On 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 the productive sectors more flexible.
We will offer the readers of OnCuba the opinion of economists who have agreed to answer some questions related to the subject, in this fifth issue we publish the answers of the Cuban economist Camila Piñeiro Harnecker who has been a Professor at the Cuban Center for Economic Studies of the University of Havana. She graduated in Sustainable Development from the University of Berkeley, California, and in Management Processes from the University of Havana.
The Minister of Economy during his speech at the Ninth Period of Sessions of the National Assembly of People’s Power (ANPP) announced a growth of 10% for the first quarter, do you think this is the “light at the end of the tunnel”?
The GDP growth of 10% in 2021 compared to the previous year, after a decrease of 10.9% in 2020, is undoubtedly good news. This data, together with the fact that in the first half of 2022 the GDP grew by almost 11% and more foreign currency was attained than in the entire previous year, shows that we are recovering from the great blow that has been the economic impact of the pandemic and the measures imposed by the Trump administration on top of the nefarious, cruel and illegal blockade.
Obviously, it does not indicate much more than the fact that we have hit rock bottom. We have not yet fully recovered from the fall, since the economic results are lower than those achieved in 2018 and even 2019, when we were already begining to decrease (-0.2%) fundamentally as a result of Trump’s sanctions. However, these data indicate a trend towards recovery that should accelerate as the economy earns more foreign currency (from tourism, remittances and exports) and economic activity, in particular production that substitutes imports, is revitalized.
These numbers are not yet reflected in a recovery of living conditions. Although some activities such as public health (14%), education (9%), transportation, storage and communications (6%) are recovering, it is worrying that in the productive sphere and in particular industry (-15%), agriculture (-13%) and commerce (-7%) are still decreasing considerably. In fact, the great difficulties of daily life: the shortage of food, medicine, electricity, fuel, transportation, etc., etc. confirm that we are far from overcoming this crisis. Given the extremely complex international context in which we find ourselves, which is leading to a considerable increase in the prices of food and fuel, the increase in the national production of food and renewable energy based on corporate social responsibility and citizen participation will be key to recovery.
Following the tunnel metaphor: I don’t think we can see the light well yet, maybe just something very dim. But based on the path we have made of the tunnel, we can deduce that we will see it. The speed and intensity with which we see the light will depend on the ability with which we know how to walk in the dark, uphill and in the midst of so many external and internal obstacles.
The issue of defaults and debt does not appear, at least explicitly, within the announced measures. What can you say about it?
Minister Gil spoke very quickly about defaults to suppliers when mentioning the new “secondary” currency allocation system that is being designed. He noted that this system was partly to solve the insufficiencies in the use of foreign currency that have resulted in defaults to suppliers. I understand that the possibility of foreign suppliers selling on consignment, while perhaps not in itself the solution to current accumulated defaults, may help prevent future accumulation, at least for some of them.
Related to the above, allowing consignment sales is a very positive step, and – like others – too long overdue. We all know that for many decades one of the biggest barriers to the operation of all business forms in the country has been the difficulties in accessing production inputs, equipment and technology, which are essential to be able to advance in national production. I think that if the State cannot serve as a supplier — either due to deficiencies in its management or because of the real difficulties and additional costs generated by the blockade — and its control of foreign trade becomes an obstacle for the economy, then it should be allowed that economic actors can at least import by other means, indirectly or directly. From my point of view, the ideal solution for both producers and consumers and citizens who receive universal and practically free social services is that where producers (be they farmers, self-employed workers or private MSMEs) organized in cooperatives, or cooperatives organized in higher-grade cooperatives (for example: second tier) take charge of this provisioning function themselves, whether in domestic or international markets. In this way, we could take advantage of larger scales, greater transparency in transactions and thus the possibility of social control to prevent capital flight, and we could win a very important battle against the blockade.
Regarding the debt, although its payment is critical to be able to reduce the country’s risk and we no longer have many available lenders, in the current conditions I do not think that it should be the priority. In the face of the crises unleashed by the pandemic and the war in Ukraine, many countries have been able to renegotiate their debts, so if we provide guarantees of future payment, we could do it too. I suspect that the debts to suppliers and lenders are under negotiation and that is why no further information could be given in this regard.
One of the measures with the most direct impact on the population of those announced 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?
One of the July 2020 measures taken to get out of the crisis caused by the pandemic and the tightening of the blockade was the establishment of stores in freely convertible currency (FCC). Initially it was said that it would only be for “high-end” products and that it was essential to supply the stores in CUP, which would continue to offer “low-end” products. But this never materialized: almost everything is sold in FCC and in CUP stores there is almost nothing. Add to this the fact that there is no official FCC exchange market, FCC stores have in fact become the main source of discontent as Cubans who do not receive foreign exchange are forced to turn to the informal exchange rate market and see their income in pesos drop 4 or 5 times.
As Minister Gil recognized, the informal foreign exchange market has grown considerably, resulting in foreign currency flight and contributing to inflation. It is this informal exchange market that is setting the value of the peso and therefore the prices for all private actors.
According to Gil, finally — given the entry of foreign currency into the country — it is now possible to establish an official foreign exchange market for all currencies, including the USD, for the population. At the same time, a secondary foreign currency allocation scheme is being designed where foreign currency will be assigned to the state and non-state sector, so they can increase the offer fundamentally in pesos. As there is not enough foreign currency, the exchange rate cannot be 1×24, but rather an economically based one to be approved soon.
The impact that we hope it will have is what is already being seen: that the peso appreciates in the informal exchange market, that the exchange rate in the informal market falls. Since the demand is fundamentally from FCC to be able to buy in stores in FCC, it will help people who do not receive foreign currency to access those stores. Politically, it’s the right thing to do. Economically, if the sale of foreign currency is handled in such a way that it does not feed the informal exchange market, it should also serve to revalue the CUP and collect more foreign currency.
The announced measures mean granting a greater role to the non-state sector. What else could the government do in this regard?
From my point of view, it is unfortunate that while so much energy is being put into promoting MSMEs, cooperatives are hardly talked about. As I have explained other times, not because I do not think that MSMEs do not have a role in a society that seeks a socialist horizon, but because the cooperative model is much better equipped to achieve the economic objectives that are pursued (employment, productivity, exports), along with social and cultural objectives such as equity, solidarity and the empowerment of people.
Much remains to be done in the cooperative sector, some of which are measures already contemplated in the Guidelines and announced more than a decade ago. Among them, two stand out that could have a great impact on the development of the sector: 1) creating the Institute or entity in charge of promoting the cooperative sector, and 2) allowing the creation of second-tier cooperatives (i.e., cooperatives of cooperatives).
We cannot be surprised that so few cooperatives are being created in relation to private MSMEs if we do not even have a national cooperative education program. If we are interested in people who do not have savings or family members to send them seed capital, and who often do not feel prepared to undertake, do so by sharing resources and risks, then we have to establish cooperative incubation and acceleration programs. In addition, the preferential treatment granted to cooperatives in the regulations in terms of taxes has been diluted in the face of the advantages that private MSMEs have to deduct from the tax on profits all their expenses in remunerating the workforce, and to access foreign investment and informal exchange and input markets, just to give a few examples.
It should not surprise us that the great deficiencies that most agricultural cooperatives present, since there is no entity that provides education and acceleration services, nor have they been allowed to organize themselves into second-tier cooperatives to access supplies, market and add value to their productions. The direct concurrence of agricultural producers to the markets that is being promoted today can only be achieved efficiently with second-tier cooperatives. And so, many of the greatest challenges of cooperatives can be overcome through cooperation among them — not for nothing it is the sixth universal principle of cooperativism.
I was struck by the calls for solidarity made by Minister Gil to the private sector in relation to speculation and the excessive increase in prices. Although there are private entrepreneurs who have solidarity and responsibility inculcated in their personality (probably due to the education of their parents and teachers) and set fair prices, the logic of the private enterprise is towards maximizing the profits of its owners, pure and simple. The social and solidarity economy is a way to ensure that a greater number of private entrepreneurs, together with cooperatives and even enterprises and state entities, practice solidarity, which is nothing more than responsibility towards all: activities aimed at satisfying social needs, fair prices, fair treatment of its workers, environment-friendly practices. To achieve these behaviors, it is necessary to educate, promote organizations that are better prepared to implement them and serve as an example, and reward through material and spiritual incentives.
Foreign investment reappears within the instruments to reanimate the economy. What could be the concrete actions in this regard for the state and non-state sector?
I think it is very important that it be understood that to the extent that Cubans in the diaspora, especially those who live in the United States, invest in Cuba, they will have greater interest and commitment to the development of our country’s economy. This is not only an economic imperative, but also a political one. Other colleagues will be able to contribute much more in terms of concrete actions to achieve the foreign investment goals in which so far we have fallen short.
Do you think the modifications to the import of packages will have a significant impact on the supply of goods?
From what Minister Gil explained, there will be a relaxation of non-commercial imports via travel and unaccompanied luggage of essential items, expanding the limits allowed on a non-commercial basis. The import of packages can be used for families and small family businesses to stock up on some products, reducing the pressure of demand on the scarce existing supply.
But it cannot be the solution to supply all private businesses, nor should it expand as a way of life: buy cheap to sell more expensive. First of all, because it is not efficient. Second, because the currencies leave the country. Third, because uncontrolled commercial imports can actually prevent the development of a domestic supply in some cases: it is basically giving up import substitution policies.
This is why I agree with Gil’s explanation that imports will not be allowed on a commercial basis because it goes against the development of local industry and the flight of foreign currency. However, as I mentioned above, the government must look for alternative and much more effective ways that allow all business forms their timely supply and with competitive costs.
Do you consider it to be a pertinent package of measures? What would be your recommendations?
Many of the measures, in addition to being relevant, are too delayed. Although the establishment of the official foreign exchange market required the availability of foreign currency, there are others such as consignment sales and investment facilities that only required political will. As has already been said, we cannot afford to continue wasting time to implement measures and mechanisms already approved in the Guidelines and in the Conceptualization from many years ago, because the time lost cannot be recovered.
It seems to me very correct that it is recognized that the spillover theory does not work: that GDP growth is not going to translate into an improvement in the living conditions of the majority if the growth is not inclusive, equitable and supportive of disadvantaged communities. I am glad that collective solutions that promote solidarity are being taken up again, such as the allocation of idle land to work centers for self-consumption; the use of profits from state enterprises for the construction of housing for their workers; the minibrigades; the central self-transformation of neighborhoods. All of this is very important so that the conception that we are in a free-for-all and that we are heading towards the worst of capitalisms does not continue to be propagated.
However, as I explained above, there is still a lack of already approved measures that remove some of the most important obstacles to the development of the cooperative sector, which is a quintessential collective form of economic and social organization. If we want a society that advances towards prosperity with greater solidarity, equity, inclusion of people in vulnerable situations, then we have to allow cooperatives to really flourish. Otherwise, everything about cooperatives being the second most important business form after the state enterprise will remain just a dead letter.