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)

With borders forced shut as a means to protect the country from the COVID-19 pandemic, Cuba has lost significant revenue from tourism and the industry’s value as a market for national production.  Photo: Jorge Luis Banos/IPS

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.

The government has directed some of the fuel and other resources that had previously been allocated to tourism, to food production.  Photo: Taken from Juventud Rebelde.

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.

President Miguel Diaz-Canel hopes to implement pending changes to Cuba’s economic model as swiftly as possible.  Photo: Taken from Cubadebate.

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.

5 thoughts on “Time for Change in Cuba or More of the Same?

  • Air Canada have now changed re-commencement of flights to Cuba, to early July

  • Air Canada are starting flights in June Bob Carey, so you don’t have long to wait. I too wish the Cuban government every success in combating the Corono virus, but currently because of the inability of Cubans to maintain social distancing when scrambling to obtain food, know that they have of their own creation, a difficult task. “A drop in the bucket.” is an accurate description of Cuban agricultural production relative to requirements.

  • Maybe move out of work tourist employees out to the countryside to help farmers produce food.A drop in the bucket but it would help. If schools are closed send the older students also.I have been to Cuba a number of times and will visit again as soon as flights from Canada to Cuba start up again.My best wishes to the Cuban people and government in these difficult times. Cheers Bob Carey

  • As Carlyle Macduff comments, the only thing Cuba can do to get out of the hole that they dug themselves into is to stop digging. If economic planning strategies were as good as gold, Cuba would be Ft. Knox. It is because of top-down “economic planning” that Cuba finds itself among the worst of the worst. The Castro dictatorship should simply set the Cuban people free. Cuban entrepreneurship would turn the situation around in Cuba in less than a generation. Example: Vietnam and China. Maybe with the death of Raul, the remaining “Historicos” will lose the will to resist change and the younger socialists in power will be assertive in implementing real economic changes. Of course no real economic change will happen without some measure of political change but I will save those comments for another day.

  • The penultimate paragraph provides ample evidence of blind faith in the nonsensical. With communist planning systems, it was ever thus. Grandiose five year plans ad infinitum.
    The “definitive change” following the “Special Period” was recognition that attracting money from the wicked much maligned capitalist system was necessary.
    Cuba has been seeking to decrease food imports by replacing them with its own domestic production for thirty years. The only consequence has been a decline in domestic production.
    The only answer is to release the people of Cuba to pursue private enterprise. Cast off the bonds!

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