Cuba’s Ailing Economy Needs Deep Changes

The Cuban government has said it wants more foreign investment, that it can’t afford to keep so many Cubans on the payroll of inefficient state industries, and it needs more revenue to help its stumbling economy.

But some economists say recent economic moves seem contradictory to realizing those goals and that new regulations governing the island’s private sector also fly in the face of meeting the island’s economic challenges, Yahoo reported.

With official economic growth a meager 1.1% in the first six months of the year, a sugar harvest of just over one million tons—one of the worst in Cuban history, a growing trade deficit, a soaring fiscal deficit and continued oil supplies from Venezuela problematic, Cubans don’t want contradictions. They are looking for clarity about Cuba’s economic future.

“Cuba’s economic leaders are going around in circles. They have too many ideas and not enough means,” Gary Maybarduk, a retired US State Department official, said at last month’s annual meeting of the Association for the Study of the Cuban Economy.

 Currency Problem

Cuban officials have been talking for years about unifying Cuba’s unwieldy dual currency system, a move that would give foreign investors more clarity and confidence about exchange rates.

In December, Raul Castro, the First Secretary of the Communist Party of Cuba, said currency unification was imminent, but now some Cuban economists say the needed reform may not be undertaken until after a new constitution is approved, presumably sometime next year.

“The state is always saying the conditions aren’t right [to unify the currencies and exchange rates]. But when will there be these conditions?” Cuba economist Omar Everleny Perez said. If the currency problem isn’t resolved, he said, the Cuban economy will be neither efficient nor competitive.

Camilo Condis, a Havana entrepreneur, said he doesn’t understand why new private sector regulations that will go into effect in December seem designed to clip the wings of budding entrepreneurs rather than encourage them.

“The government needs the taxes they would pay; it needs the employment they provide,” he said. “But they’re not doing anything to accomplish that.”

 One Person-One License Edict

“The new regulations all go against the grain of their (the government’s) stated goals,” said Ted Henken, a Baruch College professor and expert on the island’s private sector. “The state said the new regulations are designed to perfect the self-employment sector, but almost all the new regulations are about improving order and increasing control.”

Not only is there a long list of fines and sanctions for those who don’t follow the rules, but Cubans will be able to hold only one business license. That means an entrepreneur can’t diversify or form multiple businesses.

When Castro began implementing his economic reform package in 2010, measures such as allowing Cubans to buy and sell homes and automobiles, eliminating exit visas so Cubans could more easily travel abroad and instituting a system of licenses for self-employment went into effect.

All of that stimulated the private sector, said Condis. The number of people with private business licenses rose steadily from 150,000 in 2008 to the current 591,456—around 13% of Cuba’s workforce.

In 2010, Castro said state enterprises had 500,000 workers that were no longer needed. He later raised that number to one million and then to 1.8 million. Because state companies had so many redundant workers, it depressed productivity and wages.

“In order to dismiss that many people they would have needed to expand the non-state sector by 1.8 million or they would have a lot of unemployed people,” said economist Carmelo Mesa-Lago. “The government fired 500,000 workers but they needed to fire more than three times that amount.”

That’s what makes the one person-one license edict so contradictory, he said: “It’s ridiculous if you need to employ more people. Rather than restrictions, there should be incentives and a more flexible policy for cuentapropistas (those who are self-employed) who provide jobs for those who have been dismissed.”