Cuba: Is the Economic Crisis Prompting Meaningful Reform?

By Ricardo Torres*

Cuban flag jigsaw puzzle / Yasiel Scull / Pexels / Creative Commons license

The economic measures that the Cuban government recently announced may help on the margins with the country’s deepening economic crisis, but they are short-term fixes with potential downsides and, yet again, fall far short of the comprehensive reforms needed for significant growth. 

  • The country’s economic troubles are alarming. While inflation officially clocked in at 77 percent in 2021, the GDP price index – a broader measure of price dynamics – suggests an increase of 500 percent, which is more consistent with partial data from informal retail vendors and anecdotal evidence. [The preceding sentence was updated on August 11 to reflect new information.] Skyrocketing prices coincide with shortages of practically all goods and services; long lines to buy basic goods; and rapidly expanding blackouts. After a brief rise in May, the Cuban Peso continues to depreciate. 
  • Small but growing numbers of public protests and sustained, strident criticism on social media indicate a notable drop in popular confidence that the authorities can deal with this crisis. As it has expanded electricity rationing, the government has warned that it does not have a short-term solution. The devastation at the Matanzas Supertanker Base will surely be another setback to energy supply shortages and the broader economy. The health system lacks essential medications and supplies, and officials have acknowledged that they lack resources to deal with an infestation of mosquitos responsible for the rapid spread of dengue. 

To respond to some of the more important economic problems, the government announced a series of measures during the National Assembly sessions in late July. Most of the steps are aspirational rather than concrete changes in economic policy, and are aimed at the short-term crisis. The government is reopening a formal market where people can sell hard currency (although they cannot yet buy it); moving to adopt new regulations to open up foreign investment in private companies; and – if the statements are to be believed – probably will implement a program to reduce the fiscal deficit. 

  • Details are lacking, but some aspects of the measures could actually worsen the crisis. The announcement that the exchange market will start with only the state as purchaser of hard currency, offering a rate similar to that in the informal markets, entails significant risks. To stabilize a market, transactions have to go both ways, or else people will continue to buy currency at higher prices on the street – fueling its depreciation. The use of the hard currency market to finance the economy reflects the decline in productive capacity on the island, and the purchase of dollars without increasing the supply in Pesos is frankly inflationary. The most impoverished sectors will not receive relief from this step.
  • With regard to foreign investment, the dominant tendency has been to try to reproduce for private companies an operating framework similar to that of state enterprises. If the Cuban state hopes to give potential investors confidence by using, for example, investment mechanisms like its own, with unclear policies for approving projects, or with extended delays for approval of investments, it will be repeating the same errors as in the past. 

Even if robustly implemented, the measures are at best focusing on the symptoms of the economic crisis, while the short- and long-term real causes remain unaddressed. The ongoing recessive cycle is taking place in the middle of an international situation that is adverse for small countries dependent on imported energy and food, such as Cuba. The island is particularly vulnerable to a context featuring dramatic effects of the pandemic, the Venezuelan crisis, the war in Ukraine, and continued U.S. sanctions. But neither is the government showing resolve to fix the systemic problems rooted in the Cuban economic model itself. 

  • Recycling measures implemented in the 1990s, such as the hard-currency market, will have limited effectiveness. Cuba’s economy operates against a backdrop of structural problems that Cuban leaders have dodged for decades because of the social and political costs of a serious adjustment, ideological dogmatism in economic policy, and for many years the existence of external allies that could “pay the bill” of inefficiencies of the system. 
  • The government perceives that the United States and some groups in the country will take advantage of any change that transforms the distribution of power. That logic is understandable, as is Cuban leaders’ preference for stability over radical reform. They remember well the lessons of uncontrolled perestroika. But they must find a middle-ground between micro-measures of little strategic value and potentially destabilizing change. They can tone down their ideological statements and media wars, and surround themselves with a competent economic policy team to draw up a roadmap for long-term reform. Compared to clinging to empty promises of reform, that approach would potentially help them find some allies and recover the confidence of its citizens and, no less important, recover social peace. Without a strategic plan, as various Communist Party resolutions have warned over the years, the problems will multiply over time, as they have since 1990.

August 9, 2022

*Ricardo Torres is a CLALS Research Fellow.

Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: