Austerity Measures Sink Cuba Further into Near Collapse

Overall, the move toward more liberal measures appears to be too little too late, despite pressures from Vietnamese and Chinese Communist Party representatives in recent years strongly advising that Cuba undergo free market-oriented reforms.


Image Source: Foreign Policy.

Recent protests for food, electricity, and political freedom in the eastern port city of Santiago are the latest in a series of increasingly common uprisings in Cuba. The worsening economic crisis was induced by the pandemic, which led to an increased reliance on imports, especially skyrocketing fuel and food costs which have drained the country’s foreign currency reserves. However, the underlying cause has been coming for several decades, mainly because of the ruling communist parties’ resistance to fully part with outdated Marxist economic principles in fear of losing their grip over Cuban society. With the radical confiscation spree of private property and the restructuring of the once-developed republican economy into a centralized command model in the early 1960s, infrastructure and industries that were once the backbone of the Cuban economic success story, fully decayed in the subsequent decades. These Castro-led reforms implemented during his long tenure, failed one by one, kept the economy inefficient, and reinforced the economy’s dependence on massively subsidized products from the Soviet Union during the Cold War, Venezuelan oil during the pink tide, and today, remittances from exiled Cubans from all over the world.

Responding to pressures from the population, the regime of Miguel Díaz-Canel could not resolve the economy’s many problems including shortages, drastic price hikes of fuel and medicines and massive inflation. His reforms, called “Tarea Ordenamiento” (Ordering Task) initiated years into his term in 2021, meant to implement monetary policy to reduce the fiscal deficit. Most importantly, it established the end of the unique Cuban dual currency system aimed at incentivizing the restructuring of the economy for efficiency, facilitating foreign investments, stimulating exports, and reducing imports. The harsh economic adjustment also contemplated the gradual elimination of excessive subsidies and undue gratuities for a better redistribution of resources, and the creation of a new foreign exchange market would be destined to eliminate the growing black market, which, contrary to the rest of the world, supplies household items instead of narcotics or prostitution. But instead of liberating production forces and creating a free market, state enterprises under the umbrella of the GAESA Group still hold a monopoly on many sections of the economy. These are inefficient, plagued by corruption and mismanagement. 

Díaz-Canel has also blamed the restrictions of the U.S. embargo and U.S. officials for trying to instigate uprisings in the population to pressure for regime change, something State Department spokesperson Vedant Patel described as” absurd” and a “reflection of the dire situation on the island.” While Cuban officials are still pushing to hold wide-ranging negotiations, even on previously rarely brought-up topics like the lack of human rights on the island, President Joe Biden has continued to give the cold shoulder and is still opting to continue former President Trump’s hardline policy with few minor changes. The roadblock towards normalization with the United States has driven the Cuban regime to increase domestic reforms and warm ties with old allies to help alleviate the crisis. For example, Russia is offering new deals on fuel, investments for the tourism sector, shipments of wheat, and potentially a car assembly line. 

The public dismissal, shaming, and now corruption investigation of Economy Minister Alejandro Gil, a process that could potentially turn into a Stalinist-style show trial, could be pushed onto the national scene to distract the population and find a scapegoat for the continued mismanagement of the economy. A political pawn, Gil repeatedly asked the Cuban population for faith and patience on state-run television interviews throughout the failed reforms, a process he had little control over due to the centralized nature of the Cuban government, where all of the most crucial decisions are made at the highest levels rather than in the ministries. 

Overall, the move toward more liberal measures appears to be too little too late, despite pressures from Vietnamese and Chinese Communist Party representatives in recent years strongly advising that Cuba undergo free market-oriented reforms. For locals and foreign investors, the macroeconomic situation and the environment are not favorable, with entrepreneurs having to be authorized by various government agencies before starting a new business, only allowed to operate in certain sectors of the economy, and usually being greenlighted if they are close to the political elite. It is not surprising that investors are wary of putting their money there. The Communist Party, whose role is laid in the Cuban constitution of 2019 as the “leading force of society and the state”, is obstructing the economy’s needed reforms to meet its capital needs, which it compensates with loans it can’t repay. Its continued dependence on foreign allies for subsistence is a model that is not sustainable and might bring larger numbers of the Cuban population back to the streets in the near future.

R.O. Niederstrasser is a political analyst, commentator, and researcher.

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