Will Cuba’s New Economic Measures Make a Difference?
Six questions to economist Omar Everleny
HAVANA TIMES – The new measures recently announced at the National Assembly’s ordinary July session raised numerous doubts and even alarms among private entrepreneurs and the public. It is still too early to assess their impact. However, to clarify doubts and analyze their possible effects, Joven Cuba consulted economist Omar Everleny, a PhD in Economics from the University of Havana, researcher, columnist, and visiting professor at Harvard, Columbia, Carleton, and Sorbonne universities.
1. What is your general assessment of the announced measures?
The announced measures carry a high level of voluntarism because laws, decrees, guidelines, etc., are approved every year, and the results are not seen. In my view, the necessary measures to carry out the structural changes the country needs, which would lead to an increase in the production of goods, especially food, among others, are not present. It’s a lot of rhetoric, with desires, but the economy works with positive numbers, not negative ones. By this, I mean the economy has shrunk, the fiscal deficit is high, there is inflation, a shortage of basic products, and transportation has not improved. So, when will these indicators change?
2. One of the measures is aimed at charging import taxes in foreign currency to private businesses. The main concerns of people are that this will contribute to scarcity and price increases. What do you think about this?
It’s very true what is being said about this measure. If you increase a new expense, private businesses will recover that expense by increasing the final price of the merchandise they have paid for. It should not be forgotten that the foreign currency they will pay at customs was already bought on the informal market at a certain rate [over 300 to 1 USD], which is not 1 to 120 [the official rate, but the government has no dollars to sell].
3. Among the financial measures are the elimination of dollar accounts for several state entities and the authorization to accept foreign currency cash in certain sectors and activities such as tourism. There is talk of a “partial dollarization” of the economy, but at the same time, it is said that the State is not in a position to establish a formal exchange market. What do you think about this? How does the absence of a formal exchange market affect the success of the rest of the measures? Is it possible to successfully implement partial dollarization under these conditions? What would you recommend?
We already had partial dollarization in the economy; it was said it would not be done again, but that’s what happened: foreign currencies circulate freely in the economy, and the State participates little in that mechanism, as it had limited cash in tourist institutions, for example. The reality is that the State must be coherent with the formal exchange market and not have the exchange rate of 1 to 120, which is very far from the market rate.
A recommendation — which, based on what’s being said in the National Assembly right now, would not be accepted — is the creation of private exchange houses at the rates set by the market. The State would charge a commission for these operations but would have more accurate statistics on the amounts bought and sold. This way, the rates used for the market wouldn’t be based solely on online intentions.
What’s clear is that it’s very difficult to move forward with these divorces between formal and informal exchange rates, between salaries and pensions with prices set by the State for micro, small and medium size private businesses (MSMEs), between the lag and precariousness of the basic rations that are sold and the offers that exist in state stores in foreign currencies and MSMEs.
4. One of the most controversial measures has been the requirement that payments to foreign suppliers by private actors be made from Cuban banks, as well as reducing the number of companies authorized to import for private businesses. How might the unilateral coercive measures of the United States limit the success of this measure?
The first thing to mention is that the Cuban banking system lacks credibility with its customers. There are accounts of foreign businesspeople exceeding tens of millions of dollars, and there are no assets in the banks to disburse them. How then can we assume that a private individual will deposit their funds in the bank and that bank will fulfill its payment commitment? But that’s where the US blockade comes in, which does not accept transactions from the Cuban government but from private entrepreneurs. However, in Cuba, banks are state-owned, so it will ultimately be more complicated.
5. In the speeches of Manuel Marrero and Miguel Diaz-Canel, it was indicated that one of the main distortions they are trying to solve is the excess cash (in national currency and foreign currencies) circulating outside banking institutions and the significant tax evasion by the private sector. What are the causes of these problems? What are the solutions? Do you think the measures will help in this regard?
It is very true that there is excess cash outside the banks in the hands of private entrepreneurs, but they do not want to have it that way. What happens is that you deposit a certain amount, and when you need it, the bank limits your withdrawal, so you have to start by changing those rules.
Banking in Cuba is very cumbersome. Now, I am a fervent defender of banking and am against tax evasion, but the measures taken must be coherent, and in Cuba, that does not happen. You have to invest in ATMs throughout the country, improve banking facilities, provide point-of-sale terminals (POS) to everyone who requests them, and automate at least the major agricultural markets with QR codes. It’s not just about trying to bring one part of the equation into the fold. State foreign currency stores always have connectivity problems, or the POS is broken. So why is the direction of the arrow always towards the private businesses?
6. In several interventions at the National Assembly, it was reaffirmed that the Socialist State Enterprise is the main actor in the Cuban economy and the private company is a complement. You have previously said that for this to happen, the socialist state enterprise must be completely revamped. What is necessary to achieve this change? Still, does it make sense to continue placing one form of management above another?
The first thing is that a concept that has not worked in the world, nor in 65 years in Cuba, which is the efficiency of the state enterprise in its entirety, has been insisted upon. I agree that the most strategic activities should be in the hands of the State, such as electricity production, public services, and others to be defined. But a State does not have to dominate, for example, retail trade or food service, because these sectors have always been plagued by inefficiencies that generate losses.
Therefore, if the State talks about the state enterprise, it must be a different state enterprise, not the one that has not worked so far, because as long as there are no economic incentives — that is, workers’ incomes are enough to buy their basic needs, not what is currently provided — there will be neither interest nor motivation. That state sector they keep repeating about cannot be the same one we have had until now.
In the socialist world that has passed, and the one that remains today, most enterprises are not state-owned. So, I wonder how can a small country, without energy resources, and blockaded by the world’s greatest power, make that socialist state enterprise work? I hope I am wrong because what I want is for the country to prosper with its people and not for them to leave in despair.
Originally published in Spanish by Joven Cuba and translated and posted in English by Havana Times.