By Javier Farje
In September last year, Fidel Castro, the ailing leader of the Cuban Revolution, made an astonishing admission: the economic system, in place almost from the moment his bearded troops entered Havana in 1959, is not working.
It was a short comment of seismic proportions. After he relinquished power in favour of his younger brother Raul in February 2007, he had refrained from commenting on the new regime, even though it was beginning very slowly to introduce reforms. To say now that an economic system that he had defended during his long years in power against the evils of capitalism, has had its day and it’s time to reform it is an extraordinary u-turn.
The economic crisis is there for all to see. Infrastructure is cracking, food shortages are a daily occurrence and Cubans have to survive with an average salary of US$25 a month.
Despite the fact that some countries have continued to invest in Cuba, against the economic embargo that President Barack Obama renewed last year, with some relaxation in the restrictions to sending money to the island, the outlook is not promising.
Canada has invested in the mining sector and countries like Spain have done the same in the tourist industry. However, these are joint ventures, where the Cuban state has a controlling interest (51%), a limitation that some companies are reluctant to accept.
Prices of the minerals Cuba exports, like nickel, have gone down in the international market, and the 2008 world crisis meant that fewer tourists have visited the island.
In any case, the income in hard currency that Cuba receives from investments helps to subsidise the massive outlay on the public sector, in a country where almost 85% of the work force is employed by the state.
It should not come as a surprise then that, shortly after Fidel made his public confession, Raul announced that sweeping reforms would have to be implemented if Cubans want the Revolution to survive.
Although the US embargo has long been blamed for most of Cuba’s economic problems, Raul Castro has made it clear that the island can no longer consider the blockade as the only reason for the country’s current crisis.
“We either rectify [the system] or we end up sinking ourselves and sinking the efforts of many generations”, Castro told a packed session of the Cuban parliament in mid-December.
He criticised what he called the excessive “paternalistic, idealistic and egalitarian” approach to social justice.
These statements paved the way for a public debate on economic reforms. The government, through the state-controlled media, has encouraged citizens to participate in a three-month debate, a Cuban version of the “we are all in this together” mantra of the Cameron government in the UK.
The Cuban government insists that the reforms do not mean an end to the Socialist system, but a re-arrangement of its priorities. As in China, economic reforms do not necessarily mean political reform. Indeed, Raul has made it clear that the economic changes are designed to protect the revolution from collapsing due to financial mismanagement.
The first measure hits the very core of the system: Raul Castro has announced that, over the next three years, 1,300,000 state employees will lose their jobs. That is 25% of the workforce. As the New Year dawned, more than 300,000 public sector workers, mainly from the Ministries of Sugar Production, Agriculture, Health, Infrastructure and Tourism, were informed that they will lose their jobs within the next six months.
A Cuban economist told the Spanish daily El Pais that these reforms were “worthy of the International Monetary Fund”, but the government insists that the sacked workers will not join the ranks of the unemployed but will become part of a new initiative to create an embryonic business sector.
The government hopes that at least 100,000 of the former public workers will join the independent sector straight away. Indeed, Raul Castro believes that, by 2016, more that 50% of Cubans should be working in the private sector.
It won’t be easy though. The El Pais correspondent in Havana has reported tensions in hotels and tourist establishments, where jobs are being fiercely defended, after many workers were given their marching orders.
According to official figures, at least 600,000 Cubans work legally in the private sector, in activities ranging from bicycle repair workshops to restaurants for tourists. But the economic crisis has created an informal private sector, including family-run bakeries and unlicensed taxi drivers, which has enabled many Cubans to survive in the current economic climate. The government wants to integrate these 150,000 informal workers into a new entrepreneurial sector. In order to achieve this, it has published a list of self-employment permits, which include food and housing, where workers can operate without fear of repression.
According to Michelle Chase, an associate researcher for NACLA, the government will find it difficult to integrate the newly-redundant public sector workers into this thriving private initiative. The government needs to legalise the already existing black market first, before it issues new licences. This could be a problem. The competition will be tough. The new private workers lack the experience of their black market equivalents, and the government may not have the funds to support the scheme.
However, the diversification of the economy should help Cuba to expand its participation in world markets, mainly in agriculture and the very advanced bio-chemistry sector. In any case, the US embargo, whose limited relaxation does not go far enough to allow North American firms to trade and invest in Cuba, will always be an obstacle for the integration of Cuba into the global economy.
Ever since Raul Castro replaced his brother three years ago, the government has been relaxing some restrictions to public initiative: Cubans can have more than one job, can purchase properties to be used in the tourist industry, and some state-own agricultural land has been set aside for private production. These timid but important changes should help release some of the steam from the pressure cooker that will build up with the economic reforms.
This is not the first time Cuba has announced economic reforms. After the collapse of the Soviet system in the early 1990s, Cuba entered what was euphemistically called ‘periodo especial’ or ‘special period’.
It was a time of extreme hardship. Cuba lost more than 80% of imported manufactured products from the Soviet Union and the Warsaw Pact countries. There was also a drop of more than 35% in Cuban exports, most of which used to go to the Soviet bloc. And the new Russian Federation stopped the export of subsidised petrol to Cuba. The production of agricultural commodities went down, due to the lack of fuel. All this caused economic output to fall by at least a third between 1990 and 1993.
The Cuban government decided then to open the tourist industry to foreign investors, and allowed some Cubans to open restaurants and rent houses to visitors. But this was a reform with limitations. The government retained a 51% control of any joint venture in the tourist industry and only people with connections in the Communist Party had the chance of obtaining licences for private rental and taxi operations. The government imposed further limitations in later years.
This time, however, the government is determined to make things work. In the past, the party bureaucracy has been allowed to get in the way of the reforms. Favouritism and nepotism have been the main problem. This time Raul Castro wants to make sure that the Cuban Communist Party starts changing its ways.
In his address to the Cuban parliament, Castro insisted that “the party must lead and control, not interfere, in the activities of the government”. He demanded “a change in the mentality of the cadres (...) to face the new situation”.
In the second half of April the Cuban Communist Party will hold its first congress since 1997. This crucial event will coincide with the 50th anniversary of the failed CIA-sponsored Bay of Pigs invasion. Although congresses should take place every four years, the government decided 14 years ago to put them on hold due to the economic crisis. Now, it is the economy that has convinced the government of the need to have an event of such magnitude.
There will be elements inside the party who will probably oppose any reform of the socialist economy, but those veterans of Sierra Maestra are getting very old, their influence is diminishing and, although Raul Castro belongs to that generation, it seem that he has realised how crucial it is for the revolution to change. For obvious reasons, the debates in April will go beyond the traditional rhetoric of past victories and will concentrate on the need to adopt crucial changes in the economy.
Nobody anticipates any political reforms any time soon. The release of almost all prisoners of conscience in recent months was accompanied with the decision last year not to allow dissident Guillermo Fariñas to travel to Strasbourg to receive the Sakharov Prize for Freedom of Thought.
For the time being, however, the economy is the priority. Cuba is on its way to a second revolution. Politics can wait.