economic reform

Living with Ambiguity

Photo courtesy of Flickr/Lori Greig

There are Cuban individuals both on and off the island who are disgusted by the Castro regime and who do not want to see any reforms in Cuba, but rather hope that the deteriorating situation will galvanize discontent and provoke a rebellion. There are others in Cuba, enjoying the privileges of the Communist system, who do not want any reforms so that they can go on enjoying the status granted them due to family ties, loyalty or simply ideological opportunism. Still, there are many others who would like to see Cuba initiate orderly reforms that gradually lead to a political and economic system consistent with all human rights-- civil and political, economic, cultural and social-- enshrined in the Universal Declaration.

The principal report to the VI Congress of the Communist Party, presented by Raul Castro, points to a Cuba in which none of the three groups may be satisfied. The proposed reform program inserts economic change into single-party political continuity. This formulation implies that it is possible to advance in terms of legitimacy, freedom and welfare in some areas, while in other areas there is no progress, or even reinforcement of authoritarianism. It envisages a Cuba that might combine prosperity and joyful consumption of market-oriented economic growth with the permanence of reprehensible acts of repudiation against political dissidents.

The dilemmas of economic reform

The Central Report to the PCC Congress reflects a set of proposals generally associated with unorthodox propositions by government supporters. Positions in favor of term limits, decentralization, revaluation of the market as a development tool, separation of party and state functions, increasing the representation of women, blacks, mestizos and youth in government leadership and in favor of checks and balances between the branches of government and the Communist Party of Cuba (PCC) have been present in Cuba's internal debates since the 80's.

In practice, the transition to a mixed economy model with a decentralized state and a major non-state sector, considered in the past as antithetical to the official communist ideology, has already begun. President Raul Castro has taken (some would say stolen) agendas promoted in the past by reformist groups or even opponents and has set out to implement them under the leadership of the PCC. It will be a challenge for a bureaucracy, steeped in hostility toward these very concepts, to do so.

Market oriented reforms and a reduction of the State's distributive role had already been decided. The questions put to the PCC concerned the speed, methods, sequence, scope and progression of the reforms. The report lacks clear answers. It insinuates a gradual approach by ruling out IMF-style shock therapy and sudden removal of the ration card. But there is still no overall vision or alternative economic model put forward and no discussion of the political risks that the PCC will face in implementing changes.

If, as the report states, contracts will be the "regulatory tool of interrelationships between economic actors," the government is way behind on legislation to accommodate this. There are no viable bankruptcy laws, credible legal mechanisms for dispute resolution between creditors and borrowers, or adequate consumer protection or antitrust laws.

Has the PCC adopted an economic model in which State, cooperative or private enterprises can go bust? How will the government respond when a borrower does not repay a loan? What are the rules for restructuring debt in the shortest time possible or accessing seized assets? What assets will be used as collateral when seeking credit?

The "Low Point" in U.S.-Cuba Relations- One Year Later

Photo courtesy of Flickr/The White House

At roughly this time last year the headline of a Reuters article proclaimed, “U.S-Cuba relations under Obama fall to lowest point.” The article chronicled a number of prickly moments between Washington and Havana, but largely attributed the backslide to the arrest of U.S. contractor Alan Gross in late 2009 and  the unfortunate death of Cuban prisoner, Orlando Zapata Tamayo which occurred just a few months later.

Given President Obama’s remarks about Cuba to Univision last week, one might conclude U.S.-Cuba relations have reached a sort of second nadir. In response to a question about the reforms currently underway in Cuba, the president said,

“For us to have the kind of normal relations we have with other countries, we've got to see significant changes from the Cuban government and we just have not seen that yet.”

While senior Obama Administration officials have been following those same talking points for months, (see Cuba Central’s helpful chronology here), to hear them again, precisely as Cuba begins to implement some of the wide-ranging policy reforms recently endorsed by its political leadership, is a troubling signal of where this Administration is on Cuba policy. Despite the past year being one in which Cuba began an historic process of reform and agreed to a major prisoner release brokered by the Cuban Catholic Church, Obama’s comments have the ring of an all-too-familiar refrain that is increasingly incompatible with the facts on the ground in Cuba.   

The Other Travel Ban

Photo courtesy of Flickr/mberasategi

Oh, the glories of being a tourist. The long plane rides spent squished in a middle seat; the demeaning airport security checks, the exorbitant baggage fees and bad food. But then there is, of course, the redemption that comes with being reunited with friends and family living abroad, or simply becoming acquainted with new places and sights that provide us with that injection of wonder we seek from time to time to rejuvenate the soul.

Yet for the vast majority of Cubans, leaving their country at all is virtually impossible. Under current regulations, Cubans must obtain a “tarjeta blanca” or exit visa, in order to leave. To get it, applicants must jump though a number of bureaucratic hoops and pay exorbitant fees: a de facto travel ban. Along with preventing ordinary Cubans from simply visiting family in the U.S. or elsewhere, the ban has been used as a political tool to prohibit opposition figures such as Yoani Sanchez or Dr. Oscar Biscet from traveling abroad to accept awards or other honors that confer international recognition and legitimacy on their anti-government positions.

So it is encouraging that the final version of the Lineamientos,  Cuba's set of policy reform guidelines, mentions the possibility that Cubans may one day be permitted to travel abroad as tourists. The actual language reads, “Study a policy that facilitates Cubans living in the country to travel abroad as tourists,” (Num. 265). But given the enormity of the injustice that is the de facto ban, this vague statement of intent is hardly satiating to advocates of greater freedom and human rights. 

While the Cuban government has for several years hinted it was entertaining such a policy change, ( President Raul Castro said as much back in 2008 shortly after his first formal inaugural address as president), it appears the idea hasn’t progressed much beyond that. Cuba’s incipient reform process has instead been defined by policy changes with comparatively lower political cost/higher economic returns. And if you are calling the shots in Cuba at this critical moment, it’s rather obvious why.

New NAF Publication Explores Consequences of the Sixth Party Congress

Photo courtesy of Flickr/mickou

As Cuba watchers continue to digest the VI Party Congress, we wanted to share with you a newly-released New America Foundation (NAF) policy paper, “Change in Post-Fidel Cuba: Political Liberalization, Economic Reform, and Lessons for U.S. Policy”. In this new publication from NAF's U.S.-Cuba Policy Initiative, author Arturo Lopez-Levy explores the political context in which the VI Party Congress took place, the reform processes currently underway in Cuba, and the resulting implications for U.S. policy toward the island.

We previewed several excerpt of the paper a few weeks back, but are now pleased to be able to share it with you in its entirety.

Here are a few excerpts:

On the Cuban government and domestic opposition.

“Facing a more plural society, the government is being compelled to bargain in response to the emergence of citizen advocacy groups rather than simply rely on confrontation. Totalitarian practices have softened. There is undoubtedly a clear policy of confrontation employed against openly political opposition groups; however, in the last few years, a gray area has emerged where intellectuals and groups that promote citizen interests without directly challenging the state’s power are tolerated.”

Halftime at the VI Party Congress

Photo courtesy of Flickr/Globovision; http://www.flickr.com/photos/globovision/5

For VI Congress-watchers, the weekend brought colorful images of Cuban school children cheerfully waving miniature Cuban flags, the appearance of a gleaming Granma, and the fiery sounds of salsa music blaring as Cubans marched toward the Plaza de la Revolución. While Saturday’s parade communicated a cheerful, confident, and orderly Cuba, the reality that prompted the VI Congress is a far different one.

At the core of the Congress is the Lineamientos document, a set of proposed reforms for which the government has been soliciting input since November 2010.  In his two-and-a-half hour address to Congress delegates on Saturday (the text of which can be found here), President Raul Castro made his case for the reforms “in order to secure the continuity and irreversibility of Socialism as well as the economic development of the country and the improvement of the living standard of our people combined with the indispensible formation of ethical and political values.”

In the weekend’s biggest news, Castro effectively proclaimed the end of Cuba’s Castro era when he announced the introduction of term limits for high-ranking party officials.  Two consecutive periods of five years and you’re out. If these new limits are applied retroactively, it could mean that Castro himself would be forced to vacate office as “soon” as 2018, leaving Cuba without a Castro at the helm for the first time in more than 50 years and definitely ushering in a new generation of political leadership in Cuba.  

As soon as Raul Castro took power in 2008, speculation commenced about who would succeed him. With the 2009 ousting of Felipe Perez Roque and Carlos Lage, who, until then, had been considered the most likely candidates, the scratching of heads only become more furious.  While we still lack clear indications about the identity of Castro’s successor, (new economic reform czar Marino Murillo and Secretary of the Communist Party in Santiago de Cuba, Lazaro Exposito have been mentioned as possibilities) we now have a timetable that will force these decisions to be made sooner rather than later.

Some other notable excerpts from Saturday’s speech:

¿A dónde vamos?- The Sixth Party Congress

Photo courtesy of Flickr/olivcris, http://www.flickr.com/photos/olivcris/4396030

It’s finally here. Cuba’s historic Sixth Party Congress begins tomorrow, and with it, the official embrace of a radically new economic model that has gradually been unveiled by President Raul Castro since taking power from brother Fidel back in 2006.

To help shed some light in what is driving this VI Party Congress, its implications for Cuba’s future, and that of U.S.-Cuba relations, lecturer and PhD Candidate at the Josef Korbel School of International Studies at the University of Denver, and frequent Havana Note contributor, Arturo Lopez-Levy has authored an excellent new report that addresses these questions and much more. The report will be made public at the New America Foundation’s U.S-Cuba Policy Initiative website next week, but in the meantime we wanted to provide you with a few excerpts here.

On President Raul Castro’s economic reforms:

“Most of these ideas about economic reform are in their initial stages. It is not yet clear just how mixed the new economic model will be and whether Raul Castro’s government will be able to efficiently implement its adjustment plan. There are obviously many impediments and flaws to the process, the most important of which is the lack of funds to ameliorate transition costs and speed up the implementation of the new policies. Equally important is the Cuban leadership's preference for gradualism. Shaped largely by what is seen as Russia's horrific experience with a shock-therapy approach to economic reform, this predilection for slow change has seemingly rendered Cuban leaders oblivious to the problems associated with excessive gradualism.

A great challenge for the reform process will be addressing the fact that workers in Cuba’s social services, such as education and health, have already been disadvantaged by the development of Cuban tourism and other industries with access to hard currency, or CUC. The reforms are obviously generating winners and losers and it is difficult to determine what kinds of policies the government will use to compensate the latter. There is no evidence that in the coming years, even if the economy prospers, health and education professionals will share in rising wages or improvements to living standards. The same can be said about the reforms' impact on the most vulnerable and poor segments of the Cuban population.”

This Time is Different for Cuba’s Economic Reform

A question many Cuba observers ask is whether the current wave of economic reform is a mere repetition of a cycle in which the Castro government shows signs of openness for a while but it is ready to close them as soon as it finds a way to survive without them. This skepticism is legitimate because several times in the post 1959 history of Cuba, Fidel Castro’s government opened spaces to market practices in the middle of a crisis, only to close them as soon as the situation improved.  In the 1990’s, this was the case when originally many Cubans attempted to create a vibrant private sector but their hopes were crushed by asphyxiating taxes, regulations and a hostile attitude toward the market.

For decades, any political debate about economic reforms in Cuba was biased in favor of the communist experiments. If someone advocated anti-market policies, but which would lead to economic disaster, he or she might be reprimanded for lack of realism but the leaders would look with benevolence to his mistakes since they were the result of some revolutionary fervor. On the contrary, if one advocated pro-market reforms, he could have been denounced as a follower of a capitalist deviation (I personally know the experience) and therefore in need of ideological re-education.

In Cuba, Fidel Castro is never a force to underestimate. The historic leader of the revolution is stubborn and there are things he will only accept with bitterness and pain. Nobody can guarantee that he cannot protest or lash out against some of the current changes.

A Vietnam Model for Cuba?



In a commentary featured on CNN.com's Opinion and Analysis page today, fellow THN contributor Arturo Lopez Levy and I teamed up to ask the question, if Cuba is beginning to pursue what looks a lot like a Vietnam-style economic restructuring over the coming months, why not pursue a Vietnam-style policy toward the island nation?

"As Havana prepares for its first Communist Party Congress in 14 years in April, the United States should seize the opportunity to positively influence the economic blueprint the party is expected to approve.

The Party Congress, usually held every five years, is the ultimate conclave when Cuba's Communist leaders set the direction of the country for the next five years. A document released ahead of the congress shows that the Cuban leadership is considering ideas without precedent in the Cuban revolution's political debate. It essentially proposes moving away from Cuba's command economy and adopting an economic system closer to the ones in Vietnam and China."

CNN's publishing rules only allow me to excerpt that short introduction to the commentary, so I hope you'll visit the website to read the entire piece.

The piece reflects not only on the changes going on in Cuba and their similarity to steps taken in Vietnam, but also looks back at the U.S. approach to a country in which the American people lost significant blood and treasure, and yet our government has, with marked success, been willing to engage constructively.  We're certainly not the first analysts to point to examples of American constructive engagement with countries with which we have profound differences. 

But it bears repeating that, given the depth and breadth of discussions ongoing in Cuba right now, the United States has an absurdly excellent opportunity right now to exercise its influence - whether by helping the government directly pursue its reforms, or whether through more indirect means, such as working to reduce the extent to which a hostile U.S. policy remains a dominant domestic political factor in Cuba.  The question on so many people's minds now is, "Where is the Obama Administration?" 

The Taxman comes to Cuba (Part I)

Let me tell you how it will be,
There’s one for you, nineteen for me,
‘Cause I’m the Taxman,
Yeah, I’m the Taxman.
 


Should five per cent appear too small,
Be thankful I don’t take it all.
‘Cos I’m the Taxman,
Yeah, I’m the Taxman.

We all like to complain about taxes and none of us likes to pay them.  We also constantly search for ways of reducing our tax burden by enumerating deductions and listing expenses.  So, I extend a warm welcome to our Cuban brothers and sisters to the wonderful world of paying taxes. 

Hopefully, the requirement that they now pay taxes will be combined with real opportunities for them to set up micro-enterprises and small businesses that can actually be free to earn profits, provide employment, and offer better goods and services to their brethern at lower prices than in the past.  Vamos a ver.

As readers will already know, last Friday Granma published a somewhat confusing and contradoctory article outlining the new tax system for Cuba's self-employed workers (see here and here for links to international news coverage).

Then, this Monday the government released two important additional legal documents (together numbering over 100 pages!).  These numbers 11 and 12 of La Gaceta Oficial further detail the "New Rules" that will govern (1) the layoff of state workers, (2) self-employment, and (3) the tax regime.

While I am still working my way through the new tax code as described in La Gaceta, below in Part I of this post, I will offer my preliminary assessment of these recent developments.  Next week in a follow-up post (Part II), I will give my take on the detailed regulations as contained in La Gaceta.

Obama Fumbles on Cuba



Like many Cuba policy watchers, I've been deeply disappointed by the Obama administration's total lack of awareness of what's going on in Cuba in recent months, along with its apparent total lack of memory of the very conditions it set forth - repeatedly - for further engagement with the island.  In a commentary I wrote for Foreign Policy Magazine, I recalled the message the President himself sent via the Spanish government to Raul Castro last year.  It went something like this:

It was nearly one year ago that President Barack Obama delivered a message to President Raúl Castro via Spain's prime minister, José Luis Rodríguez Zapatero: "We understand that change can't happen overnight, but down the road, when we look back at this time, it should be clear that now is when those changes began," Obama said. "We're taking steps, but if they don't take steps too, it's going to be very hard for us to continue." If Cuba proved willing to improve relations with the United States, Obama seemed willing to reciprocate.

One year later, a lot has happened - most of it in the last several months, as crickets chirped in Washington.  More than forty political prisoners are out of their cells and headed to the United States thanks to the efforts of the Cuban Catholic Church and the Spanish government, and big, truly big changes in the economy are finally underway.  How does our president respond?

Rather than greet the changes, Obama has replied with mild skepticism. "I think that any release of political prisoners, any economic liberalization that takes place in Cuba is positive, positive for Cuban people, but we've not yet seen the full results of these promises," Obama told Hispanic media at the White House Tuesday.

It's hard to imagine a more clumsy response coming at a more critical moment than this one.