The pandemic crisis is pushing for economic reforms that have been pending for years, but may be ineffective for fear of an out-of-control opening up
07.06.2021 / The Cuban government has been wanting to undertake economic reforms for years, but the distraction of the aid provided by Chavez's Venezuela and the internal doubts about the model of economic openness delayed firm decisions. The Venezuelan collapse, first, and especially the pandemic, later, have brought the Cuban Economics to a breaking point that is already forcing measures to be taken, because the island's population is beginning to show some concern. framework Raul Castro's departure from the scene constitutes an opportunity for change, but the uncertainties of the future can stiffen any transition, no matter how modest it may be.
article / María Victoria Andarcia
After a particularly complicated 2020, in the first months of 2021 Cuba took significant steps. In February, the Government announced a massive expansion of permits for private initiative in different economic sectors. The Minister of work, Marta Elena Feito, announced that the list of sectors in which private operations were authorized would grow from 127 to more than 2,000 and that the State would reserve exclusivity in only 124 areas, which she did not detail.
With the development of "cuestapropismo", approximately 600,000 workers were employed in private activities in Cuba, 13% of the labor force. The vast majority of these initiatives are linked to the tourism industry, which has been affected by the tightening of sanctions carried out by Donald Trump and especially by the Covid-19 pandemic, which practically annulled tourism in the Caribbean. According to ECLAC, at the height of the pandemic 250,000 self-employed workers had suspended their licence from work. This unemployment is preventing the self-employed sector from being able to take on the public sector workers that the State wants to get rid of in order to reduce deficit activities.
The Cuban Ministry of Economics puts the economic decline suffered by the island in 2020 at 11% of GDP, the worst since the dissolution of the Soviet Union, which left Cuba without the support of its economic sustainer and gave rise to the time of extreme hardship known as the "special period". Already in 2019 there was hardly any growth. In 2020 there was a 30% reduction in imports, which has exacerbated the growing shortage of basic products and price inflation on the island, also pushed later by the exchange rate readjustment.
Monetary reform
January 1, 2021 was the "zero day" of the monetary and exchange rate reform, on the 62nd anniversary of the triumph of the revolution led by Fidel Castro. This is the most complex economic reform undertaken by the country in the last three decades, after years of waiting. Since the "special period", two currencies had been in circulation in Cuba: the Cuban peso (CUP) and the convertible (CUC), equivalent to the dollar, which has been eliminated with the merger of the two currencies. The currencies were exchanged at different rates: for state enterprises, 1 dollar or CUC was equivalent to one Cuban peso, while for the population, the exchange rate was 24 pesos to the dollar. The unification has been accompanied by the fixing of a single exchange rate of 24 Cuban pesos to the dollar, the first official devaluation of the peso since 1959.
The inflationary rise has affected the price of many products and services. While there has been an increase in salaries in the state sector, the price of electricity has increased threefold, water sixfold, and bread and flour twentyfold.
The disappearance of the CUC has been compensated with the opening of stores where you can buy with "freely convertible currencies", protecting the free circulation of the dollar and assuming, in final, a covert dollarization (in addition, a black market of foreign currency continues to operate, where the dollar is worth almost double the official exchange rate). These are establishments for tourists, but where the nomenclature can also acquire products that are not within the reach of the rest of the population. This has even contributed to internal criticism of a status of inequality, as Raúl Castro himself acknowledged in April in his speech before the VIII of the Communist Party. speech before the VIII congress of the Communist Party of Cuba (PCC).
Rising prices and growing inequality are contributing to a social malaise that is giving rise to increasingly timid public complaints. This is occurring in a context of occasional protests, such as that of the artists' guild, which speak of a growing unease that economic reforms should satisfy in the medium term but which, if applied without decision or if they are not effective, could lead to a frustration of expectations.
In fact, the government's conviction in promoting economic reforms has been rather deficient to date. In 2011, in the VI congress of the PCC, in which Raúl Castro consolidated his leadership after succeeding his brother in 2008, a path of reforms in economic activity was approved, which were only partially implemented. The aid provided by Chavez's Venezuela at the time of the fat cows led to the postponement of the most urgent measures, in what in reality amounted to a lost decade.
The island has a Economics very dependent on the exterior, in spite of not being a market Economics . The goods it exports are limited to its natural resources and traditional products of limited processing: nickel, zinc, sugar, tobacco and rum. Services are the main item of Cuban exports, especially health services sent to Venezuela and other countries of similar ideological orientation. The need to import raw materials, oil and foodstuffs conditions the growth of the island's Economics . The USSR was a lifeline, mainly because of its oil contributions, as later happened with Venezuela, whose crude oil Cuba refined and exported as a gift, thus improving the flow of foreign currency.
Relations with the United States
The Venezuelan collapse was followed by increased pressure from the Trump Administration. Although the United States has maintained an embargo on the island since 1962, Barack Obama sought a mutual rapprochement that led in 2015 to the reestablishment of diplomatic relations. The embargo remained in place, as its lifting depends on congress, but Obama favored its relaxation through presidential decrees that increased contacts between the two countries, with the resumption of commercial flights, the authorization of greater purchases on visits to the island and the promotion of tourism. source In addition, it allowed family travel to Cuba and facilitated remittances, which constitute an important source of foreign exchange for this country, after the income from professional services abroad and tourism. Thus, remittances increased 143% between 2008 and 2017 (from $1.447 billion to $3.515 billion).
Trump maintained diplomatic recognition (although neither Obama nor he appointed an ambassador) and the sending of remittances, but reversed most of the decrees approved by Obama and also applied several rounds of sanctions. These included, among others, the suspension of visas for Cubans and the expansion of the list of Cuban companies managed by the Armed Forces with which Americans cannot interact (even as tourists).
With the arrival of Joe Biden to the White House it was hoped that relations between the historic enemies would improve again, but months later there are still no signs of change and Obama's former vice president has not returned to Obama's strategy towards Cuba, but maintains the sanctions pressure of his immediate predecessor.
China and Russia
If in the relations with the Obama Administration, Raul Castro was looking for a new sponsor to somehow replace Venezuela, as the latter had replaced the USSR (in fact, secret negotiations with Obama began when the death of Hugo Chavez opened uncertainties about the Venezuelan future), Washington's slamming of the door may lead to a greater rapprochement with Russia or China. This rapprochement has been taking place in recent years, but for the time being there is no definite dependence on Moscow or Beijing.
If Russia's return to the Caribbean can be circumscribed to the availability of military access (in Nicaragua, Cuba and Venezuela), in the case of China there is a clear commitment to trade. China has become the island's second most important commercial partner . Several Chinese companies such as Huawei and Haier have helped development the Cuban telecommunications system. Beijing recognizes the strategic importance of Cuba, due to its geographic immediacy to the United States, and can take advantage of this relationship to challenge its American enemy.
Both the deepening of this linkage and a firm step in economic reforms, perhaps imitating Vietnam in the opening of the market without leaving communism (the Vietnamese, however, is a model with ballast), will depend on the new generation of leaders. Raul Castro, more inclined to reforms than his brother Fidel, did not push the process forward in a decisive way because the boom in the price of raw materials, from which Cuba benefited very directly through Venezuelan oil, relativized its urgency. This is now being considered, but the new Cuban president, Miguel Díaz-Canel, to whom Raúl Castro passed in April also his last position -first secretary of the PCC-, does not have the internal authority nor the ascendancy over the Army, which controls a good part of the Economics, that the Castros enjoyed.
