Tag Archives: General Economic Performance

LAS TRANSFORMACIONES ECONÓMICAS EN CUBA: VISIÓN EXTERNA

Cubadebate, 12 julio 2015 | 34

 Por: José Luis Rodríguez

Algo que sin dudas ha llamado la atención a lo largo de la historia de la Revolución es la proliferación de múltiples interpretaciones externas sobre lo que se hace en el país, especialmente en el orden de la política económica. Desafortunadamente, la cantidad no hace la calidad y muchos de los trabajos que se han publicado adolecen de un mínimo de rigor analítico en sus análisis, en especial, aquellos que parten de una visión anti socialista excluyente de otro modelo que no sea afín a la economía de mercado en las diferentes versiones de la misma.

En el presente artículo no se pretende realizar un balance exhaustivo de todos estos enfoques, ni siquiera de aquellos que se han producido a lo largo de los últimos cinco años y que se relacionan con la actualización del modelo económico en curso. No obstante, resulta útil destacar algunas tendencias presentes en el ámbito académico y que permiten identificar los principales enfoques acerca de las transformaciones económicas que se desarrollan en Cuba en la actualidad.

Para leer mas:  Las Transformaciones Económicas en Cuba: Visión Externa

 

José Luis Rodríguez es asesor del Centro de Investigaciones de la Economía Mundial (CIEM). Fue MInistro de Economía de Cuba.

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CUBA’S STALLED REVOLUTION

Cuba’s Stalled Revolution: Can New Leadership Unfreeze Cuban Politics After the Castros?

By Richard E. Feinberg and Ted Piccone

 Foreign Affairs, September 2018

Original Article: https://www.foreignaffairs.com/articles/central-america-caribbean/2018-09-20/cubas-stalled-revolution

For Cuba, 2018 marks the end of an era. For the first time in almost six decades, the country’s president is no longer a Castro—neither the late guerilla fighter, revolutionary caudillo, and international icon Fidel, nor his lower-profile brother Raúl, who succeeded Fidel as president in 2008. This April, the mantle was instead passed to former vice-president Miguel Díaz-Canel, a younger post-revolutionary politician who raised paradoxical hopes of both continuity and change.

Yet for those who imagined that the post-Castro era would quickly bring major reforms, Díaz-Canel’s tenure so far has been sorely disappointing. Five months in, progress in the country has come either slowly or not at all. The island’s economy continues to decline, just as it has since the collapse of the Soviet Union nearly 30 years ago, and this despite the carefully calibrated reforms Raul Castro instituted in 2011. Investment rates are alarmingly low, foreign exchange scarce, and shortages of consumer goods widespread. Many discontented Cubans, especially educated youth, continue to emigrate in search of higher living standards and better career choices, depleting the current and future workforce.

Miguel Díaz-Canel 

Reformers and hardliners continue to do battle within the Cuban Communist Party. A new draft constitution promises progress, notably on gender and gay rights, but it also reaffirms the hegemony of the Cuban Communist Party and institutionalizes outdated economic thinking. Recent government initiatives further restrict individual freedoms in business, the arts, and media. The Trump administration, meanwhile, has largely returned to the pre-Obama rhetoric of regime change and posture of hostility and isolation.

STAGNATION NATION

Díaz-Canel has inherited an economy in a state of transition. During his decade-long rule, Raúl Castro broke through once-forbidding ideological barriers on economic policy. He actively inserted Cuba into global commerce, opened the island to foreign investment, and promoted a burgeoning domestic private sector. Raúl also relaxed barriers to travel abroad, allowed private markets for real estate and automobiles, and gradually expanded access to mobile technology and social media. The private sector took off. By 2017, it provided jobs and income to as many as four out of ten Cubans of working age. Tourist traffic rose more than 80 percent during Raul’s tenure. Even though U.S. travelers became less common on the streets of Havana over the course of 2017, as the Obama bump gave way to a Trump dip, tourism is once again the brightest feature of the Cuban economy.

The government has not laid out a new economic policy agenda, much less a strategic vision for long-term development.

And yet, the Cuban economy has performed poorly overall. During the decade of Raúl Castro’s rule, Cuba’s GDP grew an average 2.4 percent per year—at least according to government statistics. At times, GDP growth stagnated at below two percent per year. Five percent would be the minimum necessary for Cuba’s growth to be considered sustainable.

The government has failed to create a truly receptive business climate, and outside the flourishing tourism sector, foreign investors remain skeptical. The precipitous drop in Cuba’s merchandise exports bodes particularly ill, signaling that the country’s state-owned enterprises are failing to compete in global markets. In 2016, these exports shrunk to less than $3 billion, their lowest level in more than ten years. In response, authorities slashed imports, from a peak of nearly $15 billion in 2013 to $10.4 billion in 2016. The loss of these imports has left Cuban stores empty of the most basic consumer items, from beer and paper products to spare parts for household appliances. All the while, restrictions on bringing capital goods into the country continue to exacerbate the already serious lack of factory machinery and farm equipment.

Change is unlikely to materialize soon. The Díaz-Canel administration, occupied with managing austerity policies, has not yet laid out a new economic policy agenda, much less a strategic vision for long-term development. In July, the government issued tough new regulations for the island’s emerging private enterprises. Aimed at preventing private companies and citizens from accumulating wealth—and nipping in the bud any potential challenge to the state’s monopoly on economic and political power—the new rules show that Cuban leaders are still extremely wary of, if not outright hostile to, private enterprise.

OLD RUM IN NEW BOTTLES?

Cuban politics are similarly resistant to change. Raúl Castro is still very present—as head of the Cuban Communist Party until 2021 and as leader of the government’s current efforts to revise the constitution. Every step of the relatively smooth succession process seemed designed to signal continuity with the measured pace of change that had marked Raúl Castro’s tenure, encapsulated by his maxim “sin prisa, pero sin pausa”—without haste, but without pause. It’s no wonder, then, that Díaz-Canel told the national assembly upon donning the presidential sash that “comrade Raúl will head the decisions for the present and future of the nation.”

Díaz-Canel has a lighter touch and is less camera-shy than his predecessor, but when it comes to policymaking, he has so far failed to deliver change. He retains a largely inherited team of senior bureaucrats, and his public remarks have been less about programmatic innovation than about maintaining party unity. Granted, this could be a temporary posture meant to reassure the old party apparatchiks while he builds a more autonomous governing class of technocrats. By this interpretation, the 58-year old is cautiously cultivating a power base of his own to set forward in the later portion of his five-year term, especially after Raúl steps down as party chief in 2021.

On the institutional side, recent changes are a mixed bag. The National Assembly chosen in March includes a mix of old and new faces. More than half of the deputies are new, 53 percent are women, and 41 percent are black or of mixed race. Likewise, the council of state, which is headed by Díaz-Canel and effectively governs the country year-round, has three new vice presidents between the ages of 48 and 52—young leadership for a country long ruled by former revolutionaries in their seventies and older. New rules mandate that deputies serve no more than two five-year terms and enter office at an age no older than 60. Taken together, the changes suggest that party leaders understand the importance of making the benefits of public office accessible to younger cadres and of diversifying the ranks of the governing elite.

A proposed constitutional reform, meanwhile, promises a modest but potentially meaningful political opening. The draft constitution divides power between a president serving as head of state and a prime minister who manages the government’s day-to-day functions. It devolves more autonomy over local affairs to provincial authorities, even though governors would still be appointed by the president. Other provisions suggest greater separation between state and party, even though the overlap in personnel would probably remain high. A new national electoral council would improve the image of the country’s elections, if not their actual integrity. Citizens who gather at least 10,000 signatures can propose legislation. Those who gather 50,000 or more will be able to initiate constitutional revisions.

Even if reformers manage to wedge open some cracks in the state’s monolithic apparatus, Cuba will remain a strictly one-party system.

The draft constitution explicitly grants important civil and due process rights, including habeas corpus, the presumption of innocence, the right to seek restitution for violations committed by state agents, non-discrimination regardless of sexual orientation, and religious liberty. But it makes such fundamental rights conditional upon “collective security, general well-being, respect for public order, the Constitution and laws.” The draft document is rife with such contradictory loopholes that ultimately confirm the state’s supreme power to override fundamental human rights.

Make no mistake: even if reformers manage to wedge open some cracks in the state’s monolithic apparatus, Cuba will remain a strictly one-party system. The draft constitution re-inscribes the Cuban Communist Party as the “superior leading force of [Cuban] society and the state.” Cuban socialism and its political and social system remain “irrevocable.” In the economy, the draft charter complements state planning and ownership with some space for domestic and foreign private capital, but these changes stop well short of formally embracing a more genuinely balanced, hybrid regime, such as the market socialist models of China or Vietnam.

At the moment, the Communist Party is holding forums to debate the draft constitution across the island. These forums are generating discussions among interested elites, but they are expected to yield only modest fixes to the issues outlined above. Once ratified by the legislature and by public referendum—likely easy hurdles—the new constitution will mainly cement the Castro legacy in constitutional, legal and de facto terms, while also bestowing some political legitimacy upon the post-revolutionary cohort Díaz-Canel now leads. For the many Cubans yearning for higher wages and more consumer goods, there is little relief in sight.

MISSED OPPORTUNITIES

Havana’s economic and political inertia has left Washington with little room to elicit more progressive reforms. Either the United States can accept Cuba’s reality and find ways of getting along in order to protect its national interests, or it can maintain and perhaps even step up its efforts to pursue regime change through punitive measures. The latter policy, in place for nearly six decades, has demonstrably failed, but it is unfortunately entrenched in U.S. law, thanks to Congress’ codification of the U.S. economic embargo against Cuba in 1996. U.S. President Donald Trump, who has rolled back many of the openings granted by President Obama, has important pro-embargo constituencies in Florida and is unlikely to shift direction any time soon.  In effect, the Miami hardliners have won back the initiative from the diverse anti-embargo constituencies of the Obama era. This is probably fine and well with hardliners in Cuba, as it gives them some breathing space to seek better relations with Europe, Russia and China without Washington in the picture.

The new administration will likely split the country along generational lines.

The United States and Cuba still cooperate in some areas, but such exchanges face significant challenges. U.S. tourism to the island, especially cruise ship travel, is showing signs of recovery, after a sharp decrease in 2017 and in the first half of 2018. Bilateral cooperation in the areas of law enforcement, migration, and environmental affairs continues quietly, but depleted staffing at both U.S. and Cuban embassies, in part due to a wave of mysterious health concerns reported by U.S. diplomats in Cuba last year, has hampered basic diplomatic and consular functions. U.S. congressional activity has stalled, with the exception of efforts to lift financial restrictions on agricultural trade. All told, neither the punishing embargo nor anemic U.S. diplomacy is likely to prod Havana towards more ambitious reforms.

Domestically, the Díaz-Canel administration will likely split the country along generational lines. For many older Cubans, the new government’s commitment to the principles that guided the Castro era is reassuring. Many middle-aged Cubans will welcome the renewed guarantees of state-sponsored economic security and welfare. Some may also perceive glimmers of a more normal, open and, accessible polity, and will take heart in Díaz-Canel’s support for gradual, carefully monitored openings to foreign investment, the internet, and controlled private enterprise. Cuba’s restless youth, on the other hand, are likely to see only more missed opportunities, whether in a constitutional reform that prioritizes continuity over change or in a president who so far has proven more cheerleader for the status quo than agent of reform. Tragically, Cubans of all stripes, including too many of the best and the brightest, will continue to seek opportunities elsewhere.

 

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IS CUBA’S VISION OF MARKET SOCIALISM SUSTAINABLE?

William M. LeoGrande

Tuesday, July 31, 2018

Just three months after Miguel Diaz-Canel took over the presidency of Cuba from Raul Castro, his government has unveiled a new Council of Ministers—essentially, Cuba’s Cabinet—along with the draft of a new constitution and sweeping new regulations on the island’s emergent private sector. While the changes announced represent continuity with the basic reform program Raul Castro laid out during his tenure, they are nevertheless significant milestones along the road to a more market-oriented socialist system.

The discussion and approval of the draft constitution was the main event of last week’s National Assembly meeting. The revised charter will now be circulated for public debate, revised, reconsidered by the National Assembly, and then submitted to voters in a referendum early next year. The avowed reason for revamping the constitution is to align it with the economic reforms spelled out in 2011 and 2016 that constitute the blueprint for Cuba’s transition to market socialism. Cuba’s 1976 constitution, adopted at the height of its adherence to a Soviet model of central planning, reflected “historical circumstances, and social and economic conditions, which have changed with the passing of time,” as Raul Castro explained two years ago. …

Continue Reading: Is Cubas Vision of Market Socialism Sustainable_

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CUBA’S NEW GENERATION TAKES THE HELM WITH AN IMMEDIATE TEST: THE ECONOMY

World Politics Review, Tuesday, April 24, 2018

William M. LeoGrande

For a man stepping down after half a century at the apex of Cuba’s government—first as the island’s longtime defense minister and vice president, then as president—Raul Castro was in good humor last week, looking relaxed and happy as he handed the presidency to his designated successor, Miguel Diaz-Canel. Departing from the prepared text of his valedictory speech in Havana, Castro cracked jokes, reminisced about the revolution and quipped that he planned to travel more, “since I’m supposed to have less work to do.”

There were no big surprises at the National Assembly meeting that installed Diaz-Canel as the first non-Castro to lead Cuba in six decades. Raul Castro did not decide at the last minute to stay in office, or sneak his son Alejandro into the presidency, as fevered commentary out of Miami kept predicting  Instead, the central theme of the conclave was continuity.

Continue reading: Leogrqande, April 2018, Cuba,s New Generation Takes the Helm With an Immediate Test: the Economy

Conclusion

But the significance of all the personnel changes and even the constitutional amendments pale in comparison to the urgent need to jump-start the economy, as the speeches by both Castro and Diaz-Canel implicitly acknowledge. Cuba’s younger generations are not just tired of octogenarian leadership; they are tired of economic hardship.

Miguel Diaz-Canel’s ascension to the presidency represents a major step in the generational transition of leadership in the Cuban state. But nothing will improve the prospects for a smooth transition more than a growing economy that finally raises the standard of living and gives young Cubans hope for the future.

Asume Miguel Díaz-Canel presidencia de Cuba

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CUBA’S LEADERS ARE TRAPPED BETWEEN THE NEED FOR CHANGE AND THE FEAR OF IT

A new study shows just how weak the Castros’ economy is

 The Economist. Print edition | The Americas; Dec 7th 2017

Original Article: The Need for Change and the Fear of It

Raúl Castro and Miguel Díaz-Canel

FOR decades Cuban exiles in Miami dreamed of the day that Fidel Castro would die. They imagined that Cubans would then rise up against the communist dictatorship that he imposed. Yet when, a year ago this week, Castro’s ashes were interred in his mausoleum, it was an anticlimax. His brother, Raúl, who is now 86, has been in charge since 2006. For a while, he seemed to offer the prospect of far-reaching economic reform. Now, as he prepares to step down as Cuba’s president in February, he is bequeathing merely stability and quiescence.

Raúl’s planned retirement is not total—he will stay on as first secretary of the ruling Communist Party for a further three years. He is due to leave the presidency as Cuba is grappling with two new problems. The first is the partial reversal by Donald Trump of Barack Obama’s historic diplomatic and commercial opening to the island, which will cut tourist revenues. The second is the aftermath of Hurricane Irma, which in September devastated much of the north coast and several tourist resorts. That has prompted speculation in Miami that Raúl may stay on.

That is to misread the man. In his decade in power Raúl has striven above all to institutionalise the Cuban communist regime, replacing the wayward charisma of Fidel with orderly administration and a collective leadership. He has groomed as his successor Miguel Díaz-Canel, a 57-year-old engineer who has already assumed many public duties. Yet, as president, Mr Díaz-Canel’s autonomy will be limited. He is just one of a group of party bureaucrats and generals who are the real power in Cuba, steadily replacing the generación histórica (those who fought in the 1959 revolution), who are dying off.

The new generation faces an acute dilemma. Despite aid from Venezuela, which has now fallen to half its peak level, Cuba remains unable to produce much of the food it consumes or pay its people more than miserable wages. That is why Raúl embraced market reforms, albeit far more timid ones than those in China or Vietnam. More than 500,000 Cubans now work in an incipient private sector of small and micro businesses or co-operatives.

But these reforms bring inequality and a loss of state control. When Mr Obama visited Cuba in 2016, offering support for entrepreneurs and calling on live television for free elections, the regime appeared to panic. Since then, the government has placed some curbs on small business to stop what Raúl called “illegalities and other transgressions”. In other words, the government wants a market economy without capitalists or businesses that thrive and grow. It seems nowhere near tackling the multiple exchange rates (ranging from one peso to the dollar for official imports to 25 for most wages and prices) that ludicrously distort the economy.

Stalling may leave intact the regime’s political control—its overriding priority. But this ignores a fundamental problem. Since the 1980s the Cuban economy has steadily lost ground in relation to those of other Latin American countries, as a study published last month by the Inter-American Development Bank shows. Its author, Pavel Vidal, was one of Raúl’s team of reformist economic advisers and is now at the Javeriana University in Cali, Colombia. He has devised hitherto unavailable internationally comparable estimates for Cuba’s GDP since 1970 by calculating an average exchange rate which takes into account the weight of the various rates in the economy.

Mr Vidal finds that GDP per person in Cuba in 2014 was just $3,016 at the average exchange rate, barely half the officially reported figure and only a third of the Latin American average. This includes the value of free social services (such as health, education and housing) that Cubans receive. Taking into account purchasing power, GDP per person was $6,205 in 2014, or 35% below its level of 1985. Mr Vidal goes on to compare Cuba with ten other Latin American countries whose populations are similar in size. Whereas in 1970 Cuba was the second-richest, behind only Uruguay, in 2011 (the latest year for which data are available) it was in sixth place in income per person, having been overtaken by Panama, Costa Rica, the Dominican Republic and Ecuador.

Cuba’s decline is above all because of lack of investment, says Mr Vidal. But a shrinking and ageing population plays a part, too. He finds that the reforms have brought about a modest increase in income and even in productivity. They “go in the right direction but have fallen short”, he concludes.

For Mr Díaz-Canel and his reformist colleagues the message is clear: speeding up change carries political risks, but not doing so involves economic ones.

 

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CUBA AFTER CASTRO: THE COMING ELECTIONS AND A HISTORIC CHANGING OF THE GUARD

World Politics Review, October 17, 2017.

 William M. LeoGrande

Historic “Changing of the Guard”: Raul Castro to Miguel Diaz-Canel

On Nov. 26, Cubans will go to the polls to elect delegates to 168 municipal assemblies, the first step in an electoral process that will culminate next February when the National Assembly, Cuba’s parliament, will select a new president. In 2013, when Raul Castro pledged not to seek a third term, he also imposed a two-term limit for all senior government and Communist Party leadership positions.  That means the succession will replace not only Castro but almost all the remaining members of the “historical generation” who fought to overthrow Fulgencio Batista’s dictatorship in 1959.

The changing of the guard comes at a delicate political moment. Castro’s ambitious economic reform program, the “updating” of the economy, is still a work in progress and has yet to significantly raise the standard of living of most Cubans. Moreover, it is encountering resistance from state and party bureaucrats who are loath to lose control over the levers of economic power and the perks those provide.

The economy has also been struggling because of declining oil shipments from Venezuela, which sells oil to Cuba at subsidized prices, helping to ease Cuba’s chronic shortage of hard currency. The political and economic chaos engulfing Venezuela has caused oil production to decline, and shipments to Cuba are running 13 percent below last year and 37 percent below their peak in 2008. The resulting energy shortage has forced Cuba to impose drastic conservation measures and pushed the economy into a mild recession last year.

In September, Cuba’s economic woes were exacerbated when Hurricane Irma came ashore, inflicting several billion dollars’ worth of damage as it tracked along the north coast before turning toward the Florida Keys. The storm hit some of Cuba’s most lucrative tourist resorts, cutting into the one sector of the economy that has enjoyed sustained growth in recent years. Most of the major hotels predicted they would reopen for business quickly, but the storm did enormous damage to the power grid, leaving large swaths of central Cuba in darkness.

Popular discontent over the economy and impatience with the slow pace of improvement are both running high. In an independent opinion poll taken in late 2016, 46 percent of Cubans rated the nation’s economic performance as poor or very poor, 35 percent rated it as fair, and only 13 percent rated it as good or excellent. Solid majorities reported not seeing much economic progress in recent years for the country or themselves, and they had low expectations for the future.

The economy is not Cubans’ only source of anxiety. With the election of Donald Trump, Havana’s relations with Washington entered a period of uncertainty. In his speech to Cuban Americans on June 16 in Miami, Trump blasted the Cuban government as a murderous dictatorship, echoing the Cold War rhetoric of regime change. Although the new economic sanctions Trump imposed were surprisingly mild—the result of intense lobbying by the U.S. business community—the prospects for improved relations and expanded commercial ties look dim in the near term.

Secretary of State Rex Tillerson’s decision to withdraw nonessential from the U.S. embassy in Havana in the wake of mysterious health problems among nearly two dozen staff and family members, the expulsion of most Cuban diplomats from Washington, and the State Department’s decision to issue a travel advisory warning U.S. residents not to travel to Cuba, pushed relations to a low point not seen since December 2014, when then-President Barack Obama’s normalization process began.

Cuba’s new post-Castro leaders will therefore face an imposing array of problems, and they will have to answer to a population that has become more vocal in expressing its discontent. The expansion of internet access, the ability of Cubans to travel abroad without state permission and Raul Castro’s own calls for more open debate about Cuba’s problems have fueled an increasingly robust public sphere.

As the leadership transition gets under way, First Vice President Miguel Diaz-Canel is the likely successor to Raul Castro as president, but little is known about this party veteran’s real views. Until recently, he kept a low profile, but even as his public visibility has increased, his speeches have simply reiterated well established policy, providing little insight into his own thinking.

Continue Reading:

Historic Changing of the Guard

 

Miguel Diaz-Canel

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THE TROUBLE WITH CUBA’S NEW ECONOMY

Why economic opening on the island has been slower  –  and less effective  –  than many hoped.

BY WILLIAM M. LEOGRANDE

America’s Quarterly, Cuba’s New Economy, 11 October 2017,

 When Raúl Castro steps down as Cuba’s president in February 2018, he will hand off to his successor the unfinished task of reforming the economy. It is Cuba’s most urgent need and, at the same time, an increasingly controversial one.

Castro succeeded his brother Fidel as president in 2008 amid serious structural economic problems on the island. State salaries were inadequate to cover basic needs, productivity in state enterprises was weak, and foreign reserves were chronically low. Agricultural production was so poor that Cuba had to import 80 percent of its food at a cost of $2 billion annually. The dual currency and exchange rate system produced severe distortions in the labor market and external sector.

Three years later, the Sixth Congress of the Communist Party of Cuba endorsed the Guidelines of the Economic and Social Policy of the Party and the Revolution, a document of 313 economic objectives comprising Castro’s plan to “update” the economy. In it, Castro was unsparing in his criticism of the hyper-centralized economic system imported from the Soviet Union in the 1970s. The key problem was low productivity. “No country or person can spend more than they have,” he reminded his comrades. “Two plus two is four. Never five, much less six or seven – as we have sometimes pretended.”

The Guidelines were a blueprint for a new economic policy in which the state’s role would be restricted to strategic sectors, leaving the rest to private enterprise and cooperatives. Decision-making would be decentralized to give managers greater authority, and state enterprises would be required to operate profitably or close. Wage incentives would reward productivity, and market mechanisms would balance supply and demand. Foreign investment would be actively sought. The social programs emblematic of the revolution – free health care and education – would continue, and no one would be left behind.

The pace of change had been intentionally deliberate – “without haste, but without pause,” in Castro’s oft-repeated phrase. But recent signals indicate the reforms may be stalled and that some of Cuba’s leaders are having doubts. At the Seventh Communist Party Congress in 2016, Castro reported that only 21 percent of the guidelines adopted in 2011 had been fully implemented.

The process of rationalizing state enterprises, which produce about three-quarters of GDP, has been especially slow. In April 2010, Castro noted that a million state sector workers – 20 percent of the labor force – were employed unproductively. By 2015, the state labor force had been reduced by 718,000 people and 15 percent of state enterprises had been closed. Nevertheless, productivity remained low and a significant number of firms still operated in deficit.

As workers were laid off from state enterprises, the private sector was expected to provide alternative employment. Although self-employment (cuentapropismo) was first legalized in the 1980s, it was not until Castro’s new economic policy that the state accepted the private businesses and cooperatives as a permanent part the economy. By 2017, some 543,000 people had self-employment licenses, operating a variety of small businesses.

The Seventh Party Congress promised to give private businesses legal status, but the National Assembly has yet to make good on it. Instead, the pendulum has swung in the opposite direction. In July 2017, Castro criticized the private sector for tax evasion and black-marketeering, though he insisted that private enterprise would remain a permanent part of the economic landscape. On Aug. 1, however, the government suspended the issuance of new licenses for some private occupations, including the most popular – private restaurants (paladares) and bed and breakfast rentals (casas particulares). A number of successful, high-profile businesses were closed for violating their licenses. More ominously, in a private Communist Party meeting, First Vice President Miguel Díaz-Canel, Castro’s likely successor, accused some private businesses of being counter-revolutionary.

Ideological suspicion has also hampered Cuba’s search for foreign direct investment (FDI). In 2014, Cuba adopted a new FDI law with competitive tax rates and concessions, hoping to attract $2 billion in FDI annually. By the end of 2016, however, only $1.3 billion had been approved in total. The problem was interminable bureaucratic delays in the approval of proposed projects. “It is necessary to overcome, once and for all, the obsolete mentality of prejudices toward foreign investment,” Castro insisted. “We must rid ourselves of unfounded fears of foreign capital.”

The most difficult task that Cuba’s new president will inherit is the unification of the dual currency and exchange rates. State sector employees are paid an average monthly wage of 779 Cuban pesos (CUP), which is insufficient for a decent standard of living. Convertible pesos (CUC) exchange 1-to-1 with the U.S. dollar and 24-to-1 with the CUP. Some Cubans have access to CUC through remittances or through work in the tourist sector (from tips), the private sector, in joint ventures, or work abroad. The imbalance drives highly skilled professionals out of the state sector and into low-skill jobs paying higher wages in CUCs – what Cubans call the “inverted pyramid.” Among state enterprises, half a dozen different exchange rates between CUPs and CUCs are in effect, ranging from 1-to-1 to 10-to-1, creating disincentives to export at a time when Cuba suffers from chronic balance of payments shortfalls and inadequate foreign reserves.

The government has been promising monetary unification since 2013, but implementation keeps getting delayed. The task is complex, and will reverberate through the economy with effects that are not entirely predictable. The government has little margin for error; it has no significant foreign reserves to cushion dislocations and no access to assistance from international financial institutions. Moreover, Cuba currently faces other serious economic challenges: the decline in shipments of cheap oil from Venezuela; the unprecedented damage from Hurricane Irma; and the unpredictability of relations with the United States.

Finally, while the reform process has had limited success stimulating growth, it has produced a noticeable rise in inequality, price increases that outpace wage growth, and rumblings of political discontent. When food prices surged in 2015-16, the state stepped in, imposing price controls. It did the same to taxi drivers, some of whom resisted by stopping work. The message, Castro made clear, was that markets had a role to play in the new economic policy, but a strictly regulated one, subordinate to political exigencies.

Formidable challenges await Cuba’s new president. He or she will have to hold together a shaky elite coalition behind the economic reform process, push the needed changes through a reluctant bureaucracy while maintaining economic stability, and simultaneously navigate the political shoals of popular discontent over a stagnant standard of living and growing inequality. At stake is nothing less than the future of Cuban socialism.

LeoGrande is Professor of Government at American University in Washington, DC, and co-author with Peter Kornbluh of  Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana (University of North Carolina Press, 2015)

 

“ACTUALIZANDO” (UPDATING) THE Cuban Economy: An Immense Task

Cuba’s unsung heroes! Professional and amateur car mechanics, keeping the economy ticking over.

Maintenance and repairs: urgent everywhere.

Coffee imports from Vietnam in a quasi-“dollar” store. Cuba provided technical assistance to Vietnam’s coffee sector in the 1970s. Now Vietnam is the world’s second largest producer while Cuba’s coffee production has plummeted.

Photos by Arch Ritter, March 2014

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Slim pickings. CLUELESS ON CUBA’S ECONOMY

HAVANA. The communist regime can no longer rely on the generosity of its allies. It has no idea what to do

The Economist.  Print edition | The Americas. Sep 30th 2017

GABRIEL and Leo have little in common. Gabriel makes 576 Cuban pesos ($23) a month as a maintenance man in a hospital. Leo runs a private company with revenues of $20,000 a month and 11 full-time employees. But both have cause for complaint. For Gabriel it is the meagre subsistence that his salary affords. In a dimly lit minimá (mini-mall) in Havana he shows what a ration book entitles one person to buy per month: it includes a small bag of coffee, a half-bottle of cooking oil and five pounds of rice. The provisions cost next to nothing (rice is one cent per pound) but are not enough. Cubans have to buy extra in the “free market”, where rice costs 20 times as much.

Leo (not his real name) has different gripes. Cuba does not manufacture the inputs he needs or permit enterprises like his to import them. He travels abroad two or three times a month to get them anyway. It takes six to eight hours to pack his suitcases in such a way that customs officials don’t spot the clandestine goods. “You feel like you’re moving cocaine,” he says.

Making things easier for entrepreneurs like Leo would ultimately help people like Gabriel by encouraging the creation of better jobs, but Cuba’s socialist government does not see it that way. In August it announced that it will stop issuing new licences in two dozen of the 201 trades in which private enterprise is permitted. The frozen professions include running restaurants, renting out rooms to tourists, repairing electronic devices and teaching music.

This does not end Cuba’s experiment with capitalism. Most of the 600,000 cuentapropistas (self-employed workers), including restaurateurs, hoteliers and so on, will be able to carry on as before. But the government mistrusts them. Their prosperity provokes envy among poorer Cubans. Their independent-mindedness could one day become dissent. Raúl Castro, the country’s president, recently railed against “illegalities and other irregularities”, including tax evasion, committed by cuentapropistas. He did not admit that kooky government restrictions make them inevitable. The government “fights wealth, not poverty”, laments one entrepreneur.

A Santeria Message

Trump’s mouth, Irma’s eye

The clampdown on capitalism comes at a fraught time for Cuba. Mr Castro is due to step down as president in February. That will end nearly 60 years of autocratic rule by him and his elder brother, Fidel, who led Cuba’s revolution in 1959. The next president will probably have no memory of that event. Relations with the United States, which under Barack Obama eased its economic embargo and restored diplomatic relations, have taken a nasty turn. President Donald Trump plans to make it more difficult for Americans to visit the island. Reports of mysterious “sonic attacks” on American diplomats in Havana have further raised tensions.

Hurricane Irma, which struck in early September, killed at least ten people, laid waste to some of Cuba’s most popular beach resorts and briefly knocked out the country’s entire power system. With a budget deficit expected to reach 12% of GDP this year, the government has little money to spend on reconstruction.

These are blows to an economy that was already in terrible shape. Cuba’s favourite economic stratagem—extracting subsidies from left-wing allies—has had its day. Venezuela, which replaced the Soviet Union as its patron, is in even worse shape than Cuba. Their barter trade—Venezuelan oil in exchange for the services of Cuban doctors and other professionals—is shrinking. Trade between the two countries has dropped from $8.5bn in 2012 to $2.2bn last year. Cuba has had to buy more fuel at full price on the international market. Despite a boom in tourism, its revenues from services, including medical ones, have been declining since 2013.

Bound by a socialist straitjacket, Cuba produces little else that other countries or its own people want to buy. Farming, for example, is constrained by the absence of markets for land, machinery and other inputs, by government-set prices, which are often below the market price, and by bad transport. Cuba imports 80% of its food.

Paying for it is becoming harder. In July the economy minister, Ricardo Cabrisas, told the national assembly that the financial squeeze would reduce imports by $1.5bn in 2017. What appears in shops often depends on which of Cuba’s suppliers are willing to wait for payment. GDP shrank by 0.9% in real terms in 2016. Irma and the drop in imports condemn the economy to another bad year in 2017.

The government does not know what to do. One answer is to encourage foreign investment, but the government insists on pulling investors into a goo of bureaucracy. Multiple ministries must sign off on every transaction; officials decide such matters as how many litres of diesel will be needed for delivery trucks; investors cannot freely send profits home. Between March 2014 and November 2016 Cuba attracted $1.3bn of foreign investment, less than a quarter of its target.

Faced with a stalled economy and the threat of shortages, the government is trying harder to woo investors. It has agreed to let food companies, for example, repatriate some of their profits. But anything more daring seems a distant prospect. Cuentapropistaslike Leo are waiting impatiently for a planned law on small- and medium-sized enterprises. That would allow them to incorporate and do other sorts of things that normal companies do. It will not be passed anytime soon, says Omar Everleny, a Cuban economist.

An even bigger step would be a reform of Cuba’s dual-currency system, which makes state-owned firms uncompetitive, keeps salaries in the state sector at miserable levels and distorts prices throughout the economy. Cuban pesos circulate alongside “convertible pesos” (CUC), which are worth about a dollar. Although for individuals (including tourists) the exchange rate between Cuban pesos and CUC is 24 to one, for state-owned enterprises and other public bodies it is one to one. For those entities, which account for the bulk of the economy, the Cuban peso is thus grossly overvalued. This delivers a massive subsidy to importers and punishes exporters.

A devaluation of the Cuban peso for state firms is necessary for the economy to function properly. But it would bankrupt many, throw people out of work and spark inflation. Countries attempting such a devaluation usually look for outside help. But, because of American opposition, Cuba cannot join the IMF or World Bank, among the main sources of aid. Fixing the currency system is a “precondition for further liberalisation”, says Emily Morris, an economist at University College London.

It is unlikely to happen while Cuba is in the throes of choosing a new leader. The process has sharpened struggles between reformers and conservatives within the government. Mr Trump’s belligerence has probably helped the latter. Most Cuba-watchers had identified Miguel Díaz-Canel, the first vice-president and Mr Castro’s probable successor, as a liberal by Cuban standards. But that was before a videotape of him addressing Communist Party members became public in August. In it, Mr Díaz-Canel accused the United States of plotting the “political and economic conquest” of Cuba and lashed out at media critical of the regime. Perhaps he was just pandering to conservatives to improve his chances to succeed Mr Castro. If those are his true opinions, that is bad news for Leo and Gabriel.

State Food Distribution Center:  the rationing system. (2015)

Mobile Self-employed Food Vendor.  (2015)

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EL LEGADO DE FIDEL: BALANCE ECONÓMICO SOCIAL EN 2016

A fin de enmendar el legado de Fidel, a Raúl le queda poco más de un año para acelerar y profundizar sus reformas estructurales.

Fidel Surveying Havana from the Cabana Fortress

Por Carmelo Mesa Lago, Nueva Sociedad, Enero 2017

Original Article: El legado de Fidel: balance económico social en 2016

Con motivo del deceso de Fidel Castro, los medios de comunicación mundiales han ensalzado su legado de soberanía política interna y su rol internacionalista, así como las notables mejoras en la educación y la salud, aunque el juicio es usualmente adverso en cuanto a la economía. En una previa publicación hice un balance económico social de medio siglo de Fidel en el poder (1959-2008) usando 87 indicadores que demostraban que el desempeño económico fue generalmente negativo y el social mezclado alcanzando una cima en 1989 y un deterioro después.1 Aquí se evalúa la situación entre 1989 y 2016, poniendo énfasis en la última década. También se evalúa si las reformas estructurales de Raúl en el último decenio han logrado dar un impulso a la economía y al bienestar social en la Isla

Entre 1960 y 1990 Cuba recibió US$65.000 millones de la URSS, dos tercios de los cuales no era reembolsable; esta ayuda fue superior a la recibida por toda América Latina durante la Alianza para el Progreso. Tras la desaparición del socialismo soviético (el «Período Especial») ocurrió un marcado declive en todos los indicadores económicos y sociales, seguido de cierta recuperación especialmente a comienzos del siglo XXI por la substancial ayuda económica de Venezuela, la cual equivalió al 21% del PIB de Cuba en 20102.He sugerido que a fin de mejorar el pobrísimo desempeño económico es primordial avanzar en las reformas estructurales de Raúl, mientras que los benéficos pero costosos servicios sociales deben hacerse sostenibles financieramente a largo plazo.

En múltiples publicaciones he analizado las reformas estructurales implementadas por Raúl entre 2007/08 y 2016, concluyendo que son las más importantes bajo la revolución, intentan resolver los problemas heredados de Fidel y están bien encaminadas, pero son excesivamente lentas, enfrentan severas trabas, altos impuestos y desincentivos, por cuyas razones no han logrado hasta ahora un impacto palpable en la economía y en los servicios sociales; de hecho ha ocurrido un retroceso en algunas reformas3. La grave crisis económica en la República Bolivariana ha contribuido a esos problemas.

La tasa de crecimiento económico cubana que fue de 12% en 2006, en buena medida por el apoyo económico venezolano, ha exhibido desde entonces una tendencia declinante: 4,4% en 2015 y -0,9% en 2016,4 un quinto de la meta inicial fijada a fines de 2015. La formación bruta de capital promedió 13% anual en 2008-2015, la mitad del requerido 25% para un crecimiento económico sostenido. El índice de producción industrial en 2015 estaba 38% por debajo de 1989; la caída fue más acentuada en fertilizantes (95%), azúcar (80%), cemento (60%), acero (29%) y textiles (25%); por lo contrario, la producción de petróleo, gas natural, electricidad y níquel era superior (pero la última 26% menor que en 2008). Similar declive se observa en la agricultura: cítricos (88%), pesca (70%), leche de vaca (56%), tabaco en rama (42%), arroz (22%), cabezas de ganado (18%) y huevos (13%); sólo eran mayores las hortalizas y los tubérculos. Las estadísticas del sector externo en 2015, comparadas con las 2014, indican una agudización de la crisis: las exportaciones de mercancías cayeron 31%, las exportaciones de servicios profesionales (primer ingreso en divisas de Cuba y vendidos mayormente a Venezuela) mermaron 18%, y el excedente entre el saldo positivo de servicios menos el saldo negativo de mercancías menguó 47%5. Si esto ocurrió cuando la economía creció 4,4%, el deterioro debe haber sido mayor en 2016 con la contracción. Cuba atraviesa la peor crisis desde los años 90.

Las reformas estructurales han tenido efectos adversos en los indicadores sociales. Entre 2008 y 2015, con el fin de recortar el insostenible costo social, la asignación a servicios sociales (educación, salud, pensiones, vivienda, asistencia social) decreció de 55% a 47% del presupuesto y de 37% al 28% del PIB. El salario medio estatal ajustado a la inflación en 2008 era 25% del nivel de 1989 y, aunque aumentó a 38% en 2015, el poder adquisitivo era 62% inferior a 19896. La pensión media en 2008-2015 era la mitad que en 1989. Todos los hospitales rurales y postas urbanas y rurales se cerraron en 2011; entre 2008-2015, el número de hospitales decreció 30%, el personal de salud total menguó 22%, los médicos de familia que proveen la atención primaria se redujeron en 65%, por otra parte el número de médicos creció en 15% (aunque parte está en el extranjero), la mortalidad infantil continuó bajando de 4,7 a 4,3 por mil nacidos vivos, y la tasa de mortalidad materna mermó de 46,5 a 41,6 por 100.000 nacimientos (pero aún mayor que 29,2 en 1989). La matrícula universitaria decreció de 743.979 a 165.926 (78%) entre los cursos 2007/08 y 2015/16. La construcción de viviendas declinó de 44.775 a 23.003 entre 2008 y 2015 y por 1.000 habitantes cayó de 4,0 a 2,0. La asignación a la asistencia social disminuyó de 2,1% del presupuesto a 0,4% y como porcentaje de la población de 5,2% a 1,6%7. La tasa de desempleo declarado que llegó a un mínimo de 1,6% en 2008, creció a 3,5% en 2012 por causa del programa de despedido de 1,8 millones de empleados estatales innecesarios, pero sólo medio millón fue despedido y la tasa disminuyó a 2,4% en 20158. Cuba nunca ha publicado estadísticas sobre distribución del ingreso, pero otros indicadores sugieren que se colocaba a la cabeza de la región en igualdad; las reformas han cambiado diametralmente la situación, debido a un grupo no estatal con altos ingresos y la caída en el salario estata9.

Un importante avance ha sido la condonación o reducción de la mayor parte de la deuda externa por los acreedores; Cuba comenzó a pagar la deuda restante en octubre de 2016 y se ignora si podrá continuar haciéndolo. El aspecto más brillante es el turismo. La normalización de relaciones con los EEUU y las órdenes ejecutivas de Obama, virtualmente han abierto la puerta a los visitantes norteamericanos que saltaron de 95.254 en 2004 a 161.233 en 2015 y a cerca de 200.000 en 2016; además todos los otros principales emisores han crecido, por lo cual el total de visitantes subió 17% en 2015 y alcanzó 4 millones en 2016; así mismo, los ingresos brutos por turismo crecieron 11% en 2015 y se proyecta que alcanzarán los US$4.000 millones en 2016.

En el balance, los factores adversos sobrepasan con creces a los favorables y 2017 será muy tenso. A fin de enmendar el legado de Fidel, a Raúl le queda poco más de un año para acelerar y profundizar sus reformas estructurales. Si Trump revierte las medidas de Obama y no avanzan las reformas, la crisis se agravará en Cuba.

The Cross-harbour Ferry from the Steps of the Russian Orthodox Church

  1. C. Mesa-Lago: Cuba en la era de Raúl Castro: Reformas económico-sociales y sus efectos, Colibrí, Madrid, 2012.
  2. C. Mesa-Lago: «Institutional Changes in Cuba’s Economic and Social Reforms» en R. Feinberg y T. Piccone (comps.): Cuba Economic Change in Comparative Perspective, Brookings Institution / Universidad de La Habana, Washington, DC, 2014, pp. 49-69; «El lento avance de la reforma” en Política ExteriorNº 171, 5-6/2016, pp. 94-104; y con R.Veiga, L. González, S. Vera y A. Pérez-Liñán: Voces de cambio en el sector estatal cubano, Iberoamericana, Madrid, 2016.
  3. Raúl Castro Ruz, Discurso en la clausura de la Asamblea Nacional del Poder Popular, Granma, 28 diciembre 2016, p.3.
  4. Cálculos del autor basados en Oficina Nacional de Estadísticas e Información (ONEI): Anuario estadístico de Cuba 2015, La Habana, 2016; datod de 1989, del Comité Estatal de Estadística: Anuario Estadístico de Cuba 1989, La Habana, 1991.
  5. La CEPAL, Balance preliminar de las economías de América Latina y el Caribe 2016, Santiago de Chile, diciembre 2016, cuadro 4.4, estima un crecimiento de 43% en el salario medio real, el mayor en la región, pero con base en el año 2010 cuando estaba 27% por debajo del nivel de 1989
  6. Cálculos del autor basados en ONEI: Anuario Estadístico de Cuba 2008, La Habana, 2009, y cit.
  7. Basado en C. Mesa-Lago: «El desempleo en Cuba: de oculto a visible” en Espacio LaicalNº 4, 2010, pp. 59-66, y ONEI: Anuario 2015, cit.

8. C. Mesa Lago: «La desigualdad del ingreso y la experiencia de América Latina” en Temas Nº 84, 10-12/2015, pp. 35-43

A Few of Cuba’s Amazingly Talented Musicians

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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.”

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