Balancing Cuba’s Lopsided Budget

By Patricia Grogg

HAVANA TIMES, Oct 16   (IPS)  – Cuban President Raúl Castro is willing to risk unpopular measures to free the state from its excessive burden of subsidies and for-free services, as part of a program to adjust public expenditure to shrunken government revenues and balance the budget.

According to analysts, this is an extremely delicate issue because it has a direct impact on social policies that have already been hit by Cuba’s economic and financial troubles.  That apparently explains the seeking of consensus through a new round of public debate and the publication of readers’ letters on the topic in the official press.

The president has reiterated in his speeches that no individual or country can indefinitely outspend revenues, and that government subsidies must be limited to ensuring that all citizens have equal access to vital services like education, health and social security.

Castro is constantly saying that maintaining such guarantees depends on producing more and increasing national income. “That’s why he is trying to bring people ‘down to earth,’ to make them understand that every person is an important part of the solution to the country’s problems,” said a long-time active member of the ruling Cuban Communist Party (PCC).

Bringing expenditure into line with revenues was one of the points proposed for a new round of public discussion, like the one that followed a landmark speech by Raúl Castro in 2007, delivered before a crowd of three million on Jul. 26, the holiday that marks the start of the Cuban revolution.

Three million people have participated so far in the current round of meetings, in September and October this year.  The aim is for “people to look within themselves and at their immediate surroundings, based on the central ideas of Raúl’s speeches on July 26 in the eastern city of Holguín, and a few days later in parliament,” the source said.

The government hopes that these meetings for reflection and for identifying specific problems in every workplace and educational institution will also come up with concrete proposals to solve them with everyone’s participation, added the PCC activist, who wished to remain anonymous.

But the authorities did not wait for popular backing to start trimming subsidies. In late 2008, one of the first of these measures was to end “heavily subsidized” vacations and other benefits, previously awarded to exemplary workers and party cadres. Annual state expenditure on these amounted to some 60 million dollars.

But “even with the subsidy, it cost the equivalent of three months of wages to spend a week at the beach with my family. It wasn’t a free gift, and I saved up all year for the holiday,” a woman with a management-level job at a state company told IPS, complaining that the vacations were cut.

Following a spate of rumors of all kinds, workers’ canteens providing free meals were closed this month at the ministries of Labor, Finance, Domestic Trade, and Economy and Planning, as an experimental trial intended to be applied gradually throughout the country.

Instead, each worker is being given 15 pesos (something over 50 cents) a day as a meal stipend.  According to official statistics, over 3.5 million people a day eat at 24,700 workplace canteens nationwide, at a cost to the government of over 350 million dollars.

According to Granma, the PCC newspaper, this figure only includes four ingredients – rice, beans, meat and oil – and does not include “large expenses for other foods, fuel, electricity and maintenance of the dining halls.”

“They haven’t closed our canteen yet, but the lunches are skimpier every day,” said a metal-worker who maintains equipment at a university.  “And now they say they’re going to take away the monthly ration books.”

Cubans Spend Over Half Their Income on Food

The ration book system, under which Cubans buy food at deeply subsidised prices, has been in place since 1962, and at one time ensured egalitarian distribution of food to every Cuban family, until it was cut back during the 1990s economic crisis.  At present it is estimated to cover a family’s nutritional needs for no more than 12 days a month.

Even so, its possible elimination is a cause for concern for many people.  “The news came as a shock to most of the families I work with. They think there won’t be enough supply to meet the demand that will be created, and they are afraid there will be hoarding,” said social worker Celia Díaz.

“Many people are afraid there will be endless queues to buy food, which will add to the anxiety in many homes where women wake up every day wondering what they will cook in the evening,” said Díaz, while 28-year-old Miguel Alcántara predicted that a great number of people would be upset by such a measure.

According to experts, Cuban families spend between 60 and 70 percent of their income on food, going to high-priced farmers’ markets for the food they need over and above the subsidized rations.  “Abrupt elimination of the food subsidy would make their situation worse,” a researcher said.

Food imports cost 2.5 billion dollars in 2008, an amount the government wants to reduce.

A source close to the Consumer Register Control Office at the Ministry of Domestic Trade told IPS that there has been talk of abandoning the rations system for years, and instead of “subsidizing products, shift to subsidizing persons,” but that no progress had been made towards that end.

He said he thought the idea of eliminating the ration-book system was probably just a rumor. However, he agreed with the principle of subsidizing persons, adding that ration books should be individual rather than per family, as they are now.

A Vicious Cycle

In his view, any change would require a census to be carried out first, to determine incomes and need for state subsidies, and to update the consumer register which he said should record employment status and, above all, verify “the person’s physical existence in the country.”

The ration-book covers the entire Cuban population of 11.2 million people, without differentiating whether they work or not, where they work or what incomes they have.  More than 3.9 million people work in the state sector, and over 1.4 million are on social security pensions.

National Statistics Office figures for 2008 indicate that just over five million people are economically active, which means that nearly 1.1 million people are working in the non-state sector or are unemployed.

There is general agreement in academic circles that elimination of subsidies would require increasing the real incomes of the working and retired population and those on sickness, maternity, invalidity and other benefits.

But wages and pensions cannot be raised unless there is an effective increase in the production of goods and services, which is constrained by technological backwardness in some areas, the lack of inputs needed for certain activities, and low wages that sometimes provide no incentive to increase productivity.

“It’s a vicious circle that must be broken in order to gradually increase incomes while cutting back on the existing subsidies, and preventing a situation where those who contribute nothing enjoy the same benefits as the people who create the country’s wealth,” an economist told IPS.