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The Cuban economy is on life support. Eighty-five percent of the island nation’s workers are employed by the government and President Raul Castro says this is no longer sustainable. The country plans to lay off half a million workers in short order, but more than four million workers will still remain on the government payroll. Cuba attempted economic reform in the wake of the collapse of the Soviet Union but then sharply curtailed those efforts when the economy stabilized. As a result, there is very little private sector opportunity and heavy government regulation on what does exist. The few exports are declining and countries sympathetic to Cuba are increasingly unable to provide support.

QUESTIONS:

IB1. Using information from the article, explain Cuba’s current account deficit for 2009. In which of the four subcategories is Cuba likely to see any improvement? Suggest some ways, if the move toward capitalism is legitimate, that Cuba might improve its situation.

IB2. What is the likelihood of economic crisis (beyond the current global crisis) for Cuba? Examine the typical development path for crisis in the text. How many steps has Cuba fulfilled? Project what could happen if Cuba does not implement drastic changes.

IB3. Cuba, like the United States, has a current account deficit. Contrast the conditions for capital mobility in the two countries.

SOURCE: J. de Cordoba & N. Casey, “Cuba to Cut State Jobs in Tilt Toward Free Market,” Wall Street Journal (Retrievable online at http://online.wsj.com/article/SB10001424052748704190704575489932181245938.html)

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