What does the Monetary Reorganization in Cuba Mean?

On October 12, the Cuban Vice Prime Minister and Minister of Economy and Planning, Alejandro Gil Fernández appeared on the television program Mesa Redonda [Round Table] to talk about the economic strategy “to boost the economy and overcome the global crisis caused by COVID-19.” A central part of it is the “monetary reorganization” that has generated so many rumors and uncertainty in Cuba in recent months.

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By an accident of history, the Round Table episode coincided, almost exactly, with the 60th anniversary of Law 890 of “nationalization through the compulsory expropriation of all industrial and commercial companies” and Law 891 of nationalization of banks, both approved on October 13, 1960, and the urban reform law of 14 October, 1960, which expropriated the houses of the large landlords and gave them over as property to their tenants. With the passing of these laws, capitalism was practically abolished in Cuba. It is on that basis, state ownership of the means of production, that all the conquests of the Cuban revolution in the fields of health care, education, housing, and national liberation, etc., which survive to this day, albeit in a weakened form, are based.

What are the measures that are now being proposed, why are they being proposed now, and what impact do they have on that material basis on which the Cuban revolution is based?

The measures of what has come to be called the “monetary reorganization” in Cuba go far beyond a currency unification. To the extent that in Cuba there are not only different circulating currencies (the Cuban peso CUP, the convertible peso CUC and the free convertible currencies MLC) but there are also several exchange rates, the implications are more profound.

First of all, what is being proposed is the elimination of the CUC and the reestablishing of the Cuban peso as the central currency in the economy. If there were only one exchange rate, this would be a relatively simple operation of withdrawing one currency from circulation and replacing it with another. The problem is the disparity of exchange rates. In the state-owned sector 1 CUC is equivalent to 1 CUP and thereby to 1 dollar. For the private sector, the exchange rate is 24 or 25 CUP to 1 CUC. This differentiated exchange rate causes, among other things, the national currency to be overvalued in the public sector and therefore makes exports more expensive, while making imports cheaper. Unifying the currency at the same time that the exchange rate is unified will imply a heavy devaluation of the Cuban peso in relation to foreign currencies. What is intended with this is to discourage imports and encourage exports, to try in this way to attract foreign currency to the national economy. Inevitably this in turn will cause prices to rise for consumers. To soften the blow of this price increase, a general increase in wages is expected to be implemented, which according to official sources will be 4.9 times the current level.

As part of the measures to boost exports, more than 100 export and import contracts have already been signed by private Cuban companies. Although these contracts are channeled through state-owned companies, the truth is that these measures weaken the state monopoly on foreign trade, which is one of the lines of defense for state planning of the economy.

In addition, something very dangerous, the proposed measures include the elimination of what is described as “excessive subsidies and undue gratuities.” In reality this means moving towards the abolition of the principle of the universality of social subsidies and that these are directed only to those who “really need them.” It is an implicit recognition of the increase in social differentiation in the island in recent years, particularly since the measures taken in 2011 within the framework of the Guidelines of the 6th Congress of the PCC, the elimination of jobs in the state sector and the promotion of self-employment.

The “reorganization” measures also promote wage incentives, which will be linked to the ability of the different state companies to obtain foreign currency. This strategy, which is argued as necessary to encourage work on the basis of raising wages, will actually have the effect of sharpening social differentiation. There will be companies that, due to their activity, will be better positioned to export their products, whose workers will benefit, while there will be others that cannot export, whose workers will receive the base salary, but not the incentives. Moreover, companies that do not make a profit, after a period of adaptation, will be shut down.

This goes in the same general direction as the attempt to increase productivity through the whip of the capitalist market: if a company is not profitable, it is shut down; if a company is profitable, bonuses will be paid to workers. The autonomy of businesses is increased, self-employment is further liberalized, the creation of small and medium-sized enterprises is encouraged, both in the state and private sectors, etc. Another aspect is resolution 115 of the Planning Ministry (applicable from 2021), which states that economic stakeholders will have greater autonomy in terms of managing the foreign currency generated by exports, by sales in foreign currency, by sales of merchandise to companies in the Mariel Special Zone, etc. Although the government will retain a percentage of the foreign currency generated, most of it (between 80 and 100% depending on the case) will be kept by the company, either state-owned or from the “non-state” sector (that is, private). The state abandons its central role in allocating foreign currency. This is serious because it means a partial dollarization of the economy, increases the internal differentiation between different companies according to their sector of activity and above all because it decreases the percentage of foreign currency available to the state to exercise central planning based on the interests of the majority.

In general, all these economic measures point in a clear direction: less planning, more free market. The language that is used officially sometimes tries to cover up this fact. For example, in July of this year, when the planning minister presented Cuba’s Economic-Social Strategy, he said that one of its general lines was to “maintain planning,” which “is a strength of our system,” but then he added: “Which does not mean centralized allocation of resources. We are taking steps in terms of decentralizing the administrative allocation of resources.” (see: Cuba’s Economic-Social Strategy in the post-COVID-19 recovery stage) That is to say one thing and its opposite. Actually, to see it more clearly, you must also read another sentence, a little further down when the document talks of “the regulation of the market, mainly by indirect methods.” That is to say, what is being considered, clearly, is the rolling back of planning and the advance of the market in different aspects of the economy, among them, the allocation of resources, the circulation of currencies, etc. Therefore, these measures are a step backwards and undermine the material basis on which the achievements of the Cuban revolution are based.

It is not just a rolling back of the material basis of the revolution, but also further steps forward in a process that has already been developing for years of a decline in consciousness, in which individual solutions are promoted, “efficiency” through competition is prioritized over collective solutions, cooperation, social control and the active and conscious participation of the working class in an organized way in solving problems.

It is obvious, and everyone can understand it, that the Cuban economy (and the revolution) faces a series of very important obstacles and that these limit the answers that can be given. These obstacles are partly structural and have also been exacerbated for recent circumstantial reasons.

Circumstantial elements of the economic crisis in Cuba

Let’s start with the more immediate problems. The Cuban economy had already entered a very complicated situation before the start of the COVID-19 pandemic for three reasons. On the one hand, the coming to power of Trump in the United States in 2016 meant reversing a series of measures taken by the Obama administration that, although they did not lift the embargo, were favorable to the Cuban economy (making the remittances and tourism policy more flexible, etc.). Not only that, but also Trump, in an attempt to retain Florida’s Latino vote, hardened the aggression against Cuba by activating Chapter III of the Helms-Burton Act which allows claims against companies dealing with Cuban companies which use property nationalized by the revolution.

Trump rally image Gage skidmore
Trump has hardened US aggression against Cuba by activating Chapter III of the Helms-Burton Act which allows claims against companies dealing with Cuban companies which use nationalized property. / Image: Gage Skidmore

As a Cuban comrade who reviewed the first draft of this article points out, “the attacks by the Trump administration have not been limited to reversing Obama’s measures and the activation of Chapter III. It has perhaps been the administration that has taken the most measures to tighten the blockade and that has tried the most ferociously to strangle the sources of income for the Cuban economy. The persecution of all international financial transactions and operations in Cuba has been brutal. Almost every month, and in recent times, almost every week, there are new sanctions and measures that tighten the blockade against Cuba.” According to the report that Cuba presented to the UN in July 2020, “from April 2019 to March 2020, the blockade has caused losses to Cuba to the tune of 5.57 billion dollars. This represents an increase of around 1.2 billion dollars over the previous period. For the first time, the total amount of damages caused by this policy in one year exceeds the five billion dollar mark, which illustrates the extent to which the blockade has intensified at this stage.”

The second blow to the Cuban economy in recent years was the end of contracts to send Cuban doctors to Brazil, with Bolsonaro coming to power at the end of 2018. To this can be added the same measure taken in Bolivia after the coup a year ago. In addition, the US has carried out a sustained and systematic campaign against Cuban medical collaboration, which is one of the main sources of income for the country, multiplying the pressure against governments around the world not to hire Cuban doctors.

The third is the result of the brutal economic recession in Venezuela that began in 2014 and does not seem to have an end. This has severely limited the very favorable economic relations that had been established, in terms of exports of services and imports of oil at preferential prices.

The arrival of COVID-19 and the world crisis of capitalism that it unleashed, have made the situation of the Cuban economy even worse. In the first place, there is the impact of the pandemic itself in Cuba, with the paralysis of the productive activity of hundreds of thousands of workers in the state sector who nevertheless continue to receive their wages. To this must be added the cost of sanitary measures, PCR tests, etc. Secondly, COVID-19 has completely paralyzed the important tourism industry for more than six months, with the resulting drop in revenues. To all this must be added the drop in remittances sent by Cubans abroad as they are also affected by the economic crisis in the US and Europe. In addition, remittances are also affected by the punitive measures applied by the US that, for example, lead to the cessation of operations to send money to the island through Western Union as of November 23.

The collapse of world economic activity due to the capitalist crisis, in turn, has caused a drop in the price of nickel, which Cuba exports, from $17,000 a tonne a year ago to $15,000 now. Let’s not forget that the price of nickel was $28,000 in 2011 and had peaked at $50,000 in 2007 before the great recession.

Not all international impacts on Cuba are negative. The price of oil that Cuba imports has dropped significantly, from the 100 dollars a barrel between 2010 and 2014, and the 60 dollars a barrel that it was a year ago, to 37 now. On the other hand, the pandemic has allowed Cuba, temporarily, to find other outlets for its export of medical services. But these two positive factors are far from being able to balance the negative impact of the other blows received. In addition, the fall in the price of oil is counteracted by increased US pressure on governments and companies from third countries not to sell oil to Cuba under threat of sanctions and reprisals.

It is practically a perfect storm for the Cuban economy, which, despite many difficulties, has survived. In fact, it is necessary to point out that the Cuban revolution has not only survived but that in recent months it has tackled the pandemic in an exemplary way, despite the difficult economic situation. This has only been possible due to the existence of a socio-economic regime that is not dictated by the interest of private capitalist profit.

Structural elements of the Cuban economy

But it must be said that even if a solution were to be found for all these more short-term difficulties, there are elements of weakness in the Cuban economy that would still remain. In the first place, the dependence on the world market in which Cuba is a weak and subordinate economy, and secondly, the dead weight of the bureaucracy in the running of the planned economy.

The first question has to do with the fact that the Cuban revolution took place in a backward capitalist country dominated by imperialism. The building of socialism begins on the basis of the most advanced productive forces of capitalism. Cuba in 1959 was a country whose economy was based on the export of raw materials (principally sugar) and therefore was totally at the mercy of the world market, in which it entered in totally unequal conditions of domination. The main companies and economic sectors of the country were in the hands of US interests with a weak national bourgeoisie tied hand and foot and subservient to its neighbor to the north.

The Cuban revolution, which began with an advanced national-democratic program that at first did not explicitly question capitalism, culminated in the expropriation of the properties of the imperialist and “national” bourgeoisie. This is the meaning of the laws of July-August and October 1960, which are now 60 years old, which we referred to at the beginning of this article.

It can be said that less than two years after coming to power, the Cuban revolution had fulfilled the Moncada program, a national, democratic and anti-imperialist program, and in the process of doing so it had abolished the private property of the means of production by expropriating the bourgeoisie, both Cuban and imperialist. The Cuban revolution could not have fulfilled its program in any other way.

In this way, one of the tenets of the strategy of permanent revolution was demonstrated in practice: in the epoch of imperialism, in backward capitalist countries, the bourgeoisie is incapable of carrying out any of the pending tasks of the national democratic revolution. They can only be completed by overcoming the narrow limits of capitalism.

The theory of permanent revolution, however, has another part. The tasks of the socialist revolution cannot be completed in a single country, and even less in a backward country dominated by imperialism. The expropriation of capital in one country has to be the prelude to the spread of the revolution to other countries, and ultimately the world revolution.

In a way, the economic history of the Cuban revolution itself confirms this second part of the thesis. The two periods in which the Cuban economy has had the most important development were during its connection with the USSR (particularly from 1971 to 1986) and at the height of the Bolivarian revolution (from 2002 to 2013). The connection of the Cuban revolution to the USSR had a negative impact from the point of view of ending a heroic period (the 1960s) in which Cuba fought against the reactionary “peaceful co-existence” and to extend the revolution, it defied the mechanical and bureaucratic vision of “Marxism” coming from Stalinist Russia, and so on. For the Soviet bureaucracy this was a threat, and the strengthening of economic relations was accompanied by the rigid imposition of the bureaucratic-Stalinist model in all aspects of education, ideology, culture, art, political life and also foreign policy.

Also from an economic point of view there were negative consequences. Che Guevara’s ideas about the need to industrialize Cuba and develop its working class were abandoned, and the island continued to depend on the export of sugar. However, in purely monetary terms, the relationship was favorable to Cuba, which sold its harvest to the USSR and the eastern European countries at prices higher than those on the world market and bought manufactured products from them at prices below those of the world market.

Cuba’s relationship with the Bolivarian revolution (despite the fact that Venezuela never broke with capitalism) was also very favorable for the island. It was certainly so from an economic point of view, but it was also so from a political point of view, with the arrival of the fresh wind of revolutionary enthusiasm which was blowing from Venezuela.

The other structural aspect that limits and restricts the economic development of Cuba is the very existence of the bureaucracy. In recent months there has been much talk in Cuba about the need to “unleash the productive forces” so that they fully develop all their potential. But in general what is meant by this is to put an end to the state planning of the economy, and unleash the market as a dominant mechanism.

In reality, it is not state planning per se that constrains the development of the productive forces, but the bureaucratic planning of the economy. In theory, in Cuba, the workers are the owners of the means of production. But in practice they don’t feel like the owners. To the extent that they do not have real mechanisms of workers’ control and management to run the economy, workers feel alienated from it. Furthermore, in a capitalist (“market”) economy there are, to some extent, automatic control mechanisms. If a company is not efficient (that is to say, if it does not adopt the most advanced mechanisms to develop labour productivity) it is eliminated by its competitors. In a planned economy, the only possible mechanism that exercises this role of quality control, of economic efficiency, is the management of the economy by the workers themselves. If that does not exist, then waste, indolence and bureaucratic stultification are rampant. In reality, the measures proposed now and that have been discussed for years in Cuba, in a certain way, admit this premise, by concentrating on the problem of incentives for workers.

In short, the two interrelated factors that negatively affect the Cuban economy are its isolation and bureaucracy. In reality, the bureaucracy is precisely the reflection of the isolation of the revolution in a backward country.

How to face the crisis of the Cuban economy?

If we start from these premises, the conclusion is clear. The structural problems of the Cuban economy can be overcome through world revolution and workers’ democracy. The first question speaks for itself. If the socialist revolution were to triumph in one or several countries in the American continent (Ecuador, Bolivia, Venezuela, Chile, etc.) that would immediately put the Cuban revolution in a better position, both from the point of view purely of economic exchange, and from the political point of view of revolutionary morale. A revolution in the United States would be even more decisive in changing the situation of the Cuban revolution.

Of course, the revolution in other countries does not depend on the Cuban revolution, or at least, it does not depend exclusively on it. However, the Cuban revolution has an enormous political prestige and acts as a powerful beacon throughout the continent and beyond. It could play an important role. For this, it would be necessary, first of all, for international politics to be thoroughly discussed in Cuba from a revolutionary and socialist point of view, not from the limited and reactionary point of view of geopolitics. Although there are spaces in Cuba where the world situation is discussed from an authentically communist point of view, this is not the dominant tone of the official discourse or that of the media. In general, public discourse has the level of reformist politicians in other countries; the excesses of capitalism are criticized (in many cases the euphemism “neoliberalism” is used), but from a perspective in which it is assumed that solutions are possible within the framework of capitalism. Even at the peak of the Bolivarian revolution in Venezuela, burning issues it raised, such as the workers’ control movement, were never discussed in depth in Cuba.

Cuban revolution square image feray umut flickr
The Cuban revolution has an enormous political prestige and acts as a powerful beacon throughout the continent and beyond. / Image: Feray Umut, Flickr

On the other hand, workers’ democracy is the most effective incentive to increase labour productivity. If the workers feel in a tangible way that the means of production belong to them, that the leadership of the country is in their hands, then they will have an interest in it working effectively. That is the lesson of the experiences of workers’ control in Venezuela and anywhere in the world. What is valid for a factory is valid for the running of the economy as a whole.

With regard to short-term problems, it may be necessary to make partial concessions to the market, try to attract foreign investment and export products to obtain the necessary foreign currency. After all, Lenin’s NEP in the 1920s was just that: a series of concessions and retreats. The difference is that Lenin presented that policy honestly for what it was: concessions and retreats. The central levers of the economy remained in the hands of the state, and the monopoly of foreign trade was seen as a key element in the defense of state ownership of the means of production. And at the same time the Bolsheviks in the 1920s were pursuing a determined policy of international revolution, building the Communist International, intervening in the revolutionary politics of Germany, Italy, France, etc.

In Cuba, however, increasing concessions are made to the market, the state monopoly of foreign trade and planning are weakened. These concessions increase social differentiation and strengthen bourgeois and petty-bourgeois elements that acquire greater confidence and begin to politically express their own interests against the interests of state property. But these concessions are presented not as such, but as the solution, the way forward to solve the problems. Instead of warning of the danger they entail, they are presented as a panacea and the way to “liberate the productive forces” and “build a prosperous and sustainable socialism”

In his speech at the Mesa Redonda, Minister Alejandro Gil stressed that “shock therapy will not be applied and there will always be care and priority for the most vulnerable people.” That concern is laudable. However, the problem is that the market forces that have been unleashed have a logic of their own. The conquests of the Cuban revolution are based on the nationalized property of the means of production, if this is weakened and eventually terminated, the conquests cannot be guaranteed. And that is so regardless of the subjective will of those who set out on this path.

The Cuban economy is in a very difficult situation. Nobody denies that. The status quo is unsustainable. Correct. But there are two possible ways out of the quagmire. One leads to the domination of the capitalist market (the Chinese or Vietnamese way). The other is on the path of world revolution and workers’ democracy.

It is clear that in Cuba there is resistance among many communist militants and cadres to the application of market measures. A clear sign of this was the debate on constitutional reform (see: Cuba: Trump’s threats, constitutional reform and the economic situation). The initial draft that was proposed removed many references to socialism and the ultimate communist goal of the Cuban revolution. The text that was finally put to the vote recovered many of those originally deleted expressions. The reason? The enormous resistance that these proposals aroused in the Communist Party militancy and layers of the population.

Another indication of this resistance to “market” measures is the appearance in Granma of an article entitled “The neoliberal kindness of the enthusiastic advisers” in May of this year. The article correctly warned against promoting small and medium-sized private companies and the Chinese or Vietnamese way as a solution to the economic problems facing the revolution. However, it did not offer any clear alternative either. It is interesting that in his response to the aforementioned article by Granma, the Cuban economist Pedro Monreal, ironically, recommends that those who oppose private SMEs “better go directly to the “big leagues” by reading Trotsky and the “Left Opposition” of 1926.” (Éramos pocos y parió Catana: ¿una oposición de izquierda en Cuba?). Monreal is a pro-capitalist economist who has made it clear on more than one occasion that “economic strategy in Cuba should focus on replacing centralized planning.”

Monreal is not mistaken in identifying the Left Opposition with a policy favorable to strengthening industrial development, planning and contrary to concessions to bourgeois elements, in the countryside and the city, which were beginning to develop as a threat to the very existence of Soviet power. The program of the Left Opposition combined a critique of the economic policy with a defense of the democratic regime within the party and state and an attack on bureaucratic methods of censorship of opinions. We know how that story ended, the Stalinist bureaucracy suppressed all opposition, expelling them from the party and later physically eliminating them. Of course, that same Stalinist bureaucracy, when the bureaucratic planning system entered a phase of stagnation in the 70s and 80s of the last century, enthusiastically went on to become the private owners of the means of production by looting state property. The restoration of capitalism in the USSR and the Eastern countries, led by that same Stalinist bureaucracy, meant a frightful drop in living standards and the collapse of the economy.

The Cuban revolution is at a crucial crossroads. Many of the proposed measures were already discussed 10 years ago (see: “Cuban CP congress ratifies economic guidelines—workers’ control and international socialism absent from discussion“). Some have already started to be applied, albeit partially. The results are clearly visible. The increase of social differentiation, the growth of a petty bourgeois layer with its own interests. What is now being proposed is to advance even more decisively on this path.

It is important to open a serious debate about it and for the communists to intervene in it in a decisive way. The solution is not to retreat to the market, weaken and dilute state ownership of the means of production, which is now 60 years old, but to move towards revolutionary internationalism and workers’ democracy.

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