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Saturday, February 27, 2021

Explained: Why Cuba’s economic reforms are significant

The reforms, which were first announced in August last year, were approved by Cuba's Council of Ministers, according to Granma, the ruling Communist Party's official mouthpiece.

By: Explained Desk |
Updated: February 10, 2021 8:34:30 am
Wearing mask as a precaution against the spread of the new coronavirus people walk to get home before curfew time next to the Capitol in Havana, Cuba. Considered path-breaking, the economic reforms in the country will allow private involvement in most sectors of the complicated Cuban economy, long controlled by the state. (AP Photo / Ramon Espinosa)

Cuba, which has been run by an authoritarian communist regime for more than six decades, on Saturday announced that it will allow private businesses to operate in most sectors of the national economy.

Cuban Labour Minister Elena Feito said that under the new reforms, the number of authorised industries has grown from 127 to over 2,000, with only a minority of industries continuing to be dominated by the state.

The reforms, which were first announced in August last year, were approved by Cuba’s Council of Ministers, according to Granma, the ruling Communist Party’s official mouthpiece.

Cuba’s economic reforms

Considered path-breaking, the reforms will allow private involvement in most sectors of the complicated Cuban economy, long controlled by the state.

Currently, private activity is largely confined to tourism, a sector hit hard by the coronavirus pandemic. As international travel has plummeted, so have the incomes of thousands dependent on tourism, such as tradesmen and taxi drivers.

Apart from small businesses, the private sector includes lakhs of small farms, cooperative and day labourers, and is estimated to employ around 6 lakh people or 13% of the workforce in the country of 1.1 crore population, as per official data.

The AFP news agency quoted Feito as saying that the reforms are meant to “help free the productive forces” of the private sector. “That private work continues to develop, is the objective of this reform,” Feito said.

Feito, however, said that the private enterprises would not be able to participate in 124 industries– although she did not declare which these industries were. As per the AFP, the state would be retaining its control on sectors it considers strategic, such as the media, defence and health.

Why bring in changes now

Last year, the Spanish-speaking island nation was heavily impacted by two factors– the economic fallout of the coronavirus pandemic, and sanctions imposed by the US under former President Donald Trump.

This caused the country’s economy to shrink by 11 per cent in 2020, its worst performance in three decades, leading to shortages of basic goods.

Once the long-overdue reforms are implemented, small businesses which are already operating on the Caribbean island are expected to expand, allowing private players to move beyond tourism and small farms.

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The economic crisis has also forced the state to announce other reforms, such as the devaluation of Cuba’s peso currency, deregulation of state businesses and foreign investment, as per a Reuters report. Last year, President Miguel Diaz-Canel said that Cuba would be initiating reforms to increase exports, reduce the dependence on imports and stimulate domestic demand, in an effort to tide over the country’s economic challenges.

Relations with the US

Cuba’s decades-long isolation occurred in large part due to its hostility with the United States, despite Florida being only 150 km away from the island’s northern coast. Things changed in 2015, when former Democratic President Barack Obama and Cuban leader Raul Castro agreed to normalise relations, allowing US citizens to visit Cuba and contribute to the local economy.

However, many of Obama’s policies were reversed by his Republican successor Trump, exacerbating Cuba’s economic woes. Now that US foreign policy is again under the control of the Democrats under Joe Biden, experts believe that bilateral ties could improve in the coming future.

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