Cuba has broken its own dogmas before . The Cuban Government, this Friday, presented before the National Assembly of People’s Power (ANPP) – the local Parliament – a drastic shock plan that, under the rhetoric of “doing what is necessary to preserve what is essential”, formally introduces market dynamics, authorizes the creation of private banks, opens state companies to private shareholders and decrees the end of egalitarianism by dismantling universal subsidies and allowing successive devaluations of the national currency. The authorities have warned that “companies that do not support the devaluation will be liquidated.”
The scenario chosen for the announcement left no room for doubts about the urgency of the apparatus to present changes in the face of foreign pressures. During the Third Extraordinary Session of the In the room, the President of the Republic validated the report with his presence, while Army General Raúl Castro Ruz watched like a Big Brother on a screen to demonstrate that the historical wing of the regime blesses an economic earthquake that in other times would have represented a nightmare for Cuban socialism.
This is the most profound and unpredictable economic and social shift since Raúl Castro opened the country to reforms in 2011. Public corporations, until now untouchable and burdened by bureaucracy, will be transformed into commercial companies based on shares or participations. Although Havana assures that it will maintain the majority in the strategic sectors, the great novelty is that non-state forms of management – the emerging private sector – and natural persons will be allowed to buy shares in these public companies. In addition, corporations that accumulate sustained losses will, for the first time, face formal bankruptcy, restructuring and liquidation proceedings.
The earthquake also affects the financial sector, until now jealously guarded by the regime. The plan contemplates promoting the participation of private capital in banking activity, which represents the end of the state banking monopoly through the authorization of financial institutions of private, cooperative and foreign capital, which will operate under the supervision of the Central Bank of Cuba (BCC). “The establishment of non-banking or non-financial financial institutions to support the national or foreign private capital banking sector will be permitted to grant microcredits,” the plan establishes. The reform creates a “real-time digital” exchange market with currency auction systems, accompanied by an announcement that anticipates turbulence for the common citizen: successive devaluations of the national currency (CUP). The Prime Minister’s warning was lapidary: “Companies that do not support the devaluation will be liquidated.”
The reforms come in the midst of a fierce offensive by Donald Trump’s government against the island. The White House has deployed an aggressive strategy that combines unprecedented financial asphyxiation with diplomatic pressure. Trump has surrounded the Cuban economy through a severe energy blockade by drastically restricting the flow of crude oil and persecuting ships that try to circumvent the siege. In addition, the State Department has limited Cuba’s access to international banking. Washington seeks to strangle the income of the military conglomerate, a military apparatus that controls practically half of the island’s GDP. Trump has also ordered high-level communication channels headed by Secretary of State Marco Rubio to be maintained with the goal of forcing political concessions and the release of prisoners in exchange for economic relief. “We have talked to them and told them what they have to do to recover their economy,” Rubio said.
This level of pressure without recent precedents has led the Cuban Government to sing a my fault and affirm are the responsibility of the political leadership. “We must feel responsible for everything that goes wrong in Cuba,” Díaz-Canel said in January, a few days after. Marrero Cruz, the prime minister, described this Friday a panorama of “unprecedented combination” due to United States sanctions, the cut in fuel supplies and the collapse of foreign currency earnings, but he also recognized that “own insufficiencies” have hampered the model. To legitimize the change, the Executive resurrected a quote from Fidel Castro from 1993, in the middle of the Special Period: “Reality forces us to do what we would never have done otherwise.”
The new reforms now give the green light to the private sector, but with conditions. For Micro, Small and Medium Enterprises (MSMEs), which in recent years have saved the basic consumption of a part of the population at astronomical prices, the reform offers one of lime and another of sand. On the one hand, the hiring of more than 100 workers will be allowed – at which point they will be legally classified as private companies -, the same natural person may be the owner of more than one company or have a shareholding in several of them, and the list of prohibited activities will be reduced. The usufruct of the land for an indefinite period of time is even authorized for private producers and the doors are opened to private companies in the strategic and depressed agricultural sector.
Goodbye to the universal subsidy
The most immediate impact for Cuban households will come through prices. The Government has announced the definitive burial of the universal subsidy, its most precious measure of public well-being. Products and services such as fuel, electricity, transportation and water will begin to pass their real costs on to wholesale and retail prices. In exchange, the Executive promises to create a Social Protection Fund to exclusively assist those citizens who are registered as “vulnerable” on a digital platform updated in real time.
At the labor level, the fixed salary scale is eliminated and salaries are allowed to be negotiated with workers based on the financial capacity of each entity, and administrative approval for the moonlighting of health, education and research professionals is ended. Companies are also given the direct power to dismiss workers for economic or structural reasons, setting a single compensation of between three and six months of basic salary. But the decision to “establish incentives to retain the qualified workforce with an emphasis on young people” is striking, at a time when the island is suffering a migratory drain due to economic precariousness.
Díaz-Canel has had to face future criticism and has stated that economic transformations “do not mean a renunciation of socialism.” The measures, he said, are the result of proposals from economists and “from the study of the experiences of other socialist countries.” He also spoke of “a broad debate” internally, although the reforms have been imposed under the strict control of the State. “We have reached a moment of maturity, of reflection, typical of the debate that has developed in all these years, which is telling us that we had to continue defending socialism, but building it with some transformations,” the president justified. “We all talk about maintaining social justice, but the first thing to do is produce,” he concluded in statements that put the seal on what was already seen as a change that was difficult to imagine a few years ago. The Cuban revolution opens to capitalism.
