Time for Change in Cuba or More of the Same?

The Cuban government is tweaking its Economics Plan in the face of serious losses as a result of COVID-19, but it has also shown an intention of speeding up changes to the system.

By Ariel Terrero   (IPS-Cuba)

HAVANA TIMES – The great mystery on everyone’s minds right now is when the Cuban economy will get out of the rut it has fallen into because of COVID-19. Other questions seem to have easier answers. For example, nobody doubts the historic magnitude of this fall and why it has happened. There are also some signs of how to rebuild after this crisis.

Global economic decline as a result of COVID-19 has taken Cuba by surprise, during a more critical time than usual. In 2019, the US tightened the bolts on its old economic blockade, and its effects became clear in key sectors: energy and finance. Similar US sanctions were also applied to one of Cuba’s important trading partners, Venezuela, making things worse.

Global trade has been totally displaced from its main hubs during this time, and it offers less opportunities for an already weak economy. The disappearance of tourists – without a certain date of return in sight – has put the country in an unprecedented situation, for the first time in thirty years or so.

Economist Betsy Anaya, director of the Center for Studies on the Cuban Economy (CEEC), believes that the country is now facing a “tougher crisis than the one that hit the country after the Soviet Bloc collapsed in the early ‘90s.”

In a regional report presented on April 21st, the Economic Commission for Latin America and the Caribbean (Eclac) estimated that Cuba’s gross domestic product (GDP) could fall -3.7% this year. It’s a bleak landscape for the entire region: Eclac foresees a -5.3% drop in Latin America and the Caribbean in 2020.

The Cuban government has no other choice but to revise this year’s economic plan, but it also anticipates that reforms currently underway to the country’s economic and social model, will also pick up speed.

Without an engine

In a recent Council of Ministers meeting, the vice-president of this body and Economics Minister, Alejandro Gil, admitted that “we can’t do everything we had expected to, nor can we pretend that this won’t affect every sector of the economy.” 

Judging by his statements, the sectors with the greatest losses in the country include tourism, airport services and consular fees. “An economy with zero tourism and a stricter blockade against it, can’t function normally like nothing is happening,” the minister stressed.

The travel industry has raked in some 3 billion USD for Cuba per year, almost a quarter of the country’s revenue in hard currency. How much will it lose this year, if it takes a while to pick back up again? The World Tourism Organization (UNWTO) foresees a 60-80% decline in this industry worldwide. For Cuba, such a decline would mean some 2 billion USD vanishing in thin air and something even worse: losing its economic engine.

So, it makes perfect sense that the government is prioritizing other exports – nicket, sugar, tobacco and others – and any local development initiative that is able to create demand in foreign markets. In support for these top priority areas, the government has reallocated resources, including fuel, which had been previously assigned to the hotel industry. Farming and the small livestock sector are some of the ones to benefit.

Dependent on a high percentage of food imports, the country is seeking to replace these with its own harvests, of rice, plantain, pork, eggs and short life-cycle crops. If there isn’t any money to import them, the government has no other choice but to produce them locally.

Investments are another touchy sector. The government has spoken about dragging out some construction projects and putting off others, and keeping the ones in priority sectors such as farming, energy and the food, pharmaceutical, personal hygiene and building materials industries. As well as housing projects and the hydraulic program, which is crucial to offset the effects of the current drought.

In addition to the collapse of key productive sectors, business activities have been partially shut down on the island. Tax revenue is dropping at the exact same time the country is increasing expenses in an expensive field, public health, which has served as Cuba’s main defense against the epidemic. The State Budget risks running up a greater deficit than expected this year.

Pending changes to the Cuban model

As soon as the pandemic sent the first signs of setting the economy back, the government met to revise plans and focus on recovering the economy, but it also showed an intention to develop further or speed up reforms to the economic and social model.

Silently recognizing dissatisfaction with the pace of change, President Miguel Diaz-Canel asked for the government to assess “how we can implement a series of pending matters in a quicker, more decided, more organized way.” He mentioned new forms of management and property, restructuring the state-led business and private sectors and the creation of a symbiotic relationship between them, as some of the measures that were conceived in the documents of Raul Castro’s Guidelines, and still haven’t been put into force.

One shortfall of Cuba’s economic model which the pandemic has exposed has to do with the putting off of legal recognition of private business organizations, which the self-employed work in. In spite of constant controversy and confusion, small and medium-sized enterprises, the famous SMEs, have proved their worth and legitimacy in Cuba’s socialist model of government.

Economist Ileana Diaz believes that delays in granting this legal status lead to problems finding loans for these companies or guaranteeing wage protection for their employees, during the current pandemic. It also strains relationships with the state-led sector, cooperatives and private businesses that have been allowed with the reforms process a decade ago, and might be one of the keys to coming out of this crisis.

“It isn’t a matter of improvising, but of introducing new actors and practices in economic strategy and development policies, which have already been approved by the Conceptualization, in the Guidelines for Economic and Social Policy and the Pillars of the 2030 Economic and Social Development Plan,” Diaz-Canel stated.

Is this the right time to speed up these changes? It might not seem like it, but this wouldn’t be the first time that radical reforms have been implemented in times of crisis. The economic recession in the ‘90s, the so-called “Special Period”, led to definitive change, such as opening up the country to tourism, diversifying economic players and a currency restructure, the unification of which is now one of the pending matters at hand.