Resisting reforms, Cuba announces price hikes and new restrictions on the private sector

Cubans will soon face another turn of the screw, this time at the pump: a gas price hike of 528% starting in February.

At a crossroads between broadening market reforms that could imperil its grip on power or doubling down on efforts to salvage the centrally planned socialist economy that has impoverished Cuba for six decades, the Cuban government chose the most familiar script.

Amid the worst economic crisis in several decades, the Cuban leadership has announced an austerity plan that includes cuts on ration card food subsidies and increases in the prices of fuel, transportation, electricity and cooking gas. The measures will be paired with further restrictions on small and medium private businesses, in the latest signal the government is resisting calls to open up the economy significantly.

The new price of gasoline was announced Tuesday evening by Cuban officials on live television, along with a 180% increase fares for trains and interprovincial buses.

Because state salaries and pensions are abysmally low in Cuba, with average monthly wages at $15 and pensions even lower, any cuts in subsidies or price hikes are particularly worrying for the large portion of the population that does not receive remittances from family abroad or have other ways to get access to dollars.

Several measures will also affect the new private businesses, known as mipymes in Spanish. These include a 25% raise for electricity the largest consumers, the ending of tax benefits, and higher import fees on final goods that would likely raise food prices even higher among record triple-digit inflation.

These and other measures to “stabilize” the economy were first announced in the last session of the National Assembly in late December by Prime Minister Manuel Marrero.

Capitalism makes strong comeback in Cuba after six decades of socialism. Will it last?

Most notably, the government seems intent on limiting the growth of private businesses while at the same time trying to use the private sector’s access to capital and foreign funding to revive local production by state enterprises.

Marrero said the government wants the private sector to import more raw materials that state enterprises could then use in local production. The prime minister also mentioned the intention to create more mixed enterprises between the state and the mipymes and use the private sector’s better position to seek capital or credit abroad to negotiate financing for businesses involving state enterprises. All would occur even as the goverment imposes tighter fiscal controls on the private sector and eliminates tax incentives.

“We have taken steps so that the government opens the economy and that this process is not concentrated on small businesses but on the socialist state enterprises,” Marrero said.

Amid widespread criticism from economists and on social media, Cuba’s appointed president, Miguel Díaz-Canel, defended the measures and vigorously denied during the same National Assembly session that the government was trying to implement a “neoliberal [policy] package nor a crusade against the mipymes.”

Without providing complete details, Marrero also spoke about implementing changes so more of the money Cubans abroad send to their relatives would go through the Cuban official financial system. If successful, those efforts could further damage the private sector, which has been tapping into remittances entering the country through alternative channels to finance their businesses.

The prime minister also said the government wants to control the cost of dollars — which is exchanged at 120 pesos for a dollar at a restricted official market but is sold on the street for 275 pesos— but didn’t say how it would do it.

The announced plan followed a presentation by Cuban Economy Minister Alejandro Gil, who painted a bleak picture of the country’s economy in 2023, which he said contracted by as much as 2%.

But Gil insisted the government was not considering “more privatization. We are talking about strengthening the state-owned socialist enterprises, regulating prices, all to preserve the social achievements of the revolution.”

Marrero also said the government would prioritize foreign investment, especially in food production, but did not preview any changes to foreign investment legislation.

Several Cuban economists believe the measures will worsen the struggles Cubans face to find food and get essential services, and will not fix the country’s several woes: a steep drop in productivity in almost every sector of the economy but most worryingly in agriculture; skyrocketing inflation; a foreign debt that is estimated at 20% of Cuba’s GDP; food, medicine and gas shortages, and a crumbling infrastructure unable to provide regular electricity and other services, including quality healthcare.

“No one should expect anything about the effectiveness of the measures… because they will continue to be based on the communist economic model,” Elias Amor, a Cuban economist based in Spain, wrote in his blog Cuba Economía. The generation of wealth, employment and productivity, he wrote, cannot be achieved by merely “making adjustments in the distribution of resources, but with a focus on production, private activity, human rights, property rights and the market as an instrument of resource allocation.”

In a stark rebuke of the government’s plan, Juan Triana, an economist living on the island, wrote in the news site OnCuba on Wednesday that the measures would likely contribute to “the rise in inflation, the increase in dollarization and a greater devaluation of the Cuban peso”.

He also questioned the restrictions on the private sector and why the government did not include other needed corrective measures, like the reduction in the billions of dollars spent on building new hotels for tourists, many of which remain empty, or reducing the state bureaucracy.

Blaming the United States

Unsurprisingly, in speeches at the National Assembly and on Jan. 1, during the celebrations of 65 years of the Cuban Revolution, Cuban leaders blamed the economic debacle on the U.S. embargo, a narrative they have hammered through decades of economic mismanagement.

While not the main reason for the island’s economic troubles, most economists agree that U.S. sanctions have aggravated the crisis, and a group of Democratic lawmakers, led by Rep. James P. McGovern (D-MA), wrote a letter to President Biden earlier this month asking him to remove Cuba from the U.S. list of countries that sponsor terrorism.

The inclusion of Cuba on the list carries financial “restrictions and penalties” that are a “significant contributing factor” of the current crisis, they wrote.

Other activists and academics have called on the Biden administration to cooperate with international organizations to increase humanitarian aid to the island, especially food and healthcare supplies.

But experts agree that nothing short of broader reforms can pull the island and its people out of the dire situation.

Among those pushing against such changes are some of the country’s most senior leaders, a power dynamic most clearly shown in the Communist Party newspaper Granma’s Jan. 2 edition.

A photo display of Díaz-Canel, surrounded by Gen. Raúl Castro, who is formally retired but still the ultimate authority in the country, and two old-guard commanders in their 90s, Ramiro Valdes and José Ramón Machado Ventura, dominated the newspaper’s front page with the headline: “Unity is our best strategic weapon.”

Castro, 93, gave the main speech on Jan. 1, in which he urged those gathered in the ceremony in Santiago de Cuba to cherish political unity “more than the apples of our eyes.”

The Herald recently reported on the divisions in the Cuban government about how far to open the country up to the market. But Castro quoted his brother, Fidel Castro, to deny that there were “generational contradictions within the Revolution” or that the older generation of leaders were “clinging to power.”

Wrapped in the convoluted rhetoric usual in such speeches, he threw a last reminder: that the military and security forces were loyal to the communist government and ready to act when threatened.

“Today, I can affirm that in the face of any threat or weakness, its combatants will not renounce continuing to be, together with the [Communist] Party, the soul of the Revolution,” he said.