Political Risk Latin America Blog @PolRiskLatam

Reform in Cuba: Towards a mixed economy

Posted in News and Articles, Political Risk by politicalrisklatam on September 17, 2010

by The Economist, September 16th, 2010.

Economic reform begins in earnest.

Ever since Raúl Castro took the reins of power in Cuba in 2006, he has seemed to hint that he wants to reform the island’s moribund centrally planned economy. But the changes he has introduced have been either limited or almost inconsequential, such as giving more freedom to farmers, allowing self-employment for barbers and letting Cubans have (unaffordable) mobile phones. Until now. On September 13th the government announced, through the mouth of the official trade-union confederation, that more than 1m people—a fifth of the workforce—will be made redundant from state jobs, half of them by April 1st 2011.

Some of the unemployed will be offered new government jobs, including in the police and tourism. But hundreds of thousands will be expected to fend for themselves. To help them, self-employment is to be legalised in dozens of areas, from transport to construction. The reforms will also allow many small state-owned businesses to become co-operatives, run by their employees. They will have to pay taxes, though how much has not yet been spelled out.

This amounts to the biggest shake-up of the economy since Fidel Castro expropriated small businesses in 1968, impressing his Soviet benefactors by bringing almost all workers, from shoeshiners to barmen, under state control. In the mid-1990s, when the Soviet Union and its subsidies to Cuba disappeared, Fidel reluctantly allowed Cubans to use the American dollar as legal currency and to engage in petty trade (such as renting rooms and setting up small restaurants). But many of those businesses folded because of high taxes and the complexity of obtaining licences to operate. When Venezuela’s Hugo Chávez became Cuba’s new benefactor, offering cheap oil, Mr Castro re-centralised the economy. (continue reading… )

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