International Business

Economists ask what’s next for the Cuban economy

Cuban leader Raul Castro applauds as he addresses the National Assembly in Havana, Cuba, Wednesday, July 15, 2015. Castro’s management of the Cuban economy was a major topic Thursday at the 25th annual meeting of the Association for the Study of the Cuban Economy in Miami.
Cuban leader Raul Castro applauds as he addresses the National Assembly in Havana, Cuba, Wednesday, July 15, 2015. Castro’s management of the Cuban economy was a major topic Thursday at the 25th annual meeting of the Association for the Study of the Cuban Economy in Miami. AP

The Obama administration has outlined an economic opening designed to increase engagement with the Cuban people, but speakers at the 25th annual meeting of the Association for the Study of the Cuban Economy said Thursday that the policy’s success depends on the Cuban government’s response and the pace and breadth of its ongoing economic reforms.

The theme of the three-day conference at the Miami Hilton Downtown Hotel was “Cuba — What’s Next?” On Thursday, the theme generated more questions than answers.

Vegard Bye, of the University of Oslo’s Center for Development and Environment, said there have been dramatic changes in Cuba in the past 10 years but “today there is more pausa (pause) than prisa (speed) in the reform process, a play on Cuban leader Raúl Castro’s declaration that economic reforms would occur “without haste but without pause.”

“I think there is change, but the question is, of course, is it transformative,” he said.

The Obama opening, which comes with the embargo still in place, allows more trade with Cuba and travel by Americans as well as increases in remittance allowances.

It has raised high expectations, said Carlos Seiglie, president of ASCE and a Rutgers University economics professor. But he said those expectations “are not consistent with the fundamentals underlying the Cuban economy.” Among the factors undercutting opportunities, he said, are an unwieldy dual currency system, an overvalued Cuban Convertible Peso (CUC), restrictions on Cuba’s self-employed and on resource allocation, and price distortions.

Emilio Morales, president and chief executive of the Havana Consulting Group, added a few more barriers to the list: foreign companies’ inability to directly contract Cuban workers, no free access to the Internet, a scarcity of hard currency, weak international reserves, lack of judicial security and Cuba’s non-payment of international debt.

“The Cuban government is the only one that can convert these barriers into opportunities,” Morales said.

Such restraints, said Seiglie, could force Cuba to undertake “substantially more radical reforms” in the next couple years.

Cuba will be entering a “decisive period, beginning with the Communist Party Congress next April and extending through the January 2017 National Assembly meeting, Bye said.

In 2018, Castro has said he plans to retire and has already named an heir apparent. But Bye said the new generation of political leaders “will not have the historical legitimacy that the older generation has.”

In his opinion, the “changes have only one direction — they will continue.”

Even if Cuba decides to adopt the Vietnamese model of authoritarian capitalism, “it would require a tremendous change in the speed and character of economic reforms,” Bye said.

Ernesto Hernández-Catá , an economist and former associate director at the International Monetary Fund, said Cuba should bite the bullet and do its currency unification in one fell swoop, rather than gradually because it fears it would have a chaotic effect and lead to high inflation.

It won’t be an ongoing inflationary process, he said. Unifying the currency and exchange rate “has to be done and has to be done rapidly,” Hernández-Catá said.

Luis R. Luis, an economist and consultant, said the measures outlined by President Barack Obama could contribute .5 percent to the Cuban economy in the first year, mostly because of an increase in remittances and in American visitors.

But he said, “Cuba needs to make economic changes to accompany these changes.”

Longer term if there is no longer an embargo, interaction with the U.S. economy could result in a significant boost for the Cuban economy, said Luis. But that, too, will depend on Cuban economic reforms, he said.

Among the participants at the conference were about a dozen academics, journalists and an entrepreneur from the island and a group sponsored by the Korea Institute for National Unification. The Koreans will discuss how issues surrounding the integration of North and South Korea might have parallels with the rapprochement between Cubans on the island and the Cuban diaspora.

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