Cuban economy: in deeper waters

The prospect that the GDP grow more than 4 per cent in 2015 hints to a first solid reaction to the transformations undertaken several years ago, at a historic moment and of numerous question marks for Cuba.

Foto: Jorge Luis Baños, IPS-Cuba

Cuba has been intensely preparing for some years to maintain growth rates like the one planned for 2015.

The two most relevant news in Cuba in several decades – also one of the main ones in 2014’s international ranking – did not completely annul the impact of the economic report presented by the government to the National Assembly of People’s Power before the end of the year. The exchange of prisoners and the simultaneous announcement by the presidents of Cuba and the United States about the resumption of diplomatic relations overjoyed so much the Cuban people, leaving them almost breathless for the usual citizen debate about the economic results of the year and the forecasts for the next. But they did not eliminate the question marks or commentaries. They rather highlighted the doubts and expectations.

Economy Minister Marino Murillo ratified before Parliament that the Cuban authorities propose for 2015 a growth of the gross domestic product (GDP) and a financial administration that would gradually change the face of economic events.

The programme of transformations officially undertaken in 2011 – with the first steps in 2008 – had left as a subsequent effect an economic slowdown that totally contradicted the government forecast of an annual average 4.4 per cent growth until 2015. The GDP growth went down to 1.3 per cent in 2014, approximately a decimal point below the worst results of the last 15 years (2002 and 2009, the latter with the aftereffects of the three deadly hurricanes that hit the country the previous year, combined with the global financial crisis triggered almost at the same time from Wall Street).

After the hopes created by the start of the process of updating of the economic model, the absence of immediate benefits led to signs of popular distrust or at least of uncertainty.

What happened? The evolution of the economy from 2011 to 2014 allows for four readings, among many others. Firstly, the government calculations and averages were lost in a premature enthusiasm. It is my first conclusion. The leaders of the process could have considered the international experience, which indicates that the economic programmes – independently of the economic policy school that sponsors them – usually do not harvest immediate profits. The fruits tend to take long in direct frequency with the depth and reach of the goals set. The confirmation of this tendency would be the second reading. The third, and perhaps the most encouraging, is that what took place speaks of the real depth of our process, of its far-reaching objectives, and, in passing, the fourth conclusion, of the complexity and seriousness of the internal mix ups and problems that we Cubans have decided to rectify.

The aim of increasing the GDP by more than 4 per cent in 2015 – cautiousness reappears in the calculated imprecision of that annual goal – could constitute the usual rebound of the GDP after a triennium of slowdown that almost led to stagnation.

Is it possible to grow so much? Today that is the recurrent question behind others that absorb more the national political dialogue: will the U.S. economic blockade on Cuba end? When? And what if the Republicans take the reins of the White House and Congress? What are the real intentions of the less visible figures that remain behind Obama? What will happen when the U.S. companies are given the green light to land in Cuba after the U.S. tourists who arrive using their credit and debit cards? Are we Cubans prepared for this?

Many question marks. Many speculations. I only risk commenting on the first. The other question marks worry me less because this is definitively a chess game, with two rivals, and I believe both sides understand that the match has not concluded, though the U.S. president admitted the failure of the policy of blockade. What only changes are the tactics. Of the speech by Raúl Castro before the deputies in December one can also deduce that now we Cubans will not naively forget the friends, or the history of more than half a century of dangerous neighbourliness.

The scenario becomes complex to try to seek answers, but I see conditions to grow in a more solid way not only this year – a 4 per cent increase is all in all insufficient. Perhaps we are at the start of a stage of economic growth. It would be the logical rebound after several years of bordering the contraction and the maturing effect of the process of economic transformations. After the initial small adjustments, the updating of the model has rushed into more in-depth changes.

Taxes, investments, wages, dual currency, prices, business decentralisation, cooperatives, budgets…are gradually being placed at the centre of the storm, some for the first time, others in a more serious or in-depth way. Essential laws, the language, policies, forms of property management are changing.

Once again recognised by Murillo before the deputies as the more complex task, the currency unification is not even the only programme that promises rooted transcendence, no matter how high the expectations in the face of the increasingly greater proximity that one of the two current national currencies in circulation remain, the historic Cuban peso (CUP).

Planning is gaining unknown importance in this tropical socialism. The development of the tax system, simultaneously, leads to a social economic model governed by economic and legal regulations, instead of the decades-old empire of administration regulations. That change is explicitly announced in the report by the National Assembly when it approved the Tax Law in July 2012.

Under this cloak, the budget policy has a more realistic dimension. Sights are gradually been set on indicators that previously deserved little attention, like the fiscal deficit, proposed for 2015 at 6.2 per cent of the GDP, high though the government considers it “acceptable under the current conditions.”

In my opinion, the most dramatic transformation is taking place in the business sphere. It points to an unprecedented decentralisation of the backbone of the economy, even when establishing wage policies. “The system of payment according to yields that used to be approved at the ministerial level, is now approved by the directors of the enterprises,” Murillo, also head of the Commission for the Implementation of the Guidelines, indicated.

Promising and stressful at the same time, this step depends on the preparation, competence and attitude of the leaderships of enterprises, business groups, the so-called OSDE (higher organisation of business leadership), at higher and lower levels, to understand and assume their respective missions. In short, it demands “modifying the anarchic mentality and doing away with old habits,” Raúl Castro warned at the close of 2014 before Parliament and the principal government figures.

“It is not something that can be done from one day to the other if we want it to be successful,” the Cuban president said when commenting on the preparation already initiated of the leaders to face an improvement that has the aim of equipping the socialist state enterprise with greater autonomy and authority.

The case of 320 enterprises that Murillo denounced for violating this year the established efficiency indicator as a limit for the payment to their workers speaks of the tensions derived from this gradual decentralisation: the spending on wages per peso of gross added value. As a consequence, those entities spent 188.8 million pesos more. Defined as a serious violation of business discipline, mistakes like the previous ones could imply a step backwards in the new authority granted to enterprises.

The authorities presented plans for trade and external finances that endorse the prospects of a general economic growth: an increase in the export of goods and services of almost 11 per cent, up to 15.2 billion dollars, a slight surplus of the balance of payments and a favourable management of the foreign debt and the access to credits abroad. Also forecast are solid advances in the manufacturing industry, constructions, retail commerce, hotel activity and, more moderately, agriculture.

But the strongest means of support for development, and not just for economic growth, would come from the gradual integration of the measures the country has been adopting for some years. The changes in the rules of the game of the business world, which include the expansion of non-state forms of management like the cooperatives, are merging with the steps to strengthen the search for funds, investments and the granting of bank credits.

The Foreign Investment Law, approved last April, has come at a timely moment for the development of industry and agriculture and came in advance – not by chance, in my opinion – to the recent Cuban-U.S. agreement of re-establishing diplomatic relations. For starters, the shares of the leading investment firms in Cuban tourism, like the Spanish Meliá Hotels International, have shot up after the announcement by Raúl and Obama.

Similar reactions can be expected in other activities and sectors to the extent that the United States sorts out the complicated legislative system it set up to economically block Cuba for more than 50 years. This, together with the Cuban government strategy to organise its financial obligations abroad, could considerably decrease the country’s risk index, which makes it so difficult today to have access to loans from foreign banks.

In short, I see that Cuba has been creating the conditions to not just economically grow. It has also silently worked to prepare a scenario propitious for facing the unique historic juncture that would impose the reestablishment first of diplomatic relations with the United States, and of economic ties in a less tense future. Perhaps it has been preparing for this better than the very United States. (2014)

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