From greater state control to increased cuts: What is behind the ‘war-time economy’ announced by Cuba?

Analysts warn that the government’s plan is missing in-depth structural reforms, and could even aggravate the island’s record exodus

cuba economy
A man peels onions at a market in central Havana, Cuba, in July 2024.Stringer (REUTERS)

Cuba is living in a “war-time economy.” The island’s own authorities said it a week ago. That is to say, the food shortages that the population has been dealing with for years, the insufficient wages, the soaring prices — that whole bleak scenario resembles that of a country thrown into the battlefield.

The acknowledgment sparked mixed reactions. There were those who considered the announcement “effective,” others responded with skepticism, and a few have done nothing but make fun of it. The popular actor Ulises Toirac, one of the great humorists on national television, said on his social media accounts that he was tired of the heat and the lack of bread, but not just now — he’s been weary for a long time. Then he made the most serious joke he has ever made: “It’s because I’m in a war economy. I’ve been in it for years.”

Despite its significance, the government’s statement, made at a recent meeting of the Council of Ministers where new measures were announced to “re-boost the economy in 2024,” did not trigger a particular climate of fear or uncertainty. Cubans have been suffering for years from a crisis that began in the 1990s with the loss of economic aid from the defunct Soviet Union and from which they never recovered. People have simply been told that the permanent scarcity in which they live has a new, more dramatic name.

But nothing has changed in the daily lives of Cubans. “I have heard remarks about the war economy, but it doesn’t mean anything to me because things are always very bad,” says Yosvani Castañeda, from Havana. “Food and everything else is very expensive. Prices are sky-high, especially for the most necessary items like food, medicine. You would need a truckload of money to survive. We’ll have to wait and see if it is true that prices are going to be capped, but what I believe is that this will never change.”

The mystery now is why the Cuban government has chosen to use the term at this time and not earlier. The concept is typical of countries experiencing a war situation and which have taken measures to reorganize their industries, save resources or control their economic policies in hostile contexts.

Ricardo Torres, a former researcher at the Center for the Study of the Cuban Economy and professor at the American University in Washington, believes that the term “is intended to take hold in the public opinion to justify the inevitable adjustments that the government now has to introduce. Some of the measures related to the budget are unpopular, because they imply spending cuts and more tax collection.” This economist also believes that, with this expression, the authorities are alluding to both the economic crisis and the international “siege” they are suffering. “It is a known fact that there is a combination of domestic and external factors that affect the Cuban economy. But there is no war. There is a model that does not work, that has decades of failures behind it, and there is an economic crisis that has not been well managed by the government.”

However, this is not the first time that the Cuban government has described the turbulence as a “war-time economy.” At the end of 2023, President Miguel Díaz-Canel publicly announced the beginning of a new trend in the Cuban economy. “We have called it a war economy, because it must operate in a policy scenario of maximum asphyxiation, designed and applied to a small country by the most powerful empire in history.” He was referring to the economic embargo that the United States maintains against Cuba, and which has served as a pretext to justify the constant crises that have ended up plunging the country into poverty.

Other specialists, such as Omar Everleny Pérez Villanueva, former director of the Center for Studies of the Cuban Economy at the University of Havana, feel it is “risky” to use a term like “war-time economy,” which could further encourage Cuban emigration, which has “broken all possible records for departures from the country from 1959 to the present.” Also, according to him, it could send “a discouraging message to potential foreign investors in the Cuban economy who could have brought fresh capital so necessary for development.” The economist considers that, by using this term, what the government actually means is that extraordinary measures could be taken in the economic area, which under other conditions would not be done. “From once again curtailing private companies that function as retail suppliers to not granting new licenses, or putting caps on prices.”

An improvised sales stand in the center of Havana, on July 3, 2024.
An improvised sales stand in the center of Havana, on July 3, 2024. Stringer (REUTERS)

The private sector, a target of the new measures

If anyone is worrying about the new measures, it’s the people who make up the private sector on the island. Mildrey Granadillo de la Torre, First Deputy Minister of Economy and Planning, announced that these measures include budget cuts, “price controls” in both the state and non-state sectors, the establishment of a single price policy, and the centralization and control of some economic decisions. So far it is unclear when they will start going into effect, but some analysts believe that the measures could directly affect the so-called MSMEs, small and medium-sized businesses that were approved in 2021, when the government found no other option than to open up the private sector in the midst of a crisis that had deepened from the economic impact of the Covid-19 pandemic and the intensification of economic sanctions by former U.S. president Donald Trump.

Some of these measures, according to Pérez Villanueva, “are very risky, since they will tend to reduce the supply of goods in what is already a situation of great scarcity, and where there is an enormous deterioration in the purchasing power of salaries and pensions.” The government will cap the maximum prices of products such as chicken, cooking oil, sausages, powdered milk, pasta and detergent, often inaccessible to people who live on the state sector salary. The measure, which should relieve customers, could affect private businesses.

“The administrative control of the prices of some products sold by MSMEs is total nonsense,” thinks Torres. “The results are known: increased scarcity, smuggling, informal market, and a long etcetera. In a way it is the acknowledgment of the failure to control inflation. Restrictions continue to be imposed on the private sector, when they should be doing the opposite. The best cure for stabilizing the economy is to make it grow, and we do not see a coherent plan in that sense.”

The economist also agrees with a general feeling: the measures seek more state control in the country’s economy. “I think that is always an objective of the government,” he says. “The government is afraid of a large and autonomous private sector, but at the same time it cannot do without it without sinking the economy even further. They want to achieve a balance that is impossible in order to maintain a model that has failed.”

For some time now, economists have assured that the crisis in which the country has been immersed since 2019 far exceeds what was experienced during the so-called Special Period, the harsh crisis that began as a result of the collapse of the Soviet Union. At the beginning of this year, it was learned that for the first time Cuba had “urgently” requested help from the United Nations World Food Programme to send milk for children under seven years of age. In 2023, the country ended the year with an inflation rate of 30%, an economy that had contracted by 2% and a depreciation of the Cuban currency of more than 50% against the dollar and the euro in the informal market. Desperate Cubans have twice taken to the streets shouting “hunger” and “food.” The outlook is bleak.

“I think this crisis is worse for many reasons,” says Torres, comparing it to the one experienced in the 1990s. “Cuba entered the Special Period after a decade of relative prosperity, robust social services and reduced inequality. This crisis comes after almost three decades of stagnation and growing inequality. Many families never recovered the living standards of the 1980s. There is a decline in the quality of social services. This crisis disproportionately hits a part of the population that was already disadvantaged. Emigration has been much higher, and the population is aging rapidly. All of this bodes poorly for the future,” he insists.

Despite the fact that in recent times the government has taken a series of measures, such as the dismissal of the economy minister or the implementation of another plan that involved an increase in the price of transportation, electricity rates and even liquefied gas, the truth is that a conclusive solution has not been proposed to allay the crisis on the island. The authorities continue to look the other way and centralize all economic power.

“I believe that the only measure that can get the country out of the situation of chronic shortages is to remove the hurdles that still hold back manufacturing and agricultural production,” says Everleny, who insists that, outside of those measures, all the others “are temporary” and instead of moving forward, “we are going backwards.” “For example, price caps have proven to be unviable in the economic situations in Cuba. The government has to be competitive with the private sector, but not from positions of power or control from above, but rather by offering products at a better price.”

Torres thinks that in this recent government announcement, as in previous ones, the most important thing is missing: a coherent plan that includes structural measures. “The commitment to a failed economic model remains, while the patching approach continues. The priority at this time must be a radical reform of state companies, restructuring the unviable ones and imposing the discipline that only the market can achieve.”

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