Where are we and what else to do to start boosting the economy?

In September 2019 I published an article in which I proposed economic measures that should be taken in the coming years.  As I read it again, I was satisfied to confirm that some of those proposals from four years ago were implemented, although belatedly.

The current economic situation is even worse than in 2019, due to a series of very complex causes, but the population expects tangible and quick results. At the very least, it is essential that agriculture and the manufacturing industry stop declining and that structural imbalances improve.

At the moment, we lack information about the proposed plans, as well as the implementation steps for what the Cuban authorities have called “Macroeconomic Stabilization,” with which the year began.  Positive results of that program are still not visible.

Inflation is high; food shortages are impacting us severely; agricultural production, essential to national life, decreases every year in basic products such as pork, sugar, coffee, beans, fresh milk, rice, etc.; there is still a deficit in electricity production and fuel supply.

Many Cuban economists, inside and outside the country, have proposed their ideas based on what they have learned. Logically, policymakers must also propose their ideas, but as we have said on other occasions, it is up to them not only to propose but also to implement and time is of the essence in Cuba.

There are already very obvious signs of social fatigue, and the medicine for these ills cannot be the escape valve that external emigration constitutes; or the transition of workers from key sectors such as health and education to the new emerging sector of MSMEs (micro, small and medium enterprises) that are playing an important role in offering goods and services that are otherwise in short supply.

Concrete plans have to emerge from the multitude of meetings the government has hed.  Exhortations and slogans played an important role in the past, but the current context is different.

What are the indicators for 2022 that indicate the urgent need to accelerate the pace?

• A GDP in 2022 that grows only 1.8% in general, but agriculture decreases by 5.3%, and industry by 6%.

• A fiscal deficit of 11.1% in relation to GDP.

• A year-on-year variation in the consumer price index of 39.1%. High inflation.

• An opening rate of the economy at current prices of 88.8%.

• An external trade deficit not only in goods but also in services.

• External debts growing due to interest and without short-term amortization.

• Socially, the pressures on the population are increasing and the indicators that placed Cuba as a country with an average rate of development have deteriorated.

• Births decrease. The birth rate in 2022 was -2.1% per thousand inhabitants. This indicator comprises the workforce of the future, which number will also be affected by migration abroad, and continues to be negative.

• The infant mortality rate is 7.5 per thousand live births.

• Health personnel numbers are decreasing, especially among doctors, there is a lack of essential medicines and medical equipment, while the physical infrastructure of hospitals and health centers in general has deteriorated significantly.

• The education system shows the same signs of wear: lack of personnel, resources and infrastructure.

• In the last three years, the Cuban authorities have proposed hundreds of measures to revive the country.

Positive results are not evident, which leaves the question of whether this is because the measures they chose to apply were of little impact or because they were inadequately implemented?  What is the reason? Is it the so-called liberation of productive forces or the strengthening of control or further centralization of the economy? Whatever, the goal, the result is unequivocal: the production of goods and services that impact the well-being of the population does not increase.

After four years, I once again propose more measures — this time nine proposals — that take into account the economic variance from 2019. These recommendations could give oxygen to the population and stimulate productive forces:

1

After the approval of MSMEs, with more than 8,700 already approved, the issues that limit them today should be analyzed in depth and the rules modified as appropriate.  For example, we need to allow them access to foreign currency at appropriate interest rates for the purchase of inputs abroad, either for marketing purposes or those necessary for national production. We should eliminate the prohibition on professions and trades, such as architects, civil engineers, travel agents, among others, that are essential in sectors such as construction and tourism, from being able to practice their professions independently.

2

We need to create special economic zones for purchases by Cuban citizens in the national territory with acceptable profit rates, for example, 30% of the cost of the merchandise purchased, not the 240 or 300 percent that Cuban state stores have set. Since the country lacks foreign currency, this market could generate foreign currency. The State could win, not lose, and the population could improve its purchasing power, which has been strongly impacted by inflation. We do not appreciate how other countries benefit from the internal Cuban economic situation since the Cuban authorities are only dedicated to maintaining control, instead of being proactive with the economy. Haiti, Isla Margarita in Venezuela, Cancun, the Colon Free Zone in Panama and, even Miami, siphon off the foreign currency of Cubans who purchase in those places, due to lack of supply in their own country.

3

We need comprehensive enterprise laws that cover all forms of ownership required by a modern economy. Despite stated intentions to the contrary, the highly anticipated new enterprise laws have been unreasonably delayed. The current state of the economy requires an accelerated speed in adopting laws and regulations. One of the issues that must be addressed is how long unprofitable state enterprises will be allowed to operate with government subsidies.  When will they be allowed to go bankrupt and measures taken, such as reorganizing all or some of their activities under other forms of property ownership, perhaps even forming cooperatives owned by their own workers?

4

Idle, or closed, or decapitalized state assets could be given in usufruct or leased for a defined period of 20 or 30 years to Cuban private entrepreneurs, or their own workers, including sugar mills that have not milled for many years, to produce sugar and/or cane derives.  In addition, we should seek the creation of communal institutions financed privately or by local governments, especially in small municipalities and not in large cities.

5

Reconsider the institutional structure of the country’s economy, as the Enterprises and Basic Business Units (UEB) do not function and the Business Management Organizations (OSDE) have merely become bureaucratic super ministries. Flatten the structures, that is those of the enterprises and ministries, and move some enterprises from the central level, to local governments.

6

Improve the conditions for foreigners to invest in Cuba. To achieve this, among other measures, we must eliminate the employing agency which we now require foreign investors to use, and instead permit them to directly hire their employees. Taxes on the salaries earned by hired workers must be collected by the Tax Agency not by the employment agency. That is one of the first complaints of foreign investors already based in the country.

7

There must be a major initiative to the search for external capital from Cuban individuals or families residing abroad. Adopting an investment law is not enough, and the Cuban authorities know that. Just as exhibitions are held to announce portfolios of investment opportunities for foreign entities, outreach could be carried out through the office of Cubans residing abroad of the Ministry of Foreign Affairs, in order to interest them in the Cuban market.

8

There should be a policy to attract international microcredit entities that have been interested in the Cuban market for many years - even those from the United States.

9

We need to abandon the habit of regularly capping prices and do so only in extraordinary circumstances. In the medium term, it is harmful. The population benefits momentarily, but then prices rise again, because the market adjusts due to other variables. To achieve lower prices, policies must increase supply and competition. The country’s economy cannot not run like a corner store. It is up to the State to develop and implement a viable strategic plan.

These are not the only possible measures that should be studied; they are only some examples of what could be done. Other institutions, academics, or officials may present other initiatives, but I consider that these have a key role in reversing existing imbalances.

If we continue at the current pace, without making profound changes, it is difficult to reach 2030 with the objectives that have been proposed ourselves.

We all know that the international panorama does not help Cuba; the blockade remains intact and puts increasing pressure on the economy; sovereign loans are non-existent and become even more uncertain as total Cuban debt continues to increase; there continues to be a marked volatility in prices of primary products, etc.

But the country does not have the economic scale to influence the international environment. All we can do is to concentrate on modifying the internal economy.

We must carefully study the Vietnamese model; in which many went from simple self-employed workers in the 1990s to multinational investors today. We should study the life stories of many businesspeople in that country that was in ruin just over 30 years ago and today is a very dynamic country in Southeast Asia, with a political model similar to that of Cuba.

There is still a lack of knowledge among our officials and citizens that money is nothing more than a medium of exchange and that the true stimulus comes from what can be done with it.

No juggling of prices will get the country out of our imbalance between supply and demand. Those who decry the preceding statement as “ignorant” need to explain themselves.  What “knowledge” was used in devising a package of salary increases without concurrently increasing the supply of imported and national goods?  How could they not have foreseen that inflation would skyrocket and the informal dollar to peso market rate would increase?

A colleague and friend, Pedro Monreal, in his blog El Estado como tal, published this sentence on September 5: “As far as it is possible to observe, the official measures today represent an attempt to expand the state comfort zone, combining an eventual flexibility with state control, price caps, state ownership of land and a brake on national capital.”

In conclusion, the comprehensive reform that the country needs of expanding the private markets, which could give a great boost to the economy, is instead perceived as a setback – as a pro-capitalist reform.

We will know the economic results in the future. If the current policies stay in effect, in 2024 we will be the same as in 2023, and the same as in 2022, and so on.  And, we will continue with the decline in economic and social indicators of the last five years.