Economists detail principal challenges facing the Cuban economy

José Luis Rodríguez, a leading Cuban academic, economist and a former Minister of Economy and Planning from 1994 to 2008 has said that Cuba is not in a situation similar to that of the ‘Special Period’ which followed the collapse of the Soviet Union, but now faces “a series of urgent problems that must be addressed”.

In the second more specific and frank of two podcasts produced by the official publication Cuba Debate and reprinted on its website, he said that at that time “the decisions we made were of survival. We had to resist, and that meant very drastic reductions in food consumption, transport and electricity. That is not the situation we have today”.

The podcast, which takes the form of an exchange between Professor Rodríguez and the Vice President of the Union of Journalists, Ariel Terrero, a specialist on economic issues, seeks to outline the main challenges they see facing the country.

On liquidity Rodríguez said that while everything necessary to create what is necessary to enable the country to continue to operate and to gradually finance development was being done, new tactics were required to prevent the lack of external finance from “suffocating” the country.

Observing that while the food supply and energy must be secured and that it could be necessary to again adopt “previous extraordinary measures”, he went on to argue that at a time of increased US pressure, a new approach to foreign investment is now required.  

“The country does not have sufficient savings capacity and depends on foreign investment, not absolutely for everything, but for a series of key sectors; for example, the generation of renewable sources of energy, tourism … Sectors that will be very difficult to develop with their own resources if they do not have a strong inflow of foreign investment”, he said.

Arguing that US pressure requires foreign investors to accept a greater level of risk, he said that this requires Cuba to offer greater reward. “You cannot negotiate foreign investment in the same way it is negotiated in Costa Rica, Jamaica or other countries that are not blocked”, he said.

Citing the past examples of Sherritt and Tabacalera and the demonstration effect they provided to other investors, he said that Cuba must develop a similar proactive policy as well as one which ensures an investor does not withdraw from the country. Such measures if development is to be financed externally, he suggested, should include the prompt payment of retained earnings and “a concessions policy, as far as it is necessary, to avoid the isolation of Cuba in the international arena”.

The podcast goes on to address the country’s most urgent short-term economic needs, with Terrero suggesting the need to accelerate business reform.

“Some steps have been taken, but still with too much caution, to encourage companies to have a more flexible salary policy. There is still much to be done so that they have more autonomy and possibilities to guarantee the participation of workers in planning”, Terrero observed. 

Noting that while some measures separating the state from the management of enterprise have been positive to a limited extent, he went on to argue that companies should “be able to spread their wings in both an external and internal market, incorporate new technology, agree on an investment. This could even encourage foreign investors to have a more favourable scenario when it comes to finding a place to invest”, he said.

The Ministry of Foreign Trade, he said, has wanted to promote this, “but we must recognise (the separation process to date) has not worked well, and it is fundamental, because we are talking about state companies, which are the ones that support the weight of the economy”.  In his remarks he also stressed the importance of enabling the development of non-state cooperatives recognising they are “actually private companies”.

In his remarks he was also critical of delay, observing that the Cuban economy urgently needs “audacious” reform.

The two economists later discuss Cuba’s dual currency and the imbalances it has created, the potential devaluation that unification would cause, the likely terminal impact on unprofitable Cuban enterprises, and the inflationary effect on the population.

After discussing the complex technical issues involved, Rodríguez concludes by saying that there are no short-term conditions to carry out the unification process before saying that currency unification will have to take place between “2021 and 2022, if all other reforms suggested are adopted”. “We have to keep working until the best conditions are created for the giant monetary adjustment that the country needs”, he tells Terrero.

Responding, Terrero said that adjustment may not be possible without “a certain social cost”, but in response Rodríguez disagreed, noting that Vietnam and China had bad experiences when doing so, before going on to suggest that if there are no big solutions, new approaches are first required on pensions and salaries, possibly adopting other states’ solutions involving, in the case of pensions, indexing and contributory schemes.

In his remarks Rodríguez also expressed concern that low salaries are likely to erode the critical mass of abilities created in Cuban science and education, citing the problems created by those who leave the country, and the time scales required to develop high earning advanced products based on biosciences.

Rodríguez concludes by indicating the importance that remittances play in relation to investment in small enterprises in the non-state sector. In the podcast, he indicated that remittances, which he estimated at between US$2.5bn and US$3bn annually, account for 50% of the working capital for the development of Cuban businesses such as restaurants and rental properties. This, he noted, could form the basis for the creation of mixed investment funds, possibly temporarily, but that it required a financial market that “does not exist today”.

The exchanges and their publication, although not government policy, suggest that the ideas that Cuba’s reform-minded economists are now more strongly voicing, and which to some extent appear to be supported by some of President Díaz-Canel’s recent statements, may be gaining ascendency. They come at a time of increased economic pressure caused by US sanctions and Cuba’s seeming inability to break conclusively with past economic models in the ways other socialist nations have.

The text in Spanish of the lengthy two-part exchanges can be found at

Part 1 http://www.cubadebate.cu/especiales/2019/05/09/cuba-regresara-al-periodo-especial-podcast/#.XOrpWIhKg2w

Part 2 http://www.cubadebate.cu/especiales/2019/05/17/como-solucionar-problemas-urgentes-de-la-economia-cubana-podcast/#.XOrqgIhKg2w

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