy.
The tourism economic benefits for Cuba that are mentioned most
frequently are the following:
• Access to “fresh” currency income.
• Reactivation of other sectors of the economy through productive
linkages.
• Generation of jobs.
Tourist development in Cuba in the last fifteen years has been
the most dynamic in the American continent. This was made possible
by the political determination to promote tourism and by preparing
and educating local human resources. Other advantages are that
Cuba is a safe and peaceful country and the people are hospitable
and cheerful.
1 Researcher of the Tourism Group of the INIE and adjunct professor at the Havana University. Email: [email protected].
156
However, Cuban tourism did not escape the several crises that
have affected this industry worldwide. Different external and internal
factors have affected the activity, including rises in oil prices that
have increased transport costs, fluctuations in the main currencies,
insufficient airline capacity, the U.S. blockade, the world economic
crisis, the terrorist attacks of September 11th, 2001, and the devastating
effects of hurricanes.
The first section of this chapter is a brief account of the background
to tourist development and an analysis of why it qualifies as an option
in economic strategy and policy. The second section offers an overview
of tourism facilities and foreign investment. The third section analyzes
the behavior of tourist demand, while the fourth section analyzes the
economic impact of tourism, and the fifth deals with the strategic
challenges that tourism in Cuba will face in the future.
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1. ANTECEDENTS
Tourism in Cuba is not a phenomenon that began in the late 20th
century. In the pre–revolutionary period, it already occupied an
important position in the Cuban economy. Indeed, in the early 1920s,
the Island was considered one of the main tourist destinations in the
Caribbean. In this early phase tourism was characterized by a high
concentration of demand from the United States, and this tourist flow
was considered very unsuitable as it was associated with gambling,
drugs, prostitution, the Mafia and corruption.
During the 1950s there was considerable real state development
on the island, most of it in La Havana, and in Varadero. In that decade
international tourism in Cuba boomed. While in 1952, 166,000 tourists
came (more than 90% from the United States), in 1957 there were
272,000 visitors (85% from the United States). The number of tourists
visiting the island jumped 164% in just five years.
In 1959, after the Revolution, tourism was reoriented to benefit
local people. At the beginning of the 1960s, the hotels and the main
recreation facilities were nationalized.
The inflow of tourists from the United States was badly affected
and eventually ceased altogether because relations between Cuba
and the United States were broken off, air transportation was reduced,
the blockade was gradually intensified, and there was internal
disruption in Cuba due to a serious class struggle. In the period between
1959 and 1973, the number of tourist arrivals in Cuba decreased
dramatically.
This was one reason why the authorities did not consider the sector
as a viable engine to promote development and growth, and at that
time the perceived need was to give priority to industrialization and
to main social objectives. Tourist facilities were oriented to the
domestic market, and accommodation infrastructure was modest.
In the mid 1970s, the Cuban government founded the National
Institute of Tourism as the agency responsible for development policy
in the sector. At that time, investment programs expanded (increasing
the accommodation supply), and the main tourist attractions were
the sunshine and the beaches.
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When Cuba’s relations with the Soviet Union and the countries of
Eastern Europe deteriorated, the blockade imposed by the United
States intensified, and when the socialist regimes in Eastern Europe
fell, Cuba was plunged into a severe economic crisis which shattered
what the country had achieved in terms of quality of life and put at
jeopardy social services such as free education and health services for
all. The country was thrust into a serious economic recession,
unprecedented in the years since the revolutionary triumph of 1959.
Cuba’s foreign trade shrank by 85% and it had to adapt its economic
model to the restrictions imposed by the international context.
By the end of the 1980s and the beginning of the 1990s, the urgent
economic need was to balance the current account of the balance of
payments. It seemed unlikely that sugar and other traditional exports
would be able to generate the required surplus, at least in the short
term, and at that time the tourist sector was showing some signs of
recovery.
In the subsequent four years (1990-1994), Cuban economic activity
contracted and the country went through a process known as “the
special period”. Tourism maintained its positive evolution through
these years and emerged as a possible driving force in the economy. It
interacted with other sectors and was a major factor in the recovery
and expansion of a large part of the economic system. It came to be
considered as the engine driving the country’s economy.
In this situation, the Cuban government set the development of
tourism as an objective of economic strategy, and the country had
to face one of the greatest challenges of its revolutionary history,
namely to develop a tourist industry in very adverse and difficult
conditions and in a highly competitive geographical area, the
Caribbean.
During the early 1990s a wide-ranging and rapid investment program
was put into effect in different tourist regions of the country,
construction of hotels and associated industries flourished, nautical
activities were promoted, international communications were
improved, new airports were built and existing ones expanded.
For more than two centuries the Cuban economy had been based
on sugar production, and now for the first time the process of recovery
159
was not led by that sector. Tourism was the most prominent
component in the new scenario. But tourism was not developed just
to overcome the economic crisis, it was also seen as a tool for
development.
The importance of tourism and the priority it was given meant
that the supply and management systems in the sector had to be
reorganized, and this process achieved its highest expression with the
setting up of the Ministry of Tourism (MINITUR) in 1994.
In the early 1990s strategies to develop tourism were mainly focused
on access to new markets and the creation of new differentiated
products, always paying special attention to quality and to the
environment. During this period tourism development strategy was
based on the following factors:
• The world-wide importance of tourism and its positive effects.
• Cuba’s geographical location in the Caribbean, the tourist
destination par excellence.
• Cuba as a traditional tourist destination.
• An emphasis on traditional aspects (beaches, sun, history, music,
etc.) and new features such as the level of education, health
services and citizen safety.
• Conditions to reduce and/or eliminate the negative impacts of
tourism and to develop a sustainable sector.
• A highly trained labor force.
During the 1990s, environmental considerations were prominent
in the development of Cuban tourism. In spite of the scarcity of
resources, the prevailing view was that without careful environmental
design there would be no future for the tourist industry in the mid
and long term. This perspective led to new laws and regulations to
protect the environment.
The evolution of tourism in the last fifteen years suggests ideas to
improve the design of tourist industry development policy, mainly in
the direction of differentiating Cuba as a novel destination, expanding
and supplementing the offer, improving safety and sanitary condition
for tourists, promoting healthy tourism based on social values and
160
historic and cultural traditions, and incorporating the best practices
developed in world tourism in recent years.
In addition, the development of specialized tourism has been
promoted, and there are alternatives and supplementary activities
that help to differentiate Cuban tourism as a product more than the
traditional supply of sun and beach. It is this type of tourism, sunshine
and beaches, that has been most popular in recent years, but there is
also a move to promote tourism that transcends the stereotype of
palm-fringed beaches and offers cultural attractions and activities
connected with specific destinations. Health tourism has also been on
the rise.
In recent years tourist preferences in Cuba have been changing.
Besides the traditional destinations of Varadero and Havana, tourists
have started to show an interest in cultural and ecological activities.
Cuba has ten international airports connected to the same number
of tourist regions, and more than ninety airlines link the island to
over forty important cities in the world.
The country has paid close attention to the training and selection
of tourist industry personnel, each worker is assessed as to suitability
for employment in this sector (as regards inclination and capacity),
and courses in these special skills are run at training schools,
polytechnic institutes and university centers.
In 2004, Cuban tourism was restructured and improved to take
account of recent trends and new perspectives, and the aim is to
make the sector more professional and improve quality and efficiency.
In 2005, Cuba received 2.3 million visitors (13.2% more than in
2004) attracted by the “CUBA YES, friendly and diverse” advertising
campaign. Tourism industry executives in Cuba have explained that
current tourism strategy is centered on consolidating traditional
markets and developing new ones. About 2.5 million visitors are
expected in 2006, which would amount to an increase of 10%, and
total income in the sector is expected to grow by 8.1%.
Tourist services account for a sizeable slice of goods and services
exports, which underlines again how important this sector is in the
growth of the Cuban economy.
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2. TOURISM SUPPLY
Since the early 1990s, most investment in Cuban tourism has been
geared to the single goal of expanding accommodation capacity and
improving the quality of the available facilities. In that decade, the
increase in accommodation supply amounted to approximately one
fourth of the total increase in the Caribbean.
According to some studies, the Cuban archipelago has a construction
potential of 172,500 rooms for international tourism, and today about
25% of this is covered.
The rapid development of tourist facilities in Cuba is based on an
intense process of organization and restructuring that rests on the
following pillars:
• The identification of national heritage sites and definition of
regions considered as priority for their tourist attractions.
• The consolidation and development of new organizational
structures for hotel activity.
• The development of new tourist modalities in line with
international trends.
As part of the initial process of developing tourism in Cuba, 16
main regions were defined for their tourist attractions. Of these, eight
are considered priority regions: Havana, Varadero, King Gardens
(Jardines del Rey), North Camagüey, North Holguín, Santiago de Cuba,
the South Central Coast and the Canarreos Archipelago. There are 52
established resorts in these regions.
2.1 Hotel Infrastructure
In the 1990s, when Cuba decided to promote tourism, there were
693 hotels or similar establishments (tourist villas, and hostels) for
national and international tourists. These installations had a total of
30,174 accommodation units, but only 43% were suitable for
international tourism. At the end of the first five years of the 21st
century the country had about 57,600 rooms, of which approximately
76% were suitable for international tourism (chart 1).
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Chart 1
CUBA: EVOLUTION OF ACCOMMODATION, 1990-2005
Source: ONE and Ministry of Tourism.
Between 1990 and 2005, the number of rooms increased by an
average of about 2,000 per year, which amounted to a big rise in
Cuban hotel capacity. This was financed mainly with national resources
combined with foreign credits and direct foreign investment.
The development of Cuban tourist industry infrastructure is based
on the introduction of new construction procedures. According to
experts, the country is moving towards the application of technologies
aimed at promoting efficiency at different stages, from the project
phase through to actual construction. The construction sector has
become more important in this stage of tourism development, and
has evolved from basic manual labor to professional services at the
level of construction operations and supervision. Backward linkages
are evident in the construction sector which includes its materials
supply industry.
An analysis of the regional distribution of tourist accommodation
in the country shows that there is a marked concentration in the Havana
and Varadero regions, although the former has lost some of its share
to the recently developed regions (table 1). In Varadero the investment
163
processes is still going on, and capacity at the end of 2005 exceeded
15,000 rooms. These are maintained in optimum condition, and 80%
of the existing facilities are of higher category.
Table 1
CUBA: NUMBER OF ROOMS FOR INTERNATIONAL TOURISM,
BY REGIONS
Source: Ministry of Tourism.
The development of the northern regions of Ciego de Ávila and
Holguín are the results of the policy of diversifying tourist products
and exploiting natural advantages like the Keys, which have special
characteristics and are an attractive natural destination.
In the last three decades there has been a significant improvement
in the quality of facilities for tourism in Cuba (table 2).
Table 2
CUBA: ROOM DISTRIBUTION BY HOTEL CATEGORY
(percentage)
Source: Ministry of Tourism.
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This increase in the number of available rooms has been
accompanied by an improvement in quality. For example, during
the 1990-2005 period, almost 90% of additional rooms were in the
top two quality bands (four and five stars), which reflects a move
to attract wealthier tourists. The proportion of facilities of one,
two or three stars, which are usually associated with low standards
of quality and fewer services, decreased significantly in this period
(from 65% to 28%).
Since the end of the 1990s the trend has been to build bigger
facilities, and now more than half of the available rooms are in hotels
with 300 rooms or more. This trend is in line with the development of
mass tourism and it is also as in other Caribbean destinations like the
Dominican Republic, for example, where 61% of the 62,000 rooms
reported at the end of 2005 were in hotels of more than 300 rooms.
In Cuba there is also a program to develop hostels and high quality
boutique hotels, which have limited capacity and personalized services
and are aimed at a segment that has been somewhat under-exploited
up to now. These are the main lines of developments in the historical
city centre of Old Havana, which UNESCO named as a World Heritage
site in 1982.
The Ministry of Tourism is working to identify historical buildings
and refurbish them as “enchantment hotels” with specialized services.
This new style of museum-hotel is starting to emerge in many cities
including Old Havana, Santa Clara, Cienfuegos, Trinidad, Santiago de
Cuba and Camagüey.
The accommodation available for international tourism is
supplemented by private houses that can be rented, and these make
an estimated six thousand extra rooms available in all parts of the
island.
Cuba has structured its hotel offer around the following attractions:
the beach, the city, nature, health, nautical and others. The most
important product on this list is the beach, in 2005 almost 70% of all
rooms were geared to this kind of vacation, and in the 1997-2005
period it accounted for more than 77% of the new rooms that became
available (table 3).
One challenge that has to be faced in the development of tourism
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Table 3
CUBA: DISTRIBUTION OF ROOMS FOR INTERNATIONAL TOURISM,
BY PRODUCT
(percentage)
Source: Ministry of Tourism.
in Cuba is that the products on supply have to be diversified along the
lines of the observed trends in demand. Different regions will have to
be differentiated in accordance with their natural and cultural
attractions, and at the same time new supplementary attractions which
would enrich the tourist supply should be fostered.
Since 1996 there has been a sharp increase in the all-inclusive vacation
package modality. New hotels started offering this kind of product, and
other hotels have switched over from other modalities, all of them offering
the beach and sun product and high class facilities. In 1998, there were
some 33 hotels with 8,900 rooms offering this new product, and by
mid 2004 the number of hotels had increased many times over and
there were almost 24,000 rooms devoted to it. This amounts to 84%
of all the accommodation offering the beach vacation modality.
2.2 Foreign Investment
Another element in Cuban tourist industry development has been
foreign investment. This is considered supplementary to investment from
domestic sources, and it is oriented to open new markets abroad,
incorporate technology and allow to access to new financing sources.
Article 23 of the Constitution of the Republic of Cuba states that
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“The State recognizes joint-ownership companies, societies and
economic associations that are formed according to the law…” One of
the objectives of the entrepreneurial organizations in the tourist sector
is to promote foreign investment through the International Economic
Associations (AEI), and also to take direct action to undertake product
promotion in coordination with MINTUR and other institutions.
Foreign investment in Cuba is regulated by Law 77, which was
promulgated in the National Assembly of the Popular Power (parliament)
on September 5, 1995, to promote foreign investment in profitable
activities that contribute to the strengthening of the economic capacity
and sustainable development of the country. Law 77 abolishes Decree
Law no. 50 of 1982, which was the first Cuban legislation to set up a legal
framework for the development of foreign investment in the country.
Since February 2001, the general policy has been to provide fiscal
incentives to foreign investment in the tourist sector. This includes
the concession of benefits that are additional to those in the Law of
Foreign Investment and that depend on the location where the new
hotels in question are to be built.
By the end of 2005, there were 12 foreign companies participating
in the development of tourism in Cuba. One of the modalities used by
foreign investment is joint ventures, and in 2005 there were 14 hotels
operating under this modality.
Besides this, there is a modality of administration by contracts. Under
this contractual system, foreign management companies assume
responsibility for the operation, personnel training, commercialization,
internal auditing and quality control of a project. By the end of 2005, 12
foreign enterprises, nine from Spain, were running and commercializing
about 50 hotels with 18,779 rooms. In 2005, the Sol Meliá hotel chain
celebrated its 15th anniversary in Cuba, where it operates around 20
luxury hotels in the main tourist regions in the country.
Foreign investment also operates through economic association
contracts, mostly in nautical activities.
One of the most important guarantees for the foreign investor is
that there are compensation agreements that cover expropriations,
and a legal regulation that establishes the circumstances under which
this could happen and guarantees the corresponding legal procedure.
167
Cuba has now made agreements with different countries to protect
and promote investments2 .
3. TOURISM DEMAND
3.1 The Cuban Tourist Market since the 1990s
The development of tourism in Cuba in the last fifteen years is
reflected in the significant rise in the number of tourist arrivals in the
country. This sharp increase meant that between 1990 and 2005 the
island jumped from 23rd to 8th on the list of tourist destinations in the
Americas (chart 2).
Chart 2
CUBA: EVOLUTION OF VISITOR ARRIVALS, 1990-2005
(thousand)
Source: National Statistical Office.
2 The agreements to promotion and to protect reciprocal investment (BIT) are bilateral treaties
between States that set up general conditions to serve as an incentive and guarantee of the
economic and legal interests of investors of one party when they invest in the national territory
of the other party.
168
At the beginning of the 1990s, Cuba was launched onto the tourist
market as a new destination. In the period between 1990 and 2005,
the number of visitors increased by an annual average of 13.6%, which
was a higher rate of growth than in the rest of the Caribbean or in the
world. In 2004, just eight years after Cuba reached the mark of one
million visitors per year, there were 2 million arrivals in the country.
In 1996 Cuba joined the club of Caribbean destination with more
than a million visitors a year. This was a notable achievement
considering that this geographical region is highly dependent on the
United States market and on European colonial metropolis.
In 1990, Cuba received just 3% of tourists in the Caribbean, but by
2005 this had risen to 12% (table 4). In the last fifteen years the
country has received 19.8 million visitors. Tourism has increased
throughout the region, and almost a quarter of this increase is
accounted for by Cuba.
Table 4
WORLD, CARIBBEAN AND CUBA:
TOURIST ARRIVALS, SELECTED YEARS
Source: OMT, CTP, ONE.
The difference between the number of visitors (table 2) and tourists
(table 4) is explained by one-day visitors. In Cuba, these are mostly
sailors from merchant ships and passengers on cruises, and both
categories have their own dynamics: the former in function of foreign
trade in goods, and the latter in function of a multitude of factors3 .
3 Arrivals of one-day visitors totaled 13,000 in 1990, 17,000 in 1997 and 59,000 in 2005, and of
these, there were 7,000 cruise passengers in 1990, 2,000 in 1997 and 17,000 in 2005 (National
Statistics Office data).
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Cuba has shown faster growth as a destination than the other
Caribbean islands (table 5).
Table 5
CARIBBEAN ISLANDS: TOURIST ARRIVALS AT MAIN DESTINATIONS
Source: Cuba: ONE.
Dominican Republic, Bahamas, Jamaica and Puerto Rico: CTO and UNWTD.
These fifteen years of international tourism in Cuba can be analyzed
in two phases. The first began in 1990 with the take off stage and an
intensive effort to develop the sector, and this lasted until 1996 when
the first million tourists arrived. During this period there was a 20.5%
average annual increase in tourist arrivals.
The second phase, from 1997 to the present time, can be seen as a
period of consolidation. The rate of tourist arrival growth slowed down,
and the average annual increase was 8.8%. This was partly due to a
series of negative events and adverse situations on the world stage that
negatively impacted on tourism as a whole. In the last few years, various
external factors have had serious negative effects on tourist arrivals
and tourist revenue levels. For instance, the phenomenon known as
Y2K caused a slowdown in activity, there was the world economic crisis
in which the economic situation in some of the main market countries
deteriorated, there have been worldwide repercussions from the terrorist
attacks of September 11th, 2001, oil prices have gone up and this has
caused an increase in air fares4 , and exchange rates between the euro
and the dollar have been fluctuating and unstable.
4 IATA estimates that there is a one billion dollar increase in costs for the 265 airlines that
belong to this organization for every dollar that the price of a barrel of oil increases. These
calculations were made when the oil price stood at about 57 dollars per barrel.
170
Cuba’s position as a tourist destination today is adversely affected
by a number of factors including the United States blockade5 , which
severely restricts relations with U.S. tourist agencies, and intense
rivalry with other tourist destinations in the general geographical area
such as the Mexican Caribbean, Florida, the Dominican Republic, and
in recent years Central America, which is emerging as a tourist region
for the 21st century.
In spite of this, since 2003, arrivals of tourists in Cuba have
increased sharply, which could be a sign of recovery from the negative
trend of the early 1990s (chart 3).
This recent rise is the result of a series of measures adopted by
the Ministry of Tourism that include presenting the Cuban tourist
product in various international scenarios and seminars.
Chart 3
CUBA: ABSOLUTE VARIATIONS IN TOURIST ARRIVALS
(thousands)
Source: ONE.
5 In June 2004, the Bush administration made changes that intensified the restrictions on travel
between the United States and Cuba. Before 2004, North American citizens who traveled to
Cuba without permission had to pay a fine, but citizens of Cuban origin could make one trip per
year without needing to obtain government approval. The new restrictions limit people to one
visit every three years, and specific permission has be obtained before each trip. It has been
estimated that 80% of Cuban citizen arrivals originate in the United States.
171
A very important factor in these results has been establishing
cooperation with other countries, in particular the Bolivarian Republic
of Venezuela, on matters of health and other services, and this has
generated a movement of people who are considered tourists according
to World Tourism Organization criteria.
By the end of 2005, tourist arrivals in the Caribbean area as a
whole increased by 4.7%, but in Cuba and the island of Saint Vincent,
the two countries at the top of the list, increased by 12.0% and
16.4%, respectively. This occurred in spite of the fact that the number
of visitors to other destinations in the area actually fell.
Another important aspect of the situation is that Cuban policy in
this sector has been designed in function of long distance tourism,
and it is mainly European markets that have been targeted since the
natural market, the United States, is ruled out. Therefore the main
countries of origin of tourists who visit Cuba are different from those
of all the other Caribbean tourist destinations.
In table 6 it can be seen that America is the most dynamic
geographical area, and within this region it is South America that
has won the greatest market share in recent years. Europe has been
the least dynamic area and has lost market share, and in those from
Europe there has been a shift to greater participation from the
countries of Northern, Central and Eastern Europe and a reduction
in the participation of Western and Mediterranean Europe. All these
movements have their explanations in the analysis of the main
countries of origin.
Since 1990, the profile of visitors by origin has changed. During
the first phase, European tourists were predominant but in recent
years it is Americans who have predominated (chart 4).
At the end of 2005, 6% of total visitors from abroad were nonresident Cubans.
The movement of tourists to Cuba has consolidated in recent
years, and visitors come from over 200 countries. Cuba is the main
destination in the Caribbean islands for Canadians, Mexicans and
Italians, and it is the second most popular destination for Germans,
the British and Spanish.
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Table 6
CUBA: STRUCTURE OF VISITORS BY GEOGRAPHICAL AREA
(percentage)
Source: ONE.
Chart 4
CUBA: EVOLUTION OF MARKET SHARE OF FOREIGN VISITORS,
BY SELECTED GEOGRAPHICAL REGIONS
(percentage)
Source: ONE.
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The market is becoming less concentrated. In 1990, some 66% of
the visitors to Cuba were from five countries of origin, while in 2005
this percentage was only 55% (table 7).
Table 7
CUBA: DEMAND CONCENTRATION, 1990-2005
(percentage)
Source: ONE: Immigration date.
The share of visitors from countries of origin between sixth and
tenth place has increased, and in 2005 the top twenty countries of
origin accounted for 90% of the total number of arrivals. This means
there was only a 3% reduction in concentration in fifteen years.
When we analyze the panorama by country of origin, that
concentration becomes evident. More than 25% of the total visitors to
Cuba (600,000) come from just one country, Canada, but the next six
countries on the list are a long way behind, with between 100,000
and 200,000 visitors from each (table 8).
This concentration process can also be seen in the increases in
demand (table 9). The share of the top five markets in demand growth
for Cuban tourism has been very high in recent years, and there was a
big increase at the end of 2005. Among the top five countries of origin,
Venezuela is a special case: it accounted for 37% of the increase in
arrivals in 2005 and had the highest rate of growth in the 1997 to 2005
period, with an annual average of 46.9%.
In these fifteen years there have been changes in the share of the
main markets. Table 10 shows that with the exception of Canada,
which is still the first country of origin (except in 1997), the other
markets have undergone interesting changes. For example, Italy went
from seventh place in the early 1990s to first place at the end of
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Table 8
CUBA: TOP TEN COUNTRIES OF ORIGIN, TOTAL VISITORS,
MARKET SHARE AND DYNAMISM
Source: Own calculation from ONE data.
Table 9
CUBA: PARTICIPATION OF TOP COUNTRIES
OF ORIGIN IN VISITOR INCREASES, 1990–2005
(percentage)
Source: ONE: Immigration data.
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1997, and then fell to fifth in 2005. The United Kingdom, Venezuela
and Holland are among the countries whose position in the ranking
has risen. On the other hand, Germany and Mexico have been declining
in importance.
Table 10
CUBA: POSITION OF MARKETS OF DIFFERENT COUNTRIES
OF ORIGIN, BY NUMBER OF VISITORS, SELECTED YEARS
Source: Own calculation from ONE data.
The dynamics of the Venezuelan market can be explained by
cooperation agreements in different socio-economic spheres between
the governments of Cuba and Venezuela. These have intensified a
favorable flow of Venezuelan citizens to Cuba, mostly for medical and
cooperation reasons.
An important point to note is that, since 2004, a series of political
incidents in the relation between Cuba and the United States have
had a negative impact on visitors from this country.
Visits by United States citizens and Cubans residing abroad, mainly
in the USA, have been drastically reduced because the United States
administration took measures to set strict limits on travel to Cuba. In
2004, the US government implemented a regime whereby US citizens
traveling to Cuba without authorization of the Treasury Department
could be fined, and the total fines involved came to more than one
and a half million dollars (an individual fine was about 7,500 dollars).
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Besides this, there are restrictions on people who do receive a special
visa and make the journey; they are forbidden to bring Cuban products
back to the United States at the end of the trip, and they are forbidden
to spend more than 50 dollars a day, or drink rum or smoke Cuban
cigars while they are in Cuba.
Tourism to Cuba is mostly run by travel agencies and tour operators
in the countries of origin. In 2005, stopovers accounted for 5.2% of
stays in the main hotel chains.
In the package tour market sector there is a tendency for the
operators who handle the “Cuba” product to oligopolization, which
is a feature of the globalization of the international market that has
led to polarization in a number of origin markets such as Germany
and Canada.
Cuba runs promotional programs, and it has thirteen promotion
offices in the main markets (Canada, Mexico, Argentina, Spain,
France, Italy, Germany, the United Kingdom, Russia, China, Brazil
and Sweden). It also participates in international tourism fairs and
other promotion activities.
3.2 Seasonal Variations in Demand
The tourist product that predominates in Cuba (sun and beach) is
intensive in the use of natural resources, heavily dependent on the
big tour operators, and characterized by seasonal demand fluctuations
that are determined by the structure of markets of origin, climatic
phenomenon, the world economy and political events that have led
to a change in attitudes and trends in tourist demand. This all makes
that tourism activity adds up to accentuate the seasonal nature of
Cuban economy.
The overall situation has been of sustained growth in the annual
average of visitors. Chart 5 shows the series of monthly arrivals of
tourists from 1990 to 2005. It can be seen that the trend is for annual
figures and the growth in average monthly movement to rise, and
there is evidently a seasonal pattern with high and low seasons.
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Chart 5
CUBA: SEASONALITY OF DEMAND, 1990-2005
Source: National Statistic Office.
From December to April the number of international visitors rises
above the average, and this is clearly the high season. In the 1990s
there was also a small peak in summer, so the months of July and
August are also considered high season by some sources. There are
two periods in which tourism is low, May and June and September to
November, and the former is usually greater than the latter.
Seasonality has its own system of measurement. Different measures
to quantify this phenomenon have been proposed in the specialized
literature, including the standard deviation of relative frequency, the
ratio of maximum arrivals over the minimum, maximum arrivals divided
by the average, and the variation coefficient. All indicators show there
is seasonal variation in tourist demand.
In table 11, different kinds of indexes are used to show that the
coefficient of seasonality in Cuban tourism presents fluctuations, and
these are the result of a number of external and internal factors that
have influenced tourism demand in the country.
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Table 11
CUBA: EVOLUTION OF SEASONAL INDEXES OF VISITOR ARRIVALS,
2000-2005
(thousand)
Source: Own calculation from ONE data.
Compared to Cuba’s main competitors in the Caribbean region
such as the Dominican Republic and Cancun (chart 6), the frequency
distribution of visitor arrivals shows that all three of these destinations
have a low period from September to November, which coincides with
Chart 6
CARIBBEAN: DISTRIBUTION OF FREQUENCY OF VISITOR ARRIVALS,
2003 AND 2004, SELECTED DESTINATIONS
Source: ONE, ASONAHORES, Quintana Roo.
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the hurricane season in the Caribbean and the end of school vacations
in the northern hemisphere. However, the summer peak is significantly
lower in Cuba. In all three destinations, arrivals in the first quarter
are considerable high, but in Cuba this is more marked. Seasonal
variations in the behavior of the arrivals indicator in Cuba and in
other destinations in the Caribbean are related to the composition of
tourist origin markets.
Chart 7 shows marked seasonal variations in the Canadian market
(analyzed with the standard deviation of the relative frequencies of
arrivals in 2004). The figures are Canada, 4.9%, the main European
countries of origin, 1.2%, and the rest, 1.0%. Although the main
European countries of origin show low dispersion, an analysis by country
shows different behavior.
Chart 7
CUBA: DISTRIBUTION OF ARRIVAL FREQUENCY,
BY MAIN COUNTRIES OF ORIGIN
Source: ONE.
A group of factors have an effect on the seasonality of Cuba as a tourist
destination, including the country’s heavy dependence on the Canadian
market, which is due to people in that country wanting a winter break in a
warm climate, and other is the hurricane season. One of the targets of the
Cuban tourist marketing effort is to iron out these marked season
variations in tourist flows and obtain a flatter visitor distribution pattern.
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3.3 Profile of the Visitor
3.3.1 Age
The most common age of visitors to Cuba in 2005 was between 25
and 44. However, in comparison to 1997, there is an increasing trend
towards visitors in the 45 to 59 age bracket and over 60 years old.
This is similar to prevailing trends in world tourism, and it has its roots
in the demographic pyramid of the main countries of origin (chart 8).
Chart 8
CUBA: STRUCTURE OF VISITORS BY AGE, 1997 AND 2005
(percentage)
Source: Own calculation from ONE data.
The under-15 age bracket has been more dynamic that the mean,
and this is an important segment since it is related to family tourism.
However, the volumes are still not significant (table 12).
An analysis of the markets shows that the predominant age groups
are significantly dispersed in relation to the mean. Table 13 shows,
for example, how the proportion of people under 15 years old is higher
among visitors from Canada and the United States, while visitors over
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Table 12
CUBA: INCREASE IN VISITOR ARRIVALS
BY AGE GROUP, 1997-2005
(annual average, in percentage)
Source: Own calculation from ONE data.
Table 13
CUBA: COUNTRIES OF ORIGIN ABOVE THE MEAN
IN EACH AGE SEGMENT
(percentage)
Source: National Statistic Office.
182
60 years old are heavy represented in the total for Venezuela, and
young people are strongly represented in the total from China.
In 2005, 52.8% of the visitors arriving in Cuba were male, but this
proportion has been falling since 1997 as the rate of growth for female
tourists has been more rapid (11.1%) than that for males (7.3%).
3.3.2 Reasons for travel
The main attraction of Cuba’s tourist offer is the sun and beach
product, and this makes the country a prime choice as a vacation
destination. This can be seen from the structure of declared reasons
for the trip that visitors give when they arrive (table 14).
Table 14
CUBA: STRUCTURE OF REASON FOR TRIPS
(porcentaje)
Source: Own calculation from ONE data.
However, reasons for visiting Cuba have become more diverse,
and the most dynamic has been health tourism. Visitors in the ‘other
reasons’ category are not yet significant. The increase in business
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trips, ship and airline crews and cooperation trips is strongly related
with the economic development of the country.
The arrival of visitors on cruises has been dynamic, but they are
still very few compared with other destinations in the Caribbean. In
2005 significant numbers of cruise passengers from Spain came to
Cuba as the result of an agreement between the Spanish company
Pullmantur, the Cuban Ministries of Tourism and Transportation and
the Civil Aeronautic Institute.
In Cuba there are between 600 and 700 events and congresses per
year, and the prospects for future development in this area are promising.
Data from the International Congresses and Conventions Association
(ICCA), of which Cuba is a member, shows that in the ranking of events
held in 2005 the country was in fifth place in Latin America and in
seventh in the whole continent, and that the city of Havana was fourth
among Latin American cities and seventh in the continent.
3.3.3 Length of the stay
The length of time that tourists stay in Cuba has been decreasing.
In 1997 tourist stayed in the country for an average of 11.35 days,
which was almost one day less than in 1996. In 2003 the mean was
estimated in 10.58 days. The evolution of the average length of the
visits to Cuba also reflects structural changes in tourist origin markets
by geographical region (table 15).
Table 15
CUBA: AVERAGE STAY OF VISITORS FROM
SELECTED COUNTRIES OF ORIGIN
(in days)
Source: National Statistic Office.
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In 2004 the average tourist stayed for an average of five days in
hotels (table 16), and this has not varied significantly over the fifteen
years in question. The length of stay in hotels varies in function of
the category of these facilities and the product they offer. The longer
ones are usually geared to the sun and beach product.
Table 16
CUBA: AVERAGE STAY OF TOURIST IN HOTELS
(in days)
Source: National Statistic Office.
In Cuba tourists do not always stay in hotels or official accommodation,
some stay in private homes. In 1997 tourists lodged outside the tourist
system came up to approximately 39% of total stays, and in 2004 this
proportion was estimated at 30%.
The analysis of stays in Cuba shows that the most demanded regions
are Varadero and Havana. The process of diversifying the offer of
tourism has led to that other regions are now receiving more visitors
(table 17).
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Table 17
CUBA: OVERNIGHT STAYS BY PROVINCE
(percentage)
Source: National Statistic Office.
3. ECONOMIC IMPACT OF TOURISM
This analysis of the economic impact of tourism is based on a set
of indicators and targets which go beyond a simple reckoning of income
from tourism or the profits of the firms in the sector. We analyze the
impact of tourism on the Cuban economy, consider the trend in income
from tourism, the evolution with respect to macroeconomic aggregates
such as GDP, the generation of foreign currency in relation to economic
policy targets, the generation of employment, and finally the multiplier
effects on other sectors of the country’s economy.
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4.1 Income from Activities related to Tourism
In the 1990-2005 period, income from international tourism
increased tenfold. This is just for direct consumption by international
visitors and it does not include indirect or induced incomes derived
from the industry.
In 2005, income from this source amounted to 2.4 billion
Convertible Cubanos (CUC)6 , which amounted to an increase of 10.7%
over for the previous period. Of this, 94% was derived from typical
tourist activities and 6% for non-typical activities. The former include
hotels, which account for almost 51% of total income, and 13% is
derived from air travels.
It has been estimated that 16% of this income goes to homes that
provide tourists with food and lodging, and to independent artisans.
Charts 9 and 10 show the evolution of income from tourism
compared to GDP.
Chart 9
CUBA: EVOLUTION OF GDP AND INCOME FROM TOURISM
Source: Own calculation from ONE data.
6 In 2005, one CUC was equal to one United States dollar.
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Chart 10
CUBA: EVOLUTION OF GDP AND INCOME FROM TOURISM
(rate of growth, as percentage)
Source: Own calculation from ONE data.
The behavior of both variables shows that the development of
tourism boosted Cuban economic growth, even in the period of
downturn that followed the September 11 attacks and during the world
economic crisis. It is estimated that in 2002 tourist activity accounted
for 7.2% of Cuba’s GDP.
In the 1990-2005 period, income from tourism in the country
increased at an annual average rate of 16%.
4.2 Tourism and the Foreign Sector
Tourism underwent rapid growth in the first half of the 1990s, and
in 1994 it became the country’s main source of foreign currency,
replacing the sugar industry which had shrunk considerably. Therefore
it is worth analyzing the extent to which the Cuban economy has
become depend on tourism.
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An analysis of the relationship between incomes from the tourist
industry and the export of goods is useful to determine how much
countries depend economically on tourism. Cuba has become more
and more dependent, by 1993 this trend was very significant, and in
1998 it broke the 100% barrier. In 2004 and 2005, however, the export
of goods recovered somewhat and this indicator weakened (chart 11).
Chart 11
TOURIST INCOME / EXPORT OF GOODS
(in percentage)
Source: ONE.
According to definitions by the World Tourism Organization (WTO),
since 1999 Cuba has been among those countries in which income
from tourism is greater than that from total goods exports. In 1995,
the WTO reported that of 127 countries only 9% are in this category.
If the analysis of economic dependence on tourism is taken to
include the export of services, Cuba’s rating on this index falls to 31%
in 2005 due to an increase in exports of other services.
The evolution of this indicator confirms that tourism has played a
leading role in the country’s recovery after years of economic crisis.
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In 1990, tourism accounted for only 4.1% of the country’s total of
exportable goods and services, but 15 years later its share had risen
to 31%. At the end of 2004, income from activities connected with
tourism was enough to compensate for 88% of the trade deficit in
goods and 35% of goods imports, which shows that the development
of this sector achieved the economic policy goal of reducing the foreign
deficit in the short term and making the country more solvent
internationally.
4.3 Tourism as a Source of Jobs and Personal Incomes
The expansion of tourism in Cuba has caused the workforce in this
sector to double in the last fifteen years, and this is even more welcome
since tourism is a big employer of young people.
A great effort has been made to train and upgrade the labor force,
as the overall objective is to provide good quality services. For
example, FORMATUR was set up to train people for the sector, and it
has 18 teaching centers distributed across the country. Its work is
supplemented by another organization, TUREMPLEO, which has 23
offices on the island and is devoted to personnel selection.
Jobs in the hotel industry account for a significant and visible part
of direct employment in tourism. In 2005, hotels in Cuba employed
more than 49,000 workers, which is a little less than one worker per
room (0.88 workers per room).
Unlike in other countries where many of the jobs in tourism are
temporary or part-time, in Cuba 80% of the workers in this sector are
full time.
Estimations for 2003 show that Cuba has 145,000 workers involved
in some way with tourism (either in internal or foreign tourism), and
of these almost 122,000 are directly linked to tourist activities and
have direct contact with the tourist.
This amounts to about 3.6% of employment of Cuba’s economy
(taking all forms of enterprise ownership into account), but this figure
underestimates the effects on the economy as it does not include
workers linked to tourism who are employed by the Ministries in charge
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of construction, light industry, iron and steel, computer sciences and
communications for productive services, investments, public order, etc.
4.4 Tourism and the National Economy
Tourism is not only an increasingly important source of foreign
currency but it also promotes the development of a complex number
of activities as it has a “drag effect”.
In the early 1990s, Cuba-produced inputs for tourism were of poor
quality and limited quantity, and amounted to only 12% of the sector’s
total inputs. But with the accelerated development of tourism, Cuban
producers were faced with a great challenge, they had to make farreaching technological changes, pursue quality, diversify production,
maintain stability in supplies and participate much more in the sphere
of tourism. They were reasonably successful: in the last few years
Cuban suppliers have come to account for some 70% of purchases
made by the Cuban tourist sector.
Domestic producers have achieved a lot, but there are still
negative factors that limit the extent to which they can participate.
These are essentially technical-productive problems, or
organizational, financial and commercialization problems, and the
only way to solve them is by adopting an integrated and holistic
approach to tourism as a sector.
5. STRATEGIC CHALLENGES
Cuba is faced with a series of problems or challenges in that it is in
a competitive region, the Caribbean, where new rival tourist destinations
are emerging, and international tourist demand is changing.
To develop tourism for the future, the country should concentrate
on attracting visitors from new markets and on creating products that
are novel and different, with emphasis on the environment and on
quality.
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Alongside the most important product that Cuba has at the
moment, is “sun and beach”. However, new products should be
developed such as water sports, adventure holidays, cultural
attractions, purchasing, weddings and honeymoons. One of the main
tourist modalities that ought to be further developed is nature tourism,
which is emerging more and more as a complementary activity to the
sun and beach or city product, and is seen as an essential part of
multi-destination trips and tours.
Another promising area is health tourism, which is based on Cuba’s
vast experience and prestige in the sphere of specialized medical
attention, and the country can also offer the attractions of spa tourism.
The sector is vulnerable in the sense that demand is concentrated
in a limited number of countries of origin, and it is necessary to take
steps to rectify this. In addition, new market niches should be sought
in countries that are already established as markets for the Cuban
tourist product.
There are a number of factors involved in the effort to open up
new markets, including ease of access, especially by air, and the degree
of risk that tour operators are willing to take. These factors are the
links in the tourism chain most involved in the current process of
globalization in this sector.
The commercialization of tourism is mostly in the hands of
international tour operators, and this means that the country is in a
dependent situation because these enterprises have great negotiating
power in their dealings with Cuba, as they have with the vast majority
of other tourist destinations in the Caribbean.
If the country is to participate more actively in the
commercialization of its own tourism, it will have to work in three
main directions: to pursue and strengthen the involvement of Cuban
tour operators and agencies, to promote the formation of Cubanowned hotel chains, and to promote the country’s national airline.
Beside this, an effort will also have to be made to increase
individual tourist arrivals by developing new information technologies
at the service of tourism to give the country’s products a higher profile
on Internet web sites and to make direct commercialization possible
through interactive information technologies.
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Another strategic area is tourist communications. Cuba must
establish a communications strategy to maximize available resources
and channel them to markets that are potentially very profitable. It
will be necessary to pay special attention to promoting Cuba in non
traditional markets.
As to channels of distribution, new information technologies must
be used to adapt Cuban tourism to new marketing practices.
Innovations in this area would include providing a system for last minute
reservations and simplifying purchases via the Internet.
Strategic alliances between the various agencies involved in
developing tourism in the country should be exploited even more, so
as to make optimum use of the financial, material and human resources
available and improve decision-making capability in certain areas.
Cuba is an island so air traffic is of vital importance, and special
attention should be paid to improving foreign and domestic links.
International air services should be strengthened and more regular
and charter flights should be made available.
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Chapter 6
CUBA: THE DEVELOPMENT
OF PUBLIC HEALTH,
SITUATION AND PERSPECTIVES
Georgina Cossío Carricarte1
Introduction
Before the triumph of the revolution, the poorer sectors of society
had insufficient access to public health services because there was
no national policy to develop these services, no integrated programs
to control diseases, and a lack of the necessary qualified personnel
and infrastructure to provide even minimal services in the public
health sector.
Public health has been a top priority in Cuba since the revolution
first began. In his book “History will absolve me”, Fidel Castro details
the political and socio-economic situation the country was in at that
time, with special emphasis on the health area, and gives a broad
outline of the measures needed to recitfy it.
In a statement he made after the attack on the Moncada Barracks,
Fidel Castro said:
“...what is unacceptable is that there are children who die because
they lack medical attention; it is unacceptable that 30 percent of our
peasants do not know how to sign their names and ninety nine percent
1 Director of Social Development of the Ministry of Economic and Planning.
194
do not know the history of Cuba; it is unacceptable that the majority
of families in the countryside are living in worse conditions than the
Indians Columbus found when he discovered the most beautiful land
ever seen by human eyes”.
Then came the triumph of the revolution, and in the new
constitution it was laid down that all citizens had the right to health
care and protection, and that the Cuban State would be completely
responsible for guaranteeing the full implementation of the
constitutional right to free services offered for everyone regardless of
sex, race, age or any other social condition.
The revolutionary process is humanitarian in nature, and this is
why health has been made one of the pillars of social development
and an element in Cuba’s solidarity in the international arena. The
country has worked to build cooperation, and today there are 28,000
health workers whose services are on offer to 68 countries. There is
also a human resources training program in this area, run by the Latin
American School of Medical Sciences that the government set up, and
a new program for training medical doctors that takes students from
all over Latin America. At the moment there are about 10,000 foreign
students on the program, doing higher level studies in medicine,
stomatology and nursing.
The Cuban health system is geared to achieving health and wellbeing for all, improving the quality of life and contributing to social
development, but it is faced with a number of problems and challenges
because of the global economic crisis and the fact that countries are
allocating insufficient funds to social programs.
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1. THE EVOLUTION OF THE HEALTH SERVICES
A number of phases can be identified in the development of the
Cuban public health system after the revolution.
1959-61: In this period the government had to deal with the
country’s most pressing needs, and the material and organizational
bases to develop health services were established.
The 1960s: In this period a single health system was consolidated.
The main measures the government took were as follows:
• To set up the Ministry of Public Health to guide activity in this
field throughout the country.
• To set up a rural medical service.
• To set up health areas and polyclinics.
• To implement health programs to combat the most widespread
diseases.
• To run vaccination programs.
The 1970s: In this period, the health system was improved and
health service administration for the provinces was decentralized.
The health condition of the population as a whole improved
tremendously. The main measures taken were as follows:
• To set up community polyclinics and implement the new model
of medicine in the community.
• To run national programs for attention of specific population
groups (mothers with infants, workers, schoolchildren, etc.).
• To decentralize the administration of the health sector and
transfer responsibility to local governments.
• To bring university centers for the training of doctors,
stomatologists and nurses under the Ministry of Public Health.
The 1980s: In this period the health services made rapid progress
and a policy of “Medical Power” was implemented. This consisted of:
• A program to extend and modernize pediatric hospitals in the
country and build 31 pediatric intensive care wards, to build
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specialized polyclinics, to create new services and to modernize
equipment.
• Revitalizing rural medical services, renovating rural hospital
networks and upgrading equipment.
• Extending teaching through the creation of faculties of medical
sciences in all the provinces of the country.
• The introduction and extension of foreign and Cuban high
technology.
• The development of a specialized medicine program.
• The Family Doctor program, which began in 1984 and involved
assigning an average of 600 people to each physician, and the
establishment of a specialization in integrated medicine to
increase the capacity and raise the prestige of outpatient
attention.
• To improve the epidemiological hygiene service by giving it a
new national structure.
• The inauguration of the “Hermanos Amejeiras” hospital as a top
level institution with modern equipment and better organization
of hospital medical work.
In this decade there were important changes in the structure of
government in Cuba: the Popular Power National Assembly and the
Administrative Political Division were set up, and Local Organs of
Popular Power were established. These were all of vital importance in
the process of institutionalization and administrative decentralization
in the country, which contributed to the development and autonomy
of each region. This was the most fruitful period for public health
development: it did most to realize its potential.
The 1990s: The country was plunged into a difficult economic
situation which imperiled all that had been achieved in health care
for the population.
After the collapse of the socialist countries in Europe, and when
the United States economic blockade was intensified with the Helms
Burton and Torricelli laws of 1991, Cuban GDP fell 35% and imports
plummeted 50% compared to the 1989 level.
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Social expenditure went down 20%. Material resources like inputs,
furniture and equipment became harder to obtain, the investment
process slowed down, and as a consequence the quality of services to
some extent deteriorated.
Health was one of the sectors most affected by the U.S. economic
blockade, and the harshest impact was in 1990 when it was impossible
to acquire medical products in the United States and pressure was
put on transnational firms in other countries to discourage trade with
Cuba. To make matters worse, many laboratories that traditionally
did business with Cuba were purchased by United States companies,
and their contracts with the country were then broken.
The economic crisis that came in the wake of these events mainly
affected programs such as maternal-infant care, cancer, medical
emergencies, intensive care, attention for chronic renal patients, clinical
laboratories, medical equipment and research, and many lives were
put at risk. However, the Cuban State always gave top priority to the
health sector, and after 1994 services in these areas started to recover.
Most of the resources for health care come from national budget
allocations, but now some of the health services themselves are
starting to earn foreign currency, mainly through selling medical
services to foreingers. The main steps taken to overcome the crisis
were as follows:
• Objectives, proposals and guidelines to improve the health of
the Cuban population by 2000 were laid down.
• Measures were taken to alleviate the effects of the economic
restrictions.
• Efficiency in the use of available resources was increased.
• Priority medical attention programs were set in motion.
• An integrated medical emergency system was set up.
The new millennium: A package of new strategies for the health
care sector and teaching were implemented, which revolutionized
health services. This involved of a group of high priority programs
including the following:
• Minimum access surgery.
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• Intensive care wards.
• Hemodialysis services.
• An improvement in ophthalmic services.
• The construction of “Necessary Polyclinics”.
• Repairs to family doctor offices.
• Repairs to pharmacies.
• The computerization of health service administration.
• An increase in endoscopic services.
• Physiotherapy and natural and traditional medicine services.
• Ultrasound services.
• An increase in medical specializations.
• An increase in stomatological services.
• Thrombolysis.
• The development of biotechnology.
• The projection of Cuban medicine internationally.
2. ACHIEVEMENTS IN THE FIELD OF HEALTH
2.1 Quality of Life Improvements
There are two main indicators that clearly show what the country
has achieved in the sphere of health care, the infant mortality rate
and life expectancy at birth. Both compare favorably with the most
developed countries in the world.
The infant mortality rate has improved enormously, with a fall
from 60 per thousand live births in 1960 to 5.8 in 2004, which puts
Cuba among the best in the world in this respect. As to life expectancy
at birth, in Cuba in the 2001 to 2003 period this stood at 77 years, a
figure that is similar to that of the developed nations (table 1).
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Table 1
CUBA: MAIN INDICATORS OF QUALITY OF LIFE, SELECTED YEARS
Notes: 1 = 1994-1995 period.
2 = 2001-2003 period.
Source: Author’s calculations using ONE data.
For more than 40 years Cuban health services have been among the
best in Latin America. This has been achieved through sustained effort
and suitable institutional organization, which is divided into three levels:
• Primary: the main institutions are the family doctor, polyclinics
and stomatological clinics.
• Secondary: hospitals.
• Tertiary: institutions for specialized medical research.
The polyclinic and family doctor and nurse programs were set in
motion in 1984, and they have widened and improved access to primary
care services. The health teams involved are improving all the time,
which has enhanced quality and professional performance. The
advantages of this system are clear from the fact that the
hospitalization rate, which in 1984 was 15.1 admissions per 100
inhabitants, was only 10.2 per 100 inhabitants in 2004.
At the end of 2004, Cuba had 444 polyclinics, 33,015 family doctors
and 14,074 consultancies, which mean 99.4% of the population with
coverage.
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In 1959 Cuba began a social, legal and medical campaign to guarantee
health and social assistance to the elderly and so gradually enhance
their quality of life. In 1985 it initiated specialized hospital care for the
elderly. The first geriatric service in the country was created and
residence was provided, and geriatric services were later set up in the
main teaching hospitals in the capital and other parts of the country.
Another outstanding feature of the Cuban system has been the
great vaccination campaigns for the whole country, against diseases
that in the past had been prevalent. The vaccination program, a priority
preventive measure in the system, is one of the most important tasks
of primary health care. The vaccination scheme currently applied
provides immunization against ten diseases.
As a consequence of these efforts, a number of diseases were
eradicated altogether and the main causes of death changed rapidly.
The diseases that moved to the top of the list were acquired or chronic
conditions whose causes are mainly related to aspects of a person’s
lifestyle or environment, and those associated with an increase in life
expectancy (table 2). A number of infectious-contagious diseases were
eliminated altogether, including malaria, poliomyelitis, diphtheria and
tetanus among newborn babies. Gastroenteritis, acute diarrheic
diseases and tuberculosis are no longer the main causes of death.
Table 2
CUBA: EVOLUTION OF THE MAIN CAUSES OF DEATH IN ALL AGES,
SELECTED YEARS
(per 100,000 inhabitants)
Source: National Statistic Office (ONE).
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2.2 Pharmaceutical and Biotechnological Products
At the time of the triumph of the revolution most pharmaceutical
products used in Cuba came from the United States, a country with a
high level of scientific and technical development in the field of
medicine and in pharmaceutical and biotechnological products. Some
medicines are only produced in the United States, and its transnational
firms control the medicine world market.
At that time, the sale of medicines in Cuba was valued at 60 million
pesos a year. Cuba did not have a developed pharmaceutical industry
of its own, and the 400 firms in the country were either branches or
representatives of foreign pharmaceutical companies or Cuban
enterprises that engaged in production.
The industry was controlled by foreign interests, and it did not
develop medicines using home-produced raw materials. Nor did it
stimulate research or product development as the relation between
the pharmaceutical industry and medicine was restricted just to
commercial aspects.
In 1960 and 1961 foreign pharmaceutical companies began to
reduce their imports from abroad or close down their branches in
Cuba as part of the blockade that had already begun for other products.
Cuban pharmaceutical enterprises came under State ownership, either
through direct intervention and nationalization, or through purchase
or donations. This led to the creation of the Consolidated Company of
Pharmaceutical Products (Empresa Consolidada de Productos
Farmacéuticos), which was founded in April 1961 and came under the
Ministry of Industries.
The resources of this new enterprise were dispersed in a large
number of units with traditional methods of production and low level
industrial conditions. It became evident that reorganization was needed
to create the conditions to increase production and establish an
adequate flow of products. Since 1968 the Public Health Ministry has
been directly responsible for the health of the population, and it has
taken control of the economic management of drug companies to
better coordinate the production of medicines with the demands of
the health services.
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By 2001, the main aims of Cuban development policy had been
reached, and the basic chemicals industry, controlled by the Ministry
of Basic Industry (MINBAS), had developed considerably. Consequently,
it was decided to bring together all aspects of the production of
medicines, from basic inputs through to the final product, in one
organization, the MINBAS.
In the early 1990s (1990-1993), total production of medicines
fell by 35% as a result of the economic crisis, but since then it has
recovered well, and indeed, in 2005, it grew by 26% over the
previous year (this figure excludes stomatologic and veterinarian
products). A further expansion of medicine production is planned,
new products will be introduced and efforts will be made to increase
and modernize existing capacity. A production increase of 18% was
projected for 2006.
At the present time, out of the total of 823 types of medicine
available, 532 are produced in Cuba and 291 are imported.
One characteristic of the development of biotechnology in Cuba
is that it has been geared mainly to medicine, a development pattern
similar to that of the developed countries.
In Cuba the development and use of biotechnology began in 1981
with the production of Interferon, which was successfully used to
combat the hemorrhagic dengue epidemic of June 1981. In 1985 the
production of two types of recombinant Interferon (Alfa 2 and
Gamma) was begun: these are used in the treatment of neoplasias,
viral hepatic diseases, and eye infections.
Another important development has been production of
monoclonal antibodies, a special kind of immunoglobulin artificially
produced from cloned cells.
Good results have also been obtained in the field of vaccines
and vaccine preparations. These include the first vaccine in the
world against type B meningococcus, and also a vaccine against
hepatitis B using DNA recombinants in yeast. Cuba is the only
developing nation that has the capability to manufacture these
products.
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3. DEVELOPMENT ACTION
At the end of 1999 Cuba entered into a new phase in social
development. A series of more than 150 programs in the social sphere
involving more than 300 specific tasks have been set in motion with
the aim of improving not only the health and quality of life of the
people but also the quality of their education and general culture.
The country has the political will to continue giving priority to
health system development. The objective is to gradually improve
the health of all Cubans as a contribution to giving them a better
quality of life, and this goal is reflected in better quality services and
higher levels of satisfaction.
To work towards this objective it is necessary to improve health
service management, to increase efficiency and to satisfy personnel
requirements so as to have a stable qualified technical workforce in
the sector. For this reason, a group of programs to achieve excellence
in the medical field are being run.
3.1 Necessary Policlinic
“Today we are carrying out a real revolution in the field of health;
in five years life expectancy should reach 80 years, and our medical
services will be of top quality” (Fidel Castro Ruz).
The aim of this program is to convert the polyclinics into centers that
respond to the needs of the community, taking into account factors such
as morbidity and mortality characteristics and accessibility to a “tailormade” service. For this reason, polyclinics are being redesigned with
new services to bring them closer to the people and guarantee the welfare
of the community. Primary care will be mainly handled by polyclinics
so that hospitals can be more geared to health problems requiring
special treatment, resources, installations and technical facilities.
Some 143 polyclinics have been repaired and refurbished, and this
process will continue in 2006 with 186 more on the list for upgrading.
There are now more electrocardiogram services in the 486 polyclinics
in the country.
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Thirty-one ultrasound service systems have been installed in Havana
and 26 in the provinces. This is high-resolution equipment in primary
health care centers, so it is now possible to diagnose kidney, liver, gall
bladder, spleen, and gynecological problems, and provide obstetric
and fetus tests for pregnant women.
Of the 82 polyclinics in Havana, 30 will have emergency services
for vascular or similar cases, and ambulances and trained personnel
to provide immediate attention. The rest of the polyclinics will be
able to respond to emergencies and call ambulances from nearby
locations to take patients to the nearest hospital.
All polyclinics will have recuperation services to care for patients
with physical problems, bone and muscle diseases, neurological
problems, and to cater to the disabled. To provide these services a
program is under way to train qualified technical personnel on courses
for technicians and specialists in X-ray techniques, physical therapy
and recuperation, and clinical laboratory and blood bank work. In
2005 there were 2,122 graduates, current enrolment is 3,271, and the
7,200 students who are studying for a first degree in health technology
have the possibility of going on to higher studies in 7 biology
specialization areas.
This great effort is yielding good results. In Cuba today, the average
distance a patient has to travel to obtain specialized health care is
just 600 meters, as compared to an average of about 20 kilometers in
the old days.
3.2 Hospital Reconstruction and Modernization
Sixty-one hospitals throughout the country are being reconstructed
and modernized on a program costing about 400 million dollars in
high technology equipment alone. These facilities will provide excellent
service, efficient management, a professional and humanitarian
attitude on the part of the staff, and an elegant and comfortable
hospital environment. Nineteen accommodation units linked to hospital
installations are also being built.
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3.3 Medicines and Drugstores
In order to increase the availability of medicines and meet the people’s
needs, a special effort has been made to improve pharmaceutical
services and modify the production structure in this field.
The list of basic medicines has been revised and some products
have been replaced with newer alternatives that are more effective,
last for a longer time and have fewer side effects. In Cuba today some
imported medicines are available for the treatment of chronic illnesses,
but there are still availability problems with regard to some Cuban
products due to product certification problems, and difficulties in
importing raw materials.
Working conditions for the 17,188 workers in the pharmaceutical
sector have improved, installations are being upgraded and new
facilities are being built so that a better service can be provided.
Another important aspect of development in this sector is that
information technologies are being applied to the system. Computers
have been purchased for all the drugstores in the country, so now the
control of medicines is an “on line” service with access at each point
to information about what products are currently available.
A messenger service has been set up at 404 drugstores. This supplies
medicines to elderly persons who live alone or who have mobility
problems, to the disabled, to pregnant women and to people who are ill.
A new concept is being developed in that drugstores are now being
seen not just as shops where medicines are sold but as centers where
medical attention is available and where people can receive guidance
from a specialist.
3.4 The Reform of Services
“We are progressing towards excellence in primary care” (Fidel
Castro Ruz”.
Nineteen years ago in Havana a program to reform the whole
structure of family doctors with home practices was set in motion.
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Some 755 of these establishments have been completely refurbished
and re-equipped and this process is now going on in another 176. This
initiative has meant better service to the public and improved welfare
for the technical personnel involved.
New stomatological services have been set up and will be supplied
with the necessary means to improve stomatological care and the
production of false teeth. Many polyclinics and stomatologic clinics
will have 24-hour emergency services.
There are 206 centers for optician services, and a decision has
been made to supply 24 ophthalmologic centers with high technology
equipment. The plan is to have one optician service in each municipality
and thereby to considerably reduce delivery time for eyeglasses.
There will be 23 new services for patients with kidney failure who
require hemodialysis, and 17 centers for the treatment of the special
water that is essential for artificial kidneys to function.
3.5 Genetic Development
“Now our country has the capability to do research on the human
genome and to join the international scientific project aimed at
studying genes, participating with highly developed countries” (Fidel
Castro Ruz).
On 5 August, 2003, the National Center of Medical Genetics was
inaugurated, and 202 Masters in genetic advisory systems have
graduated from it. This modern center is in charge of coordinating
the genetics network of the country and training human resources,
and it brings together population, clinical and laboratory studies and
does research into health problems with genetic causes. It will have
three laboratories with the best technology in the country for specialized
diagnoses of different pathologies, many which could not be detected
before. One of these laboratories will handle congenital defects in
metabolism, and once it is working to full capacity it will be able to
diagnose 92 diseases, as against only 9 that can be identified today.
This institution opens up a whole range of possibilities in spheres
such as the study of predisposition to breast tumors, family
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hypercholesterolemia and other risk factors that cause heart or brainvascular diseases, and it will be possible to prevent these processes
and to extend life expectancy for the population and enhance their
quality of life. The system also covers the diagnosis of 93 hereditarymetabolic diseases, and another 44 can be tackled with molecular
biological techniques.
In only 3 years, 406 Masters in genetic consultation have been
trained, and the program involves psychosocial, psycho-pedagogical
and clinical-genetic research. Some 30,000 science professionals and
administrative and support personnel are involved, 366,864 cases have
been studied, and 140,489 cases of mental retardation in 169
municipalities have been detected. The general population has willingly
cooperated in this process.
As a result of these efforts, it has been possible to provide advisory
services for 1,093 couples whose unborn children have been diagnosed
with problems, and what is more, if it were not for the prevention of
possible deaths in the first year of life that this system has made
possible, the infant mortality rate in 2004 would have been 14.4 per
thousand live births.
3.6 Integral Program to Care for the Elderly
Cuba has one of the oldest populations in Latin America. Changes
in this dimension have been so great and so fast that the new profile
of the population pyramid is a cause for concern about the future.
In 1959 Cuba set in motion social and legal mechanisms to provide
medical attention and promote health and social security for the
elderly, and thus to gradually improve their quality of life. The first
MINSAP program geared to this objective began in 1974, and in 1985
the family doctor and health team system went into operation. Today
the elderly have greater needs and demands, and the traditional
solutions are no longer sufficient.
The program for the elderly comes under the National Direction of
Assistance to the Elderly, and is divided into three broad areas:
community attention, institutional attention and hospital attention.
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3.6.1 Community attention
The aim of this sub-program is to contribute to improving health
and quality of life for the elderly and making them more satisfied
with their lot through a system of prevention, promotion, assistance
and recuperation. It is run by the National Public Health System in
cooperation with other institutions and State organizations, and it
involves the family, the community and the elderly themselves in the
search for local solutions to their problems.
At the present time there are 14,466 “grandparents’ clubs” and
178 “grandparents’ homes”, and there are guidance and recreation
groups to provide improved attention for elderly people who live alone.
There are also other alternatives including the Association of
Retirees, and Universities for the Third Age which have 418 branches
and 10,000 people from every municipality in the country enrolled. In
addition there is a Social Care in the Home Service that cooperates
with the Ministry of Labor in providing attention to elderly people
who are bedridden or disabled.
3.6.2 Institutional attention
This sub-program is designed to offer attention to elderly people
who live alone, or in cases in which the family is unable to provide
care.
Cuba has a total of 141 old people’s homes, but these social
institutions have deteriorated in recent years, above all in Havana,
and 755 beds had to withdrawn from use. Currently there is a waiting
list of about 3,000 people who require this type of care.
3.6.3 Hospital attention
The aim of this sub-program is to provide holistic hospital care for
the elderly on the basis of modern geriatric care techniques, to organize
the hospital structure to give priority to the elderly, to raise the quality
of life of the elderly in a hospital environment, and to improve health
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education for the elderly during their stay in hospital and after they
are discharged, always within the limits of what is necessary and
possible.
At present there are 36 geriatric wards or services throughout the
country, but more are needed in view of the trend in the population’s
age structure.
3.7 Nurse training
“Nurses are a fundamental part in all medical work and the Revolution
is dedicated to training revolutionary nurses” (Fidel Castro Ruz).
In 1959 the country had 8 modest nursing schools, but today there
are 38 health polytechnics and two emergent schools. All students of
nursing are offered the chance to continue their studies up to the
levels of a B.Sc. in Nursing.
The objective of this accelerated program is to supplement the
numbers and give stability to nursing personnel in the health system,
and at the moment 3,111 nurses are being trained on three courses.
Of these, 1,579 are studying nursing at university. At present another
2,912 student nurses are being trained, and there is a recruitment
plan in all the provinces of the country to attract more people.
3.8 Courses for Medical Re-training
“Much more important than the number of centers and services is
the quality of conscientious attention that should be given. This is
one of the objectives of medical improvement courses, and they have
been welcomed by our health personnel, who have done glorious
deeds” (Fidel Castro Ruz).
This program is essential for the government’s goals in the health
area as it will guarantee the flow of human resources needed to carry
out big changes in the sector. Indicators show that the causes of death
in Cuba are very different now to what they were in 1959; consequently
training in new medical specializations is imperative to improve the
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quality of life of persons of all ages. It is one of the fundamental
objectives of the health program.
These are polytechnic courses taught by professors from the faculty
of medicine, hospital specialists and staff at the polyclinics, who still
continue with their normal professional tasks. The study programs
were prepared by a group of highly experienced and prestigious
professionals from Cuba and abroad. The purpose is to update the
students’ knowledge by guiding them to scientific degrees such as
Masters and PhDs in Sciences.
3.9 Computerization of Medical Services
Another important innovation that is arriving is the Intranet service
to link up all health centers (hospitals, polyclinics, homes for the
elderly, drugstores, etc.). This involves installing 5,000 computers,
and this extensive network will allow consultations, scientific
interaction among doctors, nurses and technicians, and provide access
to the whole data base and medical information.
3.10 Medical Teaching Program
The objective of this program is to link students of medicine to
patients from the very first year of the study course, through computer
technology, video and television. This will be a flagship for medicine
teaching methods at the Latin America School of Medicine. It means
the number of schoolrooms in each polyclinic will have to be increased,
and computer rooms will have to be set up.
3.11 International Projection
Another dimension of social programs is the international solidarity
Cuba offers to other countries. The most important aspects of this are
as follows:
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3.11.1 Integrated Health Program
“Our country will give cooperation to the value of 2 billion dollars
to the countries of the Third World, proof that even though a country
is poor, very poor, if it is guided by ideas that are just it can do many
things” (Fidel Castro Ruz).
On November 21, 1998, Fidel Castro suggested that Cuba might
contribute with human resources to alleviate and help solve the serious
health problems in Central America, the Caribbean and Africa. At the
present time there are 21 countries that benefit from this program,
most notably Guatemala, Haiti, Venezuela, Paraguay, Nicaragua,
Gambia, Honduras, Ghana, Equatorial Guinea, Namibia, Zimbabwe,
Cambodia, Guinea Bissau and Burundi.
3.11.2 Latin American School of Medicine
This project was first announced on 21 November, 1998, and the
school opened the following year. This marks a new dimension in
cooperation with Latin America, Asia and Africa, and it has come to
be known as the Integrated Health Program.
The school’s mission is to train doctors to replace the members of
the Cuban medical brigade who are providing services in 18 Third
World countries. The plan is to enroll 10,000 students on a study
program that will last six and a half years. The first trained doctors
graduated in 2005.
There were two conditions for eligibility: that the candidate be a
native of a region where the population/doctor ratio is very high, and
that he or she makes a commitment to practice the profession in
those same regions.
Education is free, and the governments of the countries sending
students only have to cover transportation costs. The Cuban government
grants scholarships that cover the cost of enrollment, clothing, board
and lodging, and there is also a stipend of 100 pesos per month.
Students from Haiti are given a one-year course in Spanish before
going on to study at the Medical School of Santiago de Cuba.
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3.11.3 The Henry Reeve Brigade
This brigade is made up of 10,000 doctors, technicians and
specialists, and their mission is to give assistance in cases of epidemics
or serious disasters. In 2005, there were 2,640 instances of members
of the brigade going on missions to Guatemala, Pakistan, Bolivia and
East Timor.
3.11.4 Training Program for the New Latin American Doctor
The main objective of this program is to train an internationalized
physician. It has been designed in accordance with the needs of each
student, who is lodged with a Cuban family so as to inculcate new values.
It is based on three fundamental stages, namely:
• Familiarization and diagnosis.
• A foundation program involving basic subjects (biology,
mathematics, chemistry, Latin American history, Spanish, English
and computer sciences).
• Pre-medical training.
It is estimated that in 2006 some 35,000 students were trained in
different provinces. At the present time they are working in Cienfuegos
and Holguín, and later on Villa Clara, Matanzas, Camagüey and Santiago
de Cuba may also be incorporated into the program.
3.11.5 Operation “Miracle”
The ultimate objective of this initiative is to cure 100% of eye
disorders in Cuban citizens. The program began in Havana and
Cienfuegos, and is being extended to cover the whole country. In 2004,
the program began to attend patients from other Latin America
countries.
This mission began in 2004, and by 2005 it had grown considerably
with 306,000 operations carried out free of charge. This total includes
patients from Cuba and also from other countries.
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In 2006, 200,000 patients received attention. Foreign patient stayed
in the country for approximately 15 days. The plan is to offer these
medical services abroad and to make the surgeries at the countries of
the patients in the future.
4. CONCLUSIONS
This study covers the policies, processes and strategies that Cuba
has been developing in the National Health System, and the
improvements made to guarantee that the objectives of efficiency,
quality, equality and sustainability that are essential to social progress
will be achieved.
Health services have been universalized in the sense that now the
whole population has coverage. The emphasis has been on providing
integrated and holistic primary medical attention and prevention, and
the results in terms of high indexes of health have been good.
At the start of the new century, the Cuban public health system
could look back on genuine achievements as regards the health of the
population and the development of the potential of human resources.
However, health was one of the sectors most affected by the economic
repercussions of the collapse of the Socialist Bloc and the intensification
of the blockade, since its material and financial resources were put in
jeopardy.
Cuban health system has been able to generate income in foreign
currency through its own efforts, and this must continue if finance is
to be provided for this sector. One of the main sources of income in
this respect comes from providing treatment for foreign patients, which
is possible thanks to the international prestige Cuban professionals
enjoy, and the high quality of the services offered.
The country has implemented a series of strategies and programs
to radically overhaul its health services, achieve excellence and prepare
the National Health System to provide attention for the elderly, in
response to the need to cater to an aging population that will develop
in the years ahead.
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Cuba has also designed a group of services to be offered abroad,
so as to be able to assist other countries in the world.
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Chapter 7
VIETNAM’S SOCIO-ECONOMIC DEVELOPMENT
DURING THE RENOVATION YEARS:
ACHIEVEMENTS AND CHALLENGES
Le Anh Son1
Foreword
The renovation process (doi moi) launched by Vietnam’s Communist
Party in 1986 achieved remarkable success in all fields. The major
results of this process are illustrated by three five-year plans, the
first of which started in 1991. There was considerable change in the
domestic and international situation over the three periods, but the
most notable feature of Vietnam’s economy in this period has been its
“transition character”, that is to say a shift from a centrally-planned
economy to a socialist-oriented market economy. Open-door policies
have been pursued and this has enabled production factors to develop.
The aim has been to achieve rapid and sustainable economic growth,
and minimize the negative effects of a market economy while
maintaining and bringing into play the advantages of a socialist society.
Experience shows that analyzing the country’s development process
in past periods, and clarifying the reasons for success both in developing
the economy and tackling the ensuing social problems, is a valuable
tool for policy design for the coming years. As of 2006, the process of
1 Vice-President of the Development Strategy Institute (DSI) of the Ministry of Planning and
Investment (MPI).
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international and regional integration will encompass all spheres of
life in the country. Vietnam will be faced not only with new
opportunities but also with new challenges. Within the framework of
this paper, three major aspects will be discussed: (i) Vietnam’s socioeconomic development from 1991 to the present time; (ii) some social
problems that have arisen during this development process; and (iii)
integration and Vietnam’s prospects for the future.
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1. VIETNAM’S SOCIO-ECONOMIC DEVELOPMENT PROCESS,
1991-2005
The so-called “doi moi” policy was devised as long ago as the
mid 1980s but it did not really show results until the early 1990s.
Since 1991, Vietnam’s development orientation has been dictated
by key documents, namely the “Socio-economic Stabilization and
Development Strategy up to 2000” and the “Strategy for 2001-2010”.
The aim has been to “speed up the socialist-oriented
industrialization and modernization process and lay the necessary
foundations so that by year 2020 Vietnam will be, in principle, an
industrialized country”.
This process can be divided into the following three five-year
periods, which correspond to the implementation sequence set out in
the strategies mentioned above.
1.1 The 1991-1995 Period
The main goal of this period’s five-year plan was “to lead the
country out of crisis, stabilize Vietnam’s socio-economic situation,
and strive to shake off the image of a poor and underdeveloped
country.”
In the late 1980s, Vietnam was still a backward, autarkic and
agrarian economy. Its socio-economic infrastructure was in poor
condition and the technology of most of its equipment was obsolete.
The economic structure was seriously out of balance. The bureaucratic
management structure was plagued with red tape and this had many
adverse consequences. The economy was ineffective and very
dependent on injections of aid from abroad, while productivity
remained at a modest level and the investment rate was negligible.
Socio-economic crises occurred with chronic regularity and the inflation
rate was high. Social security and public order could not always be
guaranteed, and corruption and other social evils were widespread.
Social equity and fairness were lacking, and the cultural, moral and
spiritual aspects of life were all in decay.
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This situation was a consequence of Vietnam’s history, a legacy of
the long-lasting wars the country had endured. However, the main
reasons for the situation were crucial shortcomings caused by
subjectivism and voluntarism, which led to violations of the objective
laws in the socialist transformation and industrialization processes,
and in the adoption of its economic management mechanisms. Those
shortcomings, along with stagnation in how matters of personnel were
addressed, held back Vietnam’s productive potential and curtailed its
driving forces for development.
The active solutions implemented in the late 1980s led to some
crucial initial achievements when the socialist economy started to
change into a market economy under State control. The most salient
were the establishment of a commodity exchange economy with diverse
ownership types and the elimination, in principle, of the bureaucratic
structure that was ridden with red tape. Inflation was brought under
control, and the country’s demand for food, foodstuffs and
commodities was more adequately satisfied as export activities
intensified and new steps were taken in foreign economic relations.
This success, however, was not really built on a solid base since
inflation still remained high, output was volatile, and some social
evils were still serious. The country had not yet emerged from its
socio-economic crisis. The changeover to market mechanisms was not
consistent or complete, especially in the financial and monetary
sectors. Macro-economic management did not completely abandon
the previous mechanisms, and many matters were left to evolve with
no control at all. The institutional structure, state apparatus and
personnel could not cope with the demands of the new era. In addition
to the consequences of some old shortcomings, a large number of
new difficulties were caused by mistakes during the renovation process
and by the adverse effect of changes in the world arena. Though the
country was evolving, attaining initial success in reforming its economy
and obtaining new advantages, it had to face up to some serious
challenges as well.
In this context Vietnam started to implement its first five-year
plan, under the Socio-economic Development Strategy for 1991-2000.
In 1991, Vietnam’s gross domestic product (GDP) was estimated at
about 123 dollars per capita, with the agricultural sector accounting
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for the largest share (approximately 40.5%). Most of the population
(about 80%) lived in rural areas. It was recognized that, in order to
emerge from the crisis, stabilize the socio-economic situation and
strive to shake off the image or status of being a poor and
underdeveloped country, three main problems had to be tackled:
(i)
Financing sources for development should be obtained. In 1991,
all economic aid from the former socialist countries was cut off
completely. The rate of investment to GDP was barely 15%, and
Vietnam had big problems as to where to obtain capital to finance
its development projects.
(ii)
The workers had to be motivated and given incentives. The
existing economic management mechanisms did not encourage
labor effort. There were no clear incentives to stimulate people
directly involved in the production processes, especially farmers
(who accounted for about 70% of the total labor force).
(iii) Living standards for most Vietnamese had to be stabilized. In
the late 1980s Vietnam abolished its coupon system and by the
early 1990s living standards had improved, but the balance
between food and foodstuff demand and supply, and also food
security, still gave cause for great concern. At that time,
consumer price index (CPI) growth remained high (67.5% in 1991).
During the period many policies were pursued and the most
significant was to encourage the development of the agricultural sector
by allocating farming land to smallholders and enacting the appropriate
tax regulations. The new 1991 agricultural policy had an immediate
direct impact on Vietnam’s agricultural production, pushing that
sector’s output growth from 2.2% in 1991 up to 6.9% in 1992. Over the
1991 to 1995 period, average food production increased by more than
one million tons per year. This success not only ensured food security
and social stabilization but also contributed to turning Vietnam around:
from being a country that had to import about 0.5 million tons of rice
per year it has been transformed into one of the world largest riceexporters.
There is a national slogan, “Vietnam wants to make friends with
all countries in the world community, striving for peace, independence
and development”, and the country lived up to this by re-establishing
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cooperation with the international donor community. On November
9th, 1993, a conference of Vietnam’s international donors was held in
Paris, and 22 countries and 17 international organizations took part.
Between 1993 and 1995, average committed Official Development
Assistance (ODA) amounted to two billion dollars per annum.
A Foreign Direct Investment Law was implemented, and in the
1991 to 1995 period about 7.1 billion dollars of foreign direct
investment (FDI) was disbursed. The trend was for more and more,
and the proportion of FDI to total social investment soared from just
over 13% in 1991 to more than 32% in 1995. In the beginning, Vietnam’s
inward FDI flows were largely concentrated in particular processing
industries and services, but later spillover effects poured resources
into other industries in general and in the service sector in particular.
The service sector share in GDP increased from 35.5% in 1991 to 44%
in 1995. In general, Vietnam’s average GDP growth rate over this period
was 8.2% per year, the highest since the renovation process was
launched. The value added by the manufacturing and service sectors
increased by 12.8% and 8.9% per annum respectively, and growth
accounting statistics show that capital stock increases made a large
contribution to Vietnam’s economic growth.
The rise in inward FDI pressed Vietnam for changes in its exchange
rate policy. Under the centrally planned mechanism, Vietnam pursued
the same fixed exchange rate policies as many other former socialist
countries. In 1990-1991, periodic readjustments brought the official
rate closer to the market rate and this had a positive effect on the
export sector. Exports, in turn, had positive impacts on production
and GDP growth; a supply-demand balance in a number of product
markets was gradually reached and inflation rate slowed down.
These achievements meant that, by 1995, the major targets set in
the 1991-1995 five-year plan had in principle been reached.
1.2 The 1996-2000 Period
The main stated aim of the five-year plan in this period was “to
improve people’s living conditions, shifting the country into a new
stage – the stage of industrialization and modernization”.
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By the start of the 1995-2000 period, Vietnam had begun to benefit
from a large number of advantageous conditions. The VIII Congress of
Vietnam’s Communist Party (held in 1996), taking prior achievements
as a starting point, corrected the country’s economic development
objectives and aimed to raise per capita GDP in 2000 to double the
1990 level. The country’s good economic performance in 1996-1997
made that target seem feasible and not overly ambitious.
However, a regional economic crisis that started in Thailand in
1997 indirectly affected Vietnam’s 1998 economic growth. A number
of foreign-based parent companies had their headquarters in countries
in the crisis-ridden region and this caused a lot of problems when it
came to implementing FDI projects in Vietnam. In addition, as these
countries’ domestic currencies depreciated their labor costs became
more competitive, their export competitiveness improved, and they
became more attractive competitors to foreign investors. The financial
crisis made for a consequent decrease in exports and FDI -two factors
that had played a big part in Vietnam’s high growth rate– and this led
to a slowdown in economic growth in 1998-2000.
Consequently, the economic growth objective set in the 1996-2000
five-year plan was not attained. Besides this, as the scale of FDI projects
became larger and most FDI went to the mining and manufacturing
sectors, the domestic service sector did not receive much investment.
This had a negative impact on the growth rate of that sector, which
accounted for about 40% of GDP, and the entire economy subsequently
went into decline.
During the 1996-2000 period, many macro-economic policies were
corrected regularly, underpinning the stability of the whole economy.
Total investment was estimated at 40 billion dollars, and it was growing
at an annual rate of 8.6%. The structure of investment sources
diversified because State subsidies were eliminated and a multi-sector
economy developed. Budget financing accounted for about 22.7% of
total investment capital, loans from financial and banking institutions
made up 14.2%, and the share of State-owned enterprises was 24%.
Thus domestic investment was on the rise, accounting for about 60%
of total investment. By the start of the year 2000 the capacity of a
number of industries had greatly improved. Electricity production
capacity increased to 1.5 times the 1995 level (2,715 MW more),
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cement production increased to 2.1 times that level (8.7 millions tons
more), fertilizer production increased threefold (1.5 million tons),
steel production rose by a factor of 1.7 (1 million tons), sugar
production increase by a factor of 5 (more than 60,000 tons of sugar
cane per day).
There were far-reaching changes in the country’s economic
structure, with a general shift towards industrialization and
modernization. The share of the agricultural sector in GDP declined
from 38.7% in 1990 to 24.3% in 2000, while the shares of the
manufacturing-construction and service sectors increased from 22.7%
to 36.6% and 38.6% to 39.1%, respectively. The country’s starting point
in 2000 was much higher than in 1990. This was illustrated not only by
the fact that GDP doubled over the period, but also by the increase
over those 10 years in the total spiritual and material values created
by the nation. Per capita GDP in 2000 was already above 400 dollars.
1.3 From 2001 to 2005
The main goal of the 2001-2005 Five-Year Plan was “to intensify
progress towards industrialization and modernization, to develop the
economy rapidly and in a sustainable manner, and to stabilize and
improve the people’s living standards”.
By the year 2000 Vietnam was showing the first signs of emerging
from the crisis. Economic growth gradually recovered to a rate of
6.8% per annum compared to 4.8% in 1999. Export and domestic FDI
prospects were more optimistic, although competition in the region
was fiercer. Since 2001 Vietnam’s development, along with global
economic development, had suffered from the unfavorable
international situation, including the adverse effects of events like
the September 11th attack in the United States, the Iraqi war, a sharp
rise in the price of oil, and the SARS (Severe Acute Respiratory
Syndrome) and bird flu epidemics.
During this period, Vietnam adopted a number of policies to
improve its macro-economic situation, facilitate capital mobilization
from external sources, enhance the competitiveness of export-oriented
products and attract foreign investment. An Enterprise Law was passed,
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and this is considered to have had a positive impact on the development
of domestic industries, similar to the positive effect of the modified
agricultural policies in the early 1990s. In addition, the administrative
reforms and the completion of socialist-oriented market institution
processes have paid special attention to establishing a legal framework
for socio-economic activities.
Thanks to those policies, since 2001 economic growth has been
increasing year by year (table 1).
Table 1
VIETNAM: GDP AND CONSUMER PRICE INDEX (CPI)
GROWTH RATES, 2001-2005
(%)
Source: General Statistics Office.
2. SOME SOCIAL PROBLEMS DURING
THE DEVELOPMENT PROCESS
Market mechanisms have the advantage of creating incentives for
all economic sectors to become involved in the development process,
but they also bring about changes in social life. In 2005, Vietnam’s
population was about 83.1 million, 5.4 million more than in 2000, and
this meant additional social pressure.
Due to the fact that infrastructure conditions differ from region
to region within the county, economic development has resulted in
migration to a few particular regions. According to the 1999 census,
out of Vietnam’s six main economic regions the migrants have gone
mostly to the North-east South and the Tay Nguyen Highlands, and in
these the ratio of migrants to locals stands at 5.23% and 7.56%,
respectively. The reasons for migration also differ depending on the
destination region. Most migrants to the North-east South are seeking
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jobs in industrial and service sectors, while people moving to the Tay
Nguyen Highlands are mostly farmers. The increase in population in
these areas has had negative impacts on the chances of improvement
in people’s living standards in the Tay Nguyen Highlands and on the
upgrading of social infrastructure in the North-east South. Over the
1994-1999 period, the number of people leaving rural areas for cities
was three times higher than those moving in the opposite direction,
and most of the migrants moved to large urban centers.
The higher absolute population and improved living conditions
resulted in a higher school enrollment rate. In 1999, 75.3% of children
in the 5 to 9 age group went to school as against only 63.5% in 1989.
The demand for skilled workers has been increasing rapidly, which has
led to a larger number of tertiary education students. This has put
pressure on Vietnam’s training and education sector not only in terms
of number of classrooms and teaching equipment, but also as regards
number of teachers. To comply with government standards, in this
period the education sector needed 90 to 100 thousand additional
teachers each year. The number of classrooms also increased year by
year, but 20 to 25% of the classrooms are really no more than shelters
and most of them are in primary schools.
In 2000, there were 1.45 million unemployed people of working
age, and of these 692,000 were living in urban areas. The urban
unemployment rate was 8.2%. In rural areas the rate of productive
working time is not high, only about 70%, which is due to unemployment
in the off-season. In 2005, the unemployment rate in urban areas
stood at 5.3% and in rural areas it was 21.9%.
It has often been observed that as an economy’s per capita income
grows, the rich-poor gap also widens. According to a preliminary survey,
the income gap between rich and poor in 1991 was 4.1 times, and in
1992 this gap increased by 4.4%. In 1993 a poverty survey indicated
that the income level of the richest 20% was 6.2 times higher than
that of the poorest 20%, and in 1995, 1996, 1997, 1999 and 2002, the
ratios were 6.5, 7, 7.3, 8.9 and 8.1, respectively. It can be seen in
table 2 that the multipliers expressing the rich-poor gap also differ
between regions.
Time series data also indicate an upward trend in the Gini
coefficients, which are shown in table 3.
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Table 2
VIETNAM: RICH-POOR GAP BY REGION, 2004
(ratios)
Source: General Statistics Office.
Table 3
VIETNAM: GINI COEFFICIENTS BY REGION, 1994-2004
Source: General Statistics Office.
226
The physical health of the Vietnamese people has been improving
as the economy grows. In 1997, Vietnam was ranked 140th out 191
countries by the World Health Organization (WHO) in terms of the
completeness of its public health care systems. However, in recent
years the development process showed that people’s needs for health
care were increasing, and also that demand differed by income groups.
People seeking treatment often flock to the well-known large central
hospitals causing them to overload. Hospitals at lower levels are not
only short of medical personnel but also lack the capital required to
upgrade their facilities since they have to rely solely on budget
allocations.
Under the mechanisms of a market economy, Vietnam’s cultural
and information sector has had its own difficulties. A number of
productive units in this sector have relied heavily on budget allocations.
They have not been dynamic, or have not been able to maximize the
mobilization of income sources required for their development, and
as a consequence they have not been able to satisfy the people’s
increasing cultural and spiritual requirements.
The government of Vietnam fully recognizes that it is responsible
for the people’s social welfare and that this is the most important
objective of a socialist-oriented economy, and so it has implemented
a large number of policies to tackle the social problems that have
emerged during the development process, especial those arising from
the rich-poor gap. The goal has been to build “a wealthy nation, a
powerful country, and a fair and civilized society”, and the first priority
was to motivate all economic sectors to become involved in this effort.
The government took numerous measures to narrow the gaps between
different social groups and regions as regards access to and the
enjoyment of social services. The most notable of these measures
were:
• Pursuing population development and family planning policies
to tackle population and labor problems.
• Implementing poverty reduction programs and eliminating hunger
in rural, mountain, isolated and remote areas.
• Giving budget allocation priority to areas with difficulties, and
easing access to social services to the poor.
227
• Building a system of policies and financial institutions geared to
agricultural and rural development, and giving priority to
industrialization and modernization in agricultural and rural
areas.
• Implementing policies to provide incentives for domestic social
groups and foreign investors to invest in social services such as
schools, universities, hospitals, medical centers, cultural and
arts activities, information services, sport and games.
3. THE REGIONAL INTEGRATION PROCESS
AND VIETNAM’S PROPECTS
Thanks to the economic achievements of nearly 20 years of
renovation, the gap between Vietnam and other ASEAN countries has
narrowed in many fields. However, Vietnam still ranks only 6th out of
10 ASEAN countries in terms of per capita income and 5th in terms of
GDP value.
Vietnam is in South-East Asia, on the Asian-Pacific rim, which is
one of the most dynamic regions in the world. This is an important
advantage when it comes to accessing foreign sources of capital,
science, technology and modern management methods in a context
in which international production is changing from a mainly natural
resource-based structure to a knowledge-based structure.
Thanks to its initial success and its commitment to actively
accelerating the renovation process, Vietnam is an attractive
destination for foreign investors, including some large transnational
corporations. It is also considered a trustworthy partner in international
co-operation. In recent years the country’s export turnover has been
rising steadily and its export growth rate has been high. Besides this,
its committed ODA source has been stable and increasing and its
domestic FDI flows have recovered
If Vietnam becomes a full membership of the WTO and the ASEAN
Free Trade Agreement (AFTA), it will probably have increased
opportunities to access foreign resources (capital, technology,
228
expertise, etc.), and this will accelerate its industrialization and
modernization. Full membership will also help the country to overcome
discrimination and restrictions in international trade transactions, and
it should be able to obtain preferential treatment like other
underdeveloped countries with transitional economies, thus improving
its status in the world arena and gaining access to bigger foreign
markets to promote its domestic production. This would maximize
the chances of finding “short cuts” to developing modern high-tech
industries and establishing new dynamic comparative advantages to
boost the economy still further.
Thanks to the recent Free Trade Agreement between ASEAN and
China (AC-FTA), the ASEAN countries including Vietnam will have
increased opportunities to export their goods to China’s markets, since,
as of January 1st, 2003, the Most Favored Nation (MFN) status was
awarded to them.
FDI flows into Asia will increase in the 2006-2010 period. However,
Vietnam’s inward FDI could go up or go down depending on how much
its domestic investment environment can improve. The country is next
door to China, which is a very large competitor for FDI, and this will
make it difficult for Vietnam to attract investment from large foreign
corporations.
Besides its weak ability to absorb capital (as is shown by
disbursement rates), in the future it will be more difficult for Vietnam
to retain the status of an ODA-recipient. The more the country’s per
capita income increases, and it is expected to reach over 750 dollars
by 2010, the less likely Vietnam is to receive preferential ODA.
Consequently, in 2006-2010, it will have to take advantage of the fact
that it is still ranked among the low-income countries, so as to improve
its capital absorption ability and maximize the preferential ODA it
receives.
Between 2006 and 2010 Vietnam will have to compete with strong
rivals, the most formidable of which are China and India -two rapidly
developing economies that are very competitive in trade.
In general, Vietnam’s share in the big world markets is not great.
There are a lot of opportunities to expand, but expansion depends on
the country being able to improve the quality of its export-oriented
229
products and properly implement its export-based development
strategy.
Like in many other developing countries, import taxes are an
important source of revenue for the State budget. Following the
roadmap of AFTA’s Common Effective Preferential Tariff scheme (CEPT/
AFTA) and becoming a full WTO member means that these tax rates
will have to be cut, so the contribution of import taxes to the budget
will decrease. However, at current tax rates, the challenges involved
in following the AFTA roadmap and of fully joining the WTO are
somewhat different. Whereas the major problem with fully
implementing CEPT/AFTA commitments is that tax rates will fall and
budget contribution will be less, the biggest challenge or drawback to
joining the WTO is that Vietnam is not very competitive and has a low
development level in domestic production, and these factors add up
to weak self-control capability.
Vietnam’s participation in international and regional integration
systems means there will have to be sweeping reforms in many fields
including trade policy, the private sector, the financial and banking
sector, state-owned enterprises, public expenditure management,
public administration and the legal system. These reforms will
probably have a considerable impact on private firms’ performance.
There may be many more mergers, bankruptcies and new firm startups than in 2001-2005. Social problems such as finding new jobs for
redundant laborers, and policies for narrowing the rich–poor gap
between different social groups and different regions in the country,
will be more pressing.
In the short and middle term, Vietnam’s economy will maintain
its high growth rates, thanks to the rapid increase in domestic
consumption and investment demand. Other favorable factors are
the stability of key macro-economic indicators, the fact that the
government is making efforts to accelerate a number of important
institutional and structural reforms, and the fact that Vietnam is
receiving strong support from international organizations such as
the World Bank, the International Monetary Fund (IMF), the Asian
Development Bank (ADB), etc. These should allow Vietnam to
maintain its position as one of the fastest-growing economies in Asia
and win the confidence of investors.
230
231
Chapter 8
VIETNAM’S ACHIEVEMENTS AND PROSPECTS
IN AGRICULTURE
Nguyen The Hien1
Foreword
In the early years of renovation (doi moi) 80% of Vietnam’s
population lived in rural areas (in contrast to less than 75% today),
and so agricultural and rural development has been extremely
important. A key objective has been to ensure self sufficiency in food.
To increase farmers’ incomes agricultural exports will have to grow,
the processing industry will have to develop and jobs will have to be
created. Progress in these areas will make a crucial contribution to
political and social stability in the country.
Vietnam’s Communist Party and government have implemented
numerous agricultural and rural development policies, and a lot of
research and effort was devoted to them. In this paper the main
policies will be outlined and some important achievements, and
also some problems and challenges, will be dealt with in greater
depth. Lastly, Vietnam’s plans and prospects for the future will be
analyzed.
1 Researcher at the Development Strategy Institute (DSI) of the Ministry of Planning and Investment
(MPI).
232
1. VIETNAM’S AGRICULTURAL DEVELOPMENT POLICIES
(before and after the doi moi process)
After the reunification of North and South Vietnam in 1975, the
country faced the big challenges of recovering from war and developing
socially and economically. The main problem in agriculture was food
insufficiency and the need to import large quantities of rice every
year. The shortage of food was due to the form that agricultural
production was organized, mostly on large scale, based on unskilled
labor force and low productivity. In 1981, to tackle these problems,
the Vietnamese Communist Party issued Decree 100 on “Agro-product
Allocation to Individuals and Groups in Agricultural Collectives”, which
eliminated the equal distribution of agricultural products. Thanks to
that measure agricultural production gradually improved.
The sixth Communist Party National Congress in 1986 set Vietnam
on the path to renovation or doi moi (a policy for comprehensive
renovation), which initiated the changeover from a centrally planned
economy to a socialist-oriented market economy under State
management. This created more opportunities for agriculture and rural
development.
A resolution by the sixth Communist Party Central Committee (6th
tenure) laid down further renovation measures for the management
of agriculture, based on agro-product allocation to individuals and
groups in agricultural collectives. Many difficulties and problems were
overcome, an entrepreneurial spirit was promoted, and agricultural
production grew.
With this foundation, agricultural production was expected to
develop, but between 1986 and the first half of 1988 it actually went
down. Production was stagnant and most of the figures for yield and
value decreased. The rate of growth of agricultural yield shrank by 0.39%
in 1986 and 1987, and the crops went down by 2.4%. Food production
declined from 18.2 million tons in 1985 to 17.5 million tons in 1987,
and there were serious food shortages. The per capita food allocation
fell by 6.9% in those two years.
The situation showed that the new mechanisms only amounted to
dismantling of outdated structures but had not yet stimulated farmer’s
labor sources or the strengths of the agricultural economy. What was
233
needed at that time more than ever was a continuing renovation of
agricultural and rural development policies.
After a few years of implementing agricultural product allocation,
the Vietnam Communist Party had accumulated the experience to
turn Decree 100 into Resolution 10 (April 5th 1988) on “The Renovation
of Agricultural Management”. This important resolution marked the
beginning of a far-reaching reform in Vietnam’s agricultural and rural
development. Resolution 10 included:
• The implementation of independent production and business in
state-owned enterprises.
• Collectives and production groups were defined as farmers’
volunteer economic organizations operating under the principle
of self-management and equality before the law.
• Household-based economic units were encouraged to develop
in sectors such as fruit, industrial crops, gardening, forest
plantation, animal husbandry, fisheries, handicrafts and
agricultural services. The products could be used by the
household itself or sold on the market.
In 1991 the seventh Communist Party Congress initiated a national
development policy for a transition period and set out a strategy for
stable socio-economic development up to 2000. The overall aim was
to pull the country out of the crisis by 1995. Vietnam also resolved to
develop relations with all countries. This was a difficult period not
only because of the collapse of the Soviet Union but also because the
United States was maintaining a blockade and trade embargo. However,
the Vietnamese people steadfastly implemented the Seventh Party
Congress resolution.
In June 1993 the Party’s Central Committee (7th tenure) issued Resolution
5 on “Continuously Renovating and Developing Rural Social-Economic
Aspects”. This was designed to complete the policies on the household
economy and land allocation to farmers. The land allocation policy
was based on the characteristics of each kind of crop and each area.
In July 1993 came the Land Law, whereby farmers were granted
five rights in the use of land (the rights to exchange, transfer, lease,
inherit and mortgage land). This gave the farmers more confidence in
how they used the land, and productivity increased. Apart from paying
234
land-use tax (the tax rate was considerably low), the farmers were
free to use their products themselves or send them to markets. Their
income increased steadily.
Besides the above-mentioned policies, in March 1993 the
government issued Decree No.14/CP on loans to households. The aim
was to foster the development of agriculture, forestry, fisheries and
the rural economy. This measure has been in place up to the present
time and has been supplemented with further measures to give farmers
incentives to raise production.
Also in March 1993, the government issued Decree 12/CP on
“Agricultural Encouragement Activities/Tasks”, which was aimed at
assisting farmers to access more advanced agricultural technologies,
especially a wider use of hybrid and scented varieties of plants, hybrid
paddy-field seeds, a hybrid strain of maize, new cultivating methods,
etc. This Decree has been in force up to the present time.
Appropriate guidelines and policies have supported this vigorous
development of agriculture, and the sector emerged from crisis and
stagnation earlier than any other sector in the economy.
In June 1996 the eighth Communist Party Congress announced that
Vietnam was no longer in crisis, and socio-economic policies would
henceforth be geared to industrialization and modernization. The
objective was to turn Vietnam into an industrialized country by the
year 2020. Agricultural and rural industrialization and modernization,
and the comprehensive and harmonious development of agriculture,
forestry and fisheries that were linked to the processing industry, were
given special priority.
In 1998 the Party Central Committee (8th tenure) adopted Resolution
6 on “Agricultural and Rural Development”. This focused on policies
to accelerate agricultural and rural industrialization and
modernization. As to development policy for economic sectors, the
Party advocated stimulating the development of household farms (there
were only 61 such farms in the country), linkages among economic
sectors and cooperation for large-scale production and business. Land
allocation and licensing of land use certificates were promoted to
ensure that each parcel of land was under legal management.
Investment was to be geared to promoting advanced technologies,
and agricultural and rural development was to be fostered.
235
These policies helped to harness the country’s enormous potential
for agricultural development, but they also showed up certain
problems. The most important were the fact that production was smallscale and dispersed, and there was a serious scarcity of products
suitable for export. In the late 1990s, the value of agricultural
production stalled because of lack of markets, and export income
from some key agricultural products like rubber, coffee, tea and rice
fell in spite of the fact that greater quantities were being sold abroad.
Vietnam’s agriculture now faced new challenges, and these called for
changes towards greater efficiency in economic mechanisms.
On 15 June, 2000, the government adopted Resolution 09/2000/
NQ-CP on “Some Policies on Changing the Economic Mechanism and
the Consumption of Agricultural Products”. This measure defined the
course of Vietnam’s agricultural development up to 2010. The main
aim of the resolution was to promote agricultural products that would
be more suitable and more competitive to meet domestic and export
demand. Low-productivity products would be replaced by higherproductivity ones. For example, low-productivity rice could be replaced
by shrimp farming, coffee could be replaced by cotton production,
and no more sugar mills would be built because there was not enough
material for the ones that were already in place and sugar production
costs were very high.
The ninth Communist Party Congress (April. 2001) restated their
commitment to industrialization and modernization and announced
their “Socio-Economic Development Strategy” up to 2010, in which
agricultural and rural development was still to play an important role.
On 18 March 2002 the fifth Central Committee (9th tenure) adopted
a special resolution on agricultural and rural development:
“Accelerating Agricultural and Rural Industrialization and Modernization
in the 2001-2010 Period”. This is a significant resolution because it
gives the leading role to industrialization and modernization. Vietnam’s
agricultural economy will shift toward large-scale production, the
processing industry will be more strongly linked to the market through
mechanization and electrification, scientific and technological progress
will be promoted, especially in the biotech area, and the latest
cultivation techniques will be introduced to increase productivity,
quality and competitiveness.
236
The tenth Communist Party Congress, at the beginning of 2006,
maintained the same line: Vietnam “…will continue to promote
industrialization and modernization in agriculture and rural
development...” to build up a diversified, high-quality and competitive
agricultural sector, and to promote the shift in agricultural and rural
production towards high-quality goods.
2. SOME ACHIEVEMENTS
2.1 Economic Growth
Table one gives an overview of Vietnam’s economic structure in
the 1991-2005 period. The main characteristics are:
• Annual gross domestic product (GDP) increased by about 8.2% in
1991-1995, 6.95% in 1996-2000, and 7.5% in 2001-2005.
• GDP value was 274 thousand billion Vietnamese dongs in 2000 at
1994 constant prices (about 25 billion dollars), which was more
than double the 1990 figure (this goal was set at the VII Party
Congress). In 2005 it was 53 billion dollars (640 dollars per capita).
• The economic structure initially shifted towards an increase in
the share of manufacturing and services. The share of agriculture
fell, but there was a continuous increase in the absolute value
of agricultural production.
Table 1
VIETNAM’S ECONOMIC STRUCTURE, 1991-2005
(%)
Source: General Statistic Office (GSO) and Ministry of Planning and Investment (MPI).
237
2.2 The High Growth Rate in Agriculture
In the 10 years from 1991 to 2000 the total annual output of the
agricultural sector increased by an average of 5.6% per annum. This
included agriculture 5.4% (food 4.2 to 4.3%), industrial crops 10%,
husbandry 5.4%, fisheries 9.1% and forestry 2.1% (see table 2).
Table 2
VIETNAM: SOME KEY AGRICULTURAL PRODUCTS
Source: General Statistic Office (GSO) and Ministry of Planning and Investment (MPI).
238
In 2001-2005, the production value of the agricultural sector was
still on the rise at a rate of 5.4%. Fisheries showed the highest growth
rate (8.6%), which improved farmers’ income.
The paddy field crop is mainly concentrated in two regions, the
Red River Delta (1.2 million ha, of which 300,000 are aimed to high
quality crops) and the Mekong River Delta (3.5 million ha, of which
one million are aimed to high quality crops). These account for 70% of
total paddy field yield in the country.
Robusta coffee mainly grows in the Central Highlands and Southeast
provinces on about 400,000 ha, Arabica coffee concentrates in about
50,000 ha in the Northern provinces.
Rubber mainly grows in the Central Highlands and Southeast
provinces, on 400-450 thousand ha, while tea is mostly in the
mountainous Northern provinces and Lam Dong province, on 100,000
ha. Finally, the fishery industry is located mostly in the Southern
provinces, and amounts to about one million ha.
The most significant achievement in this sector has been the large
increase in the paddy field yield, which has led Vietnam not only to self
sufficiency and significant husbandry development but also to become
the second largest rice exporter in the world (after Thailand).
A key factor is that the annual increase in paddy field yield was
due to increased productivity. In 2005, the total cereal crop yield was
about 39.9 million tons, of which 36.3 million tons were paddy yield
crops (480 kg per person per year).
The fishery yield increased considerably from 890 thousand tons
in 1990 to 2,170 thousand tons in 2000. In 2005 fishery output increased
to 3,300 thousand tons, and this included major fishery exports such
as shrimp, fish and frozen cuttlefish. Fishery has become the third
export sector in the country’s economy, after crude oil and garments/
textiles.
2.3 Agricultural Exports
Agricultural exports have played an important role in the economy
as a whole and particularly in the agricultural and rural sector. Over
15 years it has achieved a lot, as is shown in table 3.
Source: Development Strategy Institute.
Table 3
VIETNAM: AGRICULTURAL PRODUCT EXPORTS. 1990-2005
239
240
The main characteristics of agricultural export growth have been:
• In 1990-1995 agricultural yield and export values increased every
year. In 1990, total agricultural exports were worth 1.10 billion
dollars and accounted for 48% of total export value, but in 1995
the figures had jumped to 2.52 billion dollars and 46%
respectively. In general the average annual growth rate of
agricultural exports was 17% in the 1990-1995 period. During
that period the country’s exports were mainly based on
agricultural goods, which accounted for 45 to 50% of the total.
• In 1995-2000, although the share of agricultural products
decreased in total export, their export values increased by an
annual average of 10%. In 2000, Vietnam’s agricultural exports
went up to 4.3 billion dollars, and accounted for 30% of total
exports.
• In 2001-2005 the value of agricultural exports was still on the
rise and in 2005 it reached 7.3 billion dollars and accounted for
23% of total exports.
• In general, the output has increased more rapidly than values
since agricultural export prices on world markets have been
gradually declining.
• Coffee has been exported to 50 countries, rubber to 30 countries,
and fishery products to 49 countries.
3. RESTRICTIONS AND CHALLENGES
Vietnam’s agriculture is laboring under a number of restrictions
and has to confront some serious challenges. The major obstacles
that hamper agricultural and rural development are as follows:
• Limited arable (cultivated) land. The country has 0.16 hectares per
person of agricultural land, which is far less than the world average
of 0.59 and the Asian average of 0.26 hectares per head. This is the
most difficult problem facing agricultural and rural development
and the move towards industrialization and modernization.
241
• The processing industry and post-harvest technologies are
obsolete. At the present time only 60% of the tea yield and 1% of
meat is processed. Rice suffers post-harvest losses of 13% and
fruit and vegetables about 20%. Most agriculture-forest-fishery
exports are raw, unprocessed or poorly-processed.
• It is difficult to marketing agricultural products. Prices are
unstable and the trend is for them to fall, and Vietnam’s levels
of competitiveness are low.
• Redundant rural labor. Up to 2003, rural working hours were
about 78% of total working time, and rural unemployment was
running at approximately 5.8 million people.
• Poor production and living infrastructure in some regions of the
country, 200 communities still lack road connections to other
districts, and production in some rural areas is improving rather
slowly.
It is necessary for agricultural and rural areas to shift towards a
new stage of production and occupational diversification. As the
country gradually integrates into the world economy competitive
products and goods will be supplied to local, regional and world
markets, and the keys to lifting agriculture out of its current
obsolescence will be high productivity, good quality and low costs.
4. AGRICULTURAL AND RURAL DEVELOPMENT STRATEGIES
UP TO 2010
4.1 Main Directions
The main policy strategies for achieving a diversified, high quality
and competitive agricultural sector are as follows:
• To ensure national food security. This is a contribution to socioeconomic stability and to improving conditions for the growing
population. Also, the agriculture-forestry-fisheries sector must
provide the processing industry with sufficient inputs to meet
domestic and international demand.
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• Agricultural and rural development must accelerate progress
towards industrialization and modernization. The linkages
between production, processing and the market need to be
strengthened. The production of better-quality agricultural goods
and higher productivity must be promoted in the framework of
regional and international integration.
• The rural economy has to change towards reducing the share of
agriculture and increasing that of manufacturing and services.
In agriculture, the ratio of food crops must be decreased, while
the ratio of husbandry, industrial crops and vegetables must set
to increase.
• To continuously develop a multi-sector economy. Accomplishing
this objective could create energetic and comprehensive
development to ensure that the country’s socio-economic
objectives are harmonized.
• To make use of the full potential of labor, land, forest, sea
resources and local capital, policies to attract the maximum
possible foreign capital resources have to be formulated in order
to develop a stronger agricultural and rural economy. Job creation
and increasing income for the inhabitants of rural areas must be
improved. In turn, an increase in rural income will help to expand
the consumption of manufactured goods.
• To develop “clean agriculture” to protect and enrich the
ecological environment.
4.2 Development Goals
The objectives up to 2020 are:
• To build up ecological agriculture with steady, stable and rapid growth.
• To diversify crops and products.
• To combine agriculture and forestry with the processing industry.
• To gradually increase industrialization and modernization in
agriculture and rural development.
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• To increase the production of better quality agricultural goods
to meet domestic consumption and export demand, and
• To improve rural living standards and build up new rural areas.
The objectives up to 2010 are:
• To attain an annual growth rate in agriculture of 3.5 to 4.5% or
more.
• To reduce agriculture’s share in GDP from 20.5% in 2005 to 15 or
16% in 2010.
• Total estimated cereal yield was 39.9 million tons in 2005 (of
which paddy fields accounted for 36.3 million tons) and should
be 40 to 43 million tons in 2010.
• The estimated value of agricultural, forestry and fishery exports
should increase from 7.3 billion dollars in 2005 to 10.6 billion
dollars in 2010 (fisheries amount to 3.5 billion dollars).
• Forest plantation areas will increase from 38% in 2000 to 40 or
45% in 2010.
• 5 to 8 million rural jobs will be created. By 2010 rural income
will have increased threefold over the 1995 figure, and poor
households will gradually emerge from poverty.
4.3 Orientations for the Development of Some Agricultural
Products
4.3.1 Food production
Food production development should be considered a long-term
strategic task. The aim is “to ensure national food security”, to stabilize
people’s living standards, to promote exports, and for this sector to
be a corner stone for industrialization and modernization in the country.
In the current market economy, besides the self-sufficiency aspect of
producing enough quantity, special attention must be paid to quality.
Development must be considered for regions suitable for special paddy
field crops. Special rice has low productivity, but its value per hectare
is much higher that the normal varieties.
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Some paddy field areas are short of irrigation water and paddy
field productivity is low, so other higher value crops could be brought
in. It is not necessary for all regions to produce food, and in fact
moves to increase the food yield should be focused on the Red River
and Mekong River deltas.
In the years ahead, continuous investment will be needed to
complete and expand irrigation and drainage systems, especially
in the Red River and Mekong River deltas. The application of
scientific and technological innovations should be promoted. New
high-productivity varieties of crops that are of good quality and
adaptable should be grown more widely, particularly hybrid rice
and maize. Systems to foster agriculture should be strengthened,
and fertilizers and pesticides should be provided as and when they
are needed.
Paddy field crops should be rescheduled to avoid natural disasters
and ensure productivity. Paddy field land will decrease in extent due
to the restructuring of crops towards animal-based production, and
to industrialization and urbanization. Moreover, some low-lying or
barren land should be devoted to shrimp farming and other higherproductivity crops. In 2005 the total paddy field area was approximately
7.2 million hectares, and by 2010 it will be 6.7 to 6.8 million hectares.
It is estimated that by 2010 the total area devoted to grain foods will
be 7.9 million hectares.
Paddy field crops should be strengthened by crop diversification
and the use of new hybrid and scented varieties. Productivity is
expected to increase from 4.24 tons per hectare in 2000 to 5.24 tons
per hectare in 2010. Estimated maize productivity will increase to 4.6
tons per hectare in 2010.
The total food grain production should increase from 39.9 million
tons in 2005 (36 million tons of which was rice) to 43 to 44 million
tons in 2010 (with rice accounting for 40 to 41 million tons). Food
production per person will increase from 475 kg per person in 2000
to 485 kg in 2005, and will keep increasing in subsequent years.
This production will meet the people’s needs, provide for husbandry,
and stabilize national reserves and annual rice exports (which
amount to about 4 million tons).
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4.3.2 Coffee
Coffee production is currently enjoying high productivity, an
expanding market and high export demand. In recent years, due to
good development in the robusta coffee area, there was some
redundancy in yields and prices decreased. The yield of arabica coffee,
on the other hand, turned out to be not enough to meet processing
demand, so in the next few years the area devoted to arabica coffee
is to be increased under the motto “sustainable coffee development”.
The low productivity robusta coffee area must be reduced and
some areas not suitable for growing robusta coffee will be devoted to
arabica coffee. Up to 2005, the estimated robusta coffee area will be
about 400,000 hectares, mainly in the Central Highlands where there
is sufficient water for irrigation.
The ratio of arabica coffee to robusta coffee was estimated at 10
to 15% in 2005 and it is set to reach to 20% in 2010. Coffee land will
increase from 17,000 hectares to 80,000 or 100,000 hectares in 2010,
mainly in the North West and North Central areas. Total estimated
coffee areas should be 500,000 hectares and coffee yield 750 to 800
thousand tons.
Measures are being taken to develop the coffee sector. Coffee
processing plants need to be improved by introducing advanced
technologies to make full use of harvested coffee in all regions. Coffee
processing plants ought to be expanded in the South, and new ones
should be built.
4.3.3 Rubber
Perennial rubber trees have relatively high economic value. Rubber
trees make a positive contribution to the re-greening of barren hills,
to ecological protection, to crop modification and to improving the
rural economic structure.
According to specialists, the world natural rubber yield will
decrease by 7.76 million tons in 2005 due to increased competition
from artificial rubber. ASEAN is still a main rubber supplier in the
world. In the years ahead, rubber import demand will increase steadily.
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Due to increased demand for tire production, China’s rubber imports
will increase from one million tons to 1.5 million tons in 2007, and
India’s rubber imports will grow by 350,000 tons per year over the
next 5 years. Up to 2010, estimated world rubber demand will be
eight million tons, which means that there will be a shortfall of about
1.1 million tons, and this will be a big opportunity for Vietnam’s rubber
exports.
Therefore, what is needed is intensive farming and exploitation of
the existing 420,000 rubber hectares already in production, and 35,00040,000 hectares of new rubber areas should be created, mainly in the
Central Highlands and the Central regions. Production in low
productivity rubber areas should be terminated.
The total rubber area amounted to 450,000 hectares in 2005, and
of this the exploitation area is about 320,000 hectares. Rubber areas
are concentrated mostly in the Southeast (40 to 45% of the total) and
the Central Highlands (24%). Crop diversification is needed to increase
productivity to 1.35 tons per hectare and to raise the latex yield from
420,000 to 440,000 tons, of which 380,000 tons are to be exported.
In 2006-2010, the existing rubber areas have to be intensively
farmed and exploited, and the new ones should expand. By 2010, the
total rubber area is expected to be about 500,000 hectares, and the
estimated rubber production will be 1.7 tons per hectare, giving a
total rubber yield of 600,000 to 700,000 tons.
Besides crop diversification and intensive farming, new investment
is needed to upgrade rubber processing plants and to renovate rubberprocessing technology. An additional 150,000 to 200,000 tons of
capacity should be added to be able to process all latex material.
Besides this, it is also necessary to develop the production of domestic
latex goods like tires and tubes.
4.3.4 Tea
When it comes to developing tea to meet domestic consumption
and export demand, Vietnam has many advantages as regards land,
climate and market. Tea areas are mainly concentrated in two regions,
the Northern Midlands, which accounts for 58% of the total green tea
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yield, and the Central Highlands, which produces 28.6% of the total
green tea yield.
Intensive farming should be strengthened and new tea areas must
be included. The plan is that total tea areas should cover an estimated
130,000 hectares in 2010, and the yield of green tea should increase
by 700,000 tons, which is equivalent to 140,000 tons of dried tea.
Estimated tea exports are projected at about 80,000 to 100,000 tons
(70% of the total yield).
To achieve these goals, some sweeping measures have to be taken.
Vietnam will have to:
• Increase investment to expand the tea area.
• Utilize new high-yield tea strains and renovate the existing
processing line.
• Build new processing plants with advanced technology to process
black tea, green tea, specialized tea and other high-quality
varieties, for export.
• Diversify into different export markets.
• Build up the Vietnamese tea trademark, which must be associated
with high quality, favorable price and good design so as to
gradually create a solid position in the world market.
• Build efficient linkages among tea planting regions, processing
zones and markets.
4.3.5 Cashew
Cashew is a high value crop, especially in foreign markets. In recent
years cashew has been one of the ten highest agricultural export income
earners, bringing in 300 million dollars. Local and global cashew prices
are relatively high and stable.
World cashew production is mainly concentrated in three countries,
Vietnam, India and Brazil; they account for approximately 93.4% of
total yield and 92% of exports. Therefore Vietnam will continue to
have great influence in the world cashew market.
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In the years ahead it will be necessary to develop cashew in suitable
regions so as to increase plantation area and yield. By 2010, estimated
cashew areas will be about 350,000 to 400,000 hectares, with 360,000
to 400,000 tons of yield.
Intensive farming ought to be focused in three main cashew regions,
the Southeast (200,000 hectares in 2010), the Central Highlands (50,000
hectares) and the South Central Coast (120,000 hectares).
It will not be necessary to build new processing plants. Investment
should focus on advanced technology for those already in existence –
which have a capacity of 240,000 tons- in order to improve quality.
4.3.6 Sugar Cane
Vietnam has favorable climate and land conditions for sugar
production. Sugarcane is produced in many regions, and the South
Central Coast has the largest share with 70,000 hectares planted and
an estimated 26% of total production in 2010.
The application of advanced technologies has been successful in
creating high productivity, high sugar content sugarcane varieties,
and prolonged harvest crops. In 2005 the average sugar yield was
about 14.4 kg per person, and the estimate for 2010 is 16 to 17 kg per
person. Total sugar yield will amount to between 1.2 and 1.5 million
tons by 2010.
Plans for sugarcane development up to 2010 include restructuring
sugarcane areas based on milling capacity (about 270,000 hectares),
applying advanced technologies to growing sugarcane so as to raise
productivity and quality, and reducing the production cost. Total
estimated sugarcane yield will be 19 million tons in 2010.
Vietnam should take the following measures to develop sugar production:
• Draw up a master plan to develop sugarcane areas for each
processing mill and for the whole country.
• Apply advanced technologies and expand existing sugar mills.
• Improve the management system. Close linkages between
farmers and processing mills should be established to bring about
more efficient milling.
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• Learning from experience, taking measures to efficiently
implement equitization in order to build a firm foundation for
the long-lasting development of Vietnam’s sugar sector. This is
considered the decisive step.
4.3.7 Forestry
Forest protection and forest plantation should be improved, and
this means developing a sustainable ecosystem while protecting land,
water resources, and the environment. Forestry and agriculture
combinations will also make for better living standards for ethnic
minorities. The coverage ratio is expected to increase from 38% in
2005 to 40 to 45% in 2010.
4.3.8 Fisheries
Vietnam has 3,260 km of coastline, which means that the fishery
sector has many advantages stemming from natural conditions and
resources. In the years ahead, investment should be focused on offshore cultivation and exploitation with high yields and quality, so as
to develop fisheries into a key economic sector. This growth in the
maritime economy must be supported by effective defense of the
country’s territorial waters.
The total estimated fishery yield was 3.3 million tons in 2005, of
which the aquaculture yield was 1.5 million tons and exploitation 1.8
million tons. In 2010, the total estimated fishery yield will increase to
3.5 to 4.0 million tons, of which aquaculture will account for 1.7 to
2.2 million tons.
Aquaculture will be promoted and its share in the total fishery
yield will increase. Aquaculture production will focus on shrimp, sea
fish and all kinds of fresh water varieties.
Off-shore exploitation will be increased and on-shore exploitation
will be reduced.
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Chapter 9
THE DEVELOPMENT OF TOURISM IN VIETNAM
Thai Doan Tuu1
Foreword
Vietnam is one of the most beautiful countries in Asia. It has borders
with the People’s Republic of China in the North, the People’s Republics
of Laos and Cambodia in the West, and the South China Sea and Pacific
Ocean in the East and South. It enjoys a central position in Southeast
Asia, and has been compared to a bridge linking Southeast Asia’s main
land areas.
The country has a surface area of 329,241 km2. The total length
from the far north to the southernmost point is 1,650 km. It has 3,260
km of coastline and thousands of offshore islands, the largest of which
are in the Hoang Sa (Paracel) and Truong Sa archipelagos. It has 4,510
km of international borders.
The country is in the East Asian monsoon zone and its tropical
climate is shaped by two monsoons. There is a rainy season from May
to October and a dry season from November to April. In the winter the
average temperature in the north is around 13oC to 17oC and there is
occasional drizzling rain, and the summer average ranges from 27oC
to 34oC. In the south the climate is less varied, and the average annual
temperature in Ho Chi Minh City, for example, is about 27oC.
1 General Director of the Department of Commerce and Services of the Ministry of Planning and
Investment of Vietnam.
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Three quarters of the country is covered with mountains. There
are two major deltas, the Red River delta in the north and the Mekong
River delta in the south.
Vietnam has a population of 81 million (2003 population survey
data). There are 54 ethnic groups, the largest of which is the Viet or
Kinh, which makes up 80% of the population. The Viet group is mostly
concentrated in the lowlands, while minorities groups inhabit the higher
land.
There is no official religion in Vietnam, but Buddhism is relatively
widespread. Most Vietnamese worship their ancestors. There are many
Catholic churches and Buddhist pagodas which, besides their religious
functions, have also become very well-known tourist attractions.
Vietnam has a relatively high literacy rate, over 95%. Different
ethnic groups have their own languages, but the Viet language is the
country’s official language. English is mainly used in commerce and
for international communication.
Three of the most important periods in Vietnam’s history are:
i.
Domination by the Northern Kingdom (208 BC to 939 AD). This
lasted 1,000 years and was a very violent time.
ii.
Nation building and the struggle for independence (1939-1945).
This was a brilliant era of national revival and development,
and included the victory of the Vietnamese people over foreign
invaders.
iii.
National independence and Socialism (1945 to the present day).
The revolution against the foreign invaders, under the leadership
of Ho Chi Minh and the Vietnamese Communist Party, achieved
final victory in August 1945. The country proclaimed its
independence on September 2nd, and this has since become
Vietnam’s Independence Day. The reunification of North and
South Vietnam was achieved after another victory, this time
over the American army, in the spring of 1975. The Socialist
Republic of Vietnam, with Hanoi as its capital, was then
proclaimed.
Although the country is still facing many economic difficulties and
a large percentage of its population is dependent on agriculture,
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Vietnam has achieved major successes and made significant
improvements after more than 20 years of economic reform policies
(doi moi). The nation’s economic structure has been proactively
changed to make for a more industrialized country. Economic growth
rates have been high and stable for many years. Important international
standards have been attained in a number of spheres. Tourism is
prosperous: it is the youngest of all Vietnam’s industries and the one
deemed to have the greatest potential.
Vietnam is endowed with rich tourist industry resources including
its exuberant flora and fauna, breathtaking scenery and historical
sites. Besides this, there are many ethnic peoples who have retained
their traditional ways of life and unique cultures.
Hanoi is the capital and the cultural, political, economic and
commercial center of the country. The city has busy old-style streets
and interesting architecture, and it also boasts nearly 600 pagodas
and temples that have been preserved. There are some modern
buildings but the atmosphere is still of poetic beauty, the streets lined
with long rows of trees, and there are large parks covering dozens of
hectares and numerous lakes.
One major tourist attraction is Ha Long Bay, which is in Quang
Ninh province about 180 km from Hanoi. This is one of the most
magnificent sightseeing locations in Vietnam, and it is been listed by
UNESCO as a world heritage site. The bay covers an area of 1,500 km2
and there are thousands of islands rising from the clean emerald waters
of Bac Bo Gulf.
Hue city, Vietnam’s ancient imperial capital, was also designated
recently by UNESCO as a world heritage site. This city is famous for its
imperial architectural treasures that include the Royal Citadel, palaces,
tombs and pagodas, all located in a breathtaking natural setting on
both sides of the Huong River.
Another site is Hoi An old town by the Thu Bon River, which is 630
km south of Hanoi. In the 16th and 17th centuries this was the major
trading centre in Southeast Asia and it welcomed merchant ships from
all over the Far East as well as Dutch, Portuguese and Italian
merchantmen. Hoi An has also been designated by UNESCO as a world
cultural heritage city.
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The same applies to My Son Holy Land, a site with numerous ancient
temples including the historical Champa Kingdom’s largest temple
which consists of more than 70 buildings in a variety of architectural
styles. They were built of brick and stone between the 7th and 14th
centuries AD.
Finally, the Phong Nha-Ke Bang national park has just been
recognized by UNESCO as Vietnam’s 5th world natural heritage site.
This park is in Quang Binh province, about 500 km from Hanoi.
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1. THE DEVELOPMENT OF TOURISM IN VIETNAM
1.1 Role and Position of Tourism in the Economy
Tourism is considered one of the most important industries in
Vietnam and it makes a sizeable contribution to the national economy,
not only by generating foreign currency but also by creating
employment opportunities. The Vietnamese tourist industry made great
progress both quantitatively and qualitatively in 1994-2004. In this
period, the number of international and domestic visitors increased
nine-fold, from 300,000 to over 2.8 million and from 1.5 million to
over 14 million respectively. Revenue from tourism also jumped
dramatically, from 2,240 billion Vietnamese dongs (VND)2 in 1991 to
24,000 billion in 2004.
The development of tourism has created employment opportunities
directly within the industry and indirectly for other economic sectors.
By 2004 the number of employees in the tourist industry had increased
to nearly 230.000.
This industry has also played an important role in fostering the
development of other socio-economic industries, which has raised the
contribution of the service sector to gross national income. Besides
this, it has also attracted a large amount of foreign direct investment
(FDI) and helped to accelerate economic integration with neighboring
countries. It is acting as a bridge of peace and friendship between
Vietnam and other nations the world over.
Due to the great contribution from tourism, this industry is now
seen as one of the most important strategic sectors in the nation’s
socio-economic development plans for the 2001-2010 period. This was
clearly stated in the ninth Communist Party’s Congress bulletin,
“…Developing tourism into a key economic industry, improving its
quality and efficiency by taking advantage of natural conditions, the
ecology system and cultural and historical traditions, in order to meet
the demands of domestic tourists and to develop international tourism,
bridging the gap with the regional tourist sector…”. This has been set
as a key development objective.
2 Average exchange rate in the last years: one dollar equal 16,000 VND.
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1.2 Current Development of Tourism in Vietnam
1.2.1 Overview of the development of tourism in the last
five years
Since 2000, tourism in Vietnam has grown steadily and it has
gradually become an important economic sector in the country. The
main development statistics are given in table 1.
Table 1
VIETNAM: TOURISM, 2000-2004
Source: Vietnam National Administration of Tourism.
The bird flu epidemic at the start of 2004 had a region-wide
negative impact on the tourist industry, but nevertheless international
tourist arrivals in Vietnam totaled 2,928,000 by the end of that year.
which amounted to an increase of 20.5% over 2003, and in 2004 tourism
generated revenues of 2.17 billion dollars.
To make travel easier, Vietnam has so far applied bilateral visa
exemption to citizens from six countries, namely Thailand, the
Philippines, Malaysia, Indonesia, Laos and Singapore. Tourists can stay
in the country for 30 days just on the strength of an ordinary passport.
Vietnam has also unilaterally waived visa requirements for Japanese
and Korean citizens for tourist visits of up to 15 days. This has made a
positive contribution to the rapid growth rate of arrivals in recent
years, especially from Japan and South Korea.
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Last year, tourism in Vietnam featured in 15 international
exhibitions and road shows to promote the country’s image as an
attractive destination. The main events were the Korea World Travel
Fair (KOTFA) in South Korea, the Geneva Culture Festival, the Top
Resa in France, the World Travel Mart (WTM), and the ITB in Berlin. A
number of events were also held inside the country to give tourist
products a more vivid image and show their diversity, such as the Hue
Festival, the Dien Bien Phu Visit Year 2004, and Hoi An – Summer
Emotion. Besides this, Vietnam has hosted important events in Asia,
like the Pacific Tourism Ministerial Meeting in Hue, and the 5th Asia –
Europe Meeting (ASEM 5), which was held in Hanoi.
A number of tourist resorts, entertainment areas and golf courses
have recently come into operation. There are about 6,000 vehicles,
ships and boats of different kinds for tourist transportation purposes.
The country’s physical infrastructure and facilities can meet the
demands of 15 to 16 million visitors per year (domestic as well as
international tourists), and Vietnam is equipped to host international
conferences, seminars, forums, etc. There are currently 1,462 star–
rated hotels, with a total of 45,230 rooms. There are now 329 tour
operators and travel agents registered to operate internationally, and
8 of these are joint ventures.
There are currently 46 tourism training schools and vocational
centers, including 20 universities, 4 colleges with tourism faculties or
tourism divisions and 22 tourism vocational schools and training
centers.
1.2.2 International visitors
In the 2000-2004 period, the number of international tourist
arrivals in Vietnam increased at an average annual rate of 8.7%.
However there are differences between growth rates in arrivals of
tourists from different origins, Japan and Korea were the two Asian
countries that increased the most, the Netherlands and Germany
were the two European countries that increased the most, and from
the American continent the biggest increase was in visitors from
Canada (table 2).
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Table 2
VIETNAM: INTERNATIONAL TOURISTS BY ORIGIN. 2000-2004
(thousands of arrivals)
Source: Vietnam National Administration of Tourism.
However, the number of international arrivals in Vietnam is still
low compared to some ASEAN countries. In 2003, it was 24% of
Thailand’s, 22.9% of Malaysia’s, 54.3% of Indonesia’s and 42.5% of
Singapore’s.
Most international visitors who come to Vietnam are tourists, but
in the 1990s and the first few years of the 21st century more and more
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people visited the country for business purposes (see table 3), despite
the serious impact of the 2003 bird flu epidemics. However, tourists
had a higher growth rate (10.7% per annum over the period) than
visitors who came for other reasons.
Table 3
VIETNAM: MARKET SEGMENTATION BY TRIP PURPOSES
(arrivals in thousands)
Note: * Vietnamese foreign residents (VFR): travelers visiting family.
Source: Vietnam National Administration of Tourism.
The market pattern in the 2000-2004 period did not change a great
deal. The share of the tourist segment grew considerably while that
of VFR remained constant and that of the business segment decreased.
1.2.3 Vietnamese tourism
The outflow of Vietnamese tourists to other countries has boomed
from a few tens of thousands in 1995 to around 200,000 annually in
the last few years. Previously, the Vietnamese traveled abroad mainly
for study, meetings, research and business purposes, but in recent
years the number who vacation abroad has increased. This has been
due to the effect of more relaxed control regulations and also to
income growth among the urban population. Travel and tour agents
have therefore been paying more attention to this market.
This outflow will increase even more rapidly in the future because
of Vietnam’s rising economic growth rate and its joining the ASEAN
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Free Trade Agreement (AFTA) and the World Trade Organization (WTO).
The shift in the demand of Vietnamese tourists will affect the
international tourism balance of payments.
The domestic visitors market (Vietnamese vacationing inside
Vietnam) has grown vigorously and steadily in the last few years. In
2002 there were 13 million domestic tourists, which was 4.8 times
more than in 1993. The average growth rate in the number of domestic
tourists in the 1993-2002 period was 19.1% per annum.
1.2.4 Revenue from tourism and its contribution to the
national economy
Together with the rapid growth in the number of visitors, income
generated by the tourist industry has increased markedly. In fact, the
real figure would be even higher than the official statistics were it to
include not only payments for hotel accommodation, food and tours
but also shopping and other spending that official figures cannot fully
capture.
The tourist industry is making a large and ever-increasing
contribution to the state budget, with a rise from 830 billion of
Vietnamese dong in 2000 to over 1,100 billion in 2002.
The country’s gross domestic product (GDP) growth rate for the
1995-2001 period was 6.94%, meanwhile income generated by the
tourist industry was 5.76%, and in 2001 the share of the whole trade
and service sector in Vietnam’s GDP was 41%.
The value added by the tourist industry amounted to 840 million
dollars in 2000, an increase of 27.7% over the 1997 figure. In spite of
this high growth rate, the industry’s contribution to the national
economy is still somewhat limited and falls short of its full potential,
which is largely due to the fact that it started at a very low level.
1.2.5 Technical infrastructure in the tourist industry
In response to the ever increasing demand for hotel accommodation,
the number of rooms and beds at stay sites has been rising steadily. The
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system of stay sites has developed under various types of ownership
including State, collective, domestic joint venture, foreign invested, joint
stock and private ownership, so there is a wide range to choose from.
The Vietnam Administration of Tourism (VNAT) has co-operated
with provincial tourist departments and departments of trade and
tourism to evaluate hundreds of hotels. By late 2002, the VNAT and
provincial departments had ranked and awarded stars to 815 hotels
nationwide. There are 125 hotels in the 3-star to 5-star range
(accounting for 3.2% of the total number of stay sites) and they offer
13,907 rooms (accounting for 16.5% of the total stay rooms).
In general the quality of the Vietnamese hotel system is relatively
lower than the level in other countries of the region. There are still
too few hotels and hotel rooms ranked three-star and above. This
goes some way towards explaining why Vietnamese tourist products
are still unattractive to international visitors and lack any competitive
advantages in the international market.
In general, hotel catering services are not very efficient. On
average, revenues from hotel canteens and restaurants account for
22 to 25% of total hotel revenues. Hotel catering products are not
competitive compared to specialized non-hotel restaurants, either in
quality or in price.
In order to meet demand from the market, many hotels have started
to provide supplementary services like sports, entertainment, medical
care, trade, shopping and carrier services. These help to attract visitors
and increase profits, but as yet they are still at a low level, and the
revenues they generate account for only 10% of total hotel income.
1.2.6 Investment in the tourist industry
Up until the year 2000, domestic investment sources were limited
because the Law to Encourage Domestic Investment had failed to
create incentives to attract investors. To make matters worse, the
population preferred to keep assets in foreign exchange and gold,
and this meant large amounts of foreign exchange were not mobilized
for investment purposes. In the 2001-2005 period, thanks to more
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open and encouraging investment policies and the Government’s
growing investment in tourist infrastructure, the investment flow
increased and this has led to a considerable improvement in products
in the tourist industry.
By June 2003, there were 239 foreign investment projects in this
sector, and investment capital totaled 6.11 billion dollars. However,
84 of these projects have since expired or been cancelled and there
are now 155 projects in operation, with a total capital of 4.18 billion
dollars. Foreign direct investment (FDI) projects in tourism include:
• Projects to upgrade or construct hotels accompanied by other
tourist services.
• Projects to build tourist sites and resorts.
• Projects in sport and entertainment services (mainly golf courses).
• Projects in travel and transportation services.
• Projects to built apartment-office complexes.
By 2010, Vietnam will have more fully exploited its tourist potential.
This includes establishing favorable conditions for investors, and
providing information and preferential policies for investment projects.
In the years ahead the priorities for foreign investment in tourism in
Vietnam will be national tourist parks, sport and entertainment
complexes, and shopping centers.
1.2.7 Human resources in the tourist industry
In 1995, there were over 105,000 people employed in the industry
(including private enterprises) and this included 81,760 direct
employees. In 2001, according to official statistics, the industry’s direct
workforce increased to 220,000 people, and unofficial estimations
went as high as 230,000.
Nearly half of these workers have been trained in vocational
schools, although in most cases the courses were short, from 1 month
to 1 year, so average skill levels in the industry are still low. Untrained
labor still accounts for a large proportion of the total; there are 3.5 times
more untrained than trained employees. In addition, only a small part of
the labor force have access to specifically tourist-oriented vocational
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training, and most come from courses that give training in other professional
fields like foreign languages, social sciences, natural sciences, etc.
The training available for human resources in tourism has not yet
come up to the level required for development. Training centers at
three levels (university, high school and vocational school) are limited
and uneven in density, and are mainly concentrated in large cities
such as Hanoi, Ho Chi Minh City, Ba Ria-Vung Tau, etc. In the provinces,
training activities for tourism workers are confronted with many
difficulties, and few tourism workers have graduated at a professional
tourism university. On-site training can only partially meet the basic
training demand for service workers.
Tourist numbers are increasing rapidly and tourist needs are
becoming more diverse, so if sustainable development goals are to be
met the workforce in the tourist industry will have to be trained to
higher levels. To meet the industry’s practical development needs it
will be necessary to identify or define specialist training fields, training
levels, and the number of trainees who should be in the system.
1.2.8 Activities to promote tourism
As long ago as 1999 specific plans were sketched out to promote
tourism and this included events to be held in 2000 in the framework
of the National Action Plan on Tourism. Since then, the Hanoi Tourist
Festival, the Southern Land Tourist Festival and many other provincial
festivals to promote tourism have been held.
Since 2001, five tourist information offices have been set up, at the
airports of 5 important cities, Hanoi, Ho Chi Minh City, Hue, Danang
and Can Tho. These offices play an active role in providing tourist
information and facilitating promotion activities.
The tourist industry has been cooperating with various other
industries and government branches such as the Vietnamese Diplomatic
Representation Office, the Ministry of Culture and Information and
Vietnam Airlines to implement promotion activities. This cooperation
has helped to promote Vietnam as “a safe and friendly destination”.
However, the industry needs more investment in promotion activities
if it is to reach sustainable development targets.
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1.2.9 State administration of tourism
The State has played an active role in ensuring that the tourist
industry complies with State regulations and planning objectives. A
system of specialized State agencies has been set up to administer
the industry and there are now 13 official Tourist Departments
operating in the major cities and provinces where the most vigorous
development is taking place. In the other cities and provinces, State
administration is handled by 46 Departments of Trade and Tourism,
and 2 Departments of Trade.
The State administration of tourism has been institutionalized and
unified at central to provincial levels, and the ground for how the
industry is to be run has been prepared. The Tourism Ordinance of
1999 set out guidelines for the industry at all levels, and other legal
guidelines on the hotel and travel business have been supplemented
and modified to fall into line with this Ordinance. For example,
Government Decree No. 27/2001/ND-CP of June 5th 2001 provides
guidance for the travel and tour guide business, and Circular No. 04/
2001/TT-TCDL of December 24th 2001, which provides guidelines for
interpreting the Decree.
The mechanisms to carry out inspections and penalize violations of
the regulations have been strengthened. All tourist agencies and
enterprises are inspected on a regular basis, and this supervision is efficient
so there are fewer violations and the business is better regulated.
In many provinces, Departments of Tourism and Departments of
Trade and Tourism have assisted the provincial People’s Committee to
develop tourism and integrate it into local socio-economic development
plans, and this has strengthening the role of the tourism industry.
Almost all cities and provinces have carried out basic surveys
and research to evaluate their potential for tourism, and they are
implementing the national plan to develop tourism by 2010. This is
paving the way for state administration and to provide direction for
domestic and foreign investors to join the tourist industry, and the
overall aim is to achieve economic efficiency while safeguarding the
environment. Many cities and provinces are running detailed projects
to attract foreign investment.
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The State aims to gradually impose order on the industry by
organizing and evaluating development projects for tourist facilities,
regulating how the business side of tourism is run by granting licenses,
and making sure that State policies on pricing, environmental safety,
food safety, social security and so on are adhered to.
1.2.10 General achievements and challenges
Vietnam’s tourist industry has achieved a lot in a relatively short
time –numbers of visitors and revenues from tourism both have high
growth rates, and technical infrastructure has been improved not only
in quantity but also in quality. Incomes are higher in the industry now,
and this is creating employment and thus making a greater contribution
to the State budget. The image of tourism in Vietnam has thus been
improved internationally.
A lot has been achieved, but there is still a long way to go. Vietnam’s
basic infrastructure including roads, highways, services facilities, and
transportation is not good. The country has low per capita income
and this means that tourist services and products are simple and of
poor quality, and the tourist industry does not have enough high-quality
human resources to develop its full potential. Handling foreign
languages is still a problem, and there are environmental problems as
well. The tourist industry needs more investment if it is to develop
further, become stable and competitive on the international market,
and build up the resources to be able to feed overseas tourismpromotion outlets. These challenges will come more into the spotlight
as the country gradually integrates into the ASEAN and the WTO.
1.2.11 Development opportunities and advantages for
Vietnam’s tourism
The Communist Party and the government have been implementing
internal reforms and they have an open-door policy, so they have
established favorable conditions for economic activities that involve
foreign connections, and this includes tourism. Vietnam is an attractive
country for foreign investors and tourists thanks to its stable political
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regime and its general level of security, and it is emerging as a new
and attractive destination on the world tourism map with diverse and
abundant tourist resources and great potential. The legal framework
of this industry is being improved. Vietnam is geared to greater regional
and international economic integration, and this is an important
dynamic factor working in favor of the country’s developing tourist
industry. The necessary economic and technical infrastructure is
gradually being put in place, and this will facilitate exploitation of
the country’s tourist potential.
2. STRATEGY TO DEVELOP TOURISM IN 2001–2010
In July 2002 the government set out its strategy to develop tourism
for the 2001-2010 period, and in this the development of the
international tourist market is given high priority. A number of measures
have been taken to implement the strategy with the emphasis on
active integration and international cooperation through activities in
all fields. This involves contacts with different countries, organizations
and private individuals in order to take advantage of their finance,
experience and clients, and thus bridging the gap between Vietnam’s
tourist industry and the tourist business in South East Asia and in the
world.
The main characteristics of the comprehensive development plan
for the country’s tourist industry up to 2010 are as follows:
2.1 Development Targets
Number of tourists:
• To receive approximately 3.4 million international tourists and
16 million domestic tourists per year by 2005.
• To receive approximately 6 million international tourists and 25
million domestic tourists per year by 2010.
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• To achieve an average growth rate of 11% per year in the number
of international tourists and 8.4% per year in number of domestic
tourists.
Income from tourism and GDP:
• To exceed 2.13 billion dollars per year in income generated by
tourism by 2005.
• To exceed 4.6 billion dollars per year in income generated by
tourism by 2010.
• To achieve a tourism GDP of 1.47 billion dollars per year (4.3%
of national GDP) by 2005.
• To achieve a tourism GDP of 3.04 billion dollars per year (6.3%
of national GDP) by 2010.
• To achieve a tourism GDP growth rate of 12.83% by 2005 and
15.65% by 2010.
Technological infrastructure for tourism (hotel rooms):
• 108,370 rooms in 2005.
• 211,920 rooms in 2010.
Labor and employment:
• 624,200 employed persons in 2005.
• 1,220,700 employed persons by 2010.
2.2 Development Strategies and Orientations
Market orientation:
Target markets:
• The targets are international markets with large numbers of
tourists, high arrival frequency, high payment capability, and
long stay potential. These markets include North-East Asia, North
America, Western Europe and the ASEAN countries, and priority
is to be given to the Australian, Japanese, Chinese, American,
German, British and French markets.
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• Vietnam’s domestic market will be a marketing target for
overseas as well as domestic tourism.
Potential markets:
• These are markets with high numbers of tourists but limited
potential visitors to Vietnam in the near future and limited
payment capability. They include Northern Europe, the Benelux
countries (Belgium, the Netherlands, and Luxembourg), Russia
and the ex-Soviet Union countries, Eastern Europe, Southern
Europe and New Zealand.
Product orientation:
Types of tourism:
• Health tourism, city sightseeing, historical-cultural tourism, sea
breaks, mountain breaks.
• Specialist niches such as ecological tourism, adventure tourism,
cruise tourism.
• Commercial tourism, business tourism.
• Visiting relatives.
Region-wise:
• Northern Region tourism.
• Northern Central Region tourism.
• Southern Central Region and Southern Region tourism.
Tourism by its very nature is a service sector. The development of
tourism has an active influence on socio-economic development not
only in individual countries but in the world. The development of this
industry is a bridge of peace and friendship between nations. It narrows
the gaps between countries and regions and accelerates international
integration and globalization. Therefore, the tourist service sector
should be considered in the framework of Vietnam’s general national
service strategy so as to enhance the development of tourism and
integrate it into the economy as a whole.
The tourist industry requires inter-ministry agency management,
and requires cooperation and assistance from different government
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ministries and management agencies not only in the central
administration of the country but also in the provinces. This applies
in particular to the provision of basic services like air travel, the
customs, road transport, harbor facilities, security services, information
technology services, environmental management, health care, banking,
trade and culture. These should all be developed in a joint effort to
improve the country’s image internationally and thus attract more
visitors.
2.3 Development Perspectives and Objectives
2.3.1 Development perspectives
In Vietnam’s perspective on tourism development the following
elements are important:
• There has to be a cultural and ecological approach to the
development of tourism so that its internal potential and
strengths can be maximized.
• Tourism should be developed with a focus on making
breakthroughs while ensuring sustainability.
• The development of tourism should be in harmony with
integration not only in the sector but also in the region, and
should involve a high level of socialization, the full utilization
of internal and external resources, the promotion of the country’s
strengths in all economic sectors, and the improvement of the
quality and diversity of Vietnam’s products.
• The development of tourism should help to preserve and
promote the country’s cultural identity, involve protection of
the environment, and underpin national defense and social
security.
2.3.2 Development objectives
Tourism will become a key economic sector and proactively
contribute to the nation’s development.
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The development of tourism should contribute to preserving and
promoting Vietnam’s cultural identity, raise the country’s status in
the international community, enhance the country’s natural beauty
and ecological environment, raise the people’s intellectual levels,
stimulate the domestic consumption of Vietnamese products, promote
the development of many other services, create jobs and reduce
poverty in disadvantaged rural and mountain areas, and act as an
activator in the development of other economic sectors.
2.3.3 Resources for the development of tourism
Natural resources:
• The development of infrastructure and an increase in the demand
for tourist attractions means new regional attractions should be
mobilized or updated.
• Some tourist attractions should be re-evaluated so as to take
advantage of being declared world natural heritage sites, natural
conservation areas, biosphere conservation areas, etc.
Cultural resources:
• New attractions in different regions should be developed to take
advantage of recent discoveries of sites of historical importance,
archeological sites, and so on.
• Some resources should be developed to take advantage of being
designated world cultural heritage sites, national monuments,
and so on.
Infrastructure and other resources:
• The development of economic sectors and raised socio-economic
levels in some regions will improve resources for tourism in those
areas.
• Human resources will improve and savings will increase.
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Chapter 10
VIETNAM’S ENTERPRISE
REFORM AND DEVELOPMENT
Tran Kim Hao1
Foreword
In the last three years Vietnam has achieved major breakthroughs
in developing and reforming different types of enterprises, not only
as regards raising awareness but also going beyond theories and
implementing specific policy measures. These changes have taken place
in state-run enterprises and also in private (domestic and foreigninvestment) businesses.
First, so as to achieve the key objective of completing the
restructuring and renovation of State Owned Enterprises (SOEs) by
2005, the Prime Minister assigned government agencies to draft legal
documents including laws, ordinances, decrees, decisions, one Prime
Minister’s directive and one proposal. So far, most of the drafts have
been submitted, and some of them have been promulgated as laws,
including the Amended Law on SOEs
Secondly, a Cooperative Law (1997-2003) was passed seven years
ago and cooperative State enterprises have made some progress
towards reform, but there are still problems as to how the law is
1 Researcher at the Central Institute for Economic Management (CIEM) of the Ministry of Planning
and Investment of Vietnam.
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being implemented. The Cooperative Law itself had certain limitations
that needed to be revised to cater to the demands of the new situation.
In response to this, the National Assembly approved an Amended
Cooperative Law on 18 November, 2003, at the fourth session of the
11th Legislature.
In third place, the National Assembly passed an Enterprise Law in
1999, and this came into force on 1 January, 2000. This law (and its
amendments) covers private enterprises, partnerships, joint-stock
companies and limited liability companies. It regulates a socialistoriented market mechanism and allows investors to diversify their
investment forms, while the government assumes indirect management
through the legal system. Thanks to the new regulations in the
Enterprise Law and the elimination of a large number of licensing
requirements, there has been a rapid increase in the number of newlyestablished enterprises.
Fourth, a Foreign Direct Investment Law was promulgated in 1987,
and it has since been improved through four revisions. The latest of
these, in 2000, is geared to streamlining the system, conforming to
the commitments and requirements involved in international
integration, and creating more favorable conditions in Vietnam so as
to attract foreign investment.
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1. REFORM OF STATE-OWNED ENTERPRISES2
The latest Resolution on further reforming and restructuring
Vietnam’s State Owned Enterprises (SOEs)3 was passed at the third
plenary session of the ninth Communist Party Central Committee
Meeting in 2001. This legislation has six key objectives: (i) to complete
the reorganization and restructuring of the SOEs, (ii) to convert
enterprises with 100% state ownership into limited liability companies,
(iii) to reform and improve corporate finance by resolving the problems
of non-performing loans and redundant labor, and to work out solutions
to prevent such situations from recurring, (iv) to reform and improve
performance in State General Corporations (GCs)4 and develop a
number of strong economic groups, (v) to curb the creation of new
SOEs, and invest in and expand only those that are essential and
efficient, and (vi) to renovate and update technology and management
in most SOEs.
In order to fulfill the key objective of completing restructuring
and renovating the SOEs, mostly by 2005, the Prime Minister
promulgated Decision 183/2001/QD-TTg whereby government agencies
were assigned the task of drafting legal documents for submission to
the promulgating authorities, including five laws, two ordinances, ten
decrees, seven decisions, one Prime Minister’s directive and one
proposal. The drafts for most of these documents have now been
written, and some of the resulting legislation has been promulgated5 ,
2 Data are taken from the Enterprise Reform and Development Steering Committee (2003).
3 See details in Communist Party of Vietnam (2001).
4 Decisions 90 and 90 of March 7th 1994 called for the formation of General Corporations with
the aim of creating production synergies and pooling the investments of member enterprises.
Decision 91 in particular called for the creation of large state business groups for “…leading
companies … occupying important places in the national economy…”. GCs90 required at least
five member companies, 100 billion VND of legal capital and were created by and report to
provincial People’s Committees and various ministries. GCs91 required at least seven members,
1,000 billion VND of legal capital and were separate entities created by and reporting to the
Prime Minister (UNDP, 2006). For more details on the history of Unions of Enterprises and GCs see
Van Arkadie and Mallon (2003).
5 These laws include:
- Prime Minister’s Decision No. 58/2002/QD-TTg on classification criteria and the list of SOEs.
- Government Decree No 49/2002/ND-CP of 24 April, 2002, which amends and supplements Decree
No. 103/1999/ND-CP of 10 September, 1999, on SOEs transfer, sale, contracting and leasing.
- Government Decree No. 63/2001/ND-CP of 4 September, 2001, on the conversion of SOEs and enterprises
controlled by political or socio-political organizations into proprietary limited liability companies.
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including the Amended Law on SOEs 6 . These measures are
comprehensive and relate to almost all aspects and areas of the
restructuring and renovation of SOEs in the spirit of the third plenary
session resolution. However, promulgation has been slower than was
anticipated and some of the regulations are inappropriate, which has
made them difficult to implement.
Ministries, sectors, local authorities and State general corporations
have proposed options for restructuring SOEs in accordance with the
classification criteria set out in Decision 58/2002/QD-TTg. The Prime
Minister has approved 104 master proposals for restructuring and
reforming SOEs submitted by ministries, sectors, local governments
and State general corporations for 2002-05, and this will mean that
2,857 SOEs will be restructured in the 2003 to 2005 period, most of
them in 2003 and 2004.
Some 2,045 SOEs, 43.4% of the total, will be equitised7 (the
government will hold a controlling share in only 1,040 of these), 386
enterprises (9% of the total) will be merged, 209 (4.5% of the total)
will be sold or downsized, 42 (0.9% of the total) will be made into
semi-budget funded administrative organizations, and 139 (3% of the
total) will be liquidated and go bankrupt. The schedule for reorganizing
SOEs involved 1,655 enterprises in 2002-03, 882 in 2004 and 413 in
2005. The State has a 100% stake in 1,847 of the existing 4,704 SOEs,
which amounts to 39.3% of the total.
By the end of 2005, the number of SOEs will decrease from 4,704 to
2,924 (a reduction of 37.8%), of which 1,847 will retain their legal entity
status, and 37 new SOEs will be created by merging 109 existing enterprises.
6 See box 1
7 The privatization program in Vietnam, officially called “Equitisation Program” (co phan hoa)
started in 1992 as part of the State-Owned Enterprise Reform Program, in the context of overall
economic reforms. Equitisation is defined as the transformation of SOEs into joint-stock companies
and selling part of the shares in the company to private investors in order to improve the
performance of the firms in question. Equitisation differs from privatization in usual Western
sense in that it does not necessarily mean that the government looses its ultimate control over
the firm. The government still holds decisive voting rights in many cases. Another difference
with usual Western privatization practices is that employees and managers of the firms acquire
substantial portion of the shares in the equitised firms (Truong Dong Loc , 2006). To know better
the Equitisation Program in Vietnam see :
http://dissertations.ub.rug.nl/FILES/faculties/eco/2006/t.d.loc/pt2/03_c3.pdf
http://www.undp.org.vn/undpLive/digitalAssets/6155_HP_paper__E_.pdf
275
Box 1
AMENDED LAW ON STATE-OWNED ENTERPRISES
The Amended Law on SOEs was approved by the XI National Assembly
in 26 November, 2003 at the 4th Session, and it is set to come into effect
on 1 July. 2004. The key new provisions are that the Law:
i)
Adjusts the scope and management level of the Government
towards SOEs of various types (including those where the State
keeps a controlling share) in accordance with specific types and
legal forms of SOEs. The Law regulates all aspects of 100% SOEs:
establishment, organization, management, operation, and
relationship with the owner (the State). For SOEs registered under
other laws (regardless whether state ownership is 100% or by
controlling share), the Law only governs the relationship between
the State owner and its representative.
ii)
Defines the operational objective of SOEs as doing business,
dissolves public utility enterprises, switches from utility business
to utility management with a specific accounting regime, and
invites tenders for public utilities for different ownership types.
iii)
Revises processes and conditions for establishing SOEs, and
exercises strict control over the establishment of new SOEs,
allowing them only in sectors, areas or locations where other
economic agents cannot afford or are unwilling to participate. It
underpins the conditions for the efficient operation of enterprises
from the time they start.
iv)
Enhances the enterprises’ autonomy in several ways. It removes
various subsidies such as isolating, delaying payment or the writing
off of debts, loss covering and preferential loans. It sets clear
regulations on the assets and property of SOEs; and ensures SOEs
are entitled to every right of a legal entity. It establishes provisions
for the government to switch from managing physical assets to
managing asset values for SOEs.
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v)
Creates stronger incentives and requires higher responsibility from
SOEs managers in terms of investment and business performance.
It links Management Board, Chief Executive Officer and managers’
salaries and rewards to business performance and to their
responsibilities. It sets clear responsibilities in the case of SOEs
sustaining losses for two consecutive years or suffering a declining
rate of return on state capital.
vi)
Reduces some owner’s rights such as asset settlement and fund
raising approval; and supplements new regulations on the owner’s
obligations such as the contribution of sufficient registered capital
for SOEs, responsibility for debts and other enterprise asset
obligations within the scope of the State’s capital share in it.
vii)
Introduces three types of State general corporations: those invested
and established by the government, those invested and established
by the enterprises themselves, and most noteworthy, corporations
investing and doing business using state capital. These corporations,
once formed and put into operation, will gradually replace the
State ownership role currently undertaken by ministries and
provincial people’s committees.
viii)
Confirms that the Management Board is the direct representative
of State ownership in exercising this function in the SOE, excluding
rights that are delegated to government agencies.
ix)
Supplements regulations on transferring ownership of SOEs,
including the equitisation, transfer and sale of SOEs.
In the first six months of 2004, the government will produce documents
elaborating and giving guidance on the implementation of the Amended
Enterprise Law. Only when a system of specific and comprehensive legal
documents is in place, accompanied by effective implementation
measures, will it be possible to translate the radical regulations of the
Enterprise Law into action.
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The government will retain the controlling share in 35.6% of all SOEs,
the majority of which are in key sectors, industries, areas or locations.
As regards size, the situation of wholly-owned SOEs has been
adjusted. The average capital of SOEs is 71.55 billion of Vietnamese
dongs (VND) 8 , which is 3.1 times more than in 2001. The average
capital in State-controlled enterprises is 12.31 billion VND. Enterprises
with capital below 5 billion VND account for 26.2% of the total, as
against 59.8% in 2001. These are mainly utilities or provide essential
products and services in rural, mountain, remote or isolated areas.
The total labor force in SOEs is 951,848, (a reduction of 30.4%), and of
these 543,549 work in 100%-State-owned enterprises and 408,299 in
equitised enterprises in which the State has a controlling share.
The Prime Minister has also approved the master plan for
restructuring and reforming member enterprises of “General
Corporations 91” (GCs91) in the 2002-05 period. Only 30 qualify as State
general corporations under the criteria set out in Decision 58/2002/
QD-TTg. Some 20 others do not operate in areas listed as requiring the
establishment of State general corporations. With a view to restructuring
GCs91, the Prime Minister has made decisions on merging, unifying or
separating some of them. Those GCs91 undergoing revision but not
meeting the conditions of Decision 58/2002/QD-TTg will be liquidated.
Some 230 of the 489 enterprises that belong to GCs91 will remain
wholly-state-owned, which amounts to 47.0% of the total, and the
remaining 259 will be reorganized: 80 (16.4% of total existing SOEs)
will be merged and unified, 169 will be equitised (34.6% of the total)
of which the government holds the controlling share in 142; three will
be taken over and sold, and seven others will be liquidated and allowed
to go bankrupt. After restructuring, the number of member enterprises
in GCs91 will be reduced from 489 to 372.
SOE equitisation and ownership transfer, which is being carried
out in line with the third plenary session Resolution, has already yielded
preliminary results. By October 2003, nearly three years after the
measure was implemented, 1,277 enterprises had been equitised, 134
taken-over, 75 sold, 19 contracted out, 172 merged and unified, 66
8 Average exchange rate in the last years: one dollar equal 16,000 VND.
278
dissolved, 6 allowed to go bankrupt, and 58 made into semi-budgetfunded administrative units. By 1 January, 2004, national data show
that 22 enterprises had been converted into one-member limited
liability companies9 , and of these six are under provincial people’s
committees, four under GCs, one under a ministry and 11 under political
or socio-political organizations. In addition, 35 other enterprises are
being converted, and 67 new establishments have gone into operation
in the last three years (table 1).
TABLE 1
VIETNAM: RESULTS OF RESTRUCTURING AND REFORMING SOEs*
(number of enterprises)
Notes: * Since the implementation of the third plenary session of the ninth
Communist Party Central Committee Resolution.
** New establishments are not counted as restructured enterprises.
In general, progress in SOEs restructuring in 2003 was slow. By the
end of October, only 331 enterprises had been restructured, accounting
9 One-member limited liability companies are enterprises owned by one organization. They
cannot issue shares. Owners have the right to decide on the organizational and management
structure of the company, the appointment and removal of management personnel, investment
projects valued at 50% or more of the total assets, the use of profits and a range of other issues.
If a SOE is transformed into this company type then the state retains control over major decisions
under the Enterprise Law (NUDP, 2006).
279
for a mere 21.5% of the plan for that year. The number of restructured
enterprises was higher in some provinces, such as Hai Duong (69%),
Lai Chau (43%), Ninh Binh (42%), Ha Nam (38%), and Bac Giang (38%).
On the other hand, many ministries, provinces and GCs91 did no
restructuring at all.
Converting SOEs into one-member limited liability companies was
expected to achieve a lot, and received considerable attention from
the government, but so far the achievements of this measure have
been limited. Up to now, only 10 enterprises have completed the
procedure and received authorization to operate under the new format.
This may be partly due to concern that when SOEs are required to
operate under the Enterprise Law they may suffer from adverse
discrimination.
The reform and restructuring of general corporations is consolidated
by an operational mechanism that is going in the direction of parentsubsidiary-type companies10 and economic groups. The Prime Minister
has allowed 34 units to work on projects to switch over to the parentsubsidiary model, including enterprises formed from general
corporations, large-scale SOEs and newly established SOEs. So far, six
State general corporations, six large-scale SOEs and three new general
corporations have been authorized to operate under this model.
Under the new legal framework and the mechanisms of the
Amended Enterprise Law, corporations and SOEs enjoy more favorable
conditions as regards financial autonomy, self-capital-accumulation,
self-investment, shareholding and control by capital, finance,
technology expertise and the market. They are also entitled to promote
10 The original GC90 and 91 structures were further developed with the introduction of new
organizational forms. Decree 153 of 2004 introduced the parent-subsidiary model. This is intended
as the eventual business group structure for most GCs. The rights of the parent company are
similar to those of holding companies and are based on investment levels in subsidiaries defined
in the Enterprise Law. The board of management of the parent company decides on the strategies
and plans of the corporation and coordinates its subsidiaries. The parent company decides on
the management structure of member companies. It also appoints representatives to manage
parent company capital invested in subsidiaries. The parent company approves the plans for use
of after tax profits of subsidiaries and its dividends are reinvested in the member company.
Subsidiaries are tasked with fulfilling the contracts and projects assigned to them by the parent
company while also conducting their own business under the Enterprise Law (UNDP, 2006). Under
this business arrangement, a parent company can focus on optimizing investment, outlining
development strategies, developing the market, and improving technology for its subsidiaries.
The paradigm helps eliminate unhealthy competition between companies of the same corporation
while helping attract greater investment.
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equitisation and they enjoy other advantages of the shift to the parentsubsidiary model.
The pilot establishment of some economic groups based on GCs91
is now under way. The four corporations selected to run pilot projects
are the Vietnam Corporation of Post and Telecommunications (VNPT),
the General Electricity Corporation (EVN), Petro Vietnam, and The
General Construction Corporation. VNPT is completing its pilot plan
to set up a Post and Telecommunications Group, and EVN and Petro
Vietnam are developing their own groups. However, an economic group
is a new model in Vietnam, and time is required for further study of
the principles involved in their creation and management, options for
promoting products and/or services, roadmaps and steps to reorganize
general corporations, and the conditions for the development of these
new entities.
2. FOSTERING DEVELOPMENT IN THE PRIVATE SECTOR11
The Enterprise Law was passed by the National Assembly in 1999
and it came into force on 1 January, 2000. It covers the following
enterprise types: private enterprises, partnerships, joint-stock
companies and limited liability companies12 . The Enterprise Law (with
its amendments) is suitable for a market mechanism with a socialist
orientation. It allows investors to diversify the kinds of investments
they make while the government exercises indirect management via
the legal system.
Thanks to the new regulations in the Enterprise Law and the
elimination of a large number of license requirements, the number of
newly-established enterprises has increased rapidly. Between 1991
and 1999 only 45,000 newly-registered enterprises were set up, but
after 2000 the number rose steadily and reached 72,601 by the end of
11 Data in this sub-section are taken from the Report on the Implementation of the Enterprise
Law (Ministry of Planning and Investment, 2003) and the General Statistics Office (2004).
12 Limited-liability companies, including one-member companies (mainly SOEs switching from
those operating under the SOE Law to ones under the Enterprise Law) and limited-liability
companies with two members or more.
281
September 2003. By then the total number of registered enterprises
in the private sector stood at 120,000. The average number of new
registrations every year is 3.75 times higher than in the 1991-99 period.
2.1 Registered Capital and Performance
In the last four years, registered capital (including newly-registered,
supplemented volume) came to over 145,000 billion VND (equivalent
to 9.5 billion dollars), which exceeded registered foreign capital over
the same period. Of this, 1.3 billion dollars was registered in 2000,
2.3 billion dollars in 2001, nearly 3 billion dollars in 2002 and around
2.8 billion dollars in the first seven months of 2003. Capital registered
in the 2000-03 period was four times the total value for 1991-99.
Thanks to this, the share of investment by individuals and nonpublic enterprises in total social investment increased from 23.8% in
2000 to 25.3% in 2002 and around 26.7% in 2003. There has been a
steady and considerable rise in the share of investment by domestic
private enterprises, it has exceeded investment by SOEs and is
approaching the total investment figure for SOEs and state credit
combined. Investment by non-state enterprises has played an important
role and it has become the major funding source for local economic
development. For instance, investment by non-state enterprises in
2002 in Ho Chi Minh City accounted for 38% of total investment, which
was more than the share of SOEs and the state budget combined
(36.5%).
The trend is for average registered capital in enterprises to
increase. In 1991-99 it stood at approximately 0.57 billion VND, and it
rose to 0.96 billion VND in 2000, 1.3 billion VND in 2001, 1.8 billion in
VND 2002 and 2.12 billion VND in the first seven months of 2003. The
lowest registered capital was 5 billion VND, and the highest 200 billion
VND (over 13 million dollars). In general, the highest level of registered
capital in provinces was around 10 billion VND. The highest average
registered capital was recorded in Hung Yen, around 3 billion VND,
followed by Quang Ninh and Binh Duong with around 2.5 billion VND.
The average level in Hanoi and Ho Chi Minh City was around 1.2 billion
VND. Quang Nam recorded the lowest average level of registered capital
(422 million VND), followed by Nam Dinh with 544 million VND.
282
2.2 Creation of New Employment
In recent years, household businesses, newly-established enterprises
and enterprises expanding in scale and business area under the provisions
of the Enterprise Law have become major sources of new employment.
A survey by the Central Institute of Economic Management (CIEM) shows
that a private enterprise requires only 70-100 million VND to create a
job, while an SOE requires 210-280 million VND (three times as much).
Estimates show that in the last four years 1.6 to 2 million new jobs have
been created by new establishments and thanks to the expansion of
enterprises’ business under the Enterprise Law, and this has brought
the number of workers in non-state enterprises very close to the figure
for SOEs13 . Employment in private enterprises and household businesses
reached 6 million, over 16% of the total labor force. Many enterprises
have created thousands of other jobs indirectly14 , quite apart from
increases in their own labor force.
2.3 Contribution to Exports
In recent years, non-state enterprises have been actively contributing
to increasing exports, especially in handicrafts, processed agricultural
products and aqua-products. There are a number of non-state enterprises
on Vietnam’s top ten exporter list, including Kim Anh Limited Liability
Company (Soc Trang), a top aqua-product exporter with foreign sales of
over 100 million dollars in 2002. The domestic private sector also
accounts for a large proportion of exports in garments and leather
products. A Ministry of Trade (MOT) report has shown that the private
sector is contributing nearly half the country’s total exports.
2.4 Contribution to Budget Revenue
Although the contribution to the national budget by enterprises
registered under the Enterprise Law is still rather limited, it has
13 On 1 July, 2002, there were 1,845,200 employees in SOEs.
14 Dinh Vang Limited Liability Company (Hai Phong) had 6,500 workers, and the Kim Anh Limited
Liability Company (Soc Trang) had 3,400 workers.
283
increased in recent years. It grew from 6.4% in 2001 to over 7%15 in
2002 (the figures for foreign-invested enterprises were 5.2% and
6% respectively, and for SOEs 21.6% and 23.4%, respectively).
Revenue from commercial and industrial taxes and services paid by
the non-state sector in 2002 came to 103.6% of the projected figure
and increased by 13% over the 2001 value. In the first quarter of
2003, revenue from non-state enterprises accounted for
approximately 11% of the total, which was a 28.7% increase over
the previous year, and came to 26.8% of the target set by the
National Assembly.
The contribution of non-state enterprises to local budgets has
been considerably greater than contributions to the national budget.
For instance, in Ho Chi Minh City the contribution of non-state
enterprises to the total local budget was about 15%, and it was 24%
in Tien Giang, 16% in Dong Thap, 22% in Gia Lai, 19% in Ninh Binh,
16% in Yen Bai, 17% in Thai Nguyen, 22% in Quang Nam, and 33% in
Binh Dinh.
Despite remarkable achievements in reforming the legal system
and administrative procedures for the State management of non-state
enterprises through the Enterprise Law, some serious problems have
emerged:
i)
Despite the removal of many licenses and regulations on business
that were not suitable for a market economy, a large number of
licenses and some disguised licenses, such as quality certificates
remain.
ii)
A number of law executive organizations and individuals are not
discharging their responsibilities and obligations, and this is
having a negative effect on the operations of some enterprises.
iii)
A number of enterprises are registered but do not actually
operate. These “ghost enterprises” are formed so as to obtain a
“trading name” or a “trading seal” that enables them to fake
contracts for trading invoices.
15 Some think that the contribution by the private sector to budget revenues has been underestimated. The non-State sector contributes to the budget at least through business tax, income
tax, other taxes on SOEs, VAT on imports and surcharges for imports. Private enterprises also
make unofficial payments at a relatively high level.
284
iv)
Follow-up controls stipulated in the law are not administered
effectively.
In 2003 enterprise support activities were strengthened, especially
for small and medium enterprises. The Ministry of Planning and
Investment (MPI) set up a Department for Small and Medium Enterprise
Development with technical support centers in three different regions,
and support programs are under way. There have been annual meetings
between the Prime Minister, government officials and representatives
of the private sector trying to persuade enterprises to trust the
government’s reform and renovation program.
3. IMPROVING THE OPERATIONAL ENVIRONMENT
OF FOREIGN-INVESTED ENTERPRISES
Since the Law on Foreign Direct Investment was promulgated in
1987 it has been improved through four revisions, the latest of
which, in 2000, was aimed at streamlining the system. The law
involves commitments and requirements for international
integration and the creation of more favorable conditions to attract
foreign investment to Vietnam. Revisions to the assessment and
licensing requirements for foreign direct investment (FDI) projects
have simplified procedures, and administrative formalities have
been revised so as to move towards a “one-stop shop” model16 ,
which reduces assessment time. The capabilities of the assessment
authorities have also improved. The government has adopted a
number of incentives for investors involving preferential policies
on tax, land, export/import, and making the transfer of capital
among parties more flexible. Industrial and export-processing zones
have been encouraged through incentives, with the aim of
developing suitable infrastructure for investors and reducing plant
construction time and costs.
16 The one and single door through which requests for different services of customers are
received, processed (further routed to follow the appropriate administrative procedures within
the professional bureau of department concerned) and returned to the customer (Do Dinh Luong,
et al., 2002).
285
In 2000 the government issued Decree 27/2003/ND, which sets
guidelines for the implementation of the Amended Law on FDI and
allows foreign-invested enterprises to expand the form and scope of
their investments by providing specific regulations on business reorganization and restructuring measures such as mergers and
separations. This decree also provides more detailed stipulations on
preferential financial treatment for enterprises operating in industrial
parks and export-processing zones, like a five-year tax holiday for
such projects. The government has also eliminated a list of commodities
for which 85% of production had to be exported.
The government recently promulgated Decree 38/2003/ND-CP17
on equitising foreign-invested enterprises. This made the transfer of
foreign investors’ investments more flexible and introduced a new
channel for mobilizing funds, and this has reduced investment risks
and diversified the forms of investment that are allowed. The Prime
Minister also promulgated Decision No. 36/2003/QD-TTg, which allows
foreign direct investors to buy shares amounting to up to 30% of the
registered capital of SOEs and enterprises of other ownership types.
All these measures are consistent in that they promote the
diversification of ownership.
To assist the government in tackling difficulties faced by foreigninvested enterprises, a Manufacturing and Development (M&D) Group
has been set up. The aim is to make a practical contribution to
improving the business climate and to create a more level playing
field for competition. In 2003, the M&D group raised 80 legal questions
for consideration, and many of these problematic points found their
way into legislation recently at the 4th session of the 11th National
Assembly. A number of important regulations for foreign-invested
enterprises were improved in 2003.
Changes in the legal system and investment environment for
foreign investors have helped Vietnam to attract a significant volume
of investment. However, FDI in Vietnam has been unstable, as can be
seen in figure 1. In comparison to China or other countries in the
region, the actual mobilization of capital has been modest. The reasons
for this probably include the fact that many regulations are
17 Promulgated on 15 April, 2003.
286
inappropriate, investors complain about licensing procedures, and the
domestic business environment is not attractive enough.
Figure 1
VIETNAM: FOREIGN DIRECT INVESTMENT. 1988-2003
(million dollars)
Source: General Statistics Office (2003).
To make Vietnam more attractive for FDI in the near future the
country should (i) further reform its legal system, making it consistent,
comprehensive and effective, (ii) pursue administrative reform
as a key measure for improving the investment environment, and
(iii) further develop infrastructure and business support services.
4. CO-OPERATIVE ECONOMY DEVELOPMENT
From 1997 to 2003, old-style cooperatives in Vietnam were either
liquidated or transformed, and new ones were established under the
287
Cooperative Law18 . During this period, around 5,800 new cooperatives
were set up, mainly in trade and construction. By the end of 2003,
the arrears of the majority of old cooperatives (whether transformed
or not) were settled. A number of old-style cooperatives were
liquidated (“nominal” cooperatives which had not engaged in economic
activity and had members that did not join voluntarily). A total of
8,400 cooperatives, mainly in the agricultural sector, were transformed,
but at present 285 have still not settled matters to do with their
assets/liabilities, and their situation remains unchanged.
The number of cooperatives fell from 18,607 in 1996 to 14,485 in
2003, with the biggest reduction in agriculture (table 2). The main
reason for liquidation was that some were only “nominal”, their members
were not interested, and their operation was ineffective. On the other
hand, the number of cooperatives in sectors other than agriculture
has tended to rise. The highest number is registered in manufacturing
and handicrafts, which account for 22% of new cooperatives.
Table 2
VIETNAM: NUMBER OF COOPERATIVES BY SECTOR, 1996-2003
Source: Derived from statistics from Vietnam’s Union of Cooperatives in 2000,
2001, 2002, 2003.
Although the number of agricultural cooperatives has been
decreasing they still account for an overwhelming share of the total
18 The Cooperative Law was passed by the National Assembly in March 1996 and came into force
on 1 January 1997.
288
(63.9% in 2003). Manufacturing and handicraft cooperatives ranked
second (14.3%). Construction and trade have the fewest units, but
these sectors have increased the most.
The performance of cooperatives has improved since the
Cooperative Law came into force. They have developed in scale and
are now taking on increasingly diversified forms of ownership that are
based on the principles of democracy, transparency, and respect of
the desire for self-determination of their members. From 1997 to
2002, the average output of a transformed cooperative increased by
a factor of 2.2, and that of a new one by a factor of 1.3. A number of
cooperatives are now stable and producing, and are expanding their
business activities and markets.
However, the proportion of loss-making cooperatives is still high
(up to 45-50% of the total). This is because of weak management,
financial constraints, and undiversified business activities. Their
technology is outdated and they lack access to market information,
the ability to process market information, links to research institutions,
and business contacts and cooperation with other cooperatives and
other types of enterprises. These shortcomings make their products
uncompetitive and scarcely viable on the market in the context of
international economic integration.
In 2003, seven years after the Cooperative Law came into force,
the cooperative sector had made a certain amount of progress but
still had problems. The Cooperative Law itself had a number of
shortcomings, and these had to be remedied to cater to the demands
of the new situation. Thus it was that on 18 November, 2003, at the
fourth session of the 11th Legislature, the National Assembly passed
the Amended Cooperative Law. This new instrument clarifies the nature
and principles of cooperatives, and raises their legal status while
maintaining their specific characteristics (see Box 2). With these
revisions, the Cooperative Law will be a more suitable legal framework
to provide orientation so that cooperatives will be able to improve
their management systems and bring their collective strengths to bear
on the task of achieving greater efficiency.
289
Box 2
NEW PROVISIONS IN THE AMENDED COOPERATIVE LAW
The Cooperative Law (Amended) consists of 10 chapters with 52 articles,
and contains the following new provisions:
i)
The Law clarifies the nature of cooperatives and government policies
towards them, it introduces a new way of thinking and states that
“…a Cooperative is a collective economic organization established
by individuals, households, legal entities with shared needs and
interests, who voluntarily contribute their resources and capital...
Cooperatives operate as a type of business with legal entity, being
independent and responsible for their own financial obligations ...
as stipulated by law”.
ii)
Participation is open to individuals, legal entities, officials and civil servants.
iii)
Procedures of establishment and business registration have been
simplified so as to remove unnecessary procedures such as lists of
members. The founders only need to report in writing to the
Community People’s Committee and do not have to wait for its
permission. A cooperative can make its own decision about where
to register the business.
iv)
Stipulations about a standard charter are abolished, and some points
are added to the cooperative charter.
v)
The State management function is separated from everyday
operational functions. Decisions about the management board are
made at the cooperative establishment meeting.
vi)
Non-distributed assets and funds are clearly identified. The Law
stipulates that cooperatives have to form non-distributed assets
and funds from certain sources.
vii)
The role and functions of the Union of Cooperatives are specified,
and changes will be made for the Union to become an association
of cooperatives as well as a cooperative federation.
The role of State management in cooperatives is clarified, and this includes
the stipulation that the government assumes overall management, while
ministries, agencies and people’s committees at different levels carry
out their State management duties within the scope of their authority
and responsibility.
290
291
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Fernández, P. (1997): “El nuevo modelo agrario: un desafío en el umbral del
tercer milenio”; Mention ant the National Economic Contest “Raúl León
Torras”, ANEC, Havana.
Funes Monzote, F. (2005): Towards Sustainable Agriculture in Cuba; PhD Thesis,
University of Wageningen, Holland, chapter 1.
González, A., R. Aguilar, P. Fernández, A. García, J. Dresdner and T. Tristá
(2002): Cuba: El sector agropecuario y las políticas agrícolas ante los
nuevos retos; Sida–INIE-dECON (UDELAR), Montevideo.
Guerra, R. (1927): Azúcar y población de Las Antillas; Editora de Ciencias
Sociales, Havana, 1976.
Instituto Nacional de la Reforma Agraria (1964): “Leyes de Reforma Agraria
1959 y 1963”; Havana.
Instituto de Planificación Física – P.M.A. (2001): Análisis y cartografía de la
vulnerabilidad a la inseguridad alimentaria en Cuba; Havana.
Instituto de Suelos y Fertilizantes, MINAG (2004): “Principales factores
limitantes en los suelos de Cuba”; report presented at the National
Assembly, Havana.
Le Riverand, J. (1981): Historia económica de Cuba; Havana.
Martínez, O. (2005): “Speech at the National Assembly”; December 2005,
Havana.
MTSS (1984): Los Derechos Laborales y la disciplina ante el trabajo; Ediciones
Jurídicas, Editorial Ciencias Sociales, Havana, 1984.
National Statistics Office (1994): Anuario Estadístico de Cuba 1993; Havana.
National Statistics Office (1998): Anuario Estadístico de Cuba 1997; Havana.
National Statistics Office (1999): Anuario Estadístico de Cuba 1998; Havana.
National Statistics Office (2005a): Anuario Estadístico de Cuba 2004; Havana.
298
National Statistics Office (2005b): Censo de Población y Vivienda; Havana.
Rodríguez, J.L. (2005): “Speech at the National Assembly”; December 2005,
Havana.
Wright, J. (2004): Generalizando la agricultura sostenible; University of
Wageningen, Holland.
REFERENCES CHAPTER 5
Alfonso, G. (several years): “Turismo en Cuba”; working paper, INIE, Havana.
Alfonso, G. (2002): “Consideraciones sobre la competitividad del destino
turístico Cuba en el Caribe”; working paper, INIE, Havana.
Alfonso, G. (2005): “Una aproximación al gasto turístico en Cuba”; working
paper, INIE, Havana.
Alfonso, G.; M. Esperón and Y. Rodríguez (2002): “La hotelería cubana en los
noventa: evolución y retos”; working paper, INIE, Havana.
Asociación de Estados del Caribe (2000): La actividad turística en los países
de la AEC 1990-1998; Guadalupe.
Ayala, H. (2001): Medio siglo de transformaciones; Faculty of Accountability
and Finances; University of Havana.
Caballero, P. (1999): “Cuba-Canarias: Un análisis comparado de los modelos
de desarrollo turístico”; in Investigación Económica, No. 4, OctoberDecember.
CARIBEANNEWS: Edition No. 227, 6 April, 2004 and Edition No. 452, 22
September, 2005.
CIDTUR: Diary Press Report (No.136/2003, No.242/2005, No.14-17-20-24=2532-35-41/2006)
Destinos (2002): Year XI, Edition No.3, first two weeks of February.
Duran, A. (1999): “El desarrollo del turismo en los 90”; not published, Havana.
EAEHH (1999): Evolución y tendencias de la industria turística; Year 3 No. 1,
Havana.
ECLAC (2000): La economía cubana: reformas estructurales y desempeño en
los ’90; ECLAC, Santiago de Chile.
299
Figueroa, J., P. Caballero and M. Esperón (2006): “Un estudio Delphi como
herramienta prospectiva aplicada a la demanda del turismo en Cuba”,
working paper, INIE, Havana.
García, A. (2003): “Impacto de la crisis mundial en el turismo en América
Latina y el Caribe: retos para Cuba”; paper presented at LASA, not
published, Havana.
García, A. (2004): “Caracterización de los servicios turísticos”; not published,
Havana.
García, A. and G. Alfonso (2001): “La hotelería en Cuba: un acercamiento a su
eficiencia económica”; working paper, INIE, Havana.
GRANMA (2006): “Se ha iniciado una nueva etapa de la Revolución; Informe
sobre los resultados económicos del 2005 y las perspectivas económicas y
sociales para el 2006”; year 41, number 305.
Gutiérrez, O. and N. Gancedo (2002): “Una década de desarrollo del turismo
en Cuba (1990-2000)”; in Economía y Desarrollo, No. 2, Vol. 131, Havana.
Lage, C. (1998): “Speech at the ordinary session of the Popular Power National
Assembly”; in Granma, 23 December, Havana.
Marín, A. (2002): “El turismo continuará siendo el sector de mayor efecto
multiplicador para la economía cubana”; in Hosteltur, No 36, May, Havana.
Marquetti, H. (1999): La industria cubana en los años ’90: reestructuración y
elevación de competitividad; Dissertation to obtain the grade of Doctor
in Economic Sciences, March, Havana.
Martínez, C. (2005): “El turismo en Cuba”; Center for the Promotion of Foreign
Investment, MINVEC, Havana.
Mayoral, M.J. (2000): “Los atrasos en las construcciones hoteleras tienen cola”;
in Granma, 6 November, Havana.
Medina, N. (1999): “Desarrollo del producto turístico cubano”; MINTUR,
Havana.
MINTUR (2000): “Sistema del turismo: Cuba sí”; Havana.
MINTUR (2001): “Cuba sí con pasos seguros”; Ministry of Tourism’s Report of
rendering to the Popular Power National Assembly; August, Havana.
Monreal, P. and C. Padilla (1999): “¿Paraíso en construcción?: Turismo, cultura
y desarrollo en el Caribe Insular”; research prepared to the UNESCO
Regional Office of Culture for Latin American and the Caribbean,
Havana.
300
National Statistics Office: Anuario estadístico de Cuba; ONE, Havana (years
1999, 2001, 2004, 2005).
Nuñez, J. (2001): Conferences in Workshop about Foreign Investment in Cuba;
Quito.
Peters, P. (2002): The New Engine of the Cuban Economy; Lexington Institute.
Quintana, R., et al. (2004): Efectos y futuro del turismo en la economía
cubana; Sida–INIE-dECON (UDELAR), Montevideo.
Rodríguez de la Vega, E. (2001): Speech at the Tourism Conference, 2001.
Spadoni, P. (2006): “Family Ties Could Defy Cuba Travel Rules”, in Sentinel,
February 6th, Orlando.
TTC (2000): “El turismo acapara la quinta parte de las inversiones”, March,
Havana.
WTO (2000): “Tendencias de los mercados turísticos: panorama mundial y
temas de actualidad”; in www.world-tourism.org, May.
WTO: “Datos esenciales del turismo: 2002 y 2003”; digital version.
REFERENCES CHAPTER 6
American Association for World Health (AAWH) (1997): Report, March.
Castro Ruz, F.: Speeches in public events.
Castro Ruz, F.: “La Historia me Absolverá”; Havana.
ECLAC (2000): La economía cubana. Reformas estructurales y desempeño en
los noventa; ECLAC, Santiago de Chile, second edition.
Ferriol, A. and A. González (2005): “Política social: enfoque y análisis”; in
Investigación Económica, INIE, Havana.
Ministry for Foreign Investment and Economic Cooperation (1999):
“Presentation at the World Summit Meeting on Social Development”;
Copenhagen.
Ministry of Economic and Planning (2001): “Cuba: participación popular en el
desarrollo socio-económico”; MEP, Havana.
Ministry of Economic and Planning (2004): “Escenarios Económicos”; working
paper, MEP, Havana.
301
National Statistics Office: Anuarios Estadísticos de Cuba; ONE, Havana.
PNUD (1994): World Report on Human Development; PNUD, New York.
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de Ciencias Sociales, Havana.
REFERENCES CHAPTER 7 TO 10
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and Groups in Agricultural Collectives”; Decree 100, Hanoi.
Communist Party of Vietnam (1988): “Renovation of Agricultural Management”;
Resolution 10, 5 April, Hanoi.
Communist Party of Vietnam (1991): “Socio-economic Development Strategy
1991-2000”; Document of VII Congress, Hanoi.
Communist Party of Vietnam (1993): “Agricultural Encouragement Activities/
Tasks”; Decree No.12CP, March, Hanoi.
Communist Party of Vietnam (1993): Decree No.14/CP; March, Hanoi.
Communist Party of Vietnam (1993): “Continuously Renovating and Developing
Rural Social-Economic Aspects”; Resolution 5, June, Hanoi.
Communist Party of Vietnam (1998): “Agricultural and Rural Development”;
Resolution 6, Hanoi.
Communist Party of Vietnam (2000): “Some Policies on the Shifting of the
Economic Mechanism and the Consumption of Agricultural Products”;
Resolution 09/2000/NQ-CP, 15 June, Hanoi.
Communist Party of Vietnam (2001): “Socio-economic Development Strategy
2001-2010”; Document of IX Congress, Hanoi.
Communist Party of Vietnam (2003): “Enterprise Reform and Development
Steering Committee”; Hanoi.
Do Dinh Luong, Nguyen Thi Thanh Hang, S. Nijwening and R. Hagad (2002):
“Evaluation of One-Stop Shops in Vietnam”; Final Report, Swiss Agent for
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Le Anh Son (2002): “Vietnam Visions 2020 and Socio-Economic Development
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302
Strategies, Seoul, Korea, May 20-22.
Le Anh Son (2002): “Impacts of Science Technology on Economic Growth in
Vietnam”; Research Project, Ministry of Planning and Investment, Hanoi.
General Statistics Office (GSO): Statistic Surveys on Living Standards 1993,
1998, 2002; Hanoi.
General Statistics Office (GSO): Statistics Books 2000, 2001, 2002; Hanoi.
General Statistics Office (GSO): Vietnam Socio-Economic Performance 19912000; Hanoi.
General Statistics Office (GSO): Statistics Book, 2004; Hanoi.
Ministry of Planning and Investment (2003): “Report on Implementation of
the Enterprise Law”; Hanoi.
Truong Dong Loc (2006): Equitisation and Stock-market Development: The
Case of Vietnam; Dissertation, Faculty of Economics, University of
Groningen, Netherland.
Van Arkadie, B. and R. Mallon (2003): Viet Nam: A Transition Tiger?; Asia
Pacific Press.
Vietnam National Administration of Tourism: “Several years’ statistics”; Hanoi.
Vietnam’s Union of Cooperatives: “Statistics”; 2000, 2001, 2002 and 2003,
Hanoi.
Vo Tri Thanh et al. (2001): Exchange Rate in Vietnam; CIEM, Hanoi.
UNDP (2006): “The State as Investor: Equitisation, Privatisation and the
Transformation of SOEs in Vietnam”; UNDP-Vietnam Policy Dialogue Paper
2006/3, October, Hanoi