Download AN ANALYSIS OF CUBA`S POST-SOVIET ECONOMIC REFORMS

TRANSITION OR SURVIVAL?
AN ANALYSIS OF CUBA’S POST-SOVIET ECONOMIC REFORMS
By Mario A. Gonzalez-Corzo
A dissertation submitted to the
Graduate School-Newark
in partial fulfillment of requirements
for the degree of
Doctor of Philosophy
Graduate Program in Global Affairs
Written under the direction of
Professor Carlos Seiglie
and approved by
Newark, New Jersey
May, 2003
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
UMI Number: 3088012
UMI
UMI Microform 3088012
Copyright 2003 by ProQuest Information and Learning Company.
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
ProQuest Information and Learning Company
300 North Zeeb Road
P.O. Box 1346
Ann Arbor, Ml 48106-1346
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ABSTRACT
During the last three decades of the Cold War, Cuba had one of the most collectivized,
egalitarian, and subsidized economies within the Socialist Camp. The disintegration of
the Soviet Union and its Eastern European allies in the early 1990s, resulted in a severe
economic crisis for the island. The magnitude of this external sector shock prompted the
Cuban leadership to implement a series of structural reforms with the objective of
confronting the crisis, and reinserting the country into the capitalist world economy,
while preserving the socialist character of the Cuban Revolution. Some of these reforms
included: opening the island’s economy to foreign investment, legalizing the possession
and circulation of the U.S. dollar, reorganizing the agricultural sector, promoting some
limited forms of self-employment, and restructuring state-owned enterprises (SOEs).
However, despite the implementation of these measures, a fundamental question still
remains:
Are Cuba’s post-Soviet economic reforms a legitimate transformation from
socialism to a market system, or are they simply a disguised effort to ensure the survival
of the current regime?
To address this question from a historical perspective, this thesis provides an account of
the main characteristics of Cuba’s economy before the disappearance of Soviet and
Eastern European socialism. This is followed by a comprehensive analysis of the roots of
the economic crisis of the 1990s, its socioeconomic impact, Cuba’s strategies to confront
the crisis, and an assessment of Cuba’s post-Soviet economic reforms. To achieve this
ii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
objective, this study relies on economic data collected from diverse official and
independent sources, both in Cuba and abroad.
In summary, this study addresses the fundamental question: Is Cuba moving towards the
market? Clearly, after more than a decade of limited economic reforms, the answer to
this question is a definite “No.” In the words of Castro himself, “Cuba is not changing; it
is reaffirming its position, its ideals, its objectives. It is the world that is changing.”1 As
the present work shows, despite the implementation of some limited market reforms, the
Cuban leadership’s relentless desire to cling to the ideological orthodoxy of “Socialism
or Death, ” confirms that, regardless of the consequences, Cuba is not becoming a
capitalistic market economy.
In fact, unless current conditions change, Cuba will
continue to sacrifice the possibility of a full-fledged economic transition to ensure the
permanence and political survival of the current regime.
1 Perez-Stable, Marifeli. The Cuban Revolution: Origins. Course and L egacy. Second Edition. Oxford
University Press. N ew York, N Y . 1999.
iii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CONTENTS
ACKNOWLEDGEMENTS................................................................................................................... vi
ILLUSTRATIONS....................................................................................................................................vii
TABLES..................................................................................................................................................... viii
Chapter
1.
Introduction and Problem
Statement..........................................................................................................................................1
1.1. Introduction.....................................................................................................................1
1.2. Research Problem and Objective................................................................................3
1.3. Contributions to the Literature................................................................................... 6
1.4. Organization o f the Study........................................................................................... 7
1.5. Literature Review........................................................................................................ 14
2.
Principal Characteristics o f the Cuban Economy: 1960 to 1980......................................... 57
2.1. The Turbulent 1960s...................................................................................................57
2.1.1. Collectivization and State Ownership o f the Means o f
Production.......................................................................................... 57
2.1.2. The Diversification Drive............................................................... 60
2.1.3. The Application o f Dual Economic Models.................................63
2.1.4. Dependency on the External Sector................................................69
2.2. The Hopeful 1970s...................................................................................................... 80
2.2.1. Collectivization and State Ownership o f the Means o f
Production.......................................................................................... 80
2.2.2. The Introduction o f Soviet-Style Central Planning (SPDE)
82
2.2.3. Intensified Rationing and Price Controls......................................84
2.2.4. Dependency on the External Sector................................................86
3.
The Roots o f the Cuba’s Economic Crisis o f the 1990s........................................................ 97
3.1. The Rectification Process (RP)............................................................................... 101
3.2. The Deterioration of Soviet-Cuban Economic Relations................................... 103
3.3. The Disintegration o f the Council for Mutual Economic Assistance...............107
4.
The Impact o f the Crisis on the Cuban Economy..................................................................114
5.
Cuba’s Strategies to Confront the Crisis................................................................................ 124
5.1. Austerity Measures and the Food Program (FP)................................................... 125
5.2. External Sector Reforms........................................................................................... 129
5.3. Domestic Economic Reforms................................................................................... 133
5.3.1. Agricultural Sector Reforms..........................................................134
5.3.1.1. Agricultural Cooperatives (UBPCs........................ 134
5.3.1.2. Farmers’ Markets.................................................... 137
5.3.2. Dollarization..................................................................................... 141
5.3.3. Self-Employment............................................................................. 145
5.3.4. Banking and Financial Sector Reforms....................................... 149
5.3.5. State Enterprise Reforms.............................................................. 153
iv
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
6.
The Outcome o f Cuba’s Post-Soviet Economic Reforms.................................................. 157
6.1. External Sector Reforms..........................................................................................157
6.2. Agricultural Sector Reforms................................................................................... 168
6.2.1. Agricultural Cooperatives (UBPCs)............................................ 168
6.2.2. Farmers Markets.......................................................................... 173
6.3. Dollarization..............................................................................................................180
6.4. Self-Employment...................................................................................................... 184
6.5. Banking and Financial Sector Reforms................................................................ 188
6.6. State Enterprise Reforms..........................................................................................192
7.
Is Cuba Becoming a Market Economy?..................................................................................197
7.1. The Institutional Requirements o f Market Economies........................................ 198
7.2. The Main Characteristics o f Transitionand the Cuban Experience...................200
v
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ACKNOWLEDGEMENTS
I would like to thank Professor Carlos Seiglie o f the Rutgers University (Newark) Department o f
Economics for all his guidance and support in the successful completion o f this project. I would
also like to acknowledge the support and contribution o f Professors Yale H. Ferguson (CoDirector o f the Center for Global Change and Governance, Rutgers University - Newark),
Richard Langhome (Co-Director of the Center for Global Change and Governance, Rutgers
University - Newark), Alexander J. Motyl (Director o f the Ph.D. Program in Global Affairs,
Center for Global Change and Governance, Rutgers University- Newark) Reynold Koslowski
(Associate Professor, Center for Global Change and Governance and Department o f Political
Science, Rutgers University-Newark), John Cantwell (Graduate School o f Management, Rutgers
University - Newark), and David Gold (Visiting Fellow, Center for Global Change and
Governance, Rutgers University-Newark) for all their guidance and support. In addition, I would
like to thank Dr. Mauricio A. Font (Director, Bildner Center for Western Hemisphere Studies,
The Graduate Center, CUNY) for his valuable input and recommendations regarding Cuba’s
economic reforms program.
Finally, I wish to acknowledge and recognize the generous financial support provided by The
Graduate School at Rutgers University (Newark) for the completion o f this research through the
R u tg e rs E x c e lle n c e D is s e r ta tio n F e llo w s h ip A w a rd .
i
vi
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ILLUSTRATIONS
Figure
1.
Select Indicators o f the Cuban Sugar Agro-Industry,1959-1968...........................62
2.
Cuba: Balance of Trade, 1950-1958........................................................................ 70
3.
Cuba: Balance of Trade, 1959-1969...................................................................... 72
4.
Cuba: Balance of Trade, 1969-1979........................................................................ 88
5. Cuba: Sugar Production, 1980-1989....................................................................... 112
6.
Cuba: Balance of Trade, 1980-1989.......................................................................113
7.
Cuba: Balance of Trade, 1989-1993.......................................................................118
8.
Cuba: Black Market Exchange Rate, 1990-1993................................................. 121
9.
Cuba: Foreign Direct Investment (FDI), 1993-2001........................................ 162
10. Supply and Demand Structure of Cuba’s Agricultural Markets........................ 176
vii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLES
Table
1. Collectivization in Cuba, 1961 -1968...................
60
2. Select Indicators of the Cuban Sugar Agro-Industry, 1959-1969...........................62
3. Cuba: Balance of Trade, 1950-1958......................................................................... 70
4. Cuba: Balance of Trade, 1959-1969......................................................................... 72
5. Cuba: Composition of Exports, 1957-1969............................................................ 75
6. Cuba: Composition of Imports, 1959-1969..............................................................76
7. Cuba: Distribution/Concentration of Trade by Partner, 1959-1969.......................76
8. Cuba: Terms of Trade, 1960-1969............................................................................ 77
9. Cuba: Balance of Trade, 1970-1979......................................................................... 88
10. Cuba: Composition of Exports, 1970-1978............................................................. 91
11. Cuba: Composition of Imports, 1970-1978.......................................................... 92
12. Indicators of the Cuban Sugar Agro-Industry, 1980-1989................................. I l l
13. Cuba: Balance of Trade, 1980-1988........................................................................112
14. Cuba: Balance of Trade, 1989-1993....................................................................... 118
15. Cuba: Pesos Per Dollar - Official and Black Markets, 1990-1993......................120
16. Austerity Measures and the Food Program (FP), 1990-1991............................... 126
17. The Food Program - Real vs. Targeted Output, 1989 vs. 1995............................ 128
18. Cuba: Post-1995 Financial Intermediaries.............................................................. 151
19. Stages in Perfeccionamiento Empresarial..........................................................
154
20. Cuba: Foreign Direct Investment (FDI), 1993-2001..........................................162
viii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 1
INTRODUCTION AND PROBLEM STATEMENT
1.1. Introduction
Very few observers anticipated, much less were able to predict, the dramatic collapse of
the Soviet Union and its Eastern European empire in the early 1990s. A lesser number
still could have foreseen the end of communism in the USSR.
As the Berlin Wall
crumbled, the West rejoiced at the spectacle of the breakdown of the Soviet Union, the
birth of a free and independent Eastern Europe, and the rise of a market-based economy
and a more open society in this region of the world.
For Cuba, however, the collapse of the USSR and the rapid disintegration of the Eastern
European “Socialist Bloc” represented a devastating blow. Not only did the battered
Caribbean nation lose the political protection of the once mighty Soviet empire, but also
the economic support that had been Havana’s lifeline during the last thirty years. Shortly
after the Berlin Wall came down, Soviet economic aid and subsidies began to vanish;
access to Eastern European and Soviet products at preferential prices disappeared; and
the newly independent nations of the former Soviet Union (FSU) and Eastern Europe
began to demand hard currency payments for their goods and services. The structural
weakness and high levels of external sector dependency of Cuba’s economy became
painfully evident after the disappearance of Soviet and Eastern European socialism in the
early 1990s.
1
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The years following the collapse of the USSR and its Eastern European allies saw the
intensification of Cuba’s post-Cold War economic crisis, which continues to affect the
island’s economy to the present day. Drastic shortages of Soviet and Eastern European
petroleum, fertilizers, equipment, raw materials, foodstuffs, and spare parts crippled the
Cuban economy.
Nearly seventy five percent of the country’s factories and
manufacturing facilities closed or reduced production for lack of raw materials, fuels, and
spare parts. The country’s sugar production reached its lowest levels since the early days
of the Revolution.
The transportation and telecommunications sectors experienced
drastic service cuts. Unemployment and underemployment increased significantly as one
state enterprise after another shut down or drastically reduced operations. Cuba’s exports
and imports declined by seventy to seventy five percent, and the economy became
plagued by rampant “black market” inflation and monetary overhang. As a result, the
relatively low living standards of the Cuban people fell to new levels, and a terrible sense
of despair and alienation inundated Cuban society.
The government’s initial response to the crisis was to expand the rationing of the already
limited supply of consumer goods and to rely on “mobilizational politics” and the
implementation of a war-time austerity program, while simultaneously increasing its
efforts to attract foreign capital in some of the key export oriented sectors of the economy
such as tourism, energy exploration, and mining. In 1993, the government attempted to
restructure the country’s massive agricultural sector by converting state-owned farms into
quasi-autonomous agricultural cooperatives or Unidades Basicas de Production
Cooperativa (UBPCs).
At the same time, self-employment activities in more than 140
2
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
professions outside the State apparatus were legalized. This measure was followed by the
reintroduction of the farmers markets in 1994 as a means to improve the quantity and
quality of the country’s food supply, the legalization of the U.S. dollar to purchase goods
in special (“dollar”) stores previously reserved for tourists, diplomats, and a select group
of government functionaries, and the creation of new financial intermediaries in 1995, the
expansion of the national “retail bank” (or “Banco Popular de Ahorro”) in the same
year, and the creation of a new central bank in 1996. Finally, in 1998, Cuba introduced a
far reaching “enterprise optimization program” (EOP) designed to reform the operation
of state-owned enterprises (SOEs) to improve their efficiency and productivity.
However, despite the seemingly market-oriented scope and nature of these reforms, there
is a degree of contradiction among the stated goals of Cuban officials.
While some
indicators suggest that Cuba is attempting to slowly transform itself from a command (or
centrally-planned) into a “mixed” economy, the leadership’s hard-line supporters openly
resist the adoption of full-fledged market reforms and what they derisively refer to as
“capitalism”.
This resistance presents a major dilemma for Cuba’s economic transition,
and gives rise to the fundamental question (which is the central theme of this study):
Are Cuba’s post-Soviet economic reforms driving Cuba towards the market, or do
they represent an effort to ensure the economic and political survival o f the current
regime?
3
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
1.2. Research Problem and Objectives
To address this question, this study concentrates on Cuba’s post-Soviet economic
reforms, their impact on the Cuban economy, and whether or not they represent a
legitimate movement towards a capitalistic market economy.
To achieve this objective this study analyzes Cuba’s post-Soviet economic reforms from
a historical perspective, and divides this analysis as follows:
External Sector Reforms: This section consists of an analysis of Cuba’s legal
framework and economic reforms to promote foreign direct investments (FDI), with a
particular emphasis on the tourism sector. Trade and FDI data from government sources,
think thanks, subject matter experts, and Cuba’s principal trading partners is analyzed in
this section of the study with the intention of using the principles of economic theory and
statistical methods and techniques to assess Cuba’s success (or failure) in attracting and
promoting FDI and reviving its economy in the aftermath of the Cold War.
Domestic Economic Reforms: The discussion of Cuba’s domestic economic reforms is
broken down into three sections comprised of: (a) agricultural sector reforms, (b) reforms
to legalize and promote the dollarization of the Cuban economy and self-employment
activities and (c) state enterprise reforms.
(a) Agricultural Sector Reforms -This section of the study consists of a discussion of
Cuba’s efforts to decentralize agricultural production and promote the expansion of
private farming and small-scale cooperatives. In addition, this section of the study
will examine the impact of the reintroduction of the farmers markets in 1994 on the
availability and quality of Cuba’s food supply, and its potential ramifications for a
future transtion.
(b) Reforms to Legalize and Promote Dollarization and Self-Employment Activities This section presents a discussion of Cuba’s policies to promote the dollarization of
the economy and the legalization of self-employment activities. This section of the
study also provides an overview of the role of exile (hard-currency) remittances on
Cuba’s constantly expanding and contracting “second” and “first” economies.
(c) Self-Employment Reforms - This section of the study presents a detailed overview of
Cuba’s self-employment reforms, their impact on the country’s “second economy,”
4
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and a discussion of the future prospects for Cuba’s cuentapropristas - or legally selfemployed workers.
(d) Banking and Financial Sector Reforms - This section examines the main
characteristics of Cuba’s banking and financial sector reforms, their impact on the
Cuban economy, and their significance within the context of this study.
(e) State Enterprise Reforms - This section provides an overview of Cuba’s efforts to
restructure state-owned enterprises (SOEs). Recently, Cuba has embarked on a
process known as perfeccionamiento empresarial (enterprise restructuring), which
mainly consists of implementing nationwide initiatives to re-engineer SOEs by
making them more efficient and market oriented. This section of the study provides a
detailed overview of these efforts and their impact on SOEs and the Cuban economy
as a whole.
The following research questions will be explored:
1. Describe and examine the main aspects of the theoretical debate surrounding
Cuba’s post-Soviet economic reforms.
2. Provide a historical account of the principal characteristics of Cuba’s socialist
economy before the collapse of the Soviet empire.
3. Identify and describe the external and internal causes of Cuba’s economic crisis
during the 1990s, as well as the socioeconomic impact of the crisis on the Cuban
economy and Cuban society as a whole.
4. Outline the principal components of Cuba’s strategies to confront the crisis.
5. Analyze the impact of Cuba’s (external sector) economic reforms, by using
official Cuban government data, statistics published by international agencies and
foreign government sources, as well as trade information from Cuba’s principal
trading partners, to measure the impact of these reforms on:
•
•
•
Foreign Investments
Joint Ventures
International Trade Associations
6. Analyze the impact of Cuba’s domestic economic reforms on:
5
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
•
•
•
Agriculture
Dollarization
Legally self-employed workers
Banking and Financial Services
State-owned enterprises (SOEs)
7. Identify and describe the principal institutional requirements of market
economies, and the main characteristics of economies in transition, to determine if
Cuba is becoming a market economy based on these requirements and the results
of this study’s findings.
1.3. Contributions to the Literature
There are several ways in which the present work contributes to the existing literature on
Cuba’s post-Soviet economic reforms.
First, it employs a unique historical approach to
the study o f this rather recent socioeconomic phenomenon. Unlike other recent works on
Cuba’s economic reforms after the collapse of Soviet and Eastern European socialism,
the present work provides a detailed historical account of the principal characteristics of
the Cuban economy during the first two decades of revolutionary rule.
This
distinguishing feature allows the present work to present the reader with a historical
framework by which Cuba’s post-Soviet economic reforms, their socioeconomic
significance, and their future implications can be better interpreted and understood.
Secondly, this study provides a socioeconomic analysis of these reforms, their causes,
and their long-term impact, from both a political and economic perspective.
To
accomplish this task, it relies on the research and contributions of academics,
practitioners, and subject matter experts from Cuba and abroad.
Finally, the present
work also uses primary and secondary qualitative and quantitative data gathered during
the author’s trip to Cuba in September 2001, as well as interviews and informal
6
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
conversations with ordinary citizens, enterprise managers, academics and scholars, and
government officials, to arrive at its conclusions.
1.4. Organization of the Study
This study is organized as follows. Chapter 1 presents the research problem, the study’s
objective, and the literature review. Chapter 2 presents a comprehensive account of the
main characteristics of the Cuba economy before the collapse of the Soviet Union and the
disintegration of the Eastern European Socialist Camp. Chapter 3 provides a detailed
overview of the roots of Cuba’s economic crisis during the 1990s, while focusing on the
impact of the deterioration of Soviet-Cuban relations, the dissolution of the Council for
Mutual Economic Assistance (CMEA), and the end of Cuba’s commercial ties with the
Eastern European Socialist Bloc. Chapter 4 analyzes the socioeconomic impact of the
crisis on the Cuban economy.
Chapter 5 consists of an analysis of Cuba’s economic reforms program and its strategies
to confront the economic crisis of the 1990s. The first section presents an overview of the
austerity measures and the Food Program (FP) implemented by Cuba as a first response
to the economic crisis of the 1990s. Part two focuses on Cuba’s external sector reforms,
with particular emphasis on the laws and regulations enacted by the Cuban authorities
since the early 1980s, as well as more recent legislation, to increase the flow of foreign
capital and investments, as well as managerial expertise, into Cuba’s fragile command
economy.
This is a very important topic in any study dealing with Cuba’s gradual
transition to a market-oriented economy, since, in recent years, particularly after the
7
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
collapse of the former Soviet Union and the Socialist Bloc, the Cuban authorities have
made attracting foreign investments one of their top priorities. Cuba’s drive to attract
foreign investments dates back to the early 1980s, when the Cuban leadership approved
legislation that would allow foreign investors to hold a 49% stake in some specified
enterprises and industries, with the intention of increasing capital flows and improving
efficiency and productivity. However, it was not until the beginning of 1989, at a point
in which it was evident (even to the Cuban leadership -although it would never be
officially or publicly admitted) that the Socialist Bloc (which accounted for more than
80% of Cuba’s international trade at the time2) was bound to disintegrate, rather sooner
than later, that the Cuban government finally opened the door to selective aspects of
capitalism, which had been essentially eliminated and vilified since Cuba was declared a
Marxist-Leninist republic in 1961.3
In its current efforts to attract foreign investments, Cuba has changed the legal framework
and has applied a greater deal of flexibility to the laws and regulations dealing with this
area of the economy. For instance, by allowing foreign interests to exceed 49 percent
ownership in a joint venture, extending the time period for capital leases (e.g., land,
buildings, equipment, etc.), giving joint ventures the right to export and import without
incurring tariff costs and other related fees, widening the scope of joint venture activities
to include a large number of industries, and providing tax incentives and the ability to
repatriate profits, the Cuban government has tried to attract larger numbers of foreign
2 Mesa-Lago, Carmelo: “C u b a ’s Econom ic P olicies an d Strategies f o r the 1990s”. Cuban Communism. 9th
Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.). Transaction Publishers. N ew Brunswick, NJ.
1995.
3 Warlau, Maria: “Foreign Investm ent in Cuba: The Limits o f C om m ercial Engagement. ” Cuba in
Transition. Volum e 6. Association for the Study o f the Cuban Econom y (ASCE). Coral Gables, FL. 1996.
8
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
investors and partners. In addition to these measures, Cuba’s efforts to attract foreign
investments have resulted in some drastic changes to the legal framework regulating the
activities of joint ventures. An example of these changes took place in 1990, when the
Council of State approved legislation creating a special labor regime applicable to
workers in the tourist industry, and in 1992, when the National Assembly of the People’s
Power (Asamblea Nacional del Poder Popular - ANPP) approved a number of
amendments to the 1976 (socialist) Constitution to guarantee private foreign investors a
safe rate of return on their Cuban investments and joint ventures.4 As a consequence of
these reforms, joint ventures with domestic (government-owned) enterprises operate as
“islands of capitalism” in Cuba’s State-run socialist economy. Joint ventures between
foreign partners and government entities are able to operate with a great deal of
autonomy from the State with regards to the management of domestic resources, and the
import and export of goods and services.5
In summary, it can be argued that Cuba’s intense drive to attract foreign investors and to
promote joint ventures, particularly in tourism and other vital sectors of the economy, has
been driven by several fundamental factors, such as: (a) the need to stem the rapid
economic decline that followed the collapse of communism in the former Soviet Union
and Eastern Europe and the dismantling of the Council for Mutual Economic Assistance
(CMEA), (b) the end of Soviet sugar and oil subsidies (which eliminated Cuba’s ability
to supplement its hard currency earnings through the re-export of Soviet crude and
refined oil), (c) the tightening of the US embargo, particularly the Helms-Burton
4 Perez-Lopez, Jorge F. “C u b a ’s S ocialist Economy: The M id -1 9 9 0 s”. Cuban Communism. 9th Edition.
Irving Louis Horowitz and Jaime Suchlicki (Eds.) Transaction Publishers. N ew Brunswick, NJ. 1995.
5 Ibid.
9
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
provision,
and (d) the growing trend towards economic globalization and the
incorporation of former socialist economies into the capitalist world economy.
The third section in Chapter 5 provides a detailed account of Cuba’s domestic economic
reforms after the Cold War. First, I analyze Cuba’s agricultural sector reforms and the
country’s efforts to promote the participation of the private sector in the agricultural
sector. Cuba’s agricultural sector reforms during the “special period” were kicked off on
September 1993. According to official reports, the main reason for this shift in ideology
was the failure of the Food Program (FP), which was instituted in 1991 as a method to
stimulate national self-sufficiency in the production of foodstuffs and other agricultural
goods. Officially, the Food Program’s failure was attributed to the lack of fuels and other
inputs, as well as the exodus of agricultural workers to urban areas experienced during
this period. The failure of the Food Program, combined with the success of Cuba’s
small-scale private farmers, forced the government to implement new reforms and
measures to transform the country’s agricultural sector.
The main objectives of the newly enacted agricultural reform policies were: (a) to
encourage workers to remain in the agricultural sector, and (b) to reduce the usage of
(already scarce) resources and inputs. Cuba’s agricultural reform program, during the
early 1990s, consisted of two fundamental components: (a) the cooperativization of State
owned farms (1993), and (b) the reintroduction of the farmers markets (1994).
To
achieve the first objectives of the agricultural reform program, the government legalized
the creation of Unidades Basicas de Produccion Cooperativa (UBPCs) (Basic Units of
Cooperative Production) and implemented a large scale reform program in which all
10
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
State owned sugar plantations would be converted into this new organizational structure
by the beginning of 1994.
The following is a summary of the some of the key characteristics of UBPCs:
•
The State retains control of the UBPC’s operations and has the power to dismantle
any cooperative that violates any of the conditions stipulated by the State.
•
UBPCs have the use (not the legal ownership) of the land for an indefinite period of
time and are not required to pay any “rent” to the State.
•
In theory, UBPCs own the “fruits of their labor,” but all their produce must be sold to
the State at a pre-determined price, established by the State, with the exception of a
permissible amount of output allowed for members’ personal consumption.
•
The State has the right to fix the price of the produce sold by the UBPCs and has the
power to set production (output) goals.
•
UBPCs receive “loans” from the State to purchase equipment, installations, and other
inputs such as fuels, fertilizers, etc. These loans (plus interest) are payable from the
UBPCs’ revenues. UBPC revenues are “shared” amongst their members and are used
to service their debt (to the State) and for other accorded purchases and investments
(e.g., develop housing for members, pay for additional inputs, etc.).
•
UBPCs are required to open bank accounts with State operated banks and must
maintain proper accounting and be audited by the State.
The first UBPCs were organized in sugar plantations before the 1993-1994 harvest.
According to official sources, by the end of 1993 all sugar farms had been converted into
UBPCs. However, the pace of these conversions has significantly slowed down in recent
years. Most recent data indicates that the pace of conversion to the UBPC structure has
been notably slower in the non-sugar agricultural sector for various reasons, which are
also addressed in this section of the study.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Following the discussion of UBPCs and the collectivization of farming, this section of the
study presents an analysis of the second most important measure in Cuba’s agricultural
reform program: the reintroduction of the farmers markets (1994).
Shortly after the
introduction of the UBPCs in 1993, the Cuban government reintroduced the farmers
markets (which were closed as the result of the Rectification Process in 1986). From an
economic perspective, the reintroduction of these markets was driven by the need to
improve the quality and quantity of the country’s food supply in the midst of the
economic crisis of the 1990s. Politically, however, it became obvious right away that the
farmers markets were being used as a tool to stem the growing popular discontent that
permeated Cuban society, particularly in Havana and other major cities, after the acute
food shortages of 1993 and 1994. Nonetheless, the farmers markets represented a notable
departure from the economic rules that govern socialist Cuba and too many ordinary
Cubans they offered a new ray of hope.
The next section of Chapter 5 presents an analysis and overview of the Cuba’s policy
efforts to dollarize its economy in order to increase its revenues and promote economic
growth. In this section, I examine the legal framework and the business rationale
surrounding this shift in ideology, the principles and practices applicable to dollarization,
as well as the direct relationship between this practice and other macroeconomic
adjustment policies to promote foreign investments, increase the productivity and
efficiency of state-owned enterprises (SOEs) and improve the nation’s liquidity and
balance of payments position. Another issue of relevance to the topic of dollarization,
which is also discussed in this section, is the role of “family remittances” from abroad
(e.g., the U.S.) and their socioeconomic impact in a dollarized economy, as well as the
12
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
various institutions and mechanisms (i.e., Tiendas de Recuperation de Divisas - TRDs
(state-run dollar stores), and Casas de Cambio (CADECAs) (state-run foreign exchange
centers)) created by the Cuban government to capture a larger share of this growing and
lucrative source of revenue.
The section following the discussion on dollarization presents a detailed overview of
Cuba’s banking and financial sector reforms. This section places particular emphasis on
the economic and monetary role of the Cuban central bank and other newly created
financial intermediaries, as well as their impact on Cuba’s economy and their future
functions during the period of transition.
The next section of Chapter 4 consists of a
comprehensive analysis of Cuba’s self-employment reforms and their socioeconomic
impact. During the early 1990s, as the Cuban government reluctantly introduced several
(albeit limited) self-employment reforms, the number of legally self-employed
individuals grew to somewhere between 70,000 and 80,000. As the pace of these reforms
intensified, the number of self-employed Cubans jumped to approximately 150,000 in
1994, and 208,000 in 1995. However, in 1996, the government decided to introduce
restrictions and fiscal measures (taxes and “licensing fees”) to curb the growth of the
private sector and eradicate what are officially considered “negative capitalist
tendencies.” As a result, the number of (legally) self-employed individuals declined
significantly from previous levels, leading to a higher level of activity in the country’s
black market economy. Empirical evidence suggests that the government’s decision to
increase the operating costs associated with self-employment, in order to curtail the socalled “negative capitalist tendencies,” allegedly exhibited by all participants in Cuba’s
13
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
emerging private sector, has had a negative impact on the number of Cubans opting for
this alternative to State-sponsored employment.
undermined the economic
This tendency has drastically
“accomplishments” realized through earlier reforms, and
continues to push a large number of Cubans into the second or black market economy.
Finally, the last section of Chapter 5 provides an overview of Cuba’s recent efforts to
reform SOEs, commonly known as perfeccionamiento empresarial.
This process is
mainly characterized by the implementation of market oriented enterprise-wide reforms
designed to make SOEs more efficient, market conscious and self-sufficient. The core
principles behind this approach to the management and function of SOEs is based on the
notion that managers are to be given autonomy over the operations of their enterprises
and workers are to be compensated, not based on their efforts, but on results. The
discussion of these initiatives and their impact on SOEs is the central theme of this
section of Chapter 5.
Chapter 6 consists of an examination of the outcomes of Cuba’s post-Soviet economic
reforms. In this chapter, I analyze the results of Cuba’s economic reforms program, from
both an economic and political perspective, in order to identify and describe the areas in
which it has succeeded or failed. This chapter summarizes the results of my findings and
provides several suggestions and recommendations for the future. Finally, Chapter 7
addresses the question of whether or not Cuba is becoming a market economy. In this
chapter, I rely on the study’s findings, and the existing theoretical framework for the
study of market and transition economies, and argue that despite recent “openings”, Cuba
remains far from becoming a market economy.
14
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
1.5. Literature Review
1.5.1. Cuba’s Post-Soviet Economic Reforms: An Overview o f the Debate
During the last three decades of the Cold War, Cuba had one of the most collectivized,
subsidized, and export-dependent economies in the Socialist Bloc. Until the early 1990s,
Cuba depended on the Soviet Union and its Eastern European allies for an estimated
eighty percent of its imports and more than two thirds of its exports.
Soviet economic
aid and subsidies provided the Cuban economy with much needed financial support and
Soviet military aid and technical assistance supported the island’s military incursions in
Africa and Latin America during the 1970s and 1980s.
Given the high level of
interconnectedness between the Soviet, Eastern European, and Cuban economies, as well
as Cuba’s dependency on Soviet and Eastern European supplies of oil, machinery,
equipment, and foodstuffs, the collapse of the Soviet empire and its Eastern European
outposts represented a severe blow for the Cuban economy.
Initially, the Cuban government responded to the post-Soviet economic crisis of the
1990s by implementing a series of austerity measures aimed at reducing domestic
consumption, while promoting self-sufficiency in the production of agricultural products.
During this period, euphemistically called the “special period in time of peace” (or
periodo especial en tiempos de paz), Cuba prepared for a wartime economy, under the
slogan of “Cuba contra todos ” (“Cuba against all”) and “opcion cero. ” As a result,
food and consumer goods rationing was intensified and the government relied on what
Perez-Stable (1999)6 calls the “politics of mobilization” and nationwide “volunteer
6 Perez-Stable, Marifeli. The Cuban Revolution: Origins. Course and L egacy. Second Edition. Oxford
University Press. N ew York, N Y . 1999.
15
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
campaigns,” reminiscent of those implemented during the early 1960s, to ensure the
success of the widely-touted “food program” (FP) or programa alimenticio. At the same
time, the 1976 Socialist Constitution was amended and new legislation was introduced to
attract foreign investment in various export-oriented sectors of the economy. The idea
was to attract foreign capital in some promising areas of the Cuban economy, such as
mining, energy exploration, telecommunications and tourism, with the objective of
reinserting Cuba into the world economy, while increasing the country’s foreign
exchange earnings.
On the domestic front, a series of market-oriented reforms were introduced as a response
to the crisis, beginning with the transformation of State-owned farms into “ Basic Units
of Cooperative Production” or Unidades Basicas de Production Cooperativa (UBPCs).
This measure was followed by the de-penalization of the U.S. dollar, or its legalization as
an officially accepted medium of exchange in some sectors of the economy in 1993, and
the legalization of more than 140 self-employment activities later in the same year. In
1994, the government re-introduced a re-branded version of the “free farmers’ markets”
or mercados libres campesinos (MLCs) of the 1980s by authorizing the creation of the
“farmers’ markets” or mecados agropecuarios (MAs). This reversal of policy was driven
by the need to improve the quantity and diversity of Cuba’s food supplies through the
creation of a quasi-market mechanism where the country’s relatively few private farmers
and their authorized intermediaries could sell a pre-approved amount of excess output
directly to the population. The transformation of Cuban agriculture, the dollarization of
the economy, and the legalization of various self-employment activities for private gain
16
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
were followed by efforts to restructure the banking and financial sectors and the creation
of a new central bank. Finally, in 1998, the government introduced a comprehensive
“enterprise optimization program” (EOP) known as perfeccionamiento empresarial.
According to official sources, the principal objective of perfeccionamiento empresarial
was to improve the effectiveness and productivity levels of state-owned enterprises
(SOEs), while retaining the “socialist ownership of the means of production,” and
preserving the principles of socialism.
More than a decade has passed since Cuba first embarked on the path of economic
reform, and there is no doubt that the Cuban economy has been significantly transformed
to some degree. Today, more than 400 “international economic associations,” or joint
ventures with foreign partners - are present in diverse sectors of the Cuban economy,
ranging
from
transportation,
to
water
purification,
software
development,
telecommunications, and reinsurance. The treacherous streets of Havana, as well as the
country’s rapidly decaying rural roads and trans-provincial highways are dotted with
imported late-model Suzukis, Toyotas, and Nissans rented by a growing number of
Canadian, Italian, and Latin American tourists, many of which use the web-based
services of HavanaAutos and CubaCars to book their rentals in advance.
The rather
expensive “dollar stores” are relatively well-stacked with global consumer products such
as LG refrigerators (imported from South Korea), Nestle milk chocolates (imported by
Nestle de Mexico, S.A), Hunt’s tomato ketchup (imported by the Mexican subsidiary of
the U.S. ketchup giant), Coca-Cola (distributed by Mexico’s Coca-Cola FEMSA), and
Panda television sets (manufactured in China). On the road from Havana to Varadero
17
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(one of Cuba’s premier tourist destinations) a shiny Mercedez Benz billboard - with the
phone number and the address of the local tourist-only rental agency - stands
precariously close to a government billboard stating that “Nuestra conviction: La
defensa de la Revolution” (“Our conviction: The defense of the Revolution”), which
reminds locals of the ever-present presence of the State, and their “unconditional”
commitment to uphold and defend the socialist principles of the Revolution.
In Santa Clara, the capital of the central province of Villa Clara, the local farmers’
market is bustling with activity as early as 7:30 AM, as farmers, intermediaries, and
housewives, haggle over prices and quantities of fresh produce, meats (except beef), and
other staples.
By midday, many of the vendors’ stalls lay almost emptied by the
insatiable demand of price-conscious consumers, many of whom are tasting the “flavors”
of the market for the first time. Prices and transactions in these markets are quoted in
both the domestic currency and the U.S. dollar, reflecting the far-reaching impact of the
dollarization of the Cuban economy.
In picturesque San Juan de los Remedios, a town of approximately 30,000 founded by the
Spanish in 1515, located about 50 kilometers north of Santa Clara, the town’s colonial
architecture, which is dwarfed by the imposing structure of its baroque-style Roman
Catholic Church, echoes with the cacophony of a multitude of announcements made by
local pregoneros (or self-employed peddlers or vendors) under the glistening tropical
sun. They come to town from nearby plantations and fields to peddle and sell their fresh
fruits and produce (often diverted from local and regional SOEs) to local residents and
18
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
visitors. In Remedios, as in many cities and towns across Cuba, the proliferation of the
self-employed, profit-oriented, sellers, peddlers and pregoneros presents evidence of the
impact of Cuba’s self-employment reforms after the end of the Cold War.
More
importantly still, their mere presence suggests that at least in this part of Cuba history
does repeat itself. It was in this town where, according to local historian Rafael Farto
#
*7
Muniz (1989) , the resident Catholic priest wrote of his fellow remedianos (or
townspeoples) (most of whom were happily and profitably engaged in “illicit” trade with
French, British, and Dutch pirates and privateers who periodically visited (or raided) the
local port o f Tesico during greater part of the 16th and 17th Centuries): “La ley suprema
de la necesidad, convirtlo a todos en contrabandistas. ” (“The supreme law of necessity
converted everyone into smugglers.”) Judging by the proliferation of the pregoneros in
Remedios, and the level of activity at the farmers’ market in Santa Clara, it can be argued
that to some degree “the market” has indeed arrived in Cuba.
Yet, despite this evidence, and the scope and nature of Cuba’s post-Soviet economic
reforms, the State still exercises a considerable amount of control over economic affairs.
Ordinary Cubans are not allowed to directly negotiate their employment contracts with
foreign investors, their salaries are paid in worthless pesos instead of dollars, and the
terms of compensation are set by a “State employment agency,” instead of the “labor
market” itself.
Similarly, self-employed workers are denied access to credit financing;
private restaurants or paladares face strict government limitations on their actual size
(e.g., the legally-permitted number of tables), and the employment of “outside labor”
7 Farto-Muniz, Rafael. "'Las p a rran das en Rem edios: su p royeccion a los pu eblos de C a ib a rien y
C a m a ju a n l Ponencia, Premio III Simposio Nacional de Parrandas, en M useo de las Parrandas de
Remedios. Rem edios, Villa Clara. Cuba. 1989.
19
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(e.g., anyone outside the operator’s immediate family), and they often face high taxes and
strict penalties for an endless number of violations. In the farmers markets, cooperatives
and private farmers are forbidden from selling basic products such as beef, milk and
potatoes directly to the public; UBPCs are required to sell 80% of their output to the State
at pre-established prices, and their areas of specialization are dictated by the State instead
of the market.
At the same time, regardless of all these limitations, and the omnipresence of the State,
some elements of the economy (albeit illegally) are succumbing to the rules of the
market.
As a black market operator in Havana, accurately describing the innate
contradictions in Cuba’s post-Soviet economic system, recently told me, ““En Cuba”,
todo es prohibido, pero todo se hace. ”
everything is done.”)
(“In Cuba, everything is prohibited, but
As stated before, the contradictions between the actual aims of
official policy, and the government’s official rhetoric gives rise to the fundamental
question:
Is Cuba moving towards a market economy, or are its post-Soviet economic
reforms a concerted effort to “reinvent Socialism ” from within and ensure the
current regime’s survival?
In his recent study of Cuba’s post-Cold War economy, Azicri (2000) suggests that Cuba
is indeed moving towards a market-based (albeit State-centric) economy, when he states
that in recent years:
Economic liberalization has produced several types of ownership, which might
add new modalities in the future. The trend has been to extend the scope of
foreign private investment, forming joint ventures in partnership with the
government. Self-employment in a growing number of areas is a form of private
20
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
enterprise accessible to the population. Its scope has been stretched and
contracted mostly for political considerations. In the long run, however, even if
modestly, it will grow more and then become stabilized. It is hard to imagine a
large-scale retrenchment of self-employment given present economic conditions,
even if conditions were to improve in the near future.8
Similarly, he argues that:
The system of agricultural cooperatives, UBPCs, is another form of non-state
property. Their productivity has been below expectations, but they allow workers
to play labor and management roles - even though they lack land and ownership
titles. Besides needing to increase productivity as managers, workers should
develop a personal stake in the proficiency of agricultural enterprises. The mix of
public and private enterprises under a socially interventionist state that keeps a
firms hand in many economic areas appears to be a lasting feature of the emerging
economic system. While still retaining a socialist character, the new economy
will be a far cry from the pre-1991 era of nearly total socialism. Also, future
economic planning should have a broad participatory input, different from the
narrow bureaucratic control that has dominated it.9
Azicri (2000) also believes that in order to continue in the process of successfully
“reinventing socialism” Cuba needs to continue on the path of reform while adjusting to
international realities and domestic expectations.10 Future changes, whether political or
economic, must first respond to Cuba’s interests and objectives.11 The reform process
must continue uninterrupted, regardless of U.S. and international pressure, and the
ongoing transformation of the Cuban economy should not be hostage to the whims of
Cuba-U.S. relations.12
8 Azicri, Max. Cuba Today and Tomorrow: Reinventing Socialism. Contemporary Cuba Series. University
Press o f Florida. Gainsville, FL. 2000.
9 Ibid.
10 Ibid.
11 Ibid.
12 Ibid.
21
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In a similar fashion to Azicri (2000), Perez (1995) sees the process of economic reforms
in Cuba as the combination of external factors and the regime’s willingness to change.13
Mounting external pressures, exacerbated of course by the fall of Soviet and Eastern
European socialism, combined with domestic socioeconomic pressures, forced the Cuban
leadership to embrace a series of unprecedented market-oriented reforms. To confront
the crisis of the early 1990s, Cuba pursued new markets, new trading partners, and new
sources of foreign exchange all through the 1990s.14 Commercial ties were renewed and
expanded with China, North Korea, and Vietnam, and new efforts were made to expand
relations with Western Europe.15
Well before Pope John Paul II’s historic visit to the
island in 1998, Cuba was already “opening itself to the world.” To attract more foreign
capital, new joint ventures were negotiated in export-oriented sectors such as
telecommunications, mining and tourism.16 Niche tourist markets were developed to
appeal to specialized interests; a new market-segment - “scientific tourism” - was
created to encourage visits by scholars, researchers, and investigators.17 “Ecotourism”
was promoted to attract environmental groups and naturalists, and “medical tourism” was
developed to offer hard currency-carrying foreigners access to Cuba’s medical facilities
at prices significantly lower than those charged abroad.18
The emphasis on foreign investment and the development of international tourism
resulted in a massive influx of dollars into the Cuban economy.
According to Perez
13 Perez, Luis A., Jr. Cuba: Betw een Reform and R evolution. Second Edition. Oxford University Press.
N ew York, N Y . 1995.
14 Ibid.
15 Ibid.
16 Ibid.
17 Ibid.
18 Ibid.
22
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(1995), it was this mass infusion of U.S. dollars that played havoc on the local economy,
and prompted the Cuban leadership to introduce additional market-oriented reforms.19
Dollarization, in a sense, was a market-oriented response to mounting inflationary
pressures in the second economy; at the same time, according to Perez (1995), it provided
evidence of Cuba’s willingness to embrace the market.
The story to support this argument goes as follows.
The expansion of foreign
investment and tourism in the early 1990s resulted in a massive infusion of dollars into
the Cuba economy. This process resulted in spiraling inflation in the black market or
second economy.
Almost immediately (after the collapse of Soviet and Eastern European
socialism), the value of the peso was tied to the dollar, and between 1992 and
1993, the black market exchange rate increased from 10 pesos to the dollar to
more than 100 pesos. Goods and services, including food, gasoline, and clothing,
not available in government stores could be obtained for dollars, or at the
prevailing exchange rate in pesos, on the black market. This created an anomalous
condition where a monthly salary of 300 pesos, for example, was often equivalent
to $3, or the black market price of four bars of soap, a two-pound chicken, or four
liters of milk.20
As a consequence,
The dollar increasingly became the medium of exchange and drove the economy,
both official and unofficial. These conditions set in motion a vicious cycle: the
pursuit of dollars led to a rise of state theft and pilfering, both for personal use and
as a medium of exchange for dollars, which, in turn, served to exacerbate
scarcities of state supplies. Gasoline, foodstuffs, and consumer goods were only
some of the many items that found their way into the underground market. A
plumber, electrician, or carpenter, with tools and materials stolen from the
workplace, was in a highly advantageous position to sell services in a market
where public demand was years in excess of state service schedules. Producers,
distributors, and retailers routinely diverted goods for private profit. A local
baker, grocer, or butcher could divert state supplies to sell to friends and
neighbors at black market prices. Goods destined for export markets, including
19 Ibid.
20
23
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
coffee, ram, cigars, and lobster, were diverted to the underground economy,
thereby depriving the state of much-needed foreign exchange.
These domestic pressures, combined with rapidly changing external sector conditions,
prompted the Cuban government to decriminalize the possession of U.S. dollars in 1993,
which, in turn, led to the introduction of additional market-oriented reforms.21
Dollarization was an effort to tap into the underground economy, and encourage friends
and relatives abroad to remit hard currency to the island and provide the State with an
additional source of foreign exchange.22
More importantly, it represented the
government’s acknowledgement of the importance of the second economy in Cuba’s
everyday life, and its willingness to employ a market-based approach to address that
problem.
23
•
According to Perez (1995), some of these objectives were successfully met;
dollar-only State shops expanded and increased food supplies, and gasoline and consumer
goods became generally available to ordinary Cubans with access to dollars (albeit at
inflated prices).24
However, the dollarization of the Cuban economy created new problems and exacerbated
old ones. Black market transactions continued to flourish; the street value of the peso
continued to decline; and for a vast number of Cubans who lived off their peso wages and
salaries, who had nothing else to sell nor had any relatives abroad, life became specially
Ibid.
' Ibid.
' Ibid.
1Ibid.
24
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
difficult.
25
Nonetheless, dollarization represented a move toward the market and
provided evidence that Cuba was indeed willing to change.26
As mentioned before, shortly after dollarization, other market-oriented reforms were
introduced. According to Perez (1995), the scope and nature of these reforms, as well as
their overall impact on Cuba’s post-Soviet economy, demonstrate that, in its effort to
reinvent socialism, while permitting the existence of some elements of capitalism, Cuba
is in fact gradually making the transition to a market economy.27
The principal
impediment to achieving this objective stems not from the intransigence of the Cuban
regime, but is the result of a hardened U.S. policy. 28 According to this view, the
intensification of U.S. economic sanctions after 1992 did nothing to allay Cuban fears of
American interventionism in the island’s domestic affairs.29
As a result, Cuba found
itself increasingly isolated and beleaguered, or as Castro (1993) himself put it
“surrounded by an ocean of capitalism,”30 and survival (instead of transition) moved to
the forefront of Cuba’s strategic agenda.31
Indeed, political and economic survival
became, according to Perez (1995), the larger meaning of the periodo especial, a
condition that had originally been conceived as a response to war.32 Therefore, to survive
in this “brave new world,” Cuba would be immersed in an eterno Baragua (a historic
25 Ibid.
26 Ibid.
21 Ibid.
28 Ibid.
29 Ibid.
30 Castro, Fidel. “D iscurso del 2 6 de ju lio de 1993. ” En: Koeyu Latinoamericano. Nro. 66. Ediciones
Koeyu. Caracas, Venezuela. 1993.
31 Perez, Luis A., Jr. Cuba: Betw een Reform and R evolution. Second Edition. Oxford University Press.
N ew York, N Y . 1995.
32 Ibid.
25
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
reference to Antonio Maceo’s refusal to surrender to the Pact of Zanjon in 1878), and
resistir (“resistence”) and ensuring the regime’s survival became the only plausible
choice.33
In a similar fashion to Perez (1995), Giuliano (1997) believes that Cuba is in fact
experiencing an economic transition toward capitalism.34 However, this process is being
thwarted by the uncompromising nature of U.S.
policy towards Cuba.35 His basic
argument can be summarized as follows: Despite of the fact that reformist elements
within the Cuban leadership have initiated a series of economic reforms that promised to
bring about additional reforms and a possible political transformation from within, U.S.
policy has served as an impediment to the these reforms and represents an obstacle to the
internal debate about the “Cuban reality.”36
Giuliano (1997) relies on the qualitative interpretation of a series of events that
supposedly took place among members of the higher echelons of the Cuban elite to
formulate his theory. He claims that shortly after the introduction of the first set of
reforms during the Fourth Party Congress of the Cuban Communist Party, held on
October 1991, a fissure between the “hard-line,” “moderate,” and “reformist” elements of
the Cuban nomenclature rapidly emerged.37 As time passed, the differences between the
three camps became increasingly evident.
The “hard-liners” are comprised of the old
33 Ibid.
34 Giuliano, Maurizio. “La transition cubana v el bloqueo norteamericano. Ediciones ChileAmerica.
Santiago, Chile. 1997.
35 Ibid.
36 Ibid.
37 Ibid.
26
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Party apparatiks who reluctantly support some limited economic “openings,” while
•
1 •
•
opposing any political reforms.
10
The “moderates” consist of Party members who accept
the fact that economic reforms will inevitably lead to social changes, but insist on the
gradual application of such reforms in order to minimize their impact.39 And the
“reformers” are those officials who favor the introduction of wide-ranging economic
reforms, and the limited implementation of some political reforms.40 The “hard-liners”
include Castro, and his brother Raul, Jose Ramon Machado Ventura, and other members
of the Party’s ideological branch. “Moderates” include Ricardo Alarcon (the current
president of the National Assembly of People’s Power or Asamblea Nacional del Poder
Popular - ANPP, and supposedly the third most powerful man in Cuba), and Eusebio
Leal Spangler (the “official historian” of the City of Havana and current CEO of tourism
enterprise Habanaguanex, S.A.). Finally, the “reformers” include Abel Prieto (Minister
of Culture), Carlos Lage (Cuba’s “economic csar”), Jose Luis Rodriguez (Minister of
Finance), and Julio Carranza and Pedro Monreal Gonzalez (two of Cuba’s leading
economists formerly associated with the Center for the Study of the Americas in
Havana).41
Despite recent developments, and the growing influence of the “moderates” and the
“reformers,” Giuliano (1997) acknowledges that the process of economic liberalization in
Cuba has been rather timid and cumbersome.42 One of the principal reasons for this has
Ibid.
’ Ibid
1Ibid.
41
Ibid.
Ibid.
27
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
been U.S. policy towards Cuba.43 The main argument behind this theory goes something
like this: In the absence of external hostilities (i.e., U.S. economic sanctions), the
“reformist” elements within the Cuban elite would have good reasons to introduce (and
push for) additional reforms to benefit the general population. This would reduce the
population’s concern with daily survival and would provide ordinary Cubans with an
attractive incentive to rebel against the regime, as many in the U.S. would like.44
However, under current U.S. policies, the “reformists” (and even the “moderates” to a
lesser extent) would understandably be reluctant to introduce (or push for) additional
reforms 45
There are several reasons for this, according to Giuliano (1997).
First, from Cuba’s
perspective, Washington and its right wing, anti-Castro, supporters could take advantage
of any “openings” to subvert the regime.46 Giuliano (1997) points out to the 1992
Torricelli Bill - which intensified U.S. economic sanctions with respect to Cuba - and
America’s financial support for Radio Marti - as two instances in which a relative
“opening” from the part of Cuba resulted in the intensification of U.S. pressures for more
drastic change.47 These incidents hardened Cuba’s position and forced the leadership
(including its “reformist” and “moderate” factions) to assume a “bunker mentality” and
“prepare for war” (i.e., “Cuba contra todos”).4& Such reaction, according to Dominguez
(1978), was to be expected since nationalism and anti-imperialism are deeply rooted in
’ Ib id
' Ibid.
' Ib id
; Ib id
’ Ibid.
1Ibid.
28
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cuban history; this is particularly true after 1959 where U.S. pressures over internal
Cuban affairs have facilitated the concentration of power in the hands of the current
regime. 49
In his comprehensive study of Cuba’s economic reforms, Canizalez (1997) claims that
Cuba is experimenting both economic and political transformations, which have ushered
in a series of economic changes while ensuring the continuity of the Castro regime.50 To
support his view, the author points to the most significant economic reforms introduced
during the 1990s such as Cuba’s new foreign investment law (1992), the restructuring of
the agricultural sector (1993 and 1994), dollarization (1993), and self-employment
reforms (1993).51 He sees the transformation of the Cuban economy from “plan to
market” as a “top-down approach,” with Castro leading the way.52 Unlike Dominguez
(1996), who claims that “slowly, but surely, the process of political transition in Cuba has
already started,” 53 Canizalez (1997) is careful to point out that Cuba is experiencing a
process of transformation not a full transition to a market economy and a democratic
form of government.54 To clarify this distinction, he defines a “transformation” as the
implementation of changes within the existing structure or framework, and “transition” as
the radical attempt to change the system as a whole.55
49 Dominguez, Jorge I. Cuba: Order and R evolution. Harvard University Press. Cambridge, MA. 1978.
50 Canizalez, Andres. Cuba: D iez afios de transformaciones. Ediciones Koeyu. Caracas, Venezuela. 1997.
51 Ibid.
52 Ibid.
53 Dominguez, Jorge I. “La tran sition p o litic o en Cuba. ” En: Encuentro de la cultura cubana. Nro. 1.
Madrid, Espana, 1996.
54 Canizalez, Andres. Cuba: D iez afios de transformaciones. Ediciones Koeyu. Caracas, Venezuela. 1997.
55 Ibid.
29
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Nonetheless, Canizalez (1997) believes that within the context of the system’s economic
transformation, a rather limited political transformation has taken place in Cuba as well.
This is evidenced by the regime’s ability to undergo a “ top-down metamorphosis” on the
economic and ideological fronts.56 Here, again, Canizalez’s (1997) thesis clashes with
(and at the same time borrows from) Dominguez’s (1996) postulation that along with a
radical economic transformation, Cuba has in fact undergone an equally drastic political
reform.
57
To support this view, Dominguez (1996) focuses on the erosion of power
experienced by the Cuban State, and claims that, starting in the 1990s,
The Cuban State began to lose the control that it once had over national life. The
State loses control when the illegal (or “black”) market emerges. It also loses
control as it opens more “spaces” in the legal economy, which, at least
unofficially, has many of the characteristics of a market economy. A State that
loses the control it had, a State that loses the control it wishes to have, has already
experimented significant political change.58
Canizalez (1997) concludes that the process of economic liberalization and political
transformation in socialist Cuba is an arduous and complex one, with a questionable
future viability.59 This is mostly due to the leadership’s ambiguity with regards to the
scope and nature of Cuba’s economic reforms, and the changing nature of the global
geopolitical and economic climate.60 To support this conclusion, he cites Grabendorff
(1994), who insists that:
The current socialist model employed by Cuba has very limited possibilities for
survival, mostly because, under the present status quo, Cuba will find it extremely
difficult to obtain the support of friends and allies in Latin America. This
phenom enon is taking place in an increasingly interdependent international
56 Ibid.
57 Dominguez, Jorge I. “La transicion p o litico en Cuba. ” En: Encuentro de la cultura cubana. Nro. 1.
Madrid, Espana, 1996.
58 Ibid.
59 Canizalez, Andres. Cuba: D iez afios de transformaciones. Ediciones Koeyu. Caracas, Venezuela. 1997.
60 Ibid.
30
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
climate, based on the widespread acceptance of the principles of liberal
democracy and free market economics.61
Monreal and del Llano (1995) provide a detailed analysis of Cuba’s economic reforms
after the end of the Cold War from a “Cuban perspective.” They are among the most
prominent Cuban scholars to address this topic during the early 1990s, and their work is
credited with “revolutionizing Cuba’s economic thought and conscience.” Like many of
their counterparts abroad, Monreal and del Llano (1995) view a rapidly changing
international environment (i.e., the collapse of Soviet and Eastern European socialism) as
the primary factor driving the Cuban reform process.62
Their analysis shows that, at
least initially, the process of economic liberalization in Cuba was characterized by three
elements: the rapid development of international tourism, a greater emphasis on
international trade, and increased efforts to attract foreign direct investment (FDI).
The
authors contend that the economic “openings” or aperturas that have taken place in these
sectors of the economy undoubtedly represent a shift in favor of a market-oriented
approach ( “orientation mercantilista”) to economic management.64 However,
their
work also shows that with the exception of these areas, most of the Cuban economy still
operates under the Soviet-inspired Sistema de Direction y Planficacion de la Economla
(SPDE) or System of Economic Direction and Planning.65 They classify the Cuban
61 Grabendorff, W olf. “R elaciones entre la com unidad eu ro p e a y Cuba. ” En: El Caribe v Cuba en la pos
Guerra Fria. Editorial N ueva Sociedad. Caracas, Venezuela. 1994.
62 Monreal, Pedro and Manuel Rua del Llano. “H acia una transicion: a p ertu ra y reform a en la econom la
(1990-1993). ” En: Cuba: Apertura v reforma econom ica - Perfil de un debate. Bert Eloffrnan, Editor.
Instituto de Estudios Iberoamericanos de Hamburgo. Editorial N ueva Sociedad. Caracas, Venezuela. 1995.
63 Ibid.
64 Ibid.
65 Ibid.
31
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
system as a “dual economy” (economla dual), where the State sector can still exercise
significant control along with an expanding market-oriented sector.66
The central hypothesis postulated by Monreal and del Llano (1995) rests on the
assumption that a process that originally started as an effort to open select sectors of the
Cuban economy, has, in fact, turned into the radical transformation of the Cuban
economy.67 The authors believe that the fact that the Cuban leadership initiated these
reforms and has adjusted them over time provides supporting evidence to the theory that
Cuba is indeed becoming a market-oriented economy.68 To support this hypothesis,
Monreal and del Llano (1995) analyze the relationship between economic “openings” and
institutional transformation in Cuba’s post-Soviet era. To achieve this task, their analysis
divides the process of institutional transformation into two components: organizational
and normative. Organizational institutional transformations are defined as those changes
that affect the function and organization of economic agents; it also includes the
institutional transformation of the Cuban State.69 Normative transformations, on the
other hand, consist of the all the changes and modifications of the country’s
administrative structure and legal norms, which establish or redefine the roles and
functions of different economic agents in the context of an overall effort to partially (and
gradually) reform the economy.70
’ Ibid.
' Ibid.
' Ibid.
' Ibid.
1Ibid.
32
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The authors summarize the principal “organizational transformations” that have taken
place in Cuba as a result of recent economic openings as follows:71
1. Decentralization and liberalization of foreign trade;
2. The development of the country’s commercial and financial infrastructure through
the creation of new “private” entities that offer services such as management
consulting, information technology, finance, insurance, banking, and marketing;
3. The introduction and application of new (capitalist) management techniques and
organizational structures;
4. The creation of new economic agents - such as the newly created “mercantile
associations” or sociedades anonimas (S.A.), and the formation of economic
associations with foreign capital or asociaciones economicas de capital
extranjero;
5. The growing influence of “strategic marketing” practices among Cuban
enterprises;
6. The transformation of the roles and functions of the State sector; and
7. The growing influence and expanding role of Cuban non-governmental
organizations (NGOs), such as the National Chamber of Commerce, independent
mercantile associations, commercial banks, and other non-State entities engaged
in international trade.
On the “normative” side, Monreal and del Llano (1995) identify the following
transformations:
79
1. The revision of the 1976 Socialist Constitution in 1992, which expanded the legal
provisions dealing with foreign direct investment (FDI); and
2. The introduction of other reform-oriented legislation such as the legalization of
the U.S. dollar (Decree-Law No. 140, 1993), self-employment reforms (DecreeLawNo. 141, 1993), and others.
According to the authors, the approval of the revised version of Cuba’s Foreign
Investment Law (Decree-Law No. 50) in 1992 was a decisive moment in the
transformation of Cuba’s post-Soviet economy.73 They believe that this law provides an
adequate legal framework for attracting foreign capital, as a way to develop the Cuban
1Ibid.
1Ibid.
1Ibid.
33
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
economy, since it provides guarantees that are both “attractive” and “beneficial” to
foreign investors, and fosters a climate of “security” and “stability.” 74
The authors also contend the amendments to Articles 14 and 23 of the 1976 Socialist
Constitution also contributed to setting the tone for Cuba’s gradual transformation into a
“mercantile (or market-based), economy.” 75 The revised version of Article 14 limits the
State’s control of the means of production to those that are essential or part of the
“national socialist patrimony”, and, for the first time, opens the possibility of private
ownership in select areas of the economy.
H£\
Article 23 provides a series of guarantees
(e.g., the ability to repatriate profits in hard currency, and to settle disputes through
arbitration in Cuban courts) to foreign investors.77
Even though the new Constitution
reiterates the role of the State and the importance of central planning in Cuba’s economy,
Monreal and del Llano (1995) claim that its ratification represented a significant
transformation, since t provided the “private sector” with greater space to maneuver.
78
In
fact, they argue that the new 1992 Constitution established the basis for the beginning of
a new phase of normative transformations of the economy, characterized by a growing
emphasis on market-oriented structures and market-based mechanisms.79
This process of economic transformation was accelerated in 1993, when the Cuban
leadership introduced a series of “normative” reforms with the objective of restructuring
Ibid.
' Ibid.
'Ibid.
’ Ibid.
' Ibid.
1Ibid.
34
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
some elements of the domestic economy.80 The first of these “normative” economic
reforms was the approval of Decree-Law No. 140, in August 1993, which legalized the
possession of U.S. dollars by ordinary Cuban citizens. The second was the approval of
Decree-Law No. 141, in September 1993, which legalized self-employment in more than
100 economic activities.
According to the authors, both of these reform measures
represented the implementation of “explicit institutional tools” to facilitate the
legalization or normalization of previously clandestine activities into the formal
economy, and opened the possibility of additional future transformations, including the
radical transformation of the Cuban economy as whole.81
To conclude, Monreal and del Llano (1995) claim that the process of economic
transformation in Cuba has taken the form of the “re-orientation” of formerly centrally
planned economic agents toward the market - a concept that they describe as the
orientation mercantil de la economla or the “mercantile orientation of the economy.”
89
This change, however, does not constitute a significant reduction in the role of the State;
instead, it has led to its transformation from primary owner of the nation’s means of
production to principal regulator of economic activity.83 Monreal and del Llano (1995)
also argue that the fact that the concept of “economic reform” was notoriously absent
from the regime’s official political discourse in the early 1990s does not mean that the
measures introduced by the Cuban leadership are not compatible with the country’s
1Ibid.
Ibid.
'■Ibid.
' Ibid.
35
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
transformation to a market economy.84 Instead, it means that despite the complexities
and challenges encountered by Cuba, as it faced a new and harsh “economic reality,” the
country and its leaders were willing to change and readily adopt some of the necessary
aspects of the once derided capitalist world economy.
QC
Contrary to Monreal and del Llano (1995), Locay (1998) does not see Cuba’s post-Soviet
economic reforms as an effort to transform the country into a market-oriented economy.
86
Locay (1998) employs a structural approach to arrive at this conclusion. Locay (1998)
claims that all economic systems are comprised of a set of institutions that create the
context in which exchange between the various members of society takes place.
87
He
also tells us that economic restructuring, no matter what its motives and its goals, always
requires institutional change.
oo
,
In other words, economic transformation or restructuring,
regardless of the political context in which it takes place, cannot be fully accomplished
•
without the implementation of radical institutional change.
SO
To support this hypothesis, Locay (1998) thoroughly defines the institutional
requirements of market economies and how free markets generally work. Markets are
defined as socially constructed arrangements by which people and/or institutions
normally exchange goods and services.90
The existence of “free exchange” is a vital to
84 Ibid.
85 Ibid.
86 Locay, Luis. “T ow ard a M arket Econom y or Tinkering with Socialism ? ” In: Perspectives on Cuban
Economic Reform s. Jorge F. Perez - Lopez and Matias F. Travieso - Diaz, Editors. Special Studies No.
30. Center for Latin American Studies Press. Arizona State University. Tempe, AZ. 1998.
87 Ibid.
88 Ibid.
89 Ibid.
90 Ibid.
36
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the success of any market system, and ultimately increases society’s wealth by
transferring goods and services from their producers or suppliers to those that value them
most.91 In this context, markets that are characterized by free and unrestricted exchange,
driven by the Smithian notions of self-interest and competition, allow participants to reap
the benefits of specialization and economies of scale.
However, sometimes markets
experience high transaction costs, which hinder their effectiveness and their ability to
function well.
09
•
Because society’s institutions, more often than not, are responsible for
the creation of these costs, an institutional structure that significantly reduces transaction
costs is essential for markets to function well.93
With such institutions in place, market-clearing prices are able to effectively convey the
necessary information to facilitate decentralized decision-making, and approximate the
efficient allocation of society’s resources.94 Unfortunately, most developing countries do
not have such institutional structures in place, which severely limits their ability to
develop and achieve their full economic potential.95 Their cumbersome and inefficient
institutions create large transaction costs in their effort to distribute national wealth in a
form that substantially differs from what well-functioning markets would dictate.96 The
so-called centrally planned economies (CPEs) of the former Soviet Union, its Eastern
European socialist allies, and Cuba provide excellent examples of this. In their purest
form, these CPEs outlaw (or severely restrict) private property and limit the development
Ibid.
Ibid.
1Ibid.
94
Ibid.
' Ibid.
’ Ibid.
92
37
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of most types of privately based economic activities.97
Their rigid and vigilant
institutions impose large barriers to market exchange, which are to be maintained by
force if necessary.98
Given the current institutional structure of the Cuban economy, despite recent “openings”
and “restructuring,” the following question naturally arises:
reforms a move towards a market economy?
Are these openings or
To address this question, Locay (1998)
centers his analysis on Cuba’s principal economic reforms. These are: the legalization of
the U.S. dollar, self-employment reforms, Cuba’s foreign investment law, and the
transformation of Cuban agriculture. With regards the legalization of the U.S. dollar
since 1993, Locay (1998) sees two principal reasons for this policy change. First, the
growing availability and popularity of the U.S. currency, and a growing non­
governmental sector (i.e., NGOs), was making it increasingly difficult to prevent its
widespread use among the population.99 Secondly, the collapse of the USSR and the rest
of the Socialist Bloc increased the need to encourage more dollar transfers from
expatriates to the beleaguered island in order to offset the enormous economic
contraction that was taking place at the time.100 Locay (1998) correctly points out that
this shift in policy did not mean that the Cuban leadership was willing to change, but that
it was forced to implement some limited changes by external and domestic
circumstances.101
97 Ibid.
98 Ibid.
99 Ibid.
100 Ibid.
101 Ibid.
38
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In a similar fashion, as Locay (1998) demonstrates, the legalization of self-employment
did not represent Cuba’s legitimate desire to change and eliminate existing barriers to the
development of a vibrant private sector or emerging bourgeoisie102. Instead, it was just a
‘scheme’ to channel some extra revenue to the State’s rapidly shrinking coffers. Also, by
heavily regulating predominantly clandestine activities, the State would be able to
concentrate its resources on effectively preventing the post-embryonic development of
the type of economic institution that it feared (and still fears) the most: an economically
vibrant and politically conscious private sector.103
Clearly, if Cuban authorities were remotely serious about expanding the role of the
market in the domestic economy, they would have legalized self-employment in every
desirable profession without any artificial regulatory barriers. Instead, as Locay (1998)
indicates, the State amended the penal code to restrict the occupations that qualified for
self-employment, and to facilitate the prosecution of “profiteers” and “speculators” who,
according to the official discourse, were beginning to exhibit the “negative tendencies” of
capitalism.104 In a demonstration of its disdain for the private sector, the State imposed a
series of restrictions a year after the introduction of Law-Decree No. 141 (1993), which
legalized some forms of self-employment in Cuba. Among the most notable were the
restrictions on the self-employed’s ability to hire non-family workers, regulations that
prevented university graduates, government officials, and professionals from pursuing
careers as self-employed workers, and limitations on the seating capacity and the number
102 Ibid.
103 Ibid.
m Ibid.
39
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
or tables that were legally permitted for paladares or privately-operated bars and
restaurants.
When it comes to Cuba’s new foreign investment law (Decree-Law No. 50, 1992), Locay
(1998) correctly states that the introduction of this law hardly indicates that Cuba is
moving towards the market. This reasoning is based on the fact that this law, although
widely touted as an indicator of Cuba’s willingness to embrace far-reaching market
reforms, did not significantly alter the country’s business environment and the institutions
that regulate the domestic market.105 Although Cuba’s foreign investment law allows
foreign investors to repatriate their profits, the convertibility rate at which this can take
place is not clearly defined.106 Foreign investment is limited to certain sectors of the
economy; education, telecommunications, and health care are out of the question. In
addition, the Cuban government must approve each investment on a “case by case” basis,
indicating that investing in Cuba lacks a uniform structure or process. As Locay (1998)
indicates, any disagreements or disputes between foreign investors and their Cuban
partners (i.e., the Cuban government) must be settled through an unclear process of
arbitration in the Cuban legal system, casting some doubt on the rights and legal recourse
available to foreign investors.107 Finally, as Gunn (1993)108 and Seiglie (2001) point out,
all workers must be hired through the State’s employment agency or empresa
empleadora, which essentially renders the Cuban government as a monopsonist by
105 Ibid.
106 Ibid.
107 Ibid.
108 Gunn, Gillian. "'The S ociological Im pact o f Rising Foreign Investment. ”
www.trinitvdc.ediu/academics/depts/interdisc/interaational/caribbean% 20briefings/TheSociologicallmpact.
p d f 1993.
40
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
allowing it to extract some (if not most) of the surplus from Cuban workers and use the
price of foreign employment as a form of reward and political control.109
Finally, Locay (1998) focuses on Cuba’s agricultural cooperatives (UBPCs) and their
potential role in transforming the country’s economy. He sees similar reasons for their
creation to those that prompted the Cuban leadership to authorize some limited forms of
private sector self-employment. In essence, Locay (1998) claims that the agricultural
cooperatives were created to offset the impact of the external sector shock experienced by
the Cuban economy after the collapse of Soviet and Eastern European socialism.110 They
were not, as many “Cubanologists” and subject matter experts believe, a legitimate
attempt to introduce a market-oriented solution to solve Cuba’s legendary food shortages
problem. Instead, as Locay (1998) points out, they were just another tactic used by the
Cuban government to confront the economic crisis.111 To support this view, Locay
(1998) points out to the fact that Cuba’s agricultural cooperatives, although theoretically
independent from the State, do not hold ownership rights or titles to their land.
112
They
are also required to sell 80% of their output to the State’s procurement agency, Acopio, at
preset prices determined solely by the State. And the State strictly controls and regulates
the types o f products they can sell and their corresponding prices.
109 Seiglie, Carlos. “C u b a ’s R oad to Serfdom. ” CATO Journal. Volum e 20. N o. 3. CATO Institute
Publications. Washington, DC. Winter 2001.
110 Locay, Luis. “T ow ard a M arket Econom y or Tinkering with Socialism ?" In: Perspectives on Cuban
Econom ic Reform s. Jorge F. Perez - L6pez and Matias F. Travieso - Diaz, Editors. Special Studies No.
30. Center for Latin American Studies Press. Arizona State University. Tempe, AZ. 1998.
111 Ibid.
112 Ibid.
41
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
According to Locay (1998), the characteristics of Cuba’s incomplete market transition
clearly demonstrate that these changes do not represent a transition to an institutional
structure that is designed to support (and foment the development of) a free market.
113
In fact, they demonstrate that the Cuban government’s approach to economic reforms, to
put it in Locay’s (1998) words, is to “tinker with socialism at the edges,”114 while
ensuring the permanence of the status quo. His analysis correctly shows that this strategy
has consisted of allowing some restricted markets and cautiously decentralizing decision­
making, in a constant effort to maintain the State’s control over Cuba’s economic life and
economic affairs.115
Prior to Ritter (1995), Locay (1998), Perez-Lopez (1998), and Suchlicki (2001), MesaLago (1994) addressed one of the fundamental questions pertaining to the recent
literature on Cuba: Is Cuba really opening up to external pressures and truly embracing
market-oriented reforms, or is the leadership simply projecting an image that it is willing
to change?116 To address this question, Mesa-Lago (1994) analyzes the scope and nature
of Cuba’s external economic strategy, as well as its principal domestic economic reforms
at the time. Based on the findings of his research, Mesa-Lago (1994) correctly concludes
that, as the passage of time has shown, Cuba has opted to use the illusion of economic
reforms to ensure the continuity of the current regime.
Cuba’s economy, Mesa-Lago
(1994) accurately states, has gone through some limited and cautious transformations, but
113Ibid.
114Ibid.
115Ibid.
116 M esa-Lago, Carmelo. Are Econom ic Reforms Propelling Cuba to the Market? North-South Center.
University o f Miami. Miami, FL. 1994.
42
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
these changes are still very far from the implementation of a capitalist market-oriented
regime.
117
As Mesa-Lago (1994) demonstrates, there is a notable rift between the interpretation of
Cuba’s reforms at home and those formulated abroad, with Cuban officials, scholars, and
intellectuals taking a more positive view of the reforms when compared with the
interpretations that prevail abroad.118 Although there seems to be a general consensus
among foreign scholars that Cuba is, for the most part, making the gradual transition to a
market economy, there is very little agreement on how much it ahs moved in that
direction or how far the Cuban leadership is willing to go with such change.119 Some
Cuban-American scholars, as Mesa-Lago (1994) correctly claims, advocate the view that
Cuba is simply trying to reinvent socialism from within, rather than replace it through
drastic institutional and systemic change.120 To arrive at this conclusion, many of them
draw on the work of Janos Komai, and the experience of several former socialist
countries in Eastern Europe. In their view, in order to truly change, Cuba has no option
but to dismantle socialism through the implementation of drastic and radical institutional
and political change.
By contrast, as Mesa-Lago (1994) indicates, the majority of Cuban social scientists and
cadres (living in Cuba) who favor economic reform do not wish to see a radical transition
or the rise of a full-fledged market economy; instead, most of them favor the introduction
117 Ibid.
118 Ibid.
119 Ibid.
120 Ibid. For a more detailed explanation o f this view , see Locay (1995), and Suchlicki (2000).
43
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of limited market-oriented measures that would stimulate development and economic
growth, while preserving the accomplishments of the Cuban Revolution.121 For example,
Carranza, Gutierrez, and Monreal (1996) believe that the Cuban system can be
transformed by combining elements of the market with central planning and preserving
the so-called “social safety net” associated with socialism.122
A similar approach has
been publicly advocated by former Foreign Minister Roberto Robaina (considered a
“reformer” by many experts), who has suggested that Cuba’s approach to economic
reform does not follow a “pre-established or imported formula”, but consists of an effort
to “find a path with is both Cuban and viable.”123 Such “path”, according to Robaina’s
declarations, would neither be “State ownership of all the means of production nor
private ownership,” but would consist of some “middle point” or the development of a
“mixed” or “hybrid” economy.124 The problem with this approach, as Mesa-Lago (1994)
correctly indicates, is that such a middle point has never been clearly defined, and there is
a wide space in the continuum between a centrally planned and a market economy.
125
Furthermore, supporters of this view clearly articulate that Cuba should move into a
“mixed economy,” instead of a market economy; therefore, their views, although
departing somewhat from the official discourse, hardly represent the desire to make a full
transition to a market economy.
121 Ibid.
122 Carranza - Valdes, Julio, Luis Gutierrez Urdaneta, and Pedro Monreal-Gonzalez. Cuba: Restructuring
the Economy: A Contribution to the Debate. Translated by Ruth Pearson. The Institute o f Latin American
Studies. University o f London. London, UK. 1996.
123 A lfonso, Pablo. “R obaina no a cla ra p ro ye cto economico. ” El N uevo Herald. N ovem ber 8, 1993.
124 Ibid.
125 M esa-Lago, Carmelo. Are Econom ic Reforms Propelling Cuba to the Market? North-South Center.
University o f Miami. Miami, FL. 1994.
44
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
To counter the influence of these Cuban scholars and intellectuals, as Mesa-Lago (1994)
suggests, there are individuals in the upper echelons of the Cuban leadership who overtly
espouse and advocate the “unquestionable need” to preserve and defend Cuba’s socialist
model. One good example is Cuba’s economic czar, Vice-Minister Carlos Lage, who has
openly stated: “We (Cuba) have no need to create a new economic model because the one
we want and are defending is the socialist one.”126 According to Lage, what the Cuban
government is doing “is not a reformation of the socialist system, but just an adjustment
to our present conditions.”127 In other words, Cuba is “introducing into (its) socialist
essence, which will never be changed, the measures that present day reality demands....
State ownership will always predominate.... the economy will still be centrally
planned.”128
According to Mesa-Lago (1994), Castro himself has been even more adamant in stressing
this point. At the end of 1993, after a series of limited market reforms were cautiously
introduced, the Cuban leader told a group of artists and intellectuals at a gathering in
Havana that “in the hard and difficult times Cuba was going through, there was a certain
forgetfulness about ideology, but when people see everything that looks like
capitalism.. .it is unjust or unequal, they do not want it.”129
A few months later, during
an intense deliberation to the National Assembly, Castro declared: “ I despise capitalism,
it is excrement, it is unjust, it is alienating.... the idea that capitalism can solve some of
’ Ibid.
' Ibid.
128
Ibid.
Ibid.
45
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
our problems is a crazy, absurd dream.”130 Finally, to reemphasize his point (and to
remind those present of Cuba’s unwillingness to fully embrace market capitalism), Castro
concluded: “I have some convictions I will never resign: I do believe in socialism and the
better I know capitalism, the more I love socialism. It has more solutions to our problems
than capitalism.
We must make socialism efficient and not destroy it.
The steps
backwards we must take now should not discourage us because, tomorrow, we will be
taking steps forward. This is nothing new. Back in 1917, Lenin suggested it.”131 As the
work of Mesa-Lago (1994), Locay (1995), Suchlicki (2000), and other scholars suggests,
Castro has repeatedly stated that Cuba will not make the same errors that (in his view) led
to the demise of Soviet and Eastern European socialism in the early 1990s.
Such intransigence on the part of the Cuban regime has led many scholars and experts to
(erroneously) believe that he would be more than likely in favor of replicating the
Chinese model in Cuba.
Flowever, as Mesa-Lago (1994) and Perez-Lopez (1998)
indicate, China’s economic success is based on some premises and changes that are
neither present in Cuba or have yet to materialize.132 For instance, Hong-Kong has
played a key role in China’s modernization and economic success by providing most of
the capital flow to China and serving as an intermediary for international trade. In the
case of Cuba, it is very unlikely that the influential and wealthy Cuban-American
community in Miami will play a similar role as long as Castro remains in charge. The
U.S. maintains excellent economic relations with China and has played a critical role in
that country’s induction into the World Trade Organization (WTO). When it comes to
130 Ibid.
131 Ibid.
132 Ibid. See also, Perez-Lopez, Jorge F.
46
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cuba, on the other hand, the U.S. enforces a strict trade embargo, and U.S. companies
and citizens are forbidden from investing in and traveling to Cuba. Finally, unlike Cuba,
China has successfully transformed its entire agricultural sector through independent
contracts with families and rural villages, which grant them the freedom and
independence to sell their agricultural products at prices that are truly determined by
supply and demand.
In the case of Cuba, it is also worth noting that Castro was not only publicly against
ownership changes in the domestic front, but was also radically opposed to the
resurrection of the “free farmers’ markets” that were abolished by him in 1986. As
Mesa-Lago (1994) and other scholars have shown, the Cuban leader himself has stated
many times that there were many differences between the Chinese model and “Cuba’s
heroic path of resistance.”133 To emphasize this view, the Cuban leader stated that
“Asian countries have a tradition of work that does not exist in the tropics,”134 but
suggested that perhaps in the near future Cuba would be willing to look at those elements
•
.
•
•
•
of the Chinese model that could be replicated in Cuba “without giving up socialism”
135
or planification of the economy.136 These views were resonated in the declarations of
Cuba’s economic czar, Minister Lage, who stated that “it would be a mistake for us
(Cuba) to copy China’s or Vietnam’s model, without evaluating their impacts on our own
Ibid.
1Ibid.
’ Ibid.
’ Ibid.
47
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
particular circumstance, because a mistake today is more serious than under normal
circumstances. ”137
The public declarations of high ranking Cuban officials, combined with the intransigence
of the regime when it comes to fully implementing market-oriented reforms, and the lack
of serious institutional change in Cuba, cast a shadow of doubt on the idea that Cuba is
indeed embracing the market and making a transition towards Westem-style capitalism.
In fact, over the last decade, quite the opposite has taken place.
Cuba, contrary to what
many scholars and experts like to think, is not moving towards the market; the Cuban
regime is not fully embracing market capitalism.
There are several aspects of Cuba’s post-Soviet economic reforms that support this view.
As Suchlicki (2001) illustrates, the economic reforms not related to foreign investment
have been extremely limited.138 These reforms have been designed to alleviate the
impact of the crisis and ensure the Cuban regime’s survival - rather than to facilitate the
transition to a capitalistic market economy.139 Cuban officials are aware of the fact that
these reforms run the risk of creating sharp economic inequalities, mainly benefiting
those with access to dollars in the formal or informal sectors, but they are willing to live
with this “controllable” political risk in order to ensure the regime’s long-term economic
and political survival.140 As a result, these reforms are unlikely to lead to any noticeable
change in Cuba’s economic conditions, and are easily reversible by the regime without
m Ibid
Suchlicki, Jaime. “Cuba Without Subsidies. ” In: Cuban Comm unism . 10th Edition. Irving Louis
Horowitz and Jaime Suchlicki, Editors. Transaction Publishers. N ew Brunswick, NJ. 2001.
139 Ibid..
140 Ibid.
48
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
any warning.
This brings us to the second question surrounding Cuba’s post-Soviet
economic transformation: Why, despite intensified international pressure, and the
cautious implementation of some limited market reforms (which to some degree have
alienated many who constitute the Revolution’s core base of political support), has the
Cuban regime not fallen?
To explain the roots of Cuba’s “non-transition” and provide plausible reasons why the
Cuban regime still remains in place, Gonzalez (1992) identified three key factors.141
These are: a weak civil society, Cuba’s relatively strong state, and the strong military security apparatus kept in place by the Cuban regime.142 According to Gonzalez (1992),
“the proliferation of human rights and dissident groups in Cuba (over the last decade) is
reminiscent of what occurred in Poland, Czechoslovakia, Hungary, Bulgaria, and the
Soviet Union in the 1980s.”143 However, despite their rapid growth, Cuba’s human rights
and dissident groups “have a long way to go before they pose a serious challenge” to the
Cuban regime.144 “To become a critical mass, Cuba’s dissidents and human rights groups
will need to overcome collective-action problems that are risking for individuals
confronting strong, repressive states.”145 And since the Castro regime has not yet reached
its most critical moment of weakness, the impact of a relatively weak “civil society” (i.e.,
dissident and human rights groups) is very small, and contributes to the permanence of
the regime.146
141 Gonzalez, Edward and David Ronfeldt. Cuba Adrift in a Post-Communist W orld. National D efense
Research Institute. RAND. Santa Monica, CA. 1992.
142 Ibid.
143 Ibid.
144 Ibid.
145 Ibid.
146 Ibid.
49
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Gonzalez (1992) claims that Cuba has a submissive and subordinate civil society, since
there is no private sector to speak of, the country lacks strong autonomous institutions
that are truly independent from the State. And as of yet, ,no strong (and charismatic)
leaders have emerged to compete with Castro for the support and loyalty of the Cuban
population.147 Yet, as Lopez (2001) indicates, “in terms of the number of activists and
the number of independent groups, the strength of civil society in Cuba is stronger than it
was in Romania and similar to those in East Germany and Czechoslovakia just before
their respective political transitions.”148 However, as he accurately illustrates, “in terms
of resources and the ability to induce the participation of the population at large in
independent or opposition activities, civil society groups in Cuba are weaker than their
counterparts in East Germany and Czechoslovakia.”149 This may be due in part to the
difficulties in getting from one region of the country to another, the general complacency
or indifference of large (but diminishing) segments of the population, and the fear of
assuming unnecessary or unwarranted risks.
Yet, it is estimated that there are more than 400 independent groups and hundreds of
dissidents in Cuba. Despite increased government repression, these groups continue to
proliferate, and in some cases re-emerge, throughout the island. More importantly, such
groups, as Lopez (2001) shows, are more defiant, better organized and more diverse than
M8 ^
Lopez, Juan J. “ The N on-transition in Cuba: Problem s a n d P rospects f o r Change. ” In: Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki, Editors. Transaction Publishers.
N ew Brunswick, NJ. 2001.
149 Ibid.
50
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in the past, demonstrating that the theory that a weak civil society is in part responsible
for the continuity of the Cuban regime no longer holds. 150
According to Gonzalez (1992), the second factor that contributes to the continuity of the
Cuban regime is the omnipresence of a strong, repressive State.151 To support this view,
he claims that “the Cuban State has nationalistic legitimacy for many Cubans
independent of any external sources of support, in contrast to the former East European
(Soviet) satellite states.”152 In addition, “the Cuban State is lead by a strong patriarchal
leader who personifies the Revolution, possesses moral authority in the eyes of much of
the population, and is still capable of generating mass support and loyalty.”
153
*
Finally,
“the Cuban State is supported from within the regime and in society at large by many
first-generation revolutionaries who retain their ideological comment and fervor.”154
This view rests on the assumption that Cuba’s history of ardent nationalism provides the
regime with the necessary support to recur what Perez-Stable (1999) defines as the
“politics of mobilization” and reactivate and reinvigorate its popular base of support.
Recent events have demonstrated that, in fact, quite the opposite is true. While large
numbers of Cubans seem to follow their leader when he rallies them around the flag, the
motivations for their response have changed overtime. Of course, the fear of reprisals or
of being branded as a “counter-revolutionary” still play a crucial role in the Cuban
population’s response to apparently nationalist rallies and marches. However, material
150 Ibid.
151 Gonzalez, Edward and David Ronfeldt. Cuba Adrift in a Post-Communist W orld. National D efense
Research Institute. R A ND . Santa Monica, CA. 1992.
152 Ibid.
153 Ibid.
154 Ibid.
51
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
incentives have begun to also come into play - particularly in the last years as the
economic situation has worsened and living standards have dropped.
This was
particularly true in the case of the massive marches that took place in Havana in the
spring of 2000 demanding the return of Elian Gonzalez to his “beloved homeland.” To
lure many of those who it was difficult to coerce, the government distributed free t-shirts
and “items of personal consumption” (i.e., soap, detergent, toothpaste, and canned goods)
to otherwise reluctant participants in this massive and symbolic display of “unanimous
nationalism.”
The view that nationalism and Castro’s personal charisma continue to play a crucial role
in the regime’s ability to withstand change, is contrasted by Dominguez (2001) who
believes that “at one point, arguments about the Cuban regime’s effectiveness might have
made reference to Fidel Castro’s charisma” and to the “fervor of revolution;” however,
today “they no longer explain the continuation of this (the Cuban) government.”155
Instead, external and domestic circumstances have forced the Cuban regime to reluctantly
implement some degree of change.
Today’s circumstances in Cuba, as Dominguez
(2001) indicates, cannot be easily explained by examining the country’s evolution
through the magnifying glass of the Cold War. This is due to the fact that the new
circumstances that define the new “Cuban reality” effectively
“combine fears,
incentives, exhaustion, repression, reform, resourcefulness, leadership skill, tolerated
155 Dom inguez, Jorge I. “Why the Cuban Regim e H as N ot Fallen. ” In: Cuban Comm unism . 10th Edition.
Irving Louis Horowitz and Jaime Suchlicki, Editors. Transaction Publishers. N ew Brunswick, NJ. 2001.
52
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
illegality, budding entrepreneurship, and the bonds of respect and affection that connect
citizens to each other in times of respect.”156
Another contention, closely linked to the theme of nationalism, which is espoused by
both Gonzalez (1992) and Dominguez (2001), as well as other experts and scholars, that
is often used to account for the continuity of the Cuban regime, is based on the
assumption that for most people politics is a leisure-time activity and due to the
difficulties of daily life most Cubans are too preoccupied with surviving to organize in
the politics of opposition.
applies.
In the case of contemporary Cuba, this theory no longer
There are several reasons for this.
First, as Lopez (2001) indicates, “this
argument neglects the fact that in East Germany, Czechoslovakia, and Rumania, only a
i
small fraction of the population joined dissident groups.”
cn
The surge m mass protests
*
that lead to the collapse of communism in those countries was rapid and short-lived.
158
Individuals, who had never joined a dissident group or organization, decided to
demonstrate and show their support.159 Moreover, in the case of Cuba, the number of
political prisoners and the large (and growing) number of dissident groups and human
rights organizations demonstrate that, contrary to what many scholars and experts
believe, people in Cuba do find the time, courage and energy to participate in opposition
activities and develop a “political conscience.” 160
156 Ibid.
157 Lopez, Juan J. “ The N on-transition in Cuba: Problem s an d P rospects f o r Change. ” In: Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki, Editors. Transaction Publishers.
N ew Brunswick, NJ. 2001.
158 Ibid.
159 Ibid.
160 Ibid.
53
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Finally, Gonzalez (1992) claims that “of all the State institutions, the military and
security organs remain most critical to the present and future survival of the current
regime.”161 In Cuba’s case, as Gonzalez (1992) accurately indicates, repression does
indeed play a crucial role in ensuring the continuity of the current regime. Repression in
Cuba, as many scholars and experts have argued, is certainly intense, selective, and
widespread; in fact, it is an important constraint to any attempt to achieve a political
transition and challenge the legitimacy of the State.162 Very few observers have any
doubts that if repression was reduced or even abandoned the Cuban regime would fall.
The experience of the Eastern European former communist regimes provides ample
evidence to support this view.
In conclusion, a comprehensive review of the literature in Cuba reveals that despite the
implementation of some market reforms, Cuba is still very far from achieving a full
transition to market capitalism. In fact, the higher echelons of the Cuban leadership have
explicitly stated during various occasions that Cuba is not, and will never be, a capitalist
country as long as they remain at the helm. They openly despise and criticize capitalism,
blaming it for all the ills and suffering of the world. Officially, socialism remains the
dogma of the Cuban State, even though some select elements of capitalism are allowed to
legally exist in limited sectors of the economy. To maintain this precarious balance, as
the present work postulates, the Cuban leadership flirts with the notion of restructuring
161 Gonzalez, Edward and David Ronfeldt. Cuba Adrift in a Post-Communist W orld. National D efense
Research Institute. R A ND . Santa Monica, CA. 1992.
162 Lopez, Juan J. “ The N on-transition in Cuba: P roblem s an d P rospects fo r Change. ” In: Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki, Editors. Transaction Publishers.
N ew Brunswick, NJ. 2001.
54
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and reform.
If external and domestic economic conditions deteriorate, the regime
cautiously allows some limited aspects of the market to seep in; if those measures lead to
the development of a strong private sector capable of challenging the State, the reform
process is quickly reversed.
As our comprehensive review of Revolutionary Cuba’s economic history demonstrates,
the State’s constant flirtation with the market is not a new phenomenon in the economic
history of “Cuba Socialista. ” In the late 1970s, to curtail the rapid growth of the second
economy, the government introduced several market-oriented measures and reforms. To
increase efficiency the number of State-owned enterprises was reduced from more than
3,000 in 1972 to approximately 300 by 1978, and firms were given grater autonomy from
the State.163
At the same time, material incentives were reintroduced, and workers and
enterprises were given a greater level of latitude in the management of their affairs.164
By 1979, a new ‘self-employment’ law, which allowed limited self-employment in
certain trades and professions, was introduced, and in 1980 the government opened the
“free farmers markets” or Mercados Libres Campesinos (MLCs) to allow private farmers
to sell their surplus goods.
Yet, as in the 1990s, these “economic reforms” seem to be driven by ideological rather
than economic motivations.
As soon as the private sector got out of hand, or the
economy began to show some of the characteristics of capitalism, the reform process was
quickly thrown in reverse, or, as in the case of the “free farmers’ markets” of the 1980s;
163 Trento, A ngelo. Castro and Cuba: From the Revolution to the Present. Interlink Illustrated Series.
Interlink Publishing. N ew York, N Y . 2000.
164 Ibid.
55
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the newly created institutions were dismantled right away. The expansion of the market
or of capitalism beyond a point that was (and is) intolerable for the survival of the Cuban
regime was (and still is) met with drastic anti-market responses or measures.
A
prosperous (and, therefore, threatening) private agricultural sector, was virtually
eliminated through the process of “rectification” in 1986; thriving private restaurants or
paladares were quickly regulated and brought under stricter State control in 1995; and
successful entrepreneurs or cuentapropistas were rapidly brought under control in 1996,
and so on. The Cuban State’s remarkable flexibility, and its ability to adjust and exert
total political and economic control, continues to this day, and is the main reason why,
despite the collapse of its long-time benefactors (i.e., the USSR and the Eastern European
Socialist Bloc) and gradually embracing some limited market-oriented reforms, the
Cuban regime has been able to survive.
As long as these conditions remain unchanged,
Cuba will more than likely continue to sacrifice economic transition for the sake of
political survival, regardless of the consequences or the costs.
56
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 2
PRINCIPAL CHARACTERISTICS OF THE CUBAN ECONOMY:
1960 TO 1980
2.1. The Turbulent 1960s
2.1.1. Collectivization and State Ownership o f the Means o f Production
Since the early days of the Revolution, collectivism, centralized planning, and almost
complete State control and ownership of the means of production have characterized the
Cuban economy. In May 1959, after just 5 months in power, with the implementation of
the First Agrarian Reform, the Cuban government took the first step to nationalize and
collectivize one of the most important economic sectors in the country: agriculture. Land
holdings exceeding more than 30 caballerias (or 402 hectares) were expropriated, and
approximately 40% of the confiscated properties were transferred to the State.
According to Mesa-Lago (1983), the collectivization of the means of production was
gradually intensified during the second half of I960.165
In 1959, the government
employed various forms of collectivization: the confiscation of properties and
investments previously owned by officials of the deposed Batista government; the
expropriation of latifundios (or large landholdings) exceeding 400 hectares through the
first agrarian reform; the expropriation of rental properties and buildings; State
“intervention” of manufacturing plants, retail chains, transportation companies, and
enterprises abandoned by their former owners; and the confiscation of properties
belonging to political opponents and Cubans living in exile.166 The drive to collectivize
165 Mesa-Lago, Carmelo. La econom ia en Cuba socialista: Una evaluation de tres decadas. Biblioteca
Cubana Contemporanea. The University o fN e w M exico Press. M exico, D.F.1983.
166 Ibid.
57
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cuban agriculture was intensified by the introduction of the Second Agrarian Reform in
1963, which limited private landholdings to a maximum of 67 hectares, and increased
State ownership to 70% of the country’s total land. By the 1980s, approximately 82% of
Cuba’s landmass was controlled by the State, turning the Cuban government into the
largest single landholder in the country’s history.
The distribution and sale of agricultural goods was collectivized after the creation of the
State procurement agency, Union Nacional de Acopio (UNA), or Acopio, in 1961. Staterun cooperatives, State agricultural enterprises, and Cuba’s relatively few remaining
independent farmers were required to sell the bulk of their production to Acopio, which
would then distribute it for sale through the State-controlled rationing system.
In
essence, shortly after the revolutionary victory in 1959, Cuban agricultural production, as
well as the collection, distribution, and sale of agricultural goods were collectivized, and
controlled by the State. Land reform in Cuba, as has been said many times, simply
transferred the country’s productive land from a group of latifundistas to the biggest
latifundista in the country’s history: the socialist State.
A similar trend towards collectivization, and the expansion of the State’s control over the
economy took place in the non-agricultural sectors of the economy during this period.
Beginning in 1960, large national and foreign-owned enterprises, in major industries and
sectors, were expropriated or “intervened” by the revolutionary government.
Oil
refineries, the national telephone and electric companies, sugar mills, railroads,
manufacturing plants, and financial institutions such as commercial banks and insurance
58
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
companies, as well as retail chains, and other major businesses were expropriated or
•
•
•
“intervened” by the Cuban government under the pretext of nationalization.
167
Ownership and control of these firms and enterprises was transferred from their
proprietors and shareholders to the Cuban State almost overnight, and several
government agencies were created to exert the government’s control over the economy.
Since the collectivization and nationalization of Cuba’s agricultural sector, through the
introduction of the first agrarian reform in 1959, was the first step taken by the Cuban
government to change Cuba’s economic structure, the first agency created to facilitate
this radical shift in economic affairs was the Instituto Nacional de la Reforma Agraria
(INRA), or the National Institute of the Agrarian Reform. Following the creation of the
INRA, the government created the Junta Central de Planificacion (JUCEPLAN), which
emerged as the principal entity in charge of central planning.
responsible
JUCEPLAN was
for formulating the country’s short-term and long-term economic
development plans, and for overseeing a vast network of State monopolies engaged in
foreign trade, industry, mining, finance, banking, and labor.
Under the auspices of
JUCEPLAN, State-owned enterprises (SOEs) operating in the same industry or sectors
were merged into consolidados or centralized conglomerates, which were controlled by a
central Ministry. 168 All financing activities in SOEs were carried using the mechanisms
•
*
of central planning prescribed by JUCEPLAN, and prices were centrally fixed beginning
in 1962.169 By 1968, when the country embarked on what was then referred to as the
Ofensiva Revoluccionaria or Revolutionary Offensive, the wave of nationalization and
167 Ibid.
168 Ib id
169 Ib id
59
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
collectivization had spread into the more than 56,000 small retail businesses still in
private hands. By the end of the decade, as illustrated in Table 1, collectivization ensured
State control and ownership over most key sectors of the Cuban economy.
Table 1 - Collectivization in Cuba (1961 - 1968)
(Percent)
Sectors
1961
1963
1968
Agriculture
37
70
70
Industry
85
95
100
Construction
80
98
100
Transportation
92
95
98
Retail Commerce
52
75
100
Wholesale Commerce and International Trade
100
100
100
Banking
100
100
100
Source: M esa-Lago (1983)
2.1.2. The Diversification Drive
Another characteristic of the Cuban economy during the first years after the Revolution
was the concerted efforts by the authorities to reduce and eventually eliminate the
country’s historic dependency on the fortunes of the sugar industry.
The drive to
diversify agriculture, and develop Cuba’s industrial capacity represented a radical
departure from the traditional philosophy of “Sin azucar, no hay pais ” (“Without sugar,
there is no country”). To accomplish this task, large contingents of “voluntary” workers’
brigades, or brigadas de trabajadores voluntarios, were organized, and urban workers
60
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(i.e., professionals, factory workers, office personnel, and students) were deployed to the
countryside to take part in large-scale agricultural projects at an unprecedented rate.
The main objective of Cuba’s diversification drive was to reduce the economy’s
dependence on sugar production. This represented a radical break from the policies of the
past.
170
Between 1957 and 1958, even though it only represented 25% of the country’s
gross national product (GNP), sugar and its byproducts accounted for approximately 84%
of Cuba’s total exports.171 The diversification drive was intensified by the end of 1960,
as the Cuban economy became increasingly nationalized (i.e., State controlled). As part
of the diversification drive, the total area dedicated to the sugar cane was reduced by
25%, when compared to 1958, and the administrative changes introduced by the
revolutionary government, as well as the almost complete restructuring of the agricultural
sector, had a significant impact on Cuba’s sugar production during this period.172 As the
result of the policies associated with the diversification drive, sugar production fell from
6.9 million tons in 1961 to 3.8 million tons in 1963, reaching its lowest level under the
Revolution (at the time).
Similarly, as more resources were dedicated to non-sugar
agriculture, the effective milling season was reduced from 104 days in the 1960-61
harvest or zafra to 68 days in 1962-63.173
170 Trento, A ngelo. Castro and Cuba: From the Revolution to the Present. Interlink Illustrated Histories.
Interlink Books. N ew York, N Y . 2000.
171 Mesa-Lago, Carmelo. La econom ia en Cuba socialista: Una evaluation de tres decadas. Biblioteca
Cubana Contemporanea. The University o f N ew M exico Press. M exico, D.F. 1983.
172 Ibid.
173 Alvarez, Jose and Lazaro Pena Castellanos. Cuba’s Sugar Industry. Contemporary Cuba Series. The
University Press o f Florida. Gainsville, FL. 2001.
61
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 2- Select Indicators of the Cuban Sugar Agro-Industry
(1959-1969)
.............
—
.....
Crop Year
Effective Milling Season
(Days)
Sugar Production
Million Metric Tons
(Raw Value)
1959-1960
1960-1961
1961-1962
1962-1963
1963-1964
1964-1965
1965-1966
1966-1967
1967-1968
1968-1969
88
104
76
68
82
105
76
101
87
86
5.94
6.88
4.88
3.88
4.47
6.16
4.54
6.24
5.16
4.46
Source: A lvarez an d Castellanos (2001)
Figure 1 - Select Indicators of the Cuban Sugar-Agro Industry
(1959-1969)
S e le c t In d ic a to rs o f th e C u b a n S u g a r A g ro -In d u s try
(1959-1969)
y - -0.0902X + 6.7673
R2 - 0.0772
19591960
19601961
19611962
19621963
19631964
1964
1965
19651966
19661967
19671968
19681969
Source: A lvarez an d Castellanos (2001)
62
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
By 1963, it was becoming obvious that one of the economic bets of the Cuban
Revolution had been lost: the path to industrialization and the diversification of
agriculture at all costs was difficult to realize because of the scarcity of primary
materials, qualified and specialized labor, and sufficient energy resources.174
The failure of the diversification drive and the State-centered model led many Cuban
leaders to question the universal application of such model, particularly when it came to
an insular plantation economy such as Cuba.175 As a result, Cuba shifted its economic
strategy in favor of a return to sugar as the principal engine of growth in the economy.176
On the ideological front, this change in direction paved the way for the debate between
the Maoist-Guevarist school, supported by Ernesto “Che” Guevara and his followers, and
the Soviet-style “mixed socialism”, proposed by Carlos Rafael Rodriguez and his
supporters. Between 1964 and 1966, the Maoist-Guevarist camp won the favor o f Cuba’s
leadership, and economic affairs were managed using Che’s rigid State-centric, and
ideologically motivated approach.177
2.1.3. The Application o f Dual Economic Models
According to the Maoist-Guevarist model, ideals, the spirit of volunteerism, and the
development of a new proletarian conscience among Cuban workers could directly
influence and shape the country’s economic structures, and would pave the way for the
174 Trento, A ngelo. Castro and Cuba: From the Revolution to the Present. Interlink Illustrated Histories.
Interlink Books. N ew York, N Y . 2000.
175 M esa-Lago, Carmelo. La econom ia en Cuba socialista: Una evaluacion de tres decadas. Biblioteca
Cubana Contemporanea. The University o f N ew M exico Press. M exico, D.F. 1983.
176 Ibid.
177 Ibid.
63
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
creation of a “New Man” or “Hombre Nuevo. ” This would allow Cuba to bypass the
transitional stage of socialism, while simultaneously building a socialist and communist
society. To achieve this goal, Guevara proposed the immediate implementation of the
following measures:
•
•
•
•
•
•
| ■70
The collectivization of all the means of production;
The development of a highly centralized planning structure;
The reorganization of SOEs into highly centralized entitiessubjected
to
“budgetary financing”, based on the transfer of all earnings to the State, the
cancellation of any resulting deficits, and the elimination of any commercial
exchange between enterprises;
The gradual elimination of money or currency;
The elimination of material or economic incentives (including production
bonuses, over time pay, and other wage incentives); and
The permanent introduction of fixed prices and wages.
On the ideological front, economic incentives to stimulate higher productivity and
efficiency levels would be replaced by “moral incentives,” or the development of a new
conscience among Cuban workers and managers.179
In order to succeed, the Maoist-
Guevarist model depended on the development of a “New Man;” a new creature which
would be completely opposed to the “economic man” of the past, and would be
motivated, not by profit or greed, but by patriotism, solidarity, and communist ideals.
This New Man, and his new revolutionary conscience would be created through a
massive effort to re-educate the popular masses. Moral incentives, and the mobilization
of “volunteer work,” as well as widespread and frequent acts of public recognition of
' Ibid.
’ Ibid.
64
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
“vanguard workers” with “exemplary revolutionary conduct,” would be essential
elements in the creation of the New Man envisioned by Guevara.180
To counter Guevara’s approach, Carlos Rafael Rodriguez and his pro-Soviet supporters
proposed a different socioeconomic development model. In accordance with the Soviet
interpretation of Marxism, Rodriguez believed that a socialist country’s prospects for
economic development, as well as the path that could be followed to achieve the desired
levels of development, were severely limited by structural factors.181 For Rodriguez and
his group, it was impossible to omit or bypass the socialist stage of the road towards
communism. In their view, a society’s transformation from capitalism was comprised of
three fundamental stages: (1) the construction of the foundations of socialism, (2) the full
i oo
development of socialism, and (3) the construction of the foundations of communism.
Accordingly, during the transitional phase, the economy may need to retain some of
characteristics of its capitalist past, while exhibiting some features of its communist
future. The complete elimination of supply and demand, as well as other aspects of the
market economy of the past, is virtually impossible during the transitional phase of
socialist development.183 Therefore, SOEs should be permitted to have a greater amount
of autonomy that what was prescribed by the Maoist-Guevarist model, and market
mechanisms such as price signals, wage incentives, and interest rates should be allowed
to exist, at least during the initial phase of transition.184
180 Ibid.
181 Ibid.
182 Ibid.
183 Ibid.
lM Ibid.
65
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Between 1964 and 1966, both models of economic organization were operating within
different sectors of the Cuban economy.
The principles of Mao-Guevarism were
primarily applied to small enterprises in Cuba’s industrial sector, while the Soviet-style
approach advocated by Rodriguez and his followers was mainly applied to agriculture
and international trade.185 During this period, the Cuban economy continued to grow due
to higher sugar prices in the international market, and increased purchases from the
Soviet Union. Improvements in labor productivity, due to the reintroduction of limited
material incentives, particularly in agriculture, also contributed to economic expansion
during this period.
186
As a result of these trends, the diversification effort suffered an irreversible defeat. The
country’s economic focus shifted in favor of sugar production, and higher output levels
became the pillar of Cuba’s economic development strategy. Cuba, many believed at the
time, would be able to achieve unprecedented living standards, and development levels,
as sugar production improved. Sugar exports would, once again, become the principal
determinant of the country’s economic fortunes.
This development strategy was
fundamentally based on two key economic assumptions. First, it was assumed that the
price of sugar in the international market would continue to increase, and that purchases
from the Soviet Union and its socialist allies would continue to account for the bulk of
Cuba’s sugar exports.
Secondly, the leadership believed that Cuba would be able to
maintain (and even enhance) its comparative advantage vis-a-vis the Soviets and other
socialist countries in the production of raw and refined sugar.
This second assumption
185 Ibid.
186 Ibid.
66
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
was actually based on the belief that, once it became an integral member of the Socialist
Bloc or Council for Mutual Economic Assistance (CMEA), Cuba would be effectively
incorporated into the international socialist division of labor, under which Cuban exports
would be exchanged for exports of other socialist countries at a presumably “just
exchange rate.” 187
However, higher sugar prices in the mid 1960s had an unexpected effect on Cuba’s trade
with the Soviets and their socialist allies: Cuba gradually increased its trade with market
economies at the expense of the Socialist Bloc.
Based on a “mutual spirit of
understanding and cooperation,” Cuba and the ETSSR signed a bilateral trade agreement
under which the Soviets were to increase their purchases of Cuban sugar by 150% for the
i on
1965 - 1970 period.
Despite the seemingly generous provisions of this bilateral trade
agreement, higher world market prices provided Cuba with the necessary incentive to
divert a growing portion of its sugar exports to the international (i.e., capitalist) market.
On the domestic front, the Cuban economy was characterized by greater levels of
collectivization, and higher inefficiencies during this period. The partial application of
the Maoist- Guevarist model placed a large emphasis on the accumulation of capital
versus the production of consumer goods. Between 1965 and 1970, the Cuban economy
experienced a lower productivity of capital, as interest rates (which serve as a
quantifiable measure of the cost of capital) were abolished. Labor productivity also fell
during this period, as wage incentives, production bonuses; overtime pay, and other types
187 Ibid.
KSIb id
67
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of material incentives were virtually eliminated across vast sectors of the economy.
189
Monetary liquidity increased, as there were more pesos chasing fewer goods. In theory,
the New Man dreamed by Guevara and his followers would replace all market
mechanisms over time; in practice, however, their aspirations never materialized, and the
Cuban economy was submerged in a state of total chaos.
By the late 1960s, wasted resources, and signs of economic inefficiencies were visible
everywhere. According to Mesa - Lago (1983),
The accomplishments in one area of the economy were eclipsed by failures in
others. In some cases, costly imported machinery and equipment would remain
unused for years and exposed to the elements, resulting ‘in excessive rotting and
breakdowns. In other instances, newly built plants would stand idle for long
periods of time due to the lack of qualified technicians and spare parts. The
construction of small dams was carried out without any coordination with efforts
to improve the country’s irrigation system; therefore, many dams could not be
efficiently used for their intended agricultural purposes. The lack of centralized
information, combined with poor managerial techniques was having an adverse
impact on the economy: perishable products deteriorated on docks and
warehouses, while store shelves were precariously empty; some agricultural
goods such as pumpkins were lost due to excessive humidity on the fields, while
others, notably coffee, dried up due to the lack of adequate irrigation. Other
products were lost simply because there not enough skilled workers to toil the
fields. The lack of service and repair of the capital stock across large segments of
the economy resulted in the deterioration of equipment and facilities, negatively
affecting the population and its standard of living. Blackouts and shut downs in
the water system became customary throughout Cuba. The lack of qualified
personnel, combined with poor maintenance and repair, led to the rapid
deterioration of imported machinery. Half of the locomotives in service were
commissioned out of service due to poor maintenance and abusive use; and
50,000 imported tractors were reduced to approximately 7,000 in terms of years
of service, as the result of poor service and excessive use.190
' Ibid.
Ibid.
190
68
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
2.1.4. Dependency on the External Sector
By the end of the 1960s, the massive collectivization of the country’s means of
production, and the widespread waste and misallocation of resources, combined with
erratic changes in economic policy, were having a negative impact on the Cuban
economy.
Industrial production reached its higher level during the 1966 - 1967 period,
but still remained lower than the levels recorded in the late 1950s.191 Trade with the
Soviet Union reached record levels (56% of total) in 1967, while deficits mounted to
unprecedented levels.192 Between 1966 and 1967, Cuba’s dependency on trade with the
USSR increased drastically, as imports significantly exceeded exports, and the island fell
behind in its accorded sugar shipments to the Soviets.193 During this period, Cuba
accumulated a record deficit of 10 million tons of sugar, as sugar output experienced one
o f the most dramatic declines in the country’s history.
Although quite pronounced during the
1960-1970 period, Cuba’s reliance on
international trade and its dependency on the external sector were nothing new in the
country’s economic history - particularly in the years following the end of the Second
World War. This trend became more evident during the 1950s.
As shown on Table 3,
Cuba’s balance of trade during the 1950s indicates that the country was indeed highly
dependent on the external sector and international trade.
' Ibid.
Ibid.
! Ibid.
69
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 3 - Cuba: Balance of Trade
(1950-1958)
M illions o f Pesos
Year
Merchandise
Fxports
1950
1951
1952
1953
1954
1955
1956
1957
1958
642.0
766.1
675.3
640.3
539.0
594.2
666.2
807.7
733.5
! Merchandise
Imports
515.1
640.2
618.3
489.7
487.9
575.1
649.0
772.9
777.1
Total Trade
Trade Balance
1,157.1
1,406.3
1,293.6
1,130.0
1,026.9
1,169.3
1,315.2
1,580.6
1,510.6
126.9
125.9
57.0
150.6
51.1
19.1
17.2
34.8
-43.6
Source: Anuario E stadistico de Cuba (1988)
Figure 2 - Cuba: Balance of Trade (1950-1958)
Cuba: Balance of Trade
(1950-1958)
900
800
700
600
£ 500
g 400
M erch an d ise E x p o rts
M erch an d ise Im ports
300
200
100
1950
1951
1952
1953
1954
1955
1956
1957
1958
Source: Anuario E stadistico de Cuba (1988)
70
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
During this period, exports accounted for an estimated 30.6% of Cuba’s Gross National
Product (GNP), while imports represented approximately 25.7% of GNP.194 As shown
on Table 3, between 1950 and 1958, Cuba experienced consecutive trade surpluses
(exports exceeded imports), with the exception of 1958 where the country suffered a
trade deficit (exports were less than imports) of 43.6 million pesos.
The United States was Cuba’s principal trading partner during this period. By 1958, the
U.S. purchased an estimated 67% of Cuba’s total exports (mainly sugar) and supplied
approximately 70% of the island’s imports (mostly machinery and manufactured
goods).195 Clearly, the bulk of Cuba’s foreign trade was concentrated with a single
trading partner: the United States. Similarly, the U.S. was the largest foreign investor in
the Cuban economy during the last decade before the Revolution. Between 1946 and
1959, U.S. participation in the Cuban economy, in the form of foreign direct investment
(FDI), grew from an estimated $553 million to $956 million. These trends demonstrate
the significant role and influence of the United States in the Cuban economy during the
pre-revolutionary era and highlight Cuba’s relatively high levels of dependency on the
external sector and international trade during this period.196
However, as shown on Table 4, during the first decade of revolutionary rule, Cuba’s
dependency on the external sector and international trade experienced similar tendencies.
1Ibid.
' Ibid.
' Ibid.
71
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 4 - Cuba: Balance of Trade
(1959-1969)
M illions o f Pesos
Year
Merchandise
Exports
Merchandise
Imports
Total Trade
Trade Balance
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
636.0
608.3
626.4
522.3
545.1
714.3
690.6
597.8
705.0
651.4
666.7
674.8
579.9
638.7
759.3
867.3
1,018.8
866.2
925.5
999.1
1,102.3
1,221.7
1.310.8
1.188.2
1,265.1
1,281.6
1,412.4
1,733.1
1,556.8
1,523.3
1,704.1
1,753.7
1,888.4
-38.8
28.4
-12.3
-237.0
-322.2
-304.5
-175.6
-327.7
-294.1
-450.9
-555.0
Source: Anuario E stadistico de Cuba (1988)
Figure 3 - Cuba: Balance of Trade (1959 - 1969)
Cuba: Balance of Trade
(1959-1969)
1400
1200
1000
no
co>o 800
Q_
k-
o
I
600
400
-M erchandise Exports
-M erchandise Imports
200
1
!
1
1
1
1
1
1
1
1
1
1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969
72
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Between 1959 and 1969, exports represented approximately 21% of Cuba’s GNP, while
imports accounted for nearly 27% of the country’s Gross National Product (GNP).
197
Unlike the 1950-1958 period, between 1959 and 1969, Cuba experienced trade deficits,
with the exception of 1960 when the country accumulated a trade surplus of 28.4 million
pesos.198 After the rupture of economic ties with the United States in 1961, the USSR
became Cuba’s principal trading partner.
Trade with the USSR accounted for
approximately 50% of Cuba’s total trade in the 1960s, and trade with the rest of the
Socialist Bloc reached an estimated 23%.199 The remaining amount, or 27%, took place
with advanced market (or capitalist) economies - primarily Western Europe and Japan.200
There were several reasons why Cuba accumulated trade deficits during this period, but
perhaps the most significant one was the decline in the value of the country’s exports which drastically fell due to lower sugar output. Sugar production declined from 5.94
million metric tons in the 1959-1960 harvest to 3.88 million metric tons in the 1962-1963
season.
901
Although sugar output levels recovered after the 1962-1963 harvest, average
levels for the 1959-1969 decade reached an estimated 5.3 million metric tons for the
period. The second factor contributing to Cuba’s lower export earnings during the 1960s
were the drastic fluctuations in the prices offered in the world market for the country’s
primary export commodity: sugar. According to Mesa-Lago (1983), the market price for
197 Ibid.
198 Ibid.
199 Ibid.
200 Ibid.
201 Alvarez, Jose and Lazaro Pena. Cuba’s Sugar Industry. Contemporary Cuba Series. University Press o f
Florida. Gainsville, FL. 2001.
73
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cuban sugar fluctuated from $0.0314 in 1960, to $0,085 in 1963, to $$0,198 in 1968 and
$0.0337 in 1969.202
Despite falling exports, Cuba’s demand for imports between 1959 and 1969 increased
due to several factors, which, in turn, led to an increase in the value of the country’s
imports during this period.
As more internal resources were dedicated to the
diversification of agriculture (particularly between 1962 and 1964), and then were
reshuffled back to improve the island’s falling sugar output (1965 to 1970), the demand
for finished and intermediate goods increased - contributing to Cuba’s growing appetite
for imported goods mostly from the USSR and the Socialist Bloc. At the same time, due
to competitive pressures and global demand, the price of Cuba’s principal imports (e.g.,
oil, foodstuffs, and manufactured goods) faced inflationary pressures in the international
market. As a result, the value of Cuba’s imports was significantly higher during this
period. Finally, Cuba’s growing population contributed to a higher demand for imported
goods. As demographic pressures mounted, the demand for energy, foodstuffs,
machinery, and transportation equipment - the majority of which had to be acquired from
abroad - significantly increased. Combined with the other factors mentioned before, this
trend contributed to Cuba’s mounting trade deficit during the 1960s.
Another aspect of Cuba’s international trade, which illustrates the country’s dependency
on the external sector and foreign trade during the 1960s, was thee composition of
exports. Despite the diversification drive of the of the early 1960s, and the government’s
202 M esa-Lago, Carmelo. La econom ia en Cuba socialista: Una evaluation de tres decadas. Biblioteca
Cubana Contemporanea. The University o f N ew M exico Press. M exico, D .F.1983.
74
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
efforts to reduce Cuba’s historic sugar dependency, sugar exports continued to account
for the bulk of the island’s exports during the decade. For comparison purposes, it is
worth noting that during the last four decades of the Republican Era (1902 to 1958),
sugar’s share of total exports fluctuated between 70 and 92 percent, reaching an average
of 81 percent during the entire period.203 Between 1959 and 1969, as illustrated on Table
5, sugar’s share of total exports reached an estimated 74 percent, suggesting that Cuba’s
reliance on sugar was not significantly reduced despite repeated efforts by the
revolutionary leadership.
Table 5 - Cuba: Composition of Exports
(1957-1969)
Percents
Year
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1959
1969
Sugar
Tobacco
Minerals
Others
Total
(%)
78
78
77
80
85
83
87
88
86
85
86
77
76
77
76
(%)
6
7
9
10
6
5
4
4
5
4
4
6
6
9
6
<%)
6
3
2
1
6
7
6
6
6
7
8
12
13
2
13
(%)
10
11
12
9
3
5
3
3
3
4
2
5
5
12
5
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Source: Anuario E stadistico de Cuba (1988)
Similarly, as shown on Table 6, the composition of imports did not change much during
the 1960s.
203 ibid.
75
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6 - Cuba: Composition of Imports
(1959 -1969)
Percents
Year
Foodstuffs
* Data for 1962 not available
Source: Anuario E stadistico de Cuba (1988)
As in the past, Cuba continued to rely on a single trading partner for most of its
international trade. The only difference was that, after 1961, the USSR replaced the U.S.
as the island’s principal trading partner. Table illustrates the Cuba’s distribution of trade
by partner during the 1959 - 1969 period.
Table 7 - Cuba: Distribution/Concentration of Trade, By Partner
(1959-1969)
Percents
Socialist Economies
Year
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
USSR
1.0
15.5
44.8
49.4
44.2
39.5
, 48.2
52.2
55.6
54.8
47.6
Other
Total
0.1
6.3
27.2
33.1
31.6
24.8
28.6
28.0
24.4
23.2
23.8
1.1
21.8
72.0
82.5
75.8
64.3
76.8
80.2
80.0
78.0
71.4
Cuba’s Principal Trading Partners among the Market Economies (1959-1969):
Market Economies
Principal
Total
Partner
68.7*
98.9
78.3
50.5*
4.1*
28.2
2 .8**
17.5
2.6***
24.2
6.2***
35.7
^ 2***
23.2
7 j***
19.8
3.6***
20.0
4.7**
22.0
4 7***
28.6
Grand
Total
100
100
100
100
100
100
100
100
100
100
100
Source: Anuario Estadistico de Cuba (1988)
* 1959-1961: USA
** 1962:Japan
*** 1963-1967: Spain
** 1968:Japan
*** 1969: Spain
76
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Between 1959 and 1969, the USSR became Cuba’s single largest trading partner; total
trade between the two countries accounted for approximately 50 percent of Cuba’s total
trade for the period.204 The USSR and the Socialist Bloc combined accounted for an
estimated 73 percent of Cuba’s total trade during the 1960s, while trade with selected
advanced market economies reached approximately 14 percent of the country’s total.
2Q5
The remaining 13 percent was carried out with developing economies in Asia, the Middle
East, and Africa.206
Finally, with the exception of 1963, Cuba enjoyed favorable terms of trade during the
1959 - 1969 period. As illustrated on Table 8, the price paid for Cuban sugar by the
Soviets, for each year during this period except 1963, exceeded prices in the world
market. Similarly, the price paid by Cuba for Soviet oil, except for 1963, fell below
prices in the international market. The combination of these two factors led to favorable
terms of trade for Cuba during most of the 1960s.
Table 8 - Cuba: Terms of Trade, 1960-1969
Sugar in USD Cents per Pound & Oil in USD per Barrel
.
Oil & Derivatives
Raw Sugar
LSD per Barrel
i'Si) Cents per Pound
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
World
USSR
Difference
World
USSR
Difference
3.14
2.91
2.98
8.50
5.87
3.20
4.07
4.14
6.23
6.04
5.90
6.17
6.14
0.06
1.16
1.16
-2.27
0.17
3.78
4.31
4.11
4.14
2.75
1.92
1.74
1.86
1.66
1.80
1.80
1.80
1.80
1.80
1.80
1.80
1.80
1.60
1.81
1.77
1.78
1.77
1.76
1.78
1.75
-0.18
-0.20
-0.20
2.12
1.86
2.03
1.98
3.37
6.12
6.12
Source: M esa-Lago (1983)
204
Ib id
205 Ibid.
206 Ibid.
11
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
0.01
-0.03
-0.02
-0.03
-0.04
-0.02
-0.05
To summarize, between 1959 and 1969, Cuba remained highly dependent on the external
sector and international trade. The Cuban economy continued to exhibit most of the main
characteristics o f an “export economy” during this period. In the 1960s, the export sector
continued to serve as a dynamic, autonomous, segment that powered the nation’s
economic growth. Export activities accounted for a significant share of the country’s
total output, government demand exercised predominant influence over aggregate
demand, and the economy continued to be highly dependent on foreign sources for
various kinds of consumer and capital goods. With the exception of the year 1960, Cuba
recorded trade deficits during the 1959-1969 period, and sugar exports continued to
account for a significant share (74%) of the island’s total exports.
At the same time, the Soviet Union replaced the United States as Cuba’s principal trading
partner, and by 1968 trade between Cuba and the USSR amounted to 50 percent of
Cuba’s total trade. Combined trade with the Soviets and the rest of the Socialist Bloc
reached an estimated 83 percent of Cuba’s total trade during the decade. This figure
declined to 79 percent by the end of 1969 and to 58 percent by the end of 1970, but
increased significantly beyond previously recorded levels during the 1970s.
Between
1959 and 1969, Cuba experienced favorable terms of trade, as the prices paid by the
Soviets for Cuban sugar and the prices paid by Cuba for Soviet oil exceeded and fell
below prices in the international market, respectively. On the international front, Cuba
reached the end of the first decade of revolutionary rule with higher levels of external
sector dependency, mounting trade deficits, and greater trade concentration with a single
leading trade partner. At the same time, however, the country enjoyed favorable terms of
78
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
trade and increasing Soviet subsidies and military aid. Nevertheless, domestic economic
difficulties, and the implementation of erratic economic policies at both the domestic and
the international front had a negative impact on the economy by the end of the decade.
International trade, however, was not the only area of the economy negatively affected by
erratic economic policies of the latter half of the 1960s. The labor market suffered as
well. Even though official statistics indicate that full employment (one of the main goals
of the Revolution) was achieved by 1970, a study of State-owned enterprises in 1968
demonstrated that on average approximately 25% of the workday was going to waste.
207
Similarly, worker absenteeism increased notably during this period, affecting an
estimated 20% of the labor force once the Ten Million Ton Sugar Harvest (1970) was
over.208 By the end o f the decade, the elimination of wage and material incentives,
combined with significant reductions in consumer goods, and the expansion of the
rationing system, had impacted the labor market in two ways: (1) worker absenteeism
dramatically increased, and (2) black market (or second economy) activities were on the
rise.
At the macroeconomic level, the failure of the diversification strategy, as well as the
failure of the development efforts, which solely relied on sugar exports, meant that Cuba
needed to find new alternatives to reach the living standards promised by the Revolution.
After one decade of revolutionary rule, during which collectivization and State control
and ownership of the means of production were predominant in all vital economic
207 Ibid.
208 Ibid.
79
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
sectors, Cuba’s economy continued to suffer from two of the main ailments of the past:
dependency on international trade and reliance on sugar exports. Throughout the 1960s,
and despite inconsistencies and radical shifts in economic policies and priorities,
diversification and the drive towards industrializing had failed, and the Cuban economy,
more than ever before, came to depend on international trade, foreign aid, and sugar
exports.
2.2. The Hopeful 1970s
2.2.1. Collectivization and State Ownership o f the Means o f Production
The failure of the diversification plan, and the Maoist - Guevarist model, paved the way
for what is often referred to as the “institutionalization” of the Cuban Revolution in the
1970s. After the disappointing results of the Ten Million Ton Sugar Harvest in 1970, the
Cuban leadership became extremely critical of the economic policies of the 1960s, and
began to gradually embrace Cuba’s own version of Soviet-style central planning. In
retrospect, the Maoist - Guevarist principles of the late 1960s were seen as extremely
naive and idealistic, and the failure of these policies was mainly attributed to their
ignorance of the structural conditions and the economic experiences of other socialist
countries (and how such experiences could be applied to Cuba). Rather than changing
the people’s political conscience, as proposed by the Maoist - Guevarist model, Cuban
authorities reckoned, it would be simpler to change or alter social structures and
economic conditions. In a radical shift in policy, it was officially recognized that efforts
to bypass or omit the transitional phase between capitalism and communism were entirely
fruitless, as Cuban society, given the socioeconomic legacy of the past, was unable to
80
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
successfully foster the development of an egalitarian, and self-sacrificing, New Man. To
rectify the errors of the past, Cuba needed to find a new path, adopt a new model, and
embrace a new economic strategy based on its own socioeconomic realities, and the
lessons learned from other socialist countries.
Starting in 1971, the Cuban economy entered a new era.
Collectivization and State
control and ownership of the means of production remained a fundamental characteristic
of the Cuban economy, to be sure, but economic affairs were managed according to the
formulas applied in the Soviet Union at the time. Under the new economic directive, the
collectivization of the country’s agricultural sector was gradually expanded through the
transformation of a significant number of independent farms into State-owned
cooperatives. However, the remaining private (or independent) farmers were allowed to
sell their surplus production at fixed prices by the late 1970s. In 1978, self-employed
individuals were allowed to provide some basic services such as auto and home repair,
construction, and the manufacture of small crafts and wares, as long as they met their
work commitments to the State.209 Still, collectivization remained a hallmark of the
Cuban economy during the 1970s. By the end of the decade, the State’s control over key
areas of the economy was extended as follows:
agriculture, 77%; industry, 100%,
construction, 100%, transportation, 98%; retail trade, 100%; wholesale and international
trade, 100%; banking, 100%; and education, 100%.21°
209 Ibid.
210 Ibid.
81
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
2.2.2. The Introduction o f Soviet-Style Central Planning (SPDE)
On the macroeconomic side, a more cohesive form of central planning replaced the
erratic approach of the 1960s. Macroeconomic plans were introduced starting in 1973,
and a global production plan for 1973 to 1975, as well as a five-year plan for the period
ranging from 1976 to 1980, were formulated during this period.211 Since 1977, statistical
data on the Cuban economy has been compiled and published by the Comite Estatal de
Estadisticas (CEE) or State Committee of Statistics. The creation of the CEE, combined
with improvements in information technology (IT), facilitated the implementation of a
new Soviet-style economic planning in the mid 1970s.
This new economic planning model, known as the Sistema de Direccion y Planificacion
Economica (SPDE) represented a radical shift from the erratic approach of the 1960s.
The SPDE took the forces of supply and demand into consideration (to a limited degree).
In order to improve economic efficiency, and the use of human resources and capital, the
SPDE relied on maket mechanisms such as credit, interest rates, prices, budgets,
monetary controls, and taxes.
To facilitate this economic transition, SOEs were
decentralized, resulting in an increase in the number of SOEs from 300 in 1968 to 3,000
in 1979.213
Wholesale prices, which were ignored in the past, took the costs of
production into account, and SOES were required to pay taxes on their earnings and
contribute to the national social security fund.214 This arrangement permitted the State to
provide loans to SOEs in the industrial and agricultural sectors, and charge an interest
211 Ibid.
2,2 Ibid.
213 Ibid.
214 Ibid.
82
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
rate ranging from 4 to 12 percent.215
To compliment these efforts, material and wage
incentives, as well as production bonuses and overtime pay, were reintroduced.
As a result o f the economic measures implemented during the 1970s, and steady
increases in the price of sugar, the Cuban economy experienced relatively high growth
rates during the first half of the decade. Between 1971 and '1975, despite lower output
levels in the sugar industry, higher prices in the international market, combined with
greater sugar imports from the USSR and the Socialist Bloc, facilitated the reduction of
Cuba’s massive trade deficit (500,000,000 pesos in 1971), and contributed to the
accumulation of a small surplus of 10.6 million pesos in 1974.216 According to official
sources, between 1971 and 1975, the country’s economy grew by an estimated 16.3% per
year.217 However, during the second half of the decade (1976 to 1980), this rate fell to an
average of 4.1% per year.
018
The economic policies of the 1960s and 1970s, combined with several exogenous factors,
contributed to the erratic ebbs and flows in Cuba’s overall production levels. According
to Mesa - Lago (1983), in 1965, an estimated 60% of all products reached higher output
levels than those obtained in 1960; however, in 1970, 65% of all products showed lower
output levels when compared to figures for 1965.219 By 1975, however, 88% of all
products had surpassed their 1970 levels, and approximately 70% exceeded their
’ Ibid.
’ Ibid.
217
Ibid.
! Ibid.
219
Ibid.
83
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
corresponding levels of output for I960.220 These trends, which were predominant in the
industrial sector, were completely the opposite in agriculture. During the same period,
approximately 30% of Cuba’s agricultural products, particularly some of the most basic
products in the average Cuban diet, failed to reach or much less surpass their preRevolutionary output levels.221
Despite massive collectivization, high levels of
mechanization, the application of capital-intensive techniques, and the allocation of a
significant portion of the country’s total investment, Cuban agriculture, for the most part,
failed to achieve the ambitious targets established by revolutionary planners.
The
agricultural index developed by the UN’s FAO shows that 1959 (its base year) was a
relatively good year for Cuban agriculture. A comparison of the values for this index in
1959, 1968, and 1976 shows that Cuba’s agricultural output during this period reached its
lower level in 1963, and that by 1976 it had barely surpassed the levels recorded in
1959.222
In per capita terms, Cuba’s agricultural production for 1976 amounted to
approximately 66% of its 1959 level, making Cuban agriculture the most inefficient in
the Western Hemisphere (next to Chile)223
2.2.3. Intensified Rationing and Price Controls
In addition to collectivization and State control and ownership of the means of
production, Cuba’s economy has also been characterized by spiraling levels of inflation.
Since the introduction of fixed prices and rationing in 1961, the growing disparities
between the supply and demand for consumer goods has exerted inflationary pressures in
220 Ibid.
221 Ibid.
122 Ibid.
223
Note: Between 1971 and 1973, Chile was ruled by Salvador A llende’s socialist government.
84
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the Cuban economy, and has contributed to the development of the country’s vibrant
second economy (or black market).
From the early days of the Revolution, as
rationalization was institutionalized, and fixed prices became one of the hallmarks of the
Cuban economy, the demand for consumer goods has consistently exceeded their supply.
As new economic policies (i.e., the reduction of elimination of rents, salary increases,
free social services, price controls, etc.) were introduced, disposable income, particularly
among the less favored sectors of the population, increased.
This contributed to an
increase in the demand for consumer goods. However, as demand increased, supply was
negatively impacted by economic stagnation and slow growth rates, as well as the export
•
of goods and products previously destined for domestic consumption.
224
In a market economy, similar imbalances between supply and demand are typically
corrected by price increases. However, in a centrally planned economy, such as Cuba,
where ideological considerations often supersede economic rationale, the authorities
opted in favor of preserving the fixed prices, and the rationing system introduced in the
early 1960s. This contributed to higher disposable incomes for the population as a whole,
but with fewer goods to buy in the official market, leading to inflationary pressures and
monetary overhang (or excess liquidity). According to Mesa - Lago (1983), Cuba’s
monetary overhang in 1970 amounted to an estimated 3,478,000,000 pesos or 86.2% of
the population’s disposable income for that year.225 By 1978, after some prices and
wages were partially liberalized, monetary overhang was reduced to 2,494,000,000 or
1Ibid.
' Ibid.
85
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
38% of disposable income; suggesting that, despite these measures, the economy was still
suffering from inflationary pressures and excess liquidity. 226
•
•
•
In order to achieve this reduction in excess liquidity, the Cuban leadership introduced
several market-oriented measures (which bear a striking resemblance to some of the
reform measures introduced in the 1990s). To reduce demand, the prices of some nonessential social services and products were gradually liberalized.
The price of social
services such as telephone service, inter provincial transportation, and child care, which
were available for free or at relatively low prices in the past, were gradually increased.
Similarly, the price of certain “luxury” (or non-essential) consumer goods such as
cigarettes, rum, restaurant meals, and food services at work place cafeterias were also
raised in an effort to reduce excess liquidity. On the supply side, the State increased the
production of some durable goods destined for domestic consumption such as
refrigerators, fans, radios, air conditioners, etc., and more or these goods were made
available (at significantly higher prices) in newly created parallel markets.227 As a result,
the distance between supply and demand was somewhat shortened, black-market activity
was curtailed, and excess liquidity was reduced.
2.2.4. Dependency on the External Sector
Contrary to popular belief, the role of international trade, and dependency on the external
sector, was not reduced after the 1959 Revolution. Between 1946 and 1958, exports
accounted for approximately 30.6% of Cuba’s Gross National Product (GNP), while
226 Ibid.
227 Ibid.
86
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
imports amounted to an estimated 25.7%.228 During the same period, the total amount of
foreign trade reached an average of 56.3% of GNP.229 After the 1959 Revolution,
particularly during the 1962 to 1978 period, exports represented approximately 21% of
GNP, while imports reached 27.4%.230 During the same period, average total foreign
trade accounted for an estimated 48.5% of GNP, suggesting that while the share of
foreign trade to GNP declined during this period, when compared to the period ranging
from 1942 to 1958, Cuba’s dependency on imports had increased from 25.7% to 27.4%
of GNP.231
A brief analysis of Cuba’s foreign trade data from the early days of the Republic to the
late 1970s shows that during the Republican Era (1902 - 1958) there were only three
years (1907, 1921, and 1958) during which imports exceeded exports, resulting in a trade
deficit.232 The combined amount of Cuba’s trade deficit for these years amounted to
118.000.000 pesos, and for 53 years out of a total of 56 years of Republican
governments, the country experienced a cumulative trade surplus, which exceeded
2.000.000.000 pesos 233 By contrast, during the first two decades of revolutionary rule
(1959 to 1979), the country registered a trade surplus only during two years (1960 and
1974), with a cumulative value of 39,000,000 pesos.234 In the remaining years (18 in
total), the Cuban economy experienced fluctuating trade deficits, which reached a
228 Ibid.
229 Ibid.
230 Ibid.
231 Ib id
232 Ib id
233 Ibid.
234 Ibid
87
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
cumulative value of 5,500,000,000 pesos for the entire period.235 Table 9 and Figure 4
show Cuba’s balance of trade for the period ranging from 1970 to 1979.
Table 9 - Cuba: Balance of Trade
(1970-1979)
Millions of Pesos
Vcar
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
Merchandise
„
Exports
1,049.5
861.2
770.9
1,153.0
2,236.5
2,952.2
2,692.3
2,918.4
3,440.1
3,499.2
Merchandise
Imports
1,311.0
1,387.5
1,189.8
1,462.6
2,225.9
3,113.1
3,179.7
3,461.6
3,573.8
3,687.5
Total Trade
Trade Balance
2,360.5
2,248.7
1,960.7
2,615.6
4,462.4
6,065.3
5,872.0
6,380.0
7,013.9
7,186.7
-261.5
-526.3
-418.9
-309.6
10.6
-160.9
-487.4
-543.2
-133.7
-188.3
Source: Anuario E stadistico de C uba (1988)
Figure 4 - Cuba: Balance of Trade (1970-1979)
Cuba: Balance of Trade
(1970-1979)
4,000.00 -i
H M e r c h a n d is e E x p o r t s
■ M e r c h a n d is e Im p o r ts
88
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
There are several reasons for this dramatic change in the country’s trade balance.
According to Mesa - Lago (1983), between 1962 and 1973, the value of Cuba’s exports
fell or remained stagnant (except in 1970), while the total value of its imports grew
substantially.236 The decline in the value of Cuba’s exports can be attributed to the
*
•
combination of falling sugar output levels, and lower prices in the international
market. 237
Increases in the value o f the country’s imports were the result of growing demand for
finished and intermediate goods from abroad, inflationary pressures in the international
market, and a growing population.
After the large-scale sugar of harvest of 1970, Cuba’s exports reached a record
1,049,500,000 million pesos, compared to an estimated 666,700,000 pesos in 1967.239
Despite this impressive jump in exports, Cuba accumulated a trade deficit of 261,500,000
pesos, as imports significantly outpaced exports in 1970.240 High sugar prices in the
international market in 1973 and 1974 generated a modest trade surplus of 10,600,000 in
1974 241 However, by 1975, the price of sugar in the international market began to
decline, and Cuba’s trade deficit continued to increase thereafter.
As a result of
fluctuations in the price o f sugar in the international market, and a growing appetite for
imported energy and finished goods, Cuba recorded a trade deficit of 487,400,000 pesos
in 1976, 543,200,000 pesos in 1977, 133,700,000 pesos in 1978, and 188,300,000 in
1979.242
236 Ibid.
231 Ibid.
238 Ibid.
239 Ibid.
240 Ib id
241 Ib id
242 Anuario E stadistico de Cuba, 1988.
89
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Another resilient aspect of Cuba’s economy during this period was the relatively large
share of sugar exports with respect to the country’s total exports. Between 1920 and the
end of the 1950s, sugar’s share of Cuba’s total exports fluctuated between 70% and 92%,
averaging about 81% for the entire period.243
From 1959 to 1968, sugar exports
accounted for approximately 74% of the country’s total, with an annual average of 82%
for the period.244 In 1959, the composition of Cuba’s principal exports was broken down
as follows: sugar, 77%; tobacco, 9%, minerals (mostly nickel), 2%; and others (i.e.,
mostly fish, sea foods, citrus fruits, and rum), 12%.245 By 1978, as illustrated on Table
10, the corresponding figures were broken down as follows: sugar 87%; tobacco, 2%;
minerals (mostly nickel), 5%; and others (i.e., mostly fish, sea foods, citrus fruits, and
rum), 6%.246 This data points out the overwhelming importance of sugar with respect to
total exports, and demonstrates that, despite official rhetoric, Cuba continued to rely on
subsidized sugar exports (now by the USSR instead of the United States) after two
decades of revolutionary rule.
243 M esa-Lago, Carmelo. La economfa en Cuba socialista: Una evaluation de tres decadas. Biblioteca
Cubana Contemporanea. The University o f N ew M exico Press. M exico, D.F. 1983.
244 Ibid.
245 Ibid.
246 Ibid.
90
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 10 - Cuba: Composition of Exports
(1970-1978)
Percents
Sugar
Tobacco
Minerals
Others
Total
(% )
77
(% )
3
(% )
17
(% )
3
(% )
100
1971
76
4
16
4
100
1972
74
5
15
6
100
1973
75
5
14
6
100
1974
87
3
6
4
100
1975
90
2
5
3
100
1976
87
2
6
5
100
1977
83
2
5
8
100
1978
87
2
Source: Anuario E stadistico de C uba (1988)
5
6
100
Year
1970
.
An analysis of the composition of imports for the period ranging from 1959 to 1978
shows a changing, but growing, pattern of dependency on the external sector.
Conventional economic theory dictates that the more a country comes to depend on
imports, the greater its overall level of dependency on international trade.
Also, if a
country’s trade balance is characterized by a relatively large volume of imported
manufactured goods for final consumption, it can be assumed that its economy suffers
from continuous (or total) external sector dependency. On the other hand, if the majority
of its imports is comprised of capital intensive goods, such as machinery and equipment,
it can be assumed that the country may be attempting to implement a policy of import
substitution, which would ideally facilitate the domestic production of consumer goods,
and should ultimately reduce (or eliminate) its external sector dependency. In the case of
Cuba, a quick review of the country’s import data, between 1958 and 1978, shows that
there were several changes in the composition of imports, but points out to a greater level
of dependency on a singular trading partner and international trade.
91
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In 1959, Cuba’s principal imports were listed as follows: foodstuffs, 27%; raw materials,
4%; fuels and minerals, 9%; chemical products, 9%; manufactured goods, 31%; and
other, 1%.247 Between 1902 and 1959, the United States was Cuba’s principal trading
partner, and U.S. products accounted for the lion’s share of Cuban imports. After the
1959 Revolution, the USSR became Cuba’s chief trading partner until its demise in 1991.
By 1978, Cuba’s import composition was broken down as follows: foodstuffs, 18%; raw
materials, 6%; fuels and minerals, 18%; chemical products, 5%; manufactured goods,
11%; machinery and transportation equipment, 27%; and other, 15%.248
A close
inspection o f the data available for during this 20-year period (1959 to 1979) reveals
several characteristics of the composition of imports, and the Cuban economy during this
period.
Foodstuffs accounted for the largest share of imports until 1974, despite
reductions in consumption during the Maoist - Guevarist period of the late 1960s.249
Starting in 1975, there is a reduction in imports of foodstuffs, which takes place in
tandem with restrictions in consumption levels, and the expansion of the rationing
system.250 Table 11 shows the composition of Cuba’s imports for the 1970-1978 period.
Ibid.
Ibid.
249
Ibid.
' Ibid.
248
92
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 11 - Cuba: Composition of Imports
(1970 -1978)
Percents
1977
17
3
14
3
10
33
20
100
1978
18
6
18
5
11
27
15
100
Source: Anuario E stadistico de C uba (1988)
The majority of foodstuffs imported during this period (i.e., beef, rice, milk products,
com, cooking oils, etc.) could have been produced in Cuba, but not in sufficient
quantities to meet the growing demand of an expanding population. This was mainly due
to inefficiencies, and mismanagement of resources in the country’s agricultural sector.
At the same time, Cuba was exchanging some domestically produced high quality
products such as fish and citrus fruits for low quality imports in order to supplement its
hard currency earnings. Imports of machinery and transportation equipment were a close
second, after foodstuffs, until 1975.251 From 1975 to 1978, they replaced foodstuffs as
Cuba’s principal imports, as economic imperatives changed. Their share with respect to
total imports fell between 1963 and 1966, but increased between 1967 and 1970, as the
government placed a greater emphasis on the accumulation of capital, and consumption
was sacrificed.252 Other significant imports (mostly from the USSR) were: spare parts,
251 Ibid.
252 Ibid.
93
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
automobiles, manufactured goods, and fuels and oils.253 While there was indeed a change
in the composition of imports during the 1959 - 1979 period, Cuba continued to rely
heavily on the external sector, just as it had done in the past.
Another indicator o f Cuba’s high levels of dependency on the external sector is the
country’s terms of trade. A nation’s terms of trade provides an effective measure of the
quantity of imports that can be obtained by selling a unit of exports. In other words, the
terms of trade represent how many units of a domestically produced good (exports) are
required to obtain one unit o f a good produced abroad (imports). A deterioration in the
terms of trade means that the country is able to buy (or obtain) less units of imports in
exchange for a unit of exports, while an improvement implies the opposite. In the case of
Cuba, available data for the 1960 to 1976 period suggests that in general the country
enjoyed favorable terms of trade when it came to the exchange of Cuban sugar for Soviet
oil and manufactured goods. For instance, in 1968, the price of sugar in the international
market was at its lowest point for the 1960 - 1976 period, yet the USSR paid three times
the market price for Cuban sugar during that year.254 Similarly, between 1976 and 1979,
the USSR paid at least four times above the prevailing market price for Cuban sugar. 255
In this respect, it can be argued that Cuba experienced favorable terms of trade vis-a-vis
the Soviet Union during this period.
253 Ibid.
254 Ibid.
255 Ibid.
94
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
However, such was not the case when it came to trade with the Soviet sponsored Council
of Mutual Economic Assistance (CMEA). According to Mesa - Lago (1983),
In 1973, all countries belonging to the CMEA paid half of the Soviet price for
Cuban sugar; in 1979, the price paid by these countries fell to 43% of the Soviet
price. Similarly, between 1973 and 1975, the majority of the market economies
with which Cuba was conducting trade paid higher prices for Cuban sugar than
their CMEA counterparts.256
During this period, the USSR also subsidized Cuba’s second largest export commodity:
nickel. Between 1972 and 1975, the Soviets paid an estimated $ 5.450 per ton of Cuban
nickel, while the prevailing price in the international market was approximately $ 3.50,
providing Cuba with a significant indirect subsidy of its second largest export.
In terms of the value of Soviet imports and its impact on Cuba’s terms of trade, it is
worth noting the following: In 1960, Cuba paid $ 1.74/barrel for imported Soviet oil,
while the market price at the time was $ 1.92/barrel.258 By 1974, Cuba was paying
$3.19/barrel of Soviet oil, while the market price was $ 11.58/barrel. In this case, the
*
USSR’s preferential treatment generated a gain of $8.39/barrel in Cuba’s favor.
259
These
figures suggest that between 1960 and 1976 (and thereafter until the collapse of the
Soviet Union in 1991) the Cuban economy came to depend heavily on Soviet subsidies
and aid and enjoyed relatively favorable terms of trade.
Another feature of Cuba’s international economic relations has been the historic
concentration of trade with a singular trading partner. Before the 1959 Revolution, trade
256 Ibid.
257 Ibid.
258 Ibid.
259 Perez - Lopez, Jorge. “Sugar and Petroleum in Cuban - Soviet Terms o f Trade.” Cuba in the W orld.
1979.
95
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
with the United States accounted for approximately 67% of Cuba’s total trade.
By
1961, however, industrialized socialist countries, particularly the USSR, had replaced the
U.S. as Cuba’s principal trade partners.
Trade with these countries amounted to an
average of 73% of total trade at the time.261 The USSR became Cuba’s principal trading
partner after 1961, and accounted for approximately 50% of Cuba’s foreign trade during
this period; suggesting that, as in the past, the Cuban economy was extremely dependent
on the external sector, and the economic fortunes of its principal trading partner.
262
During the 1970s, trade between Cuba and the USSR, as well as the other members of the
Socialist Bloc reached an average of 69 percent of the island’s total trade. As the same
time, trade with the advanced capitalist economies of Western Europe and Japan
accounted for an estimated 31 percent of Cuba’s total trade.
260 Mesa-Lago, Carmelo. La econom fa en Cuba socialista: Una evaluation de tres decadas. Biblioteca
Cubana Contemporanea. The University o f N ew M exico Press. M exico, D.F. 1983.
261 Ibid.
262 Ibid.
263 Ibid.
96
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 3
THE ROOTS OF CUBA’S ECONOMIC CRISIS IN THE 1990S
As the Cuban economy entered the decade of the 1980s, it exhibited some of the
fundamental characteristics of most relatively open centrally planned economies (CPEs),
as well as some very unique ones, such as:264
•
•
•
•
•
•
•
Nationalization of at least the ‘commanding heights’ of the economy - banks,
major industries, foreign trade, and usually commerce and land;
Central economic planning;
State regulation and subordination of a highly circumscribed private sector;
A collectivist ideology;
High levels of external sector dependency (and dependency on foreign aid and
subsisides);
Spiraling inflation and a growing black market (or second economy); and
Relatively large excess liquidity or monetary overhang.
At the same time, the Cuban leadership began to experiment with the introduction of
some limited market reforms.
Perhaps the most notable among these was the
introduction of the free farmers’ markets or Mercados Libres Campesinos (MLCs), which
were established by the approval of Decree - Law No. 66 on April of 1980. According to
Perez - Lopez (1995), Decree - Law No. 66 permitted the MLCs to operate within the
following parameters:265
•
•
Only output produced by private farmers, production cooperatives, and credit and
services cooperatives over and above the Acopio quotas could be sold in the
MLCs. Also available for sale was the output of goods not covered by Acopio
quotas (producciones secundarias), output obtained from plots set aside for self­
consumption by individual farmers within state agricultural enterprises, and
output obtained from small plots (e.g., gardens in urban areas).
Participation in the MLCs as sellers was reserved only for private farmers and for
members of production and credit and services cooperatives.
264 Perez - Lopez, Jorge. Cuba’s Second Economy: From Behind the Scenes to Center Stage. Transaction
Publishers. N ew Brunswick, NJ. 1995.
265 Ibid.
97
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
•
•
•
•
Cooperatives and their members were given preference for participating in the
MLCs in terms of lower rates for renting stalls to sell their output; lower prices
for packing materials and transportation services; and an exemption from fees to
participate in the market, which was payable by private farmers, members of
credit and services cooperatives, and others.
Producers could sell their output only within the municipality in which they
resided; sales outside the home municipality had to be authorized by the
Provincial Organs of the People’s Power (Organos Provinciales del Poder
Popular).
The marketplaces themselves were to be organized and managed by Municipal
Organs of the People’s Power, following instructions by the Ministry of Internal
Commerce. The Municipal Organs would be responsible for setting rates for the
rent of stalls, sale or rent of packing materials and so on.
MLCs could sell any agricultural product, except for cattle, beef, tobacco, coffee,
and cacao.
Prices in MLCs were unregulated by the State, to be freely agreed upon between
buyers and sellers.
Expressly prohibited was the sale of agricultural products outside of designated
areas, and especially such purchases with the intent of resale. Intermediaries
would be subject to prosecution under the penal code; purchases outside of the
designated areas, even if for consumption, would be subject to a fine.
Shortly after their creation in 1980, the MLCs became very successful and popular. By
1981, there were some 200 MLCs operating throughout Cuba, with most of their activity
taking place in densely populated cities and urban areas.266 The quasi-private nature of
the MLCs, combined with market incentives, stimulated agricultural production, and
made several positive contributions to the lives of ordinary Cubans during the early
1980s. Among the most important contributions of the MLCs were:267
•
•
•
•
The integration of production from small, family-operated, plots into the normal
distribution channels;
Increases in the supply of agricultural products;
Increases in Acopio procurement and goods entering the MLCs;
Higher incomes for farmers and other persons participating in the MLCs;
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
•
•
•
Substantial reductions in black market activities and visits from urban residents to
the countryside to obtain food and agricultural products;
Increases in the consumption and quality of agricultural products, including the
availability of certain products that ceased to be sold in the official market; and
Greater stability of supply and ease for consumers in obtaining supplies of
agricultural products to supplement their basic diet.
However, despite their success and popularity, the MLCs accounted for a relatively small
share of the total food expenditures among the general population.
In addition, they
created certain socioeconomic tensions and class differences between those who could
afford purchases at higher prices, and those who were not able to do so; leading to their
demise in 1986.
From the State’s perspective, the rapid proliferation of the MLCs
contributed to the development of three negative aspects or tendencies (officially called
tendencias negativas).
First, the MLCs offered a variety of agricultural products at
exorbitantly high prices, which stratified Cuban society by excluding individuals at lower
income levels.
•Jf.Q
Second, many producers participating in the MLCs were diverting
output from Acopio to sell at higher prices in the farmers markets. Finally, middlemen or
merolicos, along with some “unscrupulous speculators,” instead of workers and fanners,
were benefiting from profiteering and speculation in the MLCs.
As a result, the
government decided to shut down the MLCs as part of the Rectification Process (RP)
initiated in 1986.
This measure, mainly motivated by official concerns about the
potential political risks posed by the emergence of a “merchant class” among Cuba’s
independent farmers, resulted in the elimination of the MLCs, and reinstated the State’s
absolute control over the production and distribution of food in Cuba.
After 1986, the
entire agricultural sector, with the exception of the relatively few independent farmers,
99
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
was once again thrown into the hands of the State; this situation would remain unchanged
until the introduction of Decree - Law No. 191 in 1994.
Another reform measure introduced in the late 1970s, which had a notable impact on
Cuba’s economy during the 1980s, was the legalization of some self-employment
activities for private gain. This measure was facilitated by the introduction of Decree Law No. 14, approved by the Council of Ministers on July 1978. This reform measure
allowed
Certain professionals such as carpenters, plumbers, electricians, and artisans to
work privately, provided that they had first fulfilled their time commitment to the
state. Those who were able to buy a state license could essentially go into
business for themselves. They charged whatever rate they could get, and payment
was often made in kind with goods such as chickens or vegetables. They were not
allowed to hire any staff, but they could form business alliances with
colleagues.
However,
The 1978 legalization of self-employment was considered an attempt to control
what had been occurring for quite some time. Artisans had seemingly always
worked outside the state apparatus, risking detention by the authorities as they
attempted to improve their standard of living. Even after the 1978 reforms such
work was a potentially dangerous proposition. The state strictly controlled the
number of licenses issued for private work, and crackdowns such as the trial of a
score o f artisans in a public square in Santiago de Cuba in June, 1985, for selling
jewelry without a license were common.271
270 Jatar-Hausmann, Ana Julia. The Cuban Wav: Capitalism. Communism and Confrontation. Kumarian
Press, Inc. W est Hartfort, CT. 1999.
271 Ibid.
100
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In addition to legalizing the free farmers’ markets and some limited self-employment
activities, the Cuban government relaxed previous restrictions on construction materials
and in 1984 enacted a new housing law.
010
This law allowed all present and future tenants to buy their homes by converting
their leases with the state into long-term contracts with monthly mortgage
payments in the same amount as the rent they previously paid. According to
official estimates, by 1986 close to 500,000 deeds had been turned in to comply
with the law. The liberalization of the housing and construction materials markets
created a housing boom in the first half of the 1980s. Housing construction rates
reached their highest point since the revolution. According to official sources,
153, 646 homes were built from 1980 to 1984, nearly twice the number
constructed from 1975 to 1979. (And) private housing construction accounted for
010
thirty four percent during the same period.
The combination o f these conditions, and the rigorous application of the SPDE (between
1975 and 1986) had a notable impact on the Cuban economy during the 1980s.
According to Ritter (2001), between 1980 and 1985, per capita Global Social Product
(GSP) grew at an annual compounded rate of 5.9%, and national income, or ingreso
nacional creado - which equals GSP minus intermediate consumption and depreciation grew by an estimated 6.1% per year during the same period.274 However, despite these
seemingly impressive growth rates, Cuba’s expanding trade deficits had to be covered
with massive Soviet subsidies, and economic aid, while the country experienced greater
income inequality, corruption, and State bureaucratism. These conditions, in conjunction
with growing political tensions within the USSR and the Cuban leadership’s mistrust of
the SPDE, paved the way for the Rectification Process or Proceso de Rectification de
Errores y Tendencias Negativas initiated in 1986.
272 Ibid.
273 Ibid.
274 Ritter, Achibald R.M. “C hallenges an d P o licy Im peratives f o r the E conom y." Cuban Comm unism . 10th
Edition. Irving Louis Horowitz and Jaime Suchliki (Eds.) Transaction Publishers. N ew Brunswick, NJ.
2001.
101
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3.1. The Rectification Process (RP)
The Rectification Process (RP) represented a radical departure from the limited marketoriented policies of the earlier part of the 1980s, and dealt a severe blow to the small
reformist faction emerging from within the structures of power in Cuba.
More
importantly, the implementation of the Rectification Process (RP) resulted in the official
closure of the free farmers markets (MLCs), introduced in 1980. As a result, small
privately-owned farms, which held approximately 8% of Cuba’s arable land, were
integrated into large scale State-run cooperatives, and previously permitted activities for
private gain (i.e., self-employment) were eliminated or became severely restricted. At the
same time, some of the policies of the past such as “moral incentives” and volunteerism
were revived in an effort to apply a revised, updated, version of the once refuted MaoistGuevarist model.
The reinstatement of some aspects of the Maoist - Guevarist model was accelerated by
the implementation of a second tier of RP policies.
These policies were enacted to
increase the State’s control of the labor market, fight corruption, and replace wage and
material incentives with moral incentives and volunteerism. A third set of policies were
implemented to achieve macroeconomic stability by reducing trade and budgetary
deficits, promoting export -led growth, and lowering State subsidies to selected sectors
and social programs. At the same time, Cuba declared a moratorium on the foreign debt
owed to the USSR, which had been growing at staggering proportions since its insertion
into the Council for Mutual Economic Assistance (CMEA) in 1972.
102
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3.2. The Deterioration o f Soviet-Cuban Economic Relations
Another factor leading to the exacerbation of the economic crisis of the 1990s was the
deterioration of Soviet-Cuban economic ties, which began to take place shortly after the
implementation of the Rectification Process (RP) in 1986. Since most of Cuba’s foreign
trade was concentrated with the USSR, (approximately 88% of Cuba’s foreign trade in
1988 was carried out in transferable rubles, and, between 1981 and 1985, trade with the
USSR accounted for approximately 71% of Cuba’s total foreign trade) the deterioration
of Soviet - Cuban trade had a negative impact on the Cuban economy, and became one
of the primary factors leading to the economic crisis of the 1990s. To understand the
magnitude of this problem, and its impact on the Cuban economy, a brief overview of the
main characteristics of Soviet - Cuban trade during this period should suffice.
In 1988, for instance, sugar exports accounted for an estimated 85.2% of all Cuban
exports to the USSR.275 Similarly, in 1988, the Soviet Union provided Cuba with 48% of
its oil and oil-related imports, 17.3% of machinery and equipment, 9.8% of manufactured
goods and spare parts, and 8.1% of foodstuffs and raw materials.276 Cuba was the
USSR’s sixth largest trading partner until 1991, and between 1976 and 1980 total trade
turnover between the two countries increased by 77%, while jumping by 92% during the
1980 - 1985 period.277 (However, trade turnover between the two countries fell by 11.5%
between 1986- 1989.)278
275 M esa - Lago, Carmelo. “The Effects on Cuba o f the D ow nfall o f Socialism in the USSR an d Eastern
Europe. ” Cuba After the Cold War. Carmelo M esa - Lago (Ed.). Pitt Latin American Series. University o f
Pittsburgh Press. Pittsburgh, PA. 1993.
216 Ibid.
277 Ibid.
278 Ibid.
103
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Despite these close economic ties, and the relative growth in trade turn over between the
two countries during the 1976 - 1986 period, by the end of the 1980s, the tide was
beginning to turn. A trade pact between the USSR and Cuba in 1989 established total
trade between the two countries at 9,000 million rubles (or 9,900 Cuban pesos at the
official exchange rate of 1.10 pesos per ruble).279 A bilateral agreement between the two
countries for 1990 placed trade at 9,200 million rubles (or 10 billion pesos), and Cuba
agreed to increase exports by 7.5% above 1989 levels, while imports form the Soviet
Union were to increase by only 5.9% in order to help reduce Cuba’s mounting trade
deficit.280
However, according to official sources, Soviet imports for that year only
totaled 3.8 billion rubles (75% below the accorded amount), or 23% lower than 1989
levels.281
This situation worsened in 1991, when the planned value of Soviet exports, originally set
at $3,940 million, was later reduced to $3,363 million, and finally amounted to $1,035
million by September of that year.282 Between 1976 and 1990, Cuba and the USSR had
signed three five-year long bilateral agreements that provided significant security and
economic support for Cuba.283 However, by 1991, the trade agreement between the two
countries extended for only one-year, and after the disintegration of the USSR, Cuba was
forced to negotiate individual agreements with the former Soviet Republics. By the end
of 1991, Cuban officials were estimating that imports from the newly-created
Commonwealth of Independent States (CIS) would fall below 50% of 1991 imports from
279 Ibid.
280 Ibid.
281 Ibid.
282 Ibid.
283 Ibid.
104
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the then-defunct Soviet Union, totaling an estimated $800 million (barely 15% of their
1985 peak levels).284
After the Soviet Union collapsed in 1991, the Soviet - Cuban terms of trade experienced
an even larger deterioration.
According to official sources, in 1991, the USSR paid
$0.25 per pound of sugar, or 60% less than the price they paid in 1990 (but two times
more than the market price), and the Soviets were charging approximately $20 per barrel
of oil.
9RS
In 1992, the Russians eliminated the subsidy paid for Cuban sugar, and set
prices at world market levels (i.e., $0.09 to $0.10 per pound); hence, in 1992, Cuba was
to receive 40% of what the Soviets paid in 1991, and 24% of what they paid in 1990.286
To make things worse for Cuba, the Russians demanded world market prices for their oil
starting in 1992.287
The termination of Soviet aid and subsidies in the early 1990s had severe consequences
for the Cuban economy. During the previous three decades (1960 - 1990), Soviet aid to
Cuba assumed three basic forms: credits to cover Cuba’s trade deficits, development
loans, and price subsidies.
Credits to finance Cuba’s trade deficit and development
loans were to be repaid at some future date, while price subsidies were provided in the
form of non-repayable grants (or transfers).289 Between 1960 and 1990, with a few minor
exceptions, notably 1975 - 1978, Cuba’s trade deficit with the Soviet Union expanded
284 Ibid
285 Ibid.
286 Ibid.
287 Ibid.
288 Ib id
289 Ibid.
105
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
steadily, which meant that the level of Soviet credits to finance it also grew.
Development loans also increased during this period, particularly after 1975, with more
than two thirds of the total being granted in the 1980s.290
According to various
estimates, cumulative Soviet economic aid to Cuba between 1960 and 1990 reached
approximately $65 billion (60% in grants and 40% in loans).291 However, due to the high
likelihood of overestimation and the possibility of double counting development loans
with trade credits, the overall estimates should be smaller than this figure (which
excludes some $13 billion in Soviet military aid from 1960 to 1986).292
Another factor that contributed to the economic crisis of the 1990s was Cuba’s mounting
foreign debt, particularly its debt with the USSR. Until the early 1990s, there were no
official estimates o f Cuba’s foreign debt to the USSR. However, starting in 1982, the
Cuban government began to monitor and publish figures about its hard currency debt to
Western creditors, which reached some $7.3 billion by the end of 1990, according to
official estimates.293 Outside experts believe that between 1960 and 1990 total repayable
loans (or debt) from the USSR reached at least $25.7 billion, making Cuba’s outstanding
debt to the former Soviet Union one of the highest among all debtor nations (both
socialist and capitalist), representing 37% of the total debt outstanding in the developing
world.294 At the official exchange rate established by the USSR to calculate all foreign
290 Ibid.
291 Ib id
292 Ib id
293 Ib id
294 Ib id
106
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
debt owed by its debtors, the Cuban debt reached approximately $24.5 billion by the end
•
•
of 1990, making Cuba’s debt per capita the highest in Latin America at the time.
295
Between 1960 and 1990, Soviet economic subsidies and aid protected Cuba from the
fluctuations of the world market and the worst economic crisis since the Great
Depression of the 1930s. The principal causes of the economic crisis (that would have
affected Cuba in the absence of Soviet subsidies and aid) were a mounting debt burden,
the lack of competitive exports, and the overall decline in commodity prices in the world
market. Many economists believed that by subsidizing Cuban exports and postponing
repayment of its debt (free of interest), the USSR directly contributed to the relatively
high economic growth that took place in Cuba between 1981 and 1985.296 However, with
the advent of glasnost and perestroika, and the eminent collapse of the USSR in the early
1990s, the tables were drastically changed, and Cuba was left as an island of socialism in
an ocean of capitalism.
3.3. The Disintegration o f the Councilfo r Mutual Economic Assistance (CMEA)
Another development that contributed to the economic crisis of the 1990s was the
disintegration o f the Council for Mutual Economic Assistance (CMEA) in the beginning
of the decade. Under the trade agreements promulgated by the CMEA (which Cuba
joined in 1972), traded goods were paid for in exchangeable rubles, which could be spent
in barter deals within the CMEA.
In essence, CMEA membership meant that countries
could barter goods at a preset exchange rate, denominated in a proprietary currency (i.e.,
295 Ibid.
296 Ibid.
107
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
exchangeable rubles). In the case of Cuba, Eastern European finished goods and Soviet
oil were acquired by bartering sugar, usually at favorable terms of trade for the Island.
These arrangements basically shielded the Cuban economy from the price fluctuations of
world markets and provided a readily available market for key Cuban exports such as
sugar, nickel, tobacco, and citrus fruits. However, despite the preferential prices paid by
the CMEA for Cuban sugar, most of this exchange resulted in the accumulation of trade
deficits by the island. By the mid 1980s, Cuba’s trade deficit with the CMEA was equal
to roughly 50 percent of the island’s total trade deficit - demonstrating the importance
and sheer weight of Cuba’s economy ties with the Eastern European Bloc.
297
The disintegration of the CMEA, along with the collapse of the Soviet Union in 1991,
had dire consequences for the Cuban economy.
On the supply side, one of the first
consequences suffered by the Cuban economy was the reduction in Soviet and Eastern
European products and supplies. From the last month of 1989 and through the entire year
of 1990, Cuban authorities reported significant cuts and delays in Soviet products and
supplies. Soviet deliveries of essential inputs such as foodstuffs (i.e., wheat and grains),
crude oil and oil by-products, fertilizer, spare parts, and finished goods (i.e., televisions,
refrigerators, and other household appliances) declined significantly during the first year
of the crisis.298 For instance, Soviet deliveries of oil and oil products decreased by 3.6%
between 1987 and 1989, from 13.5 million tons (1987) to 13 million tons (1989), which
297 M esa-Lago, Carmelo. “The Effects on Cuba o f the D ow nfall o f Socialism in the USSR an d Eastern
Europe. ” Cuba After the Cold War. Carmelo M esa - Lago (Ed.) Pitt Latin American Series. University o f
Pittsburgh Press. Pittsburgh, PA. 1993.
298 Ibid.
108
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
resulted in loss of 500,000 tons re-exported for hard currency by Cuba.299 The amount
delivered in 1990 fell to 10 million tons, while the corresponding deliveries for 1991
reached only 8.6 million tons, and were expected to fall to somewhere between 4 and 6
million tons in 1992.300
I
The disintegration of the CMEA resulted in drastic reductions in Cuba’s trade with
Eastern Europe. To understand the scope and the magnitude of this event and its impact
on the Cuban economy, it is worth noting that between 1965 and 1989, Cuba’s annual
trade with the Socialist Bloc (excluding the USSR) reached an average of 12 %.
By
1989, Cuba’s principal trading partners in Eastern Europe were: the German Democratic
Republic (GDR), 4.8% of total trade; Czechoslovakia, 2.6%; Bulgaria, 2.6%; and
Rumania, 2.1%.302 Also, between 1985 and 1988, an estimated 14% of Cuba’s total
sugar exports were destined for Eastern Europe, with nearly 33% going to Bulgaria and
the GDR.303
As the Iron Curtain came down, and most Eastern European countries embraced the
transition from plan to market, the region’s economic ties with Cuba were drastically
severed. After the disintegration of the CMEA, Cuba lost access to valuable (and often
lucrative) export markets, as well as an important source of vital imports and economic
support. Sugar exports to select Eastern European countries fell to 50% of 1989 levels in
299 Ibid.
300 Ibid.
301 Ibid.
302 Ibid.
303 Ibid.
109
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
1990, and to 5% of 1989 levels in 1991.304 As a result, it is estimated that Cuba lost
some $300 million in Eastern European sugar subsidies.305 By the end of 1989, Eastern
European exports to Cuba were significantly reduced, and there were serious delays in
the delivery of goods and merchandise to the Island. The once favorable terms of trade
enjoyed by Cuba as a result of its close economic ties with Eastern European socialist
countries suddenly disappeared.
From now on, Eastern European countries, most of
which had formerly operated under the international socialist division of labor thorough
their membership in the CMEA, demanded hard currency payments for their products
and services.
Lower sugar prices in the world market, along with the sudden
disappearance of socialism from the international scene, eliminated their incentives to
buy Cuban sugar at preferential prices.
The collapse of the Soviet Union and the
disappearance of the Eastern European Socialist Bloc meant that, for the first time in
three decades of socialism, Cuba would have to operate in a world without subsidies and
economic support.306 The tide of economic globalization had arrived at Cuba’s shores,
and the country would have no other alternative than to reinsert itself into the new post
Cold War global order or face its imminent collapse.
By the end of the 1980s, the introduction of limited market reforms, along with the anti­
market policies of the Rectification Process (RP), and the drastic deterioration of Cuba’s
economic ties with the USSR and the Eastern European Socialist Bloc, were beginning to
306 Suchlicki, Jaime. “Cuba: Without Subsidies. ” Cuban Communism. 10th Edition. Irving Louis Horowitz
and Jaime Suchlicki (Eds.). Transaction Publishers. N ew Brunswick, NJ. 2001.
110
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
have significant effects on the Cuban economy. On the domestic front, sugar output
fluctuated from a low of 6.67 million metric tons (Mt) during the 1979-1980 harvesting
season to a high of 8.21 million Mt during the 1983-1984 season.307 This trend was
reversed during the second half of the 1980s, and by the end of the decade sugar output
fell to 7.42 million Mt (in 1988).308 The declines in the island’s sugar production during
this period was attributed to several factors such as lower worker productivity, increasing
worker absenteeism, shorter milling seasons, and weaker external demand for Cuban
sugar. Table 12 and Figure 5 show the leading indicators of Cuba’s sugar agro-industry
during the 1980s.
Table 12 -Indicators of the Cuban Sugar Agro-Industry
1980-1989
Crop Year
Effective Milling Season
(Days)
Sugar Production
(Million MT)
1 9 7 9 -8 0
109
6 .6 7
1980-81
114
7 .3 6
19 8 1 -8 2
124
8.21
1 982-83
113
7.11
1 9 8 3 -8 4
126
8.21
1 984-85
103
8 .0 0
1 9 8 5 -8 6
104
7 .2 6
1 9 8 6 -8 7
99
7 .1 2
100
7 .4 2
109
8 .1 2
1 9 8 7 -8 8
1 9 8 8 -8 9
Source: A lvarez an d Castellanos (2001)
307 Alvarez, Jose and Lazaro Pefta. Cuba’s Sugar Industry. Contemporary Cuba Series. University Press o f
Florida. Gainsville, FL. 2001
30SIb id
111
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 5
Cuba: Sugar Production
(1980-1989)
M illion M etric T o n s
On the international front, the mounting trade deficits of the 1960s and 1970s reached
even higher levels during the 1980s and Cuba’s dependency on the external sector
(particularly on trade with the USSR and the Eastern European Socialist Bloc) increased.
Cuba’s trade deficit expanded from 660.3 million pesos in 1980 to 1.8 billion pesos in
1984 and 2.1 billion pesos in 1988.309 The principal causes for this growing deficit and
greater external sector dependency were: a growing population, higher demand for
imported foodstuffs, energy products and capital goods, lower domestic production, and
falling exports. Cuba’s balance of trade during the 1980s is shown on Table 13 and
Figure 6.
309 Anuario Estadlstico de Cuba, 1988.
112
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 13 - Cuba: Balance of Trade
(1980-1988)
M illions o f Pesos
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
Merchandise
Exports
3,966.7
4,223.8
4,933.2
5,534.9
5,476.5
5,991.5
5,321.5
5,402.1
5,518.3
Merchandise
Imports
4,627.0
5,114.0
5,530.6
6,222.1
7,227.5
8,035.0
7,596.1
7,583.6
7,579.8
Total Trade
Trade Balance
8,593.7
9,337.8
10,463.8
11,757.0
12,704.0
14,026.5
12,917.6
12,985.7
13,098.1
- 660.3
- 890.2
- 597.4
- 687.2
-1,751.0
-2,043.5
- 2,274.6
-2,181.5
-2,061.5
Source: Anuario E stadlstico de Cuba, 1988.
Figure 6
C u b a ; B a la n c e o f T ra d e
(1980-1988)
Millions o r P e s o s
C uba: T rad e Deficits
(1960-1988)
AtUtomofPuM
9000.00
0,00000
1
7.00000
1
1
6.00000
6,000.00
4.000.00
3.000.00
2.000.00
1
1X100.00
1963
1984
1986
1986
1987
19(
Source: Anuario E stadlstico de Cuba, 1988.
As the winds of change swept through the USSR and its Socialist allies in Eastern
Europe, Cuba would find itself increasingly isolated and vulnerable in a rapidly changing
world. By 1990, as it became obvious to the Cuban leadership that Soviet and Eastern
European socialism was destined to quickly disappear, Cuba began to brace itself to
confront the economic realities of a “new world order.” There was no doubt going
forward that the economic crisis o f the 1990s had begun.
113
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER4
THE IMPACT OF THE CRISIS ON THE CUBAN ECONOMY
Needless to say, the economic crisis that followed the fall of the Soviet Union and the
disappearance of Eastern European socialism had severe repercussions for the Cuban
economy, many of which continue to this day. The socioeconomic effects of the crisis
were (and are being) felt at both the micro and macroeconomic levels.
At the
microeconomic level, personal consumption was significantly impacted right away. By
early 1991, more than 200 consumer goods were added to the rationing system, and
capita allocations for more than 66% of the total number of goods available through the
system were drastically reduced, placing a premium for most consumer goods in both the
official and underground economies.310
Medicines and medical products became
extremely scarce and difficult to find, forcing the majority of ordinary Cubans to rely on
the black market (or second economy) to obtain a limited supply.311 Extremely long
queues became a common sight in most Cuban cities, particularly Santiago de Cuba and
Elavana, and many products virtually disappeared from the already empty shelves of the
country’s State-run stores.312
These shortages led to an uncontrolled proliferation of black market activities, which
contributed to spiraling inflation and eroded the real purchasing power of the majority of
310 M esa - Lago, Carmelo. “The Effects on Cuba o f the D ow nfall o f Socialism in the USSR an d Eastern
Europe. ” Cuba After the Cold War. Carmelo M esa - Lago (Ed.). Pitt Latin American Series. University o f
Pittsburgh Press. Pittsburgh, PA. 1993.
311 Ibid.
312 Ibid.
114
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the population. By July 1991, for instance, the official price for a pound of chicken
(when available) was quoted at 70 centavos in Havana, but offered at 20 to 30 pesos in
the black market.313 Black market prices for other goods such as rum and cigars were
often quoted 7 to 10 times above the official rate. By 1992, the black market prices for
some basic commodities and staples had increased as follows: potatoes, 150%; tomatoes,
125%; and plantains, 75%.314
At the macroeconomic level, the impact of the crisis was being equally felt. As consumer
goods became scarcer, surplus currency in circulation began to expand, resulting in a
large increase in excess liquidity.
Higher levels of excess monetary liquidity (or
monetary overhang) also contributed to higher prices and spiraling inflation in the second
economy. According to Mesa - Lago (1994), monetary overhang expanded from 21.4%
of GDP in 1989 to 72.8% o f GDP in 1993 (the pinnacle of the crisis).315
To reduce
excess monetary circulation, the government increased the interest rate on bank deposits
from 2% to 4% in 1991, and similar policies were implemented in 1992 and 1993.
However, since the State was not able to increase the amount of consumer goods
available to the population, excess liquidity continued to be problem that affects the
Cuban economy to this day.
Another immediate consequence of the economic crisis of the 1990s was the increase in
open unemployment as State-run enterprises were dismantled or reorganized. Shortly
315 M esa - Lago, Carmelo. “A ssessing Econom ic an d S ocial Perform ance in the Cuban Transition o f the
1990s. ” Cuban Comm unism . 10th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.). Transaction
Publishers. N ew Brunswick, NJ. 2001.
115
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
after the collapse of socialism in the USSR and Eastern Europe, open unemployment in
Cuba rose by more than 10%, as workers were transferred form reorganized or dissolved
SOEs and institutions into other sectors of the economy.
As economic conditions
deteriorated, and the State’s ability to guarantee full employment (and other social
services) became significantly reduced, many University graduates and technical
professionals were placed in labor reserves, often placing them into inadequate jobs or
positions (which fueled resentment and disappointment among the productive members
of Cuba’s younger generations).
Despite all this, it can be argued that the area of the Cuban economy in which the impact
o f the crisis was mostly felt was the external sector. Cuba’s historically high levels of
dependency on international trade exacerbated this problem, and made its reinsertion into
the world economy one of the primary objectives of the limited market oriented reforms
of the 1990s. According to Mesa - Lago (1994), Cuba was the CMEA member with the
highest level o f insularity from the capitalist world economy, and the greatest level of
dependency on the external sector as well.
The principal characteristics of the Cuban
-2 ] /r
economy between 1960 and 1990 can be summarized as follows:
•
•
•
The island had one of the most open economies within the Socialist Bloc. This,
in turn, contributed to the relatively high levels of external sector dependency on
foreign trade.
Among CMEA members, Cuba had the highest levels of dependency on intra­
member trade. Approximately 84% of the country’s total trade was conducted
with CMEA members; trade with the USSR accounted for 70% of that share.
All intra-trade transactions between Cuban and other CMEA members were
conducted in transferable rubles (a non-convertible currency outside this Sovietsponsored trading bloc).
316 Ibid.
116
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
•
•
•
•
•
Between 1960 and 1990, only 13% of Cuba’s international trade was carried out
with Western market economies.
Cuba was by far the largest recipient of Soviet economic aid, receiving an
estimated $65 billion during the 1960 - 1990 period. An estimated 60% of this
aid was provided in the form of non-repayable price subsidies on sugar, oil, and
nickel. In addition, it is estimated that the Soviets provided Cuba with $13 to $16
billion in military aid during this period. Soviet economic assistance during 1989
alone is calculated at about $6 billion.
Cuba’s foreign debt to the USSR is estimated to have reached $24 billion in 1989,
or 20% of the total outstanding debt to the Soviet Union by all debtor countries.
From 1960 to 1990, the USSR provided Cuba with approximately 90% of all its
oil imports, at prices well below the world market, often resulting in favorable
terms of trade for the Island.
Soviet and Eastern European merchant vessels carried an estimated 85% of Cuban
foreign trade, with the cost of that service being accrued to the Island’s foreign
debt with the USSR and the Socialist Bloc.
In addition to Soviet and Eastern European economic and military aid, and price
subsidies, Cuba had virtually no foreign investment from capitalist economies
(despite a 1982 law that authorized foreign investments in limited sectors of the
economy). Similarly, the country did not have access to credit from international
lending institutions such as the International Monetary Fund (IMF), the World
Bank, or the Inter- American Development Bank.
Since they were first enacted in 1962, U.S. economic sanctions have created
additional difficulties for Cuba’s efforts to conduct trade and attract foreign
investment from market economies.
In addition to these conditions, there were other negative factors that contributed to the
economic crisis of the 1990s. Some of the most important ones were: (1) Cuba’s highly
centralized and inefficient economy, (2) frequent and costly shifts in economic policies
(particularly the anti-market Rectification Process (RP) of 1986), (3) the intensification of
unilateral economic sanctions by the United States, and (4) natural disasters like
hurricanes, droughts, and tropical storms.317 The negative impact caused by these factors
was exacerbated by the decline in Soviet oil supplies from 13 million tons in 1989 to an
•3
i o
estimated 1.8 million tons in 1992, representing a fall of 86% for the period.
Ibid.
! Ibid.
117
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The combination of all these factors, along with the disintegration of the USSR and the
CMEA, significantly reduced Cuba’s total trade (as well as the nation’s trade deficit). In
1989, at the onset of the crisis, Cuba’s total trade reached an estimated 13.5 billion pesos;
•
319
exports for that year totaled 5.4 billion pesos, while imports reached 8.1 billion pesos.
By 1993, at the worst point o f the crisis, total trade had fallen to 3.2 billion pesos, with
•
•
.
.
.
exports reaching 1.2 billion pesos and imports barely passing the 2 billion-peso mark.
320
Table 14 and Figure 7 show Cuba’s trade balance for the 1989-1993 period.
Table 14 - Cuba: Balance o f Trade
(1989-1993)
Millions o f Pesos
Year
M erchandise
Exports
M erchandise
Imports
Total Trade
Trade Balance
1989
1990
1991
1992
1993
5,399.9
5,414.9
2,979.5
1,779.4
1,156.7
8.139.8
7,416.5
4,233.8
2,314.9
2,008.2
13,539.7
12,831.4
7,213.3
4,094.3
3,164.9
- 2,739.9
-2,001.6
- 1,254.3
-535.5
-851.5
S o u rc e : M e s a -L a g o (2 0 0 1 )
Figure 7
C u b a : B a la n c e o f T ra d e
C u b a : T r a d e D e fic its
(1089-1993>
(1989-1993)
Millions o f P esos
M illion s o f P e so s
9.000.00
0.00
.
8 0 0 0 .0 0
7.000.00
-500.00
.
6 000.00
M -1,000.00
5.000.00
4.000.00
|
-1,500.00
*
-2,000.00
y * 524.29X - 3049.4
3.000.00
.
2 0 0 0 .0 0
-2, 500.00
1 , 0 0 0 .0 0
0 .0 0
1989
1990
1991
1992
1993
' Ibid.
’ Ibid.
118
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
R 2 a 0.8597
These factors also had a negative impact on Cuba’s productive capacity. Between 1989
and 1993, Global Social Product (GSP) declined an estimated 29% to 58%, falling from
27 billion pesos in 1989 to 12 billion pesos in 1992.321 At the same time, the Cuban
economy experienced higher inflation levels, and a growing monetary overhang (or
surplus).
The cumulative monetary surplus (i.e., excess money in circulation resulting
from subtracting population expenditures from income) reached a historic record of 9
billion pesos by the middle of 1993, and was projected to surpass the 10 billion-peso
mark by the end of that year.322 The surplus accounted for 51% to 80% of GSP, and was
three times the previous record set in the crisis year of 1970, when the Cuban peso was
virtually worthless and worker absenteeism in SOEs rose to 20% of the labor force.
323
In
1993, the monetary surplus per capita was close to the average monthly wages for five
months, and increased to 11.3 billion pesos by April of 1994.
By the end o f 1993, Cuba’s monetary overhang was having an adverse impact on worker
productivity, the future viability of many SOEs, and the economy as a whole. According
to official sources, excess money in circulation was a strong disincentive for both work
and production, and contributed to an estimated 35% decline in the total value of goods
and services sold to the population between 1991 and 1993.325 A growing State budget
deficit also contributed to an increase in Cuba’s monetary overhang. In 1993, the deficit
reached 4.2 billion pesos (or somewhere between 22% and 33% of GSP), with more than
321 Ibid.
322 Ibid.
323 Ibid.
324 Ibid.
325 Ibid.
119
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
half of it being generated by State subsidies to SOEs in sugar and non-sugar
agriculture.326
The economic impact of a growing budget deficit, combined with a decline in imports,
and increases in monetary overhang, was worsened by the depreciation of the Cuban peso
in the black market between 1989 and 1993. During this period, as had been done in the
past, the Cuban peso was officially pegged to the U.S. dollar at an exchange rate of 1
peso per dollar. However, as economic conditions continued ta deteriorate, the unofficial
(or black market) exchange rate experienced a sharp decline, eroding the real purchasing
power of the Cuban currency.
The black market exchange rate fell from 7 pesos per
dollar in 1990 to 100 pesos per dollar by the middle of 1993. Later that year, as some
limited market reforms were introduced, the currency stabilized at 20 - 23 pesos per
dollar. This is shown on Table 15 and Figure 8.
Table 15 - Cuba: Pesos Per Dollar
Official and Black Markets
(1990-1993)
Official Market
Black Market
1990
1.00
7.00
1991
1.00
20.00
1992
1.00
45.00
Source: Jatar-Hausmann (1999)
326 Ibid.
120
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
1993
1.00
100.00
Figure 8
Ciuba: Black Market E xchange Rate
(1990-1993)
P esos p e r Dollar
120 n
100
80
40
20
The economic crisis of the 1990s affected vital sectors of the Cuban economy, and the
State’s ability to provide basic services to the population.
Areas such as transportation,
sugar production, health care, and education, suffered the direct consequences of the fall
o f socialism in Eastern Europe and the USSR.
The latter two, often touted as
“accomplishments of the Revolution” ( “logros de la Revolution”), were significantly
affected by the crisis, as essential inputs became scarce, and difficult to obtain in the
world market. In the area of health care, the absence of hundreds of medicines, and the
shortage of essential products such as soap, detergents, and others, contributed to a
drastic deterioration in the state of health of the general population. 327 In terms of
education, the scarcity of basic supplies such as papers, books, pencils, and other
327 Ibid.
121
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
essential school materials, had a negative impact on school attendance, and other
indicators.328
Similarly, Cuba’s already deficient housing stock was adversely impacted by the crisis,
especially by the sharp contraction in construction, and new housing developments that
took place between 1989 and 1993. During this period, the housing deficit exceeded 1
million units, and the existing housing stock ran into a massive state of disrepair due to
the lack o f supplies and construction materials. Another area affected by the crisis was
personal consumption.
As the economic crisis of the 1990s worsened, personal
consumption registered a sharp decline. The meager provisions of the already deficient
rationing system were barely able to provide enough food for one or two weeks in the
month for the average Cuban family. This forced many ordinary Cubans to rely on the
black market, where food purchases could be made at skyrocketing prices.
The
deficiencies of the rationing system, combined with the depreciation of the peso in the
black market, resulted in high levels of inflation in the second economy. By 1994, as the
peso depreciated further, the average monthly minimum wage was worth approximately
$2 in the black market, which could buy only a 2 pound chicken, one of pork, four liters
of milk, or four bars of soap.329
As external sector conditions deteriorated between 1989 and 1993, and large portions of
the Cuban economy came to a near standstill, it was obvious that the country was
experiencing the largest economic free fall since the 1959 Revolution. To cope with the
328Ibid
329 Ibid.
122
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
crisis, and to reinsert the country into the capitalist world economy, Cuban policy makers
began to introduce a series of austerity measures and a self-reliance agricultural plan
known as the Food Program (FP) or Programa Alimenticio, along with some limited
market-oriented reforms starting in 1990.
Initially, these reform measures were not
designed to be large-scale, shock-based, structural reforms. Instead, they were seen as a
series of necessary steps and measures required to achieve key goals and objectives such
as:
reduce energy consumption, increase domestic food production (through import
substitution and the application of labor intensive farming), expand export markets,
diversify trading partners, attract foreign investment, and develop international tourism
(as a primary source of hard currency earnings). Once the Cuban leadership accepted
that fact that socialism in Eastern Europe, and the USSR had ceased to exist, and a new
world order was emerging, it was confronted with the ultimate policy imperative: how to
confront the crisis, while minimizing its impact, and successfully reinsert Cuba into the
capitalist world economy. To achieve this paramount goal, Cuba would be confronted
with a difficult, and perhaps irreconcilable, paradox: Should it fully embrace the market
or find new ways to reinvent socialism?
123
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTERS
CUBA’S STRATEGIES TO CONFRONT THE CRISIS
After the collapse of the Soviet and Eastern European socialism in the early 1990s, Cuba
implemented a three-tiered strategy to confront the economic crisis of the 1990s. The
first tier consisted of a series o f austerity measures to reduce domestic consumption and
the implementation of the Food Program (FP) to promote agricultural self-sufficiency.
Tier two was comprised of external sector reforms to promote foreign direct investment
(FDI) and international tourism in order to successfully reinsert the island into the global
capitalist economy. The third and final tier was comprised of limited market reforms in
some areas of the domestic economy such a self-employment and agriculture. However,
despite the introduction of these limited reform measures, the Cuban leadership has
adamantly rejected comprehensive political and economic reforms, repeatedly stating that
rather than embracing market capitalism and political transformation, Cuba will continue
to be the last bastion of communism in the world. Nothing defines this ideology more
accurately than the claim of “Somos y Seremos un Pais Socialista ” (“We are and will
continue to be a socialist country”) and the official slogan of Socialismo o Muerte
(“Socialism” or Death”).330 However, regardless of the tone of the official rhetoric, and
efforts to maintain this position in public, the Cuban leadership has taken various steps
and measures that have reduced the State’s role in the economy and its control over the
330 Perez - Lopez, Jorge. “C u b a ’s S ocialist Economy: The M id 1990s. ” Cuban Comm unism . 10th Edition.
Irving Louis Horowitz and Jaime Suchlicki (Eds.). Transaction Publishers. N ew Brunswick, NJ. 2001.
124
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
country’s means of production with the intention of reducing the impact of the economic
crisis and successfully reinserting the country into the global capitalist economy. 331
5.1. Austerity Measures and the Food Program (FP)
Between 1990 and 1991, Cuba implemented a series of austerity measures and the Food
Program (FP) or Programa Alimenticio with the objective of reducing national
consumption and promoting self-sufficiency in agriculture and food production.
main characteristics of these early reform measures are summarized on Table 7.
331 Ibid.
125
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The
Table 16
Austerity Measures and the Food Program (FP)
1990-1991
Enerev Conservation Measures
•
•
•
Shut down of Che Guevara Nickel Plant
Delaying the opening of an oil refinery in Cienfuegos
Cuts in gasoline and fuel deliveries to the State and private sectors
o State Sector: 50% reduction
o Private Sector: 30% reduction
•
Cutting electricity consumption by 10 percent in industries, farms, and
homes
•
Exhorting farmers to use draft animals (bulls, oxen, mules) instead of
fuel operated machinery for plowing and transportation
May 1990
Additional Enerev Conservation Measures
September 1990
•
•
•
•
Shut down of a bus factory - attempt to turn it into a bicycle factory
Reductions in textile production
Cuts in cement production by two thirds (from 4 to 1.5 million tons)
Cancellation of social programs - such as:
o New school construction
o Day care centers
o Hospitals
•
Reduction in the number of buses in circulation:
o Urban trips: 25% reduction and 50% reduction
•
•
•
Reduction in the work week 5.5 days to 5 days
50% Staff reduction in the Party administrative apparatus
Reductions in the numbers of official publications (books & magazines)
o Juventud Rebelde: From daily to weekly publication
o Trabajadores: From daily to weekly publication
Rationing of liquid gas for cooking
Rationing of 28 food products and over 180 consumer goods such as
clothing, footwear, household appliances, etc.
•
•
Late 1991
And
Early 1992
Additional Energv Conservation Measures
•
•
Reductions in State sector’s consumption of electricity by 19%
Reductions in the private sector’s electricity consumption to less than
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Austerity Measures and the Food Program (FP)
1990-1991
4% of the total
• Approval of energy conservation measures that required:
o Air conditioners to be shut down
o Carnivals to be cancelled
o TV transmissions to be further reduced
o Restaurants to be closed
o Sports activities to take place during day time
o Street lighting to be reduced to a minimum
•
•
Further cuts in fuel deliveries and public transportation
o Only 80 buses were operating in Havana
o 900 buses were paralyzed due to lack of fuel and spare parts
o 30% reduction in fuel supplies for State vehicles
o Fuel for private autos was reduced by 70%
Employment reductions in the State sector
•
Reductions in “social” food consumption in SOEs
•
Gradual price increases for some subsidized products
•
Further reductions in fuel deliveries to the State and Private sectors
1992
Source: M esa-Lago (1994)
The Food Program (FP) was driven by the need to increase Cuba’s self-sufficiency in
agriculture and food production after the collapse of the Soviet Union and the Eastern
European Socialist Bloc. It sought to apply manual techniques (i.e., the replacement of
fuel-intensive agricultural machinery with manual labor and oxen) in order to reduce
energy consumption. At the same time, the Food Program (FP) was designed to increase
the supply of food and agricultural products over a pre-determined period of time. To
achieve this last objective, Cuban officials established extremely ambitious (i.e.,
unrealistic) production targets for the Food Program (FP). These are summarized in
Table 17.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 17 - The Food Program
Real vs. Targeted Output
(1989 vs. 1995)
Production Lines
Real Output
1989
(MT)
Targeted Output
1995
(MT)
%
Change
Sugar
8,121
11,200
137.91
Citrus
Rice
Tubers
Vegetables
Plantains
825
536
681
610
291
517
898
2,523
192
1,656
610
1,032
910
N.A
477
1,987
3,250
222
200.73
113.81
151.54
149.18
N.A
- 7.73
221.27
128.81
115.63
Meat
Milk (ML)
Eggs (MU)
Fish
Source: M esa-Lago (1994)
Despite the allocation of vast resources (both human and technical), the Food Program
(FP) failed to achieve its objectives. Its failure can be attributed to several factors (e.g.,
lack of sufficient resources, the use of inexperienced labor, difficult weather, etc.);
however, one of these major factors was the high level of expectations that came with
unrealistic production targets. This is obvious by reviewing the data on Table 17, which
indicates that in order to achieve the production targets established by the Food Program
(FP) output for some key commodities would have to increase as follows: sugar, 138%;
citrus, 200%; tubers, 151%; vegetables, 149%, milk, 221%; and eggs, 129%.
More
importantly, these increases in production were expected to take place in an unfavorable
domestic and international environment, thus, guaranteeing the failure of this initiative.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
5.2. External Sector Reforms
External sector reforms were among the first measures introduced by the government to
promote Cuba’s reinsertion into world markets, and to foment the development of
international tourism.332 In 1982, Cuba passed legislation that, for the first time since the
1959 Revolution, permitted foreign investment in the form of joint ventures between
foreign investors and domestic enterprises. Decree - Law No. 50, first introduced on
February 15, 1982, allowed foreign investors to participate in joint ventures with Cuban
SOEs in the development of special projects, and permitted the repatriation of profits,
dividends, and hard currency.333 This law, however, imposed various restrictions on
foreign capital such as limiting foreign ownership to 49%, and restricting the sectors of
the economy in which foreign investors could participate.334 Not surprisingly, the 1982
version of Cuba’s foreign investment law failed to attract significant amounts of foreign
capital until the Cuban constitution was amended in 1992.
In response to the economic crisis of the 1990s, Cuba amended its 1976 Socialist
Constitution in 1992. The sections dealing with foreign capital and foreign participation
in the economy were amended in an effort to attract more investments, and promote the
development of international tourism.
These amendments eliminated some of the
previous restrictions, and expanded the scope of the 1982 Foreign Investment Law. After
1992, the amended version of Decree - Law No. 50 included the following provisions to
attract foreign capital:
332 Ibid.
333 Travieso - D iaz, Matias F. and Alejandro Ferrate. “R ecom m ended Features o f a Foreign Investm ent
C ode f o r C u b a ’s F ree M arket Transition. ” Cuba in Transition. Volum e 5. Association for the Study o f the
Cuban Economy (ASCE). Coral Gables, FL 1995.
334 Ibid.
129
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
•
•
•
•
•
Foreign ownership of up to 49% of an enterprise’s (or joint venture’s) assets was
allowed.
Foreign investors were granted total tax exemption of taxes on gross income,
personal income, and the transfer of real estate businesses. The only taxes levied
were a 30% tax on profits, and a 25% payroll tax to cover social security benefits
for Cuban employees. All taxes could be waved at the discretion of the Cuban
government.
Customs duties for essential inputs were eliminated.
Foreign investors were entitled to the unrestricted repatriation of dividends,
profits, and the salaries o f foreign employees in hard or convertible currency.
The State assumed the responsibility of hiring the labor force, and overseeing
Cuban workers in joint ventures with foreign enterprises.
The State offered insurance coverage against the loss of profits resulting from
accidents, non-payment of merchandise, vandalism, and acts of sabotage.
The State provided ancillary professional services such as management
consulting, legal advice, economic planning, auditing, accounting, and others.
In addition to these provisions, the Cuban government sought to attract foreign capital by
entering into bilateral investment treaties (BITs), which contain, inter alia, promises not
to expropriate foreign-owned properties, and allow the repatriation of profits and
dividends. Foreign investors can also acquire and own the rights to assets considered part
•
of the national “socialist patrimony,” upon approval from the Council of Ministers.
335
In
addition, they are permitted to acquire property derived from the personal work of the
transferor. However, foreign investors are not allowed to exercise any ownership over
assets involving any means of communications such as television and radio stations, as
well as newspapers, magazine publishers, etc.
Decree - Law No. 50 contemplates three basic types of business entities: (a) joint
ventures or empresas mixtas, (b) management contracts or contracts of international
335 Leiseca, Sergio. “Foreign Investors ’ P roperty Rights an d L egal G uarantees A gainst N on-Com m ercial
Risks in Cuba. ” Cuba in Transition. V olum e 6. Association for the Study o f the Cuban Econom y (ASCE).
Coral Gables, FL. 1996.
336 Ibid.
130
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
economic associations, and (c) enterprises wholly-owned by foreign partners (or
investors). From a legal standpoint, foreign investors have direct property rights over the
respective business entities, which retain the rights of ownership over their assets, as
stipulated in Article 23 of the National Constitution.
However, Cuba’s foreign
investment law does not prevent Cuban partners from transferring ownership of their
assets to joint ventures or foreign-owned consortiums or partnerships.337
This leaves
open the possibility of direct ownership by foreign investors, finally, pursuant to Article
16 of the Foreign Investment Law, investors are allowed to acquire direct ownership of
real property, as long as this is done to construct tourist facilities or housing and offices
for foreign investors, their managers, and staff.
'I 'i Q
According to Article 14 of Cuba’s Foreign Investment Law, foreign investors taking part
in joint ventures, and wholly-owned companies, are able to exercise ownership rights
with respect to their shares in capital stock, while those with interests in unincorporated
consortiums or partnerships are allowed to maintain direct ownership rights over their
capital contributions.339 In addition, foreign investors wishing to acquire shares of capital
stock or similar equity interests from other foreign investors are allowed to do so,
pursuant to Article 6 of the Foreign Investment Law. In terms of payment of proceeds
upon business liquidation, Article 42 of the Foreign Investment Law indicates that
investors are entitled to payment o f their prorate shares.340 According to Article 42, share
allocations may be freely established by the Ministry of Finances, and Prices and the
337 Ibid.
338 Ibid.
339 Ibid.
340 Ibid.
131
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Ministry of Foreign Investment and Economic Collaboration.341 Finally, liquidation
proceeds are payable in convertible currency, unless the involved parties agree otherwise.
In addition to these legal changes, in 1992, Cuba’s National Assembly (Asamblea
Nacional del Poder Popular - ANPP) passed a number of amendments to the 1976
•
Socialist Constitution to entice foreign investors to invest in the Island:
•
•
•
342
Article 14, which stated that the Cuban economic system was based on public
ownership of all the means of production, was modified to clarify that socialist
ownership was limited to “fundamental” means of production (that is, social
property) rather than to all the means of production.
Article 15 was modified to provide a constitutional basis for the transfer of State
property to the private sector. Article 15 contained the concept that socialist
ownership of the means of production was “irreversible;” the 1992 amendment
provides that ownership of real property can be transferred to persons or
corporations provided such transfer promotes the economic and social
development of the country with prior approval by the government.
A new provision (Article 23) was inserted in the Constitution setting out that “the
State recognizes the ownership of property by joint ventures, corporations, and
associations established in accord with domestic law.”
As a result of these actions, foreign joint ventures with domestic enterprises operate as
“islands of capitalism” within Cuba’s socialist economy.343 And, they enjoy a significant
amount of autonomy from the State with regards to the acquisition, and management of
resources, importing goods, and exporting their output.344
341 Ibid.
342 Perez - Lopez, Jorge. “C u b a ’s S ocialist Economy: The M id 1990s. ” Cuban Comm unism . 10th Edition.
Irving Louis Horowitz and Jaime Suchlicki (Eds.). Transaction Publishers. N ew Brunswick, NJ. 2001.
343 Ibid.
344
132
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
5.3. Domestic Economic Reforms
On the domestic front, Cuba has introduced several (rather limited) market-oriented
reforms to cope with the economic crisis of the 1990s. These consist of the following:
agricultural sector reforms, dollarization, self-employment reforms, financial sector
reforms and State enterprise reforms. In terms of agricultural sector reforms, Cuba has
taken a number of steps that have essentially dismantled State farms, turning them into
self-sufficient cooperatives. This process was initiated by the introduction of Decree Law No 142, on September 20, 1993, which established the Basic Units for Cooperative
Production, or Unidades Basicas de Production Cooperativa - UBPCs.
Additional
reforms in the agricultural sector were introduced by Decree - Law No. 191 (September
1994), which re-introduced the farmers markets.
Prior to that, dollarization was
facilitated by the approval of Decree - Law No. 140, which de-penalized the possession
of foreign currency (namely, U.S. dollars) by Cuban citizens on August 1993.
This
measure was shortly followed by the Decree - Law No. 141 (September 1993), which
created the legal framework for self-employment in a wide range of quasi-private
activities for self-gain. In 1997, the Council of Minsters approved Decree - Law No.
172, which restructured the Cuban banking and financial sectors and created a new
Central Bank and a series of financial intermediaries. Finally, Cuba’s Enterprise
Optimization Program (EOP), or perfeccionamiento empresarial, was introduced by the
approval of Decree - Law No. 187 in 1998.
133
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
5.3.1. Agricultural Sector Reforms
5.3.1.1. Agricultural Cooperatives (UBPCs)
The creation of the UBPCs addressed the need to increase labor productivity in the
agricultural sector by providing incentives to improve living conditions during the
Special Period. According to Alvarez and Castellanos (2001), the principal objectives of
the UBPCs were: (a) to achieve a closer bond between workers and the land, (b) to
channel the cooperative efforts of UBPC members towards improving the living
conditions of the cooperatives, including self-provisioning, (c) to tie workers’ earnings to
UBPC production levels, and (d) to develop the collective’s abilities to efficiently
manage resources and improve productivity.345
According to Article 2 of Decree - Law No. 142, the UBPCs are treated as juridical
entities characterized by the following:346
•
•
•
•
•
•
Usufruct use of the land for an indefinite period of time;
Ownership of their production;
Ability to sell their output to the State through the State enterprise;
Required to pay insurance premiums;
Ability to purchase the basic means of production on credit supplied by the State;
Ability to collectively elect their leadership, and render periodic accounts to their
members; and
• Required to fulfill their corresponding fiscal responsibilities through their
contribution to the general expenditures of the nation.
In addition to establishing a new type of agricultural entity, the creation of the UBPCs
significantly changed the role o f the State in Cuban agriculture. Even though the State
345 Alvarez, Josd and Lazaro Pefia. Cuba’s Sugar Industry. Contemporary Cuba Series. University Press o f
Florida. Gainsville, FL. 2001.
346 Ibid.
134
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
retains property rights over their land, all types of UBPCs (i.e., sugarcane and nonsugarcane) have been given the right to farm their land in perpetuity.
Similarly,
individual cooperatives have control over how many pieces of equipment they lease from
the State. The State has also made arrangements to provide the UBPCs with low-interest
loans offered through the National Bank to facilitate the acquisition of essential inputs
and supplies.
Despite all these provisions, the UBPCs face several disadvantages,
particularly when it comes to their lack of autonomy from the State. For instance, the
State exercises a significant amount of control over the type and quantity of output
generated by the UBPCs. All UBPCs have production quotas, which they are required to
fill by selling 80% of their production to the State collection agency, Acopio. In addition,
the State enterprise that supervises and regulates the UBPCs gives them very little
autonomy when it comes to determining which crops they can produce, and UBPCs that
were originally established to specialize in the production of a given crop or commodity
must continue to do so, unless otherwise instructed by the State.
Nevertheless, it must be noted that in order to stimulate productivity and efficiency in the
UBPCs, the State has instituted several production incentives.
For example, once a
UBPC meets the mandatory output allocation to Acopio, it can sell the remaining 20% in
agricultural markets, where prices are usually several times higher than prices in the
rationed or official market. This applies to all products except milk (and its derivatives),
potatoes, and beef.347
In order to provide the UBPCs with an additional monetary
incentive to bring their surplus production to urban markets, the State charges them a
lower tax rate for sales in major cities and towns.
The reintroduction of the farmers’
347Ibid
135
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
markets in 1994 has also provided the UBPCs with some additional incentives to improve
their efficiency, and increase their production.
Since prices in these markets are
significantly higher than official prices, and prices at State-operated “capped markets”,
or mercados topados, they provide an attractive “profit motive” to improve the quantity
and quality of UBPC output.348
To further improve efficiency and production, some
wage incentives and salary increases have been introduced. These have been notorious in
the case of sugarcane UBPCs, where such measures have resulted in greater degrees of
autonomy, as well as improved efficiency and production.
Despite these accomplishments, the UBPCs still suffer from three major disadvantages.
First, their current structure, in conjunction with the structure of the farmers markets,
leads to the development of market distortions.
The fact that all UBPCs are required to
deliver 80% of their total output to Acopio, while they are not required (nor incentivized)
to produce any quantity beyond their mandatory quotas, acts as a disincentive to
improved production and quality levels.
UBPCs that specialize in the production of
relatively abundant crops, where State and market prices do not even cover the costs of
production, often experience this problem. In their case, it is more profitable to limit
their production to meet the Acopio requirement, and reallocate essential resources (i.e.,
land, labor, and capital) to the production of crops that will generate a profit or, worst
case scenario, at least cover the costs of production.
Second, with regards to worker
compensation, all UBPC members are considered equal and usually receive similar
salaries, which tends to discourage efficiency and production. Finally, even though they
were (theoretically) modeled after Cuba’s Cooperatives for Agricultural Production or
348Ibid.
136
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cooperativas de Production Agropecuaria (CPAs), UBPCs differ from CPAs,
particularly when it comes to property rights.
Unlike the CPAs, which were first
introduced in 1977, the UBPCs have the usufruct use of the land, but do not retain
ownership of it.
This limits the prospects for the development of a “culture of
ownership” in the UBPCs, and hinders their current production capabilities and future
outlook.
5.3.I.2. Farmers’ Markets
The second stage of reforms in Cuba’s agricultural sector consisted of the reintroduction
of the farmers’ markets in 1994.
These farmers’ markets or Mercados Libres
Agropecuarios (MLAs), which re-opened in 1994, stand out as the exception to the
economic rules that govern socialist Cuba; they rely on production incentives and limited
market mechanisms to perform a vital economic function: put food on the tables of 11
million Cubans.349
Since their reintroduction in 1994, Cuba’s farmers’ markets have
served as a key venue to increase the nation’s food supply, while generating substantial
earnings for private farmers and other participants.350
However, despite their role in
improving the quantity and quality of Cuba’s food supply, the relatively high prices in the
farmers’ markets prevent a large portion of the population from entirely relying on them
to obtain their food supply.351
To address this problem, the State has permitted the
349 Peters, Philip. “The Farm ers M arkets: C rossroads o f C u b a ’s Economy. ” The Lexington Institute.
October 2000. w w w . lex in gton inst itute.org
350 Ibid.
351 Ibid.
137
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
participation of various suppliers (i.e., UBPCs, CPAs, and State cooperatives) in the
farmers'’ markets.352
Today’s farmers’ markets are not the first to operate in socialist Cuba. In fact, they were
preceded by the “free farmers’ markets” or the Mercados Libres Campesinos - MLCs of
the early 1980s. These markets, which lasted from 1980 to 1986, were established by
Decree - Law No. 66, and were created to facilitate the sale of surplus production
(beyond required Acopio quotas) by private farmers and cooperatives.
During their
short-lived existence the MLCs became very popular among both consumers and
producers, and made significant contributions to improving the quantity and quality of
Cuba’s food supply.
However, despite their overall success and popularity, the MLCs accounted for a
•
relatively small share of the total food expenditures among the general population.
353
Furthermore, they created certain socioeconomic tensions and class differences between
those who could afford purchases at higher prices, and those who were not able to do so;
leading to their demise in 1986. From the State’s perspective, the rapid proliferation of
the MLCs was accompanied by three negative aspects or tendencies (officially called
tendencias negativas).
First, the MLCs offered a variety of agricultural goods at
exorbitantly high prices, which stratified Cuban society by excluding individuals at lower
income levels.354 Second, many agricultural producers participating in the MLCs were
diverting output from Acopio to sell at higher prices in the farmers’ markets. Finally,
352 Ib id
353 Ib id
354 Ib id
138
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
middlemen or intermediaries, along with some “unscrupulous speculators,” instead of
workers and farmers, were exploiting the situation and benefiting from the MLCs. As a
result, the government decided to shut down the MLCs as part of the Rectification
Process (RP) in 1986.
This step, motivated by official concerns about the potential
political risks posed by the emergence of a “merchant class” among Cuba’s independent
farmers, despite official claims about high prices, diversion of output from Acopio, and
rampant corruption, sealed the fate of the MLCs, and reinstated the State’s absolute
control over the production and distribution of food in Cuba. The entire agricultural
sector, with the exception of the relatively few independent farmers was once again
thrown into the hands of the State; this situation would remain unchanged until the
introduction of Decree - Law No. 191 in 1994.
The return of the farmers’ markets was facilitated by Decree - Law No. 191, approved in
1994.
To justify this change in policy, and the injection of some elements of market
capitalism into this vital part of Cuba’s agricultural sector, Decree - Law No. 191
O ff
stipulates the following with regards to the farmers’ markets:
•
All producers may sell at the markets - State farms and enterprises, all types of
cooperatives, individual private farmers, and families that cultivate small parcels
of land distributed in recent years to increase food production.
• Prices are not regulated (by the State).
• Market vendors must be producers or their designated representatives.
• Vendors pay tax for their business activities and a fee for the space they rent.
• Producers are permitted to sell their surplus and any produce for which the State
does not contract, such as lettuce and other perishable vegetables. Producers are
subject to penalties if they sell products at the farmers’ markets while failing to
deliver their quota.
355 Peters, Philip. “The Farm ers M arkets: C rossroads o f C u b a ’s Economy. ” The Lexington Institute.
October 2000. www.lexingtoninstitute.org
139
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
Producers are not restricted to markets in their own geographic area; they may sell
anywhere in Cuba. The tax rates imposed on vendors are skewed to create
incentives to increase supply and lower prices in Havana and provincial capitals.
The tax, paid daily based on the value of the product vendors have on offer, is 5
percent in Havana; 10 percent in provincial capitals; and 15 percent elsewhere.
Local authorities determine the number and location of the markets in each
municipality.
The reintroduction of the farmers’ markets has impacted Cuban agriculture in two ways.
First, there has been an increase in the quantity and quality of the country’s food supply.
According to Peters (2000), sales in the farmers’ markets grew from 1.484 billion pesos
in 1995 to 1.733 billion pesos in 1999.356 Similarly, quantities sold increased from
3,786,000 quintales (or 100 lb. quantities) in 1995 to 11,259,800 quintales in 1999.357
Second, the re-introduction of the farmers markets deflated the prices of agricultural
products in the second economy, and provided ordinary Cubans (particularly those with
little or no access to U.S. dollars) with an alternative to the black market and the dollar
stores.
Despite these accomplishments, however, Cuba’s farmers’ markets face a series of
regulatory and structural constraints that limit their success. For one thing, these markets
suffer from significant prices imbalances and monopolistic tendencies created by the
overwhelming participation of the private sector vis-a-vis cooperatives and State farms.
Private farmers account for the largest share of sales in the farmers’ markets, followed by
the cooperative sector, and the State. Since the quality of their products is superior to that
o f the products offered by their competitors, private farmers can often charge higher
prices for their products and services. These prices, however, are not always determined
356
Ibid.
357 ibid.
140
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
by the forces of supply and demand, but are artificially created through monopolistic
practices and collusion.
To correct this problem, the State has encouraged greater
participation by the cooperative sector and State farms, but their high levels of
inefficiency, relatively low productivity, and structural and legal restrictions, limit their
ability to influence prices in the farmers’ markets. This contributes to a limited supply of
agricultural goods (and higher prices), and demonstrates that, when it come to improving
the quality and quantity of Cuba’s food supply at reasonable prices, via the farmers’
markets or any similar mechanism, a lot of work still remains to be done.
5.3.2. Dollarization
The next component of Cuba’s post Cold War economic reforms package is dollarization.
The quasi-official dollarization of the Cuban economy was formalized by the approval of
Decree - Law No. 140 in 1993. The main objective of this measure was to provide the
Cuban government with the means to effectively capture a significant portion of the
foreign exchange circulating in the second economy. To accomplish this goal, along with
the de-penalization of the U.S. dollar, the Cuban government established the so-called
dollar stores or Tiendas de Recuperation de Divisas (TRDs). At the same time, a third
currency - the convertible peso - was created in an effort to replace some dollars
circulating in the economy, while reaping some of the benefits of seignorage.
Currently, the principal source of U.S. dollars in Cuba comes from family remittances
from abroad, mainly from the Cuban Diaspora residing in the United States. According
to Ritter and Rowe (2000), family remittances to Cuba have grown from an estimated
141
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
$18 million in 1991 to more than $725 million in 1999.358 More recent data suggests
that by the end of 2001 family remittances from abroad had surpassed the $1 billion
mark, and were significantly higher than the hard currency earnings generated by Cuba’s
principal export: sugar.359
The second source of dollars in Cuba consists of a variety of transactions that take place
within the first and second economies such as dollar purchases by residents, tourists, and
visitors. Most of these transactions increase the amount of dollars in circulation, since
they often take place in the legal and clandestine self-employment sectors, where
transaction values and levels are often undetected and unreported.360 The third source of
dollar inflows into the Cuban economy includes the funds saved and brought back to
Cuba by citizens traveling abroad
(i.e., government officials, athletes, entertainment
figures, etc.).361 Finally, the fourth source of dollars consists of income payments by
foreign companies to Cuban workers, as well as dollar payments by embassies,
consulates, and other foreign institutions.362
The demand for dollars in Cuba is primarily driven by purchases of imported and
domestic consumer goods at the dollar stores.
The dollar stores, or TRDs, are
government-operated retail outlets, which sell a wide array of products in U.S. dollars.
358 Ritter, Archibald R.M. and N icholas Rowe. “Cuba: From ‘D ollarization ’ to ‘E uro-lzation ’ or ‘P eso
R econ solidation ’. ” Unpublished Paper. Department o f Econom ics and International Relations. Carleton
University. Ottawa, Canada. October 2000.
359 Frank, Marc. “C astro desm antela la industria azucarera. ” El N uevo Herald Digital. June 5, 2002.
www.elnuevoherald.com
360 Ritter, Archibald R.M. and N icholas Rowe. “Cuba: From ‘D o lla riza tio n ’ to ‘E u ro -lza tio n ’ or ‘P eso
R econ solidation ’. ” Unpublished Paper. Department o f Econom ics and Internationa] Relations. Carleton
University. Ottawa, Canada. October 2000.
361 Ibid.
362 Ibid.
142
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The major dollar store chains include Tiendas Panamericanas, Tiendas Universo,
Tiendas Caracol, Tiendas de Cubalse, Tiendas TRD Caribe, and Tiendas en la Habana
Vieja.
Currently, there are an estimated 1,000 TRDs in Cuba, with annual sales
exceeding one billion dollars.363 These stores specialize in the sale of imported and
domestic food and grocery items, as well as clothing, electronics, and household items,
all in U.S. dollars.364 Usually, the prices charged in these stores are about 200% above
the prices charged in other internal markets.365 The Cuban government applies an
implicit tax rate of 140% to the sale of most products, particularly imported foodstuffs
and consumer goods.366
In the case of electronic appliances and other imported
electronics, the government applies an implicit tax rate of 100% to all purchases. 367 The
majority o f the products offered in the TRDs are imported from abroad, although
domestic items have been gaining market share in recent years.
In addition to purchases at the dollar stores, the demand for dollars in Cuba is driven by
transactions carried out in the legal self-employment sector, and the clandestine second
economy. As the number of tourists and visitors has increased over the last decade, so
have the number of transactions taking place outside the official State sector. Cuba’s
efforts to attract foreign investment, combined with the implementation of limited market
reforms in agriculture and self-employment, as well as the de-penalization of the U.S.
363 Ross, James E. and Maria Antonia Fernandez Mayo. “Cuba: An O verview o f the D o lla r F o o d Market. ”
Unpublished paper presented at the 12th Annual Conference o f the Association for the Study o f the Cuban
Econom y (ASCE). Coral Gables, FL. August 2002.
364 Ibid.
365 Ibid.
366 Ritter, Archibald R.M. and N icholas Rowe. “Cuba: From ‘D o lla riza tio n ’ to ‘E u ro -lza tio n ’ or ‘P eso
R econ solidation ’. ” Unpublished Paper. Department o f Econom ics and International Relations. Carleton
University. Ottawa, Canada. October 2000.
367 Ibid.
143
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
dollar, have resulted in an unprecedented explosion in dollar-denominated transactions
mostly taking place outside the controlled (peso) economy. This has caused a drastic
increase in the demand for dollars, which, in turn, has contributed to increases in the
greenback’s circulation.
Dollarization, however, has not come without socioeconomic costs and consequences.
The first socioeconomic impact of this reform cannot be attributed to the process of
dollarization itself; instead, it has been the result of the monopolistic structure of the
dollar stores themselves. The dollar stores are in essence State-run monopolies with an
absolute price and competitive advantage. Since no individual investor is allowed to set
up a competing enterprise, and the State is the sole shareholder in the dollar stores (in
association with some foreign investors in some cases), the TRDs have absolute control
over the prices charged for any available product.
Generally, these prices are 200%
higher than the prices charged in other internal markets, which prevents various segments
of the population from being able to make any substantial purchases at the dollar stores.
As a consequence, there is a large number of Cubans with little or no access to U.S.
dollars, who are unable to buy any products at the dollar stores.
To stimulate more purchases from this segment of the population, the State has opened
foreign exchange houses, Casas de Cambio or CADECAs.
The CADECAS basically
allow those earning peso-only salaries to exchange their pesos for the highly coveted
dollar without having to recur to the black market. However, such transactions take place
at the quasi-official exchange rate (currently, at 27 pesos per dollar), which significantly
reduces the purchasing power of the Cuban peso with respect to the dollar. Therefore, it
144
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
can be said that the most widely felt socioeconomic impact of dollarization has been a
pervasive income inequality between those that have access to dollars, and those who do
not.
As the dollar gains wider acceptance as a medium of exchange and a store of value, more
individuals are presented with incentives to exit the controlled (peso) economy, and
incorporate themselves into dollar generating activities.
This has created a unique
socioeconomic paradox for Cuba: although it boasts an impressive record in education, a
growing number of the country’s well-educated professionals are abandoning their
professions in the State sector to engage in dollar-producing activities, usually as selfemployed operators or cuentapropistas. Cuba is among several countries in the world
where one can find a well-trained surgeon dubbing as a taxi driver, or a respectable
academic professional moonlighting as a restaurateur or working as an intermediary in
the local farmers market. The brain drain from the controlled peso economy into the
second economy has been another of the socioeconomic impacts of the recent process of
dollarization in Cuba; demonstrating that, in addition to dollarizing the economy, other
macroeconomic stabilization measures need to be implemented to pull the country out of
the post-Soviet economic crisis.
5.3.3. Self-Employment
Another component o f Cuba’s post-Soviet economic reforms was the legalization of
more than 140 self-employment activities through the introduction of Decree - Law No.
141 on September 1993. Although self-employment reforms are nothing new in Cuba,
the introduction of Decree - Law No. 141 expanded the over all scope private
145
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
employment, and opened the door for what many perceived to be a new era of Stateprivate sector relations in the aftermath of the collapse of socialism.
According to
Decree - Law No. 141 individuals meeting the following criteria were permitted to
I / O
register as cuentapropistas or self-employed:
•
•
•
•
Workers assigned to work centers, including graduates from middle level
technical schools. (Leaders were excluded.)
Persons who have been retired for whatever reason, as well as those who have
reduced working ability.
Housewives.
University graduates were not initially authorized to engage in self-employment
activities. However, this was changed after the introduction of Resolution No. 10
of the Ministry of Labor and Social Security (June 1995), which allows selfemployment by university graduates in areas that differ from their professional
training.
In terms of the requirements and conditions for self-employment, Decree - Law No. 141
stipulates the following:369
• Eligible citizens must be registered as being self-employed.
• The authorized person must carry out the activity without employing salaried
workers.
• Direct sale to the population of products and services provided by the selfemployed is allowed. However, an attempt should be made to prevent at all costs
the emergence of intermediaries or parasites that make profits and enrich
themselves through the efforts of others.
• Prices and conditions, as a rule, will be agreed upon by the buyer and the seller.
In case of abuse or of clearly excessive profits, prices may be regulated by the
People’s Council.
• The State must not withdraw from any activity because of the emergence of selfemployment. Self-employment activities must be seen as a complement to State
efforts.
• The amount of the monthly fee to be paid will be determined by the municipal
administration council, based on a minimum quota set for each occupation.
368 Jatar - Hausmann, Ana Julia. The Cuban Wav: Capitalism. Communism and Confrontation. Kumarian
Press. W est Hartfort, CT. 1999.
369 Ibid.
146
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The change in government policy towards the self-employed was attributed to several
factors.
First, between 1990 and 1993, as economic conditions in the State sector
deteriorated, there was a notable increase in the number of workers who became, and
were willing to become self-employed. Second, the government found it advantageous to
allow self-employment in a wide array of activities in order to bridge the growing
inequalities between the peso and the dollar economies by providing more Cubans with
an opportunity to earn dollars (or higher peso incomes) through self-employment.
Finally, by allowing the expansion of self-employment, the government would be able to
impose higher taxes on the earnings of the cuentapropistas, and increase its fiscal
revenues.
The initial reaction to the legalization of a wider range of self-employment activities,
after the introduction of Decree Law No. 141 on September 1993, was quite impressive.
By December 1993, just a few months after the law was introduced, 70,000 Cubans had
obtained licenses for self-employment. However, by February 1994, concerned with the
rapid expansion and growing popularity of self-employment, the government acted to
control this burgeoning sector by issuing a list of infractions - including working in
unauthorized activities and hiring middlemen - punishable by fines up to 1,500 pesos.
370
According to various sources, the restrictions failed to deter the cuentapropistas, or selfemployed, and the sector continued to expand rapidly, numbering more than 160,000 by
December 1994.
By the end of 1995, the number of Cubans with self-employment
permits reached approximately 208,000 workers, accounting for a little over five percent
370 Ibid.
147
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
of the island’s four million-person labor force.371 According to official estimates, another
•
200,000 were working in similar activities without licenses during this period.
372
In June 1996, the government opened forty new activities for self-employment and
increased the monthly tax rate for them. The range of fees established in 1993 went from
a minimum of zero (exempted) to a maximum of 80 pesos per month, to a new range of
10 to 400 pesos per month. The most successful activities have been taxed with the
highest fees.
T73
•
•
•
Also, university graduates - previously banned from participating in any
self-employed activity - are now allowed to do so. Unfortunately, they are restricted to
the 157 legalized activities, and they cannot be self-employed in their field of expertise or
specialization.374 After an impressive initial boom, the number of self-employed workers
with licenses declined mainly in response to new (and higher) taxes, particularly the
recently created progressive income tax. Constant harassment and criticism have also
contributed to the decline in the number of legally self-employed workers in Cuba. Many
self-employed individuals complain that government inspectors often drop by their
homes or points of sale - asking a myriad of questions with the clear intention of
uncovering some sort of wrong doing or irregularity.375
Constant harassment by the
authorities (i.e., government inspectors and the police), combined with an excessive tax
burden, has forced many cuentapropistas to abandon legal self-employment and resume
their activities in the black market - casting a shadow of doubt about the effectiveness of
Cuba’s self-employment reforms.
371 Ibid.
372 Ibid.
373 Ibid.
374 Ibid.
375 Ibid.
148
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
5.3.4. Banking and Financial Sector Reforms
Prior to 1997, the Cuban financial system was rather arcane and primitive. It consisted of
the Banco Nacional de Cuba (BNC), or Cuban National Bank, which acted as a
commercial bank and bank o f issue - but played no role in guiding or influencing the
country’s monetary policy - and the Banco Popular de Ahorro (BPA), a retail-based
savings and loan association (SLA) catering mostly to peso-bearing Cubans.
The entire
system was strictly controlled by the State, which did not permit any private investment
or ownership. As in most centrally planned economies (CPEs), Cuba’s financial sector
played a passive role in encouraging savings and channeling these resources to
productive activities.376 Interest rates were kept relatively low and were not perceived as
an instrument to induce shifts in liquidity preferences or as a means to accumulate
wealth.377 In addition, “there were no mechanism to conduct open market operations, and
except for a liquidity ratio, bank deposits were not subject to legal reserve
requirements.”378 “In sum, macroeconomic trends were primarily influenced by the fiscal
policy stance, and the banking system was almost exclusively utilized to accommodate
fiscal and quasi-fiscal needs.”379
In 1997, with the introduction of Decree - Law No. 172, several steps were taken to
restructure Cuba’s financial system. A new Central Bank, the Banco Central de Cuba
(BCC), was created, removing central banking functions from the National Bank or the
376 Linde, Armando, S. “The E ffectiveness o f C u b a ’s Banking Sector Reforms. ” Cuba in Transition.
Volum e 9. Association for the Study o f the Cuban Econom y. (ASCE). Coral Gables, FL. 1999.
377 Ibid.
378 Ibid.
379 Ibid.
149
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
Banco Nacional de Cuba (BNC)m
After 1997, the BCC became responsible for
carrying out traditional central bank functions such as:
•
•
•
•
Preserving the value of the domestic currency;
Managing credit, exchange, and interest rate policy through the conduct of
monetary policy;
Acting as a lender of last resort to the banking system; and
Supervising the banking system and chartering new banks and financial
intermediaries.
Also, after 1997, the functions of the Banco Popular de Ahorro (BPA) were extended to
provide the following services:
•
•
•
Savings accounts for Cuban citizens (denominated in both U.S. dollars and Cuban
pesos);
Commercial lending and financing to State-owned enterprises (SOEs) and other
(State-owned or State-approved) entities; and
A foreign exchange window for international economic associations (not
individual foreign investors).
In addition to the creation of the Banco Central de Cuba (BCC) and the expansion of the
functions and services offered by the Banco Popular de Ahorro (BPA), the restructuring
of Cuba’s banking and financial sector resulted in the creation of several new institutions
and financial intermediaries. Table 18 provides a list of these intermediaries and their
principal functions and characteristics. It is worth noting that some of these entities were
created prior to the approval of Decree - Law No. 172, on May 28, 1997.
380 Ibid.
150
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 18 - Cuba: Post-1995 Financial Intermediaries
Functions and Characteristics
Financial Intermediary
(Year Established)
Banco Nacional de Cuba (BNC)
► Leading lending institution to SOEs
>
(More than 30 years in existence, new
functions after 1996)
Leading negotiator o f Cuba’s foreign debt
► Provides commercial and industrial financing,
with emphasis on agricultural sector
Banco de Credito y Comercio (BCC)
► Has more than 200 branches throughout the
country
(1996)
Banco Financiero Internacional, S.A. (BFI)
(1984)
► Specializes in foreign exchange and trade
financing mainly to the commercial and
production sectors.
► Panamanian shareholders
► Leading bank in trade financing
Banco Internacional de Comercio, S.A.
(BICSA)
► Specializes in foreign exchange transactions
► Responsible for managing corresponding
relationships with banks overseas
(1994)
► Conducts trade financing, foreign exchange
transactions, project financing, leasing and
factoring
Financiera Internacional, S.A. (FISA)
(1996)
► Primary focus: foreign exchange operations
► Established to serve the diplomatic and foreign
community residing in Cuba
Banco Metropolitano, S.A. (BMSA)
► Other customers: Cubans who receive or earn
foreign exchange
(1996)
► Provides medium and long term project financing
and financial advice to local companies in the
production sectors.
Banco de Inversiones, S.A. (BISA)
(1996)
► Main focus: tourism industry
► National network o f foreign exchange houses
situated in urban areas catering to the general
public for the purchase and sale o f foreign
exchange and domestic currency
Cadenas de Casas de Cambio (CADECA)
(1995)
► Retail network serving mostly visitors and foreign
tourists, as well as Cubans with access to hard
currency, mainly USD.
151
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
As shown on Table 18, the structure of Cuba’s financial system is extremely
compartmentalized. Each entity that comprises the system functions as a separate piece
of the whole, with notable overlaps in terms of their roles and functions.
This is
particularly true in the case of banks or financial intermediaries specializing in foreign
exchange operations. The current organizational structure of the Cuban financial system
reflects the classical “holding company model,” where the Cuba State (as opposed to a
privately-owned consortium) acts as the holding company that owns all of the banks and
financial intermediaries.
This arrangement allows these intermediaries to capture
deposits or borrow funds, which then are lent to the State -without making any risk or
creditworthiness assessments or considerations.
Since the Cuban State acts as the
principal client in the financial system, Cuban banks and financial intermediaries are far
from independent and are not able to truly diversify their risks.
Despite recent restructuring efforts, the Cuban financial system serves as an accounting
vehicle and as a paying/collection agency for the State -rather than functioning as a
traditional financial system. To make matters worse, banking personnel have been given
relatively little training in their field and operations procedures are rather inadequate or
antiquated. At the same time, banking supervision is extremely lax or non-existent casting a great deal of doubt over Cuba’s recent efforts to implement banking and
financial sector reforms.
152
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
5.3.5. State Enterprise Reforms
The final component of Cuba’s domestic economic reform package is perfeccionamiento
empresarial or State enterprise reforms. On August 18, 1998 the Cuban government
approved Decree Law No. 187, which provides the fundamental framework for the
country’s Enterprise Optimization Program (EOP), or perfeccionamiento empresarial.
Cuba’s EOP has no exact analogy in capitalism and its core principles are not borrowed
nor replicated from similar models applied in other socialist or centrally planned
economies. Instead, perfeccionamiento empresarial seeks to establish a foundation and
set specific guidelines for an enterprise reform process designed to achieve higher
lo i
efficiency and productivity levels in Cuba’s State-owned enterprises (SOEs).
Perfeccionamiento empresarial requires Cuban workers and managers to have skills and
outlooks that radically differ from those of the past.382 They must operate on their own
in markets, not merely as subordinate units of government ministries, but rather as selfreliant, profitable, enterprises.383 Cuba’s enterprise reform program aims to shear layers
of bureaucracy from everyday economic decision making, while replacing the old Sovietstyle state planning with a more dynamic and effective form of management. In essence,
perfeccionamiento empresarial seeks to create a chain of profitable, autonomous, and
agile enterprises, while enhancing their socialist essence by preserving the State’s
ownership.384
381 Travieso-Diaz, Matias F. “C u b a ’s Perfeccionamiento Empresarial Law: A Step Towards Privatization?
Cuba in Transition. Association for the Study o f the Cuban Econom y (ASCE). Volum e 11. Coral Gables,
FL. 2001.
382 Peters, Philip. “State Enterprise Reform in Cuba: An E arly Snapshot. ” The Lexington Institute.
www.lexingtoninstitute.org July 2001.
383 Ibid.
384 Ibid.
153
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
The objectives, characteristics, and stages of Cuba’s Enterprise Optimization Program
(EOP), or perfeccionamiento empresarial, can be summarized as follows:
Objectives o f Cuba’s Enterprise Optimization Program (EOP):
•
To establish a foundation and set specific guidelines for an enterprise reform
process designed to achieve higher efficiency and productivity levels in Stateowned enterprises (SOEs)
•
To improve Cuba’s socialist economy from within
Principal Characteristics of Cuba’s EOP:
•
Enterprise efficiency and productivity levels should be improved by the
decentralization of decision-making
•
Workers’ salaries and compensation should be tied to enterprise performance
•
SOEs should strive to become self-financing and economically self-sufficient
T able 19
Stages in Perfeccionamiento Empresarial
Principal Characteristics
j(Stage— 'i-T
Stage #1
•
•
Stage #2
S tage# 3
Workforce and labor unions must be trained in the principles o f
perfeccionamiento empresarial, and become active participants in the
•
process.
External (consulting) group(s) conduct an initial diagnostic (or
assessment) o f the enterprise.
o This analysis consists o f a detailed evaluation o f the
enterprise’s current history, its current status, future
prospects, the state o f its resources, its internal culture, and its
technical and managerial functions and capabilities,
o The primary objective o f this analysis is to identify internal
and external problems and issues, and determine areas in
which efficiency can be improved.
Evaluate the results o f the diagnostic analysis o f the enterprise.
o This evaluation is conducted by the Government Group o f the
154
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Stages in Perfeccionamiento Empresarial
Stage
Principal Characteristics
Executive Committee of the Council o f Ministers,
Its main objective is to determine whether the enterprise
should be permitted to continue with the implementation of
the Program.
Enterprises selected to participate in the EOP develop an optimization
proposal, or expediente de pefeccionamiento empresarial (EPE).
o The EPE is a detailed business plan that summarizes how the
enterprise expects to optimize its operations,
o In addition, the EPE contains a detailed description o f the
enterprise’s business objectives, the proposed management
changes, the methods to implement internal controls, as well
as planning, contracting, human resources management,
marketing, etc.
o The EPE also contains information about the proposed
economic objectives and compares them to the enterprise’s
performance prior to the implementation o f the EOP. This
document also contains a detailed implementation schedule.
The EPE is submitted by the enterprise to the OSDE that supervises
the business sector in which it operates.
The OSDE presents the EPE to the Government Group o f the
Executive Committee o f the Council o f Ministers, which ultimately
determines whether the proposed business plan satisfies the
optimization principles stipulated in the General Bases, and decides if
the projected economic performance is acceptable.
The EPE is implemented by the enterprise, upon its approval by the
Executive Committee of the Council of Ministers.
The enterprise undergoes a continuous process o f increased
optimization, once the initial objectives set forth in the EPE are
achieved.
o
•
Stage #4
•
Stage # 5
•
Stage # 6
•
Stage # 7
•
Cuban authorities describe Decree Law No. 187’s intent as that of improving the national
economy through the enhanced efficiency of SOEs, within the context of continued State
control and ownership.385 Despite of the government’s desire to preserve the State’s
ownership of these SOEs, its is of interest to Cuba’s future economic development to
determine if perfeccionamiento empresarial represents a concrete step towards the
385 Travieso-Diaz, Matias F. “C u b a ’s Perfeccionamiento Empresarial Law: A Step Towards Privatization?
Cuba in Transition. Association for the Study o f the Cuban Econom y (ASCE). V olum e 11. Coral Gables,
FL. 2001.
155
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
seemingly inexorable privatization of the country’s SOEs during the period
transition.386 Cuba has yet to take concrete steps in this direction.
386
Ibid.
156
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 6
THE OUTCOME OF CUBA’S POST-SOVIET ECONOMIC
REFORMS
6.1. External Sector Reforms
The analysis presented in this study suggests that Cuba’s effort to attract foreign capital
after the collapse of socialism in the early 1990s, and the role of foreign investment in the
Cuban economy, have been (and continue to be) the subject of intense debate among
Cuba experts and scholars. On one side there are those who believe that the total amount
o f foreign investment delivered to the country has been negligible, particularly when
compared to capital flows to other regions of Latin America and the Caribbean. They
argue that foreign capital plays a minimal role in the Cuban economy, suggesting that
Cuba’s efforts to attract foreign investment to increase exports and resurrect international
tourism have failed.
Their argument is based on a simple quantitative comparison
between Cuba and other Latin American countries with similar levels of dependency on
international tourism and the external sector. Although, at first, it may seem like this
approach can provide a good indication of the success or failure of Cuba’s external sector
reforms, relying solely on quantitative comparisons presents only part of the picture.
387
There are several reasons for this. First, it must noted that Cuba’s investment climate,
unlike that of other Latin American and Caribbean countries, has been made riskier and
more uncertain by U.S. economic sanctions. The U.S. embargo, particularly after the
387 Perez - Villanueva, Omar Everleny. “E stabilidad m acroeconom ica y financiam iento externo: La
inversion extranjera directa en Cuba. ” Centro de Estudios de la Economla Cubana (CEEC). La Habana,
Cuba. Abril, 2000.
157
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
approval of the Helms - Burton Law in 1996, has made investing in Cuba more
complicated, and has added to the risks and uncertainties of the business climate in the
island.388 Secondly, the Cuban leadership has repeatedly stated that they resorted to
foreign investment in the early 1990s out of pure necessity, and against their will. In
many occasions, they have also made it clear that Cuba is not moving towards a market
system, nor the development of an economically influential and politically conscious
private sector.389 According to them, Cuba is, and will remain a socialist country (i.e.,
“Somos y seremos un pais socialista” 39°). Finally, despite the introduction of some
limited market reforms, Cuba still remains a socialist country, and the Cuban economy
and its business environment operate under structural constraints that differ significantly
from the rest of Latin America. As a result, quantitative comparisons between the role of
foreign capital in Cuba and its Latin American neighbors based on delivered (and even
-1 Q 1
planned) foreign investment are of limited value.
Although it is true that the role of foreign capital in the Cuban economy has been far
from significant, there are some indicators that show that in recent years it has become
quite important. For instance, output generated by international economic associations
has increased steadily since 1995, reaching an estimated $768 million by the end of
388 Spadoni, Paolo. “Foreign Investm ent in Cuba: R ecent D evelopm ents an d R ole in the Economy. ”
Unpublished paper presented at the 12th Annual Conference o f the Association for the Study o f the Cuban
Econom y (ASCE). Coral Gables, FL. August 2002.
389 Ibid.
390 This political slogan can be com m only found in Cuban cities, on the w alls o f many schools, and
government buildings, and along many roads and highways.
391 Spadoni, Paolo. “Foreign Investment in Cuba: R ecent D evelopm ents and R ole in the Economy. ”
Unpublished paper presented at the 12th Annual Conference o f the A ssociation for the Study o f the Cuban
Economy (ASCE). Coral Gables, FL. August 2002.
158
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
2001.392 Their share in Cuba’s total value of exports of goods and services has also
increased; in 2001, they accounted for 16.5% of the country’s total dollar revenues from
all sources.393
Considering the fact that, between 1991 and 2000, foreign direct
investment in Cuba represented just 8% of the country’s gross fixed capital formation, the
performance of international economic associations appears to be quite remarkable.394
Aside from the growing influence of international economic associations, there are other
indicators that illustrate the growing influence of foreign capital in the Cuban economy.
According to the Havana-based Center for the Study of the Cuban Economy (Centro de
Estudios de la Economla Cubana), by the end of 1997, joint ventures with foreign capital
accounted for the following shares of economic activity: oil exploration, 100%; metallic
mining, 100%; lubricants, 100%; soaps, perfumes, personal hygiene products, and
cosmetics, 100%; industrial cleaners, 100%; telephone services, 100%; rum exports,
100%; citrus fruit production, 70%; nickel production, 50%; cement production, 50%;
hotel room construction (for international tourists), 10%; and tourism facilities and
infrastructure management (under contract), 39%.395
According to Spadoni (2002), since 1997, the importance of foreign capital in Cuba has
grown even more.
In the oil sector, Cuban authorities announced that, as of December 2000, foreign
companies have invested a total of $446.6 million. Crude oil extracted through
392 Ibid.
393 Ibid.
394 Ibid.
395 Perez - Villanueva, Omar Everleny. “E sta b ilid a d m acroecdnom ica y fm anciam iento externo: La
inversion extranjera directa en Cuba. ” Centro de Estudios de la Economla Cubana (CEEC). La Habana,
Cuba. Abril 2000.
159
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
exploration activities with overseas firms (along with the introduction of top level
technologies) has enabled the Cuban government to increase domestic production
of electricity and natural gas. For instance, the Energas plant constructed with the
Canadian company Sheritt in 2000 (cost of the project around $150 million) uses
the natural gas released during oil extraction for producing electricity and naphta.
In 2001, more than 70% of the country’s electricity was already generated with
domestic fuel. In the nickel sector, the impact of FDI over production has been
significant. It is reported that total foreign investment in nickel has amounted to
over $400 million, increasing production from 26,900 tons in 1994, to 76,500 tons
in 2001. Just one plant (Pedro Soto Alba), operated through a joint venture
between Cuba’s General Nickel Co. S.A. and Canada’s Sheritt International,
produced a record of 32, 360 tons in 2001 (42% of total production). In the
cement sector, FDI has taken a prominent role thanks to the involvement of
Spain’s Inversiones Ibersuizas and Swiss-based Holderbank. In tourism, 26 joint
ventures in the hotel industry had 15,600 rooms under development and 3,700 in
operation in 2000, just 11% of the 35,000 available rooms in Cuba. However,
there were 17,000 rooms under management contracts with foreign firms that
represented around 48% of the total. Finally, with new agreements such as those
of Compania Azucarera, Altadis, and Pescanova, foreign participation has a
substantial influence over production and marketing for the five largest export
sectors (in terms of gross U.S. dollar revenues), such as sugar, nickel, tobacco,
rum, and fishing. According to the Cuban Central Bank, these sectors accounted
in 2001 for more than 32% of Cuba’s total dollar revenues from all sources.396
Foreign investment has also contributed to the improvement of Cuban production, as well
as the use of import substitution as part of the country’s overall economic strategy. This
is evidenced by the patterns of sales at international economic associations. In 1995,
exports represented an estimated 66% of the total sales of international economic
associations; in 2001, this figure fell to approximately 42%, suggesting that a growing
portion of sales is taking place in the domestic market.397 Domestic market sales by
396 Spadoni, Paolo. “Foreign Investm ent in Cuba: Recent D evelopm ents an d R ole in the Economy. "
Unpublished paper presented at the 12th Annual Conference o f the A ssociation for the Study o f the Cuban
Econom y (ASCE). Coral Gables, FL. August 2002.
391 Ibid.
160
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
international economic associations have grown steadily since the mid 1990s, reaching an
estimated 58% of the total in 2001.398
In the oil sector, foreign investment has doubled Cuba’s refining capacity, resulting in a
savings of more than $410 million in oil exports in the year 2000.399 Similarly, in the
tourist sector, foreign capital has contributed to increases in the market share of
domestically produced goods. The proportion of domestically produced goods increased
from 12% in 1990 to an estimated 67% in 2001.400
The development of mixed
enterprises (i.e., joint ventures) in the tourism sector has provided an incentive for the
development of similar entities in other sectors of the economy such as the food industry,
agriculture, and services.
This has contributed to an increase in the market share of
domestically produced products and services in the tourism industry. Finally, as a result
of growing foreign investment, the share of domestic products sold to the TRDs (or dollar
stores) has grown from 47% in 1999 to an estimated 55% in 2001.401
However, despite its impact on total exports, as well as the growing market share of
domestic products in the tourist industry and at the dollar stores, foreign capital flows are
not Cuba’s principal source o f hard currency earnings. This role is assumed by family
dollar remittances from abroad, which have significantly exceeded the amount of foreign
investment in the country since the U.S. currency was de-penalized in 1993.
So, in this
respect, it can be argued that Cuba’s external sector reforms, particularly when it comes
1Ibid.
’ Ibid.
400
Ibid.
1Ibid.
161
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
to converting foreign investment into the main engine of growth for the economy, have
failed to achieve their objective. Another area in which these reforms have failed is the
socioeconomic arena.
While it is true that higher inflows of foreign capital have
contributed to improving the living standards of a portion of the population, this segment
is relatively small, and current legal restrictions limit their ability to benefit from the flow
of foreign capital into the Cuban economy.
Table 20 - Cuba: Foreign Direct Investment (FDI)
(1993-2001)
Millions U.S $
Year
1993
1994
1995
1996
1997
1998
1999
2000
2001
Total
FDI
54.0
563.4
4.7
82.1
442.0
206.6
178.2
448.1
38.9
1,964
Source: CEPAL (2000) an d Banco Central de Cuba (BCC) (2002)
Figure 9
C u b a : F o r e ig n D irect I n v e s t m e n t (FDI)
( 1993- 2 0 0 1 )
Millions USS
600
9/11 T e rro r A ttacks
in the United S tates
US C o ngress approves
the H e lm s-B urton Act
(M arch 1996)
500
400
CO
w
c=
300
200
100
1993
1994
1997
1998
2000
162
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
2001
The data on Table 20 and Figure 9 was derived using estimates from the United Nations
Economic Commission for Latin America and the Caribbean (ECLAC) or CEPAL and
the Cuban Central Bank or Banco Central de Cuba (BCC). These figures represent the
amount of FDI actually delivered versus the amount committed during the 1992-2001
period. According to the CEPAL, by the end of 2001 the cumulative value of committed
foreign investment in Cuba reached a total of $5.4 billion, with an estimated $2.7 billion
actually delivered. The Cuban Central Bank provides a more conservative estimate of the
cumulative value of delivered FDI, placing it at $1,964 billion by the end of 2001.
Both sources identify several members of the European Union (e.g., Spain, Italy, and
France), along with Canada, as Cuba’s principal foreign investors and trade partners by
the end of 2001.
Similarly, both sources identify telecommunications, mining, and
tourism as the main destinations of FDI, with a cumulative investment of $600 million,
$350 million, and $200 million, respectively. Finally, according to figures provided by
the Cuban Central Bank, there were an estimated 400 “economic associations with
foreign capital” (or joint ventures) operating in Cuba at the end of 2001 - with Spain
accounting for 104, Canada for 70, Italy for 57, and France for 18, of the totals recorded
for that year.
The figures presented on Table 20 and Figure 9 lead to several observations about the
evolution of FDI, and the outcome of Cuba’s post-Soviet external sector reforms. These
observations can be summarized as follows:
163
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
•
•
•
•
•
•
Despite the impressive growth in the number of economic associations with
foreign capital (or joint ventures), the flow of FDI to Cuba has been extremely
erratic.
Most foreign investment has been destined towards export-oriented sectors of the
economy (i.e., tourism, mining, telecommunications, etc.).
Given the relatively-heavy concentration of FDI on export-oriented sectors of the
Cuban economy, it seems unlikely that firms catering to the domestic market have
been able to take advantage of the traditional benefits associated with FDI (e.g.,
improved efficiency, productivity, and global competitiveness).
There seems to be a significant difference between the amounts of FDI
“delivered” and the amounts “committed,” suggesting that the flow of foreign
capital has been negatively impacted by broad macroeconomic and risk
considerations (e.g., Cuba’s relatively high debt burden, an unfriendly business
and investment climate, excessive red tape, and tightened U.S. economic
sanctions).
The amount of FDI flowing into Cuba (during the 1993-2001) period has been
relatively small in global and regional terms. By the end of 2001, the estimated
amount of FDI in different regions of the world was as follows:
o European Union: S310 billion
o United States: $150 billion
o Asia: $100 billion
o Latin America: $80 billion
o Eastern and Central Europe: $20 to $30 billion
o Africa: $10 to $15 billion
However, Cuba’s efforts seem to have succeeded in attracting diverse sources of
foreign capital into various sectors of the economy (i.e., tourism, mining,
telecommunications, oil exploration, food processing, etc.)
From a socioeconomic perspective, there are several impacts associated with Cuba’s
external sector reforms that question the nature and intent of these reforms. For instance,
Cuban citizens employed by foreign investors (i.e., joint ventures and international
economic associations) are paid in Cuban pesos, even though foreign partners are
required to pay the government entity in charge of hiring them in U.S. dollars. Many
experts believe that a typical foreign investor pays a monthly salary of $450 for each
Cuban worker, which, in turn, is paid some 450 Cuban pesos by the Cuban government
164
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
using the official exchange rate of one Cuban peso per U.S. dollar. However, purchases
at the dollar stores, as well as currency exchanges at the government-operated foreign
exchange houses, CADECA, take place at the quasi-official exchange rate, which has
averaged at 23 pesos per dollar over the last year. As a result, workers in joint ventures
and economic associations receive an average monthly salary of $20 (or 4% of the
monthly salary paid by foreign investors in U.S. dollars) and the Cuban government gets
to keep $430 (or 96%). 402 It is believed that these conditions have contributed to the
proliferation of black market activities, rampant theft from State and foreign owned
enterprises, and bitter resentment by workers against the State and its foreign partners. In
addition, this situation has prompted strong international criticism against Cuba’s efforts
to attract foreign investment under the current environment. In recent years, Cuba has
found itself under increasing international pressure and criticism due to its foreign
investment practices and the treatment of Cuban workers in this sector of the economy.
In order to address this critical issue, while reaping the benefits of foreign investment,
during the period of transition, several steps should be implemented in the near future.
First, the current structure must be dismantled and the labor market should be liberalized.
Cuban workers should be given the option of directly negotiating their contracts and
compensation with foreign investors and/or their representatives. Additionally, Cuban
workers should be allowed to form labor unions, or other similar organizations, to
promote their interests and increase their bargaining power when dealing with foreign
and domestic firms. Theses unions or organizations should enjoy complete independence
from the transition government, and membership should be promoted on a voluntary
402 This is estimated as follows: $450/23 = $19.57.
165
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
basis. At the same time, a series of workplace regulations (i.e., occupational safety,
health hazards, and environmental regulations) should be drafted and enforced by the
Ministry of Labor during the period of transition.
Both domestic firms and foreign
investors should be required to adhere to this code. This should improve working
conditions for Cuban workers, while effectively incorporating Cuba into the global
economy.
The Constitution of 1940 could provide a legal framework (or at least a
starting point) for these provisions.
Finally, while attracting foreign investment to
promote economic growth and development should be among the top economic priorities
of the transition government. This should be done using a gradualist approach to ensure
that labor and environmental standards will be met, and working conditions for ordinary
Cuban workers, across all sectors or the economy, are significantly improved.
Foreign investment will continue to play an important role in Cuba’s economy during the
period of transition. Cuba will need access to international lending institutions such as
the World Bank, the International Monetary Fund (IMF), the Inter-American
Development Bank, and others in order to rebuild its economy and physical
infrastructure. At the same time, the country will need access to private capital and
investment in order to fully reincorporate itself into the global economy, pay down its
massive foreign debt, and find new paths to economic development and prosperity. To
accomplish these goals, while attracting the required amount of foreign capital, several
critical steps should be implemented during the period of transition.
166
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
First, Cuba will need to settle the issue of unsettled claims against properties confiscated
by the current revolutionary government.
This issue should be resolved using the
precedent established by other transition countries, which have successfully achieved this
task (i.e., Hungary, and the Czech Republic); but, it should be done without resorting to
any new expropriations or measures that would will prompt a sudden flight of capital
from the country and would create an unfriendly business climate for foreign investors.
One way to accomplish this is to securitize the value of the outstanding claims (or
disputed confiscated assets), and provide their rightful owners (and their heirs) with the
option of owning shares in newly created entities or receiving a lump sum or stream of
payments for the net present value of the properties or assets in question. Secondly, Cuba
needs to liberalize its labor market and quickly privatize small and medium sized
enterprises. The experiences of other transition countries have demonstrated that, when it
comes to wages and small and medium enterprises, a rapid privatization produces better
results than a gradual approach.
In the case of large SOEs, however, a gradualist
approach is recommended in order to avoid the pitfalls of Russia’s rapid privatization
program.
In order to achieve these goals, one of the first priorities of the transition government
should be the implementation of a comprehensive program of constitutional reforms. It
will be essential to ensure the viability of the transition process, and the economic future
of the country, that the new constitution provides investors (both foreign and domestic)
with all the necessary protections and guarantees afforded by traditional Western
constitutional regimes. The rights of property owners, as well as the rights of investors
167
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and citizens as a whole, should be clearly stated in the new constitution. These rights
should include, but are not limited to, the right to own, sell, transfer, endow, donate, give
as gift, or simply dispose of, any form of property, either tangible or intangible, by any
citizen or legal resident alien, as interpreted by Cuban law. No property should be seized
or confiscated without due process of law and adequate compensation, and any legally
owned (or acquired) property should be saleable, transferable, or rentable, under terms
agreed by all parties, and recognized by the law. Cuba’s constitutional reforms should
include generous, yet prudent, provisions to attract much needed foreign capital and
investment.
However, given the significant role of foreign investment in Cuba’s
economic future for years to come, and the country’s current conditions, this must be
done in a fashion that protects labor and environmental standards, while promoting the
country’s long term economic development and growth.
6.2. Agricultural Sector Reforms
6.2.1. Agricultural Cooperatives (UBPCs)
After almost 10 years since their formation, the performance of Cuba’s UBPCs still
leaves a lot to be desired. Despite the reorganization of a substantial portion of the
country’s agricultural sector into UBPCs, the country’s annual sugar output continues to
decline, falling from 8.1 million tons in 1988-89 to 3.2 million tons in 2001-02. The
production of other agricultural products, with a few possible exceptions, has experienced
similar trends, even though some limited liberalization measures have been introduced in
the agricultural sector. In the course of their existence, there have been several factors
that have contributed to the relatively poor performance of Cuba’s UBPCs. First, many
168
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
UBPCs have failed to attract the labor force required to reach productive levels of output.
The principal reason for this has been their inability to link members’ remuneration with
their productive results. Second, many UBPCs, even those with an adequate labor force,
have not been able to obtain the necessary inputs to optimize yields and productivity.
This has been significantly detrimental in the case of sugarcane UBPCs. Third, the majority
o f Cuba’s UBPCs have not been able to meet the food needs of their workers and their
families, even though a growing number of them are providing self-sufficiency plots to
the majority of their members. Finally, the majority of UBPCs, with those specializing in
citrus fruit production followed by those specializing in sugarcane, have failed to provide
their members with adequate housing and recreational facilities, which has negatively
impacted the supply of labor in the non-State (cooperativized) agricultural sector.
According to various studies and surveys, UBPC members have identified several key
issues as the primary reasons for the UBPCs’ relatively poor performance. First, UBPC
performance has been (and to continues to be) negatively impacted by their lack of
autonomy from the State and the State enterprise in charge of collecting UBPC
production and allocating their inputs.
In the case of sugarcane UBPCs, the lack of
autonomy from their corresponding Complejos Agroindustriales (CAIs )or surgar mills
and the Sugar Ministry or Ministerio de la Industria Azucarera(MINAZ) has also been
cited as a principal impediment to improved performance. Second, the lack of qualified
personnel, particularly in the areas of finance, accounting, management, and economics
has been a serious impediment to UBPC performance and their effective use of inputs
and other resources. Third, UBPC performance has been negatively impacted by their
inability to employ modem agricultural technology (i.e., tractors, fertilizers, irrigation
169
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
equipment, etc.) on a massive scale.
Finally, most UBPCs, both sugarcane and non-
sugarcane, have seen their performance become negatively impacted by their inability to
attract a stable labor force, due to their lack of adequate housing facilities, selfsufficiency plots and pay incentives to attract productive and specialized workers.
Clearly, if Cuba wishes to use the UBPCs as the principal model to improve the
performance of its agricultural sector, while maximizing export earnings and alleviating
food shortages, additional economic reforms must be implemented and the scope of
existing ones needs to be expanded.
Given the current structure of the country’s
agricultural sector, and the critical role it plays in the Cuban economy, not just in terms of
its exports earnings potential, but also in guaranteeing the nation’s food security, a
gradual approach - rather than “shock therapy” - seems to be the most viable option for
further reforming Cuban agriculture. To achieve this objective, at least in the short run,
several policies, that would clearly define the role of the UBPCs and their members, as
well as the role of the market and the State, should be implemented. To improve UBPC
performance:403
(a) The terms and conditions regulating the organization of the cooperatives, the
property rights of their members, their employment, and their relationship with
the State must be clearly defined and stated.
(b) The existing State monopoly with regards to the collection and sale of
agricultural goods must be dismantled, paving the way for the creation of a free
market, where prices are determined by the forces of supply and demand.
(c) All barriers to entry and State-imposed limitations must be eliminated to facilitate
the development of a competitive marketplace for agricultural goods.
(d) The State’s monopoly over the supply of essential agricultural inputs should be
replaced by a competitive market.
403 Rodriguez - Castellon, Santiago. “Las unidades basicas de p ro d u ctio n cooperativa: El p la n y el
mercado. ” La ultima reforma aeraria del siglo: La aaricultura cubana entre el cambio v el estancamiento.
Hans-Jtirgen Burchardt (Ed.). Editorial N ueva Sociedad. Caracas, Venezuela. 2000.
170
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(e) An improved system of remuneration and material incentives should be
introduced to attract more qualified workers to the cooperative sector.
(f) These incentive mechanisms must have the ability to tie worker compensation
with productivity and efficiency levels.
(g) The cooperative sector must be granted full legal and operational autonomy from
the State and other regulatory organisms that currently limit its ability to make
input/output decisions with full independence.
(h) Property rights must be changed to make cooperative members the legal owners
of the land, thus initiate the development of an “ownership conscience” among
these individuals, to improve productivity and efficiency levels.
The implementation of these reform measures will undoubtedly change the role of the
State and its Ministries, as well as the role of market, in the production and allocation of
agricultural goods in Cuba. The function of the State in the agricultural sector, after these
reforms take place, should be redefined as follows:404
(a) The State should act the guarantor of existing contracts between private agents in
the markets (i.e., labor market, inputs market, energy market, etc.). Its
enforcement and regulatory powers should be used to prevent monopolistic and
discriminatory practices, in order to ensure the highest level of transparency and
accountability in the market.
(b) The State should play a key role in defining and enforcing environmental
standards.
(c) During the period of transition from a planned to a “mixed” system, the State can
play a leading role in fomenting the creation and development of markets and
promoting their overall stability and credibility.
The proposed creation of a mixed or hybrid agricultural sector, at least during the early
stages of transition, with the growing participation of the market and a limited
participation by the State, relegates the role of the State to:405
(a) Obtaining adequate food reserves to prevent the general population from
suffering as the result of drastic price fluctuation (particularly during the initial
phase of transition when agricultural markets are liberalized and opened to
international competition);
(b) Facilitating increases in the country’s food supply by permitting and stimulating
the participation of non-State actors in the agricultural market;
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(c) Eliminating all barriers to entry; and
(d) Promoting agricultural diversification and facilitating the use of advanced
technologies to improve agricultural production.
Clearly, the market will play a defining role in the proposed agricultural reform model
during the transition period and beyond.
Until recently, Cuba, like most socialist
countries (particularly the former Soviet Union and many of its European allies), has
failed to realize the market’s potential in effectively allocating resources and determining
prices in all areas of the economy. Even today, after some limited economic reforms
have been introduced, there is a “love-hate” relationship between the State and the market
in some areas of the economy, particularly in agriculture. At a global level, the market is
being increasingly recognized as a socially constructed mechanism that reflects the
interaction between multiple agents, and promotes the efficient allocation of prices and
resources. In the case of Cuba, as in most economies in transition, the market will be an
essential “decentralizing” component that will stimulate efficient production methods and
the optimal use of resources at all levels of the economy. The competition created by the
market stimulates creativity and facilitates the efficient allocation of resources through
constant price signals, and presents a viable policy alternative for countries wishing to
make the transition from “plan to market.” However, markets can also suffer from failure,
imperfections and distortions, particularly if competition is absent, information is
imperfect, and they are controlled by a few firms (as in the case of oligopoly) or by a
single firm (as in the case of monopoly).
Given these conditions, Cuba’s agricultural markets, during the period of transition,
should be characterized by the participation of multiple agents - private, quasi-private
172
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and State - to effectively allocate resources and compete in a highly competitive global
economy. To successfully reinsert itself into the global economy, Cuba must implement
additional economic reforms to liberalize its agriculture and facilitate the development of
a robust private sector, capable of relying on market incentives and mechanisms to
determine prices and output levels. A good starting point would be the implementation
of the aforementioned reforms in the semi-private, cooperativized, sector.
As time goes
by, these reform measures should be extended to the entire agricultural sector. Finally,
these reforms should be implemented using a “gradualist approach,” with the State sector
playing a much more limited role in working with truly autonomous private and
cooperativized sectors to achieve these goals.
6.2.2. Farmers’ Markets
After almost a decade since their reintroduction, the most fundamental question regarding
Cuba’s agricultural or farmers’ markets can be summarized as follows: Have the markets
succeeded or failed? To address this question, we need to analyze what has been the
impact of these markets on food production, consumption and the average price of
agricultural goods in Cuba, if any, and what steps can be taken to improve their function,
while making products available to a greater portion of the country’s population.
Basically, we need to determine if indeed the reopening of the farmers’ markets has
achieved its fundamental objectives: to increase the quantity and variety of Cuba’s food
supply, and to provide ordinary Cubans with an alternative to the black market, the
official market and the dollar stores.
173
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Since the dollarization of the Cuban economy in 1993 and the reintroduction of the
farmers’ markets in 1994, Cuba’s food market has been segmented into four basic supply
channels:406
a)
b)
c)
d)
the market for rationed goods, or the “official market”,
the farmers’ markets,
the hard currency (i.e., US dollar) market, and
the black (or underground) market.
According to Nova-Gonzalez (2000), food sales in the rationed (or official) market in
Havana accounted for approximately 61% of the total caloric intake for the city’s
residents in 1997.407 This sector represented between 36% and 65% of the total protein
consumption for Havana residents during the same period.408 To meet the remainder of
their food consumption needs, Cuban consumers must rely on other sources such as, the
black market, the farmers’ market and government-operated “dollar stores”.
In most cases, the average price (AP) paid for agricultural goods in Cuba is higher than
the rationed price (PR), but lower than the market price (PM), or the price paid at the
farmers’ markets, which suggests that most Cuban households, particularly those at the
low end of the income scale and those without access to hard currency, must allocate a
significant portion of their earnings to obtain a relatively small quantity of food.
This
condition is aggravated by the existence of several factorsthat limittheproduction
and
supply of food in socialist Cuba such as inefficient useof resources by the State and
cooperative sectors, structural and legal limitations on market participation by private
406 N ova-G onzalez, Armando. “E l m ercado agropecuario. ” La ultima reforma agraria del siglo: La
agricultura cubana entre el cambio v el estancamiento. Hans-Jurgen Burchardt (Ed.). Editorial N ueva
Sociedad. Caracas, Venezuela. 2000.
407 Ib id
408 Ibid.
174
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
farmers and other participants, and the State’s control over the production and
distribution of agricultural goods and products.
To neutralize the impact of these factors on the availability and price of food in Cuba,
several measures should be implemented during the period of transition.
First, the
government should encourage a greater level of participation in the farmers’ markets by
the UBPCs, CPAs and private farmers. This would lead to an increase in the quantity
supplied and to a fall in the average price of most agricultural goods.409 Another measure
would consist of the elimination of existing restrictions that prevent producers from
offering goods such as beef, potatoes, milk, and other restricted products. Similarly, the
State should provide the UBPCs with the necessary autonomy to improve their efficiency
and productivity in order to increase the nation’s food supply. At the same time, the role
of the State in the agricultural sector should be transformed - from principal owner of the
means of production to regulator and enforcer of established regulations, and supporter of
market-based mechanisms to improve the quantity, variety and quality of the country’s
food production and supply.410 In addition to these measures, the nature of Cuba’s input
markets should be reformed to facilitate greater participation levels by producers of all
types of consumer goods.
Greater participation by all types of producers in these
markets, along with higher quantities, will result in lower prices and will increase the
elasticity o f supply for most products. In essence, Cuba’s markets should be gradually
liberalized to stimulate efficiency, product variety and lower prices in all sectors of the
economy, especially in agriculture.
409 Ibid.
410 Ibid.
175
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
Figure 10
Supply and Demand Structure of
Cuba’s Agricultural Markets
Price
PM
PE
PR
Quantity
QS1
As shown on Figure 10, the current market structure is characterized by a lower price
(pR) and quantity supplied (Q S^j in the rationed goods sector, and a higher price (PM)
and quantity supplied (QM) in sectors where market mechanisms are allowed.
This
results in shortages in the rationed goods market, where demand always exceeds supply
(indicated by the distance between points A and B on Figure 10), and excessive prices in
the quasi-liberalized “free market”, where collusion by suppliers and intermediaries
results in higher prices for consumers.
Once the market is fully liberalized, these
imbalances should be corrected, as the price level falls to the “ liberalized market price
level” (pE), which is greater than the “rationed price level” (PR), but significantly lower
than the “market price level” (PM), in this case, the supply and demand curves should
176
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
shift outwards (From S to S’ and from D to D’), representing greater quantities demanded
and supplied at the equilibrium price.
Initially, agricultural producers participating in the farmers’ markets will receive lower
prices for their goods, which will prompt them to reduce supply. However, this reduction
in supply will be countered by an increase in supply caused by the participation of
producers previously restricted to the rationed goods (or official) market.
These
producers will have an incentive to increase their quantity supplied, since they will now
receive a higher price for their output. Their entrance to the market will result in an
increase in the quantity supplied, which far outweighs the initial decline in the quantity
supplied due to the fact that after liberalization participants in the farmers markets will
receive a lower price due to increased competition. Ultimately, consumers will benefit
from the liberalization of the market, since prices will now become a function of supply
and demand and will tend to move towards equilibrium. In essence, consumers will now
pay a lower price to meet their consumption needs and the scarcity associated with
rationed prices will be virtually eliminated.
Although this type of full market liberalization has yet to take place in Cuba, its is worth
noting that the reintroduction of the farmers’ markets in 1994, and the push for lower
prices in these markets, have contributed to the creation of several new market
mechanisms. These new market mechanisms are being used to improve the quantity and
diversity of the country’s food supply, while undercutting the exorbitant prices prevailing
177
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in the black market and the dollar stores. According to Peters (2000), some of these new
market mechanisms are:411
(a) Small markets with “capped prices”. These markets, known as placitas, sell at
prices lower than those in the Agro or Farmers Markets, but well above the
subsidized prices of the libreta (or government ration card) - at some kind of a
logical price that covers the costs of production and transportation.
(b) Monthly low-priced sales of State produce. Ferias del Agro (or ‘ agricultural
fairs’) occasionally take place once a month in cities where State trucks bring
large quantities of produce to a single location for sale at prices well below those
in the Agros.
(c) Low-priced State sales in farmers’ markets. Acopio, the State’s basic food
collection and distribution enterprise, occasionally brings its produce or that of
large cooperatives to the Agros. This seems to be an ad hoc practice where
produce is sold directly from the truck at prices below those in the rest of the
Agro.
After more than seven years since Cuba’s farmers’ markets were reopened, it is possible
to identify some key issues for future consideration. According to Peters (2000), some of
these issues can be summarized as follows:412
a) The farmers’ markets have expanded Cuba’s food supply, but prices remain
exorbitantly high and out of reach for many consumers. Official data shows
that Agro sales account for approximately 10% of household expenditures.
However, a true representation of expenditures on non-State food sources is
surely higher. Spending on goods and services of Cuba’s small entrepreneurs,
which according to official data consumed an additional 11 percent of household
expenditure between 1994 and 1998, includes substantial expenditures on private
restaurants and lunch vendors.
Both these categories are likely to be
underestimated in the official data; for tax reasons, many entrepreneurs and
market vendors are inclined to under-report their sales. It is clear that while
Cubans o f all income levels are observed shopping in the Agros, only those of
higher income levels can afford to shop there regularly. The lower-priced market
variants (placitas and monthly ferias) have already attained considerable sales
volumes. The result is that they appear to be extending the market-based food
supply to lower-income Cubans, with no evidence of significant adverse impact
on the Agros themselves. However, the Agros have not solved food and nutricion
supply problems, and the Cuban diet continues to fall short of the Cuban
government’s own nutritional standards.
411 Peters, Philip. “The Farm ers Markets: C rossroads o f C u b a ’s N ew Economy. ” The Lexington Institute.
October 2000. www.lexingtoninstitute.org
412 Ibid.
178
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
b) Farmers’ markets represent a decisive policy shift. Farmers’ markets are an
important exception from the economic rules that govern socialist Cuba. They
represent a decision to rely on market-based mechanisms such as production
incentives and the law of supply and demand, in a critical sector of the economy.
At the microeconomic level, the farmers’ markets create countless customersupplier relationships, restoring the habits of private commerce. Their sales serve
as a vital source of income for Cuba’s estimated 140,000 independent farmers and
provide an incentive to improve efficiency in the cooperative sector. The decision
to allow certain types of intermediaries or middlemen to freely operate in these
markets represents a drastic shift from the policies of the past and an
understanding, or at least a tolerance, of the vital economic role played by these
individuals in ensuring the efficient functioning of the markets.
As mentioned before, Cuba’s agricultural reforms, particularly the reintroduction of the
farmers’ markets, represent a significant departure from the policies of the previous three
decades under socialism. However, they are not radical, and not even bold by any other
yardstick, and their outcome leaves a lot to be desired. To successfully improve the
quantity, diversity, and quality of its food supply, Cuba should implement additional
agricultural sector reforms, as well as additional reforms in other areas of the economy.
To attract more private vendors to the farmers’ markets, which will result in an increase
in the food supply and a lower price for most products, the current tax structure should be
reformed. The current arrangement, under which producers must settle their tax bill in
the beginning of the day and taxes are paid on gross sales instead of profits, “increases
their costs, raises consumer prices, and creates an incentive to limit the amount of
produce they bring to the market - a factor that creates additional pressure for prices to
increase.”413 To correct this problem, vendors should be taxed on their profits, after costs
are deducted from their net sales, and current tax rates should be significantly reduced.
413 Ibid.
179
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Finally, on the production side, the State should decentralize the markets for farm inputs
and foment the creation of competitive markets to perform this function.
The
introduction of competition would create incentives to provide a better product mix and
better services, while increasing farm productivity and efficiency.414 Similarly, the State
should devise new ways to reduce the high production quotas imposed on private
farmers, cooperatives, and other entities by the Acopio procurement system.
These
quotas should be gradually reduced and eventually phased out and replaced by a marketbased system.
During the transition from a planned to a market economy, the
implementation of these measures should help Cuba fully achieve the main objectives of
the reintroduction of the farmers’ markets: increase the quantity, variety and quality of
the country’s food supply at relative affordable prices.
6.3. Dollarization
From an economic perspective, the dollarization of the Cuban economy seems to have
achieved its intended goals: stabilize the unofficial peso-dollar exchange rate, provide an
official mechanism by which the State would be able to capture a significant portion of
the dollar-denominated transactions taking place in the second economy, and take
advantages of the growing flow of dollar remittances from abroad.
After reaching an
estimated 100 pesos per dollar in the black market by late 1993, the peso-dollar exchange
rate stabilized at around 26 pesos per dollar by the end of 2002. Similarly, the amount of
dollar remittances, and the portion of these remittances captured by the State, have
increased significantly since the legalization of the U.S. dollar in 1993. The elimination
414Ibid.
180
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
or existing restrictions regarding family remittances in 1993 and the introduction of the
dollar stores, or TRDs have contributed to the relative success of Cuba’s dollarization
efforts. After being outlawed by more than 30 years, the U.S. dollar has emerged as a
widely accepted medium of exchange, unit of account and store of value.
Dollar-
denominated transactions are not only part of every day life at the dollar stores, but are
also quite common in the second economy, where a growing number of products and
services are offered in both Cuban pesos and their U.S. dollar equivalent.
There are several reasons why the quasi-official dollarization of the Cuban economy
makes a lot of sense. First, it facilitates the incorporation of a currency, which already
enjoyed substantial popularity, and was widely used by large segments of the population,
into the parallel dollar-based economy.
Secondly, by adopting the U.S. dollar, and
permitting its free circulation among the general public, the Cuban government (perhaps
unintentionally) has begun to prepare the country for the coming process of transition,
and the development of closer economic ties with the United States. Once the process of
transition begins to take place, Cuba will be able successfully enter the capitalist world
economy, and rebuild its historic commercial ties with the United States; dollarization, at
least for the short term, will facilitate this development, and will serve to attract much
needed foreign capital to rebuild the country’s economy (as currency and sovereign risks
are eliminated).
However, despite all these benefits, the dollarization of the Cuban economy has not come
without socioeconomic costs and consequences. The first socioeconomic impact of this
reform measure cannot be attributed to the process of dollarization itself; instead, it is the
181
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
result of the monopolistic structure of the dollar stores themselves. The dollar stores are
in essence State-run monopolies with an absolute price and competitive advantage. Since
no individual investor is allowed to set up a competing enterprise, and the State is the
sole shareholder in the dollar stores (in association with some foreign investors in some
cases), the TRDs have absolute control over the prices charged for any available product.
Generally, these prices are 200% higher than the prices charged in other internal markets,
which prevents various segments of the population from being able to make any
substantial purchases at the dollar stores. Also, there are many Cubans with little or no
access to U.S. dollars, who are unable to buy any products at the dollar stores.
To
address this issue, and increase the flow of dollars to its coffers, the State established
foreign exchange houses, Casas de Cambio or CADECAs in 1995.
These foreign
exchange houses allow ordinary Cubans earning peso-only salaries to exchange their
pesos for the highly coveted dollar. However, such transactions take place at the quasiofficial exchange rate (currently, at 27 pesos per dollar), which significantly reduces the
purchasing power of the Cuban peso with respect to the dollar. Therefore, it can be said
that the most widely felt (negative) socioeconomic impact of dollarization has been a
pervasive income inequality between those that have access to dollars, and those who do
not.
It is also worth nothing that as the dollar gains wider acceptance as a medium of
exchange, store of value, and unit of account, more individuals are presented with
incentives to exit the controlled (peso) economy, and incorporate themselves into dollar
generating activities.
This has created a unique socioeconomic paradox for Cuba:
although it boasts an impressive record in education, a growing portion of the country’s
182
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
well-educated professionals are abandoning their professions in the State sector to engage
in dollar-producing activities, usually as self-employed operators or cuentapropistas.
Cuba is probably the only country in the world where one can find a well-trained surgeon
dubbing as a taxi drive, or a respectable academic professional moonlighting as a
restaurateur or working as an intermediary in the local farmers market. The brain drain
from the controlled economy into the second economy has been another of the
socioeconomic characteristics of the recent process of dollarization in Cuba;
demonstrating that, in addition to dollarizing the economy, additional steps must be taken
to get Cuba out of the crisis.
Perhaps the most critical of all these steps will be the creation of a strong domestic
currency to gradually phase out dollarization. In order to achieve this objective, Cuba
must adopt fiscal and monetary measures that will result in a stronger peso during the
period of transition and beyond.
The transitional government should take all the
necessary steps to facilitate the convertibility of the Cuban peso and the gradual
replacement of the U.S. dollar as the preferred medium of exchange, store of value and
unit of account. A strong, convertible, peso will provide the necessary incentives to bring
macroeconomic stabilization to the country during the period of transition, while
reducing the risks of hyperinflation and rapid currency depreciation. At the same time,
the development of a strong and convertible domestic currency will facilitate the
transformation of the Cuban banking and financial sectors during the period of transition.
This will also foster the creation and development of a strong and modernized Central
183
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
Bank capable of managing the country’s economy through the effective use of monetary
policy and flexible exchange rates.
6.4. Self- Employment
The approval of Decree Law No. 141 on September 1993 paved the way for the
expansion and incorporation of new self-employment activities in the Cuban economy.
This measure followed the precedent established by other (albeit more limited) measures,
designed to provide an alternative to employment in State-owned enterprises (SOEs),
while preserving the State’s ownership and control over the country’s vital means of
production. Decree Law No. 141 was by no means Cuba’s first attempt to inject limited
elements o f market capitalism to its centrally planned economy.
In the 1970s, state
workers in a wide array of professions were allowed to provide their services as “private
contractors” (or sole proprietors), provided that they met their obligations and
commitments to the State. Between 1980 and 1986, the sale of agricultural products
flourished through privately operated farmers’ markets or mercados libres campesinos
(MLCs), and the housing construction materials market and artisan markets were partially
liberalized.
After the Rectification Process in 1986, however, most of Cuba’s limited market-based
initiatives were abandoned, and there was a return to “moral incentives” and
“volunteerism,” reminiscent of the policies of the 1960s. By the early 1990s, it was
becoming evident that State enterprises needed to be downsized and payrolls had to be
reduced in order to alleviate the mounting fiscal deficit. At the same time, displaced
184
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
workers needed an alternative to State employment, and the growing distance between
the peso and dollar economies had to be narrowed somehow.
To cope with these
problems, the government introduced Decree Law No. 141 on September 1993.
Initially, there was a positive response to the introduction of Decree Law No. 141. The
number of approved and registered self-employed workers grew from 169,098 by the end
of 1994 to 206,824 by the end of 1996.415 However, by December 1998, this figure
declined to approximately 159,506, or 6% lower than 1994 levels.416 According to a
study by the CEPAL (2000), by the end of 1999, there were an estimated 167,000 legally
registered self-employed individuals in Cuba.417 Although this figure represented an
improvement of more than 4% over 1998 levels, the number or self-employed workers by
the end of 1999 was 19% lower than the figure officially recorded during its peak in
1996.
The decline in the number of self-employed individuals since the introduction of Decree
Law No. 141 (1993) can be attributed to several factors. First, the growth potential of
their businesses has been limited by excessive taxes; paladar owners, for instance, must
pay taxes on their gross sales, irrespective of whether or not their business earns a profit.
Owners of rental properties, and other cuentapropistas, operating within the law, face a
similar tax structure. Second, small business entrepreneurs in Cuba lack access to any
form of credit to finance the expansion of their operations. Banks are not allowed to
make “small business loans,” and micro finance and venture capital to finance privately
415 Ibid.
416 Ibid.
417 CEPAL. 2000.
185
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
owned small businesses are virtually non-existent. Third, the prospects for Cuba’s small
private entrepreneurs are limited by the absence of a free market for inputs and supplies.
In most cases, they depend on the limited supplies offered officially through Statecontrolled stores, or simply rely on the black market to keep their businesses running.
Fourth, small businesses are prohibited from officially hiring intermediaries to perform
specialized functions, although this widespread practice appears to be unofficially
tolerated.
Finally, all legally self-employed individuals are unable to hire workers
outside their families, which restricts their ability to expand their business and earn
higher incomes.
Although these are just some of the main issues and problems encountered by Cuba’s
self-employed, the need to address them during the period of transition will become
extremely important.
In order to facilitate the development of Cuba’s self-employed
workers as an alternative to the current State centric model, several measures should be
implemented during the transition from a planned to a market economy. First, the current
tax system should be reformed, and taxation should be based on an enterprise’s net
profits or income level, instead of gross income or earnings. A tax scale, based on net
profits or income, with progressively higher rates applicable to enterprises at a higher
“tax bracket” should be developed and implemented, not just for small and medium
enterprises, but for large multinational firms as well. Self-employed individuals should
be provided with a preferential income tax rate vis-a-vis workers in the remaining SOEs
and newly privatized firms in order compensate for the added risks of self-employment
and entrepreneurship, and to create a monetary incentive for the development of an
186
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
“ownership conscience” among Cuban workers during the period of transition and
beyond.
To provide small entrepreneurs with vital access to credit and financing, the banking
sector should also be reformed. The development of a private banking and financial
services sector, under the supervision of the Central Bank or a similar regulatory entity, is
crucial to the accomplishment of this goal. In addition, the government should promote
the creation of a “small business administration” or agency through which special loans
and development programs should be made available to qualifying small businesses and
private entrepreneurs.
To complement these measures, banking and financial sector
reforms should include provisions to foment the development of a micro finance and
venture capital industry, which should facilitate access to credit and venture capital for
small businesses and entrepreneurs.
Existing restrictions on the use of specialized intermediaries should be eliminated in
order to allow small enterprises and self-employed individuals to reap the benefits of
specialization and the division of labor.
To complement these efforts, the transition
government should also encourage the development of private markets for inputs and
supplies. This should reduce transaction costs, improve the quantity and quality of inputs
and supplies, and drastically reduce black market activities in this crucial economic
sector. In addition, the current prohibitions on hiring workers outside the family should
be eliminated, and wages and prices should be gradually liberalized.
187
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
As demonstrated by the rapid growth in the number of self-employed individuals between
1994 and 1996, Cubans in general have a positive attitude towards self-employment.
After decades o f socialist planning, self-employment represents a breath of fresh air for
many Cubans, and provides a formidable opportunity to re-develop the legendary
entrepreneurial spirit of the Cuban people. There is no doubt that as the world economy
becomes increasingly globalized, and tourism and other services gain a greater share of
the Cuban economy, small entrepreneurs and self-employed individuals will become
important players in the country’s economic future. The development of Cuba’s full
economic potential in the future depends on the viability and level of development of
domestic small enterprises and risk taking self-employed entrepreneurs. In the coming
years, it will be absolutely necessary to expand the current self-employment reforms in
order to ensure the role of self-employed individuals and small entrepreneurs during the
period of transition and beyond.
6.5. Banking and Financial Sector Reforms
The quasi-official dollarization of the Cuban economy in 1993, along with earlier efforts
to attract foreign investment, forced the Cuban government to restructure the country’s
banking and financial sectors. Until the implementation of these reform measures in the
mid 1990s, the Cuban banking system was comprised of two key entities: the Banco
Nacional de Cuba (BNC) , which acted as the country’s central bank, as well as the
primary institution in charge of internal and external financing, and the retail-oriented
Banco Popular de Ahorro (BPA), which mostly functioned as a State-operated savings
and loan association (SLA) - taking deposits from the public, but only lending to State-
188
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
owned enterprises (SOEs). The Cuban financial system was rather primitive and narrow
in scope prior to the liberalization of the exchange system and the creation of the official
State-owned exchange houses - Casas de Cambio, S.A. (CADECAS) - in 1995. The pace
of Cuba’s banking and financial sector reforms accelerated, after 1995, when new
financial intermediaries (i.e., the Banco de Credito y Comercio (BCC), Financiera
Internacional, S.A. (FISA), Banco Metropolitano, S.A. (BMSA), etc.) were established,
and the former central bank (the Banco Nacional de Cuba - BNC) was restructured to
fulfill newly assigned functions and roles.
Despite the creation of these intermediaries and the restructuring of the Banco Nacional
de Cuba (BNC) and the Banco Popular de Ahorro (BPA), Cuba’s efforts to reform its
banking and financial sector face several hurdles and challenges. For the most part, these
challenges stem from the conflict between the nature and scope of the reform measures
introduced so far, and the requirements for the development of a sound, effective, and
completely transparent banking sector in transition and developing economies. Based on
the experience of several developing and transition countries in this crucial aspect of
structural macroeconomic reforms, these requirements can be summarized as follows:
•
•
•
•
The implementation of sound macroeconomic policies, by adopting monetary and
fiscal measures that are consistent with the selected exchange rate regime;
The development of a strong financial system through improved supervision,
prudent standards, strict adherence to capital requirements, goods asset and risk
evaluation procedures, adequate provisions for bad loans, and the ability to
effectively deal with insolvent financial institutions;
The creation of a strong and independent central bank; and
The timely and accurate disclosure and dissemination of comprehensive financial
information to help investors make informed decisions, and to foster the
development of efficient and transparent financial markets
189
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
Using these requirements as general guidelines to measure the progress of Cuba’s
banking and financial sector reforms, it appears that a significant amount of work still
needs to be done. There are several factors leading to this conclusion. First, for the most
part, it seems that Cuba’s banking and financial sector reforms have consisted of an
intemally-drive reorganization of the “old” system, as well as the creation of new
financial intermediaries (or re-branding existing ones).
In this new operating
environment, the State continues to play a major role and is able to exercise full control
of the banking system and the central bank. The Banco Central de Cuba (BCC), in
addition to performing some of the traditional functions of a central bank, is required to
serve as an accounting and financing mechanism for SOEs and other State-operated
entities - casting a shadow of doubt about the claim it is truly independent from the State.
Similarly, there seems to be very little connection between the reforms implemented thus
far, and the application o f sound fiscal and monetary policy to guide interest rates and
direct economic growth. Although Cuba has successfully modernized and updated some
key areas of the banking and financial sectors, the country’s financial sector is in need of
improving its ability to manage and evaluate risk and deal with insolvent financial
institutions.
This will remain very difficult to accomplish, particularly under the
industry’s current ownership structure in which the State solely functions as the principal
stakeholder, regulator, lender and borrower.
There are several steps that should be taken during the period of transition in order to
address these challenges and fully transform Cuban banking and financial institutions
into truly independent, market-drive, customer-oriented, entities. First, to address the
190
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
conflicts arising from the State’s role in Cuba’s banking and financial services industry,
the current ownership structure most be reformed and the financial system must be
liberalized. With some exceptions, ownership should be gradually or rapidly transferred
(depending on the conditions of the particular financial institution) from the State to the
private sector. Once this transition takes place, banks and other financial intermediaries
should be encouraged to offer their products and services to private enterprises and
individuals, and management should bear the responsibility for assuming any pertinent
risks.
To complement these efforts, the transition government must ensure the total
independence of Cuba’s central bank. The central bank should be given the autonomy to
regulate credit and the country’s money supply through the application of sound
monetary policy. In addition, it should be entrusted with the supervision and regulation
of the newly restructured (i.e., liberalized) banking system.
Non-bank financial
intermediaries should abide by the rules and regulations established by the central bank,
but their supervision and regulation should be conducted by a separate (fully
independent) regulatory body. This entity, in collaboration with the central bank and
other industry-driven self-regulatory organizations (SROs), should be directly responsible
to the regulation of the non-bank financial sector and the enforcement of timely and
accurate financial disclosure by publicly held companies and financial institutions.
Establishing this non-bank regulatory body will be an essential step towards the
development of an effective and transparent financial system. This, in turn, will stimulate
investor confidence, and the public’s trust in the financial system and its institutions.
191
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Finally, the role of the State in Cuba’s banking and financial sector should experience a
significant transformation during the period of transition. Although the creation of at
least one State-owned development bank (or other similar entities) may be desired, or
even necessary, during Cuba’s transition from plan to market, the State’s absolute control
over the entire system will more than likely have to come to an end. To be sure, as in the
case of other transition and developing economies, there may be instances in which State
ownership of some institutions may be desirable to counterbalance some of the initial
shocks caused by rapid liberalization. This is particularly true in economies, such as
Cuba, which are highly dependent on the external sector and the export of price sensitive
agricultural goods (i.e., sugar) for their economic survival. However, such participation
will be significantly reduced as the private sector assumes its new roles in a reformed and
completely independent financial sector during the transition period and beyond.
6.6. State Enterprise Reforms
Cuba’s Enterprise Optimization Program (EOP) or perfeccionamiento empresarial
represents an effort to change the way State run enterprises are managed, and constitutes
an effort to (at least rhetorically) improve their levels of efficiency and worker
productivity. Perfeccionamiento empresarial, does not represent a full-fledged attempt
towards privatization; instead, it simply consists of an attempt to improve SOE
operations, while preserving the State’s control over vital economic resources. There are
several reasons why perfeccionamiento empresarial does not represent an attempt
towards the privatization of SOEs in Cuba, and why perfeccionamiento empresarial has
not succeed in achieving many of its objectives.
192
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
As the experience of several transition economies in Eastern Europe and the former
Soviet Union has demonstrated, the initial step in the privatization of SOEs in transition
economies consists of a detailed examination of the enterprise’s finances and operations.
The second step requires the preparation of the SOE for sale to institutional and
individual investors.
Usually, this is accomplished by converting the SOE’s accounts
and financial records into a form that is acceptable by international standards, preparing
reliable financial statements, drafting a report describing any potential problems with the
sale, hiring legal advisors, and appointing an economic/financial advisor to valuate the
enterprise’s assets and liabilities, and perform all the necessary financial analyses. 418
•
Finally, the SOE may need to be restructured to make it more attractive to potential
buyers, which may require its transformation into a corporation and/or refinancing or
writing off its outstanding debts and obligations.419
Theoretically, perfeccionamiento empresarial accomplishes the first step required for the
successful privatization of State-owned enterprises in transition economies. As long as a
thorough evaluation of an enterprise’s finances and operations is conducted under the
provisions of perfeccionamiento empresarial, and such assessment or evaluation is based
on proper accounting methods, the program should provide potential investors with a
good sense of how much a particular enterprise is worth.420 In addition, if this step of the
process is performed competitively, it can assist the State in determining which
enterprises can be sold and which ones should be liquidated during the process of
418 Ibid.
419 Ibid.
420 Ibid.
193
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
privatization.421 In terms of the second step required for privatizing SOEs (i.e., preparing
them for the sale), perfeccionamiento empresarial calls for a comprehensive set of
accounting reforms that would help accomplish this task. However, because transparent
accounting practices are inconsistent with enterprise raiding by workers and
management, the implementation of accounting reforms appears to be one of the major
impediments to SOE reform in Cuba.
When it comes to the third step for privatizing SOEs (i.e., transforming the SOE into a
corporate entity), Cuba’s EOP has fallen short.
None of the enterprises that have
successfully implemented perfeccionamiento empresarial have been transformed into
corporations, and the Cuban government has not unveiled any future plans to accomplish
this essential step in the privatization of State-run enterprises. Finally, in terms of the
fourth step for privatizing SOEs (i.e., refinancing or writing off debt, reducing the
number of employees, hiring a new management team, and disposing of undesirable
assets and liabilities), it seems that perfeccionamiento empresarial, at least in theory, has
the ability to facilitate the accomplishment of this task.
At the present time, Cuba’ s efforts to reform State-owned enterprises seem to be the
product of a strong socialist State that is unwilling to relinquish control of the country’s
principal means of production, even after the introduction of limited market-oriented
economic reforms. Perfeccionamiento empresarial, rather than representing a full-scale
attempt to privatize SOEs in Cuba, consists of a concerted effort to improve efficiency
and productivity in SOEs, while preserving the State’s control over all vital sectors in the
421Ibid.
194
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
economy. However, despite its limitations, and relatively slow rate of implementation,
perfeccionamiento empresarial represents a limited first step towards the reformation of
State-owned enterprises in Cuba, and improving their overall productivity and efficiency.
195
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 7
IS CUBA BECOMING A MARKET ECONOMY?
According to Locay (1998), economic systems are comprised of a set of institutions that
create the context in which exchange takes place.422 As a result, the process of economic
restructuring requires institutional change.423 This brings up the question of whether or
not Cuba’s economic reforms represent a movement towards a market economy or if they
are simply part of a grand strategy to “reinvent socialism” and transform it from within.
In other words, is Cuba becoming a market economy?
Or do its economic reforms
represent a conscious effort by the current regime to ensure its long-term survival? To
address this question, this section of the study presents a discussion of some of the key
institutional requirements for a market economy.
This is followed by a detailed
examination of the outcomes of Cuba’s post-Soviet economic reforms and whether or not
they have succeeded or failed in achieving their main objectives and transforming Cuba
into a market economy.
7.1. The Institutional R equirem ents o f M arket Econom ies
Markets, it is often said, represent institutionalized social arrangements by which people,
either as individuals or as parts of larger organizations, exchange goods and services 424
These exchanges increase wealth by transferring goods and services to those that value
422 Locay, Luis. “T ow ard a M arket Econom y or Tinkering with S o cia lism ? ” in Perspectives on Cuban
Econom ic Reform s. Jorge F. Perez-Lopez and Matias F. Travieso-Diaz, Eds. Special Studies N o. 30.
Center for Latin American Studies Press. Arizona State University. Tempe, AZ. 1998.
423 Ibid.
424 Ibid.
196
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
them the most, and markets allow participants to take advantage of economies of scale
and reap the benefits of the specialization and division of labor.425
However, market exchange is costly; it often entails some type of “transaction costs.”
With few exceptions, there are two fundamental reasons for the existence of high
transaction costs: the market system may not exist at all or it may fail to function
properly.426 In cases where markets do not exist at all, as expected, transaction costs tend
to be extremely high as buyers and sellers have to spend considerable amounts of time
finding the desired goods and services and finding commonly-accepted means to pay for
them. If markets exist, but fail to function well, both consumers and producers also
experience high transaction costs; this is mostly due to the poor allocation of resources
and the relatively large amount of time needed to conduct transactions. In both cases, a
simple transaction can involve a significant expenditure of time and resources,
significantly reducing society’s utility levels as a whole. In both cases, it can be argued,
society’s institutional structures determine, to a considerable extent, the magnitude of
these transaction costs, which, in turn, impact society’s well-being as whole.
In countries with a relatively large informal economy (or “second economy” - in the case
of centrally planned economies - CPEs) the relatively high prices in the informal sector
(or second economy) are a reflection of higher transaction costs and risks. These markets
have higher transaction costs because they lack access to a system of contract law, to an
impartial judiciary and police to enforce them, and to formal titles to property to use as it
425 Ibid.
426 Ib id
197
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
as collateral.
AD~l
•
In fact, they lack those institutions that reduce transactions costs to
manageable levels in well-functioning economies, resulting in more inefficient, costly
and complicated transactions.428
Generally, in order to function properly, markets require an institutional structure that
minimizes (or significantly reduces) the transaction costs of all participants. Some of the
main components of this institutional structure are: a clearly defined (and enforceable)
system of property rights and contract law, and an independent judiciary capable of
upholding the rule of law. With such an institutional structure in place, market-clearing
prices are able to convey the necessary information to facilitate decentralized decision­
making and for approximating the efficient allocation of resources.429
However, the majority of the so-called developing (or emerging) countries, as well as
many of the world’s economies in transition, have been (or continue to be) severely
affected by the lack of institutional structures that foster market exchange and encourage
productive activities. This is, perhaps, one of the primary reasons why most of these
countries have not been able to achieve full economic development. In many of their
cases, their institutions create large transaction costs in an effort to distribute wealth in a
fashion that is different from what would take place through the functioning of low-cost,
and effective, market-oriented mechanisms.430 Their rules, for the most part, have taken
possession of a bigger share of the national economic pie at the expense of reducing the
427 Ibid.
428 Ibid.
429
Ibid.
430
Ibid.
198
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
size of the pie for the rest of the population.431 And the tools used to achieve these ends
have, more often than not, been the countries’ institutions. The epitome of this approach
has been the centrally planned economies (CPEs) of the former Soviet Union, Eastern
Europe and current day Cuba. In their purest manifestation, these “command” economies
limit or straight out outlaw the private ownership of the means of production and most
type of private economic activities and organizations.432
And their institutions are
designed to erect large barriers to market exchange, which may be maintained by force if
necessary. 433
Given these considerations, the question naturally arises: Are Cuba’s post-Soviet
economic reforms a move toward a more market-friendly institutional structure? Or do
they simply represent an effort to “reinvent socialism?” To address this fundamental
question, this section o f the study analyses the main characteristics of transition
economies, within the context of the principal requirements for the development of a
market economy.
This conceptual framework should facilitate the determination of
whether or not Cuba’s post-Soviet economic reforms represent a legitimate effort to
transform the Cuban economy into a capitalist, market-oriented, economy.
' Ibid.
! Ibid.
433
Ibid.
199
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
7.2. The M ain Characteristics o f Econom ic Transition and the Cuban Experience
The transition from a highly centralized planned economy to a market-oriented economy
involves a complex process of institutional, structural, and behavioral change.434 Over
the last decade, the experience of transition economies in the former Soviet Union, and
Eastern Europe has demonstrated that this process is often accompanied by two
fundamental paradoxes. The first paradox stems from the attempt by most transition
countries (or formally centrally planned economies - CPEs) to maintain employment, and
output by fiscal and quasi-fiscal transfers to enterprises, which results in larger output
declines than a policy of hard budget constraints introduced along with economic
liberalization.435 The second paradox is that the liberalization of prices results in lower
inflation than do continued price controls.436 In both instances, liberalization leads to
macroeconomic stabilization in a way that is not self-evident to policymakers used to
socialist pricing and output conventions 437
Transition countries, for the most part, differ in their initial conditions, which consist of
income level and wealth, the nature and magnitude of economic distortions, and their
levels of institutional development.438 In order to determine whether or not Cuba’s
economic reforms program is propelling the country towards the market and whether or
not Cuba can be accurately classified as a transition economy, we must review the
common legacy o f transition economies, and the changes that usually take place during
434 de M elo, Martha, Cevdet Denizer, and Alan Gelb. “From Plan to Market: Patterns o f Transition. ”
Macroeconomic Stabilization in Transition Econom ies. Mario I. Blejer and Marko Skreb (Eds.).Cambridge
University Press. Cambridge, U.K . 1997.
435 Ibid.
436 Ibid.
437 Ibid.
438 Ib id
200
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the transition process. Then, we need to analyze specific aspects of the Cuban economy
and the country’s economic reform policies to determine if indeed these measures are
pushing Cuba towards the market, and if Cuba is in fact becoming an economy in
transition.
According to de Melo, Denizer, and Gelb (1997), transition economies share a common
legacy that is characterized by the following features:439
a) Macroeconomic Balance by Direct Control Financial flows were the passive
outcome o f central directives that regulated credit and incomes. The financing of
SOEs was set by a credit plan, taking into account investment targets, and
implemented through the monobank financial sector.
Surpluses were
accumulated in large enterprises and were transferred to the budget to finance
subsidies and transfers as well as direct expenditures, which accounted for a
significant share o f GDP. Given fixed prices and consumption targets, wage
control was the critical factor for the balance between output and demand. In the
years prior to the collapse of the old regime, wage increases exceeded the ability
of the economy to provide consumer goods, resulting in involuntary accumulation
of financial assets, or repressed inflation.
b) Coordination Through Plans. Economic activity was based on a central plan
with quantitative output targets specified in physical units. The development of
heavy industry was given priority over the production of consumer goods, and the
service sector was accorded a low priority in the allocation of resources. The
matching of income and expenditures with physical targets was achieved through
coordinated, economy-wide plans, such as the central plan for material products,
the manpower plan, the credit plan, and the investment plan. Domestic trade was
conducted by central ministries (or organizations), and the CMEA (Council on
Mutual Economic Assistance) linked the economies of the Socialist Bloc with that
of the USSR.
c) Little or Limited Private Ownership. Property rights were exercised by the State,
and private ownership of the means of production was very little or non-existent.
The lack of a profit motive - resulting from the absence of private ownership of
the means of production - had an adverse effect on efficiency, and the prevalence
of planned allocations resulted in a relatively low number of firms and
enterprises.
d) Distorted Relative Prices. Prices played an accounting role and were established
in accordance with the central plan. The implicit prices of essential products and
services - like housing, energy, transportation, education, and health care - were
439 Ibid.
201
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
kept at relatively low levels, and land prices were essentially zero (or immaterial).
Similarly, trade margins were kept low, and the prices of final (or finished) goods
failed to reflect differences in distribution costs.
When a centrally planned economy with these features is replaced by a market system
with liberalized wages and prices, a set of systematic changes (or responses) take place.
These changes, which form an integral part of the process of transition, are described as
follows:
a) Macroeconomic Destabilization. Initial price liberalization normally leads to
subsequent price increases, especially if it is undertaken under conditions of
repressed inflation. The immediate challenge for macroeconomic policy is to
slow the rate of price increase and reverse the inflationary expectations and flight
from domestic financial assets that follow the initial increases in price.
Normally, this requires the introduction of hard budget constraints on enterprises
while introducing well-targeted social expenditures, including unemployment
benefits.
However, inflationary pressures may persist if and when the
government’s traditional tax base is eroded due to: output losses; further pressure
on the revenues of SOEs due to their loss of monopoly position; and difficulties in
imposing payment discipline through a formerly passive financial system.
b) Output Declines from Disruptions in the Coordinating Mechanism. The sudden
abolition of planning in a complex, highly interdependent economy can impair
economic coordination, affecting both useful and unwanted production pending
the establishment of a new, efficient system of market coordination. The resulting
increases in transaction costs can be considered as a negative supply shock to an
economy-wide production function that is specified to include coordination
activities (such as trade and payments) as an intermediate sector. The severity of
actual output decline would depend on the degree of interdependence within the
economy, the extent to which the planning system was disrupted, and the speed at
which the new, market-based coordinating system develops.
c) Output Gains from Private Ownership and Private Sector Growth. Efficiency
gains come from the legalization of private ownership, which creates incentives to
maximize returns, the establishment and enforcement of a legal framework to
support private activities, and the facilitation of private entry. Much of the
increased private- sector output would be produced by smaller firms. In the long
run, the movement from (inefficient) plan to (efficient) market should be
equivalent to a positive supply shock, raising the efficiency of resource allocation
and creating a burst of economic growth, as well as increasing the “utility” of
output. The latter would be expected to rise as output increasingly reflects
individual preference rather than the demands of a plan.
d) Microeconomic and Sectoral Reallocations.
Microeconomic and sectoral
reallocations take place in response to price changes resulting from liberalization
and the reduction of subsidies to SOEs, as well as to changes in demand.
202
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Previously repressed sectors, notably energy and services, should expand and
offset declines in industry - especially in defense-related industry, given
substantial cuts in defense procurement, and in agriculture, which received
substantial amounts of subsidies before transition takes place. Expansion of
previously repressed non-traded sectors, including real estate, occurs despite
exchange rate devaluations, which typically favor traded goods. Developments in
the labor market reflect the changes in the composition of sectoral output, and
especially the expansion of private trade and transport activities.
These changes take place both as the result of the disintegration of the old regime, and in
response to active measures of economic liberalization. An interesting question, which
emerges in the case of Cuba, is: To what extent has the process of transition taken place
on the island?
In order to address this question, we must take a look at the key
characteristics of Cuba’s post-Soviet economy to determine if the conditions that define
an economy in transition are being fully or partially met. Then, we need to examine if
Cuba has experienced (or is experiencing) some form of political transition as well.
As mentioned before, there are basically four changes that take place during the transition
from plan to market: (a) macroeconomic destabilization, (b) output declines due to
disruptions or the dismantling of the official coordinating mechanism, (c) output gains
resulting from the expansion of the private sector, and (d) microeconomic and sectoral
reallocations. In terms of macroeconomic destabilization, there is very little doubt that
Cuba experienced a severe shock as Soviet and Eastern European socialism disintegrated
in the early 1990s.
According to Mesa - Lago (1994), Gross Social Product (GSP)
declined an estimated 29 to 58% from 1989 to 1993.440 Similarly, absolute GSP dropped
from 27 billion pesos in 1989 to an estimated 12 billion pesos in 1993, resulting in loss
440 M esa - Lago, Carmelo. Are Econom ic Reforms Propelling Cuba to the Market? North - South Center.
University o f Miami. Miami, FL. 1994.
203
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ranging from 8 to 12 billion pesos.441 As output levels declined, so did foreign trade,
domestic investment, and sugar output. Between 1989 and 1993, the value of total trade
transactions fell 75%, accounting for a loss of approximately 10 billion pesos. Imports
fell 79% during the same period, contributing to a loss of 6 billion pesos. At the same
time, gross domestic investment declined by 43% from 1989 to 1991, from 4.6 billion
pesos to 2.6 billion pesos.442 Finally, sugar output for the 1992-1993 harvesting season
was only 4.2 million tons, about 50% of 1990-1991 levels 443 Therefore, in this respect, it
can be argued that, at least between 1990 and 1993, Cuba exhibited one of the key
characteristics of an economy in transition: (large-scale) macroeconomic destabilization.
The second key characteristic of transition economies consists of relatively large declines
in output (i.e., GDP or GSP) due to disruptions in the central plan (or the coordinating
mechanism). In this respect, it can also be said that, between 1990 and 1993, Cuba was
indeed an economy in transition. As socialism collapsed, Cuba’s central planning system
found itself unprepared to confront the new economic realities of the post-Cold War
world.
Cuban ministries and administrative entities virtually found themselves
unprepared to deal with the newly emerging entities and trading companies of the postSoviet era. By the early 1990s, Cuba’s former socialist allies started demanding hard
currency payments for their merchandise and products, and officially ended existing price
supports and subsidies. This left the Cuban economy, which had enjoyed Soviet and
CMEA subsidies and economic support for three decades, completely vulnerable to the
implacable forces of the global economy. As a result, the central planning system faced
441 Ibid.
442 Ibid.
443 Ibid.
204
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
enormous constraints, which later led to its overall reorganization, while the Cuban
economy experienced unprecedented levels of output decline. This suggests that during
the early stages o f the economic crisis of the 1990s Cuba did indeed exhibit another of
the key characteristics of transition economies: large output declines and the disruption
and reorganization of its central planning mechanism.
The next feature of transition economies relevant to our analysis consists of a relative
gain in output resulting from the expansion of the private sector, and the proliferation of
private sector activities during the period of transition. In this case, the Cuban experience
over the last decade presents a “mixed bag.” Although the approval of Decree - Law No.
141 on September 1993 officially promoted the expansion of self-employment, leading to
a rapid growth in the number of registered cuentapropistas (at least initially), which form
a core component of Cuba’s relatively small private sector, subsequent shifts in policy
(e.g., higher taxes and more regulation) after 1996, have had a negative impact on this
sector. More stringent regulations and higher tax rates, combined with bureaucratic and
administrative hurdles, have pushed many cuentapropistas, particularly those that own
and operate successful paladares (or private restaurants) into the clandestine second
economy. Since a rather significant share of Cuba’s private sector activities takes place
in the second economy (or black market), where they are barely accounted for and
reported, it is rather difficult to determine if Cuba has experienced output gains from the
expansion of this segment of the private sector. Therefore, in this respect, it seems that
until the private sector is fully incorporated into the official economy, Cuba will not be
able to meet this requirement to qualify as an economy in transition.
205
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Yet, a different picture emerges if we focus our analysis on the quasi-private farmers’
markets. Although they operate under the strict supervision of the State, private farmers’
account for the lion’s share of sales and total transactions in these markets. In fact, the
reintroduction o f the farmers markets in 1994 has contributed to the expansion of private
farming and other ancillary private activities.
Sales in these markets have grown
significantly in recent years, demonstrating that greater liberalization has contributed to
greater income levels (at least for some private farmers and their intermediaries), which,
in turn, has led to greater levels of agricultural output. Therefore, in this respect, it can be
argued that (to a limited degree) Cuban agriculture has experienced some form of
transition.
This has resulted in a (rather limited) positive supply shock, and has
increased productivity and the efficiency of resource allocation (at least in the relatively
small private agricultural sector).
The next characteristic of the process of economic transition consists of microeconomic
and sectoral reallocations.
The reallocation of resources at the microeconomic and
sectoral levels takes place as a response to price changes resulting from liberalization, the
reduction or elimination of subsidies to SOEs, and as changes in aggregate demand.
Microeconomic and sectoral reallocations lead to the expansion of previously repressed
sectors such as energy, services, and transportation, which tend to offset declines in
heavily subsidized sectors such as industry and agriculture. In the case of Cuba, several
microeconomic and sectoral reallocations have taken place after the collapse of socialism,
and the implementation of limited market reforms in the early 1990s.
206
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
After the approval of the revised version of Decree - Law No. 50 in 1992, a significant
amount of resources have been reallocated from traditional areas of the economy (i.e.,
sugar and non-sugar agriculture) to the tourist sector. As a consequence of this sectoral
reallocation, Cuba’s international tourism sector has bypassed sugar exports as the
country’s principal source of hard currency.
Cuba’s agricultural sector has also
experienced microeconomic and sectoral reallocations as State cooperatives have been
converted into UBPCs. Since the beginning of the Special Period (1990 - 1993), and the
introduction of limited economic reforms in the 1990s, traditionally repressed sectors
such as energy and services have also benefited from microeconomic and sectoral
reallocations. This process has been accelerated by the relative expansion of foreign
direct investment (FDI), and its increasingly important role in the Cuban economy during
the last decade. As a consequence, based on the reallocations that have taken place in
key sectors of the economy, Cuba meets this fundamental requirement to qualify as a
transition economy.
However, the experience of the former Soviet Union and other former socialist countries
suggests that economic and structural transformations alone do not constitute the process
of economic transition. The transition from plan to market requires a political component
as well. In this respect, there are several reasons to believe that, despite the introduction
of some limited market reforms as a response to the economic crisis of the 1990s, present
day Cuba does not fully qualify as a transition economy. First, there is the role of the
State and its exclusive power to exercise property rights. Today, despite of the limited
207
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
market openings of the last decade, the Cuban State retains full control of the
“commanding heights” o f the economy, and the country’s principal means of production.
Regardless of recent efforts to attract foreign capital, joint ventures and foreign
investment projects must first obtain the approval of the Council of Ministers; the
MINVEC has the power to selectively choose who is able to invest in Cuba; and the State
still exercises full control over the labor market. Unlike other transition economies, Cuba
lacks a truly independent labor sector, capable of operating outside the confines of the
State. Cuban workers, even those employed by foreign firms, are not able to organize or
form part of independent labor unions; nor are they able to freely negotiate their
employment contracts and compensation with foreign firms or domestic employers.
Similarly, the State maintains absolute control over the provision of basic social services
such as education and health care, where free market mechanisms and incentives are
virtually non-existent.
In other areas of the economy, where some limited market reforms have taken place, the
State continues to wield immense power and influence. The type of products offered at
the farmers’ markets are strictly regulated by the State, and private farmers are not
allowed to sell basic items such as beef, milk, and potatoes. In the case of the UBPCs,
and the rest of the cooperative sector, the lack of autonomy from the State, and its
procurement agency, Acopio, continue to impose limitations on productivity, efficiency,
and output expansion.
Existing regulations on everything from salaries, to how to
dispose of surplus production, have negatively impacted worker incentives and
productivity in the agricultural sector, and other areas of Cuba’s post-Soviet economy.
208
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A similar situation persists in the legal self-employment sector.
Due to a relatively high
tax burden and stricter government regulations, the number of registered cuentapropistas
dropped from a peak of 208,786 by the end of 1995 to an estimated 167,000 in 1999.444
Excessive regulation and harassment by the authorities, combined with high taxes, have
forced many cuentapropistas to exit the legal self-employment sector and reorganize
their operations in the clandestine second economy. The reduction in the number of
legally registered self-employed in the last few years has contributed to the prevalence of
the State as the largest employer for the majority of Cubans, despite the expansion of
joint ventures with foreign partners (to more than 400 by the end of 2001), and the
growth of the country’s foreign operated export processing zones (EPZs).
After more than a decade since the disappearance of socialism, and the implementation of
some limited market reforms, the Cuban economy, in many respects, remains far from
being an economy in transition.
On the economic front, the regime has cautiously
implemented some limited forms of market reforms in select areas of the economy, while
on the political front; it desperately clings to the orthodoxy of “Socialismo o Muerte. ”
The existence of this paradox, combined with the common subordination of economic
rationale to political and ideological considerations, supports the conclusion that:
Cuba’s post-Soviet economic reforms appear to have been designed to ‘reinvent
socialism
that is, to ensure the political and economic survival o f the current
regime by cautiously introducing some limited economic reforms, while
preserving the socialist character o f the Cuban Revolution.
444 Henken, Ted. “A Taste o f Capitalism : The R ise an d F all o f H a v a n a ’s P rivate R estaurants
( ‘P aladares ’) . ” Unpublished paper presented at the 12th Annual Conference o f the A ssociation for the
Study o f the Cuban Econom y (ASCE). Coral Gables, FL. August 2002.
209
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The pace and the outcome of Cuba’s economic reforms and the leadership’s cautious
flirtation with limited reform measures, combined with its relentless desire to cling to the
ideological orthodoxy of “Socialismo o Muerte, ” suggest that, regardless of the present
or future consequences, Cuba, at least for the time being, seems likely to continue to
sacrifice the path to economic transition for the sake of political survival.
210
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
REFERENCES
Alarcon, Ricardo. “An Economic War Against Cuba. ” Cigar Aficionado. June 1999.
www. ci garafie ionado.com
Alden, Edward. “Signals o f Harder Line on Cuba Give Castro Opponents Cause for
Jubilation. ” Financial Times. London, England. March 15, 2001.
Alfonso, Pablo. uApuntes sobre la situacion socioeconomica en Cuba.” Cuba in
Transition. Volume 6. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1996.
Alfonso, Pablo. “Panorama de las reformas economicas en Cuba: 1993 -1994. ” Cuba in
Transition. Volume 4. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1994.
Alfonso, Pablo. “Robaina no aclara proyecto economico. ” El Nuevo Herald. November
8, 1993.
Alonso, Jose F. “The Farmers' Market: A Rejected Approach but a Possible Solution. ”
Cuba in Transition. Volume 2. Association for the Study of the Cuban Economy (ASCE).
Coral Gables, FL. 1992.
Alonso, Jose F. and Armando M. Lago. “A First Approximation Model o f the Balance o f
Payments, Output, Employment and Foreign Aid Requirements o f a Democratic Cuba
(Parts I, H and III). ” Cuba in Transition. Volume 3. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1993.
Alonso, Jose F. and Armando M. Lago. “A First Approximation Model o f Money, Prices
and Exchange Rates in Revolutionary Cuba. ” Cuba in Transition. Volume 5. Association
for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1995.
Alonso, Jose F. and Armando M. Lago. “Current Political and Economic Trends in
Cuba. ” Cuba in Transition. Volume 2. Association for the Study of the Cuban Economy
(ASCE). Coral Gables, FL. 1992.
Alonso, Jose F. and Ralph J. Galliano. “Russian Oil-For-Sugar Barter Deals 19891999. ” Cuba in Transition. Volume 9. Association for the Study of the Cuban Economy
(ASCE). Coral Gables, FL. 1999.
Alvarez, Fernando. “Reserve Requirements: Not a Solution to the Potential Capital
Inflow Problem in Cuba. ” Cuba in Transition. Volume 3. Association for the Study of
the Cuban Economy (ASCE). Coral Gables, FL. 1993.
211
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Alvarez, Jose. “Cuba's Sugar Industry in the 1990s: Potential Exports to the U.S and
World Markets. ” Cuba in Transition. Volume 2. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1992.
Alvarez, Jose. “Independent Agricultural Cooperatives in Cuba. ” Cuba in Transition.
Volume 9. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
1999.
Alvarez, Jose and Lazaro Pena. Cuba’s Sugar Industry. Contemporary Cuba Series.
University Press of Florida. Gainesville, FL. 2001.
Alvarez, Jose and William Messina, Jr. “Cuba's New Agricultural Cooperatives and
Markets: Antecedents, Organization, Early Performance and Prospects. ” Cuba in
Transition. Volume 6. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1996.
Alvarez-Diaz, J. A. Arredondo, R.M Shelton and J. Vizcaino. Cuba: Geopolitica v
ensamiento economico. Colegio de Economistas de Cuba en el Exilio. Printed by Duplex
Paper Products of Miami, Inc. Miami, FL. 1964.
Azicri, Max. Cuba Today and Tomorrow: Reinventing Socialism. Contemporary Cuba
Series. University Press of Florida. Gainsville, FL. 2001.
Babun, Teo A., Jr. “Cuba's Cement Industry. ’’ Cuba in Transition. Volume 7.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1997.
Babun, Teo A., Jr. “Preliminary Study o f the Impact o f the Privatization o f State-Owned
Enterprises in Cuba. ” Cuba in Transition. Volume 9. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1999.
Bachs-Melendez, Ernesto. “Presentation o f the Draft o f a Law on Foreign Investment. ”
5th Ordinary Period of Sessions. National Assembly of the People’s Power. Havana,
Cuba. 1995. www.giraldilla.com
Baran, Paul. The Political Economy of Growth. Monthly Review Press. New York, NY.
1957.
Barquin III, Ramon C. “Comparison o f International Monetary Fund and World Bank
Conditionalities and Cuba's Economic Reforms o f the 1990s. ” Cuba in Transition.
Volume 6. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
1996.
Benjamin-Alvarado, Johnathaa “Investment and International Cooperation in Cuba's
Energy Sector. ” Cuba in Transition. Volume 8. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1998.
212
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Betancourt, Roger R. “Cuba's Economic "Reforms": Waiting for Fidel on the Eve o f the
Twenty First Century. ” Cuba in Transition. Volume 9. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1999.
Betancourt, Roger R. and Carlos Seiglie. “Economic Development in the Tropics: Fiction
or Possibility. ” Cuba in Transition. Volume 8. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1998.
Betancourt, Roger R. “ The New Institutional Economics. ” Cuba in Transition. Volume
1. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1991.
Bethel, Leslie (Ed.) Cuba: A Short History. Cambridge University Press. Cambridge,
U.K. 1993.
Blanco, Alfredo, Jr. “The 1995-1996 Sugar Zafra: Results and Implications - The
Machinery Sector. ” Cuba in Transition. Volume 6. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1996.
Blanchard, Olivier. Economics of Post-Communism Transition. Oxford University Press.
Oxford, U.K. 1997.
Bloomstrom, M. and R.E. Lipsey. “What Explains Developing Country Growth? ” NBER
Working Paper No. 4132. National Bureau of Economic Research. New York, NY. 1994.
www.nber.org
Buchanan, James. Explorations into Constitutional Economics. Texas A&M University
Press. College Station, TX. 1989.
Bunck, Julie Marie. “Marxism and the Market: Vietnam and Cuba in Transition. ” Cuba
in Transition. Volume 6. Association for the Study of the Cuban Economy (ASCE).
Coral Gables, FL. 1996.
Cabarrouy, Evaldo A. “Dimension fiscal de la crisis economica de Cuba, 1986 -1994. ”
Cuba in Transition. Volume 5. Association for the Study of the Cuban Economy (ASCE).
Coral Gables, FL. 1995.
Calvo G. and C.A. Rodriguez. “A Model o f Exchange Rate Determination Under
Currency Substitution and Rational Expectations. ” Journal of Political Economy.
Volume 85. 1977.
Canizalez, Andres. Cuba: Diez anos de transformaciones. Ediciones Ko’eyu. Caracas,
Venezuela. 1998.
Capablanca, Fernando A. “Cuba: Elements fo r a Modern Financial System. ’’ Cuba in
Transition. Volume 4. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1994.
213
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cardoso, Fernando Henrique and Enzo Falleto. Dependency and Development in Latin
America. University of California Press. Berkeley, CA. 1979.
Carrandi, Rodolfo A. “Propuesta para el reordenamiento de kteconomia cubana:
Aspectos institucionales y financieros. ” Cuba in Transition. Volume 7. Association for
the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1997.
Carranza, Julio and Pedro Monreal. “Economic Change in Cuba: A Critique. ” Cuba in
Transition. Volume 5. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1995.
Carranza - Valdes, Julio, Luis Gutierrez Urdaneta and Pedro Monreal Gonzalez. Cuba:
Restructuring the Economy - A Contribution to the Debate. Tranlated by Ruth Pearson.
The Institute of Latin American Studies. University of London. London, U.K. 1996.
Carter, Jimmy. “I ’ve Come Here to Seek an Answer on How to Achieve Harmonious
Relations Between Cuba and the United States. ” GRANMA International. Havana, Cuba.
May 14, 2002. www.granma.cu/ingles/mayo02-3/20
Casals, Beatriz C. and Sergio Diaz Briquets. “Policy Framework to Address Corruption
in the Cuban Transition. ” Cuba in Transition. Volume 9. Association for the Study of
the Cuban Economy (ASCE). Coral Gables, FL. 1999.
Castaneda, Rolando and George Plinio Montalvan. “Cinco areas de accion estrategicas
para lograr el milagro economico Cubano: Una rapida recuperacion con un alto y
sustentable crecimiento con equidad e inclusion social. ” Cuba in Transition. Volume 6.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1996.
Castaneda, Rolando. “Cuba y los antiguos paises socialistas de Europa: La importancia
de los aspectos institucionales y economia politica en la transicion del socialismo a una
economla de m ercado. ’’ Cuba in Transition. Volume 9. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1999.
Castaneda, Rolando H. and George Plinio Montalvan. “Cuba 1990 -1994: Political
Intransigence vs. Economic Reform. ” Cuba in Transition. Volume 4. Association for the
Study of the Cuban Economy (ASCE). Coral Gables, FL. 1994.
Castaneda, Rolando H. and George Plinio Montalvan. “Cuba: Una plena reinsercion
internacional comercial y financiera con estabilizacion rapida, sin recesion y con
crecimiento alto, estable y sustentable. ” Cuba in Transition. Volume 7. Association for
the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1997.
Castaneda, Rolando H. and George Plinio Montalvan. “Economic Factors in Selecting an
Approach to Confiscation Claims in Cuba. ” Cuba in Transition. Volume 5. Association
for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1995.
214
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Castaneda, Rolando H. and George Plinio Montalvan. “The "New" Cuban Economic
Model (or Socialism with Cuban Characteristics). ” Cuba in Transition. Volume 5.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1995.
Castro, Fidel. “Discurso del 26 de julio de 1992. ” En: Koeyu Latinoamericano. Nro. 66.
Ediciones Koeyu. Caracas, Venezuela. 1993.
CEPAL. “La economla cubana: Reformas estructurales y desempeho en los noventa. ”
Comision Economica para America Latina y el Caribe. Segunda Edicion. Fondo de
Cultura Economica. Mexico, D.F. 2000.
Chepe - Espinosa, Oscar. “Perspectivas limitadas para el turismo. ” CubaNet News, Inc.
Coral Gables, FL. Novermber 12, 2001. www.cubanet.org
Cheung, Steven. “A Theory o f Price Control. ” Journal of Law and Economics. Volume
17. 1974.
Clark, Juan. Cuba:Mito v Realidad - Testimonios de un pueblo. Ediciones Saeta. Miami,
FL. 1990.
Coleman, Jonathan R. “The Economic Imapct o f U.S. Sanctions with Respect to Cuba. ”
Cuba in Transition. Volume 11. Association for the Study of the Cuban Economy
(ASCE) and Institute for Cuban and Cuban - American Studies. University of Miami.
Miami, FL. 2001.
Collis, David S. “Tour ism/Ecotour ism in Cuba. ” Cuba in Transition. Volume 6.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1996.
Comite Estatal de Estadisticas. Anuario Estadistico de Cuba 11988). La Habana, Cuba.
1988.
Companys, Yosem E. “Institution Building: Financial Sector Reform in Cuba. ” Cuba in
Transition. Volume 7. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1997.
Consuegra-Barquin, Juan C. “The Present Status Quo o f Property Rights In Cuba. ” Cuba
in Transition. Volume 5. Association for the Study of the Cuban Economy (ASCE).
Coral Gables, FL. 1995.
Cordova,Efren. “Legal Changes in the Area o f Labor Relations. ” Cuba in Transition.
Volume 3. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
1993.
Cordova, Efren. “The Situation o f Cuban Workers During the "Special Period in
Peacetime. ” ” Cuba in Transition. Volume 5. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1995.
215
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Coricelli, Fabrizio. Macroeconomic Policies and the Development of Markets in
Transition Economies. Central European University Press. Budapest, Hungary. 1998.
Cottarelli, Carlo and Peter Doyle. “Taming Inflation in the Transition Economies. ”
Finance and Development. Volume 36. No. 2. International Monetary Fund (IMF).
Washington, DC. June, 1999.
Crespo, Nicolas. “Forty Years After: A Candid Recount o f Experiences At Tourism
Destinations in Cuba. ” Cuba in Transition. Volume 9. Association for the Study of the
Cuban Economy (ASCE). Coral Gables, FL. 1999.
Crespo, Nicolas and Santos Negron Diaz. “Cuban Tourism in 2007: Economic Impact. ”
Cuba in Transition. Volume 7. Association for the Study of the Cuban Economy
(ASCE). Coral Gables, FL. 1997.
“Cuba: A Guide for Canadian Businesses.” Department of Foreign Affairs and
International Trade. Ontario, Canada. June 1999. www.giraldilla.com
Daley, Larry S. “A Preliminary Evaluation o f the Needs fo r Agricultural Extension in a
Free Cuba. ” Cuba in Transition. Volume 9. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1999.
Daley, Larry S. “Bioprospecting in a Post -Castro Cuba. ” Cuba in Transition. Volume
7. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1997.
Dees, S. “Direct Foreign Investment in China: Determinants and Effects. ” Economics of
Planning. Volume 31. 1998.
del Aguila, Juan M. “Reflections o f a Non-Transition in Cuba: Comments on Elites. ”
Cuba in Transition. Volume 9. Association for the Study of the Cuban Economy
(ASCE). Coral Gables, FL. 1999.
deMello, L.R. “Foreign Direct Investment, International Knowledge Transfers and
Endogenous Growth: Time Series Evidence. ” University of Kent - Department of
Economics. Kent, U.K. 1996.
deMelo, Martha, Cevdet Denizer and Alan Gelb. “From Plan to Market: Patterns o f
Transition. ” Macroeconomic Stabilization in Transition Economies. Mario I. Blejer and
Marko Skreb (Eds.). Cambridge University Press. Cambridge, U.K. 1997.
deMenil, Georges. “Trade Policies in Transition Economies: A Comparison o f
European and Asian Experiences. ” Economies in TransitiomComparing Asia and
Europe. Wing Thye Woo, Stephen Parker and Jeffrey D. Sachs (Eds.). The MIT Press.
Cambridge, MA. 1998.
216
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Dewatripont, Mathias and Gerald Roland. “Transition as a Process o f Large Scale
Institutional Change. ” Advances in Economics and Econometrics: Theory and
Applications. David Kreps and Kenneth Wallis (Eds.). Cambridge University Press.
Cambridge, U.K. 1996.
Diaz-Briquets, Sergio. “Emigrant Remittances in the Cuban Economy: Their
Significance During and After the Castro Regime. ” Cuba in Transition. Volume 5.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1995.
Dlaz-Briquets, Sergio and Jorge F. Perez Lopez. “The Special Period and the
Environment. ” Cuba in Transition. Volume 5. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1995.
Dodd, Christopher. “End the Embargo. ” Cigar Aficionado. May/June, 1999.
Dollar, David and Aart Kraay. “Growth is Good fo r the Poor. ” World Bank Policy
Research Department Working Paper No. 2587. The World Bank. Washington, DC.
2001 .
Dollar, David and Aart Kraay. “Trade, Growth and Poverty. ” Finance and Development.
Volume 38. No. 3. International Monetary Fund (IMF). Washington, DC. September
2001. www. imf.org/fandd
Dominguez, Jorge I. Cuba: Order and Revolution. Harvard University Press. Cambridge,
MA. 1978.
Dominguez, Jorge I. “La transicion politica en Cuba. ” En: Encuentro de la cultura
cubana. Nro. 1. Madrid, Espana, 1996.
Dominguez, Jorge I. “Why the Cuban Regime Has Not Fallen. ” In: Cuban
Communism. IQ1 Edition. Irving Louis Horowitz and Jaime Suchlicki, Editors.
Transaction Publishers. New Brunswick, NJ. 2001.
Donate -Armada, Maida. “Las condiciones de vida en Cuba: Efectos sociales y
psicologicos. ” Cuba in Transition. Volume 4. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1994.
Dombusch, R. and A. Reynoso. “Financial Factors in Economic Development. ”
National Bureau of Economic Research (NBER). Working Paper No. 2889. New York,
NY. 1989
Echeverria, Oscar A. “Cuba and the International Sugar Market. ” Cuba in Transition.
Volume 5. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
1995.
Edwards, S. “Openness, Productivity and Growth: What Do We Really Know? ”
Economic Journal. March, 1998.
217
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Escagedo, Gregorio Jr. “Posibles problemas que confrontaremos en Cuba: Sus
soluciones. ” Cuba in Transition. Volume 3. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1993.
Espino, Maria Dolores. “International Tourism in Cuba: An Economic Development
Strategy? ” Cuba in Transition. Volume 1. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1991.
Espino, Maria Dolores. “Tourism in Cuba: A Development Strategy fo r the 1990s? ”
Cuba at a Crossroads: Politics and Economics After the Fourth Party Congress. Jorge F.
Perez - Lopez (Ed.). University Press of Florida. Gainsville, FL. 1994.
Espinosa, Juan Carlos. “Markets Redux: The Politics o f Farmer's Markets in Cuba. ”
Cuba in Transition. Volume 5. Association for the Study of the Cuban Economy (ASCE).
Coral Gables, FL. 1995.
Ezquerra, Isabel. “Information on the Cuban Economy in Databases. ” Cuba in
Transition. Volume 6. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1996.
Farto-Muniz, Rafael. “Lasparrandas en Remedios: su proyeccion a los pueblos de
Caibarien y Cam ajuanlf Ponencia, Premio III Simposio Nacional de Parrandas, en
Museo de las Parrandas de Remedios. Remedios, Villa Clara. Cuba. 1989.
Fernandez, Carlos. “The Role o f Deposit Insurance in a Market Oriented Banking System
in Cuba. "Cuba in Transition. Volume 4. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1994.
Fischer, S., Sahay, R. and C. Vegh. “Stabilization and Growth in Transition Economies:
The Early Experience. ” Journal of Economic Perspectives. Volume 10. 1996.
Frank, Marc. “Castro desmantela la industria azucarera. ” Reuters. La Habana, Cuba.
June 5, 2002.
Friedman, Milton. Capitalism and Freedom. The University of Chicago Press. Chicago,
IL. 1962.
Gaidar, Yegor. “Lessons o f the Russian Crisis fo r Transition Economies. ” Finance and
Development. Volume 36. No. 2. International Monetary Fund (IMF). Washington, DC.
June, 1999.
Gallagher, Mark. “Some Ideas fo r Taxation During Cuba's Transition. ” Cuba in
Transition. Volume 9. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1999.
218
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Gilpin, Robert. Global Political Economy: Understanding the International Economic
Order. Princeton University Press. Princeton, NJ. 2001.
Giuliano, Maurizio. “La transition cubana v el bloqueo norteamericano. Ediciones
ChileAmerica. Santiago, Chile. 1997.
Gonzalez, Edward and David Ronfeldt. Cuba Adrift in a Post-Communist World.
National Defense Research Institute. RAND. Santa Monica, CA. 1992.
Grabendorff, Wolf. “Relaciones entre la comunidad europea y Cuba. ” En: El Caribe v
Cuba en la pos Guerra Fria. Editorial Nueva Sociedad. Caracas, Venezuela. 1994.
Groombridge, Mark. “Missing the Target: The Failure o f the Helms - Burton Act. ”
Center for Trade Policy Studies. CATO Institute. Washington, DC. June 2001.
www.cato.org
Guidotti, P. and C.A. Rodriguez. “Dollarization in Latin America: Gresham’s Law in
Reverse. ” International Monetary Fund (IMF) Staff Papers. No. 39. Washington, DC.
19992. www.iinf.org
Gunn, Gillian. “The Sociological Impact o f Rising Foreign Investment. ”
www.trinitvdc.ediu/academics/depts/interdisc/intemational/caribbean%20briefings/TheS
ociologicalImpact.pdf 1993.
Haass, Richard N. “Sanctioning Madness. ” Foreign Affairs. Volume 76. No. 6. Council
on Foreign Relations. New York, NY. November/December, 1997.
Hallagan, William and Jun Zhang. “Starting Positions, Reform Speed and Economic
Outcomes in Transition Economies. ” Working Paper No. 280. The World Bank.
Washington, DC. January, 2000.
Harper, Douglas G. “Restitution o f Property in Cuba: Lessons Learnedfrom East
Europe. ” Cuba in Transition. Volume 9. Association for the Study o f the Cuban
Economy (ASCE). Coral Gables, FL. 1999.
Harvey, David Alan. Cuba. National Geographic Society. Washington, DC. 1999.
Havrylyshyn, Oleg and John Odling - Smee. ’’Political Economy o f Stalled Reforms. ”
Finance and Development. Volume 37. No. 3. International Monetary Fund (IMF).
Washington, DC. September, 2000.
Havrylyshyn, Oleg and Thomas Wolf. “Determinants o f Growth in Transition
Countries. ” Finance and Development. Volume 37. No. 3. International Monetary Fund
(IMF). Washington, DC. September, 2000.
Hayek, F. The Fatal Conceit: The Errors of Socialism. The University of Chicago Press.
Chicago, IL. 1988.
219
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Heilman, Joel. “Constitutions and Economic Reforms in the Post-Communist
Transition. ” The Rule of Law and Economic Reform in Russia. J. Sachs and K. Pistor
(Eds.).Westview Press. Boulder, CO. 1997.
Helms, Jesse. “Tighten the Screws. ” Cigar Aficionado. May/June, 1999.
Henken, Ted. “A Taste o f Capitalism: The Rise and Fall o f Havana’s Private
Restaurants ( ‘Paladares ’). ” Unpublished paper presented at the 12 Annual Conference
of the Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
August 2002.
Hemandez-Cata, Ernesto. “Economic Policy In Cuba's Transition to a Market Economy:
Lessons from the Russian Experience. ” Cuba in Transition. Volume 3. Association for
the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1993.
Hewlett, Ed A. Reforming the Soviet Economy: Equality versus Efficiency. The
Brookings Institution. Washington, DC. 1988.
Hoffman, Bert (Ed.) Cuba: Apertura y reforma economica - Pefil de un debate. Instituto
de Estudios Iberoamericanos de Hamburgo. Editorial Nueva Sociedad. Caracas,
Venezuela. 1995.
Jatar-Hausmann, Ana Julia. The Cuban Way: Capitalism. Communism and
Confrontation. Kumarian Press. West Hartford, CT. 1999.
Jatar-Hausmann, Ana Julia “Through the Cracks o f Socialism: The Emerging Private
Sector in Cuba. ” Cuba in Transition. Volume 3. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1993.
Jennings, Thomas. “Dollarization: A Primer. ” United States International Trade
Commission (USITC). Washington, DC. April/May, 2000. www.usitc.com
Jorge, Antonio and Robert David Cruz. “Foreign Investment Opportunities in Cuba. ”
Cuban Communism. 9th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.).
Transaction Publishers. New Brunswick, NJ. 1995.
Kildegaard, Anne C. and Roberto Orro Fernandez. “Dollarization in Cuba and
Implications fo r the Future Transition. ” Cuba in Transition. Volume 9. Association for
the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1999.
Komai, J. The Road to a Free Economy. Norton Publishers. New York, NY. 1991.
Krueger, A. “Trade Policies in Developing Countries. ” Handbook of International
Economics and International Trade. Volume 1. R. W. Jones and P. Kenen (Eds.) North
Holland, Amsterdam. The Netherlands. 1984.
220
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Lage - Davila, Carlos. El desafio economico de Cuba. Ediciones Entomo. La Habana,
Cuba. 1992. (Texto tornado del periodico GRANMA.)
Lall, S. “Vertical Integration Linkages in LDCs: An Empirical Study. ” Oxford Bulletin
of Economics and Statistics. Volume 42. Oxford University. Oxford, U.K. 1980.
Lange, J. and F. Taylor. On the Economic Theory of Socialism. McGraw Hill Publishers.
New York, NY. 1964.
Lardy, Nicholas. China’s Unfinished Economic Revolution. The Brookings Institution.
Washington, DC. 1998.
Leiseca, Sergio. “Foreign Investors ’ Property Rights and Legal Guaranties Against NonCommercial Risks in Cuba. ” Cuba in Transition. Volume 6. Association for the Study of
the Cuban Economy (ASCE). Coral Gables, FL. 1996.
Lim, Ewe-Ghee. “Determinants of, and the Relation Between, Foreign Direct Investment
and Growth: A Summary o f the Recent Literature. ” IMF Working Paper WP/01/175.
International Monetary Fund (IMF). Washington, DC. November 2001. www.imf.org
Locay, Luis. “Toward a Market Economy or Tinkering with Socialism? ” In:
Perspectives on Cuban Economic Reforms. Jorge F. Perez - Lopez and Matias F.
Travieso - Diaz, Editors. Special Studies No. 30. Center for Latin American Studies
Press. Arizona State University. Tempe, AZ. 1998.
Lopez, Juan J. “ The Non-transition in Cuba: Problems and Prospects fo r Change. ” In:
Cuban Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki, Editors.
Transaction Publishers. New Brunswick, NJ. 2001.
Lucas, R.E. “Making a Miracle. ” Econometrica. Volume 61. No. 2. 1988.
Luzarraga, Alberto. “Privatizacion en Cuba” Factor de uniony desarrollo o de conflicto
social. ” Cuba in Transition. Volume 7. Association for the Study of the Cuban Economy
(ASCE). Coral Gables, FL. 1997.
Marquis, Christopher. “Who, and What, Can Get into Cuba. ” The New York Times.
May 15,2002.
Martin, William. “Trade Policy Reform in the East Asian Transition Economies. ” World
Bank Working Paper Series. Washington, DC. 2000.
http :///econ ■worldbank.org/files/1393 wps25 35 .pdf
Masking, Eric and Chenggang Xu. “Soft Budget Constraints Theories: From
Centralization to the Market. ” Working Paper. Department of Economics. Harvard
University. Cambridge, MA. 1996.
221
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
McDougal, R. “The Benefits and Costs o f Private Investment from Abroad” A
Theoretical Approach. ” Economic Record. Volume 36. Economic Society of Australia
and New Zealand. Melbourne, Australia. 1960.
McMillan, John. “Markets in Transition. ” Advances in Economics and Econometrics:
Theory and Applications. David Kreps and Kenneth Wallis (Eds.). Cambridge University
Press. Cambridge, U.K. 1996.
Mesa-Lago, Carmelo. “Assessing Economic and Social Performance in the Cuban
Transition o f the 1990s. ” Cuban Communism. 10th Edition. Irving Louis Horowitz and
Jaime Suchlicki (Eds.). Transaction Publishers. New Brunswick, NJ. 2001.
Mesa-Lago, Carmelo. Are Economic Reforms Propelling Cuba to the Market? NorthSouth Center. University of Miami. Miami, FL. 1994.
Mesa-Lago, Carmelo. Cuba After the Cold War. Pitt Latin America Series. University of
Pittsburgh Press. Pittsburgh, PA. 1993.
Mesa-Lago, Carmelo. “Cuba’s Economic Policies and Strategies fo r the 1990s. ” Cuban
Communism. 9th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.). Transaction
Publishers. New Brunswick, NJ. 1995.
Mesa-Lago, Carmelo. “ECLA's Report on the Cuban Economy in the 1990s.” Cuba in
Transition. Volume 9. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1999.
Mesa-Lago, Carmelo. La economia en Cuba socialista: Una evaluation de dos decadas.
Biblioteca Cubana Contemporanea. University of Mexico Press. Mexico, DF. 1983.
Mesa-Lago, Carmelo. “The Effects on Cuba o f the Downfall o f Socialism in the USSR
and Eastern Europe. ” Cuba After the Cold War. Carmelo Mesa-Lago (Ed.) Pitt Latin
American Series. University of Pittsburgh Press. Pittsburgh, PA. 1993.
Michalopoulos, C. and D. Tarr. “Trade Performance and Policy in the New Independent
States. ” Directions in Development. The World Bank. Washington, DC. 1996.
Mitra, Padreep K. and Marcelo Selowsky. “Europa oriental y la antigua Union
Sovietica: Una decada de transicidn. ” Finanzas v Desarrollo. Volumen 39. No. 2. Fondo
Monetario Intemacional (FMI). Washington, DC. Junio de 2002. www.imf.org/fandd
Monreal, Pedro and Manuel Rua del Llano. “Hacia una transicidn: apertura y reforma
en la economia (1990-1993). ” En: Cuba: Apertura v reforma economica - Perfil de un
debate. Bert Hoffman, Editor. Instituto de Estudios Iberoamericano de Hamburgo.
Editorial Nueva Sociedad. Caracas, Venezuela. 1995.
222
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Montaner, Carlos Aberto. Fidel Castro y la revolucion cubana. 2da. Edition. Plaza &
Janes Editores, S.A. Barcelona, Espana. 1985.
Montaner, Carlos Alberto. Viaie al corazon de Cuba. Plaza & Janes Editores, S.A.
Barcelona, Espana. 2000.
Moran, T. “Foreign Direct Investment and Development: The New Policy Agenda fo r
Developing Countries and Economies in Transition. ” Institute for International
Economics. Washington, DC. 1998. www.iie.org
Moses, Catherine. Real Life in Castro’s Cuba. Scholarly Resources Books, Inc.
Wilmington, DE. 2000.
Nellis, John. “Time to Rethink Privatization in Transition Economies. ” Finance and
Develonment. Volume 36. No. 2. International Monetary Fund (IMF). Washington, DC.
June, 1999.
Ng, Y-K and Yang X. “Specialization, Information and Growth: A Sequential
Equilibrium Analysis. ” Review of Development Economics. Volume 1. 1997.
Nova-Gonzalez, Armando. “El mercado agropecuario. ” En: La ultima reforma agraria
del siglo: La agricultura cubana entre el cambio y el estancamiento. Hans-Jiirgen
Burchardt (Ed.) Editorial Nueva Sociedad. Caracas, Venezuela. 2000.
Nsouli, Saleh M. “A Decade o f Transition: An Overview o f Achievement and
Challenges. ” Finance and Development. Volume 36. No. 2. International Monetary Fund
(IMF). Washington, DC. June, 1999.
Nuccio, Richard A. “Cuba: The Current Situation.” Cuba in Transition. Volume 9.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1999.
Parsa, T.Z. “Club Red. ’’The New Yorker. New York, NY. November 17, 1997.
Perez, L. “The Implications o f Currency Substitution Experiences in Latin America and
Europe fo r Cuba. ” Cuba in Transition. Volume 4. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1994.
Perez, Luis A., Jr. Cuba: Between Reform and Revolution. Second Edition. Oxford
University Press. Oxford, U.K. 1995.
Perez, Luis A., Jr. On Becoming Cuban: Identity. Nationality and Culture. Harper Collins
Publishers. New York, NY. 1999.
Perez-Lopez, Jorge F. “Coveting Beijing, but Imitating Moscow: Cuba's Economic
Reforms in a Comparative Perspective. ” Cuba in Transition. Volume 9. Association for
the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1999.
223
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Perez-Lopez, Jorge F. Cuba’s Second Economy: From Behind the Scenes to Center
Stage. Transaction Publishers. New Brunswick, NJ. 1995.
Perez -Lopez, Jorge F. “Cuba’s Socialist Economy: The M id 1990s. ” Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.).
Transaction Publishers. New Brunswick, NJ. 2001.
Perez -Lopez, Jorge F. and Matias F. Travieso-Diaz. Perspectives on Cuban Economic
Reforms. Center for Latin American Studies. Special Studies, No. 30. Arizona State
University Press. Temple, AZ. 1998.
Perez -Lopez, Jorge F. “Sugar and Petroleum in Cuban-Soviet Terms o f Trade. ” Cuba in
the World. 1979.
Perez- Stable, Marifeli. The Cuban Revolution: Origins, Course, and Legacy. Second
Edition. Oxford University Press. Oxford, U.K. 1999.
Perez - Villanueva, Omar Everleny. “Estabilidad macroecondmica y financiamiento
externo: La inversion extranjera directa en Cuba. ” Centro de Estudios de la Economia
Cubana (CEEC). La Habana, Cuba. Abril 2000.
Peters, Phillip. “State Enterprise Reform in Cuba: An Early Snapshot. ” The Lexington
Institute. July 2001. www.lexingtoninstitute.org
Peters, Phillip. “The Farmers Markets: Crossroads o f Cuba’s New Economy. ” The
Lexington Institute. October 2000. www. 1exingtoninstitute.org
Phillips, Lynne (Ed.). The Third Wave of Modernization in Latin America: Cultural
Perspectives on Neoliberalism. Jaguar Books on Latin America. No. 16. Scholarly
Resources, Inc. 1998.
Pozo, Susan (Ed.) Exploring the Underground Economy: Studies of Illegal and
Unreported Activity. W.E Upjohn Institute for Employment Research. Kalamazoo, MI.
1996.
Purcell-Kaufman, Susan. “Cuba: Economic Sanctions and American Diplomacy. ” Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.).
Transaction Publishers. New Brunswick, NJ. 2001.
Putnam, John J. “Cuba: Evolution in the Revolution. ’’National Geographic Magazine.
Volume 195. No.6. National Geographic Society. Washington, DC. June, 1999.
Reuters Newswire. “Foreign Investment in Cuba Falls. ” Reuters. Havana, Cuba. July 8,
2002 .
224
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Ritter, Archibald R.M. “Challenges and Policy Imperatives for the Economy. ” Cuban
Communism. 10th Edition. Irving Louis Horowitz and Jaime Suchlicki (Eds.).
Transaction Publishers. New Brunswick, NJ. 2001.
Ritter, Archibald R.M. and Nicholas Rowe. “Cuba: From ‘Dollarization ’ to ‘EuroIzation ’ or ‘Peso Re-Consolidation ’. ” Unpublished paper. Department of Economics and
International Relations. Carleton University. Ottawa, Canada. October 30 2000.
Rivero, Nicolas and Jose F. Alfonso. “The Cuban Sugar Industry in a Changing World. ”
Cuba in Transition. Volume 1. Association for the Study o f the Cuban Economy (ASCE).
Coral Gables, FL. 1991.
Rodriguez - Castellon, Santiago. “Las unidades basicas de produccion cooperativa: El
plan y el mercado. ” La ultima reforma agraria del siglo: La agriculture cubana entre el
cambio v el estancamiento. Hans-Jurgen Burchardt (Ed.). Editorial Nueva Sociedad.
Caracas, Venezuela. 2000.
Ross, James E. “Agribusiness Investment in Cuba's Post Embargo Period. ” Cuba in
Transition. Volume 9. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1999.
Ross, James E. and Maria Antonia Femandez-Mayo. “Cuba: An Overview o f the Dollar
Food Market. ” Unpublished paper presented at the 12th Annual Conference of the
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. August
2002 .
Rousseau, Denis and Corinne Cumberlato. La isla del doctor Castro: La transicion
secuestrada. Editorial Planeta. Barcelona, Espana. 2001.
Sachs, Jeffrey D. “Notes on the Life Cycle o f State-Led Industrialization. ” Japan and the
World Economy. Volume 8. 1994.
Sachs, Jeffrey D. and K. Pistor. “Introduction: Progress, Pitfalls, Scenarios, and Lost
Opportunities. ” The Rule of Law and Economic Reform in Russia. Jeffrey D. Sachs and
K. Pistor (Eds.). Westview Press. 1997.
Sachs, Jeffrey D. Wing Thye Woo and Xiaokai Yang. “Economic Reforms and
Constitutional Transition. ” CID Working Paper. Department of Economics. Harvard
University. Cambridge, MA. 1996.
Sachs, Jeffrey D. and W.T Woo. “Understanding China’s Economic Performance. ”
Journal of Policy Reforms. 1999.
Sanchez - Herrero, Manuel and Amaldo Ramos Lauzarique. El sector agropecuario
cubano bajo el socialismo de estado. ” Cuba in Transition. Volume 7. Association for the
Study of the Cuban Economy (ASCE). Coral Gables, FL. 1997.
225
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Sanguinetty, J. “Monetary Dualism as an Instrument Towards a Market Economy: The
Cuban Case. ” Cuba in Transition. Volume 4. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1994.
Seiglie, Carlos. “Cuba’s Road to Serfdom. ” CATO Journal. Volume 20. No. 3. CATO
Institute Publications. Washington, DC. Winter 2001.
Seiglie,Carlos. uThe Political Economy o f State Owned Enterprises. ” Cuba in Transition.
Volume 9. Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL.
1999.
Seiglie, Carlos. “The Political Economy o f Trade Sanctions: The Case o f Cuba. ” Cuba in
Transition. Volume 7. Association for the Study of the Cuban Economy (ASCE). Coral
Gables, FL. 1997.
Shelton, Raul M. “The Historical Development o f the Cuban Banking System: Lessons
fo r the Future. ” Cuba in Transition. Volume 9. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1999.
Shleifer, A. and R. Vishny. “The Politics o f Market Socialism. ” Working Paper.
Department of Economics. Harvard University. Cambridge, MA. 1993.
Sodersen, B. and G. Reed. International Economics. 3rd Edition. McMillan Publishers.
London, U.K. 1994.
Spadoni, Paolo. “Foreign Investment in Cuba: Recent Developments and Role in the
Economy. ” Unpublished paper presented at the 12th Annual Conference of the
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. August
2002 .
Spadoni, Paolo. “The Impact o f the Helms-Burton Legislation on Foreign Investment in
Cuba. ” Cuba in Transition. Volume 11. Association for the Study of the Cuban Economy
(ASCE) and Institute for Cuban and Cuban-American Studies. University of Miami.
Miami, FL. 2001.
Suchlicki, Jaime. “Cuba Without Subsidies. ” Cuban Communism. 10th Edition. Irving
Louis Horowitz and Jaime Suchlicki (Eds.). Transaction Publishers. New Brunswick, NJ.
2001 .
Suchlicki, Jaime and Antonio Jorge (Eds.) Investing in Cuba: Problems and Prospects.
Transaction Publishers. New Brunswick, NJ. 1994.
Suckling, James. “Unforgettable Cuba. ” Cigar Aficionado. May/June 1999.
226
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Tanzi, Vito. “Transition and the Changing Role o f Government. "Finance and
Development. Volume 36. No. 2. International Monetary Fund (IMF). Washington, DC.
June 1999.
The Economist Intelligence Unit (EIU). “Country Report: Cuba. ” New York, NY. April
2001. www.eiu.com
Thomas, L.R. “Portfolio Theory and Currency Substitution. ” Journal of Money. Credit
and Banking. Volume 17. 1985.
Travieso-Diaz, Matias F. and Alejandro Ferrate. “Legal Foundations fo r a Successful
Privation Program in Cuba. ” Cuba in Transition. Volume 7. Association for the Study of
the Cuban Economy (ASCE). Coral Gables, FL. 1997.
Travieso-Diaz, Matias F. “Cuba’s Perfeccionamiento Empresarial Law: A Step Towards
Privatization? ” Cuba in Transition. Volume 11. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 2001.
Travieso-Diaz, Matias F. and Alejandro Ferrate. “Recommended Features o f a Foreign
Investment Code fo r Cuba’s Free Market Transition. ” Cuba in Transition. Volume 5.
Association for the Study of the Cuban Economy (ASCE). Coral Gables, FL. 1995.
Trento, Angelo. Castro and Cuba: From the Revolution to the Present. Interlink Books.
New York, NY. 2000.
U.S.-Cuba Economic Trade and Economic Council, Inc. “1989 - 1999 Direct Foreign
Investment Reported as US $2 Billion. ” Economic Eve on Cuba. New York, NY. 2000.
www. cubatrade. or g
U.S.-Cuba Economic Trade and Economic Council, Inc. “Realities o f Market Cuba. ”
New York, NY. 1999. www.cubatrade.org
United States International Trade Commission (USITC). “The Economic Impact o f U.S.
Sanctions with Respect to Cuba. ” USITC Publication 3398. Investigation No. 332-413.
February 2001. www.usitc.gov
Werlau, Maria C. “Foreign Investment in Cuba: The Limits o f Commercial
Engagement. ” Cuba in Transition. Volume 6. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1996.
Werlau, Maria C. “Update on Foreign Investment in Cuba 1997-1998 and Focus on the
Energy Sector. ” Cuba in Transition. Volume 7. Association for the Study of the Cuban
Economy (ASCE). Coral Gables, FL. 1997.
Willmore, Larry. “Export Processing Zones in Cuba. ” United Nations. Economic and
Social Affairs Division. ST/ESA/2000/DP. 12. DESA Discussion Paper No. 12. June
2000. www.un.org
227
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
World Bank. Entering the 21st Century: World Development Report 1999/2000. Oxford
University Press. Oxford, U.K. 1999.
228
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
VITA
Mario A. Gonzalez-Corzo
1970
Bom January 17 in Santa Clara, Cuba.
1988
Graduated from Emerson High School, Union City, New Jersey.
1988-1993
Attended Rutgers University, New Brunswick, New Jersey.
1993
B.A. in Economics.
1993-1997
Employed by the Chase Manhattan Bank, New York City, as
brokerage operations manager.
1998-2000
Employed by PricewaterhouseCoopers, L.L.P., New York City, as
management consultant.
2000-2002
Employed by MetLife, Inc., New York City, as senior e-business
manager.
1997-2003
Graduate work in Economics, Global Studies, and Political Science,
Rutgers University, Newark, New Jersey.
1998
M.A. in Political Science.
2000
M.A. in Global Studies.
2002
M.A. in Economics.
2003
Ph.D. in Global Studies (International Political Economy).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.