Reform without losing socialism: crisis leads Cuba to

Cuba begins the year 2024 with serious and persistent economic problems from which the country has been trying to recover since at least the crisis generated by the pandemic in 2020: a contraction in economic activity, inflation above 30% and recurring episodes of shortages of fuel and other products.

The context is worsened by the harmful effects of the US blockade against the Caribbean country, which has lasted 62 years and continues to suffocate the island’s economy, being one of the main obstacles to recovery.

Given this situation, the Cuban government announced in the last days of December 2023 that this year it will implement a series of measures to “stabilize the economy”. Increases in the prices of services and energy, cuts in subsidies to sectors with greater consumption and the implementation of a new exchange rate accompanied by a devaluation of the national currency are in the government’s plans.

However, there are risks that the measures will generate a domino effect and stimulate inflation on the island. One of the most sensitive products that saw increases this year, for example, was fuel, which the State imports and subsidizes considerably for the population. Fuel increases are an essential component in price formation and can create inflationary pressure in other sectors.

On the other hand, the government seeks to protect vulnerable sectors and workers in general. As compensatory measures, salary increases were announced for education and health professionals, in an attempt to recover part of the purchasing power that has been affected by the crisis in recent years.

For Cuban economists interviewed by the Brazil in factthe country’s challenge in 2024 is to make the necessary economic adjustments to overcome the crisis, but without dismantling the social policies built since the beginning of the socialist Revolution in 1959. “We must try to preserve the Cuban social project by all means”, he states economist Karina Cruz Simón.

A researcher at the Center for Cuban Economic Studies, she has published together with other experts important works on inflation on the island and, although she is currently involved in academic activities, she worked for many years at the Central Bank of Cuba. To the Brazil in factshe said that “in this crisis situation that the Cuban economy is going through, we must seek to make all the necessary updates and adjustments, but with the understanding that these adjustments must have the ultimate objective of preserving the social project that we have been building since the triumph of Revolution, a project that is based on pillars of social justice.”

“Certainly, the year 2024 must be a very complex year. In fact, the last four years have been extremely complex for the Cuban economy,” said the economist. “The crisis that Cuba is suffering is caused by several factors, some are structural, others are cyclical, but there are also external problems. The US blockade against Cuba is a big problem, but it is not the only one, despite all the problems which we are going through are aggravated by the blockade. It stifles the possibilities of getting out of the current situation”, he explained.

According to the latest document demanding the end of sanctions against Cuba, approved by the UN General Assembly, the blockade illegally implemented by the United States generated a loss of US$13 million per day for the Cuban State in the last year alone.

“We have a situation of partial dollarization of the economy. As we do not have a formal foreign exchange market – among other things, because we do not have access to credit or the international financial system due to the blockade – the informal currency market has assumed a significant weight. What I want to emphasize is that we have a crisis of a productive nature, which can be explained by structural reasons, but we also have a crisis from a macroeconomic point of view”, said Simón.

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With the measures, the government seeks to reduce the high fiscal deficit and reduce inflation, even though it forecasts a deficit of more than 15% of GDP for 2024. The main concern is the social cost that stabilization initiatives can generate. “There is a lot of debate about whether these measures will be effective in helping Cuba get out of the crisis”, warns the economist. “In my opinion, Cuba does not need isolated measures, because they are not enough. We need a coherent macroeconomic stabilization program with comprehensive and properly sequenced measures to get us out of the complex situation we have been experiencing in recent years as quickly as possible,” he said.

Private sector X public sector: integrate and develop

At the same time that it is forced to face the crisis, Cuba is going through profound economic and social changes. Since 2021, life on the island has been undergoing an accelerated transformation as a result of the incorporation of a new private economic sector of small and medium-sized companies, known as Mipymes. Despite being strongest in Havana, the landscape of the country’s main cities is being transformed as these small and medium-sized companies multiply.

Joel Marill, member of the Directorate of Macroeconomic Projections and Coordination of the Cuban Ministry of Economy, spoke Brazil in fact about this process. “As of 2021, what was called an update of the economic model began, which consisted of a set of reforms that, among other things, incorporated new actors into the Cuban economic system,” he explains.

According to the latest official reports, there are currently more than 9,900 small and medium-sized private sector companies in Cuba. It is estimated that the Mipymes employ more than 260 thousand workers, which represents approximately 18% of the workforce. However, the remaining workers remain employed in the various ways in which the state sector operates.

“Cuba today has a much more diversified economy in terms of economic actors, agents and forms of ownership, but the state sector is still predominant. The State controls the main structures of the economy, what we call the ‘fundamental means of production’, which It is what forms the core of the socialist project”, observes Marill.

Small and medium-sized private companies have multiplied across the country since 2021 / Yamil Lage/AFP

Part of the current discussions in Cuba about the future of the economic model involves the fate of the nascent private economic sector and how it relates – or should relate – to the socialist project. On the one hand, the Mipymes They have been important drivers of the economy, as during episodes of scarcity they have managed to increase the supply of goods and services on the market, in most cases through imports. Furthermore, they are also generating new jobs, relieving the state sector.

On the other hand, the expansion of small and medium-sized private initiatives has also generated new social inequalities among the population, a relatively new phenomenon on the island which, for decades, was a reference in levels of social equality. At the same time, several speeches point out that Mipymes may be responsible for the island’s inflationary process. Many of the products sold by the private sector are difficult to access for the salaries of state workers, whose purchasing power has deteriorated.

The economic stabilization measures that the government intends to implement during the year reflect the situation of growing inequality. One of the government’s main objectives for 2024 is to create a greater degree of coordination between the emerging private economic sector and the state sector. To achieve this, an institute must link this economic sector to local development needs in each of the country’s 168 municipalities.

“It is necessary to understand that, for this social project to really survive, we need to make important adjustments, modifications and even certain updates. Part of these updates has to do with how to link this new private sector, which has been emerging with great strength in recent years, to the state business sector, which is the sector that traditionally operates in the Cuban economy”, pointed out Karina Cruz Simón.

Editing: Lucas Estanislau