It is time for the New Update

HAVANA – The pandemic advances in Cuba. No matter how high the curve of persons infected, all models project the presence of confirmed cases to be around until at least the months of July and August. By then everything points to the fact that the country will be able to completely eliminate this first wave of the epidemic. But what follows?

When the rules of confinement are relaxed, the crowds will resume their everyday lives as before. But we know that things will have changed dramatically. Many things won’t be where they once were, we face the uncertainties of the so-called ‘new normal.’

Roads traveled by the new crisis

The 2020 global recession is now being projected with more precision. Cuba, like many other countries, will be entering a severe economic crisis in the coming months. The initial Economic Commission for Latin America and the Caribbean (ECLAC) forecasts estimate a 3.7 percent contraction of GDP, while the Economist Intelligence Unit projects a drop of 4.7 percent. 

There are similarities, and also great differences, when compared to the peak of the special period. To the exhausted internal development model and the increased U.S. efforts to drown the Cuban economy, was added a sudden and forceful shock of foreign trade as a catalyst. These three factors play the same role 30 years later. 

Now the State, same as back then, tries by all means to manage and mitigate the social costs of the crisis, placing emphasis on protection policies. The expansion of food rationing and other basic necessities, the effort to freeze prices throughout the economy, the preservation of jobs and wages despite the fall in activity levels, and the expansion of subsidies to companies with losses, are necessary measures to mitigate impacts that transcend the conjuncture of social isolation.

However, the indisputable fairness of this approach does not solve the underlying problem. The macroeconomic distortions — which are not spurious technicalities without a human face — accumulated between 1990 and 1993 permanently lacerated the functionality of the original domestic currency and imposed other enduring imbalances, which could not be overcome by subsequent economic policy.

Something similar could be in incubation now. Given the commitments with the salary increase of last year, in a context of severe retraction of supply, price protection and regulated sales, a new process of repressed inflation could be unleashed, which would enhance the development of the second economy and reinforce the loss of functions of national currencies.

Opportunities for the fiscal management of subsidies and grants, as well as the financing of health, education, science and other essential services, will be increasingly limited by the contraction in the collection of public revenues. If the increase in the fiscal deficit is financed with total or partial monetization, then short-term monetary imbalances could worsen. People could try to take refuge in other assets and the possibility of dollarization ‘from below’ reappears as an underlying threat. This is not a precisely chimerical environment for the productive impulse that is needed.

From the beginning of the crisis of the 1990s, more than three years passed before that package of reforms —officially called the Update— was unleashed, which allowed us to rebound. At this time we cannot wait for this new crisis to germinate. We must act now.

Mandate for the New Update

The New Update was conceived 10 years ago with the explicit purpose of unleashing productive forces. And the fact is that it is about to go down in history more for its stops and starts than for its haste. Several essential issues have been postponed over and over again for various reasons.

However, the country’s main strength in facing the new pandemonium lies precisely on the path this Update has traveled. Having a document approved in the last Party Congress, and endorsed in our Magna Carta by a large majority of the country’s residents, does not require the construction of new consensuses. That’s been done. Now there is a mandate to fulfill. Measures such as the monetary-exchange rate reunification, the reform of state businesses, and the institutionalization of the private sector should not wait any longer.

Implementing the reordering of monetary policy faces the enormous challenge of successfully managing the adjustments that must occur. Some businesses will certainly be affected because of costs; the State must solve the emergence of macroeconomic imbalances; the risks of supply mismatches during the process of recomposition of the production chains; and the negative impact on broad sectors of the population that would require protection, are among the main reasons to fear this process. But all this is already happening without a reunification process. It seems, therefore, that this is the perfect time to reset the economy once and for all and restart with a new monetary order.

In their case, the promised comprehensive reform of State businesses has to change its pace. They must become independent of the government structures. Elimination of any superior management structure that parasitizes their operation, transformation of the current rigid mechanisms of resource allocation towards financial planning methods that facilitate their development, and generation of an optimal incentive system that stimulates production increases, exports and expansion of capacities, constitute urgencies that cannot be put off.

But the biggest challenge is creation of economic options for that great mass of people of working age who would be on the sidelines in the new context. These include available state and cooperative workers, entrepreneurs whose businesses are forced to close, as well as contract workers in these private businesses. We must also eliminate all obstacles that have prevented the mobilization of this army of “inactives” —among them from the informal economy— that number more than 2.3 million people and represent a third of the potential workforce. It is not possible to think of recovery, much less of productivity and development, while economically wasting one in three individuals of working age.

Development of the private sector in Cuba, of small and medium economic scale, financed by state banking institutions, without structured links with big capital, and politically driven by domestic institutions, do not represent a threat to Cuban socialism, but constitute an important piece in the current salvation strategy.

We must formally accept their existence as companies and not as self-employed individuals; implement the negative list of restricted activities in exchange for removing the restrictive list of allowed activities; offer once and for all, by the state financial institutions, serious credit options with real promotion objectives that stimulate and incorporate people and generate empowerment opportunities for disadvantaged social groups; promote productive activities and not only services; and resolutely support any project — private, cooperative, or of the State — that proposes to increase the production, processing and distribution of food. These should be the main objectives.

Cuban society today does not seem to be better prepared than its predecessor, in the 1990s, to face the looming crisis. Its much more heterogeneous nature, the deepening of multiple equality gaps, the wear and tear caused by the accumulation of economic, social and political tensions, as well as the naturalization of latent contradictions regarding the paradigm of socialist society, will make the present task much more complex. Allowing this New Update to happen immediately is the only antidote. You can still disagree with all its contents, but no one should stand as an obstacle to the application of what has been approved by a large majority of citizens, and by the highest representation of its leading organization. Time has run out.