the updating of the cuban social and economic model
TRANSCRIPT
The Updating of the Cuban Social and Economic Model
Dr. Jacqueline Laguardia MartinezInstitute of International Relations, UWI
Points to explore1. The updating of the model, a reform
process?2. Economic transformations and
performance since the 90’s3. 17-D implications4. The future of the updating
BACKGROUND OF ECONOMIC ADJUSTMENTS
1990s: Special Period GDP collapses around 35% - 40% in a few months Loss of 85% of foreign markets Real salaries and pensions fall 70% Critical scarcities in most sectors: industries closed, infrastructure ground
down Nearly half of all factories were shut down or very sharply reduced in
operations Lack of imported raw materials, spare parts, and oil Employment protected: enterprise loses subsidised, salaries maintained US blockade intensified (Torricelli and Helms Burton Acts in 1992 and
1996)
Economic reforms of the Special PeriodFood Program established to make Cuba as self-food sufficient as possible Energy Rationing Program by loss of Soviet oilTransportation adjustments (reduced bus runs, cut number of taxis in half)Newspapers and magazines sharply reduced, television broadcast time sharply cut
backStepped-up rationing of consumer goods: standing in long rationing lines became a
daily way of life Expansion of market-type reforms Courted private foreign investment as never before, and in nearly all sectors of the
economyAllowed unlimited repatriation of profits for 10 yearsAllowable percentage of foreign ownership of enterprises went from zero, then to
49%, then in some instances to majority
Foreign investment concentrated in hard currency sectors, especially tourism (hotels, restaurants)
U.S. dollar openly served as the currency of tourism The establishment of a highly advanced and successful biotechnology
industry, producing vaccines and other drugs for export Investments in healthcare, education, biotechnology Maintained welfare provision, state planning, predominance of state
ownership and internationalist solidarity Medical and educational internationalism Organic farming, crop rotation techniques, urban agriculture, bicycle
transport, car-pooling, solar-energy
Economic reforms of the Special Period
Cuba’s welfare priorities1990s share of Cuba’s GDP spent on social programs increased 34% Between 1990-2003: Cuban doctors increased by 76% Dentists by 46% Nurses by 16% Maternity homes by 86% Day-care centres for older people by 107% Homes for people with disabilities by 47% •Infant mortality: 1989 = 11.1/1,000 falls to 1999 = 6.4 (2010 = 4.5)•Education expenditure rose from 8.5% of GDP in 1990 to 11.7% in 1999 •Between 1992-1996, 1.5% GNP invested in scientific poles (biotech & pharma industries). Produces 80% of domestically consumed medicines
Other important changes in the 90’sIn 1991 Congress of the PCC preceded by nationwide ‘llamamiento’ invitation to
Cubans to voice their complaints In 1992, the National Assembly approved constitutional reforms: direct elections
to People’s Councils, opening of PCC membership to religious believers Former references in the Cuban Constitution of 1976 to the international
socialist community and to the Soviet Union were dropped In December 1992 Municipal Assembly elections and February 1993 Provincial
and National Assembly elections there was a very high voter participationCompulsory military service reduced from three to two years Downsizing of FAR, redirection of troop efforts to growing their own food and
sell the surplus to people at very low prices
Cubans reacted to the Special Period in most cases stoically, but many tried to leave the island by any means possible in the early 1990s
U.S. granted asylum to 2,557 balseros in 1992, then 3,656 in 1993
Remittances from Cuban Americans brought in more dollars than any single island export (U.S. economic expansion in the 1990’s)
Recovery in the 2000s• Aim to raise productivity (precondition to raise salaries and standard of living),
reduce imports, rationalise production, obtain capital for infrastructural investments
• Restore macroeconomic efficiency and fiscal balances Recentralisation of finances & de-dollarization Raising of salaries and pensions Energy efficiency campaign Enterprise Perfection System Distribution of idle land in usufruct (rent-free loan) Reduction in imports Tightening of regulatory and auditing controls Changes in the employment structure
Cuba, ALBA – TCP and Latin American links
• Promotion of non-market based exchanges between neighbouring countries• Reciprocal cooperation and focus on endogenous development to overcome
structural inequalities • Access to capital for infrastructural investment projects• Alternative to complete insertion into capitalist world economy • Export strategy consistent with Cuba’s socialist principles• Less obstruction from the US blockade• Political support against US blockade • Locates Cuba as a central axis of pan-Latin American integration
2007 – 2008 a new economic slowdown• Global economic crisis disrupts access to external financing, reduction in incomes
from tourism and remittances• Export earnings suffers from nickel prices falling by 75%• 2008 hurricanes cost USD 10bn damage (20% GDP) and the revenue needed for
emergency imports and reparations between 1998-2008 estimated in USD 20.5bn• Between November 2008 and July 2010 a severe drought affects food production,
specially sugar cane production, leading to price rises in Cuban domestic market and diminishing revenues from sugar cane exports (together with sugar prices falling)
• 2008 fiscal deficit of 6.9% of GDP• Deficit in balance of foreign trade in goods and services by USD 1.7 billion• In 2008 Cuban banks freeze accounts of foreign suppliers and investors• In 2009 Cuban imports reduced by 37% on previous year and not compensated by
domestic production due to drought and other factors
Source: NU CEPAL, 2000 Cuadro A.86; ONE, 2010 Table 11.4
World price fluctuationsFall in nickel prices and fluctuations in oil prices Jan 2007 – April 2010
RECENT TRANSFORMATION PROCESS
Cuba´s new economic model
Actualización del modelo económico socialista
Context for the Updating
• Economic performance since the “Special Period” have some positive results• Human development has been positive• Economic growth and recuperation
• But:• Real Income per person has not risen in pace with economic growth• Production of goods – as opposed to services – has not improved• A range of economic problems persists: low productivity, insufficient export
diversification, insufficient investment and technological transformation, inefficient employment structure
• Excessive expansion of state sector• Bureaucratic controls in labor, product, financial and capital markets
The Monetary and Exchange Rate System• Twenty years of the dual
monetary and exchange rate systems
• Dysfunction of general environment of incentives; misguides economic signals and economic evaluation performances, ‘dirty’ entrepreneurial competitiveness
• Deformation of people’s lives and work incentives
Draft Guide for Economic and Social Policy, October 2010 Broader Problem-identification:
• Putting unused lands into productive use, • Raising agricultural yields, • Developing new mechanisms to reverse industrial and
infrastructural de-capitalization• To eliminate monetary dualism• Provide improved capacities for more decentralized regional
development• Recover traditional exports, etc.
GoalTo make economic issues a
key criteria in Cuban policies and actions
VI Congress of the Cuban Communist Party, 2011
Main subject of discussion
‘Updating of the Cuban Economic Model’
Guidelines for UPDATING• Political understanding of the urgency of transformations• Economic transformation needed due to domestic problems and not
to cope with external shocks • Synergies between economic growing and development (to move
forward the ‘crisis management’)• Need of having a comprehensive socioeconomic visionRedefinition of the agents of the economyNew institutionalizationStructural transformations of the Cuban statist centralized model• It is not merely a generational takeover
313 GUIDELINESI Economic Management Model II Macroeconomic PoliciesIII External Economic Policies IV Investment PolicyV Science, Technology, Innovation and Environmental PolicyVI Social PolicyVII Agro-industrial PolicyVIII Industrial and Energy PolicyIX Tourism PolicyX Transport PolicyXI Construction, Housing and Water PolicyXII Commercial Policy
• Most economic than political and ideological elements• Ambitious and comprehensive general program• A statement of aspirations: an agenda, not a detailed plan • No priorities indicated• No sequencing of policies or investments • They reflect the particularities of the Cuban context, its own set of problem
and its society’s aspirations (not the Vietnamese Model nor the Chinese Model)
• Ostensibly to promote popular debate: for three months (December 1, 2010 to February 28, 2011) 8,913,838 people participated in more than 163,000 meetings registering more than 3 million interventions
• More tan 600,000 changes’ proposals (suggestions, modifications, eliminations, additions). 68% of the initial project was modified
Main characteristics of the guidelines
• Socialist planning maintains the key role and not market mechanisms
• No neoliberal programs or policies will be applied
• Social policies to be maintained and consolidated
• More room for other property options, management and production
• De-centralization of management model
• No wealth concentration allowed
• Institutional and legal adjustment: Investment Law, Labor Law, Tax Law
Main characteristics of the guidelines
• Greater autonomy for state enterprises • Liquidation of insolvent enterprises• Workers incomes in state enterprises to be linked to enterprise
performance• Modify the structure of employment by reducing inflated state sector
staffing and increasing employment in the non-state sector • Restructuring retailing and wholesaling• Monetary and exchange rate unification will be “advanced” • The taxation system will be advanced in terms of progressivity and coverage• Eliminate the ration book
Interesting changes contained in the guidelines
Cuban social contract bases1. Same opportunities to all2. Universal access to social services (health,
education 100% by public provision)3. State protection from poverty and
abandonment4. Fundamental means of production remain state
owned
Dynamic of the transformation processRESULTS
Insufficient dynamic of growing Weak structural transformation Weak recovery of the agricultural
sector Few increase of goods exports Inadequate use of the qualified
labor force Insufficient improve of income
distribution Concentration of the benefits Local concentration of the positive
impacts
Diversification of exports Stimulus to the complementarity
between state and the non state sector.
Reduction of the state sector of the economy
Modification of juridical and institutional framework.
Payment and renegotiation of external debt
Bigger spaces for internal public debate
GDP annual rate and average
EXTERNAL SECTOR
Two products represent 58% of the total imports of
goods2014 (%)
Foods 14,7
Oil 43,1
2014 (%)Mining 15,3
Sugar industry 8,6
Tobacco and beverages
6,7
Four items represent 31% of the total exports
of goods
Cuba: Exports of goods and services
Cuba: goods and services as part of total exports
Services: 66%
Services: 9%
Significant role of services in total exports
Self-employment in the Cuban workforce
Evolution of self-employed work, 1994-2009 (thousands of workers)
• Gross Capital Formation (less than 12% of GDP)
• Low foreign direct investment inflows
• High restrictive external financial situation
DYNAMISM AND CONSTRAINTS
Around 19,000 people working in private transport
2,800 private restaurants (plus 9,000 in the state became cooperatives in two years)
Private Rent: 21,241 rooms300 hotels and more than 60,000 rooms3 millions tourists in 2014More than 3,5 millions tourists inn 2015
• Facilities for American citizens to travel (NO TOURISM ALLOWED) • Approval of the maritime transportation of passenger and direct flights (aircraft
and vessels)• Special licenses for exports from US companies to Cuba• Authorization to invest in telecommunications and Internet services• Authorization for exporting goods and services from the non state Cuban sector
to USA• Authorization to US institutions to open banking accounts in Cuban financial
institutions• Use of credit and debit cards in Cuba
17-D: NEW FRAMEWORK OF RELATIONSHIP WITH USA
• Cuba’s image• Interest• Expectations• Enthusiasm
17 - D
Long Term vs.
Short Term
17-D: IMPACTS
– Tourism– Remittances– Trade– Investments
www.themegallery.com
RCCL, Carnival, NCL, Harmark, Costa Cruises, MSC, Pearl Seas Cruises and United Caribbean Lines
American AirlinesDelta Airlines
United Airlines Jet Blue Airways
American Express
MasterCard Airbnb Apple
U.S. companies interested on Cuba
BUTTHE PAY IN ADVANCE CONCEPT
U.S. DOLLARS USE NOT ALLOWED FOR CUBA
THE EMBARGO/BLOCKADE
• The process of transformation is a fact
• There are still some diffuse boundaries between:
State vs. Non State sector and agents (cooperatives?)
Property vs. Management
Planning vs. Market
Norms vs. Discretionary Decisions
Control vs. Incentives
PARTIAL BALANCE OF THE UPDATING PROCESS
To carefully consider:The extension of market mechanisms and the Non State sector
Long term economic development program
The role of Cuban migrants
Strategic partners and new external markets
Cuba – USA and the ‘normalization’ process
How to effectively encourage FDI and diversify production and exports
BEYOND 2016
The creation of the Special Development Zone Mariel (ZEDM) to attract FDI and boost the economy
Favorable location: placed 45 km West of Havana and has an area of 465.4 km²
Modern infrastructure (port and container terminal)
Special treatment for foreign investors
Regulated by Decree Law No. 313, Decree No. 316 and other regulations
45 Km
Main purposes of the ZEDM• To obtain fund, markets, technology• To promote exports• To create jobs• To develop strategic sectors as
biotechnology, renewable energy, agroindustry, tourism, telecommunications
Sector A, located near the container terminal and the Mariel bay, was chosen for the first phase of ZEDM development
VII Congress of the Cuban Communist Party, 2016 To continue and extend the reform
of the economic mechanisms To correct and reform the monetary
system To continue building a new
legislative framework To continue the institutionalization
reform To conceptualize the model To define the ‘market’ extension
Main bibliography• Romero Gómez, Antonio F. Transformaciones Económicas y Cambios, Institucionales en Cuba,
August 2014, http://www.brookings.edu/~/media/research/files/papers/2014/08/economic-transformation-institutional-change-cuba-romero/economictransformationinstitutionalchangecubaromero.pdf
• Sánchez Egozcue, Jorge Mario and Juan Triana Cordoví, Un panorama actual de la economía cubana, las transformaciones en curso y sus retos perspectivos, 2008, Documento de Trabajo Nº 31/2008, http://biblioteca.ribei.org/1509/1/DT-31-2008.pdf
• Font, Mauricio A. and Mario González-Corzo (Ed.), Reformando el Modelo Económico Cubano, Bildner Center for Western Hemisphere Studies, The Graduate Center, The City University of New York, http://www.gc.cuny.edu/CUNY_GC/media/365-Images/ebook1.pdf
• Triana Cordoví, Juan. ‘Cuba: ¿de la «actualización» del modelo económico al desarrollo?’, Revista Nueva Sociedad No. 242, November- December 2012, http://nuso.org/media/articles/downloads/3907_1.pdf
• de Miranda Parrondo, Mauricio. Capítulo 6. Los problemas actuales de la economía cubana y las reformas necesarias, en Cuba: Hacia una estrategia de desarrollo para los inicios del siglo XXI , http://espaciolaical.org/contens/publicacion/libro1/cap-6.pdf
Main bibliography• Triana Cordoví, Juan and Ricardo Torres Pérez. Políticas para el crecimiento económico Cuba ante
una nueva era, October 2013, http://www.brookings.edu/~/media/research/files/papers/2013/10/politicas%20crecimiento%20economico%20cuba%20cordovi%20perez/politicas%20crecimiento%20economico%20cordovi%20perez.pdf
• Hidalgo Gallo, Rosibel. The current Cuban foreign trade: Obstacles and perspectives, 2016• Pérez Villanueva, Omar E., La Inversión Extranjera Directa: su relanzamiento para el desarrollo
económico cubano, 2015.• Ritter, Archibald R. M. Cuba’s Economic Reform Process under President Raul Castro: Challenges,
Strategic Actions and Prospective Performance, at the International Symposium Cuba Futures: Past and Present, March 31-April 2, 2011, http://thecubaneconomy.com/wp-content/uploads/2011/04/A.-Ritter-Bildner-Conference-Cubas-Economic-Reform-Process-under-President-Raul-Castro-March-31-2011.ppt