On December 21, 2017, Cuba’s National Assembly determined that Raúl Castro’s term as President would be extended from February 24 to April 19. The stated reason for the extension was the delay in the start of the electoral cycle caused by Hurricane Irma.[1]
Some, however, speculate that the real reason for the extension is trying to cope with Cuba’s many economic and political problems—slower economic growth (if not decline), declining support from struggling Venezuela and increased U.S. hostility. Perhaps a clearer indication of what is happening will be provided by the March meeting of the Central Committee of Cuba’s Communist Party to discuss the results of the economic guidelines, or reforms, introduced under Castro and talk about a strategy for the coming years.[2]
Indeed, during this session of the National Assembly President Castro said, “Next year will also be complicated for the external finances of the nation, however, we will continue credibility of our economy and reiterate to the creditors the fulfillment of the agreed commitments, and we thank support and understanding for the transitory difficulties that we face.” However, Castro did say, “when the National Assembly is constituted, my second and last term [as] . . . the head of the State and the Government [will end] and Cuba will have a new president.”
Simultaneously the Cuban Government announced new regulations on the emerging private and cooperative sectors of the nation’s economy to more closely regulate the income distribution by cooperatives so that no one may earn more than three times of others in the cooperative. This resulted from investigations revealing that in some non-agricultural cooperatives the president earned fourteen times more than the workers, that this is not a cooperative, but rather a private company and cannot be allowed.
In addition, a cooperative may operate in only one province where it has a legal domicile, and business licenses will be limited to one per person.
Cuba’s Vice President Marino Murillo, who is also the government’s economy czar, said there will be no new approvals for the time being for non-agricultural cooperatives, while their maximum and minimum earnings will be limited to avoid the existence of de-facto private businesses.
According to Michael Bustamante, an assistant professor of Latin American history at Florida International University, these new regulations “suggest a continued slowing down, if not an undoing, of the economic reforms implemented between 2010 and 2016.”
[2] As reported in a December 1 comment to a post about Cuba’s elections, Domingo Amuchastegui, a former Cuban intelligence analyst who now lives in Miami, said, “The fatherland is in danger; it is facing very difficult economic circumstances plus the threat of aggression from a historical enemy. Facing difficult circumstances, revolutionary leaders don’t back down. These are not times to enjoy life in Varadero and spend time with the grandchildren.”
A previous post covered the July 8th speeches to Cuba’s legislature (the National Assembly of People’s Power) by President Raúl Castro and Minister of Economy and Planning, Marino Murillo. However, that post was unable to dissect the English translation of the latter. Now Granma, Cuba’s Communist Party newspaper, has provided the following analysis of Murillo’ speech.[1]
In the last half of 2016, the Cuban government will be implementing measures that are “intended to optimize the country’s finances and emphasize the need for rational use of resources and efficiency, in order to reduce expenses and take advantage of untapped opportunities for savings.”
These measures include “plans to reduce liquid operations, which include adjustments by entities which have hard currency self-financing systems in place. Others involve suspending the assumption of short and medium term credits, as well as a cut, of approximately 28%, in planned energy consumption in the non-residential sector.”
The reductions of these expenses will mean “elimination of income” for some, but “other sectors with untapped opportunities are called upon to make an extra contribution to the economy. Tourism, for example, must generate some 25 million pesos more than initially planned.”
“In terms of energy consumption, fuel cutbacks of some 369,000 tons . . . are needed, while use of electrical energy must be reduced by 786 gigawatts. . . . However, the residential sector, which represents 60% of the country’s electricity consumption, will not be impacted.”
“Economic activities, such as tourism, which make a strategic contribution to the national economy – and consequently the country as a whole – will receive their projected supply of electricity, as will others capable of assuring export income or replacing imports with their products. Nor will the importing and production of food, or retail sales, be affected.”
“Also prioritized is the production of construction materials and indispensable inputs for agriculture, while maintaining attention to the country’s internal financial equilibrium.”
The steps to be taken in the last half of this year “are intended to address limitations with rationality, without changing the basic plan, and respond to the energy situation with precisely focused adjustments.”
There will be “strict adherence to the principle that funds allocated for salaries must be backed by production, in accordance with guiding benchmarks. Avoiding a negative impact on the average salary-productivity ratio is key to advancing along the course charted.”
“Leading the list of imperatives is stopping the importing of containers full of items that can be produced domestically, since reducing imports is crucial to balancing the budget equation.”
Encouragement was found in the increase in the “volume of milk collected by the state wholesale system . . ., implying a reduction in expenses associated with importing powdered milk, initially projected at 53,000 tons. Since dairy farmers have surpassed plans by more than seven million liters and the industry by 32 million, projected imports can be reduced.”
Another premise for these measures is “reducing expenses in hard currency to a minimum, maintaining only the indispensable associated with key economic activities.”
Also important is “avoiding the addition of inflationary pressures. Adequate levels of retail sales will be assured, and the necessity of salary expenses having productive backing is reiterated.”
“Other results thus far this year indicate the need to reprogram levels of freight transportation and, therefore, scheduled investments. It is now projected, however, that 17% of the funds originally planned for investment will not be spent. The 2016 total was estimated at 6.5 billion pesos, placing the transport sector among those with the largest investment plans in the country. Key development projects to a tune of 4.5 billion pesos will be guaranteed. The prioritized group of sectors in which strategic investments will be fully funded includes tourism, energy, the oil industry, and agricultural programs.”
The “average salary in state enterprises will be slightly lower than projected, with a reduction in the wage expenses-gross value added index.”
“In reference to the food supply, . . . planned imports of foodstuffs are assured. Fortunately, a decline in prices on the international market for some [food] products has given the state some relief in terms of funds allocated for food imports, allowing for savings of approximately 193 million U.S. dollars. Nevertheless, domestic shortfalls in projected production of food items have led to unplanned imports, costing some 50 million additional dollars.”
Recent steps have been “taken to increase the buying power of the Cuban peso, adding that efforts to stabilize their supply in retail outlets continue, to make the impact of price reductions sustainable over time. Lower prices for chicken, rice, cooking oil, powdered milk, and chickpeas have led to [recent] increased sales.”
“Throughout the report, a renewed call for increased productivity and efficiency, on the part of all, was made clear. Using resources rationally at all times, in all places, is now imperative.”
[1] Delgado, Morales & Rodriguez, Efficiency on the economic agenda, Granma (July 14, 2016). On July 13, only five days after this speech, Murillo was replaced as Minister of Economy and Planning by Ricardo Cabrisas Ruiz, Vice President of Council of Ministers. According to the State Council, Murillo, in his capacity as Deputy Prime Minister and Head of the Permanent Commission for Implementation and Development, will now focus on updating the Cuban economic and social model, adopted by the 6th and the 7th Party congresses. However, no reasons were provided for this change. Official Note, Granma (July 13, 2016), ; Assoc. Press, Cuba Shuffles Economic Leadership Amid Fiscal Struggles, N.Y. Times (July 13, 2016).
Grim news over Cuba’s economy was delivered in July 8 speeches to the country’s legislature (the National Assembly of People’s Power) by Cuba’s President, Raúl Castro, and by Cuba’s Minister of Economy and Planning, Marino Murillo. Naturally the Cuban people are worried. Here is a summary of those developments.
“In December 2015 I [projected that we would experience] financial constraints as a result of declining export revenue . . . [due to] falling prices for our traditional items as well as damages [to our] relations of mutually beneficial cooperation with various countries, particularly with Venezuela, which is being subjected to an economic war to weaken popular support for its revolution.”
“In the first half [of 2016] GDP grew by only one percent, half of what we had projected. This is the result of worsening external financial restrictions, driven by the decline of export earnings, coupled with the constraints faced by some of our major trading partners, due to falling oil prices.”
“There also has been a contraction in fuel supplies that had been promised by Venezuela, despite the firm will of President Nicolas Maduro and his government to fulfill that commitment. Obviously this has caused additional stress on the functioning of the Cuban economy.”
“Nevertheless, Cuba has managed to maintain compliance with the commitments made in the process of restructuring of debts to our foreign creditors. However, I must admit that there have been some delays in current payments to suppliers and I thank our partners for their confidence and understanding of this situation and reaffirm the commitment of the Government to meet the outstanding maturities and to continue restoring the international credibility of the Cuban economy.”
“Nor can we ignore the harmful effects of the US blockade and the US ban on Cuba’s use of the US dollar in its international transactions.”
“In these adverse circumstances the Council of Ministers adopted a set of measures to address the situation and ensure the main activities that ensure the vitality of the economy, minimizing the effects on the population.”
“As expected, in order to sow discouragement and uncertainty among citizens, there have been speculations and predictions of an imminent collapse of our economy with the return to the acute phase of the special period. These dire warnings have been overcome thanks to the resilience of the Cuban people and their unlimited confidence in Fidel and the Party. We do not deny damages that may occur, even higher than at present, but we are prepared and better able then to reverse them.”
“Faced with these difficulties and threats, there is no room for improvisations and much less for defeatism. In the short-term, we face the situation with great energy, fairness, rationality and political sensitivity; and we continue to strengthen coordination between the Party and the Government with much optimism and confidence in the present and the future of the Revolution.”
“We must reduce expenses of all kinds that are not essential, to foster a culture of saving and efficient use of available resources, concentrating investment in activities that generate revenue from exports, substitute imports and support strengthening of infrastructure, ensuring sustainability of electricity generation and better use of energy carriers. These programs will ensure the development of the nation, in short, non-stop.”
“At the same time, the social services that the revolution has obtained for our people and measures to gradually improve their quality are preserved. In the midst of these difficulties were made several measures aimed at increasing the purchasing power of the Cuban peso, including the decrease in prices of a set of products and articles of broad demand for our population.”
“Similarly, despite the prolonged drought plaguing us, we begin to see the fruits of other actions to ensure better collection and distribution of agricultural products, confirming greater presence of these markets and a slight but progressive reduction of selling prices. These measures have been welcomed by the population as relief to Cuban families.”
“In addition, these measures have guaranteed the internal financial balance through appropriate levels of supply in the retail market, while progress is being made in the implementation of pay systems linked to productive results, all of which has enabled us to avoid inflationary pressures.”
“This morning the National Assembly of People’s Power agreed to support in its spirit and letter the update of the Guidelines for Economic Policy and Social Party and the Revolution for the period 2016-2021 that were adopted by the Seventh Congress of the Communist Party of Cuba. This will entail the legislative development and adoption of legal standards required to continue improving the legal and institutional basis in the interests of economic changes in the country.”
“We reaffirm that we will continue updating our economic model at our sovereignly determined pace, forging consensus and unity of Cubans in the construction of socialism.”
“The rate of change will continue to be conditioned by our ability to do things right, which has not always been so. This requires ensuring the preparation of policy documents, training and mastery of content, conducting monitoring and implementation and timely rectification to any deviations.”
“As clear evidence of our strength and experience, we have had favorable results in implementing the plan of prevention and confrontation of mosquito-borne diseases.
“The complex circumstances of the national economy will not weaken in the least, the solidarity and commitment of Cuba to the Bolivarian Revolution and Chavista with President Maduro and his government and the Civic Union Military brother Venezuelan people. We will continue lending to Venezuela, to the best of our ability, collaboration agreed to help sustain the achievements in social services that benefit the population. True friends are known in difficult times and Cubans will never forget the support of Venezuelans when we faced serious difficulties.”
“In commemorating the Day of National Rebellion [on July 29] we will do so with the conviction that the Cuban revolutionary people will again face difficulties without the slightest hint of defeatism and full confidence in the Revolution.”
In his July 8 speech to the Cuban legislature, Marino Murillo, a member of the Politburo, Vice President of the Council of Ministers and Minister of Economy and Planning, essentially repeated the main points of President Castro’s report.
The 1% increase in Cuban GDP for the first half of 2016 stands in contrast to the 4.7% increase for the first half of 2015. According to Reuters, Venezuelan shipments of crude oil and refined products to the island nation decreased around 20% for this period.
As a result of these economic problems and challenges, Cuba is concentrating on reducing expenses, promoting conservation and efficient use of available resources; concentrating investments on activities that generate exports and replace imports; strengthening infrastructure; assuring the sustainability of electrical generation; and facilitating better use of energy resources. The plan is to reduce total electricity consumption by 6% while not cutting residential use and key revenue-generating sectors such as tourism and nickel production.
More than 450,000 U.S. citizens or residents were among the 3.5 million tourists to visit the island last year, when the total number of visitors rose 17% from 2014, and the number of U.S. visitors for the first half of 2016 was up 26% to 304,000 out of a total of 2.1 million visitors to the island. Those numbers are likely to rise further when commercial flights from the U.S. begin later this year.[1]
Cuba’s future exemption from electricity restrictions for privately-owned businesses that cater to tourists could be seen as a Faustian bargain. Cuba desperately needs the hard currencies that tourists bring and spend on the island. On the other hand, the increasing numbers of U.S. visitors are tending to spend their money on Cuban bed-and-breakfasts, taxis, meals in privately-owned restaurants and other services that will increase demands for electricity and nurture Cuba’s nascent urban middle class and increase pressures for political and economic change.
Signs of these changes already can be seen. Public offices and state-run companies have cut work hours and are limiting the use of air-conditioning. Cinemas have cut the number of film screenings, and petrol stations are running out of fuel more frequently than in the past few years.
According to a New York Times journalist, many Cubans now fear “a return to the days when they used oil lamps to light their living rooms and walked or bicycled miles to work because there was no gasoline.” Regina Coyula, a blogger who worked for several years for Cuban state security, voiced one aspect of that fear: “We all know that it’s Venezuelan oil that keeps the lights on. People are convinced that if Maduro [the President of Venezuela] falls, there will be blackouts here.”
