Cuba 2016: A Year of Decisions and Uncertainty

by Pilar Montes

HAVANA TIMES — To hope for the best and prepare for the worst seems to be the maxim followed by those who manage Cuba’s economy when offering an overview of the situation.

In his overview of 2015, Vice-President Marino Murillo, known as “tsar of the Cuban economy,” announced before the parliamentary session that ended on December 29 that the country’s GDP had grown by 4% over the year, in contrast to a 1.2 % growth the previous year.

Locals were unable to celebrate as they looked to 2016, however, as the government estimates that GDP growth will be around 2% over the coming 12 months.

Citizen hopes of seeing a “prosperous and sustainable” socialism arrive at their dinner tables and daily lives in general continue to be frustrated and many have stopped waiting altogether. The substantial rise in emigration reflects this.

Statistics unavailable in the local press reveal that, by international standards, 7 out of 10 Cubans live in poverty.

Though the issue was not addressed during the concluding session of the Cuban legislature on Tuesday, economist friends of mine (who asked to remain anonymous) explained to me that the country’s difficulties will worsen in the short term, owing to the almost certain withdrawal of Venezuelan support, particularly in terms of the supply of oil and its derivatives.

These sources believe that this will be the main cause of the drop in GDP in 2016. The situation will also affect the functioning of the Cienfuegos refinery, which processes Venezuelan crude, but these economists feel that other suppliers, to be paid through credit, will be found, thanks to Cuba’s new relationship with the Paris Club.

We can expect new power cuts in 2016, my economist friends believe, but not as critical as those experienced in the 90s, when the island had frequent blackouts of up to 12 or more hours. They also point out that public transportation, already deficient, could be affected.

With respect to the Cuban medical doctors and other professionals currently working in Venezuela, these sources feel it is too soon to tell what will happen, as they do not believe the Venezuelan opposition will make a drastic decision that could turn the population against them.

They also foresee colder relations with Argentina and the withdrawal of some companies, such as Brazil’s Odebrecht, implicated in the Petrobras scandal, which had invested in Cuba’s Mariel Special Development Zone.

Debt Relief

The answer to a serious problem has been postponed to give Cuba’s debt-saddled economy some breathing space. The renegotiation of the foreign debt was approved by the main creditors of the Paris Club in December.

Cuba was granted an 18-year term to pay its debt, but, to secure US $6.5 billion in credit to finance the economy in 2016, “we need to pay more than US $5 billion in debt.”

According to the math, this breathing space comes at a price: making the country more efficient in terms of production (a process for which the island does have reserves) while attracting more foreign capital to its investments portfolio.

As for the thaw in Cuba – US relations, if US capital continues to be kept out of Cuba by the embargo, it will not be able to attract other investors.

Wages and Housing

It could be said that the most pressing issues Cubans face are low wages and housing needs. The average worker earns around 500 Cubans pesos (25 usd) a month. That is to say, if these workers are to have food on their tables, they must refrain from buying any clothes and be rather stingy in terms of daily public transportation.

Referring to wages at the parliamentary session, Murillo promised that “the average monthly incomes of State companies will increase to 700 pesos (35 usd) and that 35% of revenues (tax revenues? profits?) will be destined to worker salaries.”

However, the income required to cover a person’s basic needs has been estimated at twice the figure mentioned by Murillo.

Doctors were granted a wage increase in 2014 and are today earning an average of 1,200 pesos (around US $ 60) a month.

Agricultural cooperatives and farmers granted permission to use certain lands continue to secure the highest incomes to date, as do workers at State companies authorized to pay wages on the basis of employee productivity.

According to the parliamentary announcement made Tuesday, the government foresees the building of 27,480 houses in 2016, only 12,480 of which will be built by the State, a tiny figure when compared to the nearly two million homes that have been declared to be in regular or poor condition.

It was also said that the sale of building materials including cement would notably increase during the year. Several members of parliament warned of illegal activities in the sector, where workers at warehouses prioritize sales to re-sellers and not the population in need.

Clear Decisions Urgently Needed

Economists predict that important decisions in key areas will be made in 2016. These include the elimination of the two-currency system, which encourages capital flight domestically, and determining which economic activities will remain under State control and which will be put in the hands of cooperatives and the private sector.

On the one hand, the government must plan these monetary measures, which would involve a devaluation of the peso, with a view to compensating for the loss in purchasing power that would hit wage earners, and pensioners the hardest.

The second decision is already taking shape through the establishment of service and food industry cooperatives, where no embezzlements are yet reported (as all members ensure this does not take place).

Meanwhile, we will have to wait and see whether joint ventures with foreign capital (or fully owned by foreign firms) have a place in the services and food industries to come.

For several years now, the government has been promising to take steps forward with respect to the creation of wholesale markets, but nothing has yet come about. Members of parliament pointed out that the lack of wholesale markets leads to considerably higher supply prices that private businesses have to pay and encourages black market sales of products stolen from the State sector.

The 7th Congress of the Cuban Communist Party, to be held in the first half of 2016, promises to be an opportunity to announce changes and decisions and to become a pivotal moment for a socialist country such as this one. Around 10% of the Cuban population belongs to the Party.

That said, most of the economists approached did not dare make any predictions in terms of leadership changes or economic reforms. In the meantime, experts and government officials are becoming increasingly aware that time is running out.