Cuba After the Castros
(Bloomberg View) -- When Cuba's President Raul Castro hands over power today, the change will be more symbolic than substantive. The 86-year-old Castro will remain party leader until 2021 -- and his handpicked successor, Miguel Diaz-Canel, wasn't chosen for his determination to dismantle Cuba's police state or abandon its socialist economic system.
Nonetheless, the end of the Castros' era is an opportunity for change, and Diaz-Canel has every reason to try to seize it.
Cuba's economy is in a truly dismal state. After years of poor performance, output fell in 2016 and continues to lag the country's neighbors and peers. Aid and oil from patron Venezuela (an even more dysfunctional economy) are evaporating. Prices for its exports of nickel and sugar are down. Hurricane Irma left Cuba with more than $13 billion of damage to put right -- demanding hard currency that might otherwise have been spent on imports of scarce consumer goods. More of Cuba's 11 million people are forsaking its painstakingly equitable distribution of poverty for the pursuit of happiness abroad.
It's true that the U.S. blockade has hurt the country -- but its recent economic troubles can't really be blamed on President Donald Trump's decision to re-tighten restrictions on U.S. travel and investment. In 2017, remittances from the U.S. to Cuba hit a record high, as did the number of tourists overall.
Instead, Cuba's economic weakness and the deepening frustration of its people are due to Raul Castro's failure to deliver long-promised reforms. When he took power in 2008, Castro broke with his brother by acknowledging the need for foreign investment and private initiative. But stop-and-start efforts to encourage both ran repeatedly into the clenched fist of the Communist Party of Cuba. Last August, for instance, the regime clamped down on new licenses for private enterprises (which now encompass as much as 40 percent of the labor force, according to the Brookings Institution).
Cuba's byzantine dual currency system is particularly burdensome. In place since 2004, it mandates the payment of state salaries and the setting of most domestic prices in Cuban pesos. Tourists and multinational businesses use a convertible peso pegged at one-to-one with the U.S. dollar. Multiple exchange rates are used to mediate between the two currencies, and the domestic price system is paralyzed by the resulting confusion.
The government has been talking about unifying the currencies since 2011, only to blow through every deadline it has set. Grasping this nettle remains essential to fixing the day-to-day running of the economy and addressing longer-term challenges. For instance, Cuba has abundant sun and wind: It shouldn't have to rely on imported oil for almost all its electricity. It's surely capable, also, of producing more homegrown foodstuffs than it did before the revolution. Both prospects depend on attracting foreign investment, and that requires a price system that's allowed to work.
Taking this painful first step could pave the way for other reforms -- such as giving farmers the right to own land, granting free access to wholesale markets, expanding the list of authorized private enterprises, enabling foreign businesses to directly hire their own workers, and allowing those workers to keep more of their salaries. Such measures would help to grow the economy and keep more of Cuba's best and brightest at home.
True, by increasing personal freedom, such reforms will doubtless weaken the party's control. Yet the party has less to lose than before: Its appeal is declining anyway. As memories of the revolution recede, recycling old Che Guevara quotes won't cut it.
Nor will blaming the U.S. Six decades after the Castros came tromping out of the Sierra Maestra mountains, most Cubans know that the solutions to their problems lie not with the colossus to the north. They lie with the new government of President Diaz-Canel.
--Editors: James Gibney, Clive Crook.
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