Tag Archives: Macroeconomy

LA RECESIÓN CUBANA Y EL ESTRENO DE LOS BONOS PÚBLICOS

Por Pável Vidal,  economista cubano y profesor de la Universidad Javeriana en Cali, en Colombia
IPS Inter Press Service, 6 de enero de 2017

CALI, Colombia, 30 dic 2016 (IPS) – Los datos macroeconómicos de cierre del año proporcionados por el gobierno cubano confirman las proyecciones de que Cuba entraría en una recesión como resultado del shock venezolano.

La producción de bienes y servicios en 2016 cayó  0,9 por ciento. Esta es la primera recesión económica desde el año 1993, en que el producto interno bruto (PIB) se hundió  15 por ciento tras la desaparición de la Unión Soviética.

Desde finales de 2014, tras la dramática caída del precio del petróleo y la consecuente crisis de la economía venezolana, la recesión cubana era altamente probable, si además sumamos una respuesta de la política económica cubana insuficiente ante la magnitud del shock que se avecinaba.

Las relaciones con Venezuela están formadas bajo acuerdos muy singulares entre ambos gobiernos, con precios y facilidades financieras que se alejan de las prácticas más habituales en el comercio internacional.

Por tanto, no se trata simplemente de buscar nuevos mercados para el comercio que ya no se puede realizar con Venezuela, sino que hay que hacerlo de una manera diferente e impulsando nuevos sectores económicos, dado que parece bastante improbable alguien más reciba los médicos cubanos y nos venda petróleo bajo las mismas condiciones.

Por eso era tan importante comenzar cuanto antes la diversificación de las relaciones internacionales y la liberalización de las capacidades internas en búsqueda de un incremento de la productividad y mayor eficiencia en la producción nacional. La atracción a gran escala de inversión extranjera, la devaluación de la tasa de cambio oficial y la convergencia monetaria, una reforma más profunda de la empresa estatal y la ampliación de los espacios al sector privado y las cooperativas, eran algunos de los pasos que parecían factibles y coherentes con las reformas ya iniciadas.

¿Por qué no se dieron algunos o todos estos pasos? Pueden esgrimirse múltiples explicaciones.

Porque no hay claridad o convencimiento de hacia dónde dirigir el modelo económico cubano. Porque las fuerzas de resistencia a los cambios han ganado por ahora la partida. Porque las necesidades de tantos cambios sobrepasan la capacidad institucional y técnica para administrarlos todos al mismo tiempo. Porque el embargo estadounidense sigue impidiendo la llegada de inversionistas extranjeros institucionales. Porque de verdad se cree que una reforma muy lenta y haciendo experimentos es la única vía efectiva. Y seguramente se podrían añadir algunas otras explicaciones.

Por la razón que sea, el resultado final es que las reformas han perdido velocidad en vez de apresurarse, y transcurridos 10 años, no hay resultados muy alentadores cuando se examina la productividad, el salario medio o un sector específico como la agricultura.

Los anuncios de nuevas transformaciones son cada vez más dilatados. Cuba parece vivir en una dimensión del tiempo diferente, es como si un año de Cuba equivale a un mes en el resto del planeta.

Sin embargo, el espacio en el que opera la economía no está aislado, compite con otros destinos para los capitales internacionales, se rezaga tecnológicamente, pierde peso relativo en la región, y sufre los ciclos de los mercados internacionales y las crisis de sus principales aliados económicos.

Las perspectivas para 2017 y el rol de los bonos públicos

Para el año 2017 el gobierno planifica una mejoría en la situación de la economía, algo que es contrario a las proyecciones que habíamos efectuados.  El gobierno planifica un aumento de dos por ciento del PIB.

Este aumento del PIB para 2017 está sustentado en dos factores esenciales. Uno, la esperanza que mejore la situación de la economía venezolana tras los últimos aumentos del precio del barril de petróleo; y dos, el gobierno cubano pone en práctica una política fiscal expansiva anticíclica.

En su discurso en la Asamblea Nacional el 27 de diciembre,  el ministro de Economía y Planificación, Ricardo Cabrisas, plantea que: “Las proyecciones de los portadores energéticos para el venidero año permiten respaldar niveles similares a los del 2016…”

Muy probablemente esta perspectiva tiene como punto de partida el incremento que ha presentado el precio del barril de petróleo durante los últimos tres trimestres y algunas proyecciones internacionales que lo sitúan en mayores niveles para el año 2017, lo cual favorece el desempeño de la economía venezolana y abre la posibilidad de que se estabilizarán los envíos de petróleos a la isla y los pagos de los servicios médicos cubanos.

Por otra parte, se proyecta un incremento del gasto público y del déficit fiscal para respaldar el aumento del PIB. Se proyecta un aumento de 11 por ciento en los gastos fiscales, pero que no podrá ser cubierto por los ingresos fiscales, por lo que generará un “hueco fiscal” de 11.500 millones de pesos en el año 2017, lo que representa un valor equivalente a 12 por ciento del PIB.

En términos porcentuales es el déficit fiscal más alto desde 1993; en valores más que duplica el déficit del año 1993 que fue de 5.000 millones de pesos.

Es propicio que después de años de austeridad fiscal el gobierno decida expandir el gasto público para amortiguar el efecto recesivo de la crisis venezolana. Es válido aplicar una política fiscal expansiva en momentos de caída del PIB.

También es atinado financiar el déficit fiscal con emisión de bonos públicos, lo cuales comprarán los bancos estatales cubanos. Este es un nuevo instrumento que desde hace dos años viene estrenando el Ministerio de Finanzas y Precios con vistas a evitar la monetización (impresión de nuevo dinero) como mecanismo de financiación del déficit fiscal.

Tal mecanismo de financiación fiscal tiende a acercarse a las prácticas internacionales, y tiene como principal ventaja que evita un incremento de la cantidad primaria de dinero, con lo cual reduce las presiones inflacionarias.

¿Dónde están los riesgos de la política fiscal expansiva y la emisión de bonos?

Primero, el déficit fiscal puede crecer en épocas de crisis, pero no debe hacerlo de manera desmesurada ni mantenerse alto indefinidamente. Está bien aplicar una política fiscal anticíclica, pero tener un hueco fiscal de 12 por ciento del PIB en 2017 trae dudas sobre la sostenibilidad financiera de todo el mecanismo de financiación que se está poniendo en práctica. Para tener un punto de comparación, se espera que los países conserven, en promedio de varios años, un déficit fiscal menor de tres por ciento del PIB.

Se debe tomar en cuenta que los propios inversionistas extranjeros, prestamistas y proveedores internacionales, serán los primeros que estarán mirando este indicador de equilibrio fiscal. A nivel internacional este es uno de los principales indicadores que se toman en cuenta para evaluar la prudencia de la política económica y que define el riesgo financiero del país.

Segundo, la emisión de bonos públicos reduce los efectos inflacionarios pero no los elimina del todo. Expandir el gasto fiscal en 11.500 millones de pesos por encima de los ingresos sí puede presionar al aumento de los precios dada la ampliación desproporcionada que está activando en la demanda de bienes y servicios.

Tercero, Cuba no cuenta con una regla fiscal que organice y ponga límites al equilibrio fiscal de largo plazo (como tienen otros países en la región), sino que depende de la discrecionalidad del gobierno cada año. Es decir, no sabemos qué va a suceder con los déficits fiscales en el futuro. No tenemos seguridad de que los bonos que se están emitiendo y los próximos que se emitirán serán manejados adecuadamente con el fin de garantizar la sostenibilidad de todo el mecanismo.

Se debe tomar en cuenta que los bancos están empleando los ahorros de las familias para comprar los bonos públicos, por tanto, el gobierno tiene la responsabilidad de obtener ingresos fiscales futuros y equilibrar las cuentas públicas para cumplir sus compromisos con los bancos y, en última instancia, con los ahorradores.

Para tener una idea de la magnitud del déficit y de la emisión resultante de bonos públicos, observemos que en el año 2015 el ahorro de las familias en los bancos sumaba 23.680 millones de pesos cubanos.

Por ende, el déficit fiscal presupuestado para el año 2017 equivale a 48 por ciento del valor de las cuentas de ahorros de las familias. Los bancos, ciertamente tienen también depósitos de las empresas y su propio capital. Aun así, esta proporción de 48 por ciento llama la atención sobre el poco espacio de financiación que a futuro tendría el MFP para soportar elevados déficits fiscales.

En resumen, el crecimiento proyectado de dos por ciento para el año 2017 en la economía cubana depende de una situación que sigue siendo incierta para la economía venezolana, a pesar del aumento del precio del petróleo. Además, viene acompañado de una política fiscal expansiva que de ser bien empleada puede ayudar a manejar la crisis, pero en caso contrario, tendría consecuencias desastrosas para la estabilidad monetaria y financiera del país.

La activación de una política fiscal anticíclica y la emisión de bonos públicos es acertada, pero parece exagerado un déficit fiscal que equivale a 12 por ciento del PIB y a 48 por ciento del ahorro de las familias en los bancos.

No habría posibilidades de repetir la expansión fiscal en el año 2018, más bien será indispensable realizar un ajuste fiscal que disminuya significativamente el déficit en los próximos años.

Por tanto, el gobierno solo está ganando un año de tiempo, en el cual deberá aplicar algunas de las reformas estructurales pendientes y necesarias para sacar en firme a la economía de la recesión.

Pavel Vidal

Posted in Blog | Tagged | Leave a comment

VENEZUELA’S ECONOMIC WOES SEND A CHILL OVER CLOSEST ALLY CUBA: Warnings of rationing revive memories of post-Soviet austerity in Havana

Financial Times, July 25, 2016

Marc Frank in Havana

The crisis in Venezuela has spread to its closest ally Cuba, with Havana warning of power rationing and other shortages that some fear could mark a return to the economic austerity that traumatised the island nation after the collapse of the Soviet Union.

Only a year after the euphoria that followed the re-establishment of diplomatic relations with the US, hopes of an economic rebound in Cuba have faded and an undercurrent of concern and frustration is evident on the streets of the capital.

“Just when we thought we were going forward, everything is slipping away again,” says Havana retiree Miriam Calabasa. “I am worried people are going to decide enough is enough: then what?”

Government offices now close early, with open windows and whirring fans in lieu of air-conditioners. Already scant public lighting has been reduced further, and traffic in Havana and other cities is down noticeably.

“Nothing will get better any time soon; it can only get worse,” worries Ignacio Perez, a mechanic. “The roads won’t be paved, schools painted, the rubbish picked up, public transportation improved, and on and on.”

President Raúl Castro outlined the scale of the problem this month, telling the National Assembly that “all but essential spending” must cease. He blamed “limits facing some of our principal commercial partners due to the fall in oil prices … and a certain contraction in the supply of oil contracted with Venezuela.”

Fuel consumption has been cut 28 per cent between now and December, electricity by a similar amount and imports by 15 per cent, or $2.5bn, in a centralised economy where 17 cents of every dollar of economic output consists of imports.

But crippling shortages, rampant inflation and an economy that is expected to shrink 10 per cent this year have forced Venezuela’s president Nicolás Maduro to cut back. According to internal data from state oil company PDVSA seen by Reuters, oil deliveries to Cuba are down a fifth on last year.

Venezuela has for 15 years supplied unspecified amounts of cash and about 90,000 barrels per day of oil — half of Cuba’s energy needs. Havana in return sold medical and other professional services to Caracas. Venezuelan aid helped to lift Cuba out of an economic black hole after Soviet subsidies ended in 1991.

“Under current conditions, [Cuban] gross domestic product will dip into negative territory this year and decline 2.9 per cent in 2017,” says Pavel Vidal, a former Cuban central bank employee who is now a professor at Colombia’s Pontificia Universidad Javeriana Cali. “If relations with Venezuela fall apart completely, GDP could decline 10 per cent.”

Although Venezuelan aid is a fraction of Soviet help, mention of the “special period” that followed the fall of the Berlin Wall provokes traumatic memories in Cuba, with many remembering shortages so severe they ate street cats. Karina Marrón, deputy director of the official Granma newspaper, this month warned of possible street protests similar to 1994.

“A perfect storm is brewing … this phenomenon of a cut in fuel, a cut in energy,” Ms Marrón told the Union of Cuban Journalists. “This country can’t withstand another ’93, another ’94.”

So-called rapid response brigades, formed in the 1990s to quell social unrest, are back on alert, according to one brigade member who asked not to be named.

For Mr Castro, the slowdown is a serious blow to the limited market-orientated reforms begun under his leadership, especially the long-planned liberalisation of the peso, which requires a comfortable foreign reserve cushion.

But foreign businesses hope it may speed economic opening. “Venezuela’s problems increase the chance of Cuban reforms. This government only acts when it has to,” says one Spanish investor on the island.

One complication lies in how the government apportions resources.  Cuba relies heavily on tourists, most of whom expect hotels with electricity and air-conditioning. Meanwhile, some 500,000 people, or 10 per cent of Cuba’s workforce, are employed at restaurants, lodging houses and other recently allowed private businesses which need power to ply their trade.

Mr Castro insists residential users will be spared power cuts, for now, while Marino Murillo, who heads the reform commission of the ruling Communist party, says hard currency earning sectors such as tourism and nickel would be spared.

Another problem is that the other countries Cuba exports medical services to, such as Algeria, Angola and Brazil, are also expected to reduce spending. In 2014, medical services earned Cuba about $8bn, or 40 per cent of exports.

“We cannot deny there will be some impact, including worse than currently, but we are prepared,” Mr Castro has said.

Analysts suggest Mr Castro’s warning may in part serve to deflate expectations following the easing of US sanctions. Certainly, a full return to special period-style austerity looks unlikely as Cuba has more diversified income streams, from increased remittances, medical services, tourism to a nascent private sector.

However, “a majority [in Cuba] are still very dependent on state salaries that are now worth a third of what they were in 1989 in real terms”, said Prof Vidal. “[They] are in a situation of extreme vulnerability.”

Posted in Blog | Tagged , , , , | Leave a comment

The Institutional Structure of Production in the Cuban Economy

Ernesto Hernández-Catá;  January, 2014

The complete essay is here: STRUCTURE OF GDP, 2014. Hernandez-Cata

 This paper presents estimates of Cuba’s gross domestic product (GDP) for the three principal sector of the economy: the government, the state enterprises, and the non-state sector. It estimates government GDP on the basis of fiscal data and derives non-state GDP from a combination of employment and productivity data. The article finds that the pronounced tendency for government output to increase faster than GDP was interrupted in 2010 and as the share of non-state production increased sharply. Nevertheless, the private share in the economy remains very low by international standards, and particularly in comparison to most countries in transition. The paper also derives estimates for gross national income. It finds that income is lower than GDP in the general government sector because of interest payments on Cuba’s external debt, while it exceeds production in the non-state sector owing to remittances from Cubans residing abroad.

New Picture (1)New PictureConclusion

 The various estimates presented in this paper make it possible to reach a number of tentative conclusions.

 ü  The government share of GDP fell during the post-Soviet recession but then increased steadily all the way to 2009. The increase reflected the growth of current government expenditure; government investment—which accounts for the bulk of economy-wide capital formation—fell in percent of GDP. Total investment by all sectors also fell, to a very low level compared with the averages for other country groups and particularly for the emerging market and transition countries. The share of government spending declined from 2010 to 2011 following the financial crisis of 2008.

 ü  The share of the non-state sector GDP rose in the period 1993-1999 from a very low level in the Soviet-dominated period of the 1980’s. It changed little in the first decade of the XXIst century, but surged in 2011-2012 reflecting a transfer of employees form the state sector. Nevertheless, the non-state and private sector shares of the economy remains very small by international standards and notably by the standards of the countries in transition.

 ü  The relative importance of the state enterprises appears to have declined all the way from 1995 to 2009, but it has recovered somewhat since then.

 ü  National income in the government sector is lower than GDP because of interest payments on the external debt and, apparently, because of official transfers to foreigners.

 ü   By contrast, income in the non-state sector exceeds GDP by a growing margin, essentially because of dollar remittances from Cuban-Americans abroad. Thus, in that sector income from domestic production is being increasingly supplemented by income from abroad.

 ü  There is a statistically significant tendency for government current spending to crowd out the output of the state enterprises. Non-state output, on the other hand, appears to evolve mainly in response to official decisions to liberalize or to repress the non-state sector

 Finally, there is a major problem whose resolution is beyond the scope of this article but which must at least be noted. The Cuban authorities assume that data for transactions denominated in foreign currency should be translated into local currency at the fixed exchange rate of one peso (CUP) per U.S. dollar. Under this convention (which is retained in this paper) dollar values are identical to peso values. Historically, however, the exchange value of the peso applicable to households and tourists has been much lower and it is currently CUP 24 per dollar.  Clearly, the 1:1 exchange rate assumption introduces major distortions in the national accounts and in the balance of payments. For example, the peso value of exports of at least some goods and services (nickel, sugar and tourism among others) is grossly under estimated, while the dollar value of consumption is grossly over-estimated. In the income accounts, the dollar value of wages (mostly denominated in CUPs) is overestimated while the peso value of private remittances is under-estimated—although this is partly offset by an under-estimation of the peso value of interest payments abroad.

 The task of disentangling all the elements of bias introduced by the use of a 1:1 conversion factor would be daunting. For the time being the corresponding distortions would have to be accepted, although they should be recognized. The good news is that the Cuban authorities are in the process of unifying the existing multiple exchange rate system, too slowly hélàs, but fairly surely. One important result of this change will be to the adoption of a single exchange rate for all transactions and all sectors, as well as for the purpose of statistical conversion.

Ernesto-Hernandez-CataErnesto Hernández-Catá

Posted in Blog | Tagged , , | Leave a comment

Proyecciones macroeconómicas de una Cuba sin Venezuela

Pavel Vidal Alejandro

from the  Cuba Study Group, Desde la Isla; original source:  full article

Análisis de Pavel Vidal acerca del impacto a la economía cubana en el supuesto caso de una reducción importante en la cooperación económica con Venezuela.

New PictureDesde inicios de la década pasada la economía cubana ha venido incrementando sistemáticamente sus relaciones con Venezuela. Actualmente el comercio de bienes representa el 40% del intercambio total de la isla, muy por encima del segundo lugar ocupado por China con 12,5%. En este porcentaje pesa sobre todo la importación de petróleo venezolano; en 2011 la factura llegó a US$2.759 millones. La importación del crudo venezolano cubre el 60% de la demanda nacional y además permite la reexportación de una parte del mismo. Solo el 50% del pago de las importaciones de crudo venezolan se efectúa dentro de los primeros 90 días, el restante 50% se acumula en una deuda a pagarse en 25 años con un tipo de interés del 1% anual.

 Continue reading: Vidal,  Cuba sin Venezuela

New Picture (11)

Posted in Blog | Tagged , , , | 1 Comment

Eliminating Dual Currencies in Cuba: Measured, but Necessary Risk

By Emilio Morales and translated by Joseph L. Scarpaci, Miami (The Havana Consulting Group).

Original Here: Eliminating Dual Currencies in Cuba: Measured, but Necessary Risk

New Picture

The Cuban government finally announced the elimination of its dual currency system in what will be one of the most challenging reforms to the economic model. Great expectations are riding on this new, single currency, which will have a great impact on the island’s society and economy.

Said measures will change the prevailing lifestyle of the past nearly 20 years for 11.2 million Cubans. That consisted of getting paid in a devalued ‘soft’ currency yet purchasing essential goods and services daily in a ‘hard’ currency, one used by tourists or sent by loved ones from abroad.

Authorities say they will deploy the new measure in stages, and the timeline will begin with government businesses.

A first stage will entail specifying the legal framework to support the move to a single currency. Financial information systems and adjustments to accounting systems are required as well.

Accountants and other personnel from across the country will require some training to handle the transition.

Uncertainty Awaits.

This important announcement, however, fails to specify firm dates and related details. News of the single currency system no doubt aims to calm the nerves of those who have saving accounts in convertible pesos (CUCs), international currencies, and Cuban pesos (CUPs). Still, the government will continue to apply the current policy of both subsidizing retail prices, and subsidizing those Cubans who require special government assistance.

Both subsidy strategies, though, are contradictory. On the one hand, a single currency means that one of those subsidies will be eliminated. Therefore, bank accounts will lose some value when they are rolled over to a single currency, whenever and whatever that might be.

On the other hand, in order to unify the currencies, sate subsidies will have to disappear or be reduced to a bare minimum, and that will be the hardest measure for the Cuban government to carry out. How will authorities face the dilemma of protecting the most vulnerable groups once this process takes holds?

The list of subsidies is extensive: utilities (electricity, telephone, gas, potable water) and the dwindling list of sparse, yet essential products provided by the longstanding ration book (libreta). Other subsidized public services include transportation, all levels of education, health care, and the sale of prescription drugs.

Do conditions exist to eliminate or drastically reduce these subsidies? Do the results achieved by the reforms carried out thus far justify these measures Will the government allow the private sector to expand in order to minimize the pain this difficult process will unleash?

All of this is uncertain. As the details of this currency matter become known, we will be able to assess the real impact that the elimination of the dual currency will have. Until then, it remains a uncertain.

New Exchange Rate in Sight

The government announcement also fails to specify how it will adjust the exchange rate in the process. We anticipate an immediate and sharp rise in the black-market dollar; perhaps two or three times for what the dollar will officially sell at the state-run CADECA money-exchange houses.

CADECA exchange rates currently value 25 Cuban pesos (CUC) for a single convertible peso (CUP). It is likely that in a few weeks the government will adjust this rate as a first step. That will be the first test of the impact this monetary policy will have in the marketplace and in everyday living. It will no doubt shape how the rest of the reforms unfold.

For instance, reducing the exchange rate to 1 CUC for 18 CUPs would lower the ceiling on the black market and avoid early speculation. At the same time, the move would increase workers’ purchasing power if prices set in dollars in state stores remain unchanged.

In this regard, the 240% mark up that the government automatically places on consumer goods sold in the so-called ‘dollar stores’ (e.g., hard-currency CUC sales) will give the government some cushion in absorbing these costs because it is a handsome margin. Foregoing some state profit will increase consumer purchasing power for ordinary Cubans.

But one thing is a fine wine and the other is just plain table wine, which gives pause and makes us wonder these first-stage measures really will jump start the process.

Investors on Alert

If the impact will be great on the Cuban people, it will be no less salient for investors residing on the island.

Regardless of the fine points these changes unleash, foreign joint-venture companies with investments in Cuba will be affected in some fashion. The bottom line for these companies will be affected by the costs, exchange rates and prices of the products they produce there. Profit margins will likely diminish somewhat until the currency changes stabilize, and production cycles catch up other changes in the monetary system.

Even if the transition is relatively smooth, it is likely that investment will slow down or simply be deferred until the most challenging part of the transition is over. It is noteworthy that over the past ten years, almost 200 joint-ventures have closed in Cuba, particularly since the freeze on repatriating profits took place in 2008, which was not fully over until 2010. On top of that comes the anti-corruption campaign carried out over the past four years.

Government efforts to attract new waves of investment to the upcoming duty-free zone of Mariel port (just west of Havana) will be challenged by these proposed banking measures. The uncertainty caused by the positive and necessary combining of the island’s currency will not be attractive to investors, at least until the process is fully implemented.

We can only hope that efforts to modernize the Cuban economy through these fiscal and monetary proposals –the most daunting measures proposed in recent economictimes—achieves its goals for the good of the Cuban people and does not become a huge disaster.

peso_cuban_currency_cuba_photo_gov

Posted in Blog | Tagged , , | Leave a comment

Ernesto Hernández-Catá, “Cuba, the Soviet Union, and Venezuela: A Tale of Dependence and Shock.”

The complete analysis is available here: “Cuba, the Soviet Union, and Venezuela:  A Tale of Dependence and Shock.”   September 2013

Introduction

Recently there have been several estimates of Venezuelan economic assistance to Cuba—for example by Lopez (2012) and Mesa-Lago (2013). My latest estimates suggest that payments from Venezuela increased rapidly during the first decade of the XXI century and peaked at almost 19% of Cuba’s GDP) in 2009. They declined over the following two years but remained quite large: I estimate Venezuelan assistance in 2011 (the last year for which the required data are available) at just over $7 billion, or 11 % of Cuba’s GDP. These numbers are large, and they have invited comparisons with Soviet assistance to Cuba in the late 1980s. It has been implied that the adverse effect on Cuba’s real GDP of ending Venezuelan aid would be similar in size to the devastating impact of the elimination of Soviet aid in 1990. This is almost certainly wrong.

Conclusion

The analysis presented in this paper indicates that a complete cancellation of Venezuelan assistance to Cuba would cause considerably less damage than the elimination of Soviet assistance in the early 1990s, with the fall in real GDP estimated at somewhere between 7% and 10%, compared to 38% after the breakdown of Cuban/Soviet relations. Moreover, if the Cuban government were to avoid the policies of   subsidization and inflationary finance pursued in the post-Soviet period, the post-Venezuelan contraction would be at the lower end of the range or approximately 7%.

This is still a lot, however. To be sure, the danger of a sudden elimination of aid inflows has diminished considerably since the Venezuelan election of April 2013. Nevertheless, the prospect of a more gradual reduction in aid remains likely given Venezuela’s economic difficulties. In that case, the effect would be a reduction in the growth of the Cuban economy spread over several years, rather than a sudden contraction of output. Furthermore, current efforts to obtain financing at non-market terms from other countries, like Algeria, Angola and Brazil, would, if successful, diminish the magnitude of the shock. But it would perpetuate dependence and delay the needed adjustment.

The only way to diminish the pain of reduced income and consumption would be a decisive effort to expand Cuba’s productive capacity by intensifying the reform process. The list of required actions is familiar to all: liberalize prices, unify the exchange rate system, dismantle exchange and trade controls, stop the bureaucratic interference with non-state agricultural producers, continue efforts to downsize employment in the state sector, and increase substantially the list of activities opened to the private sector, including (why not?) doctors, nurses, teachers and athletes. Private clinics and schools would pop up, consultancy services would flourish, and the baseball winter leagues would come back to life.

 Karl Marx (1852) credited Hegel with the idea that history repeats itself twice. Unfortunately for him, he added: the first time as a tragedy, the second time as a farce”. This is not necessarily true. Often the second time is also a tragedy, as when the West gave Eastern Europe to Stalin at Yalta, less than a decade after giving it to Hitler in Munich. And why couldn’t the second time be an epiphany? Cuba’s rulers now have a historic opportunity to allow people to improve their own standard of living, and to stop wasting resources to keep the faded and sinister red banner afloat. Without a doubt, history will absolve them if they take that chance. And then, perhaps, Cuba will be allowed to replace its politically inspired dependence on doubtful friends with free, mutually beneficial trade with all nations.

Ernesto Hernandez-Cata was born in Marianao, Havana, Cuba in 1942. He holds a License from the Graduate Institute of International Studies in Geneva, Switzerland; and a Ph.D. in economics from Yale University. For about 30 years through, Ernesto Hernandez-Cata worked for the International Monetary Fund where he held a number of senior positions. When he retired from the I.M.F. in July 2003 he was Associate Director of the African Department and Chairman of the Investment Committee of the Staff Retirement Plan. Previously he had served in the Division of International Finance of the Federal Reserve Board. From 2002 to 2007 Mr. Hernandez-Cata taught economic development and growth at the Paul Nitze School of Advanced International Studies of the University of Johns Hopkins. Previously he had taught macroeconomics and monetary policy at The American University.

Posted in Blog | Tagged , , , , | Leave a comment

New Tax System Being Introduced in Cuba

On November 21, Cuba’s Gaceta Oficial (No. 53, del 21 de noviembre del 2012) published a new Law on Taxation, that had been approved earlier on July 23 and October 31.The basic outline of the law was approved by the Congress of the Communist party in April of 2011 and then by the National Assembly in 2012.

The complete gaceta version is not yet available “On Line”  though a published version has been distributed within Cuba. A description of the law has been presented in Granma here: Ley del Sistema Tributario   and Granma, 21 de Noviembre de 2012, Ley del Sistema Tributario. The introduction of the Granma article is presented below.

An analysis of the implications of the new taxation system must await the availability of the detailed text from the Gaceta Oficial.

Part of the Older Taxation System

Ley del Sistema Tributario
Instrumento decisivo en el camino de la actualización

Ivette Fernández Sosa

La política fiscal cubana deberá contribuir al incremento sostenido de la eficiencia de la economía y de los ingresos al Presupuesto del Estado con el propósito de respaldar el gasto público en los niveles planificados y mantener un adecuado equilibrio financiero, tomando en cuenta las particularidades de nuestro modelo económico. Así se consigna en el Lineamiento 56 de la Política Económica y Social del Partido y la Revolución, aprobado en el Sexto Congreso del Partido, y que a su vez, da paso a otras directrices que deberán desempeñar un papel determinante en la búsqueda de un proyecto social más justo y sostenible.

La ley servirá de acicate para el desenvolvimiento de las esferas y actividades impulsoras del desarrollo socio-económico del país

El Parlamento cubano aprobó la Ley No. 113, del 23 de julio del 2012, del Sistema tributario que acompañada de su Reglamento, el Decreto No. 308, del 31 de octubre del 2012, de las normas generales y los procedimientos tributarios, se publicó hoy en la Gaceta Oficial Ordinaria No. 53, del 21 de noviembre del 2012, de la República de Cuba.

Al aprobar este nuevo instrumento jurídico —cuya aplicación se ha previsto de forma paulatina a partir de enero del 2013—, quedarán derogadas la Ley 73 de 1994, el Decreto-Ley 169 de 1997 y cerca de otras 200 regulaciones emitidas por el Ministerio de Finanzas y Precios para normar la actividad tributaria en el país.

En su intervención en la Sesión Plenaria de la Asamblea Nacional del Poder Popular celebrada el pasado julio, el vicepresidente del Consejo de Ministros, Marino Murillo Jorge, identificó al sistema tributario como una herramienta que contribuye a disminuir las desigualdades entre los ciudadanos dada su capacidad de redistribución de los ingresos.

En su aplicación se tiene en cuenta la capacidad económica de los sujetos obligados a su cumplimiento y las características de los territorios; estableciéndose mayores gravámenes para los ingresos más altos, esclareció.

La Ley establece las normas sobre el pago de impuestos, tasas y contribuciones al Presupuesto del Estado.

 

 

Posted in Blog | Tagged , , | Leave a comment

Pavel Vidal Alejandro: “Microfinance in Cuba”

Below is a Power Point Presentation on Cuba’s rapidly evolving microfinance system prepared for the “Seminar on Prospects for Cuba’s Economy” at the Bildner Center, City University of New York, on May 21, 2012 by Pavel Vidal Alejandro. To my knowledge this is the first such analysis to appear for the Cuban case.

Unfortunately for the Centro de Estudios de la Economía Cubana (CEEC) de la Universidad de La Habana, Dr. Vidal has just left for Pontificia Universidad Javeriana of Cali, Colombia, where he will be a professor of macroeconomics. He apparently left on good terms with CEEC and, fortunately,  will continue his work on the Cuban economy. \

The full presentation can be found here:   Pavel Vidal: Microfinance in Cuba

.


Posted in Blog | Tagged , , , | Leave a comment

Presentations from the Bildner Center, (CUNY) “COLLOQUIUM ON THE CUBAN ECONOMY” May 2012,

On May 12, The Bildner Center at City University of New York, under the leadership of Mauricio Font organized a one-day conference analyzing the recent experience of the Cuban economy in its process of transformation.  All of the Power Point presentations from the  “COLLOQUIUM ON THE CUBAN ECONOMY” have been posted on the  Center’s Web Site. The presentations of the Cuban participants, all from the Center for the Study of the Cuban Economy, namely Omar Everleny, Pavel Vidal, Camila Piñeiro, and Armando Nova, are especially valuable and informative as they provide up-to-date and inside analyses of major issue areas. Mauricio, Mario González-Corzo, and the team are certainly to be congratulated for organizing this event

All of the presentations can be be accessed at the Bildner Web Site via the hyperlinks listed below in the form of the program of the conference.

Session #1: Cuban Updates on Actualización

1. Cuentapropismo y ajuste estructural
Omar Everleny, University of Havana

2. Microfinanzas en Cuba
Pavel Vidal, University of Havana

3. Non-state Enterprises in Cuba: Current Situation and Prospects
Camila Piñeiro, University of Havana

4. Impacto de los Lineamientos de la Política Económico y Social en la producción nacional de alimento
Armando Nova, University of Havana

Moderator: Mauricio Font, Bildner Center for Western Hemisphere Studies

Session # 2: Strategic Initiatives: Agriculture

1. Measuring Cuba’s Agricultural Transformations: Preliminary Findings
Mario González-Corzo, Lehman College, CUNY

2. U.S. Food and Agricultural Exports to Cuba – Uncertain Times Ahead
Bill Messina, University of Florida

Moderator: Emily Morris, Economist Intelligence Unit in London

Session # 3: Revamping Socialism: Perspectives and Prospects

1. Actualización in Perspective
Mauricio Font, Bildner Center for Western Hemisphere Studies

2. Cuban Restructuring: Economic Risks
Emily Morris, Economist Intelligence Unit in London

3. Prospects in a Changing Geo-Economic Environment Archibald Ritter, Carleton University, Canada

ROUNDTABLE: Implications and Future Agenda


Posted in Blog | Tagged , , , , , , , , , , , , | 1 Comment

Ernesto Hernández-Catá: “THE GROWTH OF THE CUBAN ECONOMY IN THE FIRST DECADE OF THE XXI CENTURY. IS IT SUSTAINABLE?”

Ernesto Hernández-Catá has agreed to have his recent essay “The Growth of the Cuban Economy in the First Decade of the XXI Century: Is it Sustainable?posted on this Web Site. It was written for presentation at the forthcoming 22nd annual meeting of the Association for the Study of the Cuban Economy in Miami in August 2012. The full study is available here: Ernesto Hernandez-Cata, “The Growth of the Cuban Economy in the First Decade of the XXI Century”.


Ernesto Hernández-Catá

Conclusion

Income and production increased rapidly in Cuba during the first decade of the XXI century. Growth was fueled by a surge in government spending and a boom in services exports and investment—all of them made possible by rapidly increasing in payments received from Venezuela. The expansion in both domestic and foreign demand during the decade did not visibly result in higher inflation or in a massive deterioration of the country’s external position, partly because potential output also increased rapidly reflecting the strong performance of investment. (In this connection, it is a good thing that part of the Venezuelan money was used to finance capital formation rather than consumption.) However, capacity utilization also increased markedly, and the gap between actual and potential GDP must have dwindled considerably, leaving little room for supply to respond to additional demand pressures.

While there was no explosion in the current account of the balance of payments for most of the decade, severe pressures did emerge in 2008 and the authorities had to restrict imports, ration foreign exchange, and take measures that damaged the nation’s reputation in world financial markets. The Central Bank also intervened on a large scale to keep the exchange value of the Cuban peso fixed—a policy that cannot continue forever.

The large size of Cuba’s dependence on Venezuelan aid makes the country hostage to fortune. A sudden interruption in such aid would trigger a deep recession and put the balance of payments in a critical position. Therefore the structural measures that were taken or announced in 2009 and 2010 should now be extended and pursued much more aggressively. This will not be easy. But as Russia’s former Finance Minister Boris Fedorov once said, dependence on foreign largesse is a luxury that a free country cannot afford.[i]

[i]  At the Conference on Russia’s Economic Reform held in Stockholm in June 1994. In response to an injunction by Jeffrey Sachs to suppress hyperinflation by fixing the value of the Ruble and borrowing massive amounts from abroad.

Ernesto Hernandez-Cata was born in Havana, Cuba in 1942. He holds a License from the Graduate Institute of International Studies in Geneva, Switzerland; and a Ph.D. in economics from Yale University. For about 30 years through, Mr. Hernandez-Cata worked for the International Monetary Fund where he held a number of senior positions, including: Deputy Director of Research and coordinator of the World Economic Outlook; chief negotiator with the Russian Federation; and Deputy Director of the Western Hemisphere Department, concentrating on relations with the United States and Canada. When he retired from the I.M.F. in July 2003 he was Associate Director of the African Department\, where he dealt with Ethiopia, Guinea, Sierra Leone and the Democratic Republic of Congo, among other countries. He was also  Chairman of the Investment Committee of the IMF’s Staff Retirement Plan. Previously he had served in the Division of International Finance of the Federal Reserve Board. From 2002 to2007 he taught economic development and growth at the Paul Nitze School of Advanced International Studies of the University of Johns Hopkins. Previously he had taught macroeconomics and monetary policy at The American University.

Posted in Blog | Tagged , , , | 2 Comments