As Cuba turns page on Castro era, economic reform gains urgency

The Cuban government outlined its planned economic reforms in 2011, but a decade later, implementation has been slow and the country is confronting new and dire challenges along with historic ones.

Investors, analysts and Cuban citizens will all be watching this weekend's congress closely — and seeing how many more of the country's so-called 'historic generation' actually depart, as Raul Castro (centre) has. That, experts say, will be crucial to knowing whether economic change is actually in the cards or whether business will continue as usual [File: Ramon Espinosa/AP Photo]

Raul Castro has formally handed over the reins of Cuba’s Communist Party after decades as its first secretary, stepping down Friday during the first day of the party’s eighth congress.

The changing of the guard in the country’s most powerful institution represents a shift from the revolutionary leadership of the Castro era to a new generation. It also comes at a time when the country’s economy is struggling and in urgent need of reform.

Cuba’s economy shrank by 11 percent during the COVID-19 pandemic, according to government figures, and travel restrictions hit the island’s tourism sector — and the foreign currency it brings in — particularly hard.

But the pandemic is just the latest challenge facing Cuba’s economy. The country’s leadership has been slow to enact many incremental economic reforms laid out during its sixth congress in 2011. The ongoing United States embargo against the island, tightened by former US President Donald Trump, continues to bite. Meanwhile, shortages of essential goods including food and medicine — a problem before COVID-19 — have only worsened.

Castro, 89, is expected to support Cuba’s current leader, President Miguel Diaz-Canel, 60, as the next Communist Party secretary.

It’s a move, some analysts say, that could add a fresh sense of urgency to tackling the island nation’s festering economic problems.

“Raul Castro is transferring the authority to the next generation of leaders, and this is very important because the next generation of leaders rely on performance — not on historical legacy — to exercise power and as a source of legitimacy,” Arturo Lopez-Levy, the author of Raul Castro and the New Cuba: A Close-Up View of Change and an assistant professor at Holy Names University, told Al Jazeera.

Some experts think the transfer of authority could inject new thinking and new priorities into the leadership mix.

“Certainly theoretically, Diaz-Canel could now grab the reins and surround himself with his own team, and that is what hasn’t happened yet, as far as we can see,” Richard Feinberg, a professor at the University of California San Diego and the author of Open for Business: Building the New Cuban Economy, told Al Jazeera. “Economic policymaking, by and large, is in the hands of people who have been there for 20 years or more.”

Investors, analysts and Cuban citizens will all be watching this weekend’s congress closely — and seeing how many more of the country’s so-called “historic generation” actually depart, as Castro has. That, experts say, will be crucial to knowing whether economic change is actually in the cards or whether business will continue as usual.

Sluggish reforms

Back in 2011, then-President Raul Castro announced reforms aimed at bringing more market-oriented policies into Cuba’s historically socialist, state-run economy, including allowing people to set up small businesses and eliminating some of the government’s notorious bureaucracy.

“Let’s clean our heads of all sorts of nonsense,” Castro said at the time.

Cubans have come to expect long lines and shortages when it comes to food. Some, like Yuliet Colon, centre, have turned to Facebook to share recipes designed around the foods they are actually likely to find at the market or with government rations [File: Ramon Espinosa/AP Photo]

But 10 years later, the failure to implement already announced reforms is likely “a combination of inertia, lethargy, vested interests, self-interest and cowardice,” Feinberg said, noting that inaction has left “the Cuban people and the Cuban economy completely without resources: no foreign exchange, no international investment, little to no domestic investment”.

One of the most urgent economic issues to be tackled is making sure people can feed themselves.

The government seemed to acknowledge the urgency of the crisis after Prime Minister Manuel Marrero said this month: “People do not eat plans.”

Earlier this week, the Cuban government announced 63 measures to increase food production in the country, “30 of which are considered priorities and some with immediate implementation”, state-owned newspaper Granma reported.

But people in Cuba, already used to doing more with less because of the crippling US embargo, are frustrated with the pace of reform.

To show he is serious about tackling the country’s economic woes, what Diaz-Canel “needs to do is assemble a new, vigorous, younger, coherent team of economic decision-makers,” Feinberg said.

Currency transition

No matter who is on it, the country’s economic team has a tough act to pull off, especially during a pandemic.

“They’re undertaking reforms at the worst possible moment. They have no money,” Feinberg said, adding that the country is nowhere close to joining the International Monetary Fund or World Bank, which could help with resources.

Faced with the cash crunch, the Cuban government reallowed “dollar stores” last year that let people buy goods like food, toiletries and electronics with bank cards loaded with US dollars or other foreign currency. That, in turn, let the government snap up those dollars to help deal with its liquidity crisis. Experts say if Cuba manages to develop a successful COVID-19 vaccine, it could prove a valuable source of foreign currency as well.

For now, the country is in the midst of a major currency transition, announcing in December that it was devaluing its peso for the first time since the 1959 revolution.

Signs that read ‘No CUC’ in reference to the Cuba convertible peso hang on the walls of a store in Havana, Cuba on December 11, 2020 [File: Ramon Espinosa/AP Photo]

The island has used both the Cuban peso (CUP) and Cuban convertible peso (CUC) for years, with the latter used for state business and buying goods from abroad. Meanwhile, the CUP is still used for everyday domestic transactions, and many Cubans are paid their wages in that currency.

Cubans have until the end of June to trade in CUCs for CUPs at the government-set exchange rate of 24 Cuban pesos to $1, which means Cubans whose savings are in CUCs will lose a significant amount in the conversion, something that is likely to hit workers in the tourism sector particularly hard.

It has been a tough year for those workers, as the coronavirus decimated the country’s tourism-related businesses, which were already struggling after the Trump administration reimposed travel restrictions that had been loosened by US President Barack Obama.

The Cuban government said it will publish the exchange rate for the Cuban peso daily on the website of the Central Bank of Cuba, signalling that it could potentially fluctuate rather than stay at its historically fixed rate — something that could also make Cuba prone to inflation.

Inflation could make the existing shortages of everyday goods — exacerbated by the US embargo — even worse. The currency devaluation also comes at a time when one of the country’s main supporters, Venezuela, is in little position to help as it battles its own US sanctions and hyperinflation, which has hit a whopping annual rate of 2,665 percent.

Ongoing embargo

US sanctions against Cuba have been in place since President John F Kennedy imposed a trade embargo in 1962 in the hopes of forcing the Castro brothers — including Fidel, who was Cuba’s prime minister from 1959 to 1976 then its president until 2008; Raul, who took over from Fidel as the country’s president; and their oldest brother Ramon, who was active in the 1959 revolution — from power.

Republican and Democratic administrations have maintained the policy, with Trump tightening restrictions and redesignating Cuba a “state sponsor of terrorism” days before he left office.

People with Cuban flags ride along the Malecon during a protest against the US’s trade embargo  on March 28 in Havana [File: Alexandre Meneghini/Reuters]

The embargo clearly hasn’t achieved its goal, but it has contributed to ordinary Cubans’ economic pain in the intervening decades, and this week, people took to the streets outside of the US embassy in Havana to call on President Joe Biden to end it.

Mark Brennan, an adjunct associate professor of business ethics at New York University’s Stern School of Business, said the Cuban government blames the embargo for too many of its economic problems.

“The regime has, since Castro’s time, used the American embargo, which they call a blockade, as the kind of reductionist explanation for every single problem on the island,” Brennan told Al Jazeera, arguing that the country’s economic model was “doomed from the get-go.”

Still, Brennan believes ditching the embargo and pursuing “complete and utter sheer openness” would get the US more results.

But ultimately, Lopez-Levy said, how and on what timeline economic reforms take place depends on Cuba, not on the wishes of foreign countries.

Way forward

A big part of the 1959 revolution was about not bowing to the wishes of the US or other powerful countries, and Cubans want to see reform done their way and to meet their own needs.

In this March 14, 1957 photo, Fidel Castro, centre, stands with his brother Raul Castro, left, and Camilo Cienfuegos, right, while fighting against the government of Fulgencio Batista they eventually brought down in 1959 [File: Andrew St. George/AP Photo]

“The Cuban revolution was not something imposed from outside,” Lopez-Levy said. “There was a feeling among a large segment of the Cuban people that their country didn’t belong to them, and that their country was at a level of subordination to the United States as a great power 90 miles north. That frustration was behind the revolution in a significant way, [and] in my opinion, it is more important than the communist ideology.”

While working within the context of that legacy, the next generation of leaders must show Cubans they can enact real change in the areas of “food security, energy security [and] transportation,” Lopez-Levy explained, noting that the pace of those changes will depend on the communist party’s ability to “break the backbone of groups inside that are opposed to the necessary reforms”.

Feinberg said it is possible for the island to move towards a market-oriented socialist economy, with a strong state-owned sector and strong regulatory authority existing alongside a significant and growing private sector that extends beyond the small businesses run from people’s homes that Diaz-Canel has legalised.

But the current congress needs to respond to the urgency of the moment, and show it is serious about creating a legal framework for small and medium-sized private enterprises, allowing remittances from abroad and eliminating the red tape around foreign investment, including from the Cuban diaspora.

Whether those types of major changes will be announced at the party’s eighth congress, however, remains to be seen.

Source: Al Jazeera

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