A New Long-Term Economic Solution in Cuba
An economic-social strategy to boost the economy and address the crisis caused by Covid-19 was announced by the Council of Ministers on Thursday, July 16, 2020. This strategy involves several changes in the way of conceiving the national economy, giving greater strength to the private sector as a driving force of the economy, and defending a policy of economic protectionism that aims to develop the domestic industry as much as possible to replace exports.
All measures included in the strategy will be implemented, affirmed Cuban President Miguel Díaz-Canel Bermúdez. "We cannot continue doing the same thing when it comes to the economy, in that way we will not obtain the results we need…The worst risk would be not to change, not to transform, and lose the confidence and support of the people. We will secure the support of the people because we are going to achieve well-being and improvements.”
Since 2010, the Cuban government has been reconceptualizing the Cuban Economic and Social Model of Socialist Development, a strategy that continues the guidelines established by the Cuban Communist Party and which will accomplish the National Plan for Economic and Social Development 2030.
The current situation is not the same as other moments of tension experienced by the Cuban economy. The devastating economic situation caused by four months without tourism on the island, plus the additional expenses to the health sector due to Covid-19, like isolation centers, testing, and treatment, explain an increase in the budget deficit, even though priority has been given to keeping the wages of unemployed workers.
Alejandro Gil, who is both the Vice Prime Minister and Minister of the Economy, confirmed the role of the government in controlling the market irregularities in a moment where Cuba is planning and hoping for a rise in private businesses. "In the face of more uncertainty, the greater the planning must be. That is why we have a detailed strategy that is in line with our economic model and guidelines, while focusing on lifting obstacles and operating our economy in a more functional way."
Is Cuba following in the footsteps of China’s economic model of supporting small and medium-sized national companies and taking a more amenable stance to foreign companies? What is clear is that Cuba is more open to international businesses and, unlike previous decades, there is a strong and consistent political will that supports it.
July 2020 Roundtable discussions at the Palacio de la Revolución where they discuss new economic measures. (Photo from Cubadebate.com)
Back to a Dollar Economy
In the 1990s, after the fall of the USSR and the elimination of its colossal economic support, Cuba chose to circulate and accept dollars within the island as a way to reanimate the economy in a time of deep economic depression. The Cuban government is playing the same card now in a different, and perhaps more apt, context. Thanks to digital banking, the government is able to manage the accounts of millions of Cubans without actually letting them keep the money in cash. Now, the government’s strategy is to acquire as many U.S. dollars as possible without physically circulating USD. In effect, Cubans are able to purchase products in dollars through digital transactions.
The following are measures of the new economic plan that aim to incentivize the introduction of U.S. dollars into the Cuban economy:
The 10% penalty tax on the U.S. dollar is eliminated. This change will increase the entrance of dollars via remittances from Cuban nationals residing abroad, mainly within the United States. Remittances form the third-largest revenue source of the Cuban economy. Recently, Fincimex, one of the companies in charge of processing remittances, was added to the Trump Administration’s Cuba Restricted List. This Restricted List includes all Cuban entities with which any person under U.S. jurisdiction is prohibited from making direct financial transactions. The other top two revenue sources for Cuba are tourism, which is paralyzed by the Covid-19, and medical services rendered abroad.
Direct foreign investment is encouraged, especially in food production. Check out this portfolio of opportunities for foreign investments in Cuba for more information.
Private enterprises and cooperatives can now import and export products. This also allows cooperatives the opportunity of selling to and buying from the Mariel Special Development Zone. “From the income received from exports, only a small commercial margin will be deducted by the state company that provides the service, as well as the expenses associated with the operation," explained Rodrigo Malmierca, Minister of Foreign Trade and Investment. 37 Cuban companies specializing in import and export were given the approval to provide services to Cuban entrepreneurs.
A wholesale market only accepting payment from Freely Convertible Currency accounts (MLC), that operate in various foreign currencies, will be established for the productive base and the non-state sector to supply small and medium-sized producers and cooperatives with the necessary infrastructure to modernize their businesses and make them more productive.
Alejandro Gil explained the logic, “It is not that we remove the products at MLC from other markets. That is not and will not be Cuba. It is about improving the markets operating in local currency but for this, it is vital to recover the hard currency.”
Ana María Ortega Tamayo, General Director of Tiendas Caribe, stated, "We are not closing sales in CUC or CUP."
Everyone Taken into Account
The Cuban people are preparing for a period of radical change in regard to national economic management. These measures are aimed at Cubans abroad and foreign investors, in general, who are interested in Cuba’s young and untouched market that holds high-profit potential. Some are concerned about the direction these measures may take, the knock-on effects, and whether or not they may backtrack the social achievements of the Cuban Revolution. Others are excited and hopeful in the face of these changes and see it as the only way out of this crisis that today affects every country in the world in one way or another.
Salvador Valdes Mesa, Vice President of Cuba, stated, “No Cuban will be left unprotected in the country…We will not renounce our sovereignty, nor our independence that generations preceding us fought to achieve over the centuries."