Development & Aid, Economy & Trade, Food and Agriculture, Headlines, Latin America & the Caribbean

ECONOMY-CUBA: A New Model in the Making?

Patricia Grogg

HAVANA, May 23 2008 (IPS) - Preparations for the sixth congress of Cuba’s ruling Communist Party (PCC), to be held in late 2009, may speed up the “structural changes” promised by President Raúl Castro and pave the way for a development strategy more suited to present conditions, experts say.

Economists consulted by IPS say that the Economic Resolution of the fifth PCC congress, held in 1997, has been overtaken by events and no longer reflects reality.

Each party congress is meant to reflect on the previous five years and decide guidelines for the next five-year period. The sixth congress, due in 2002, had been postponed.

Omar Everleny Pérez Villanueva, the deputy director of the Centre for the Study of the Cuban Economy (CEEC) at the University of Havana, said one example of change in the Cuban economy is that the country now earns sizeable revenues from professional medical services, which was not the case in the late 1990s.

According to statistics that have not been officially confirmed, sales of medical services generate between five and six billion dollars a year, which is used to finance strategic imports such as fuel and foods, or to buy equipment and medical technology for the national health service.

CEEC researchers say that in the last few years, the economy has developed in an improvised fashion in response to urgent problems, like the energy crisis in 2004, which forced a change of energy policy towards savings, greater efficiency and use of renewable sources.

According to Pérez Villanueva, Cuba must stop going from crisis to crisis, with solutions thought up on the spur of the moment, and advance towards a development strategy that includes a wide range of simultaneous measures, from monetary policy to those directly related to industrial and agricultural production.

“We need a programme, a set of guidelines that defines where we are going and marks the stages, and that sets out the tasks involved in building socialism,” said economist and CEEC researcher Armando Nova, who pointed out that Cuba has had to work under the pressure of the U.S. embargo for over four decades.

Nova agrees with Pérez Villanueva and other academics that, among other things, “productive forces need to be freed up,” with clear rules. The market needs to expand to provide incentives for production and work, and excessive centralisation and financial and productive restrictions on businesses should be eliminated, he added.

“It must be recognised that the domestic market is a real and concrete tool that drives development. Of course, it cannot be left to its own devices, but should be regulated by means of economic mechanisms, so that the plan and the market are compatible,” Nova told IPS.

One of the measures being implemented that could lead to structural changes in agriculture is, in fact, the creation of shops where small farmers can buy what they need directly, instead of having to use the centralised distribution system that existed before, Nova said.

In mid-2007 Raúl Castro, then interim president, announced that “structural and conceptual changes would have to be introduced as necessary” to boost crop yields and curb food imports, which will absorb an estimated 1.9 billion dollars in 2008.

According to CEEC studies, it is a good move to begin with measures in agriculture because of the “multiplier effect” the sector has on the economy as a whole. Among the essential changes advocated by the experts are the decentralisation of planning and the creation of an environment that stimulates production.

The current plans to distribute more land to farmers are important, the experts say, but they stress that land reform must go hand-in-hand with markets, credit and an attractive rate of exchange. To date the exchange rate for businesses is one Cuban peso per convertible peso or CUC (the local hard currency that replaced dollars), while state exchange shops buy CUCs for 24 pesos and sell them for 25.

The authorities are considering granting farmers land, without title, because it is estimated that about 50 percent of the cultivable land on the island is lying fallow. According to Nova, 200,000 hectares have been granted on those conditions since the 1990s.

In general, the beneficiaries were private small farmers engaged in family farming, and agricultural cooperatives, Nova said.

The government is prioritising changes in the agricultural sector, and regards increased food production as a matter of national security. Specialised media have said that the restructuring process being carried out now is to be completed by the middle of this year.

Until the 1980s, Cuba produced industrial goods like pressure cookers, refrigerators and gas cookers. In Pérez Villanueva’s view, these industries should also be revived, with the participation of foreign investment if necessary, to supply the domestic market and for export to other Caribbean nations, for example.

“No society can hope to develop without important contributions from agriculture and industry. Services alone cannot keep the country going. A radical reform is needed, to shift the foundations of how the economy has been operating up to now, otherwise we’ll always be in crisis management mode,” he said.

At the beginning of this year, sales of articles like computers and cell phones were allowed for the first time, in the shops where only CUCs are accepted. These items used to be available only to businesses, diplomats and foreign citizens.

Cubans are also now allowed to stay at hotels that used to be reserved exclusively for foreign tourists.

“These measures were taken to correct prohibitions that should never have existed, but they do not constitute structural changes, although they might be a step towards recognising the way the market can play a role in helping achieve better economic results,” said Nova.