The Many Challenges Awaiting Cubans in 2021

By Luis Brizuela (IPS-Cuba)

HAVANA TIMES – This year has begun with pressures mounting after the currency unification process began earlier this month and the worst moments of COVID-19 on the island. Potential improvements to US-Cuba relations are on the horizon. Together they prove to be the beginning of another challenging year ahead for the Cuban people.

“Problems have been piling up that should have been dealt with before. The government needs to act with good sense and answer the general population’s many demands and dissatisfaction, to prevent the situation from getting worse,” Ana Rosa Laffita, a sociologist living in the eastern Cuban city of Holguin told IPS.

Economic and currency reforms kicked off on January 1st opening a Pandora’s box.  Concerns are about a process put on standby for a decade, and which came too late, according to most economists.

Known as Tarea Ordenamiento (economic reforms), the process ends 27 years of living with two currencies on the island: first with the dollar, and then with the convertible Cuban peso; now, only the Cuban peso (CUP) will be in circulation, at the rate of 24 CUP to 1 USD.

This measure was completed with a 500% increase in the minimum monthly wage to the equivalent of 87.5 USD.

These economic reforms involve the peso’s devaluation, an increase in wholesale and retail prices, the end of a series of state subsidies and a rise in wages and pensions. The measures bring risky implications for state companies, cooperatives, the private sector and the general population.

One of the most controversial points of this economic reform, is the three to five times price increase (on average – some are going up even more) of products and services. This, the public notes, will cancel out any increase in people’s real purchasing power with higher wages and pensions.

The government has made slight amendments to some rates in response to the alarm. It promises to check over prices that are still stirring up controversy. The leaders constantly repeat they are not practicing shock therapy and that nobody will be left destitute.

The government also recognizes that currency unification won’t immediately solve the distortions of its highly-centralized economy. To date, the state companies operate with limited autonomy. However, the reforms include giving these entities greater power and to decentralize decision-making.

Experts consulted by IPS argue that currency unification is a complex process that is hard for the population to adapt to. It comes after months of constant shortages of goods, uncertainty, and personal challenges.

This is happening in parallel to the recent spike in coronavirus cases. The situation makes it  important to minimize social discontent because of collateral damage.

Cuba opened its borders in November welcoming year-end holiday travelers. Then the number of people testing positive for COVID-19 shot up. On January 13 the island reported a record of 550 cases.

By Friday, the country reported over 17,000 positive cases – around 5000 of which have been recorded in the past 15 days. The government reports 158 since March 11, 2019, when the first three cases were announced here.

Cuba’s biopharmaceutical industry has four vaccines to fight the virus in different stages of development and clinical trial. A mass vaccination of the population is still a few months away, researchers say.

Meanwhile, health authorities step up protocols and adopt lockdown measures again in many of Cuba’s 15 provinces and 168 municipalities. They have also cut back on the number of international flights permitted. This, in spite of the negative impact for business and the State budget.

The fight against COVID-19 has cost Cuba over 100 million USD more than initially planned, according to official forecasts.

During 2020, the gross domestic product (GDP) fell by 11%, mainly due to the blow of COVID-19. Some wishful forecasts for this year foretell a positive step forward in this figure from 6 to 7%.

The Cuban economy is struggling with liquidity problems. It is unable to access loans from international financial institutions due to the US embargo, in force ever since 1962. The hardened embargo also hinders financial operations, and discourages foreign investment.

The Cuban government was forced to ask its official creditors from the Paris Club for a year-extension to pay back interest on its loan. Its main sources of income: tourism, remittances from abroad and professional services export are down during the pandemic.

Heavy rains in recent months and a shortage of fertilizer have led to low agricultural yields and poor harvests. The Ministry of Agriculture recognizes that the situation will remain the same this year. This is especially bad news for a country that imports up to 80% of its food.

In the face of such a bleak landscape, experts are recommending that investments from nationals in sectors of the national economy be accepted as soon as possible. This would be as well as foreign investment which has already been authorized. Promoting small and medium-sized enterprises (SMEs), are seen as one solution to get national production going again and to stimulate the domestic market.

“If the public sector doesn’t have the condition to ensure the jobs that are needed, it’s time to take new actions. These include institutionalizing SMEs, so they can create new jobs,” an economics professor at the University of Havana told IPS. She asked to remain anonymous.

From abroad, economist Pedro Monreal believes Cuba’s private sector could generate 100,000 jobs in a year if SMEs are legalized.

It’s estimated that a significant percentage of state-led companies will end up bankrupt and will go under as a result of currency unification. An important number of workers could have a chance at getting a job in the cooperative and private sector.

Official statistics reveal that over 600,000 Cubans were registered as self-employed before the pandemic. This accounted for 13% of the country’s workforce. [However, estimates are that some 200,000 have turned in their licenses.]

Within this context, the Trump administration recently announced Cuba’s designation as a State Sponsor of Terrorism. The designation came as Joe Biden prepares to take over on January 20^th.

Cuba was removed from this list in 2015, by former US president Barack Obama (2009-2017), during the rapprochement process that was announced in 2014.

In practical terms, beyond the new bans on exports and sales to the Caribbean country, this measure seeks to hinder president-elect Joe Biden’s attempt to improve bilateral relations. His administration will need to wade through long legal talks to void this decision, experts point out.

In his campaign, Biden promised to change US policy towards Cuba. He said he would support measures such as resuming direct charter flights and remittances to the island. These decisions would benefit the country during this time of economic reform.

Economic reforms of the socialist development model were first approved in 2011. Then after failing to progress, they were re-approved in 2016, but stalled again. They could gain new momentum during the Cuban Communist Party’s (PCC) 8th Congress. The PCC is the only legal political party here and is considered “the Cuban people’s vanguard” in the Constitution.

The event, to be held under the slogan “historic continuity”, is scheduled to be held between April 16th and 19th.

During this congress, President Miguel Diaz-Canel is set to become the First Secretary of the PCC. The party’s current leader Raul Castro, and other members of the generation that led the 1959 Revolution, announced their resignation.

Read more from Cuba here on Havana Times.