It is not the purpose of this text, nor of any other that we have written, to make constant, annoying and incisive criticism of the decisions that are taken to face the complex problems of the Cuban economy, affected by difficult international situations and by an incessant policy of aggression and blocking. Those who ignore or do not explicitly recognize these circumstances in their analyzes are doing themselves and the committed discussion a disservice. However, as we have expressed many times, neither the problems nor the possibilities for progress of the Cuban economy are reduced to these difficult conditions in the midst of which it finds itself.
There is ample room to move forward without ignoring these complex realities. The Cuban economy has, on the one hand, serious structural problems, accompanied by a clearly obsolete economic model. And at the same time it is suffering from a macroeconomic crisis exacerbated by recent events (the strengthening of the blockade, the pandemic, international inflation, plus the lack of adequate progress in economic reform). Cuban economic policy, notwithstanding these exogenous restrictions, must face all the dimensions of this reality without some measures opposing or neutralizing others that are essential for the strategic solution of this very delicate situation.
For many years, more than twenty-five, we have been reiterating the need for a fundamental and comprehensive reform of the economy. This is a necessary and essential condition for the advancement of the country, including the preservation of its sovereignty and its project of a socialist nation, justice and social inclusion. Without a clear and profound reform of the system, everything else becomes an unsustainable chimera. External and internal forces that oppose it are not lacking.
It is the perception of this real and latent risk that makes us look with a comprehensive perspective at what is decided in the country, without economism, but with a systemic sense of the economy. Needless to say, any analysis is based on the humility that comes from understanding the complexity of the situation. No one is the bearer of the absolute truth. Neither the infallibility of official decisions nor “the tyranny of experts” are acceptable.
This is relevant because various measures have recently been announced that seem to aim at maintaining the course of transformations that have been approved in different political instances. Seen separately, they are all bearers of reasons and arguments. However, their rating is only accurate if they are seen in the context of the comprehensive reform that should be. This is where, inevitably, problems appear that must be pointed out, considered, evaluated and corrected.
As part of the various analyzes that we have presented, we highlight the fact that inflation is one of the biggest problems facing the national situation today, with strong impacts not only economic but also social and political. There is more than one international factor that gives rise to inflationary pressures everywhere, but there is also more than one factor in the domestic economy and in the measures that have been approved that strongly fuel inflation.
The call sorting task monetary policy, initiated in January 2021, problematic in its beginnings, as is the case with all official policies, but today in fact questioned by itself, had negative consequences for the country and society. Not because its general objectives were wrong (to establish the circulation of a single currency and unify exchange rates) but because the timing, the sequence, the details and the lack of mechanisms to deal with deviations and accompanying shocks gave rise to a response highly inflationary and not exactly a recovery of the economy, as was insistently announced. This was predictable and to some extent avoidable. This was pointed out then in serious analyzes by several Cuban economists.
In our opinion, faced with this situation, partly imposed by international circumstances and partly caused by internal decisions (not only the regulation, but also what came later, such as the broad distribution of business profits without support in real productive results, the decentralization of prices, the incomplete adjustment of tax policy, increases in salaries and pensions in certain sectors, etc.), an urgent and comprehensive response is needed, on the supply side, on the demand side and with a policy well-founded monetary, exchange and fiscal
Until now, this has not happened sufficiently, and neither has the recent decision to establish a new official exchange rate with a strong devaluation of the Cuban peso, to the level at which it moves in the illegal market (1 USD: 120 CUP ), accompanied by the support of the fixed rate since the beginning of 2021 (1 USD: 24 CUP), now accepting its float. All this, in practice and in essence, means a return to the situation of multiple exchanges that existed before the order, with the advance of an incomplete foreign exchange market that only allows the sale of foreign currency, but not its purchase. In other words, the evil that had been attacked and announced in its overcoming, has actually been reborn with all its consequences and this happens because its solution is not solely or exclusively in the sphere of monetary circulation, but in the entire national economy, essentially in the productive sphere.
The purchase of State currency: a path through a stone alley
There are positive factors in this decision, both to promote international tourism, now with legal and rapid access to the national currency at a more favorable rate for them. It is also a way for the greater capitalization of remittances, which has a positive impact, especially in segments of the private and cooperative sectors. However, this decision is not yet accompanied by a significant advance in the further decentralization and rationalization of state companies whose level, in general, of low efficiency and excessive costs, continues to be a strong drag on the national economy. Nor are the operational conditions of emerging non-state actors sufficiently expanded (direct access to foreign trade, supplied wholesale markets, etc.). And something very important: they are not allowed to complete the economic cycle either, since they cannot buy foreign currency to attend the MLC markets, essential for their reproduction. Likewise, a greater deployment of proactivity from other public institutions such as the post office, banks, insurance, etc., essential for the efficient functioning of a modern economy, is not articulated. All are fundamental factors for a greater productive response in the different sectors of the national economy.
The reform of state-owned companies requires a separate section (we will return to this topic in future texts). For the Cuban socialist project, in which state ownership is not unique, but preeminent, the discussion of the principal-agent dilemma and its implications for the so-called “good governance” of its public companies is essential. This includes, among other aspects, the reassessment of ministries and other entities and their functions; the reanalysis, greater delimitation, reduction and reorganization of the Superior Organizations of Business Management (OSDE) and existing companies; the mechanisms for the creation of new state companies or their closure when they are unsustainable; science, innovation and its productive introduction; the role and composition of the government boards and their relationship with the Assemblies of People’s Power at their different levels, both national and local, and with the administration of state companies, greater decentralization. These are central issues and their solution is decisive in the course of the comprehensive reform of the economy. The successful insertion of public companies in the future foreign exchange market will also depend on this solution.
Unfortunately, and due to an often “bucolic” evaluation of social contradictions, the existence of this dilemma, described early by Marx, was not sufficiently addressed in the European socialist economies of the 20th century, so that, as some authors indicate, “…it was in what is known as the principal-agent problem that the command economy registered its greatest problems” (Samuelson & Nordhaus, 2010).
Returning to the measure that motivates this text, it is true that there are not enough foreign currencies to complete the money market due to existing deficits. However, the question arises as to whether it would not be advisable to dedicate a part of the reserves to this (no matter how meager these may be) or to obtain international loans for this purpose (the necessary calculations would have to be made), which would allow the economic cycle to be stimulated, increase the productive response and bring the domestic foreign exchange market under control. Or why its articulation was not foreseen before, with less inflationary pressures if the objective was the temporary accumulation of foreign currency for its subsequent sale and establish this mechanism as an essential factor in the dynamic functioning of the national economy. Even in the event that it would have been unavoidable in a brief beginning to open without selling foreign currency, temporary monetary and fiscal actions should at least be foreseen to control the potential new inflationary impact of this decision, which will once again affect lower-income sectors more. relative.
In any case, the foreign exchange market that is announced must be completed quickly, in its offer, its demand, back and forth, with the appropriate and dynamic regulations that must correspond to it in an economy like Cuba’s, but this has to be part of the deepest transformations that the national economy needs. No isolated measure, nor “a group of measures” that do not respond in concept, sequence and comprehensiveness to the necessary economic reform, could strategically overcome the problems that hit the country today.
It should continue to advance and gain much more in comprehensiveness and coherence. Without this process there is no possible prosperous future and there are many difficulties, repeated and often aggravated. We mention this not because the past can be changed, but because it should be a source of learning for the future.
We insist that time is a critical variable.
Note:
Samuelson, P. & Nordhaus, W.: Economics with applications to Latin America, McGraw-HIll Interamericana Editores SA de CV, Mexico, 2010.
