The Context of Cuba’s ‘Reforms’
April 30, 2008, 8:56 pm
Filed under: Economics, Latin America | Tags: , , , , ,

The Cuban economy is experiencing a slow transformation and many analysts credit Raul Castro for allowing such reform to take shape. Raul is certainly more open to allowing such measures than Fidel was, but it would be a mistake to assume that Cuba has not been transforming during the past two decades. The collapse of the Soviet Union in 1991 traumatized Cuba, which depended on Soviet economic assistance and the COMECON market for survival. Cuba’s economic collapse forced Fidel to call for a Período especial en tiempo de paz (Special Period in Peacetime) and all Cubans were asked to make considerable sacrifices inorder to deal with the attendant consequences of the disaster. Among the most devastated sectors was the sugar industry, an indelible component not only of the economy but of Cuban history and culture. In its preferential trade agreements with the Soviet Union, Cuba exported sugar in exchange for petroleum, which was used as an input in other sectors or exported by Cuba to bring in much needed foreign exchange.

While this relationship benefited the Cuban economy considerably, it also created dependence such that when the preferential rights ended and Cuba was forced to operate on the international market, much more than the subsidy was taken away. Cuba lacked the other inputs (fertilizers, tractors etc.) and the industry declined rapidly. Observing the falling international price of sugar, the Cuban government decided to restructure the sugar industry. First, huge state farms were broken up and smaller cooperatives were created. The government decided to keep 827,000 hectares of the most productive land in use. The rest would be used for other agricultural products, aquaculture and forestry. In keeping with its ethos, the government protected the workers who had lost their jobs and those who sought to gain education towards another field, specifically agronomy, continued to receive their salaries as they went to school. Furthermore, social services to the areas where sugar industry was impacted remained in tact.

Such changes were necessary as the government understood that if it wanted to maintain the system, it would have to make serious changes. The Council of State also legalized dollar holdings as a means of getting hands on vital foreign exchange and perhaps most importantly, eliminated state subsidies in agriculture. The agricultural sector was forced to stand on its own two feet and it did. The government created Unidades Básica de Producción Cooperativa (Basic Units of Cooperative Production-UBPC), which have had greater autonomy and introduced compensation based on efficiency. Furthermore, the state ended its monopoly on selling food and allowed free markets to operate. The combination of state control and reforms increased agricultural production, but because of the widening dual economy, most of the advancements made in this sector ultimately brought benefits to a few and misery for the majority of Cubans.

This was because of the newly legalized dollars. The black market for dollars had always existed and the government decided in the special period to not only legalize it but encourage remittances from exiles in the United States. Although it brought in much needed currency, the black market for goods expanded, as those with the means to pay could suddenly buy things beyond what was allowed in the libreta (ration card). Furthermore, dollarization led to speculation in real estate. Most importantly, the dollarization created two types of Cubans, those who had access to dollars and those who had to rely on the peso economy. It is in this context that Cuba under Raul Castro is ‘opening up.

Al-Jazeera’s Mariana Sanchez explores some of these contingencies in this segment.

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