Economic reforms for a new monetary order
HAVANA – Either the State is in a crisis of currency liquidity so severe that it has forced it to breach important guarantees such as the provision of bank deposits and the commitment to convertibility of the currency, or the instruction to the banking institutions not to sell currencies and restrict account extractions in freely convertible currency responds to a superior tactical plan, a likely preamble to larger macroeconomic transformations.
In either case, it is not a good situation. Public confidence in national banks should not be a variable in the tactical game — especially in times of liquidity crisis. If people fear the banks’ situation, the state loses much of its ability to manage monetary policy, and illegal financial markets consolidate. In the most difficult circumstances of the 1990s, banks honored their commitments. Currently, the lack of confidence is the danger.
Apparently reunification of currencies could be close. The elimination of the use of the CUC (Cuba’s convertible currency) at airports is the most recent sign. The news was presented by government media as a normal occurrence, but economic agents worry and therefore develop preventative plans. Monetary uncertainty could increase the preference for liquidity in international currencies of some actors and thereby promote the progress of the partial dollarization that has been articulated.
It is consistent that the State banking system seek to participate in the dollarized zone of the economy to capture the currencies that are currently circulating on the outskirts. But the fundamental contribution of this situation lies in the possibility of using it as a platform for domestic productive mobilization.
The potential to connect the productive sector — state and private — with this domestic demand in convertible currency would function initially as a border export, and could drive some towards the conquest of spaces in international markets. For this, the importing mechanism should prioritize two types of situations: a) the means of production that allow expanding capacities and productivity; and b) goods that contribute to the production of any line, especially the increase in exports.
However, this dollarized trade situation would lose its raison d’être in the event of a scenario of unified exchange rates, while the latter would have to restore all its monetary functions to the national currency. In this context, it is assumed that the operations carried out in Cuban pesos would respond to a foreign exchange regime with convertibility guarantees for all economic actors, which would make a parallel mechanism of dollar stores theoretically redundant.
It is known that monetary-exchange duality produces great distortions. The perverse stimuli to the imports and the disincentive to the exporters, the concealment of results of the management of the companies from the accounting distortions, and the impossibility of carrying out an accurate measurement of the economic facts at a sectoral or global level, are among the most obvious.
Now, the inevitable result of unification will be a devaluation of the official corporate rate, making imports more expensive. If this effect is transmitted throughout the chain, the normal situation would produce an increase in the price of goods and services to the consumer.
The State must do the unspeakable to avoid this negative social impact for which it would have to centrally fix the final prices and subsidize the unprofitable affected companies. However, to eliminate the inefficiency distortions currently propitiated by duality, a real adjustment is required that makes all economic results transparent and allows rigorous decisions to be made on inefficient activities.
At moment zero, the appropriate move would be dynamiting the entire economy with a resounding price systems reform. Meaning the price of final goods and services, input markets, salaries, pensions and retirement funds, taxes and tax contributions, fines and contraventions, exchange rates, interest rates, land prices, real estate prices, rentals, and so on. This involves rebooting the system. But monetary restructuring is not enough per se.
Reform State enterprise and institutionalize the private sector
If substantive transformations in other aspects of the economic functioning model are not added to the establishment of a new monetary order, the desired productive results will not be achieved.
First, we must implement a comprehensive reform of the state business system beyond the measures that have been applied in a quasi-clandestine way. We must launch an energetic conceptual transformation, which begins by clearly defining what the role of each economic entity is and provide them with an irreversible autonomy to undertake it. A reform that makes its management independent of the government structures to seriously demarcate the business functions of the government entities eliminating any superior management structure that parasites its operation and transforms the current rigid mechanisms of allocation of resources towards methods of financial planning that facilitates its development. It would allow it to operate under a payment method with full capacity to complete production-marketing-replenishment cycles, and that also generates an optimal incentive system that stimulates production increases, exports and short- and long-term capacity expansions. In other words, a reform that allows them to be companies.
Secondly, just as the Constitution mandates, it is imperative to institutionalize the private sector — and hopefully we will recover the dream of the cooperative — which means fostering the formalization as small businesses of, at least, the ventures that today exist under licenses granted for the exercise of self-employment.
We must acknowledge that most recently several of the absurd conditions approved in July 2018 during the wave of ‘perfecting’ the system imposed on the development of the private sector have discreetly been rectified. Also recently repealed were failed elements of the legal norms imposed on the transportation sector. In addition, a seemingly small change that has had a great impact was the authorization to sell productive surpluses from government enterprises to the private sector — which had been authorized for non-agricultural cooperatives — a ruling for the realization of wholesale markets for the private sector. That is if the higher ups of the business organization or the ministry to which the company is subordinated to do not issue an internal resolution prohibiting or restricting such relationships.
But other pending decisions are finding resistance among the decision makers. Giving this sector the ability to absorb an adjustment in the workforce and other activities that must occur in the State sector under a scenario of exchange rate unification and reform of the state-owned companies constitute a strategic move. Encouraging its development in productive activities instead of investment guarantees a stable regulatory framework that motivates long-term projects, designs a more realistic tax system that discourages under-reporting of income, and implements wholesale markets for goods and means of production (perfectly realizable right now). These are some of the urgent chimeras. We cannot afford to keep Cuban professionals from fulfilling their dreams in the State sector when they can be doing so in a national private sector — socially and politically articulated — rather than giving away this drive and energy to the transnationals of the emigration.
Cuba needs the state and public sectors, private companies, cooperatives, foreign and mixed companies, all collaborating and competing, and expanding the development of socialism. And the State must and can implement it.
