Economic Policy in Cuba: Balance of the Closing Year (Part I) During the closing year, the Cuban government implemented an important group of the economic and social transformations envisaged in the Guidelines approved in April 2011. For that purpose it continued creating the organizational and legal conditions with a view to applying each measure in experimental form before its generalization. José Luis Rodríguez 2014-01-13 During the closing year, the Cuban government implemented an important group of the economic and social transformations envisaged in the Guidelines approved in April 2011. For that purpose it continued creating the organizational and legal conditions with a view to applying each measure in experimental form before its generalization. It is a correct decision, but it entails a term and a sequence in the application of the procedure that is unknown to the public. This has contributed to the generation of demands from a considerable part of the population aimed at speeding up the implementation of the anticipated measures. In the agricultural sector, the granting of idle lands continued until completing 1,588,000 hectares in October 2013, although a significant impact in the increase of production remains to be observed. Likewise, since last November a mechanism for direct commercialization by farmers is being tested in several provinces, in an effort to lower prices by reducing the margins for intermediaries in the trade. Direct sales by farmers to tourist resorts also continued to take place, now with an implicit rate of exchange of 10 Cuban pesos (CUP) for each Cuban convertible peso (CUC) sold. However, according to producers, transportation costs continue to have a negative incidence in the growth of these sales. The number of self-employed workers also grew this year, reaching the figure of 440,603 at the close of October. In September, new “Regulations for the Exercise of Self-Employment” were issued and the content of some previously approved activities was specified, such as the manufacture of clothing, which to a considerable extent had arisen from the commercialization of imported clothes, altering the content initially foreseen for it. Ten new employment categories were approved, and toward the end of the year the number of those already authorized increased. Among the measures of economic policy in 2013, the implementation of non-agricultural cooperatives, beginning in July, proved to be significant. In November 2012 the first steps for experimentation with these cooperatives took place with the approval of Decree Law 305. This established the principles for their operation on the basis of voluntary membership, cooperation and mutual assistance, group decision and equal rights for members, autonomy and economic sustainability, discipline among cooperative members and social responsibility, contribution to the planned development of the economy and welfare of members and relatives. On the other hand, issues were posed such as the prohibition of merging, expiring, splitting or modifying without the approval of the state organ that approved their creation. In this context, a ten-year (extendable) limit was set for the lease or usufruct of state properties, and it established that prices and tariffs are to be fixed according to supply and demand. However, in cases of social interest, they may be regulated. Unlike self-employment, the hiring of labor is restricted to 10% of member-working days up to a period of three months. It was also established that the individuals who make up the cooperative must be permanent residents in the country. The initiative to create these new cooperatives may be induced by the State or result from the interest of a group of persons. This process begins with negotiation between economic entities from different sectors and the potential members who will make a monetary contribution as the initial capital. In 73% of the cases they have received bank credits for this purpose. Since July 1st, 124 cooperatives began to operate: twelve in construction with self-employed workers, ninety-nine in trade, derived from former State enterprises; two in the recycling of raw materials and eleven in the transportation sector. More recently, another 71 cooperatives were approved in furniture production and repair, textile production, the forging and blacksmith trades, footwear manufacture, recycling, ornithology, and trade and gastronomy. Although only a short time has gone by, it is understood that the cooperative undertaking is a higher social form of labor than private individual work. In the sectors where it has been introduced, it already shows signs of greater efficiency and productivity while at the same time providing substantially higher income for its workers. Both in the case of self-employment as well as in non-agricultural cooperatives, some articles published in the media have created expectations of a price reduction in this non-State segment. However, the prevalence of a base of costs in CUC in goods and services of this sector, the segmentation of markets and the monopoly prices accompanying them evidence the absence of competition and therefore the scarce probability of a price reduction in the short- or medium-term. This weakens its performance in the eyes of public opinion. The measure with the greatest media impact in 2013 was undoubtedly the announcement of the approval of a time line to start the process of monetary reunification in the country. Although there is little information available about the details of this decision, it is the most complex transformation contained in the Guidelines. Regarding this, it can be anticipated that it will be a gradual process that will take at least three years to be completed. It entails the devaluation of the Cuban peso (CUP) for all operations between legal entities and, simultaneously, the convergence of the exchange rate resulting from that devaluation with which relations between the State and the population will be governed through the CADECA system. In the first case, this process presumably will entail the introduction of a new exchange rate, in a progressive way and by sectors, between the CUP and the CUC in the entrepreneurial sector. At present, this is how it has been introduced experimentally in the sugar sector and also partially in some non-agricultural cooperatives in transportation. Monetary reunification by itself will not produce critical structural change for the country if it is not inserted into the increase of labor productivity and the production of goods and services, which is the decisive element. However, this measure will enable the establishment of an adequate statistical and accounting system for evaluating the specifics of the national economy. As well, the indicators that it issues will allow for a better advance in entrepreneurial reordering and for restructuring the wage system, among other anticipated effects. In the closing year there was also an advance in the implementation of a new fiscal policy with the start of the application of Law 133 approved in 2012. The process of improving the banking system likewise continued, particularly in relation to the extension of credit to individuals and legal entities. Regarding the latter, what stands out between 2011 and the present is the granting of some 1.6 billion pesos in credits to the population, mainly for the construction of homes, as well as 623 million for agricultural production. On the other hand, the low percentage of self-employed workers receiving bank credits is noticeable, and in its place, the role of remittances and other sources of domestic savings. In addition, last September saw investment in the port of Mariel, the Special Development Zone of the same name (ZED for the Spanish acronym). This implies relaunching direct foreign investment in Cuba with the additional advantages of its special regime. Although Decree Law 313 does not involve an essential change of Law 77 on Foreign Investment, it does offer evident fiscal advantages such as exemption from the payment of taxes on labor force, earnings (in this case for ten years) and sales for one year. At the same time, tax rates are advantageous and include a tax on earnings that is fixed at 12% and at 1% on sales, and a contribution to social security of 14% of the payroll. In this ZED, the Cuban government has decided to give priority to promoting production linked to biotechnology, the pharmaceutical industry, renewable energy, the agricultural food industry, the packaging and baling industry, tourism and the real estate sector, telecommunications and informatics and agricultural productions. Initial steps have been aimed at attracting potential investors from China, Viet Nam, Russia and Brazil. Foreign Investment The topic of foreign investment, relaunched with the Special Development Zone of Mariel, will receive an additional and surely more comprehensive impulse with the announcement that the National Assembly will discuss a new Law on Foreign Investment in March 2014. The participation of foreign capital in the Cuban economy was highlighted by president Raúl Castro when he described it as “a factor of particular importance for invigorating the country’s economic and social development.” The decision to work with new legal regulations must aim at solving aspects that are crucial to increasing the country’s investment capacity, in the midst of a situation in which it is not possible to squeeze consumption in order to increase the rhythm of accumulation. There is a high level of decapitalization in sectors like agriculture or industry, and it is essential – in parallel – to increase the country’s credibility through the payment of foreign debt, all in the midst of the U.S. economic blockade that has already cost an estimate in excess of 112 billion dollars over more than 50 years. Another no less important aspect in the transformation of economic policy during this year was the increase of income of Cuban sportspeople announced in September. This decision again placed in the foreground the need for wage reordering. In this regard it is worth remembering that it is essential that the increase in retributions be based on an increase in newly created values. This is summarized in the principle that increases in productivity in time must be higher than those of the average salary. However, that macroeconomic proportion that maintains full validity – in 2013 there was a growth of 2.3% in productivity against 1.7% in the average salary – cannot be mechanically applied at the entrepreneurial level. Wage increases would be essential in many cases to initially stimulate more efficient labor, even though productivity may not have grown previously. This is demonstrated by the experience of stimulation schemes in foreign currency applied during the hardest years of the Special Period. In addition, it must not be forgotten that for the majority of the population the greatest expectation for improvement are centered precisely on an increase in wages in State entities. Thus, a positive message in that regard is of huge importance, considering the social stratification accumulated during the Special Period and the emergence of high income in non-state forms of employment. In 2013 an advance was likewise reported in drawing up the conceptualization of the Cuban socioeconomic model and the preparation of the bases for the long-term development program covering up to 2030. The most far-reaching changes in 2014 will take place in the entrepreneurial sphere, where greater management flexibility has been envisaged. This includes measures such as the possibility of using authorized hard currency funds to pay national producers who substitute imports; decentralizing the sale of tangible fixed assets; authorizing the sale of inventories that are idle and slow moving, and retaining the funds of enterprises for the depreciation of assets, which becomes a source of financing for investments. In addition, investments that are not nominal will be approved by the director of the Higher Organization of Entrepreneurial Management (OSDE for the Spanish acronym). As well, tax on the use of labor force is reduced to 15% of the payroll; 50% of dividends will be contributed to the budget with the rest distributed to a number of destinations that include certain payments to the workers; the approval of workers’ payment systems according to results has been made more flexible – resulting payment increases will be financed by the enterprise – and it has been established that no losses may be planned. Likewise, only 30% of the budget deficit will be financed with the issue of currency. The remaining 70% will be covered with public debt bonds, to be paid in twenty years with a 2.5% interest rate. These shall be issued by the Ministry of Finances and Prices. This measure – of great importance – will make it possible to finance with currency in circulation some 2,723 million pesos of the 3,890 million of fiscal deficit predicted for next year. Also prominent in 2014 will be the prioritized impulse granted to non-agricultural cooperatives as better forms of social management. These cooperatives amounted to 270 at the close of 2013, while another 228 are in the process of approval. Lastly, it was ratified that the transformations under way must follow a rhythm that ensures their successful development. Their disorganized acceleration is thus not possible. Throughout the year complaints continued from those who regard the present changes as a preamble of a transition to capitalism in Cuba. Instead, they seek to expand the market without limits as an allegedly more efficient way for the country’s development. In this regard, the Cuban government has reiterated that it is dealing with a process of improving the socialist model, where the role of the market and non-state property is recognized but in no case accepted as preponderant. These endeavors do not deny the fact that it is a complex and difficult process facing huge challenges, particularly in the next two years. However, the essential conditions exist for its successful completion. José Luís Rodríguez is a consultant at the Center for World Economy Research (CIEM, the Spanish acronym)...cubanow.net Source: Cuba Contemporánea Translated by Olimpia Sigarroa Revised by Susana Hurlich
Posted on: Tue, 04 Feb 2014 17:33:48 +0000
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