by Ricardo Torres*

In the concluding sessions of the National Assembly in December, the Cuban Prime Minister alluded to new economic policy initiatives aimed at “correcting distortions and boosting the economy.” Subsequently, he emphasized that these reforms should not be perceived as mere continuation of previous policies. His discourse encompassed several areas, including pricing and subsidies, the role of the private sector and small and medium-sized enterprises (SMEs), international trade and tariff regulations, investment, and the foreign exchange market, among others. In the first weeks of January, various representatives from the government elaborated on the price increases of essential goods, which has become a focal point of discussions due to the immediate impacts on people’s daily lives. This new wave of measures is being introduced against a unique context:

• The Cuban economy’s inability to embark on a path to sustainable recovery after the economic downturn triggered by the COVID-19 pandemic is noteworthy. The year 2023 witnessed a contraction in the Gross Domestic Product (GDP), marking this period as the most severe crisis encountered by Cuba since the revolution in 1959, given its widespread economic, social, and political implications.
• The ineffectiveness of previously implemented economic policies, including the so-called “Monetary Ordering,” is evident. The Cuban authorities persistently attribute these economic adversities to external factors, notably the sanctions imposed by the United States. There is little mention of the government’s obvious mistakes.  
• The Biden administration’s limited opening towards Cuba has narrowed the window to implement substantial measures to mitigate the island’s economic challenges. 
• The Cuban government has continued to search for support elsewhere. For example, Russia and China have provided some economic support, and Mexico has provided cheap oil, oxygen after the pandemic, and some food. But not one country can provide all the support that Cuba needs.

The measures announced thus far appear to have limited potential in contributing to the economic recovery. The fiscal strategy focuses more on revenue collection rather than containing expenditures, as indicated by the incomplete budget data for 2024 when the deficit is set to increase. 

• Notably, the emphasis remains on preserving the extensive public sector, including state-owned enterprises, without introducing substantial structural reforms.
• The marginalization, or at most, a cursory mention of other structural reforms aimed at stimulating domestic supply, is significant. The criticism of the private sector and the lack of initiatives to address external debt are particularly conspicuous. 
• The potential impact of the price increase and these newly announced measures on the fiscal deficit remains ambiguous, especially given the scant details regarding their implications for the 2024 budget. Besides, these measures will likely exacerbate inflationary pressures in the short term.

In a rather dramatic turn, Cuban authorities announced the suspension of the price increases on January 31^st, citing a cyberattack, and failed to commit to a new date. Furthermore, the government reshuffled the cabinet, including the sacking of the Economy Minister. 

The challenges of runaway inflation and elevated fiscal deficits should be viewed as symptoms rather than the root cause of the economic malaise. Historical evidence from the 1970s and 1980s has demonstrated that attempts to manipulate aggregate demand to counter stagflation are futile. Cuba’s economic stagnation, however, presents a unique case, having persisted for decades and intensified due to a series of adverse external shocks commencing around 2016 with the decline of Venezuela’s economy. Superficial adjustments to economic policies are unlikely to yield significant medium-term benefits. Instead, a concerted effort towards systemic change by both the government and international stakeholders is imperative. The existence of the political will and strategic insight, both within Cuba and internationally, to enact such comprehensive reforms to the ultimate benefit of the embattled Cuban people remains an open question.

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* Ricardo Torres is a Professor and Faculty Fellow in the Department of Economics, Research Fellow at American University’s Center for Latin American & Latino Studies, and Coordinator of the Red de Investigadores Cubanos (RedIC).