On Jan. 1, the 62nd anniversary of Cuba’s revolutionary victory, the government is implementing a sweeping economic policy with reorganization of the monetary system to promote more efficiency and greater production. It comes at a crucial time when the U.S. blockade and the impacts of COVID-19 are creating deeper difficulties for the Cuban people.
Cuba’s socialist system enabled the people and government to weather the storm of 2020 and save lives in a way that U.S. capitalism could not and did not do. The most telling example is Cuba’s unified effort to overcome COVID. Only 145 people have died from the virus, just 1.2 percent of the per capita COVID death rate in the United States. And Cuba’s outstanding internationalist medical workers went to dozens of countries to help beleaguered peoples in their crisis.
The “Economic Ordering Task,” approved by the National Assembly of People’s Power with 110 resolutions and detailed in 1,021 pages, was published on Dec. 10 in Cuba’s Official Gazette. Its general outline was presented in the media weeks preceding its publication.
The central feature of the monetary overhaul is the elimination of the dual-currency model that has been active for years.
The plan includes a significant and much-needed increase for all state workers’ incomes and retirees’ pensions. At the same time, it establishes higher retail and wholesale prices, including for goods, services and utility rates, due to devaluation of the peso and as a truer reflection of costs to ensure financial stability.
A return to one sole currency and unified exchange rate of the Cuban national peso will favor national production like agriculture over imports, especially since imports will become more expensive. But certain imports like fuel for electricity and transport cannot be replaced with sufficient national production. Therefore, the increase in electricity rates for the public.
The complexity of the plan — in the midst of constant recalculations of the damage done to the economy by the blockade — requires a careful balance between raising salaries and prices without causing inflation, and motivating the workforce with higher salaries, to then generate enough production, wealth and development. It is a greater challenge with the lack of spare parts and raw materials.
The plan offers favorable terms to foreign investors, like majority participation in tourism, biotechnology and wholesale trade, but not in mining and public service.
A strategy long in planning whose time has come
The ordering concept was first floated over 10 years ago, when the 2008 world economic recession slammed Cuba with the drop in international prices of metals commodities and the sudden rise in foodstuffs. Cuba’s noted nickel ore export revenue — half the country’s foreign income — dropped sharply when the $52,000 price per ton fell to between $9,000 and $10,000. Essential foods that Cuba imports jumped in price. In July 2008, President Raúl Castro reminded the deputies of the National Assembly of rising food importation costs: In July 2007, a ton of rice bought from abroad was $435; one year later it was $1,110. Flour in 2007 was $297, and in 2008 it was $409. Powdered milk was $2,100 a ton in 2007, and in 2008 it went up to $5,200.
Beginning in 2008, the government embarked on an expansion of measures that were first introduced in the 1990s to overcome the economic crisis caused by the disappearance of the Soviet Union and Eastern European socialist camp. That economic plan during the Special Period — of using capitalist-style measures to bring in foreign investment, develop international tourism as a source of income, and more — was accurately described as “saving the socialist gains of the Revolution,” free health care and education. The plan was debated, discussed in more than 86,000 workplace meetings, and ratified by the people.
To overcome the new challenges in 2008, Cuba greatly expanded on the 1990s strategy, with now more than 610,000 workers in non-state employment, decentralization of services, import substitution, and more land distribution to farmers for more food production.
The elephant in the room: The heavily subsidized benefits and gratuities that all Cubans have come to rely on for decades, like the food-ration system. They have become an unsustainable burden in a blockaded country of limited resources. Besides costing tens of billions of pesos per year to maintain, subsidies were and are still granted to every Cuban, even to tens of thousands who make a high enough income. Or the estimated 189,000 adults of working age who in 2008 neither worked nor studied nor contributed to the economy, but still received the benefits.
At that time the rationing and other subsidies could not be ended until a more equitable and sustainable economic plan could be developed. Low state salaries meant that workers and retirees still needed the subsidies. Many workers were leaving state jobs to seek higher incomes in tourism, self-employment, taxi driving, and so on.
Unless a comprehensive strategy was available to tackle all the economic factors, the idea of eliminating subsidies and gratuities for all Cubans could not be considered.
Under the new Ordering Task, the new minimum wage for state workers is 2,100 pesos a month, up from a previous 400 pesos, as of Dec. 23. Researchers have calculated that the level needed to guarantee one’s needs, including a diet of 2,100 calories — “la canasta” or basic basket — is 1,528 pesos. The minimum salary is now 1.3 times the canasta. For the first time, state workers’ salaries will be taxed 5 percent to provide for social security, largely because of an aging population. Those in non-state employment are already taxed to support the free health care and education system. There are 32 scales of income for the 1.3 million state workers in all fields, depending on one’s skill, experience, education, training and responsibilities. For example, a medical resident’s monthly salary is now 5,060 pesos, and a registered nurse will now receive 4,410 pesos.
The 1.67 million retirees in Cuba — who obtained increases in 2019 to between 280 and 500 pesos a month — will now receive a minimum of 1,528 to 1,733 pesos a month. Their new incomes took effect on Dec. 17. A similar income for families with special needs, the disabled, and other situations is provided. A number of subsidies will continue for them. People who need special diets will have restricted food prices.
Under Cuba’s socialism, income is more than a monthly salary. Vital benefits like health care and education are free, universal and accessible to all. The vast majority of Cubans own their homes and none are under threat of evictions, as landlordism in Cuba was done away within the first two years of the Revolution.
Overcoming the blockade and COVID crisis
Cuba’s economy has been battered by Trump’s tightening of the genocidal U.S. blockade — cutting flights to Cuba, blocking Venezuela’s oil deliveries to the island, even prohibiting sales of ventilators to treat COVID-19 patients. In an added blow, on Nov. 23 the U.S. Treasury Department banned all remittances from Cubans living in the U.S. to their families in Cuba, almost $1.5 billion sent by 700,000 people last year. The damage caused by the blockade for the last year alone is $5.5 billion.
Compounding the blockade’s damaging effect is the COVID-19 virus, impacting international tourism and foreign trade. In 2019, 4.2 million tourists visited Cuba. In April this year, it dropped to zero, when the government moved to protect its population and closed the borders. Without tourism, vast numbers of Cubans who depend on the industry, in hotels, restaurants, taxis and other transport, room rentals, artisanry, museums, entertainment, and much more, have seen their livelihoods disappear. With the pandemic’s onset, workers got their first full month’s salary during the lockdown, and 60 percent in remaining months, but the economic hardship of the pandemic remains.
On Dec. 17, Alejandro Gil Fernández, vice prime minister and head of Economy and Planning, announced that Cuba’s GDP shrank 11 percent in 2020 due to the tourism shutdown, a drop in foreign trade, and the health costs of managing the COVID crisis.
The U.S. economic war on Cuba adds more urgency to the finalizing of the new plan.
Obstacles of dual currency and dual exchange rate
In 1994, the “hard currency” Cuban Convertible Peso, the CUC, was introduced in parallel to the Cuban national peso, the CUP, during the Special Period. The country undertook a new economic strategy that opened Cuba to foreign investment, tourism, remittances, the break-up of many state farms into cooperatives, and the freeing of prices in farmers’ markets. From a fall in the GDP of 34.5 percent between 1989 and 1993, the country began a slow recovery in 1996. The pace accelerated until the 2008 world recession. The economic strategy during the Special Period was the key to Cuba’s survival and created permanent sources of income, tourism, biotechnology, and services abroad.
The state’s currency exchange rate for international trade and foreign investment has been 1 CUP = 1 CUC = 1 USD. Cuba’s national peso is exchanged at 24 pesos for 1 CUC. Cubans’ salaries are paid in CUPs and transactions in the population are in the national peso. The CUC was used by tourists at 1 USD for 1 CUC. Cubans could also exchange their CUP pesos for CUCs to purchase imported goods in hard currency stores.
The state’s exchange rate was different in its export/import transactions, 1 CUC for 1 USD to import goods. For the public, it takes 24 CUP pesos to obtain 1 USD. With the financial and economic distortions that this created over the years, the dual currency had to end.
Moving forward, the Cuban national peso will be used for all monetary transactions, exports/imports, salaries, pensions, goods and services, contracts with foreign investors, everything. The CUC will be phased out over the next 180 days, giving people a chance to exchange their money.
Streamlining into one sole currency means a currency devaluation in the state sector activities related to foreign trade and imports, which also increases prices for the population. Currently, 70 percent to 80 percent of food is imported as well as most of the fuel to power the country.
On Cuba’s Roundtable TV program of Dec. 28, Marino Murillo Jorge, head of the Commission for Implementation and Development of the Guidelines and member of the Political Bureau of Cuba’s Communist Party, explained the rationale behind the higher prices to assist the farmers in their production.
He broke down the cost of importing a ton of corn. Currently, the international price of one ton of corn is $219 USD. The Cuban government’s previous exchange rate was 219 Cuban national pesos for $219 U.S. dollars — using the hard currency CUC as “intermediary.” Now, with the elimination of the CUC and new exchange rate of 24 pesos to $1 USD, the State will have to spend 5,256 pesos (24 x 219) to import that ton of corn.
Yet Murillo said: “The government will now pay that farmer 14,000 pesos for a ton of corn. Why? Because of the difficulties, technological problems, lack of supplies due to low industrial yield. This way there is support on the basis of agricultural production.”
The public stays informed and is heard
Through the Round Table and the Gazette available online, Cubans are studying and discussing: They are informed and very accustomed to giving their opinions and making proposals. That was certainly the case for the new residential electricity rates.
Electricity was slated to increase significantly because most fuel must be imported. The new rates caused considerable disagreement among people who felt they were too high.
So on Dec. 28, Murillo spoke for two hours on TV, explaining among other things, why it is that imported fuel and liquid gas for cooking are so high. He also announced new, lower rates that night. The government decided to lower the proposed rate increases. President Miguel Díaz-Canel spoke on the issue: “We are following with interest and respect the concerns of the population. We will revise what has to be revised, and we will correct what should and can be corrected.”
As a result of the rate reduction in electricity and liquid gas rates, the government has to now absorb a new, unanticipated debt — some 5.5 billion pesos — in subsidizing the difference. If consumption supersedes the scheduled amount, the debt will grow even larger.
“Cuba has no capacity, no technology to store energy. Therefore if energy savings are not realized, if there is not enough fuel, there will have to be blackouts. Diesel has to be used in peak hours, which is more expensive. This is why we must incentivize savings with prices,” said Murillo.
Gradual elimination of subsidies
In the early months and years of the Revolution, the government established guarantees so that every Cuban would have their basic needs met. This included the famous ration system that exists to the present. Each family has a “libreta,” a small booklet with every family member’s name and age. Basic food and household items like rice, beans, eggs, chicken, milk for children, soap, and so on are provided monthly, regardless of the family’s income, at an extremely low, heavily subsidized cost assumed by the government.
Cuba’s traditional method has been to subsidize products and services to cover the whole population, that is, “subsidizing products.” Now the subsidies will be designated for people who need it, or “subsidizing people.” Some subsidies — guaranteed lower prices at farmers’ markets, medicines for the chronically ill, subsidies for single mothers and other families with special needs — will remain. The ration book remains. At some point in the future, it will only be designated for those with special needs.
Many medications, some 46 percent of those on sale in pharmacies — 162 of 353 meds — will continue to be subsidized at a very low cost.
The government is emphasizing that the subsidies will be eliminated gradually. As President Miguel Díaz-Canel explained, “We are not going to implement a shock therapy.”
Keeping prices under control with vigilance and production
One overriding concern is speculative and abusive prices that already some non-state vendors are charging, especially of agricultural goods, in farmers’ markets and by cart sellers. State enterprises encompass 92 percent of all sales of retail goods and services. The increased state prices are scheduled to be 1.5 times the previous amount. The workers’ minimum wages go up about 4.9 times. The price increases for the non-state, self-employed workers, 8 percent of all sales, are slated to be 3 times the previous prices. But this is the sector where speculative and abusive prices take place the most.
People are encouraged to report the price gouging to local authorities. Violators who go beyond the norms set are being fined. It is not a new phenomenon, and is related to the low supply of food and other goods. There are long lines this year due to the resulting shortages exacerbated by the pandemic and Trump’s blockade measures. The key is more production.
Murillo says: “The issue is to achieve discipline. … There is indiscipline of pricing everywhere, because of the phenomenon of a supply shortage. … We have to resolutely face indiscipline and speculative prices and be able to stay within what is established here. We must declare an all-out war on abusive and speculative prices.”
On the Roundtable session over income and prices, Murillo emphasized: “The big problem is that more wealth cannot be distributed until it is created. And we spent several years studying how to break this cycle, because there was a debt with the population, especially with workers in the state sector due to insufficient wages. … But the reality is that the wealth has not grown yet.”
Challenges remain as the new monetary and economic tasks unfold. There will be monitoring, analysis and adjustments of the policy. But one thing is certain. The Revolution that triumphed 62 years ago on Jan. 1 shows that only socialism gives the people true power to organize, overcome and win.
Feature image: The INPUD appliances factory, Santa Clara, Cuba, June 2019. Liberation photo by Gloria La Riva