The war economy in Cuba
The war economy in Cuba
A state-directed economy seeking development
Cuban intellectuals have put forth the notion over the last couple of years that the United States is waging unconventional war against Cuba and other countries that have developed anti-imperialist projects. The unconventional war is multi-dimensional, including the application of economic blockades and sanctions, dissemination of misinformation and counter ideologies, stimulation of public protests, support of opposition organizations, and the threat of the use of military force. The goal is the fall of the anti-imperialist government and the emergence of a new government that is prepared to implement economic policies in harmony with the economic interests of the imperialist powers.
So we are in the midst of what Cuban President Miguel Díaz-Canel has called World War III, with no end in sight. As it has unfolded during the last ten years, the economic strength and the prestige of the United States has declined, as its decadence has become increasingly evident. Meanwhile, the size and strength of the emerging economies of the East and South continue to grow, as the anti-imperialist nations and peoples persist in their efforts to construct an alternative, more just, international economic order.
Cuba in this context has adopted economic measures that the Cuban economist and university professor José Luis Rodríguez describes as functioning like a “war economy,” in which urgent measures are applied to reenergize an economy that has been impacted negatively by a difficult international situation. The Economic Plan of 2024, approved by the National Assembly of People’s Power, intensifies previously adopted measures that had had positive but insufficient results, and it corrects insufficient implementation as well as previous strategies now discerned to be erroneous.
Rodríguez describes tendencies and prospects in the Cuban economy in a three-part article published in Granma from February 13 to February 27, 2024. Granma is the principal daily newspaper, still widely distributed in the streets of Cuba, even as most people have cell phones with Internet connection; it is the Official Organ of the Communist Party of Cuba, also available online (www.granma.cu). In the online version of Granma, the article generated 52 overwhelmingly favorable replies, thanking Rodríguez for his helpful clarification of these questions, and offering further thoughts. In Cuba, respectful public discourse is the norm. When disagreements emerge, they are expressed indirectly, and not in the form of personal attacks.
The Cuban economy is directed and regulated by the State, with space for a diversity of economic actors, including state enterprises; joint state-private ventures, including with foreign capital; cooperatives, especially agricultural but also urban; and small and medium private enterprises. Each year in December, the government puts forth an economic plan for the upcoming year. The plan is formulated by the Council of Ministers—the executive branch headed by the President and the Prime Minister and elected by the National Assembly—with the consultation of permanent commissions or committees of the National Assembly of People’s Power, the legislative branch elected by the people. The Final Plan is submitted to the National Assembly in late December. The process is well-covered on national television and in the Cuban press.
Rodríguez’s commentary is in tune with the public discourse emerging from the structures and processes of the National Assembly of People’s Power.
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The current economic situation
Rodríguez maintains that the most fundamental factor negatively impacting the Cuban economy is the economic blockade imposed by the United States for more than sixty years, which has been intensified since 2019, blocking previously established commercial and financial arrangements with companies and banks in third countries. The blockade has cost Cuba more than $159 billion, with nearly five billion in the last year alone. Added to the blockade is the international economic crisis, which has resulted in food prices maintained at a level 20% elevated over what they were in the period 2014 to 2016. Petroleum prices, even though reduced from what they were in 2022, averaged more than $77 per barrel during the past year. The war in Ukraine and the bloody war of Israel against the Palestinian people have acted as catalysts for these negative tendencies; the war against Palestine has elevated the costs of international maritime shipping. These factors have led to a decreasing rate of growth of the world-economy, and they continue affecting the possibility of a breakout of a world economic crisis of great proportions, which generates uncertainties with respect to the future of the national economy, especially in a country—like Cuba—that has a high level of external opening.
As a result of this complex international situation, the Cuban Gross Domestic Product decreased between 1% and 2% in 2023, Rodríguez notes. In 2021, the economy had increased by 1.3%, and in 2022, by 2.2%.
In 2023, the value of exported goods and services was a little more than $9 billion, which was about $770 million less than planned and less than what was attained in 2022. In addition, there was a higher cost than was foreseen for the importation of goods and services, as a result of higher prices, which represented an additional cost of $718 million higher than 2019.
In 2023, necessary inputs—such as diesel fuel—for agriculture, the sugar industry, transportation, and the generation of electricity were only 34% of the demand. As a result, there was a decline in the production of food, including viands, corn, pork, milk, and eggs. The products with the greatest negative impacts were rice, which by 2023 had experienced an accumulated decline of 81% from its 2019 level; eggs, 61% decline; and milk, 49%.
With respect to exports, the production of nickel was maintained at 41,000 tons, but the price fell 15% from the previous year. The price of sugar increased by 28%, but national production was 25% below the economic plan for the year, as a result of the lack of necessary inputs.
Direct foreign investment had a slight gain in 2023. But the level of direct foreign investment is insufficient.
Remittances from abroad decreased from $2 billion in 2019 to $1 billion in 2023. Remittances play an important role as capital in the non-state sector of the economy, and they also function as a fund for consumption by the population, which uses remittances to purchase goods in stores of freely convertible money (MLC) that are available in Cuba.
These various dynamics taken together have meant a loss from 2019 to 2023 of more than 3 billion dollars in external income.
In 2019, the Cuban state was not able to fully comply with debt payments. New terms of payment were attained until 2027, but the amount to be paid is increased by a late interest surcharge.
With respect to the income of workers, the average salary of workers in State companies increased by 15% over the previous year, with 26% of the companies authorized to pay in a form that incentivizes work, resulting in higher incomes for 37% of the workers. The salary increases, however, did not keep pace with an increase of approximately 45% in the Consumer Price Index over the previous year.
The non-state companies create 15% of the Gross Domestic Product, and they consist of approximately 35% of the employment in the country. There are more than 10,000 so-called new economic actors, which are comprised of private companies, cooperatives, and mixed public-private companies. They have developed activities in gastronomy and lodging (22.1%), construction (19.5%), manufacturing (18.4%), and food and drink industry (12.7%). They engage in foreign commerce, with imports above one billion dollars, and exports in the amount of 200 million dollars. A good number of them have external financing by means of remittances, and many have developed mechanisms for the rapid movement of invested capital. They tend to compete in sectors of the market in which the state is not present. It is estimated that they have created 183,000 new jobs, with salaries higher than the state sector. The positive results of the new economic actors have not been appreciated up to the moment by part of the population, Rodríguez notes, because they sell goods and services at prices superior to what the majority of the population is able to buy. There also are 596,000 independent workers who work on their own account.
In spite of the adverse conditions, Rodríguez reports on some positive developments in the Cuban economy, which were attained as a result of a committed effort by workers in the sectors involved. There has been a gradual recovery in international tourism, which increased by 51% over the previous year, reaching a total of 2.4 million visitors and $400 million in gross income. (There were more than 4 million international visitors in the last year prior to the pandemic, but the figure included visitors via cruise ships, now blocked by the intensified blockade).
Cuba also during the past year arrived at better management of the electric industry, enabling a reduction of blackouts by 70% from the previous year. The country has maintained 3.1 million metric tons of petroleum production, which is able to more or less maintain the thermoelectric generation of electricity. Some 42 new accords of foreign investment were signed, bringing to a total of 343 the number of companies active in the thermoelectric generation of electricity.
In addition, Cuba has maintained a high priority—to the extent possible—to persons, neighborhoods, and communities in a situation of vulnerability. Moreover, Rodríguez observes that much will be written in the future concerning the heroism of Cuban scientists and medical personnel who, in moments of the intensified blockade at the height of the pandemic, were able to create vaccines that saved the people from an enormous humanitarian catastrophe.
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New strategies formulated in the Economic Plan of 2024
Rodríguez observes that the Cuban experience in the Special Period of the early 1990s shows that the strategy for moving out of critical situations is to concentrate on what is most essential, balancing the most urgent tasks with the most important in the long term, with awareness that not all of the problems will have a complete solution in the short term. With this focus, the nation will be able to advance and to gradually obtain what is required, with a modest growth of 2% this year.
With this in mind, the objective of the Economic Plan 2024, approved by the National Assembly of People’s Power, stresses above all the Program of Macroeconomic Stabilization, which is the basic element for correcting errors and distortions in the functioning of the economy. It is necessary to confront with urgency the growth of the rate of inflation by means of (1) increasing the supply of goods and services; (2) the reduction of the State Deficit, reducing state expenditures and reducing the emission of money without productive backing, as well as gradually and selectively increasing state income; and (3) stimulating savings with the elevation of the rate of interest. All this ought to be accompanied by a progressive restructuring of the currency exchange market, arriving at a single rate of exchange for all sectors of the national economy.
The 2024 Plan calls for greater flexibility in the treatment of foreign investors, taking into account the greater risks for investment in Cuba, due to the blockade. The development of the country will require emphasis on foreign investment. In recent years, foreign investment has been at the level of less than 10% of the Gross Domestic Product. To attain a GDP growth of 5% per year, it will be necessary to invest at a level of 25% of GDP, which would imply direct foreign investment in the amount of $2 billion to $2.5 billion annually. Investment policy should be oriented toward sectors and activities important for the immediate recovery of the economy, such as the agricultural production of food and sugar. Also indispensable is an increase in investment in the inputs and supplies necessary for electricity, natural gas, and water.
The 2024 Plan intends to stimulate the production of foods through a financial mechanism that permits the companies to retain income generated by their exportations, for their own sustainability. In addition, the Plan envisions the strengthening of a policy of municipal food self-sufficiency and more efficient practices in the use of the land, through the application of science and technology. This implies a reordering of investments that permits the prioritizing of the most urgent needs, especially the production of foods.
The Plan notes that it is indispensable to ensure the minimum supplying of fuel and the stabilization of the generation of electricity. An essential goal consists in ensuring the eight million tons of petroleum that matches the demand of the country for a year, taking into account a national production of some three million tons of petroleum.
A key element in the Plan is the more efficient functioning of the economy through the improvement of the productive system of the country, with emphasis on the need to improve the efficiency of the socialist state company through the necessary decentralization of management and the adequate integration of all the economic actors, in order to elevate the production of the agricultural and industrial sectors. The Plan includes the chaining of the productive state and private sectors by means of state incentives.
The Plan seeks the attainment of greater results in establishing new businesses, in order to ensure a rapid elevation of food products and to ensure a higher level of energy. To this end, it calls for the creation of a fund of investments that is designed to stimulate the sending of remittances to the country.
The Plan also notes the need to attain a new design for the servicing of the external debt.
And the Plan affirms the need to improve mechanisms of social protection, in particular the population in need of social assistance, the retired, and those that are in positions of economic vulnerability. To this end, the policy is directed toward the subsidizing of persons and not products, in order to better meet the elemental needs of the population that requires it.
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Final considerations
Rodríguez concludes with the observation that there are no magical solutions, but it is possible to recover. He expresses the hope that Cuba will attain in 2024 a substantial change of basic elements in the process of development, so that all feel that the effort is not in vain.
I am favorably impressed by the capacity of the political leadership and public intellectuals in Cuba to understand the sources of the economic difficulties and to formulate a coherent plan that addresses the difficulties. This factor bodes well for the future, and it stands in stark contrast to the political leadership and public discourse in the West. There are daily television news reports on visits by political leaders to places of production, assisting in analysis of the situation and exhorting the workers and the people to higher levels of production.
Cuba continues to call for the end of the unjust blockade, but it proceeds on the assumption that the blockade will continue indefinitely. It is presently seeking to expand commercial and financial relations with the countries of the South and East, which could be the centerpiece to its future prosperity, particularly if international tourism returns to its past vitality. Much depends on whether or not continuous imperialist wars and myopic economic policies in the world centers of power lead to a deep and long term worldwide economic crisis.
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