Cuba´s new economic measures (I)

Cuba Standard survey about Cuba´s economic outlook

HAVANA, July 24th This Thursday, July 21, a new package of actions approved by the government of Cuba was announced, aimed at trying to lead the Cuban economic crisis towards recovery. Announced by Minister of Economy and Planning Alejandro Gil Fernández, the package consists of 75 measures aimed primarily at attracting foreign currency, protecting the most vulnerable people and making them productive sectors more flexible.

We will offer the readers the opinion of economists who have agreed to answer some questions on the subject. In this first part, we publish the answers of Juan Triana,, a doctor of economic sciences and columnist.

During his speech yesterday at the Ninth Period of Sessions of the  National Assembly of People’s Power (ANPP), the minister of economy announced a growth of 10% for the first quarter, do you think this is the “light at the end of the tunnel”?

The tunnel has been and still is long and the light has been and still is dim. But without a doubt, it is better to hear positive growth figures than negative figures. The minister himself put in context the real meaning of this growth when comparing it with the previous decreases.

Growth is necessary, but in the conditions in which our people have had to live in recent years, growth is significant and relevant when it manages to have an impact on the improvement of the people’s living conditions and this is not yet going to happen. It happens with the growth that depending on the sectors that grow, its impact on the urgent and the strategy is different.

It even happens that it can even be contradictory, for example, we need to grow the supply of consumer goods for the population, because in these years the most punished has been the Cuban population’s consumption; however, thinking about the sustainability of growth, it would be very important that other sectors that do not immediately provide consumer goods also grow.

Today we are experiencing it every day in a dramatic way, we have our “blackouts,” is it not necessary to have a solid, modern, efficient and stable energy sector to grow? So how do you solve the chicken versus kilowatt/hour equation? It is always an exercise around suboptimal.

The issue of defaults and debt does not appear, at least explicitly, within the announced measures. What can you say about it?

I at least did not see any public reference to it. There is also no reason to be saying it all at once. In any case, in my opinion, debt is one, if not the most important bottleneck that we face today, at least of those in our hands to try to solve.

Cuba achieved perhaps the most successful debt negotiation that any country has achieved in the middle of the last decade. Unfortunately, it was misused, and once again we have fallen into an unsustainable situation. The debt raises the country’s risk, damages the image and clouds the business environment, generates uncertainty and raises the financial cost of any commercial operation.

There are ways to solve it, from exchanging debt for assets, and adopting modalities that avoid their total disposal, to the creation of investment bonds that can be acquired by creditors to access new investment projects.

They all have costs, and they all have risks, but there is no greater cost than being the country with the second worst risk assessment in Latin America or seeing our industries paralyzed for not honoring debts with suppliers, some of which have resisted more than the Great Wall of China.

One of the measures of those announced yesterday that has the most direct impact on the population is the opening of a foreign exchange market. What real impact could it have? Does it mean a more than partial return to dollarization of the national economy?

Having a foreign exchange market operating in the country, that is, economic agents and the population being able to access foreign currency through legal and open operations in an exchange market is not synonymous with dollarization.

One of the mainstays of the so-called reorganization that failed was that of the foreign exchange market. That was quite an argument. A monetary and foreign exchange reform that excludes consideration of an exchange market generally does not come to fruition.

Regulating that market is another matter, suppressing it was, is and will be a mistake. In the end, the monetary authority handed over a fundamental instrument of regulation in the hands of informal agents who promoted and continue to promote speculation.

I think the impact of the measure will be positive, although it may not be seen in the short term, in my opinion, it will make foreign exchange operations more transparent. I believe that achieving transparency in that market is one of those purposes, which is why I think it is necessary to guarantee that these allocation mechanisms are very transparent and governed by criteria consistent with the purposes of increasing domestic supply, exportable supply and technological progress, regardless of the forms of management involved.

But I do not hide that I am concerned about the allocation away from allocative efficiency. In short, I see it much better to have a public and official foreign exchange market (CADECA did not do it badly at all) than what we have today or, rather, what we do not have today.

Dollarization is another issue, although they are related. It would have been preferable not to have partially dollarized our economy and even less to have announced it before the so-called reorganization since it set expectations flying.

I still find it difficult to accept the reasons explained, perhaps it is a problem with my structure of thought in these things. In the end, the partial dollarization that was promoted has not been able to adequately solve the problem for which it was created, although it did allow fresh resources to be obtained for purposes that were extremely urgent.

In theoretical terms, we can talk about the advantages and disadvantages of dollarization. For example, where the institutional framework is weak, putting monetary circulation in the hands of a foreign currency brings about the benefit of disciplined spending.

It has costs of monetary sovereignty and advantages of spending discipline. In Cuba, the dollarization of the 1990s fulfilled its purpose at first, then the CUC as well, while the discipline of the quasi-currency exchange was maintained. It had cost, without a doubt, but it achieved stability of the exchange rate in the population market despite the duality. Let’s compare this situation today with that and see which is worse.

But staying halfway is the worst of all and that’s what happened. Today we have duality, three currencies and three exchange rates and the distortion competes with the one we had.

I prefer to be able to operate only with the national currency, but it requires an institutional framework, that the Central Bank be allowed to play the role that it should play as the monetary authority that it should be. It is not what happens in our country and in our economy, which is characterized by a system of fiscal dominance. We have returned to distortions and imbalances that are difficult to manage.

The announced measures mean granting a greater role to the non-state sector. What more could the government do in this regard?

I would like the concept of fundamental means of production enunciated in the conceptualization approved at the 7th Congress of the Communist Party of Cuba to be taken up again, I copy it here “the fundamental character of a means of production lies in its strategic role in economic and social development, the vitality, sustainability of the country and national security,” a definition unfortunately abandoned in subsequent versions of that document.

This definition provides a conceptual basis to pave the way and facilitate the Cuban State a profound restructuring of its productive apparatus and the role of the different economic agents in the construction of the prosperity that we can achieve.

To put it in tune with these days, a brawl in the Coppelia ice cream parlor is not the same as the breakdown of a machine in the Nuevitas thermoelectric plant.

I am one of those who think that in this mandate the Cuban government has shown an intention for change, beyond the fact that the results are far from what is needed. Today there are 4,300 private enterprises and more than 800 local development projects in Cuba.

What is needed is 5,000 more or 10,000. Their emergence must be stimulated, and their growth must be cared for and helped while concentrating state management and ownership in those that are decisive areas, as defined in that first version of the conceptualization.

I will mention for you two specific issues that can be, from my perspective, decisive: we must change the “philosophy” and the instruments of our tax system and turn it into a system that promotes, facilitates and rewards, instead of continuing to be a collection tax system, which punishes and slows down, and I am not saying this only for the non-state sector, I am also saying it for the state enterprise; the second is certainly simpler, it is just granting local development projects the status of legal entities. It is inconceivable that after two years such a mistake has not been rectified.

There are other things that are much more difficult to achieve, they are associated with subjectivities, with learned cultures and yes, also with pure and harsh vested interests. To hide behind false rhetoric of defense of the State and socialism individual interests and forms of parasitism with which we have lived for decades. This is the only way to explain the sustained ineptitude or the sit-down boycott of important policies and decisions.

And you know what? Today we have 70,000 Cubans employed in MSMEs, plus those who are employed in local development projects, plus all cooperative members, plus artisans, which add up to a total of more than 1,300,000 citizens and that make up more than 40% of the employees in the entire national business sector, working to improve their businesses and thereby contributing to improving the country.

They participate in this, based on their ingenuity, their income and not dangling from the State’s udder and that, in my opinion, is very good, in economic, social and political terms. There is another country that is growing and many inside and outside do not want to talk about it, some out of anger, or out of envy, or because they cannot stand that there are successful people in Cuba or out of fear of the status they may lose. But that country also exists.

Foreign investment reappears within the instruments to revitalize the economy. What could be the concrete actions in this regard for the state and non-state sectors?

The first is to finish eliminating that difference. We need foreign investment, large, medium, small, and micro, we need all of it, in national private enterprises and especially in a group of state-owned enterprises that are decisive for the well-being of our population, we also need national investment — and it’s good that the measures include stimulating the creation of joint ventures between national private enterprises and state enterprises.

I have written and published a lot about this, the compendium would be very long. A few months ago Minister Malmierca listed a group of obstacles, all known and repeated over and over again. They look like a twenty-headed hydra.

We must understand that we are a small market, that we are a country with a high sovereign risk, that we are persecuted by the U.S. administrations, by all those that have been, by the one that is and by those that will come, and because of all that we must change our standards, create facilities that improve the standards of our competitors in the region.

How long are we going to continue forcing the foreign investors to hire workers through a state enterprise and pay them for a service that they do not want? Are we going to force the MSMEs to do the same? Why not decentralize approval based on amounts? Why not make the process expedite for certain amounts?

Until when will we admit that there are institutions that are judges and parties at the same time?

Some Cuban professors and researchers have been writing for more than twenty years about all this, but it seems as if there is an epidemic of otosclerosis. Today Cuba is one of the countries in the region that attracts the least flow of foreign investment, very close to the one that attracts the least.1

No one has done the math on the cost of opportunity of the delay in completing a foreign direct investment (FDI) business, or on those business intentions not materialized due to delays, poor service, or lack of professionalism. Has anyone been judged for that, for contributing to Cuba losing billions for its development? Either we get in tune with the world, or we are left out of it.

Why don’t we adopt a system like the one for the approval of MSMEs for the approval of those FDI projects that are not strategic? It may have to be improved, but in my opinion, it has been relatively swift, adequate and transparent.

Do you think that the modifications to the import of packages will have a significant impact on the supply of goods?

Of course, not only because of what the increase may mean but because of how depressed the supply is. It is a measure aimed at acting on inflation, which, as we all know, has among its main causes the depression of supply.

And without a doubt, facilitating and cheapening the import of goods by individuals is a way to contribute to this increase in the short term. Obviously, it is not “the solution” but it contributes.

It would be necessary to open the market. End the oligopolistic structure that it has today, allow national and foreign private enterprises to participate and thus not commit the scarce resources that we have today in a business segment that can be managed in another way and can be properly regulated.

Greater competition in these markets should also contribute to moderating the increase in prices and even reducing some of them, and this translates into improvements for the entire Cuban population.

Do you consider it to be a pertinent package of measures? What would be your recommendations?

Relevant, necessary, urgent, unpostponable. We can use many adjectives. It is true that some are not strictly measures, they are closer to wishes, it is true that we are still looking at the big print. It is true that there are not many details yet. It is true that it is in the implementation where any package of measures finds its black hole.2

In these two years we have witnessed surprising productivity in the drawing up and announcement of measures, we are a world power in drawing up of measures and methodologies; more than forty for state enterprises, sixty-three for agriculture (which have more than 600 actions to execute), ninety-two to “save the sugar industry,” and now these seventy-something measures.

This puts the existing execution capacity to the test, but it also demonstrates the enormous institutional effort that is required to start up an economic system that must be radically transformed, even within the political budgets that support it.

Any effort that is made, packages of measures included, must follow the essential coherence, a sequence that must be respected and an essential consistency so that it can bear fruit. You must do it in a certain time, it’s something I’ve talked about on other occasions.

Time is the scarcest resource of human beings, and it is the most strategic of all resources for political systems and governments, of whatever political and ideological color they may be.

In 2008, Raúl Castro, Army General and at the time President of the country, promoted a reform process that was almost strangled by the resistance and those resistant to change. Today we are paying that cost in young people emigrating, in our people suffering from huge queues, in increasing poverty, all of which has led to dedicating resources, efforts and neurons to achieve adequate palliatives.

We must stop talking about the obstacles, because they will always exist, and identify those who create the obstacles and kindly add them to the transformation effort.

***

Notes:

1 In total, at the end of last year there were 302 businesses with foreign investment in the country,[1] compared to 318 in 2020 and in the last two years 47 businesses were approved, of which 25 have not been established. Additionally, it has been estimated that of an annual FDI flow goal of between 2 and 2.5 billion dollars, only 708 million were achieved last year.[1] In terms of gross fixed capital formation of FDI in 2020, some 571 million pesos were reached.[1] J. L. Rodríguez “Evolución de la economía mundial en el 2021 y su impacto en Cuba. Perspectivas del 2022.” CIEM.

2 An example of the difficulties that continue to affect the country’s progress is given by the discreet advance of the Guidelines for Economic and Social Development for the period 2021-2026, agreed at the 8th Congress of the Communist Party of Cuba in 2021. Indeed, recently it was announced that five guidelines (2.5%) have not “made progress”; 79 (39.3%) are described with “low progress”; 104 (51.7%), with “average progress”; and 13 (7%), with “high progress.” J. L. Rodríguez “Evolución de la economía mundial en el 2021 y su impacto en Cuba. Perspectivas del 2022.” CIEM.

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