Thursday, December 29, 2016

What the reform measures implemented by Raúl Castro in 2006 have achieved, and failed to

What the reform measures implemented by Raúl Castro in 2006 have
achieved, and failed to
ELÍAS AMOR | Valencia | 29 de Diciembre de 2016 - 10:12 CET.

The close of 2016 marks a wasted year for the Cuban economy. A few days
ago the CEPAL announced that GDP growth would be 0.4%, one of the lowest
in Latin America, marking an economy close to stagnation. This situation
is particularly aggravated by the overlapping factors of a growing
fiscal deficit estimated at 6.8% of GDP, despite the fact that the State
takes in about 60% of the GDP, closely related to the poor internal
figure, and a marked imbalance in visible trade, with a very low
coverage ratio of below 40, which contrasts, however, with the more
favorable development in Tourism revenues and remittances from families

Analysts note that the reform measures introduced by Raúl Castro in 2006
are not producing the expected results. Despite the thawing of relations
with Obama, those responsible for the economy have kept the private
sector on a tight leash, despite the fact that it is the only force
capable of reversing the adverse economic situation. Since 2015, the
number of self-employed workers has not risen over half a million, a
mark achieved in the early stages, and this stagnation is not related as
much to the limitation on trades and professions that the regime imposed
on the private sector as it is to the lack of prospects, the absence of
funding, and difficulties operating within the framework of an economy
based on state intervention, without a market or property rights.

Neither does the new regulation to attract foreign investment, or the
international marketing campaigns for the Mariel Special Development
Area seem to be yielding the expected results; while it is true that
businesspeople are attracted by the "project portfolio," they vanish
when they see who is on the other side of the table, the shortage of
domestic funding, and the problems they will face freely hiring workers.
These are aspects on which the regime insists that it does not intend to
make changes, which will further repel potential investors.

The authorities blame every ill on the US embargo and blockade, despite
the progress made since the meeting between Castro and Obama, and the
fact that Cuba currently trades with every country in the world, and has
even managed to secure very generous debt forgiveness and payment
deferrals rarely granted to countries with such a poor track record when
it comes to meeting their payment obligations. In addition, its external
dependence is increasing, because remittances from families abroad and
increased travel have become the main sources of revenue, while
Venezuela's oil commitments have experienced a clear dip.

Most investors currently operating on the Island agree that collecting
for services takes more than a year, and that the Central Bank has no
control over payments, which depend directly on the elite running the
country. Doing business on the Island requires taking out loan insurance
on exports in their countries of origin. Almost always, funded by state
enterprises. In any case, the control of foreign currency and capital
movements is far from being liberalized.

In 2016 looming economic alarm bells started to ring. The ageing of the
population is accelerating, without the adoption of measures to deal
with a process that threatens potential long-term growth. Meanwhile,
immigration tension has accelerated due to fear of a change in US policy
towards Cuban arrivals. Adjustments at inefficient state enterprises
came to a halt as a result of union protests, which has meant the
maintenance of high levels of underemployment, which systematically
undermines productivity in most sectors. Finally, the obsession with
control and the centralization of commercial distribution and logistics
continues to cause supply problems, not only for consumer markets, but
even worse, for those of intermediate goods. It is clear that the model
of the old Central Planning Board (JUCEPLAN) is absolutely incapable of
solving these problems, whose severity has increased.

The dual currency system remains in place, accepted as a lesser evil by
the population, despite the problems of credibility that functioning
this way entails for an economy. Plans for the lifting of the dual
system apparently have been forgotten. There have been timid advances in
the field of Telecommunications and the Internet, but home penetration
rates are still low. The astronomical rates relative to the salaries
paid in Cuba, and technological levels, remain far too low to make
possible actions improving basic services, such as banking or payment at
shops or service companies, to cite a couple of examples. The so-called
"Guidelines " have not even managed to improve the interaction between
productive sectors and activities (the most obvious example is the
construction of housing, insufficient to meet the population's demands)
nor to reduce imports.

Cubans suffer the direct consequences of this dreadful economic
management in two ways. First, they face structural situations of
shortages and, at times, price increases, which have spurred the
authorities to set price ceilings – one of the most inefficient
solutions to address these problems. Therefore, although nominal wages
have increased, the average is so low that real wages have suffered due
to price increases and a reduction in regulated rations, which the
regime was forced to implement as a result of the increase in the
deficit. Secondly, the realization that current policies yield little
hope for economic improvement, and only uncertainty about the future,
increases disaffection with the ruling class.

With Fidel Castro out of the picture, many are already placing wages on
how long Cubans will put up with things before taking to the streets to
protest and confront a system that runs contrary to human reason.

In the end it all goes back to the problems of the Castroist economy and
its hallmarks: the lack of a legal system safeguarding private property
rights, the lack of a market as the basic tool for resource allocation,
a low level of investment in the GDP, the inability of prices to perform
their function as indicators of value, and it can be concluded that none
of the reform measures introduced since 2006 have managed to solve these
problems, which constitute the true burdens weighing down an economy
that could get worse in 2017. Ten years wasted in the management of an
economy that has not benefitted all Cubans.

Source: What the reform measures implemented by Raúl Castro in 2006 have
achieved, and failed to | Diario de Cuba -

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