On July 16, the Council of Ministers approved an economic strategy in order to counteract the effects of the economic crisis that Cuba is undergoing, exacerbated as a result of the new coronavirus pandemic, and to boost the economy: “Economic-social strategy for boosting the economy and dealing with the world crisis caused by COVID-19.”
As announced in the Mesa Redonda television program by Minister of Economy and Planning Alejandro Gil, this strategy “is aimed at eliminating the obstacles that operate in the economy, but maintaining and defending the concept of planning.”
For Cuban economist Tamarys Lien Bahamonde, nine fundamental aspects can be identified in the strategy proposed to face the crisis:
- Centralized planning;
- Import substitution;
- Regulation of market mechanisms. (For non-economists, planning is usually geared toward correcting market distortions);
- Complementarity of multiple economic actors: “self-employed,” cooperatives and the state sector;
- Revitalize domestic demand;
- Autonomy of the state business sector;
- Implement key aspects of the resizing of the non-state sector. (It is not yet clear which ones exactly, although ideas such as the possibilities of exporting and importing appear among the changes);
- Competitiveness (is encouraged through savings, efficiency, and motivation for work); and
- Active environmental policy.
The implementation of measures contained in the “Economic and social policy guidelines,” approved after a wide popular debate in April 2011, during the 6th Congress of the Communist Party of Cuba (PCC), has been a demand from economists, various actors of the economy and in general of Cuban society. Almost 10 years after that decision, the Council of Ministers has approved returning to the path of some of them.
OnCuba offers the reflections about the recently approved strategy by five renowned economists and specialists on the subject.
What is your opinion regarding the new economic strategy proposed by the Cuban government?
Julio Carranza: The measures that have been presented are not the only ones needed, the reform process is supposed to continue, but what has been decided is an important step in the right direction, it is part of what several economists have been proposing for a long time. Food production has been prioritized, for which the forms of production and marketing in agriculture are made more flexible and decentralized, foreign trade operations are authorized for all economic agents, the reform of the state-owned enterprise begins with greater decentralization, the micro, small and medium-sized enterprises with all forms of ownership and management, including private and cooperative, etc. will be legally recognized. All of this is of great importance.
Juan Triana: I think it is a considerable volume of information, which requires more time for reflection. I will advance some ideas:
I don’t share that it is a new strategy. In essence, a high percentage of what was announced was already expressed in the Guidelines and the documents approved at the last Party Congress, namely the Conceptualization and the 2030 Plan, strategic axes and sectors.
I think that something must be highlighted: there are announced ideas that are strategic in nature, others respond more to situations, which doesn’t mean that they are not important, only that their impact has another scope.
In my opinion, what was announced aims to contribute to incentivize production, the participation of all agents of the national economy, to bring the state enterprise closer to real life in the real world and to allow Cubans living in Cuba to develop their own projects and be successful and contribute to the country at the same time.
However, I advance what I have learned from this matter of strategies: putting them to work…this is where the real challenge lies. Achieving the essential coherence and consistency in their application is the real challenge. It has costs and you have to be willing to bear them. The rhythm and the sequence are decisive most of the time. That is another great challenge.
But I welcome the measures, beyond the fact that the current crisis has served as a trigger, to continue postponing the necessary changes was unmanageable.
Mauricio de Miranda: Basically, the principles of the strategy are correct, according to the country’s economic model. The problem lies in its implementation, because they must be translated into concrete measures to ensure their compliance, otherwise they would not go beyond being mere intentions.
I don’t understand why a principle of a strategy has to do with implementing what has already been decided. Thus, declaring that it is necessary to “implement” issues that have already been decided for a long time, such as the “resizing” of the state sector, aspects related to “forms of non-state management,” etc. leads us to ask ourselves, why was it not done, even though it was decided? How is it going to be done? The reality is that little progress has been made in this and the intention is announced again, but not how it will be implemented. It is worth mentioning that, in reality, the so-called “resizing” of the state sector (read reduction of workers, especially in the budget sector) could be complemented with the empowerment of non-state forms of management, if what is wanted is to avoid, as expected, thousands of workers being left without a source of livelihood.
Many of the new economic measures had been suggested by several economists a long time ago, but as the saying goes, “better late than never.” However, not all the necessary ones are present and some, in my opinion, are not appropriate.
Oniel Díaz: Although details about its implementation are still unknown, I believe that the strategy is going in the right direction to take advantage of the current situation as a starting point to face various structural problems of the Cuban economy, which for years haven’t been resolved and that need to be resolved in order to put the country on the path of prosperity.
Tamarys L. Bahamonde: The strategy is not essentially new, in the sense that it incorporates elements already established previously in the PCC Guidelines, others are similar measures to those taken during the 1990s to cushion the effects of the crisis and others are years of demands by various academic sectors and the Cuban people.
As a first approach to a plan that allows the country to get out of the crisis, the strategy provides interesting lines of work that have been necessary for a long time. There is an important element and that is that it is oriented towards the search for a better use of the country’s domestic capacities. It is not a strategy aimed at, nor does it intend to depend on the external sector, and that is essential in these times of pandemic and economic crisis. It may seem obvious, but the reality is that Cuba has largely drawn up strategies that are oriented towards obtaining the necessary foreign exchange, and this implies a necessary “outward” approach.
A distinction must be made between strategy and economic policy to understand what we are facing. While strategy is a general line of direction that shows the way forward, economic policies tell you how to go down that path. Of the latter we have little information so far. For the current scenario, it is a successful strategy, which removes obstacles to make way for the most efficient and effective participation of diverse forms of ownership and multiple actors in the economy. The intention to achieve cooperation between various forms of ownership and the autonomy of local governments and the state enterprise is positive, especially if it is successfully implemented in practice.
In your opinion, what are the measures that will have the greatest impact on the Cuban economy? Why?
Juan Triana: I haven’t had time to do an analysis with data. However, I believe that fostering autonomy so that state-owned enterprises are truly autonomous, promoting the non-state sector, the emphasis placed on small and medium-sized enterprises and a greater openness of the external sector to all forms of management can be positive. I reiterate that time is decisive and that 50% of the success will be in the how.
There is no time to wait much longer for regulations on small and medium-sized enterprises (SMEs), Cuba needs employment, national investment and production. Besides that, it is something that’s very well known. Nor is there too much time to give another connotation to self-employment. They are, if we start counting from the year 1990, 30 years of waiting.
Those three measures named above are, in my opinion, strategic. If we add what concerns export and import, I think the result is for the best.
Mauricio de Miranda: The Cuban government is adopting a series of adequate economic measures, although in some of them their implementation has to be specified, especially those related to the creation of micro, small and medium-sized enterprises, both state and non-state, the ones related to a reform of the state-owned enterprise aimed at its economic and operational autonomy, the creation of wholesale markets (although they should not only be created in freely convertible currency), and the flexibility of self-employment.
Tamarys L. Bahamonde: The impact of these measures depends more on the way they are implemented than on the strategy itself. You will immediately feel the relief of the elimination of the tax imposed on the USD in the population with access to this currency. However, the significant impacts of the measures will not be immediate, since most will see results in the medium or long term, depending on the speed of implementation. Participation in the economy proposed by the strategy for non-state forms of ownership (cooperatives and SMEs essentially), is a decisive step for the country’s economic growth. The Cuban State’s limitation to provide certain quality services and simultaneously maintain full employment in the economy, for example, has been obvious for years. This measure can greatly alleviate this burden, while it may have a positive impact on improving efficiency, competitiveness and savings.
Any adjustment made at the corporate (private, cooperative, or state) and public sectors will see its results in the economy. Those results will be positive or negative, depending on the adjustments. If, as explained, the participation and cooperation of various forms of ownership in the economy is promoted, and this is combined with greater autonomy in the private sector and local governments, as well as giving flexibility to export/import to non-state actors, it is possible, with consistent projection, to integrate these actors into the development strategies of the communities and regions. This could have a positive repercussion in many localities, while alleviating the central government’s burden of having to deal with each one of the country’s regions.
As explained, the creation of wholesale input markets is imposed. This claim is not exclusive to private producers, but to almost all economic actors, and the people. The pressure exerted on the retail market when meeting the demands of SMEs and individuals with a limited supply will be alleviated in this way and small entrepreneurs and individuals will no longer compete for the same products, which are generally essential, like food and toiletries. This measure would complement the flexibility to export/import of those same small and medium entrepreneurs.
What are the main obstacles?
Julio Carranza: The biggest problem I see is the monetary disorder with the circulation of three different currencies and the limitations due to the inconvertibility of the CUC. It is still not very clear how all this will operate and the consequences it will have in the short term.
The need to encourage the entrance of foreign currency to the country is obvious, in a very tense moment of the economy, a consequence of the combination of the world crisis due to the pandemic, the strengthening of the blockade and the inefficiencies of the domestic economy. The opening of shops in foreign currency and the elimination of the tax to the dollar is part of the incentives for the entry of foreign currency into the country.
Juan Triana: More than obstacles, I think it will be necessary to unlearn and that is something that’s very difficult to do.
There are deep-rooted prejudices, especially in intermediate decision-making segments. There are also vested interests that can be damaged. The need for a culture of service, especially of public servants, continues being a major obstacle. I think there are also very specific issues, I will point out only one: everything that has been announced requires a modern, agile and efficient banking system. We are far from having it. The same thing happens with the paperwork of almost everything.
What we need is new heads, more than a change of mind.
Specific goals have to be set: the time an export or import process must take, the time it takes to open a new business, etc. and logically incentives. Transparency is also important: rates for all services related to foreign trade and procedures must be in the public domain.
Mauricio de Miranda: Cuba is locked in a vicious circle, on the one hand, production is not enough to meet consumption needs and, on the other, the purchasing power of most of the population based on their income from work is insufficient so that, with these incomes, these goods can be acquired at existing prices. This vicious circle is not resolved by increases in wages by decree, but it is essential that income from work be sufficient to ensure that these growing essential needs are met.
The CIMEX president said sales of household appliances and other “high-end” products had exceeded expectations. That can lead to joyous wrong accounts. Domestic demand cannot depend on remittances, but on the income generated by society through productive work. The other would be to build a parasitic economy, which permanently needs external flows in order to function because it is unable to sustain its domestic productive system. So, for domestic demand to play a dynamic role in the economy, it is essential that conditions be created for the population to increase income through work.
Tamarys L. Bahamonde: Traditional obstacles related to credit lines, debt payments, embargo/blockade and limitations imposed by the global crisis, although not new, must be mentioned and taken into account, because they slow down to a certain extent the execution of many public policies in Cuba. Now, regardless of these, we have to analyze the internal obstacles imposed by our business culture and our management designs and processes.
Financial distortions will remain in the economy. In that sense, few changes, except the introduction of the dollar into circulation, have been announced. A third currency includes a new challenge for economic adjustments, for social equity and for transactions in general. The need to collect foreign currency in the country is understood, but the complexity of the new scenario must also be considered, and what it will mean for the national productive and business network.
For this strategy to work coherently and harmoniously, the resizing of the non-state sector is imposed, with the review of authorized activities. Instead, it is much more efficient and socially coherent to protect sectors such as health and education, while establishing legislation that regulates the participation of non-state enterprises in the economy. The existence of this list of activities has deepened the social gap between women and men, for example, while marginalizing professionals from almost all categories from participating in that sector, with better material remuneration, in many cases.
When talking about central planning and the simultaneous granting of greater autonomy to local governments and state enterprises, we must take care of implementation. If this centralized planning is carried out, as has been done many times until now, with its back to the market laws that operate in our economy, and measures are imposed on local governments and state enterprises that don’t adjust to their conditions, potentials and/or needs, not much progress will be made. Planning must depend on the economic actors involved in its execution to map out its political strategies. When we talk about depending on these actors, we refer to their direct participation in decision-making and in the design of public policies.
Resizing the non-state sector is as important as resizing the public sector. First, it will be necessary for its coherent insertion and collaboration with the non-state sector. Second, the intended autonomy to be achieved in this sector will be very difficult if bureaucratic, vertical and rigid management structures are maintained. It was not clear what the lines will be in this regard, but to achieve autonomy the current state enterprise must be profoundly transformed, something that will not be achieved overnight. Transformation is necessary because, otherwise, our culture of slowness, bureaucracy, and inefficiency will permeate the strategy and hamper its effective implementation. To take just one example, the flexibility to export/import that will be granted to economic actors may not have a significant impact if it is necessary to follow a complex, slow and agonizing bureaucratic process, which discourages those involved in the process, especially for those who will require the services of intermediate state entities. It is also unclear how much will be paid for these intermediate services, and those costs will also influence the success of the measure.
What urgent measures would be missing, in your opinion, in addition to those taken now?
Juan Triana: We must modify certain laws and our tax system. With the one we have today, which has a tax collection philosophy, I think the incentives to start new enterprises don’t exist. If the new entrepreneurs must pay 50% above the 50,000 Cuban pesos, then I don’t think there is much encouragement to accumulate and invest. Undoubtedly, it would be necessary to finish enacting a negative list of private activities. Transparency in hiring and paying Cuban workers employed in foreign enterprises is another measure that could help promote foreign direct investment (FDI).
Mauricio de Miranda: The solution to the problem regarding the multiplicity of currencies continues to expand (now aggravated by the emergence of the freely convertible currency, which, in terms of sight deposits, are equivalent to money in circulation) as well as of the multiplicity of exchange rates, that continues to generate distortions and negative incentives in the national economy.
The solution to the monetary and exchange issue is not only of economic urgency, but also political. Will the Cuban population accept that with these measures it is once again marginalized and differentiated, that this is repeated for other decades, because the country’s leadership continues seeking to deal with persistent problems with old formulas, which proved ineffective in the medium and long term?
Current conditions in practice render the CUC’s operation ineffective. There is no point in continuing to broadcast it. In this way, the CUP would regain its status as a national currency. However, for this to happen without creating external imbalances, it would seem that the only option would be to devalue substantially its value against the USD or against the euro. This devaluation, on the other hand, could favor national production because it would make imports more expensive and exports, both of goods and services, relatively cheaper.
Finally, a comprehensive approach is lacking to outline a strategy for the promotion of industrial and agricultural production, which modifies these sectors’ current quasi-paralysis and serious problems with efficiency, productivity and competitiveness.
Tamarys L. Bahamonde: As an initial step to come out of the crisis, this strategy involves a group of activities that to some extent cover the urgent needs of the economy. By putting food production as a priority, you already establish a line to follow, essential for the strategy.
Among the measures to resize the non-state sector, as I already mentioned, it is necessary to adjust the legislation when the Law on Enterprises is approved, essential to move forward with this strategy, and eliminate the list of authorized private activities. This step is essential to move towards greater social equity and to maintain the goal of full employment, while moving labor from the public to the non-state sector, and reducing the inflated payrolls in the public sector, which may have a medium and long-term positive impact on the salary level and work motivation, which can have a positive impact on productivity, typically depressed in Cuba.
The services offered by the Cuban banking system are still limited for the projection established by this strategy. Rethinking forms of credits and alternative financing, such as the proposal of the Banco de Fomento Agrícola, mentioned in the Mesa Redonda, are essential tasks for any strategy. This, logically, at the moment comes up against the financial limitations of the crisis. Even so, it is necessary to open the range of opportunities for Cubans who wish to participate in the economy and don’t have sufficient funds for it.
Regarding the private sector, what are the measures with the greatest impact and what would be the next necessary steps?
Juan Triana: I think that this time it has been given a protagonist role like never before. The announcement of the proximity of a Law on SMEs and the modification of the Law on Agricultural and Industrial Cooperatives so that they are what they should be and free themselves from ministerial tutelage are some of the measures that must appear sooner rather than later.
Mauricio de Miranda: With the improvement of the non-state sector, the long and incomprehensible “experiment” of cooperatives is ended, which suggests that the creation of new non-agricultural cooperatives will be promoted. Greater flexibility and expansion of self-employment is announced. Will it move from the current system of permitted economic activities to one that allows everything that is not expressly prohibited?
Something that is even done in countries with adequately functioning mixed economies is “regulating the market,” which means that the State must adopt stable, transparent and clear rules of the game that prevent, for example, the appearance of undesirable phenomena such as the formation of monopolistic or oligopolistic structures, or phenomena of marked social inequality, or a proliferation of poverty. It would be worth knowing what are the “indirect regulation” measures that the minister spoke of, because until now what has predominated is control by suffocation.
It is very important to recognize the necessary complementarity of what are called various forms of management to differentiate between state and “non-state” (private and cooperative). By mentioning the phrase “all together” we would hope that, finally, the long-overdue stigmatization of self-employed workers, as well as private businesses, will be ended and replaced by recognition of the positive role that we can all play in overcoming the current structural crisis, which has been exacerbated by the pandemic, but which has much deeper roots and determinants that affect the very structure of the economic system. Consequently, regulation “by indirect methods” should lead to a new tax system that stimulates the development of the diverse activities of production of goods and services.
Oniel Díaz: Regarding the private sector, what was announced revolves around three axes: (1) expanding self-employment, which will mean flexibility in the scope of licenses and surely the addition of new activities to the list of authorized works; (2) retaking the process of creating non-agricultural cooperatives, a modality that the government will perhaps reserve especially for activities of strategic interest and that it aspires that they be carried out in a more “social” way and not under the mechanisms of a private enterprise; and (3) the constitution of SMEs, regarding which it will be necessary to wait to see in what type of economic activities they will be allowed and if, for example, high value-added activities carried out by professionals are authorized. Another important measure is that related to foreign trade (import and export). Its impact will depend a great deal on the way in which the operation of the state intermediary is implemented. All are long-awaited high-impact decisions.
Tamarys L. Bahamonde: The most immediate measure that is imposed for the implementation of this strategy is, as I mentioned, the approval of a Law on Enterprises that grants legal status to Cuban micro, small and medium-sized enterprises. Legal status will be necessary for contracts between private and state actors, as well as for the flexibility of exports/imports. In the same way, it will regulate the hiring of the workforce and the rights and duties of workers. Promoting and the need to resort to these forms of ownership cannot be accompanied by abandoning the needs and the lack of protection of our workers. Social equity and sustainability should be kept as primary objectives in this strategy. It is not about egalitarianism, but about equity.
This sector will undoubtedly benefit from the creation of wholesale markets and the possibilities to import/export, including the new options of integrating into the state productive fabric. These measures will bring new challenges for all the actors involved, such as the respect and compliance of contracts, the establishment of legal mechanisms for claims in case of non-compliance by any of the parties, and the updating of the banking system for collections and payments between state and non-state enterprises. On the other hand, the system of tax collection in Cuba is archaic and impractical. More efficient ways of collecting taxes in the economy will have to be considered to avoid tax evasions and increase tax collections.
What can be expected in the short and medium term?
Julio Carranza: The picture is complex and many questions remain to be resolved, but the government has given a clear sign that it is moving more boldly, which is very good. It is obvious that not everyone will be able to buy in foreign currency stores, nor can everyone buy what informal importers bring from Panama and other countries, but those foreign currency sales in the new stores make it possible to finance other operations for services and productions of common benefit.Compensatory social policies are a fundamental element that the government maintains as an inalienable principle. I insist that the panorama is very complex and the process must be followed closely.
Juan Triana: Coherence, consistency and transparency.
Mauricio de Miranda: One of the issues that caught our attention was the statement by the minister of economy that these measures “are here to stay.” One of the biggest problems of the Cuban economic organization, especially since the 1980s, has been that the economic changes have taken place at times of very acute crisis (and this time it is). When that deep crisis is overcome (without reaching a bonanza that has not really existed in the last six decades), then the reforms are paralyzed, centralization is strengthened, and the economy of “command and comply” is strengthened. The “command and comply” economy has no promising future, it has only shown that it is incapable of promoting development and ensuring the well-being of society.
Oniel Díaz: The situation for the private sector, as for everyone, is still very difficult. They have started to reopen businesses, but it is still too early to set a stage, as they may be benefiting from a certain explosion of repressed consumption during these months. But once the first weeks are over, we will be able to clearly see if the consumption rates of these days are maintained and what type of businesses manage to stay afloat amidst the general shortage of supplies. We will also see many businesses readapting to insert themselves with new products/services closer to the main needs of the national market. The success rate will depend on factors such as the speed/effectiveness of the implementation of the announced changes or a possible change in policy towards Cuba if a Democratic administration resumes the path of normalization, to name a few.
Tamarys L. Bahamonde: This strategy combines short-term elements, such as the elimination of the tax on the USD in its operations in Cuba, with other medium and long-term elements, such as monetary unification, and the resizing of the state and non-state sectors. The impact of these measures will not be immediate. Especially since these are general lines of action, guidelines…. The policies define the scope of those guidelines and how those objectives will be achieved.
I have already mentioned much of what we can expect: legislation that regulates the participation of non-state forms of ownership in the economy and its relationship with the public sector, the resizing of the state sector, and its adjustment to the needs of this strategy would be, from my perspective, the most important.
Something that has hardly been touched in the opinions I have already seen in social networks and other spaces has caught my attention, and it is aspect 8 of the statements by Deputy Prime Minister Alejandro Gil Fernández: competitiveness. Not competitiveness in itself, which should be an objective of economic policy in all economies, but the elements of saving, efficiency and motivation for work. The latter is the one I want to talk about. You cannot lose sight of the role of the individual in any strategy that is designed. Worker motivation goes through multiple components (Maslow’s pyramid can be used, if desired), and those components combine meeting psychological and material needs. With the financial distortions involving three currencies in circulation (which will not be corrected in the short term), the limitations of the Cuban economy (aggravated by the crisis) and in the midst of an economic restructuring process, it would be interesting to hear what the role is of those workers in the adjustment process. I insist on this, because it is not just about solving problems of the economy in the abstract. It is about those measures having a direct impact on our workers. By themselves, some, such as USD sales, will deepen social differences, may even widen the gap between urban and rural areas, despite the priority given to the agricultural sector. In this potential scenario, the objective of social equity cannot be neglected as part of the sustainable development that should characterize Cuba.
Note:
* Mauricio de Miranda’s answers are fragments of a larger work. They are published with the express consent of the author.
Participants
Julio Carranza
Doctor in Economic Sciences. UNESCO Regional Adviser for Social and Human Sciences in Latin America and the Caribbean and university professor.
Juan Triana
Doctor in Economic Sciences and full professor at the Center for Studies on the Cuban Economy. He is the author of several books on the Cuban economy and has developed an extensive work on the problems of development and economic growth.
Mauricio de Miranda
Doctor in International Economics and Development. Full Professor of the Department of Economics and Director of the Center for Studies on the Pacific Basin of the Faculty of Economic and Administrative Sciences of the Pontificia Universidad Javeriana de Cali. Author of numerous texts on the Cuban economy.
Oniel Diaz
Master in International Relations and a graduate in Foreign Trade. Co-founder of AUGE Business Development.
Tamarys Lien Bahamonde
PhD student in Public Policy and Urban Planning at the University of Delaware. Master in Local Development from the University of Camagüey and Bachelor of Economics from the University of Havana.
Authors
OnCuba Staff,
OnCuba editorial staff
