A Pessimistic Assessment of Cuba’s Economic Future

Jorge G. Castañeda, the Foreign Minister of Mexico from 2000 to 2003,[1] has rendered a pessimistic assessment of Latin American socialism, especially in Venezuela and Cuba.[2]

He starts with the assertion that the recent “Cubana de Aviación airliner’s crash in Havana . . . [was an] illustration of the utter bankruptcy of the 21st century socialism.” Later in the article he says, like “the Cuban economy, the plane was old, poorly maintained, leased by the national airline because it was the only one it could afford, and the rest of Cubana de Aviación’s domestic fleet had already been grounded.” (A subsequent article reported that Cubana de Aviación has suspended all domestic flights until September.[3])

Cuba, he says, “paid a heavy price for the initial, and perhaps enduring, successes of its revolution: education, health and dignity. But from the very beginning — with the exception of a few years between the collapse of the Soviet Union and the end of its subsidies to Cuba in 1992 and the advent of Venezuelan support in 1999 — it always found someone to pay the bills. The next option was meant to be the United States. That no longer seems possible.”

Now, with a new president, Cuba “again faces enormous economic and social challenges. They stem from three problems with no solutions.”

“First, says Castañeda, is the fall of tourism from the United States and the new tough line on Cuba adopted by the Trump administration. Through March of this year, the number of visitors from the United States is down more than 40 percent compared with 2017. This is partly because of travel warnings over safety issued by Washington, partly because of new travel restrictions put in place by President Trump [[4]] and because after the initial boom of nostalgic tourism, Cuba is now competing for normal travelers with the rest of the Caribbean. Its beauty and charm do not easily outweigh other destinations’ far superior services and infrastructure, and lower prices. Today myriad start-up businesses — always thought to be too small and numerous to survive — that sprang up for United States visitors are failing as a result of falling tourism.” [5]

Second, according to Castańeda, “American sanctions and Cuban fear of economic reforms have rendered the push for greater foreign investment somewhat futile. After an initial rush of highly publicized announcements, some United States companies have proved reluctant to run risks, particularly given Mr. Trump’s hostility toward all things Obama, and his dependence on Florida for re-election.”

As a result, he continues, the Cuban “economy has stopped growing, scarcities have re-emerged and new opportunities for employment and hard-currency earnings are not appearing. If one adds to this the government’s decision to suspend new cuentapropista or private self-employment permits, it is no surprise to discover that economic prospects are dim.”

Third, “Venezuela is no longer able to subsidize Cuba’s transition to a Vietnam-style socialist economy the way it did before.” In short, Venezuela cannot now provide oil to Cuba at below-market prices and on credit and cannot pay for Cuban doctors, teachers and intelligence personnel, which has been a major source of Cuban export earnings.

Nevertheless, Venezuela is “Cuba’s only unconditional ally in the world.” Hence, the first foreign leader to visit Cuba’s new president, Miguel Diaz-Canel, was Venezuela’s president, Nicolás Maduro, and Diaz-Canel returned the favor by making his first foreign visit to Venezuela.[6]

Now the U.S. is pressing for increased hemispheric sanctions against Venezuela with U.S. Secretary of State Mike Pompeo on June 4 being expected to drop the next shoe in an address to the  General Assembly of the Organization of American States.[7] If any of those anticipated U.S. requests are met, this will increase the pressures on Cuba.

Conclusion

 In partial response to these issues, on June 2 Cuba started the process for revising its constitution with the agenda for an extraordinary session of its national legislature (the National Assembly of People’s Power) including approval of “the process to be followed in carrying out Constitutional Reform and the commission of deputies responsible for drafting and presenting the proposed Constitution of the Republic.”  This first step was the approval of a commission to prepare a draft of a revised constitution that will be headed by Raúl Castro, the former president, Diaz-Canel, the current president, and 31 others. Once the constitutional draft is ready, it is slated to be discussed first by the national legislature and then by the broader population, before being submitted to a referendum.[8]

One of the major anticipated challenges for drafting the new constitution will be validating private ownership of property and businesses while simultaneously upholding the “irrevocable nature of socialism.” Perhaps the selection of Castro as the chair of this constitutional commission is not as anti-economic reform as might appear to outsiders. After all Raúl first announced the need for a new constitution in 2011 after embarking on a series of reforms cautiously opening up the economy to foreign investment and the private sector in order to make Cuban socialism sustainable. And at the Communist Party’s Congress in 2016, Castro praised the innovations of the private sector and criticized the “outdated mentalities” and “inertia” of state-owned enterprises.[9]

Such a change will have to delete or modify a current constitutional clause forbidding Cubans from “obtaining income that comes from exploiting the work of others.” “According to Julio Perez, a political analyst and former news editor at state-run Radio Habana, said “Cuba has to make substantial changes to the constitution that endorse private property, self-employment and cooperatives as part of the Cuban economy.”

Simultaneously there are reports that the government is preparing decrees regarding norms for 2,386 Cooperatives of Credit and Services (CCS), 650 Cooperatives of Agricultural Production (CPA) and 1,084 Basic Units of Cooperative Production (UBPC) operating in the agricultural sector and producing 92% of the island’s food.[10]

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[1] Castañeda now is Associated Professor of Public Service, New York University (NYU) Wagner; Global Distinguished Professor of Politics and Latin American and Caribbean Studies, NYU Faculty of Arts and Science. He also is a former member of the  board of Human Rights Watch and a noted author.

[2] Castañeda, The Bankruptcy of 21^st Century Socialism, N.Y. Times (June 2, 2018).

[3] Cubano de Aviación will maintain the suspension of domestic flights at least until September, Diario de Cuba (June 2, 2018).

[4] This blog has criticized the 2017 State Department’s urging Americans to reconsider traveling to Cuba because of the still unresolved medical problems experienced by some U.S. (and Canadian) diplomats in Havana and the U.S. cancellation of individual person-to-person travel to Cuba. (E.g., A New Travel Warning for Americans Traveling to Cuba, dwkcommentaries.com (Sept. 19, 2017); New U.S. Regulations Regarding U.S. Travel to Cuba and Transactions with Cuban Entitles, dwkcommentaries.com (Nov. 8, 2017).)

[5]  As this blog has reported, Cuba’s private sector was flourishing in 2015-2016, but has fallen into hard times as a result of new Cuban restrictions on such enterprises and the decline of American visitors, a result that should be contrary to the normal Republican promotion of entrepreneurship and of a potential challenge to Cuba’s socialism. (See., e.g., Why Is the Cuban Government Trying To Slow Down the Private Sector? dwkcommentaries.com (Aug. 3, 2017).)

[6] E.g., Cuba’s New Leader Praises Maduro in ‘Solidarity’ Visit to Venezuela, N.Y. Times (May 30, 2018); Why did Díaz-Canel make his first state visit as President to Venezuela?, Granma (June 1, 2018).

[7] U.S. State Dep’t, Secretary of State Pompeo to Lead U.S. Delegation to the Organization of American States General Assembly (June 1, 2018).

[8] Reuters, Cuba Set to Launch Constitutional Rewrite to Reflect Reforms, N.Y. Times (June 2, 2018); Raúl will lead the Commission in charge of the project of Constitution of the Republic (+ Video), Granma (June 2, 2018); Díaz-Canel: The new Constitution will take into account the principles of our political system, Granma (June 2, 2018); Deputies will continue meeting following extraordinary session, Granma (June 1, 2018); Romero, Constitutional Reform in Cuba: Priority for ANPP commissions, Cubadebate (June 2, 2018); Assoc. Press, Cuba Forms Commission to Update Soviet-Era Constitution, N.Y. Times (June 2, 2018); Reuters, Raul Castro Appointed to Head Rewrite of Cuba Constitution, N.Y. Times (June 2, 2018).

[9] Raúl Castro Discusses Socio-Economic Issues in Report to Seventh Congress of the Communist Party of Cuba, dwkcommentaries.com (April 19, 2016); President Raúl Castro Affirms Importance of Cuba’s Private Sector, dwkcommentaries.com (July 18, 2017).

[10] The government prepares laws for Cuban agricultural cooperatives, producers of 92% of food, Diario de Cuba (June 2, 2018).