• The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba. It includes analyses and observations of the author, Arch Ritter, as well as hyper-links, abstracts, summaries, and commentaries relating to other research works from academic, governmental, media, non-governmental organizations and international institutions.
    Commentary, critique and discussion on any of the postings is most welcome.
    This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' original blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement:
    "... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

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.


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Gobierno cubano inicia proceso para eliminar la doble moneda

Havana, 22 octubre, 2013 (Café Fuerte) — El gobierno cubano anunció este martes la puesta en marcha de la unificación monetaria y cambiaria en el país, un paso decisivo en las transformaciónes impulsadas por Raúl Castro.

img_0002-0014 depositphotos_1265406-One-peso


El Consejo de Ministros acordó “poner en vigor el cronograma de ejecución de las medidas que conducirán a la unificación monetaria y cambiaria”, indicó una Nota Oficial aparecida en el diario Granma. “Ninguna medida que se adopte en el terreno monetario, será para perjudicar a las personas que lícitamente obtienen sus ingresos en CUC [pesos convertibles] y CUP [pesos cubanos]“, enfatizó la declaración.

 Aunque no se precisa una fecha exacta para la arrancada del proceso, todo indica que la implementación de las primeras medidas será inmediata, comenzando por el sector empresarial y las instituciones estatales.

 Dos monedas, un camino

 En Cuba conviven dos monedas: el CUP, con el que la población cobra sus salarios y paga productos y servicios básicos, y el CUC, que es equivalente a 24 pesos cubanos y equiparable al dólar. La dualidad monetaria existe en el país desde la autorización del dólar en agosto de 1994.

 El texto expresa que los cambios en esta primera etapa afectarán a los organismos y entidades jurídicamente establecidas, a fin de “propiciar las condiciones para el incremento de la eficiencia, la mejor medición de los hechos económicos y el estímulo a los sectores que producen bienes y servicios para la exportación y la sustitución de importaciones”.

 El acuerdo fue analizado en una reunión del gabinete gubernamental, que sesionó el pasado sábado bajo la presidencia de Raúl Castro. “La unificación monetaria y cambiaria no es una medida que resuelve por sí sola todos los problemas actuales de la economía, pero su aplicación es imprescindible a fin de garantizar el restablecimiento del valor del peso cubano y de sus funciones como dinero, es decir de unidad de cuenta, medio de pago y de atesoramiento”, argumentó el documento.

 Período de preparación

 La información señala que esta decisión se sustenta en los lineamientos de la política económica y social aprobada en el VI Congreso del Partido Comunista, que busca la unificación de la moneda nacional teniendo en cuenta “la productividad del trabajo y la efectividad de los mecanismos distributivos y redistributivos”. Menciona además los pasos que se seguirán en la aplicación del proceso:

Se comenzará por un periodo de preparación de condiciones que permitirá la elaboración de las propuestas de normas jurídicas, los diseños de los cambios de los sistemas informáticos encargados de los registros contables y los ajustes en las normas de contabilidad.

 Esta etapa será esencial igualmente para la capacitación de las personas que deben acometer la ejecución de las diferentes transformaciones.El proceso de unificación monetaria conservará intactos los ahorros de las personas en los bancos cubanos en CUC, otras divisas internacionales y CUP.

 Continuará aplicándose la política vigente de subsidios a precios minoristas y a personas donde sea necesario, en tanto las condiciones económicas del país lo requieran.

 El CUC al igual que el CUP son monedas cubanas emitidas por el Banco Central de Cuba y mantendrán su total respaldo. En lo adelante se continuará extendiendo la posibilidad que hoy existe de aceptar en las tiendas que venden en CUC, pagos en CUP con tarjetas magnéticas denominadas en esta moneda. Experimentalmente en lugares seleccionados se po-drán efectuar pagos en efectivo en CUP por el equivalente calculado a la tasa de cambio de CADECA de 25 CUP por 1 CUC.

 La eliminación de la dualidad monetaria era un objetivo anunciado desde que abril del 2011, cuando el VI Congreso del Partido implementó las nuevas directrices para la actualización del modelo económico del país.

 La reunión del Consejo de Ministros se centró en el análisis de temas vitales para la economía del país y aprobó el perfeccionamiento del Ministerio de la Agricultura, tanto en su área empresarial como presupuestada.

 Reproducimos a continuación el texto íntegro sobre el proceso anunciado para eliminar la dualidad monetaria.


 El Lineamiento No. 55 de la Política Económica y Social del Partido y la Revolución, aprobado por el VI Congreso del PCC plantea: “Se avanzará hacia la unificación monetaria, teniendo en cuenta la productividad del trabajo y la efectividad de los mecanismos distributivos y redistributivos. Por su complejidad, este proceso exigirá una rigurosa preparación y ejecución, tanto en el plano objetivo como subjetivo”.

 En cumplimiento de dicho Lineamiento, ha sido acordado por el Consejo de Ministros poner en vigor el cronograma de ejecución de las medidas que conducirán a la unificación monetaria y cambiaria.

 Como se ha informado, la unificación monetaria y cambiaria no es una medida que resuelve por sí sola todos los problemas actuales de la economía, pero su aplicación es imprescindible a fin de garantizar el restablecimiento del valor del peso cubano y de sus funciones como dinero, es decir de unidad de cuenta, medio de pago y de atesoramiento. Lo anterior, unido a la aplicación de las restantes políticas encaminadas a la actualización del modelo, propiciará el ordenamiento del entorno económico y en consecuencia la medición correcta de sus resultados.

 Se dará inicio al proceso por la unificación monetaria, para las personas jurídicas y para las personas naturales.

 Los principales cambios en esta primera etapa, se producirán en el sector de las personas jurídicas, a fin de propiciar las condiciones para el incremento de la eficiencia, la mejor medición de los hechos económicos y el estímulo a los sectores que producen bienes y servicios para la exportación y la sustitución de importaciones.

 Se comenzará por un periodo de preparación de condiciones que permitirá la elaboración de las propuestas de normas jurídicas, los diseños de los cambios de los sistemas informáticos encargados de los registros contables y los ajustes en las normas de contabilidad. Será una etapa esencial igualmente para la capacitación de las personas que deben acometer la ejecución de las diferentes transformaciones.

 El General de Ejército Raúl Castro Ruz en su discurso de clausura de la primera sesión ordinaria de la VIII Legislatura de la Asamblea Nacional del Poder Popular, el pasado mes de julio, expresó sobre el proceso de implementación de los Lineamientos lo siguiente: “Deseo reiterar que en este frente de significación estratégica ha continuado el avance y ya comienzan a observarse los primeros resultados alentadores, aunque también es verdad que falta un largo y complejo camino para actualizar nuestro modelo económico y social, asegurando el apoyo mayoritario de la población a este proceso, lo cual excluye la utilización de terapias de choque y el desamparo de millones de personas que caracterizan a las políticas de ajuste aplicadas en los últimos años en varias naciones de la rica Europa”.

 Al igual que ha sido una práctica aplicada en el transcurso de los años de la Revolución cubana, ninguna medida que se adopte en el terreno monetario, será para perjudicar a las personas que lícitamente obtienen sus ingresos en CUC y CUP. En este sentido, el proceso de unificación monetaria respeta los principios de que la confianza ganada por las personas que han mantenido sus ahorros en los bancos cubanos en CUC, otras divisas internacionales y CUP, se conserve intacta y que continuará aplicándose la política vigente de subsidios a precios minoristas y a personas donde sea necesario, en tanto las condiciones económicas del país lo requieran. El CUC al igual que el CUP son monedas cubanas emitidas por el Banco Central de Cuba y mantendrán su total respaldo.

 En lo adelante se continuará extendiendo la posibilidad que hoy existe de aceptar en las tiendas que venden en CUC, pagos en CUP con tarjetas magnéticas denominadas en esta moneda.

 Experimentalmente en lugares seleccionados se po-drán efectuar pagos en efectivo en CUP por el equivalente calculado a la tasa de cambio de CADECA de 25 CUP por 1 CUC. De acuerdo con el avance de la ejecución del cronograma, se irán dando a conocer los detalles sobre las medidas que en cada momento correspondan, tanto a los especialistas de las entidades que deben participar en su implantación, como a la población.


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Are Raul Castro’s Reforms Helping the Cuban Economy?

Inter-American Dialogue’s Latin American Advisor, October 16, 2013 Original Journal Issue:  Inter-American Dialogue, Cuba Commentary, October 15 2013

Featured Questions and Answers, with

Matthew Aho, Inter-American Dialogue’s Latin America Advisor,

Colin Laverty, Founder and President of Cuba Educational Travel,

Kirby Jones, Prtesident, Alamar Associates, Arizona,

Carmelo Mesa-Lago, Professor Emeritus, Economics and Latin American Studies, University of Pittsburgh,

Archibald Ritter, Distinguished Research Professor, Economics and International Affairs, Carleton University, Ottawa, Canada.


Inter-American Dialogue

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Cuban Merchants Defy Ban on Sale of Imported Clothes

Original Article here  Cuban Merchants…..

Privately-owned small retailers in communist Cuba are defying a government order to stop selling imported clothing or face stiff fines.

Imported clothing is in high demand in Cuba because foreign apparel is cheaper and of higher quality than threads sold in state-run stores.

“We have been here for three years selling without a problem and abiding by the law, and now they say that this is over?” asked Nadia Martinez, 32. “We are not going to close our business.” Martinez has a government license to work as a seamstress, but in practice runs a modestly successful business selling imported clothes on Galiano Street, one of Havana’s busiest commercial avenues. The clothes are not imported by the government, but rather brought in by Cubans traveling to places like Ecuador, Mexico, Spain and the United States.

Until now, the government had seemed to look the other way as she stretched the scope of her legal employment. But it now appears it may regulate away her economic success story.

In 2010 President Raul Castro expanded the list of government-approved self-employment occupations as part of a very gradual reform of its Soviet-style economy. Castro announced that over the following years he would also be slashing the country’s five-million strong bureaucracy — this on an island with a population of about 11 million — as a cost-cutting measure. Today more than 430,000 Cubans work for themselves or in small businesses. Authorized job categories include restaurant owners, barbers, electricians, plumbers, mechanics and other skilled trades. Privately owned beauty salons and family-owned restaurants known as “paladares” proliferated, often operating from the back of people’s houses. The government, however, remains the country’s largest employer, and central planners still try to control the cash-strapped economy.

Deputy Labor Minister Marta Elena Feito recently announced that the government would fine businesses and people found selling imported apparel or re-selling clothing that originated in state-run stores. Authorities have long tolerated the clothing vendors, and even though Feito said the measures would be enforced “immediately,” no vendor has been forced to shut down.

“We’re waiting for them to come explain the unexplainable to us, because closing us down cannot be a solution,” said Ledibeth Sanchez, 29, another Galiano Street vendor. A few blocks away Carlos Medina, 44, works at the “Fashion Passions” boutique on Dragones Street. The well-stocked store sells jeans, blouses, T-shirts and imported dresses.

“Everything was going very well and suddenly they change it all,” said Medina. He said vendors and store employees are fretting about being potentially being forced to shutter. “Nobody has notified us, but if they give us the order to close, we’ll close,” he said in a resigned tone.

Omara Cambas, 46, a former Communist Youth national leader, opened the “Catwalk Workshop” clothing boutique in the Havana neighborhood of El Vedado just three months ago. “This measure would affect us a lot — the fact is, I’d be without work,” said Cambas.

A key reason so many people have joined the ranks of self-employed — aside from state job cuts — is that state salaries average around $20 a month. Though people may not have to pay for housing here, that is not enough for most to put food on the table for their families or buy clothing.

Castro, 82, took over from his ailing older brother Fidel in 2006 and has chosen not to dramatically open up Cuba’s economic or political system. Fidel Castro led the nation through five decades of Cold War strains with the neighboring United States. Raul Castro has sought to liberalize Cuba’s socialist economy a bit and encourage more private entrepreneurship, but at the same time maintain a key role for the Cuban state through joint ventures.

Since 1962, Cuba has been under a full US trade embargo. But US goods routinely move through third countries or are resold by people traveling into Cuba.

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By Arch Ritter                                                                                               October 7, 2013

 On December 11, 2012, a battery of new laws and regulations on non-agricultural cooperatives was published in Cuba’s Gaceta Oficial, No. 53, including two Council of State Decree-Laws, two Ministerial Resolutions, one Council of Ministers Decree, and one Ministerial “Norma Específica de Contabilidad.”  This legislation outlined the framework for the structure, functioning, governance and financial organization of the new cooperatives and provided the legal framework within which they were to operate.

This major institutional reform may revolutionize the structure and perhaps the functioning of the Cuban economy. It also may have political implications as the cooperatives are to be governed with a form of workers’ management. The legislation presented the cooperatives as “experimental,” and indicated that after some 200 were initially approved, the institutional form would be reappraised and modified. There is thus some uncertainty regarding the long-term character of the legislative framework governing the structure and functioning of the cooperatives.

The establishment of an apparently democratic form of workers’ ownership and control is interesting, surprising and perhaps paradoxical, since Cuba’s political system is characterized by a highly centralized one-party monopoly in which political participation is manipulated effectively from above. Elections in Cuba’s one-party system are a transparent charade and an insult to Cuban citizens.


The new regime for non-agricultural cooperatives provides for ownership and management of the enterprise by its employees, with mainly independent control over the setting of prices, the purchase of inputs, decisions regarding what to produce, labor relations and the remuneration of members through wages and the distribution of coop profits.

The ultimate authority within any single cooperative will be its General Assembly which would include all its members. This body would be empowered to elect a president, a substitute and a secretary by secret ballot (Decree-Law 305, Article 18.1). The specific managerial structure of the enterprise is to be determined by the complexity and size of the cooperative and the number of members. Cooperatives with fewer than 20 members would elect an “Administrator.” Those with 20 to 60 members would elect an “Administrative Council.” Those with more than 60 members would elect a “Directive Committee” as well as an “Administrative Council.” The cooperative’s financial management will also depend on its size and complexity, and would be the responsibility of a single member for a very small cooperative enterprise or a financial committee for a large coop.  The management structures and functioning are delineated in detail in Decree 309 of the Council of Ministers.


The new cooperative enterprise involves democracy in the work-place, a major improvement over both state enterprise and privately-owned enterprise, in the view of many observers.

Under the Cuba’s traditional state enterprise system, workers have been “order takers.” Their labor unions have served as conveyor belts for orders from the top to the workers at the bottom. Rather than defending the interests of their membership, the main purpose of Cuba’s unions has been to ensure that the interests of the nation – as determined by its political leadership – are implemented through the unions. In a private enterprise in most market economies, the worker is also an “order taker,” but may or may not have a strong labor union to defend his or her interests.

It is instructive to recall here that the governmental announcement of September 2010 presenting the proposal for the lay-off of some 500,000 workers in the public sector of the economy by March 2011– to be reabsorbed in the self-employment or micro-enterprise sector – was made in a “Pronunciamiento” from the head of the Central de Trabajadores de Cuba (CTC), Cuba’s official labor union confederation and published in Granma.  It is hard to imagine the head of any other national union confederation making such a proposal on behalf of the relevant government.

 On the other hand, within the cooperatives, the members should be in substantial control through the governing mechanisms that the legislation noted above creates. The system would in fact be a form of workers’ management of the sort that we have not seen since the days of Tito in Yugoslavia.

It perhaps should be noted that most so-called “capitalist…” or “mixed market economies” have significant cooperative sectors.  For example, Brazil has 6,652 coops with 300,000 employees; Canada has 9,000 coops with around 150,000 employees; the United States has 30,000 coops employing over 2 million people; and France has 21,000 coops employing 3.5% of the labor force (International Cooperative Alliance.)

Moreover, Cuba had a significant cooperative sector before 1959, including some major “Benevolent Societies” and the Cooperativa de OmnibusAliados.

New Picture (6) New Picture (5) New Picture (4)

Democratic control of economic enterprises is an end in itself, but it also strengthens worker commitment to a shared endeavor thereby improving the intensity, dedication and effectiveness of workers’ efforts.

Thus, greater democracy in the work place should result in improved productivity. If Cuban cooperatives are genuinely democratic, they may function more efficiently and effectively than both state enterprise and privately-owned enterprise.


Will Cuba’s non-agricultural cooperatives in fact be authentically democratic? So far, it is too soon to say as the first cooperatives began operation only in July 2013. As noted earlier, the governing legislation will be modified in the light of the operational experience of the first cooperatives.

Governance may be a continuing problem for cooperative enterprises. The “transactions costs” of participatory management may be significant. Personal animosities, ideological or political differences, participatory failures, and/or managerial mistakes can all serve to weaken the decision-making process and to generate dysfunction. Of course this also happens with private enterprises as well as state enterprises

Secondly, the new cooperatives must go through a complex approval process before they can come into existence. They must be approved initially by the municipal “Organs of Popular Power,” then by the “Permanent Commission for Implementation and Development of the Guidelines,” and ultimately by the Council of Ministers. Will this be a reasonably automatic process or will political controls be exerted to determine which cooperatives can come into existence? One can imagine efforts at the highest political levels to approve favored cooperatives or cooperatives in particular areas of the economy and thereby to shape the evolution of the sector in accordance with preconceived official ideas, as opposed to letting the sector evolve spontaneously and naturally. With such controls on the approval process, the emergence of the cooperative sector could be deformed and stunted.

On the other hand, conceivably the approval process will be less controlling and permit all feasible proposals to be attempted. The Chief of the Management Model Sectionof the “Permanent Commission” assured journalists that this process would be “open” (Juventud Rebelde, 2012). But in the same article, he stated that some cooperatives would be established “according to the interests of the state” (Ibid). If this is the case, the principle of voluntary membership could be jeopardized. Cooperatives established in this manner would resemble those in agriculture that were imposed from above, with negative consequences in terms of both worker commitment and the effectiveness of the incentive system in the cooperative. 

Thirdly, what will be the role of the Communist Party in the new cooperatives? If the control of the general assemblies of medium and large-sized cooperatives is captured by nuclei from the Party, not only would workers’ democracy be subverted, but incentives to work seriously would likely be diminished. Will the Party keep out of cooperative enterprise management?

If authentic democracy were to emerge within the cooperatives, would this have a spread effect into the political system? Conceivably. But Cuba’s agricultural cooperatives have had little or no democratizing effects on the political system – although these cooperatives have not been genuinely democratic either. The “UBPCs” or Unidades Básicas de Producción Cooperativa were in reality state enterprises. This was acknowleged by the government of Cuba when it instituted a series of reforms in the management of the UBPCs aimed at converting them into more genuine cooperatives. (Granma, 2012)

Possible democratic spread effects from the cooperatives to the political system do not seem to be of concern for the government of Raúl Castro.



If this initiative to establish non-agricultural cooperatives is implemented broadly in the Cuban economy, it could constitute a change and perhaps an improvement of historic dimension. With much of the state sector of the economy converted to cooperative institutional forms, Cuba could become a country of “cooperative socialism,” with a state sector, a cooperative sector, a joint foreign/state enterprise sector, and a micro-enterprise sector. This would be quite different from the highly centralized and state-owned system to which Cuba aspired for half a century. Cuba’s economic system would also continue to be unique in the world and to be of consuming interest to observers, analysts and those looking for alternatives on the left to the world’s prevailing “mixed market economies



 Decree 309, Council of Ministers. Gaceta Oficial de la República de Cuba, Número 53. 11 de diciembre de 2012.

Decree-Law 305. “De las cooperativas no agropecuarias.” Gaceta Oficial de la República de Cuba, Número 53. 11 de diciembre de 2012.

Granma. September 11 and 14, 2012.

International Cooperative Alliance. WebSite: www.ica.coop (accessed January 15, 2013).

Juventud Rebelde. 18 de diciembre de 2012. Debate sobre la nueva ley de cooperativismo : Se buscan socios.http://www.cubainformacion.tv/index.php/economia/47243–cuba-extiende-las-cooperativas-a-a-la-traduccion-la-informatica-y-la-contabilidad. Accessed January 16, 2013.

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By Arch Ritter, October 5, 2013

 Since 1989, and similar to the United States and Canada among other countries, Cuba has experienced a serious de-industrialization from which it has not recovered. The consequences of this are grave, including job and income loss, the loss of an important part of its economic base and rust-belt style urban decay. Cuba risks becoming a typical small Caribbean Island, exporting services and some resources, while importing almost all manufactures.[i]

New PictureThe causes of the collapse are complex and multi-dimensional. They were outlined in an earlier article available here:   Can Cuba Recover from its De-Industrialization? I. Characteristics and Causes.  In summary, the causes include:

  •   The ending of the subsidization from the Soviet Union resulting in an incapacitation of the manufacturing sector;
  •  The antiquated and uncompetitive technological inheritance from the Soviet era;
  •   Maintenance and re-investment was de-emphasized before 1989 and collapsed thereafter;
  •   Low investment levels. [Investment was 10.5% of GDP in 2008 in comparison with 20.6% for all of Latin America, according to UN ECLA];
  •  The dual monetary and exchange rate systems penalize traditional and potential new exporters that have received Moneda Nacional pesos at a rate of  CuP 1 = $US 1.00 from exports – while the relevant rate for Cuban citizens is 26 CuP = $US1.00;
  •   The prohibition of most small and medium enterprise for the last 50 years has blocked entrepreneurial trial and error and the emergence of new manufacturing activities;
  • Effective competition from Chinese manufactures imports, stimulated further by China’s undervalued exchange rate and Cuba’s over-valued exchange rate.

The accompanying chart illustrates the changes that have occurred Cuban manufacturing and some of its subsectors. Total manufacturing output excluding sugar in 2011 was 48.8% below the level of 1989 in terms of physical volumes. Many sectors experienced reductions in the 50% to 99% range. The exceptional success was pharmaceutical production which increased by 765% from 1989 to 2009, albeit from a low base.

What are the longer term consequences of “de-industrialization”?  Is it likely that the policy proposals of the Lineamientos approved at the VI Congress of the Communist Party of Cuba will lead to a recovery from this collapse? What can be done to reverse this situation?


The consequences of the shrinkage of the manufacturing sector are serious. First, employment in the sector (including sugar) declined from 685,500 in 1989 to 530,800 in 2009 or to 77.4% of the 1989 level, a reduction of 32.6%. (ONE AEC, 2011 Table 7.3)

Second, labor productivity in manufacturing has fallen.  The volume of output has diminished more rapidly than employment. The 2009 level of output in the manufacturing sector (including sugar) was 44.9% of the 1989 level (a decline of 55.1%) but employment declined by 32,6%.  This means that labor productivity in manufacturing has also probably declined from 1989 to 2009, though this cannot be known for sure without knowing the values as well as the volumes of production in these years. 

Third, the importation of manufactures has risen sharply. Virtually all the shoes, clothing, textiles, household gadgetry and a lot of furniture are now imported. Indeed, one can purchase most plumbing supplies, electrical materials, dishes, pots and pans, household gadgetry and furnishings only for “Convertible Pesos” rather than the Moneda Nacional that people actually earn.

Paradoxically, visits to the various Tiendas por la Recaudacion de Divisas (TRDs or former dollar stores) which are the main source of household equipment and gadgetry, furnishings, clothing, foot-ware, plumbing materials, electrical items etc. is similar in one sense to visits to the major Big Box stores such as Walmart or Target in that the vast majority of the items for sale are imported from China. Walmart, Home Depot, Target and their ilk, make their mammoth purchases from China for all their stores in the country, obtaining massive economies of scale and quantity discounts. Has the China-Walmart Alliance helped to de-industrialized the United States?

One wonders if the procurement patterns for the large state store chains in Cuba are not unlike those of Walmart, pictured below. Does CIMEX, the major retailing conglomerate in Cuba make its purchases in the same way, providing for all its outlets in Cuba with single orders?  Is a CIMEX-China Alliance in Cuba echoing the China-Walmart Alliance in the United States and having similar results in avoiding smaller scale procurement purchases from Cuba or other countries?

Picture1The World According to Walmart’s Procurement Purchases

(One wonders if CIMEX procurement would be somewhat similar.)

A fourth result of Cuba’s de-industrialization is that it has lost much of the foundation on which diversified manufacturing activities could be developed in future. For example, Cuba has essentially lost the “clusters” of economic activities that once surrounded the sugar sector specifically and agriculture generally producing inputs and processing outputs.  Parts of the sugar-related manufacturing sector have largely shut down – notably the manufacture of cane harvesters and agricultural machinery and equipment as well as the production of replacement parts for the sugar mills. As illustrated in Chart 1, the production of machinery and equipment is at 0.4% of the 1989 level while that for metal fabrication is at 32.8%.

This situation prevails in many other areas of manufacturing as well. A glance at the Chart indicates the magnitudes of the collapse.

Fifth, the potential for the emergence of manufacturing for export markets has been impaired. It will be difficult to reconstruct the manufacturing activities for which Cuba might have been able to develop some comparative advantages.



The Lineamientos de la Política Económica y Social del Partido y la Revolución,” approved on April 18, 2011 by the VI Party Congress include 25 guidelines on Industry. (Lineamientos de la Política Económica y Social del Partido y la Revolución.) Some of the guidelines are of obvious significance and would be of great usefulness if they can be implemented. These include

  •  “prioritizing” exports (Guideline No. 215) and maintenance  (220),
  • assuring inputs for the self-employment and cooperative sectors (217),
  •   emphasizing technical training ((132 and 138)
  •  the rationalization and restructuring of industrial capacity, including the sales, rental or usufruct of unused facilities to the self-employed (219).

Some specific industrial sectors are slated for emphasis, including pharmaceuticals (221(, nickel (224), natural medicines and dietary supplements (222) , information technology and electronics for export (226), fertilizers (230), rubber tires (231), construction materials (233), and metallurgy and machinery and equipment (234 236 and 237). Some of these seem reasonable and may have important roles to play in future manufacturing.

Elsewhere in the “Lineamientos” exchange rate and pricing considerations are mentioned, with the stated intention to move to a unified and realistic exchange rate but with no implementation as of September 2013.   

Liberalizing small enterprise and promoting larger co-operative forms of organization are now in process of implementation. For these two sectors, pricing is for the most part to be determined by the forces of supply and demand.  This may be an important step in permitting the emergence of new innovative enterprises. However, the continuing limits on size and professional activities impede the evolution of a diversified range of medium scale enterprise in higher tech manufacturing and related services.

If indeed the proposals of the “Lineamientos” were implemented fully and quickly, one could envisage the possibility of a turn-around for the manufacturing sector. So far, however, reforms in these areas have been cautious limited and slow.


 What might be the successful manufacturing sub-sectors in future? This section briefly considers some possibilities.

It is of course hard if not impossible to “pick the winners” in advance.  The most efficacious general approach for Cuba would be to establish a reasonable policy and institutional framework and let the winners emerge over time.  This would include such policies as unifying the monetary and exchange rate systems, liberalizing small and medium enterprise further, establishing a secure property rights system, consolidating the framework for the impartial rule of law towards enterprises, and a fair taxation system for Cuban-owned private sector enterprises, etc. (See  The Tax Regimen for the Mariel Export Processing Zone.regarding the unfairness of the tax system as regards Cuban-owned micro-enterprises.) Cuba is in the process of implementation in some of these areas though it still has a distance to go.

However, assuming that Cuba does establish an “enabling environment” for the emergence of a manufacturing sector, what might be the manufacturing opportunities for Cuba? This section tries to make a first sketch of Cuba’s main manufacturing sub-sectors and their future potential.


A.    Traditional Agro-Industries: Sugar, Tobacco and Rum.

The volumes of output in the sugar agro-industrial sector fell from 7 to 8 million metric tons of sugar per year in the 1980s to 1.8 million for the 2013 harvest. Perhaps the sector, focusing also on bio-fuels, can be reconstructed although now this would have to be almost from the ground up. Foreign – that is, Brazilian – technology, investible resources, managerial talent and entrepreneurship would be vital in this endeavor. But the old dysfunctional state enterprise model seems so entrenched that only successful implementation of dramatic institutional change as well as massive investment can bring it about.

Cuba has a major comparative advantage in cigars and a thriving agricultural and manufacturing base for future expansion. Market prospects are mixed but modestly positive on balance. The market for cigars in the high income countries may weaken in future as the baby boomers age further and become more concerned about their health. The cigar fad of the 1990s is unlikely to return in those countries with the same intensity.

On the other hand, cigars may become a status symbol for the males of the burgeoning middle classes of the emerging middle income countries of Latin America and Asia. Normalization of relations with the US will also increase demand.  

Conclusion?  Continue to promote this sector.  Also a suggestion: produce for export high quality but machine-made cigars at prices that are more affordable for a broader market. Cuba has priced itself out of the middle class cigar market.

The market for rum and alcoholic beverages has been strong.  Its future should also be positive again due to increasing demand in emerging countries and the United States after normalization.


B.     Food Processing

Cuba should have great potential in processing agricultural products. However, this depends on a thriving agricultural sector providing the raw materials. Unfortunately agriculture has been in steady decline especially since 1990. Some past exports such as citrus fruit have fallen out of the picture.

Cuba could have significant production for export markets of citrus products, tropical fruits, vegetables, and beverages. This would require major expansion of food production and is thus a longer-term possibility at this time. However, a a diversified range of agro-industrial possibilities could be considered, e.g. mango cultivation and juicing for export markets. [ii]


C.    Pharmaceuticals.

This sector has been dramatically successful since 1989, and has become a major export exporter to a growing range of countries. (See the accompanying chart.) This success should continue into the future.

However there are some downside risks. First, new drugs must continuously be developed because generic versions of existing drugs can be produced freely anywhere (read India and China) when patent protection runs out – if not before. This means that Cuba’s producers, like big pharmaceutical companies, face future death unless they innovate successfully. Second, some of the markets for Cuba’s pharmaceuticals are a type of ideological “sweet-heart” deal, e.g. purchases by Venezuela. These may be at risk in the longer term when the Cuba-Venezuela “special relationship” runs its course.

New Picture (2) 

D.    Light Manufactures

Some of the economic activities that have declined most seriously – from 70% to 90% in different cases – are footwear, textiles, clothing, and consumer products of leather, wood, paper, metal, rubber and plastic for household use (See Chart 1.) This seems tragic when one considers that even in the 1940’s, Cuba was a major producer of a range of products such as leather and rubber shoes, cotton and rayon textiles, rubber tires, soap, paint, clothing etc. (IBRD, Report on Cuba 1950, p.130.)  The collapse of much of Cuba’s light industry is of course paralleled by its corresponding collapse in Canada and the United States, with the resultant job-loss and urban decay in the rust-belt.

 It would be difficult for Cuba to reclaim many of these areas, given the incredible economies of scale and agglomerative economies that big countries such as China, India, and other Asian countries experience.


One can imagine niche-type markets for which Cuba could have success. For example, the manufacture of some lines of specialty women’s clothing, leather footwear, and Spanish-colonial style furniture might be possibilities. Already one sees surprising crafts-level innovation in a myriad of areas, focusing on hard-currency tourist markets. These provide some hope that middle-sized enterprises could emerge and develop new products for Cuban and foreign markets.

But for this to happen there would have to be the possibility that micro-enterprises could evolve into small and medium scale firms. This is still blocked – with the exception of cooperative forms of enterprises.


E.     Chemical and Petrochemical Products.

If Cuba emerges as a significant petroleum producer or refiner of petroleum imports, it is possible that it may develop a range of petrochemical products for national and regional markets. Some production and exports are likely to emerge from the new refinery complex in Cienfuegos. However, the competition in the region from established producers in the region such as the US gulf coast, Mexico, Trinidad and Venezuela is serious so the possibilities here seem limited.

Could the production or “mixing” of fertilizers – from imported potash, phosphates and nitrogen – be revived? Perhaps, though Cuba has no particular advantage in this area.


F.     Heavy Industry and Capital Goods Production

Heavy industry such as an iron and steel complex, metal fabrication, wire and tube making is unlikely to emerge in a significant way in Cuba due to lack of cheap energy sources at this time, the absence of relevant raw materials, absence of significant metal using industries within Cuba, the small domestic market vis-à-vis efficient scales of production, absence of relevant skills etc. This situation could change in future if low-cost sources of energy from off-shore petroleum were to be developed.


H.    Machinery and Equipment

Cuba has produced some agricultural transport equipment, namely cane carts, since early colonial times. More recently, it produced heavy can harvesters such as the one in the adjoining photograph.

At this time, Cuba has lost the agricultural foundation for the production of machinery and equipment for the agricultural sector, though there may be some niches where possibilities exist. Brazil seems likely to capture much of this market. There may be some niche products that could emerge however.

Chances for Cuba of capturing automotive parts, batteries, rubber tires etc. seem slim and assembly is out of the question given the lack of the relevant cluster of economic activities on which these would be based and the great economies of scale in established producers elsewhere.   


I.        Electric and Electronic Equipment

The assembly of some electric or electronic products occurs now in a minor way and could perhaps be expanded. However, virtually all of the components would have to be imported so that domestic value added would be limited. Again, competition from abroad, notably from China will be difficult to overcome due to its huge advantages noted earlier.


J.      The Mariel Export Processing Zone

The Mariel EPZ creates some new possibilities for Cuba. It is possible that China (being wooed by Cuba with a “Mariel mission” visiting that country in September 2013), Brazil and possibly other countries establish assembly, light fabrication or bulk-breaking activities in the EPZ. This is certainly the purpose of the highly generous tax treatment provided to foreign investors, namely a “Zero” profits tax rate for 10 years with presumably full expatriation of profits and a rate of 12.5% after 10 years. (See The Tax Regimen for the Mariel Export Processing Zone.)


IV.             CONCLUSION

To revive Cuba’s manufacturing sector will be difficult. The loss of so much industrial capacity over the last quarter Century has weakened the foundation on which such a recovery could be based. There are a few promising sectors, most notably pharmaceuticals, food products, and some niche fabrication activities. But other most sub-sectors appear generally to be un-promising. Perhaps the Mariel Export Processing Zone will have some beneficial impacts.

What is most needed is the establishment of an “enabling environment” of company law, liberalization of small and medium enterprise, a reasonable tax regimen for Cuban private sector enterprises and of the monetary and exchange rate systems. Some of this was recognized in the “Lineamientos.” But there is still some distance to go.

Cane Harvester October 1993 002Cuban-Manufactured Cane-Harvester Pausing on the Highway, November 1994; Photo by Arch Ritter. Was thuis the last Cuban-made Harvester?

[i] The industrial sector has not yet been examined as in as much depth as some other economic areas such as agriculture. However, analysts at the Centro de Estudios sobre la Economia Cubana (CEEC) in Havana, notably Ricardo Torres Perez, have been turning their attention to this area.

[ii] For example, Canada imports growing volumes of several varieties of mango juice from the Republic of South Africa. Cuba could share in such markets. Again, normalization with the United States in time will be of benefit in providing a large near-by market.

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Cuba, Spring 2010 037Apartments, from La Rampa and Ave G, Vedado

Cuba, Spring 2010 040Public-Private Partnership! A Private Parking Attendant renting Public Spaces

Cuba, Spring 2010 041Sephardi Synagogue, Vedado

Cuba, Spring 2010 054The Never-Removed Plaque at the East End of the Malecon, Commemorating its Construction in 1901 under the American Occupying Administration

  Cuba, Spring 2010 072Musicians, Plaza de la Catedral

Cuba, Spring 2010 042My Car! (Not)

Cuba, Spring 2010 025Centro Gallego

Cuba, Spring 2010 021Repairing the Lada, One More Time

Cuba, Spring 2010 020Art Market, Saturday, Paseo del Prado

Cuba, Spring 2010 019Edificio Bacardi, Calle Zulueta

Cuba, Spring 2010 018Street Scene, Centro Habana

Cuba, Spring 2010 004Street Market, Ave. Carlos III

Cuba, Spring 2010 002Bicytaxi, Centro Habana

tankFaculty of Law (background), Universwity of Havana

800px-Universidad_de_la_habana_fachadaUniversidad de la Habana

Housing Havana 6Taxi

24327_1371007725639_1545135432_919308_334924_nState Retailer

Picture2dfBarrio Chino

PaladarNew Paladar

Cuba Apr 2012 011Paseo del Prado

Cuba Apr 2012 014Plaza del Cristo

  Cuba Apr 2012 020

Pharmacy Museum

Cuba Apr 2012 026

Plaza Vieja, Reconstructed

Cuba Apr 2012 041

Music, Plaza de Armas

Cuba Apr 2012 054

Cross-Harbour Ferry

Cuba Apr 2012 065Homage to Che, Hopital Calixto Garcia

Cuba Mar 2011 019

Paladar, La Rampa con Avenida de los Presidentes

Cuba Mar 2011 023

Cuba Mar 2011 024 Cuba Mar 2011 025

El Conejito, English-style Restaurant apparently built at the request of Celia Sanchez

Cuba Mar 2011 030

Flamenco Dancer, in the Bar of the Hotel Inglaterra

Cuba Mar 2011 058 Cuba Mar 2011 063Bicytaxi Repairs

Cuba Mar 2011 068

Bed and Breakfast or “Casa Particular” Symbol

Cuba Mar 2011 070

Car Repairs once again

Cuba Mar 2011 079

Iglesia de San Francisco de Asis

Cuba Mar 2011 081

Sugar Mill Engine in Habana Vieja

Cuba Mar 2011 107

Fidel  authorizing Construction of Greek Orthodox Church

Cuba Mar 2011 109

Line-up for US Interest Section

  Cuba Mar 2011 111

US Interest Section and Early Morning Line-up

Cuba Mar 2011 112

Cuba Mar 2011 113

Cementerio de Colon

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Cuba’s Stroll toward Change: A View from the Streets

By: Ted Piccone; Brookings Institution

Report | October 3, 2013; Series: Foreign Policy Trip Reports|   Number 55 of 55

Ted Piccone is Acting Vice President and Director of Foreign Policy at the Brookings Institution.

On September 27, the Committees for the Defense of the Revolution (CDR), the local watchdogs of Cuba’s Communist Party, celebrated their 53rd anniversary with a series of street parties around the country. Neighbors danced around small bonfires and enjoyed potluck dinners into the late hours of the night, leaving Havana’s streets relatively deserted as I strolled downtown the following morning. President Raúl Castro and other party leaders marked the occasion by presiding over the CDR’s 8th Congress, where discussions about various problems, like the proliferation of illegal and “immoral” activities at the local level, were underway.

As I wandered the broken cobble-stoned corridors of Old Havana, I happened upon the Communist Party’s Museum of the CDR, its walls covered with homages to the heroes of the 1959 Revolution, framed greetings from the people of Vietnam and China and various replicas of the Cuban flag and other symbols of nationalist pride. As my guide at the CDR museum completed the tour, she quietly closed the door to the exhibit room, shyly asked for a small tip and then carefully hid the bill in a crumpled piece of paper.

Along the way, I had been approached by other friendly Cubans looking for a favor; one even suggested a trip to the grocery story to buy food for his child. My taxi driver was an aspiring lawyer who drove visitors around in an ailing Soviet-era Lada to earn hard currency on the side. A policeman chatted with fishermen along the famed Malecón as he watched two men in a small boat struggle for the day’s catch in front of a sign that said: no fishing boats allowed.

The problem of illegality in the Cuban economy is alive and well. In this regard, it is not unlike the rest of Latin America, where black markets flourish and up to 47 percent of its non-farm workers are in the informal economy. In Cuba, however, where the state has long prided itself on controlling all aspects of the political economy, the expansion of illegal and informal activities is something new again. Like in the days before the 1959 Revolution when corruption and organized crime flourished amidst high poverty and inequality, or the “special period” when the collapse of the Soviet Union led to a 33 precent contraction of Cuba’s GDP, most Cubans are struggling to survive. This time, they are also taking advantage of the gradual opening of the economy under Raúl Castro.

The “updating” of the socialist model, launched with some fanfare in 2011, is opening new opportunities for Cuban citizens to have some independence from the state. Under new regulations, small business enterprises and cooperatives, already covering nearly 450,000 workers, are set to expand to include such categories as real estate agents, construction workers and repair shops. Newly approved cooperatives in sectors such as construction, industry, transportation and restaurants will be able to use both national and convertible currencies, request bank loans and set prices according to market conditions.

The challenge for the current regime is to stimulate the economy through market-oriented reforms that also generate enough revenue to provide the high levels of health and education services that have distinguished Cuba from the rest of the region. It’s not clear if the changes implemented thus far are working – reliable data about the Cuban economy are notoriously difficult to obtain and often piecemeal. The proliferation of small businesses and family-run inns in Havana, fueled in part by a substantial rise in visitors and remittances from Cubans in the United States, is encouraging. On the other hand, compliance with tax regulations is uneven. According to the newspaper Granma, the Party’s organ, only 57 percent of individuals subject to a new transport tax on vehicle owners have paid it, even after an extension was granted. Even casual observation of the street economy tells us that tax evasion is probably widespread.

One of the core structural problems of the economy is the dual currency system in which most Cubans are paid in local pesos (CUPs) while foreigners and some sectors like tourism deal in convertible pesos (CUCs). The exchange rate of 24 CUPs to one CUC creates serious distortions throughout the economy and society. Professionally trained doctors, teachers and scientists, who must work for the state, earn about 20-30 CUPs a month, while a bartender or hotel maid can make the equivalent in a day. The result is brain drain, both internally as more highly skilled workers move to lower skilled jobs, and externally as people give up and leave the island for good. One public health expert told me that many Cuban health professionals on public duty missions in places like Brazil and Ecuador take up private practice on the side, earning enough to start a small business upon their return to Cuba or buy a house and live comfortable lives in their adopted countries.

One possible solution to the dual currency problem, according to international finance experts, is to unify the currency in one move, coupled with expanded subsidies and tax breaks and a healthy package of international financial assistance to cushion the blow. The 900 percent differential in the currencies’ values means that a “big bang” approach would inevitably generate serious winners (those in the hard currency economy) and losers (the majority of Cuban workers), a prospect any government would want to avoid if possible. A probable spike in inflation is also worrisome. The government appears to be taking a different approach by experimenting with a 10-1 exchange rate for certain state-owned enterprises like sugar, hotels and non-agricultural cooperatives.

We are witnessing today the unfolding of a transitional hybrid economy that has one foot on the accelerator and one foot on the brake. On one hand, a host of ongoing reforms in the domains of agriculture, tourism, property transfers, travel abroad and even sports are unshackling Cubans from a predominant state. President Obama’s decision in 2009 to relax U.S. travel and remittances rules has also helped give oxygen to the more liberal features of the reforms by providing seed money for new businesses and facilitating the flow of goods and capital from the Cuban diaspora in Florida. On the other hand, implementation of reforms is slow and often limited to pilot projects dispersed throughout the island. Rules for foreign investment are too restrictive and arbitrarily enforced and property rights remain in doubt.

Nonetheless, the package of changes underway in Cuba, under the auspices of Raúl Castro and other heroes of the Revolution, lends a certain political legitimacy to the project that could facilitate a soft landing for such a hard situation. As Richard Feinberg argues in a new Brookings report on the emerging middle classes due out this November, such a soft landing is already underway as small and medium enterprises and cooperatives gain traction. Castro’s announcement last year that his current five-year term will be his last, and the appointment of a much younger vice president to guide the party to the next phase of “prosperous socialism,” give Cubans I spoke to some hope that, in the next five years, Cuba will look even more different than it did five years ago.


This shift is already visible. Open debates among Cuban citizens, including one I attended on the national budget process in a well-appointed theater organized by a leading public affairs magazine, are slowly underway. The Catholic Church is also playing an interesting role. The Conference of Catholic Bishops in Cuba recently released its first pastoral letter in 20 years endorsing the government’s economic liberalization and calling for a political opening that respects “the right to diversity with respect to thoughts, to creativity and to the search for truth.” Outspoken activists are touring European, Latin American and North American cities with their critiques of the current system and returning to the island determined to continue their campaign for greater freedoms, despite continued harassment and detentions. Change is in the tropical air.

As Cuba opens its economy to the world, and gradually finds the confidence to let Cubans be more open at home as well, the United States would be smart to move beyond the confines of its Cold War policy and let Americans see what they can do to support the Cuban people. President Obama can start by expanding the steps he took in his first term to facilitate greater trade, travel and communications with the Cuban people and budding small enterprises. He can also credibly remove Cuba from the list of state sponsors of terrorism, which is severely hampering a whole host of basic financial transactions for legitimate American travelers and businesses alike. It is time to exploit the opportunity offered by Cuba’s economic reforms and let reconciliation – both within the island and across the Florida Straits – begin.


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Omar Everleny Pérez Villanueva: “The Current Deregulation of Cuban Enterprises”

The complete document is available here:  Omar Everleny Pérez Villanueva, The Current Deregulation of Cuban Enterprises. Oct. 3 2013


We cannot examine the last 50 years of Cuban economic activity without casting a critical eye. Even if we are clear about future goals, which are certainly full of challenges, an awareness of the pitfalls, errors, mistakes and misunderstandings from the past period may help to correct the future perspective.

 Cuba is undergoing changes directed at achieving efficiency and increasing the productivity of the state-run enterprises (the plan), where efficiency depends, among other factors, on productivity. Productivity can be increased from different sources, but the important factor is that although a company may be proactive in the search for solutions, it is not possible to be proactive while being heavily regulated.

 Various academic analyses show a decrease in the majority of state-owned economic sectors in the last 20 years, between the early 90’s and 2010, as well as in virtually all sectors, with the exception of a few, such as telecommunications, mining and construction, sectors that have received a strong injection of foreign capital since the early 90’s. Another study on skilled labor force shows low motivation, due to unsatisfactory wages, few moral and material incentives, organizational problems, over-qualification and, of course, technical materials problems.1


Concluding Comment

On January 29, 2012, at the closing of the First National Conference of the Communist Party, Raul Castro stated that:

“The only thing that can lead to the defeat of the revolution and socialism in Cuba would be our inability to eradicate the mistakes made in the 50 years since January 1, 1959 and those that we incur in the future.”

 Following this thinking, it is clear that the challenges posed by the transformation at a relatively short term of the existing structural distortions in the Cuban economy. If we want Cuba to become a land of opportuni­ties and to achieve a sustained increase in the standard of living for all Cubans, then the time to make such decisions is not very far away, and the measures to take must be more pragmatic than those taken under the current government. At the same time we cannot forget to take into consideration the harassment that Cuba is subject to in its external transactions by the U.S. government.



Professor at the University of Havana. Former director of the Centro de Estudios de la Economia Cubana at the University of Havana. Doctorate in Economic Sciences of the University of Havana in 1998. Masters in Economic and International Relations from CIDE, AC Mexico City, Mexico in 1990. Bachelors in Economics from the University of Havana in 1984.

Dr. Perez Villanueva has presented at conferences in various Cuban institutes as well as internationally, includ­ing in the United States, Japan, France, Canada, Spain, Brazil, Puerto Rico, Mexico, Dominican Republic, Venezuela, China, Malaysia, Argentina, Peru, Jamaica, Barbados, Trinidad and Tobago and Norway. He has served as a visiting professor at Universities in the United States, Japan and France and has published over 70 research papers in a variety of areas of the Cuban and global economy.

Dr. Perez Villanueva has also published over 75 articles in publications and has co-authored several books in Cuba and abroad, including “Cuban Economy at the Start of the Twenty-First Century,”  with Jorge Dominguez and Lorena Barberia (Harvard University. ISBN 0-674-01798-6, 2004), the second edition of “Reflections on the Cuban Economy” (Editorial Ciencias, Havana. ISBN 959-06-0839-6, 2006) and “Outlook fo the Cuban Economy I and II” (ISBN 978-959-303-004-5). His last book is “Fifty Years of the Cuban Economy” (Editorial Ciencias Sociales. Havana. ISBN 978-959-06-1239-8).


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Cuba Faces Challenges in Push to End Dual Currency

HAVANA October 1, 2013 (AP)

By PETER ORSI Associated Press

Cuba is the only country in the world that mints two national currencies, a bizarre system that even President Raul Castro acknowledges is hamstringing the island’s socialist economy and must be scrapped. Exactly how to do that is the problem.

Months after Castro made currency unification a centerpiece of a forceful address to parliament, no details have been made public. But a pilot program operating under the radar might hold clues to a way out.

Since the system was created in 1994, most islanders have been paid in national pesos worth 24 to the dollar in exchange houses, while tourists and the Cubans who attend to them receive a much more valuable peso pegged at 1-to-1 with the U.S. greenback. The imbalance means doctors and physicists can make more money driving taxis or renting rooms than they can working in the professions for which they spent years preparing. In his July speech, Castro denounced the setup as having a warping effect on the economy and society in general.Shaking up the dual currency system risks spiking inflation and creating new winners and losers, always dangerous on an island that embraces the goal of egalitarianism. It would also force a change in accounting rules that would eliminate a huge subsidy to state-run enterprises at a time when cash is so short.

Che-Three-Pesos QMoneda Nacional: Three old pesos = CuP 3.00 = $US o.12

But there are signs that change is coming, and hints at how the value of the currencies might meet in the middle.

Pavel Vidal, a former Cuban Central Bank economist now at Colombia’s Javeriana University, told The Associated Press that a pilot program is being launched with select state businesses operating at a 10-to-1 exchange rate. The businesses are in key sectors such as sugar, hotels and non-agricultural cooperatives. There has been no mention in the official media, but Vidal said it is happening and it’s a good step. “I think it’s great because the elimination of the double currency must be gradual,” he said.

Even incremental change may be tough to pull off, and requires the unraveling of Byzantine accounting practices that effectively allow state companies to purchase dollars at a fraction of what ordinary Cubans pay for them.

While the rate in exchange houses is 24 pesos to 1 convertible peso, or CUC, the Cuban government treats them as equal in official accounts, meaning state entities are getting them at a 1-to-1 subsidized rate. “Whoever is getting these dollars at one-to-one is doing well, and that’s the official sector,” said Rafael Romeu, former president of the U.S.-based Association for the Study of the Cuban Economy.

Despite reforms under Raul Castro, the state still may be too inefficient to quit the subsidy cold-turkey. “They would be basically confronting their budget constraint in a serious way, and I don’t think they are ready to do that,” Romeu said. “They would have to cut a lot of social services.”

The two pesos have been circulating in parallel since 1994, when the loss of billions in Soviet trade and subsidies forced Cuba to reluctantly open the economy to tourism, while trying to insulate most islanders from its capitalist effects.

The drab local one-peso note bears the visage of independence hero Jose Marti, while the brightly colored CUC bill shows an image of the monument that honors him. Holding it up to the light reveals a magnetic strip with the words “Fatherland or death — we will be victorious,” in Spanish.

Other communist countries have experimented with second, hard currencies aimed at foreigners and business dealings, only to drop them. The Soviet Union tried dual currencies in the 1920s and China in the 1980s and 1990s. For Cuba, the idea seemed simple: Canadian and European travelers would spend hard currency at government CUC shops catering almost exclusively to foreigners, while Cubans would keep living a socialist ideal in the other currency. It hasn’t worked out that way. As authorities pulled back on subsidies that once covered almost all of islanders’ housing and food needs, people grew increasingly dependent on the added CUC income — moonlighting in the tourism industry or receiving remittances from relatives abroad.

The result is the upside-down wage structure where low-skill workers like hotel chamber maids earn more from travelers’ tips than professionals. A 53-year-old doctor recently left the medical profession after 25 years because his $25-a-month salary was putting food on the table for just two days a month. He now helps his mother rent rooms to tourists paying in convertible pesos.

“Professional salaries are in a desperate situation,” he said, speaking on condition of anonymity because doctors generally are not authorized to talk to foreign media. “There’s no motivation, and every day they ask more of you.”

Contrast that with Rigoberto Sanchez Beltran, who pulls in about $70-$100 a month in tips for watching over parked cars at a tourist complex in Havana. Getting by is still tough, but he knows the job gives him a leg up on many of his more-educated neighbors. “You get to know the regulars, and they give you a little more,” he said.

Since 2010, Cuba has seen reforms including the legalization of a real estate market, increased private small businesses and creeping decentralization of state enterprise. In July, Castro declared that the dual currency was “one of the most important obstacles to the progress of the nation.” He did not say, however, how the cash-strapped state would manage to pay white-collar workers more.

Cuban officials have long argued that state salaries are effectively much higher than the often-reported average of $20 a month if you factor in things such as free health care, education and monthly food ration cards. But today just about everyone acknowledges that low pay has been the enemy of efficiency, doing little to inspire hard work. Employees often pilfer supplies to resell or barter, or spend work hours on side projects that bring in CUCs.

At stores that still offer cheaper prices in national pesos, goods from soap to mops sell out quickly, snapped up by hoarders or black marketeers. So finding basics such as cooking oil and eggs often entails a trip to a CUC store.

“It’s totally absurd that you get paid in one currency, but in order to live you need to pay with another,” said Margarita Nieves, 69. “Until they fix that, they can’t keep telling people there’s no productivity.”

tres_pesos_convertibles Q

Three “Convertible Pesos” or CuC; CuC3.00 = $US 3.00 more or less.


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