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Note: This piece originally appeared in BTI, a private research organization based in Germany. Bert Hoffmann is a Lead Researcher at the German Institute for Global and Area Studies (GIGA) and a Professor of Political Science at Freie Universität Berlin.
To read the original piece, click here.
60 years ago, Fidel Castro proclaimed the “socialist character” of the Cuban Revolution. The historic comandante fell seriously ill in 2006 and, as a result, handed over his offices to his brother and longtime deputy Raúl. Now, when Cuba’s Communist Party convenes in Havana from April 16-19 for its 8th Party Congress, Raúl Castro, at the age of 89, will also step down from center stage. The long, long Castro era is coming to an end. What lies ahead and what remains, however, is more uncertain than ever.
Yet, the immediate succession is settled. For Fidel, remaining unpredictable for enemies and friends alike was always a power resource. Raúl, in contrast, portrayed himself not as the “Comandante,” but as the revolution’s top administrative cadre. Under him, the transformation from charismatic to bureaucratic socialism was completed. Just as he already had his name engraved on the tombstone next to that of his wife, he has also planned his succession for a long time. Three years ago, he made Miguel Díaz-Canel, a party functionary born after the triumph of the revolution, chairman of the Council of State and the Council of Ministers, and thus also the country’s formal head of state. Few doubt that Díaz-Canel will now also be promoted to First Chairman of the Communist Party. The replacement of the “historic generation” is being staged in the name of maximum political continuity.
Crisis-induced change
At the same time, Cuban socialism is experiencing an unprecedented crisis in which pandemic and recession, supply shortages and social inequality, loss of confidence and political frustration, external constraints and internal contradictions are combining and reenforcing each other. The government, too, knows that “business as usual” is no longer an option; with the January 1st currency and exchange rate reform, Díaz-Canel implemented a key economic reform measure that had been postponed for years. But this step entails a multitude of consequences—from the threat of an inflationary spiral to the re-dollarization of the economy, from layoffs in state-owned enterprises to the need to dynamize agriculture and the private sector. These issues can hardly be solved with the existing approach of turtle-speed gradualism.
According to the Cuban Constitution, the Communist Party is the leading force in state and society. There is no higher office than that of the party leader. But even if Díaz-Canel is at the head of both the state and the party in the future, he will not possess the scope of power that Fidel and subsequently Raúl once had. Behind the scenes, the military’s influence will remain strong. Additionally, the structures of the bureaucracy, the interests of state-owned enterprises, the concerns of local cadres, and the dwindling support among the population will not allow for unrestricted executive power either. Even under Raúl Castro, the mode of governance was more of a “muddling-through” than a clear top-down reform strategy. There is little to suggest that this could change.
And yet, the situation on the island has worsened dramatically. For a long time, the pandemic was under control in Cuba better than in almost any other country in the region, but since November, the island has recorded sharply rising infection rates. Most importantly, the pandemic brought tourism, by far the country’s most important industry, to a standstill virtually overnight. According to government figures, the economy shrank by 11 percent last year, and import capacity fell by 50 percent. This decline occurred as the economy was already navigating rough waters: support from ally Venezuela had plummeted as the oil-producing nation descended into chaos; the U.S. government under Trump sharply tightened sanctions against the island; and China was no longer willing to supply goods on credit on a large scale if the Cuban side continued to default on accumulated trade debts.
Currency reform effects
The consequences of the pandemic exacerbated the financial squeeze to such an extent that the currency and exchange rate reform now had to be implemented—even though conditions were much worse than a year earlier. It abandoned the 1:1 parity between the Cuban peso and the U.S. dollar, which in no way reflected economic strength, but still applied to state-owned enterprises.
As a result, all imported goods used to be dirt cheap for these enterprises—the opposite, as it were, of promoting domestic import substitution. Now, just as for the population, they too are subject to an exchange rate of 1:25, making imported intermediate products much more expensive. On the one hand, this expense is being passed on to consumers in the form of price increases, resulting in a sharp rise in the cost of living. On the other hand, many state-owned companies are sliding deep into the red. If permanent subsidies cannot be the solution, fundamental reforms seem inevitable.
Reform would directly affect the social and political foundations of Cuban socialism. Years ago, Cuban authorities spoke of about one million surplus workers in the state sector. To absorb this hidden underemployment, the private sector would have to grow much more dynamically than it has to date. But existing reforms remain half-hearted. While the recent replacement of the list of permissible trades for “self-employment” with a list of defined non-permissible sectors certainly was a step toward reform, the law for small and medium-sized enterprises—which has been discussed for years and would finally create a reliable legal framework for the private sector—is stagnant. Instead of expanding the sector, many self-employed people have returned their licenses in the current crisis, as they could no longer pay the fees and taxes.
Credibility challenges
Meanwhile, the supply situation has become so precarious that many are reminded of the emergency situation in the early 1990s, after the collapse of the Soviet Union. Everything has either become scarce or expensive. The currency reform was once announced as a reunification of the economy, which was divided into two currency worlds: the normal Cuban peso (CUP) and the convertible peso (CUC), which was pegged to the U.S. dollar. The latter has now been abolished, but the dollar has taken its place again; instead of CUC, Cubans must now purchase in foreign exchange stores with debit cards nominated in U.S. dollars. For many, these debit cards are out of reach. Wages are paid in pesos, and those who do not receive remittances from relatives abroad have little access to dollar stores. In areas where groceries are sold for pesos, people often stand in line for hours.
The social inequality made visible in this dual currency system leads to bitterness among the population. The Communist Party’s central Internet portal, “CubaDebate,” recently asked its readers how they had experienced the first months since the currency reform. The feedback was devastating. More than two-thirds of the respondents said that even the increase in wages was not enough to cover their needs, given the sharp rise in prices. In addition to complaints about the shortages and increased costs of living, people also expressed outrage that the dollar stores were dividing Cubans into a de facto two-class society, and that ordinary peso income earners were the losers. To be sure, in capitalist societies throughout Latin America, social inequalities are much sharper and more deeply inscribed in social structures. But, in a socialist state, they directly affect the legitimacy of the political model.
The leadership in Havana will emphasize at the party congress that they have outlasted Trump and that they will continue to vigorously oppose any attempts to bring about a change in the political system. Protest from within, as most recently from artistic circles around the Movimiento San Isidro, is invariably seen as externally controlled and in the service of imperialism.
The one source of optimism is the COVID-19 vaccine currently under development in Cuba. Indeed, this is a remarkable achievement demonstrating the strength of the biomedical sector. Two vaccines are in Phase 3 trials with tens of thousands of test subjects, and in the coming months Cuba will begin using its own vaccines to inoculate its population. Nevertheless, the difficulties of mass producing such a vaccine in Cuba should not be underestimated. The government has pompously announced plans to produce 100 million vaccine doses by the end of the year, thus creating an export hit and opening up vaccination tourism to Cuba as a new source of foreign currency income. This would not be the first plan that is more ambitiously formulated than fulfilled.
Uncertain outlook
Raúl Castro’s departure comes at an immensely tense time for Cuba, both economically and socially. The “historical generation” may take credit for not only having built Cuban socialism alongside the Soviet Union for three decades, but also for maintaining it three decades after the Soviet Union’s collapse. But precisely because the generation of históricos failed to find a viable reform course, it is now handing over a country in dire straits to its successors. The necessary changes must now take place under the worst possible conditions, and the historical leaders have always rewarded unconditional loyalty, not self-initiative, in their cadre policy. Thus, the functionaries have learned to maneuver skillfully within the structures of party and state, but not how to become bearers of hope for the population at large.
At the end of the Castro era, Cuba’s party congress will invoke continuity. But this cannot hide that no end to the crisis is in sight, and that uncertainty over the island’s future development is palpable.
