Cuba’s New Economic Measures: Could they Work?

By Osmel Ramirez Alvarez

HAVANA TIMES – The main “hurdle” in Cuba is the lack of political freedom and the Communist Party’s usurpation of the people’s sovereignty. Nonetheless, here’s my analysis of the new economic measures announced by Economy minister Alejandro Gil on October 12th.

A sweeping interpretation leads you to believe there’s a political will for economic reforms and getting rid of redtape. However, we know they aren’t doing this because they woke up from the hypnotic slumber induced by radical ideology. Rather it’s because they are under pressure from the undeniable crisis that stems from the old model of doing things. In addition to new pressure with stricter US embargo sanctions and the effects of the COVID-19 pandemic.

Yet, any progress should be celebrated, even if it falls short of the mark. It’s true that change in Cuba is inevitable. Likewise, the greatest hurdle is ridding us of the Communist Party’s blockade on our people’s freedom and democracy. This is the shackles that weighs down the country. It stops, or rather, slows us down from moving towards the prosperous and fair country we long for and deserve.

The new focus on self-employment (read here: freelancers) is positive and nobody doubts it anymore. It comes after the non-stop criticism of the political opposition and general population on social media. This undoubtedly opens up a greater possibility for what can be done. Moreover, it strips immoral inspectors and bureaucrats from having the power of discretion, standing in the way or being corrupt.

Gil said opening the economy to both public and private micro, small and medium-sized enterprises (MSMEs) is imminent. New cooperatives will also be allowed to form again outside the farm sector. As well as joint ventures between state-led companies and private MSMEs. Private wholesale agricultural products marketing will be legalized and regulated, and the Agricultural Development Bank will be revived. The market is opening up to sales of agricultural supplies in dollars. Meanwhile, measures are being taken for a more independent and efficient management of state companies.

However, I believe that the plan falls short in many key aspects. These include an extremely limited sources of funds. Likewise, important hurdles remain to make private agricultural marketing efficiency possible. These roadblocks hinder the market’s motivational role in production and affordable prices. For example, ACOPIO, Cuba’s State purchasing entity, reserves the right to take 90-100% of harvests and to fix prices.

The same goes for the self-employed, cooperatives and MSMEs. These will continue to suffer from a lack of legal security, or at least an atmosphere of trust. They lie at the mercy of a State with numerous legal instruments to destroy them for any reason, whenever it’s in their political interests.

If this plan is to be truly effective and useful in Cuba during a first phase of economic reform, it should concentrate on the following five points:

1. In financial terms: it should legalize the credit flow between natural persons, to move capital in private hands towards production. They should establish a legal mechanism and a fixed interest rate. The Agricultural Development Bank, belonging to the People’s Saving Bank, should become independent as soon as possible. It must have its own identity, carrying out operations in agriculture and creating incentives to attract savers. As such it would ensure greater availability of funds to encourage investment. Another key change would be eliminating the hurdles created to stop Cubans living abroad, and even on the island, from investing in Cuban agriculture in businesses with their families (as administrators or in society). On the contrary, this should be facilitated. These external and internal funds should be allowed to flow with great trust in the agricultural sector.

• In terms of private enterprise: No entrepreneur should be put into a box as a self-employed person, non-agricultural cooperative or MSME. Legal procedures should be made easy so that if a self-employed person grows, they can become a micro-company. Then they should be able to grow to a small and even a medium-sized company. They should also be able to become a cooperative if they want to. Or even a bigger company that is self-managed without any limits. (The State needs more time to assimilate the idea of unlimited private enterprise). Every step with its very own tax policy, but always with regulations that encourage growth. Getting away from being an obstacle to growth, like what happens today.

• Incentives for agricultural production: Marketing of farm produce needs to be opened up. Wholesale and retail marketing shoud be legalized in the private sector. That’s why it’s important that its niche in the market isn’t just with “ACOPIO’s left-overs”. It should compete fairly with the state-led company and create efficiency and competition. For example, ACOPIO could maintain its right to only 20% of produce, in order to ensure socially protected supplies. However, the other 80% should be up for grabs for the private sector. This is the only way that buying farm supplies in US dollars can be viable, and attract investments.

• The agricultural supplies market needs to become more diverse in order to be efficient: State-run companies that negotiate tech packages could continue to sell them at a subsidized rate, with the safeguard of a contract. The alternative could be in dollars to attract remittances and direct investments from abroad. These could enjoy a 5% or 10% discount as an incentive. Meanwhile, the common non-subsidized market would be in Cuban pesos, but not with draconian prices either, thereby ensuring production.

• Allowing Cooperatives and MSMEs to import, sell, give credit and export, without a state company as an intermediary. Such should be allowed in any field they work in, but especially when it comes to agricultural supplies. It would side-step the embargo’s bans, lower costs. Moreover, as the market will become competitive and dynamic, there will be better retail prices.

I believe that in this first phase of economic reform, opening up the economy like the government is planning to, could be feasible with these additional measures. I’m sure that small changes, when successful, will lead to greater ones. This is how we will gain social wealth, self-esteem and civil empowerment. These are basic ingredients of freedom and democracy.

Read more posts by Osmel Ramirez here.