The Minister of Economy Who Never Told the Truth (II)

Alejandro Gil Fernández, Cuba’s deputy minister and minister of Economy and Planning, before the National Assembly of the People’s Power of Cuba. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 29 December 2023 — A good part of the State TV Round Table program was dedicated by Alejandro Gil, the Minister of Economy, to the SMEs [small- and medium-sized enterprises], of which he said that there is no stopping of the process or reprisals. Another lie. Because although it is true that in these two years the number of SMEs created has been important, the authorities have not provided data, and this is an essential indicator for evaluating the process. The functioning of SMEs has been conditioned by political action, and survival has been an obstacle course, which the regime, far from facilitating, has continuously complicated.

Along that line, the idea of transferring the powers of approval of SMEs to the municipalities must be interpreted as a control measure, which puts economic actors at the disposal of local communist leaders, who have little expertise in these matters and are obsessed with ideology. The idea of bringing the decision of the evaluation of those businesses, which are on a small scale, closer to their link with local, territorial development and municipal development strategies means that the SMEs will have limitations on their growth and scale and will operate at minimum unit costs, where profits are maximized.

The regime’s bet is that the SMEs remain small and weak, a measure that distances the Cuban economy from the free-market economy and sends a very clear message to those who do not want to see it. They say this process will be gradual, but it will not allow the consolidation of a strong private economic sector.

Local communist leaders have little expertise in these matters and are obsessed with ideology

Secondly, in addition to the transfer to the municipalities of the decision to approve SMEs, Gil announced the revision of the list of unauthorized activities for which they are carrying out an “in-depth analysis with the agencies and receiving criteria from the territorial governments.” In this regard, he said that “there will not be large annotations, but some issues will be corrected and clarifications made. There is no major transformation in the list of unauthorized activities.” Let no one expect much.

Third, Gil said that work is being done on the creation of an institute that will have as its function the coherent attention to the non-state sector of the economy and, later, be linked to the agencies of the Central State Administration for the promotion of policies and the implementation of certain rules. That is, on the one hand, competition is transferred to local powers, and on the other, a central bureaucratic body is created. What are we going to do? What is this tug-of-war?

It seems that this institute will exercise its functions over all non-state economic actors, not just for SMEs but also for non-agricultural cooperatives and self-employed workers. The institute will help lead the non-state economic actors, without direct intervention from the administrative point of view. Control and control. More bureaucracy where it is not needed.

And something that is noticed as soon as the organizational design is analyzed is that Gil’s Ministry of Economy is left out of this new, two-headed design of the national economy. It accesses an unexplored and critical terrain, whose final result is at least uncertain. However, the aim is to accentuate state control in the allocation of resources, fuel, currency and budgets, with attention to non-state economic actors, the national development plan and the country’s projected strategy. A communist hodgepodge that is difficult to digest.

It is hard to find in the world experiences like the ones that are proposed in Cuba. Another lie.

At this point, Gil said that there are sufficient experiences in the world that have been studied to identify the best way to proceed. It would help if he explained them, because it is hard to find in the world experiences like the ones that are proposed in Cuba. Another lie.

Fourthly, the Round Table has addressed the issue of subsidies on several occasions, because the economic system is unable to foresee their maintenance over time. The issue is whether to eliminate the subsidies or adapt them. No option has full support.

Progress has been made with respect to the past because Gil recognizes that subsidies aren’t free. Of course, in Cuban communism the Government pays for everything, and the price is high for the people and the economic entities because they must support a wasteful State. The subsidy to prevent the population from facing a certain high cost due to the productive inefficiency of the system has a direct cost in the state budget. Someone has to pay.

And of course, the communists finally recognize that when the State subsidizes, it’s a cost that falls on everyone

And of course, the communists finally recognize that when the State subsidizes, it’s a cost that falls on everyone. When the subsidy is assumed by the budget, it is assumed by the country. And when the country assumes it, all citizens pay for it, and this requires, almost always, an increase in the fiscal deficit.

And here comes another idea that the communists have finally figured out: If the fiscal deficit is expanded and money is issued in circulation to be able to support that deficit, inflation is created, which is a tax that falls, above all, on people with lower economic resources and the most vulnerable groups. The injustices of the economic system recognized by Gil is responsible for them. Here there is no reference to the embargo or blockade. It is an internal problem that undermines the bases of the model devised by Fidel Castro at the age of 65. Subsidies, deficits and inflation may end up breaking down the model.

One has the impression that the web of subsidies and prices for products such as energy, electricity and gas has entangled Gil, and with the weight of communist ideology he is unable to see an exit from the vicious circle. In one moment of the Round Table, the minister asked himself a series of questions that, obviously, he didn’t answer.

“First, if we don’t raise the price of fuel, the question is who pays for it. The State? With what money? With the same money that we are collecting via taxes or not allocating somewhere else? With what currency do we buy the fuel that we are going to sell after it is subsidized? With the same currency that we stopped dedicating to food? With the same currency that we stopped dedicating to medicines?”

Gil was referring to the issue of budget design, but the problem is in the justification of the budget. It is not a simple matter of passing money from one item to another with political criteria, but of eliminating items that distort the market reality of supply and demand. The resources of the people, as the minister says, are for other things. What Gil calls the correction of certain prices, which have high levels of subsidies behind them, are not only unsustainable for the country but also assumed to be equal for all. Only the market economy of supply and demand can correct the budget, and the definitive suppression of central planning.

In fifth place, continuing, Gil then addressed the issue of savings.

What is Gil talking about when salaries and pensions are the main sources of income for Cubans and are destroyed by the pressure of inflation?

It is melodramatic that in an economy like the Cuban one there is talk of saving and of identifying incentives for saving. What is Gil talking about when salaries and pensions are the main sources of income for Cubans and are destroyed by the pressure of inflation?

Gil maintains that abroad, due to the price of gas, people are obliged to save, but in Cuba, the high consumption of energy in the non-State sector makes saving measures difficult. And what about the blackouts, Minister? How do we interpret those mile-long lines at gas stations? What savings is the minister talking about, and what else does he want Cubans to stop consuming? Maybe they should return to the era of caves.

The minister wants people who consume more energy or fuel to pay a higher price and incorporate savings measures into their lives. Now, if they can’t stop consuming they have to pay a higher cost. The minister knows who the wasteful are: he just has to look at the state offices or local authorities, organizations, and other public entities to see where they can save. That’s where the waste resides, but just ask the mayor’s office or a State building for self-adjustment.

And at this point, without providing practical solutions to the issue of subsidies, the minister addressed, in sixth place, the situation of the foreign exchange market and said that “it is today one of the main distortions that the economy is facing.”

He acknowledged the obvious fact that he had not designed that informal or illegal foreign exchange market in the country. Of course, the communists had nothing to do with a market governed by supply and demand, which works efficiently.

The minister blamed the SMEs for being the only ones that have products because they can import and sell and have flexibility for prices, while the State companies have their hands tied. What is the minister waiting for to untie them? The solution is clear and the way forward as well. It is to turn the purchase and sale of the currency into a regular economic activity. And then, the alarm comes when Gil says that “we have to control it.”

In this regard, he points out that “among the measures proposed is to recover the management of foreign exchange by the State, because part of what is happening to us today, the fact that there is less State supply and more supply from the private sector, is because the private sector, in some way, is acquiring hard currency in the informal market, the illegal market, and that currency is not entering the national financial system. Therefore, State companies are practically running out of sources of currency allocation.”

It is worth reminding the minister that at the time the fixed exchange rate system was provided in the Ordering Task,*  which set the official exchange of 1 dollar to 24 pesos, this lasted less than three months before the Central Bank recognized its inability to assume the exchanges. Does he want the same thing to happen again? The currency shortage is now worse than at the beginning of 2021. Beware of experiments.

Gil recognizes that the State is sometimes not in a position to offer goods and services as it should be, because hard currency moves in another circuit, the informal one. And if that currency is not in the State’s sphere, it’s because the State is inefficient or incapable. Of course both currencies can function, but normally in all countries there is only one market, operated by private agents, with the law of supply and demand and regulated, without State intervention. That model in Cuba is possible if the communist State recognizes the informal market as the one that must operate and provide the service. That would not be neoliberal, but efficient. Doing things right.

So the intervention of the State, Gil’s answer to the distortions, will not serve to ensure the economic sustainability of the country, nor will it provide responsible and effective management of the economy. Gil knows this, and when he says otherwise, he is lying.

*Translator’s note: The Ordering Task is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso (CUP) as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency, which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy.  

Translated by Regina Anavy 


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