Changes in Cuba’s Economy?

Patricia Grogg

HAVANA TIMES, March 31 (IPS) — Changes to improve the Cuban economy are not happening fast enough to satisfy people’s expectations, and instead appear to have got bogged down due to the international financial crisis and the island’s internal difficulties in overcoming the impact.

Economists say the modifications adopted so far, some within the institutional sphere and others of a more structural character, do not cover the country’s total needs, nor do they represent a substantial transformation of the Cuban economic model.

“‘What about the changes?’ is the question we are always asked by colleagues in other countries,” an academic who preferred to remain anonymous told IPS. In his opinion, the economy needs to eliminate a number of restrictions and to liberate productive forces, but the authorities are proving unwilling to speed the pace of change.

Cuban President Raul Castro himself encouraged hopes when he announced in July 2007 that “structural and conceptual changes” were needed to increase farm productivity, after recognizing that access to food and low wages were among people’s primary concerns.

One of the most important structural reforms adopted since Raul Castro became president of Cuba in February 2008, following a period as interim president during his brother Fidel’s illness, has been turning over idle land to private farmers and cooperatives.

By the end of 2009, 100,000 beneficiaries had received a total of 920,000 hectares, equivalent to 54 percent of the country’s unused agricultural land. But the process is slow and fraught with difficulties, partly because of excess paperwork and red tape and the lack of agricultural equipment, researchers say.

Bureaucratic Controls Hold Back Initiative

Ownership has changed, but no market system has been permitted for purchasing inputs, equipment or technology, for credit, buying hard currency and final sales, according to an article on the subject by Cuban economist Pavel Vidal.

Vidal and other experts say that one of the basic factors conspiring against agricultural productivity is state control of final sales in the sector, and the inefficiency of Acopio, Cuba’s state purchasing and distribution agency.

The centralized state buying system requires producers to sell up to 70 percent of their crops to the state, at excessively low prices, leaving some with only 30 percent of their produce to sell at higher prices in the farmers’ markets.

In the two years since he took office, Raul Castro has also eliminated restrictions against Cuban residents’ staying at hotels formerly reserved for foreign tourists, and opened up access to cell-phones.

At the same time, state shops began selling imported items that previously could not be sold to Cubans.

This measure particularly benefited people earning higher wages, in convertible Cuban currency (CUC). “However, development of the domestic market may ultimately favor the national economy by boosting production and employment,” Vidal wrote.

According to some observers, local free-market experiences are producing good results and could be expanded this year.

No Changes Yet in Housing Regulations

But the most highly regulated consumer markets are those for buying and selling houses and cars, Vidal’s article says.

Although rumors have circulated about modifications to these regulations, so far no changes have been made, he writes.

In terms of employment there has been little progress, in spite of a resolution which instituted a system of payment based on results and eliminated wage caps so that workers’ incomes should depend directly on their individual productivity and performance.

Neither has the new multiple jobholding rule, which allows people to legally hold more than one job, fared any better. The external and internal circumstances are not favorable to these labor flexibilization policies, which seem out of place in a centralized society where companies have a low degree of autonomy.

The economic crisis is also having a negative impact on the operations, availability of raw materials and overall profitability of Cuban companies. In periods of recession, new difficulties arise for companies to earn profits that can be used to sustain the new wage system, Vidal’s article says.

According to official sources, Cuba continues to have problems securing international financing, a situation that is exacerbated by the fall in prices of its major export products. This effect of the global crisis forced the country to reduce imports by 37 percent last year.

Lack of liquidity has also led to non-payment of debts, and to the withholding of funds in the bank accounts of foreign partners with business activities on the island. However, at a meeting in Havana in mid-March, Spanish entrepreneurs were given assurances that Cuba would meet its obligations.

“The situation we are facing in regard to bank withholdings has been improving in recent months and I can assure you that we are working constantly on the solution to this problem,” said Minister of Foreign Trade and Investment Rodrigo Malmierca.

Spain is Cuba’s third largest trading partner, after Venezuela and China. Small and medium businesses in Spain have been particularly affected by these financial problems.