Measures proposed by Cuban economists in the face of the crisis

Through more than half a century of studying and publishing about Cuba’s economy I have endeavored to disseminate and comment on the crucial work of economists on the island, who have contributed so much to economic thinking and fruitful debate inside and outside Cuba. I have learned a lot from their work and I maintain academic relationships with almost all of them. Being supporters of the Revolution, they have played a leading role in pointing out problems, judging government policies and proposing sensible alternatives.

In the current difficult situation they have pointed out the severity of the potential crisis, the lack of imagination and daring to attack it, the inadequacy of the plan in the face of the enormous problems that exist and that are approaching, the absence in the discussion of long-standing key issues, the need to deepen the reforms which are postponed or obstructed, the importance of applying the successful policies of China and Vietnam, the need for monetary and exchange rate unification, the scarce treatment of private property and microenterprises that should be the object of a law, the need to transform the state enterprise by making it autonomous and competitive in order to eliminate state subsidies, the deep reform of agriculture to solve the scarce supply of food, etc. [1]

Here I summarize their policy proposals; I have tried to be faithful to them and, if in any case my interpretation has not been adequate, I fully assume responsibility for it. Although there is consensus on a series of key points―as will be seen―they are almost three generations that support a range of positions and opinions. Due to time and space limitations, I could not make a complete inventory (my apologies if I exclude someone), nor do I discuss proposals from the past, but I basically concentrate on 2019.

José Luis Rodríguez (2019) was minister of economy and planning in the 1990s and the architect of the reforms that managed to stop the drop in the GDP and begin the recovery process, and today he is an advisor to the World Economy Research Center. He argues that in the current situation two things must be guaranteed: the population’s food and the country’s energy. With respect to the latter he comments that there are measures that would have to be taken for extreme situations, but greater advance must be made in foreign investment because there isn’t sufficient capacity for internal savings and the experience of recent years says that “it doesn’t follow the pace of the required growth rates.”

One of the key elements to boost this investment is to “recognize foreign investors’ risk” and reward them in various ways. In addition, it is essential to pay the debt with investors and suppliers because if not, “no one will come to invest, or…lend us a penny.” Once this is resolved, it is necessary to design “a concession policy to avoid Cuba’s international isolation.” It is essential to avoid a critical situation of food and medicine shortages, ensuring their import, even if it involves sacrifices in the investment.

“It is unavoidable to eliminate the monetary and exchange duality,” but it entails devaluation and a price increase at a high cost for the population, which is why we must subsidize the prices that increase. As the formula to do this has not been found, “I believe that today there are no short-term conditions to carry out this process…it will have to be between 2021 and 2022.” The state sector must be strengthened as it can “give great returns” and propose creating a mixed investment fund with part of the remittances, in which the person who sends it and who receives it, as well as the State, participates.

The former director of the Center for Studies on the Cuban Economy (CEEC) of the University of Havana―which has been instrumental in the development of Cuban economic thought―, Omar Everleny Pérez Villanueva, affirms that “Cuba lacks sufficient strength to face the external actions so it is necessary to emphasize a greater internal opening, for example, expanding small and medium enterprises (SMEs).” The quality of tourism “is well below that obtained in other countries of the region” and part of the planned funds would have to be dedicated to building many rooms with the necessary quality. Food production “faces the inefficient collection, but it is still committed to this centralized instrument” (Rojas interview, 2019).

Pérez has studied Chinese-Vietnamese reforms and urged that they be considered on the island. In a recent article, he comments that “the slogans were part of the past…but the current context is different, which is why the measures to be applied must be different, more concrete, measurable and hopeful for the short term,” for which he offered ten proposals:

1. a) expand the list of approved trades for self-employed persons or determine the prohibited activities and give freedom to perform the rest;
2. b) create wholesale inputs with foreign companies or commercial firms for all forms of ownership;
3. c) establish special economic zones for Cuban citizens’ purchases on the island, with adequate profit rates, in order to lower the price of the sale of necessary products;
4. d) promulgate the Law of Enterprises that legalizes all forms of ownership;
5. e) approve export and import companies for non-state forms so that they make their purchases and obtain technology, and sell their products abroad;
6. f) eliminate the employment agency imposed on foreign companies and allow them to directly hire and pay their employees;
7. g) officially promote capital investment by Cubans residing abroad (the government has recently said that this is possible because the legislation does not forbid it, but Pérez goes further); and
8. h) take away the state tax (10%) on the exchange rate of USD for CUC to prevent it from becoming more beneficial in the black market (Pérez Villanueva, 2019).

Pavel Vidal, who was an official at the Central Bank of Cuba, later a professor of economics at CEEC and currently a professor of economics at the Javeriana University in Cali, Colombia, states that “facing the complicated international scenario and the few external options to boost the economy, an obvious option would be a policy that could try to find impetus within the economy and the private sector. This could contribute to improving productivity and growth if the conditions for the creation of SMEs were established, and professionals were allowed access to self-employment and the incursion into activities of greater added value and technological intensity. The problem is therefore political, of ideological resistance in the face of a greater take-off of the private sector and will be a test for the Díaz-Canel government that will allow it to show or not show its autonomy and ability to gather consensus. A greater opening for the private sector could pave the way for the elimination of monetary duality, which is an indispensable measure to correct wages, measure competitiveness, promote foreign investment and, above all, to define which state-owned enterprises should continue working. The economy has been carrying for 30 years the dead weight of a state sector that was not fully restructured in the 1990s and has survived by paying very low wages and receiving state subsidies with an overvalued official exchange rate. Without a thorough restructuring of this inefficient and unfeasible state enterprise apparatus under all financial measurements, the economy will never be able to display its potential growth and exit the cycle of financial crises that are repeated every seven or eight years. Only through a structural monetary reform can this objective be achieved. The private sector could generate the jobs required to close such enterprises and thus avoid the high social costs of such an adjustment” (taken from Mesa-Lago and Vidal, 2019).

Julio Carranza (2019), a leading economist and co-author of an eye-opening book in 1995, argues that there is an internal debate with great coincidence of ideas and essential approaches, “all concerned about the chronic lack of efficiency of the economic model, all advocating changes necessary to overcome the problems” but with a low level of attention from government entities. And he wonders: “What is happening with this stumbling block in the lack of innovation and political audacity…? We are facing a new crossroads in our history that can only be overcome…with a revolutionary and swift exit that does not include paralysis, lack of imagination, or dogmatism.… The ghost of ‘improvisation’ cannot be an argument to indefinitely prolong courses of action that are more than studied and backed up.”

Another well-known economist and co-author of the cited book, Pedro Monreal (2019a), reiterates the “invisible” subject of short-term economic policy: the private sector that represents 36.4% of the investment and the creation of 417,000 jobs between 2010 and 2016. He proposes that instead of investing so much in the construction of rooms for tourism (since the occupancy rate is very low and has little impact on the GDP), some of these resources be used to boost the private sector, agriculture and the construction of dwellings by the population.

Monreal has studied the Vietnamese economic model in detail and has suggested it as a guideline for Cuba. In another of his numerous and extensive articles he denotes the absence of key measures in the 2019-2001 economic plan: the adoption of a law on enterprises that includes all types of property; the approval of private SMEs and non-agricultural and service cooperatives; simultaneous reforms of prices, salaries and pensions; the sequence that will be followed in the monetary and exchange rate unification; the elimination of subsidies to the state enterprise; the pressing need to increase national food production and to reduce its prices; and the plan to put into production thousands of hectares of state-owned idle land (Monreal, 2019b).

Humberto Pérez (2018) was president of the Central Planning Board in 1975-1986, when after the debacle of the 10-million-ton sugar harvest some modest reforms were introduced such as free farmers’ markets, the parallel market with higher prices than for rationed goods, the attempt to give greater autonomy to state enterprises and the use of economic mechanisms instead of physical ones in planning. When Fidel Castro launched the Rectification Process in 1986, he dismissed Pérez from his position. In the last three years, he has participated in important economic debates.

In a long work on the necessary currency and monetary unification (which he says should be the first step), he proposes a series of specific measures to cushion its adverse effects among workers and pensioners (impossible to summarize here), but also makes suggestions on other key aspects:

1. a) develop “real” decentralization agencies, such as involving workers in the planning, appointment of managers, management and allocation of business profits;
2. b) make state enterprises independent and competitive with the non-state sector;
3. c) promulgate the Law on State and Non-State Enterprises;
4. d) expand private activities;
5. e) face the concentration of wealth and income inequality with economic-financial mechanisms that do not impede their contribution to development;
6. f) greater opening to foreign investment and easier approval without bureaucracy; and
7. g) automatically restocking the shops selling in hard currency (TRDs) in order to maintain a stable offer (retaking the decentralized management of yesteryear, instead of the current centralized allocation).

Juan Triana Cordoví, professor of economics and member of the CEEC, in a paper on the occasion of the 20 years of the foundation of said Center, analyzes the “marches and counter-marches” of the official economic policy. He compares national aspirations with the problems they face in reality:

1. a) the plan does not leave enough space for state enterprises to be more efficient;
2. b) there are disincentives that hinder the goal of expanding and diversifying exports (exchange rate, salary, excess restrictions);
3. c) the conception of the plan and the regulations for salary formation and profit distribution are contradictory with the objective of making state-owned enterprises innovative, and neither is the culture of risk and competition promoted;
4. d) the non-state sector is considered to be more than a travel companion, but there is a reduced list of permitted activities and the law on SMEs has not been approved;
5. e) the ban on self-employment for professionals stimulates their emigration and the loss of highly qualified workforce (which is vital because aging is reducing it); and
6. f) the lack of mobilization of “non-state” resources prevents raising the investment rate.

Another outstanding member of CEEC is Ricardo Torres (2019), professor of Cuban economics at the University of Havana, considers that a fundamental change of the model is required, although it should be discussed whether it should be done gradually or abruptly, which is why he has doubts about the policy packages to manage the situation because, in the absence of a long-term plan, often these partial measures end up putting the country in a worse situation. In any case, he advances some proposals that he considers currently applicable: to transform the state enterprise into truly autonomous entities, with limited obligations pre-established with the government; eliminate restrictions on the private and cooperative sector, and favor their relations with the public sector; initiate the first steps for the monetary and exchange reform; make the financial reform, banks must capture internal savings and channel them efficiently; simplify the processes for the approval of foreign capital and its operation in the country; and redefine the strategy in agriculture, a sector subject to a constant change of course and that has not generated the required results.

Armando Nova González, a renowned agricultural economist and also a member of the CEEC, for years has raised the need for a thorough reform of agriculture based on four essential points:

1. a) real ownership of the land: the right of farmers to decide on what to sow, to whom to sell their products and freely set their price;
2. b) recognition of the key role of the market;
3. c) elimination of the state monopoly (collection) and diversification of marketing, with autonomous agricultural cooperatives; and
4. d) freedom to hire workforce.

A more recent work on external remittances recommends: ensuring that foreign companies from several countries link up with the Cuban market, sending consignment goods that would be sold jointly with the national partner, consumers would pay by debit card in foreign currency or in cash, with which the national economy would not spend foreign currency in the purchase of essential products for the non-state sector and thus channel remittances. (Nova, 2013, 2019)

Joaquín Benavides (2019a), who was government minister and president of the planning entity in 1986-1991, reproaches the silence on private property: “The Constitution [approved in February 2018] states that private property is as legal…as state socialist property…. Without private enterprise it will be very difficult and delayed to reorganize the state enterprise and solving the problem of the corporate exchange rate will be extended extraordinarily over time…. We should not see private enterprise as a problem, but as a solution, to help us save socialism and save time.” In another work, Benavides (2019b) affirms that for three years “we know what needs to be done” and that “everything could be ready to start changing the anarchic pace of the economy and save the country, but the bureaucracy entrenched in the senior management bodies is preventing it.” He criticizes those who advise “to wait for a better moment to carry out the inevitable changes in the economy, exactly the opposite of what we should do.”

He recommends, among other measures:

1. a) promulgate the Law on state enterprise and the Law on private SMEs;
2. b) resolve the duality of the exchange rate, “it is inconceivable that the Ministry of Economy and Planning has not included this task as one of the most important to be resolved in 2019”;
3. c) fully free bureaucratic provisions and obstacles to agriculture, including modifying the collection pricing policy, as well as excessive taxes on private landowners and usufructuaries; and
4. d) pay or renegotiate the debt that the State has with foreign suppliers in order to regain access to external credit.

Former economics professor of the University of Havana Juan Ferrán (2019) said that “the big problems of the economy demand great remedies.” He gave as an example the successful cases of China, Vietnam and Laos, which “started from very low levels,” and “considers that the Soviet model cannot be reformed.” He added: “it is not possible to clone them, but we must follow their pragmatism” because “what is planned perpetuates the hardships…the deficiencies of the economy lead us to a dead end. The pre-eminence of an allocation mentality of the bureaucratic entities and the state economy persists…. In the cooperative sector [state] controls limit productive creativity…. More serious still is the retail shortage, endemic breakdown that has lasted for more than half a century. It is in crisis right now. The retail offer is one of the poorest in the world, perhaps the worst…. The internal supply should be added to the established priorities; it is very likely that it is the key to efficiency….” 

Finally, Esteban Morales (2019), a long-standing economist and participant in several controversial debates, was surprised by “the tranquility with which the 2019 Economic Plan is talked about…because it is not a plan that has a strong impact on the problems that stop us. It is nothing daring, risky, it has nothing that really pushes towards the growth of the economy…it is about a conformism that is scary…I do not see that it fits in with what the moment demands…[and] the situation will become very tense, which will lead to the adoption of urgent and desperate measures, what are we waiting for?”

He added that “there seems to be no response to the consensus that exists, almost widespread, on what should be done” with the economic reforms. Regarding the state enterprise, he said, “it does not finish putting its feet on the ground, that will really make it move forward. On the contrary, we superimpose bureaucratic structures that limit its necessary independence to move towards ways that will allow it to be really efficient….” He then analyzed the situation in the non-state sector: “We have not planted a firm footing with cooperatives…. Self-employment hasn’t freed itself from bureaucratic ties…that would make it move forward in a more flexible and efficient way.… Our main problem is not economic…it is essentially political.… It is about not ending up making forms of private property function…, cooperative, small and medium businesses, giving them their rightful place within the economic model.”

Last July’s measure of increasing wages in the “budgeted” (non-business) sector sparked one of the most notable controversies in many years. The vast majority of Cuban economists, although they considered the positive social aspect of this policy, warned that it would generate inflation because there is no real possibility of increasing production (supply). They also criticized the government’s attempt to control prices because it will be ineffective as has happened in the past in Cuba and other countries.

I agree with virtually all of the previous recommendations and I wish the government listens to those who know the most about the Cuban economy and have proposed judicious and feasible policies to get Cuba out of the current crisis and avoid the coming ones. Humberto Pérez (2016) said: “The active participation of our economists and other intellectuals of the social sciences is necessary in the discussions and decision-making on the implementation of the economic model…I consider it convenient to create several think tanks with our leading social scientists….”

 

Note:

[1] Part of this article is based on Mesa-Lago and Vidal, 2019; this version doubles the number of economists, expands the proposals of the rest and completely restructures the narrative.

Bibliography:

Benavides, Joaquín (2019), “Sesión del 13 de abril de la Asamblea Nacional: Comentarios ineludibles,” Cuba y la Economía, April 13.

Carranza, Julio (2019), “Preguntando honestamente,” Cuba y la Economía, April 26.

Ferrán, Juan (2019), “¿Por qué?”, Sine Die, April 20.

Mesa-Lago, Carmelo and Pavel Vidal (2019), “El impacto en Cuba de la crisis de Venezuela y las políticas de Trump,” Madrid. Working Paper of the Elcano Institute for International Studies, June.

Monreal, Pedro (2019a), “Gestión macroeconómica, anti-crisis en Cuba,” Elestadocomotal, April 30.

______ (2019b), “El plan de la economía cubana para 2019: Lo que no queda claro,” Elestadocomotal, January 10.

Morales, Esteban (2019), “Las encrucijadas de la economía cubana,” Prensa Latina, April 4.

Nova González, Armando (2013). El Modelo Agrícola y los Lineamientos de la Política Económica y Social en Cuba. Havana: Social Sciences publishers.

Pérez, Humberto (2016), “Necesitamos socialismo y realismo,” Moncada, June 14.

______ (2018), “Reforma monetaria acompañada de aumento de salarios y pensiones: Reflexiones y sugerencias,” Catalejo (Temas), June 22 and 25.

______ (2019). “Remesas a Cuba. Mito o realidad,” Cuba y la Economía, July 13.

Pérez Villanueva, Omar E. 2019. “Medidas económicas necesarias para Cuba,” Inter Press Service, August 31.

Triana, Juan (2019), “Marchas y contramarchas: el pa’tras y pa’lante de la política económica,” Cuba y la Economía, April 3.

Torres, Ricardo (2019), Message sent to the author, Paris, September 22.

Rodríguez, José Luis (2019), “¿Qué alternativas implementar ante problemas de la economía cubana?” Podcast de Cubadebate, May 17.

Rojas, R. D. (2019), “Puerto, transporte, economía interna: otra vez,” Progreso Semanal, April 25.

Authors

Carmelo Mesa-Lago, carmelo