New Economic Reforms: How Cuba Is Fighting the Coronavirus Crisis

RIO DE JANEIRO, BRAZIL – Cuba’s President Miguel Díaz-Canel has announced new measures to address the economic impact of the Covid-19 pandemic. The complete collapse of tourism and the repeated tightening of the US blockade have led to a reduction in import capacity, which is reflected in a severe food supply crisis.

The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) is now projecting an eight percent recession in Cuba this year. “We can not continue as before in the economic field,” said the President. As of Monday, 72 shops began selling food, hygiene and building supplies in dollars, while eliminating the ten percent tax on the use of the US currency.

Payment in dollar stores will be exclusively done by debit card, and they will mainly cover a higher-value range of goods. The dollar sales, which started in October 2019, are intended to generate new income to secure imports. The basic supply in the over 4,000 shops in both CUC (Cuban convertible peso) and Cuban pesos will be reduced to 47 articles and can be extended by opening the structures to local producers.

Even if recent steps in the retail sector suggest that only a few will benefit, “in the long run, they will benefit everyone,” said Díaz-Canel, who reiterated that “no one will be left unprotected.” As a further measure, two additional pounds of rice per person will be provided at unsubsidized prices throughout July and August.

The partial dollarization of the retail sector is the subject of a more comprehensive reform package, which will further expand and professionalize the island’s non-governmental sector. In future, private companies will be granted their own legal status and will be allowed to export goods in US dollars through 37 state-owned foreign trade companies. The issue of licences is to be “flexibilized”. In addition, together with the service and production cooperatives, they will gain access to wholesale market imports for the first time.

Farmers and cooperatives can sell their products directly to companies in the Mariel Special Economic Zone, and are allowed to retain 80 percent of foreign exchange profits. This is intended to create framework conditions with which all players and ownership forms can engage to build new value chains. “We need the economic players to complement each other; the state sector, cooperatives, self-employed workers and the non-state sector: we are one,” emphasized the Minister of Economic Affairs, Alejandro Gil.

Priority in implementing the new model is assigned to the agricultural sector. Cuba currently has to import around 70 percent of the food consumed in the country. In order to reverse this situation in coming years, a change in the relationship between state agricultural companies and agricultural producers is planned.

Loans, banking services, and foreign investment are expected to gain ground in the sector. The state-owned purchase monopolist Acopio, to which producers have so far been forced to deliver 70 percent of their crops at prices below the usual market rates, is to be expanded to include additional channels to create greater production incentives: “We need marketing structures free of monopoly, where efficiency, the lowest costs between producer and seller, is the most important factor,” says Gil.

In addition, state-owned companies should be given far-reaching autonomy over business management decisions and enter into business relationships with other economic players. “Micro, small and medium-sized companies” will be given their own legal form and will be able to set up in both the state and private sectors.

It was announced that the 2013 experimental project for the creation of production and service cooperatives has been successfully completed. These are to be provided with more room in the economy in the future as new players. The former laws define private companies as “independent operators” and target primarily small-scale self-employed persons.

However, many private companies have long since expanded and professionalized, so that the legal framework is no longer adequate, as Raúl Castro conceded at the last party conference in 2016. At the time, it was decided to implement medium-sized private companies as part of the new model.

As Díaz-Canel explained, the measures have not been improvised, but rather form part of an integral development strategy based on the decisions of the last party congress to introduce a new model of socialism. In preparing them, proposals from public debate, academics and social media had been assessed. There are risks involved in its implementation, “but the greatest risk would be not to change anything and to lose the people’s trust and support,” the president said.

In October, Cuba’s parliament will make a first assessment of the new economic strategy.