Carrying out a survey to take the pulse of public opinion on a structural adjustment program that includes aspects such as monetary unification, exchange rate unification, devaluation, price reform, and wage reform is, without a doubt something relevant.
Doing so, moreover, when this structural adjustment program is carried out in Cuba in a tremendously compromised situation, speaks of determination. We can synthesize the current situation of the Cuban economy with terms such as economy in decline, seriously compromised in fiscal terms, convalescing from an employment structure that contributes nothing to the desired growth with a systematic reduction of employment in the state sector, with a critical situation in its balance of payments and a secular deficit of its balance of goods, one that has seen two of its main sources of foreign income significantly reduced: tourist arrivals and remittances; one that comes, in addition, suffering from the incessant shortage since even long before the last of the announcements about the beginning of “unification” and a price system that was far from “helping” the aim of efficiency, productivity and innovation, and with very little access to international credit.
I have not mentioned on purpose neither the economic blockade in its Trumpist version, nor the COVID-19 pandemic, nor the weakness of the world economy, because just by addressing the domestic situation described above, is already more than enough.
The results1, even when expected by many, are undoubtedly instructive, both for those who have assumed the enormous responsibility of designing and implementing, as well as for us others who, in a relatively more comfortable position, have the advantage of “seeing the bulls from the fence,” in the role of economists dedicated to studying these processes.
Undoubtedly, it is worth a lot to have done this survey, I even suggest repeating it within three months, in the same way, that I suggest publishing not only the analysis of the results but the results as they were obtained. I also suggest, when it is repeated, that some data be captured that could be relevant when analyzing these results and, especially, when making decisions. They are:
- The sector where the participant in the survey works: budgeted state, business state, private sector, cooperative sector, foreign companies.
- Place of residence.
The importance of considering these aspects lies in the fact that precisely the perceptions are different from different positions, and the impacts of the measures on the respondents depend on what each person does and where they live. But the survey is worth it.
From the results that I was able to access, it is not surprising that most of the respondents considered the reorganization as necessary. The problems that the national economy has suffered did not leave much room for anything else. The evidence, both in the everyday life of the common Cuban, and that other, that the data itself had produced for decades, unquestionably pointed to this.
That together with the distortions that became evident, the growth of employment and of the people in their search are counted as achievements, is also logical and part of the expected effect. That wages and prices concentrate the greatest dissatisfactions is not news either and, with the exception of those who at some point thought that everything would go according to plan and that it could be done in a controlled environment, ignoring that there are objective laws also for the economy and that these are still being complied with, even when ignored, the evidence has shown, once again, that the economy is made up of communicating vessels and that its results are almost never manifested as an arithmetic sum of real numbers, but rather as an operation of complex numbers or fuzzy sets of numbers.
It is not at all disputed that, given the very specific situation of the Cuban economy, with such a strong supply restriction (both due to the weakness of the national production system and the decrease in imports), the decisive intervention of the State in prices is necessary.
What does not seem likely is that this intervention will significantly slow down the inflationary process2 that “naturally” the devaluation has already produced and will produce, and that which the inelasticity of the supply fosters day after day. What does seem likely is that extending this intervention beyond what is due will prolong or increase those same distortions that are to be eliminated with the devaluation, as economist Pavel Vidal affirmed in a recent article.
We are talking about an inflation that had already been taking place in the country since much earlier (at least 18 months since that announcement of “capped prices” in the agricultural markets that has brought us here), and that has been reinforced by the growing partial dollarization of the economy (which should not only be associated with the existence of stores for the sale in Freely Convertible Currency (FCC) of consumer goods, but also with the existence of a circuit in FCC for state-owned enterprises and for the import of non-state forms of management), together with the relative scarcity of the supply of dollars that has already brought the exchange rate in the informal market to 45 and 50 Cuban pesos per dollar.
Many new studies can be carried out on wages, in particular, based on scales consistent with what is defined in the country’s strategic development cores, specifically with two of them: productive transformation and international insertion, and human potential, science and innovation.
But, thinking in the short term, the truth is that the increases in the price of almost all goods, the expansion of an informal market, including food and vegetables (due to the reduction in competition, scarcity, substantial changes in costs due to the increase in the price of inputs, and the administration of prices), as well as the growth of rates in some essential services, have generated the perception, supported by day-to-day evidence, that the improvement in real wages has not been such, even with all the effort made and the political will to avoid it and the fact that inflation can “eat up” those increases, especially if the price increase is around numbers close to the estimate made by Pavel Vidal.
To expect to obtain massive and immediate positive impacts from this deep process of structural adjustment called “Task of Reorganization” would be, on the one hand, to ignore the reality under which it is being carried out, and on the other, to ignore the history of similar processes that occurred in other parts of the world, as well as the situation from our economy started. Beyond their successes and mistakes, these processes are costly, especially in the immediate term.
It will not be in the short term that most of these desired positive effects will be seen, and this is one of the greatest challenges for those in charge of the reform because human beings live every day in the short term. Thus, finding resources to achieve improvements as quickly as possible is, at the same time as a matter of great urgency, also strategic.
Undoubtedly, looking inward in search of how many more efficient spaces remain is still first and foremost, but given a certain resource endowment, the reserves of efficiency have a limit.
In this sense, it is also necessary to promote this search by encouraging competition among all agents and forms of ownership in the country. Setting aside monopoly spaces for “certain” companies does not seem to be the best way, nor is it the best to cling to old schemes such as “popular gastronomy” and “state retail trade,” which are far from meeting the demand for quantity and quality.
So what sources could be turned to in the short term? With the exception of what may happen with the Cuban COVID-19 vaccine candidates, it does not seem that a decisive leap in foreign trade of goods can be achieved in the short term. Neither cane sugar, rum, tobacco, nor nickel, seem to be able to make a leap of the magnitude that is needed. Nor is it possible to expect substantial positive increases in services. Neither tourism, medical services, nor telephony, seem to be able to achieve a significant positive variation in 2021.
However, we still have opportunities: foreign investment, private investment by nationals who are residents or not, and the capitalization of state-owned companies in joint-stock companies.
How much incentive has the Task of Reorganization brought for the already existing foreign investment and how much can it mean to attract new investments?
On the one hand, we have a more open and permissive environment to interact with the entire range of forms of ownership that exist in Cuba. This is demonstrated by the devaluation of the official exchange rate itself, which should make operations in the country less expensive, together with the possibility of participating in territorial development projects and the recent announcement that local governments will finally be able to promote and manage Foreign Direct Investment (FDI) projects, as well as the Single Window. On the other hand, there is the conversion to Cuban pesos, one to one, of the dollar accounts that these companies kept in the banks; the obligation to hire the workforce through state employer companies (which paradoxically and against what the country needs, which is, among other things, to bring in more dollars, it is recommended to foreign businesspeople that they not pay more than 15,000 Cuban pesos to their employees, a salary that said employers must pay in dollars at the exchange rate of 24 for 1 CUP), although it is true that the hiring mechanism is much more transparent than before the “Task of Reorganization.” Here, without a doubt, there is a lot of room to make the “Cuban market” more attractive to foreign investors, something very necessary in these times of reduction of FDI flows on an international scale.
Private investment by nationals
Private investment by resident and non-resident nationals is undoubtedly a subject with several edges, almost all of them sensitive. However, some steps have already been taken with the elimination of the positive list of self-employment activities to be carried out and the upcoming publication of the normative documents of the activity. It is true that the limit is now that of each one’s entrepreneurial capacity (with the exception of jobs that cannot be carried out privately), but the fact of not being able to become a legal entity always introduces an element of uncertainty that should be eliminated.
Similarly, each day that the approval of small and medium-sized enterprises is delayed will have a negative impact on growth and development, on business opportunities, on the attraction of foreign investment, on employment and income, and on the improvement of the situation of the country’s population.
At the same time, we have more than a million Cubans living outside of Cuba, some of whom have enough capital to invest in the country where they were born and formed. Others have developed successful businesses outside of Cuba that could be “chained” to the national economy. There is a force there that can be relevant in this struggle that we have with our economic and social situation. If we allow a foreign citizen to invest in our country, why prohibit who was born in this land that is of all Cubans? Much more so now that our Constitution admits private ownership over the means of production.
Converting assets into financial resources
We also have a great resource left: dozens and hundreds of companies, all state-owned, that could be at least partially capitalized and would thus be able to generate liquidity for the country. This includes dozens of hotels, as well as companies, some of which must be subsidized today. With this, all the people’s assets would not be entirely alienated, but only in part, and the State, as their representative, could maintain control over them.
They are all thorny issues, some with poisonous thorns. But the antidote exists and the puncture is part of the risk that all change if it is truly profound, entails.
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Notes:
1 The direct references to the results of the survey that are made in some notes correspond to a compilation made by a friend at different times (they are photographed) and should not be taken as official results. Once the survey was closed, it was not possible to continue observing the number of responses in Cubadebate and the results have not yet been published, but I consider it useful to make this analysis of the trend observed in the responses to the survey.
2 See: “El trago amargo de la unificación monetaria”: “the most probable rate for this year is around 500%. About 300% of inflation would be due to the transfer effect, that is, to the impact of the devaluation of the exchange rate on prices. The other 200% would be explained mainly by excess demand, that is, the increase in wages over productivity.”
Author
Dr.C Juan Triana Cordoví
