Cuba’s Controversial New Policies on Economic Reform and Opening

By: Jackie Liu

Cuba’s policies implemented under pressure: beneficial structural change or threat to the communism ideology?

Currently, the Cuban economy is trapped by both external threats and internal disturbance. On October 18th, the US imposed new sanctions on the Venezuelan government to restrict it from exporting low-price oil and goods. This additional economic block put millions of Cubans on stake, as they faced severe shortages of food and resources. Concerningly, this pushback could lead to an economic crisis of disastrous proportions.

Additionally, the Cuban domestic economy is in turmoil due to inefficient policy constraints. Some recent economic policy changes show the government’s urge to battle with the staggering economic performance and to break away from its susceptible state. Examining those policies, we want to investigate the implications and effectiveness of these policies, and whether they can potentially bring structural change from a bigger scale and thus revive the economy.

Earlier this year in June, the Cuban government suggested raising workers’ salaries and an increased compensation. This signals the trend of unification of its long-lasting and problematic dual-currency system, and moreover, a more liberal economic system. For more than two decades, Cuba has implemented the usage of two sets of currency: Convertible Peso for trade and tourism, and Cuban Peso for domestic purchase. The wage is only paid in Cuban Peso to Cuban citizens, and therefore an increase in wage suggests a close-up of the gap between the two currencies and a stronger purchasing power of Cuban citizens. It is also seen as the first step of eliminating the dual-currency system because it will prepare its citizens with a higher price after the removal of inefficient state enterprises which heavily relied on its local currency. The consolidation of the two currencies might bring a short-term shock to the economy. However, the economy will become more efficient and move towards a liberal market approach.

The other most notice worthy policy change is the unblocking of imports, signifying Cuba’s shift towards a more liberal market. On October 16th, Cuban Vice President Salvador Valdés Mesa announced a new policy designated a group of companies to import household appliances and other merchandise in freely convertible foreign currency. This move aims at providing import goods and services at a lower sales price to Cuban citizens, enabling them to easily purchase foreign goods through domestic companies. This new option of purchasing within the border prevents the overflight of currency because Cuban citizens do not have to go abroad to buy those products they want. It would thus further boost the national industry and better meet people’s demand for consumer goods. Furthermore, as this measure opens up systematic import opportunities, the private and cooperative sectors will also revive. This is because the channel opened for the external market will not only contain consumer goods but also new products and supplies that will reactivate economic activities that raise funds to acquire more technology.

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Liu, J. (2018),  “A bookstore with communism propaganda posters on the front door”

Ultimately, the ideological barrier remains an obstacle to the reform. Since the official recognition and relative encouragement policies of the private sector as part of the economy is still not designed, the competition between small and medium enterprises will not happen, and it is hard for them to take advantage of the open-up import policy and import more advanced equipment that help with their production. In the short run, the inefficient state-monopoly structure will remain in place. The government needs to decide upon whether the new import policy should be simply used as a compensation for the consumption of the population, or a new channel to achieve higher production and technology.

Work Cited:

Rodriguez, A., & Weissenstein, M. (2019, April 20). Shortages hit Cuba, raising fears of new economic crisis. Los Angeles Times. Retrieved from https://www.latimes.com/world/la-fg-cuba-economic-crisis-20190420-story.html

Cuba to Boost National Industry with New Measures. (2019, October 16). Escambray. Retrieved from http://en.escambray.cu/2019/cuba-to-boost-national-industry-with-new-measures/

Press, A. (2019, June 28). Cuba announces increase in wages as part of economic reform. NBC News. Retrieved from https://www.nbcnews.com/news/latino/cuba-announces-increase-wages-part-economic-reform-n1024451

Image source:

Liu, J. (2018),  “A grocery store with limited supply of goods in Cuba”

Liu, J. (2018),  “A bookstore with communism propaganda posters on the front door”