THE USA JOURNALS
THE AMERICAN JOURNAL OF SOCIAL SCIENCE AND EDUCATION INNOVATIONS (ISSN- 2689-100X)
VOLUME 06 ISSUE07
33
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PUBLISHED DATE: - 08-07-2024
DOI: -
https://doi.org/10.37547/tajssei/Volume06Issue07-04
LEGAL REFORM TARGETING THE CUBAN
ECONOMY LED BY MIGUEL DÍAZ-CANEL:
CRITICAL ASSESSMENT OF THE PRIVATE
ECONOMIC SECTOR AND FOREIGN DIRECT
INVESTMENT POLICY REFORMS
Le Lan Anh
Vietnam Institute of Americas Studies, Vietnam Academy of Social Sciences, Hanoi, Vietnam
ORCHID ID: - https://orcid.org/0000-0002-6178-9768
Nguyen Khac Chinh
Doctor of Economic Law, Faculty of International Law, University of Law, Vietnam National
University, Hanoi (VNU), Vietnam
ORCHID ID: - https://orcid.org/0000-0002-6178-9768
INTRODUCTION
When Miguel Díaz-Canel became the president of
Cuba, uncertainties surrounded the economy,
especially the private sector. Market reforms by
Raúl Castro led to a surge in innovative
entrepreneurs, from 157,000 in 2010 to 567,000
by early 2017 . This group, comprising 12% of
Cuba's 5.1 million workers, expands to 32% when
considering unlicensed businesses, part-time
entrepreneurs, private farm workers, cooperative
members, and joint venture employees.
Entrepreneurship offers more Cubans autonomy
and economic independence. With Díaz-Canel's
anticipated reelection in 2023, a continuation of
current policies is expected under his leadership in
the 'Partido Comunista de Cuba.' Despite upcoming
challenges like currency shortages, declining living
RESEARCH ARTICLE
Open Access
Abstract
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standards, slow economic growth, and high
inflation, there may be hurdles in implementing
planned market-oriented strategies. However, a
positive outlook on significant economic reforms
in Cuba's near future is evident.
1. The Cuban economy Issues before Miguel
Diaz-
Canel’s term
Miguel Diaz-Canel becomes the new President of
the Council of State and Council of Ministers of
Cuba, taking over from Raul Castro for 2018-2023.
The Cuban economy has seen minor changes under
President Raul, with a few significant
improvements. The delays in important reform
programs have prevented a significant economic
boost. Cuba faced economic challenges like
liquidity shortages, especially in export output.
Despite past investment plans, the fuel supply
remained a concern. The nation heavily relied on
food and energy imports, with agricultural
production stagnant for years. This has led to Cuba
importing a large percentage of its food. The
country's aging population was a significant issue,
with more retirees and fewer working-age
individuals potentially causing a labor shortage.
External pressure grew as Cuba sought 2.5 billion
USD yearly for progress amidst policy challenges,
with just 1/3 of the target reached due to US policy
shifts. Consistent US foreign policy was crucial
after President Trump reversed the efforts to
improve US-Cuba relations. The National Assembly
and new leadership must act to address these
challenges with suitable policies.
On April 19, 2018, Miguel Díaz-Canel Bermudez,
the new President of the Council of State and
Council of Ministers of Cuba, delivered his debut
address to the 9th Cuban National Assembly. He
assured the Cuban people of his commitment to
their trust, honoring Fidel Castro's legacy and
emulating Raul Castro. Díaz-Canel also vowed to
modernize Cuba's social and economic structure
by eliminating dual currencies, enhancing internet
quality, and preserving the socialist system.
2. Important reforms build a more dynamic
economy
2.1. Reforming the economy begins with
amendments to the Constitution
In July 2018, the Cuban National Assembly voted to
replace Cuba's 1976 Constitution with a new
document drafted in 2014. President Miguel Díaz-
Canel carefully analyzed the impact of changes on
the constitutional order when amending the
Constitution. The analysis drew from Cuba's
socialist construction, global constitutional
processes, historical aspects, and Cuban traditions.
His reformist ideas align with Raúl Castro Ruz's
vision expressed in 2012, emphasizing the
importance of shedding old mindsets and
embracing a forward-looking approach rooted in
Martí's legacy and Marxism-Leninism.
The new Magna Carta introduces 87 new
provisions, acknowledging different ownership
types and the importance of foreign investment in
the economy. It supports socialist ownership,
essential planning, market functions, and private
sector properties. The Cuban Model combines
socialist principles with economic development
strategies, incorporating feedback from different
societal sectors. State-owned enterprises have a
vital role with a focus on autonomy. The
constitution highlights the significance of foreign
investment and guarantees essential protections
for economic progress .
Policy adjustments expected to create a favorable
environment for the private economic sector to
develop and attract foreign investment are likely to
breathe new life into the Cuban economy.
2.2. Changes in legal policies for the private
economic sector
The Cuban government has approved updated
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legal regulations to grant legal status to small and
medium-sized
enterprises,
eliminating
uncertainties. Significant policy changes for Cuba's
private economy were introduced in August 2021,
with new regulations promoting national
economic development through MSMEs, non-
agricultural cooperatives, and self-employed
individuals. Came into effect on September 20,
2021, the regulatory package formalized these
businesses (Cuentapropismo) and enacted
operational modifications for cooperatives,
communes, and freelancers.
MSMEs are a new factor in the Cuban economic
landscape. They can be publicly, privately, or
mixed-owned, which will help decentralize some
economic activities that have hitherto remained
under the exclusive tutelage of the state. By
creating a private sector that is supposed to
operate according to free market rules, Cuba aims
to attract resources currently unavailable to the
island.
2.3. Policy adjustments to financial markets
In January 2021, Cuba implemented a market-
driven reform due to food shortages and the
pandemic. It unified the Cuban currency system,
replacing two currencies with a peso and
convertible peso at 24 pesos: 1 USD. This ended the
long-standing dual-currency system. Despite this
change, inflation surged, leading to unrest in July
2021. A new exchange rate was introduced for the
private sector to align with the market in mid-
2022. The black market rate soared, reaching five
times the official rate by 2023, reinstating currency
dualism. Continuous devaluation is crucial to
rectify
economic
imbalances
caused
by
undervaluation. However, immediate devaluation
may bring short-term challenges like high
inflation. Governments may hesitate to eliminate
dualism again due to potential unrest. Yet, further
devaluation is essential to relieve pressure on
reserves and liquidity.
One of the recent economic policy updates in
September 2021 permits the Central Bank of Cuba
(BCC) to approve foreign currency loans for non-
agricultural cooperatives and MSMEs. This
initiative led to the establishment of a new entity
named Financiera de Créditos SA by BCC in
November 2021.
Until now, these economic actors could only access
bank loans denominated in Cuban pesos. Foreign
currencies are considered freely convertible
currencies accepted by BCC, including the US
dollar, Canadian dollar, euro, and new Mexican
peso.
BCC offers more flexibility in using bank accounts
with convertible currencies for trading and
services. It allows natural persons, non-state
entities, MSMEs, and foreign companies to open
bank accounts. An important initiative is the
customs duty exemption until Dec 31, 2021, for
entities importing materials for non-state
management. Per Resolution 321, this exemption
also applies to units importing materials for non-
state-controlled entities, aiming to boost private
sector production and services.
3. Policy reforms on foreign direct investment
and international cooperation
One of Cuba's key goals in updating its socio-
economic model is to enhance its resources by
inviting foreign direct investment. This goal has
seen progress through projects like the Castellanos
zinc-lead mine. Cuba's mining sector operates
under the Mining Law (Law No. 76 of 1994) and is
overseen by the Ministry of Energy and Mines
(Decree-Law No. 301). The Foreign Investment
Law (Law No. 118 of 2014) provides the legal
framework for foreign investments. The state-
owned Cuba-Petróleo Alliance (CUPET) manages
the petroleum industry. The Castellanos project,
initiated in October 2017, seeks to attract foreign
investors and revitalize the mining sector. With a
total investment of 278 million USD, the project is
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a joint effort between Cuba's Geominera
Corporation and the Swiss Trafigura Mining Group.
Despite limited access to traditional international
financial institutions like the IMF and WB, Cuba
receives support for economic integration in
Central America from organizations such as the
Latin American Development Bank and the World
Bank. Cuba has focused on enhancing workforce
skills to tackle public debt issues. In 2016, the
London Institute of Finance and Banking, the
Central Bank of Cuba, and the British consulate in
Havana jointly organized a financial and banking
capacity development program for Cuban
executives and senior managers funded by the UK
government. Furthermore, in May 2018, Cuba
hosted the ECLAC meeting to promote
intergovernmental collaboration for investment
attraction and economic growth.
4. Impact assessment of legal and policy
reforms on the current Cuban economy
The reforms aim to eliminate obstacles to
economic progress, foster international economic
collaboration, and attract foreign investments
under Miguel Diaz-Canel's leadership.
For private enterprises
The positive points in reforming legal regulations
and policies for this subject have opened up new
opportunities for private businesses in Cuba.
People are allowed to open enterprises at home
instead of being dominated by a centralized
economic model controlled by the State. Changing
the regulations to lift the government's suspension
of new business licenses is more desirable than a
constitutional reform.
Most licenses primarily cover services, including
casas particulares (private rentals), taxis, and
restaurants catering to tourists. Over 900 small
and medium enterprises emerged since September
2021. They engage in the state's wholesale system,
collaborate with state entities, handle imports and
exports, set prices, secure loans, and attract foreign
investments, all within a tightly regulated state-
centric business landscape. Moreover, new
ventures can now conduct business in foreign
currency, access credit, and operate online. This
policy benefits Cuba’s industry by enhancing their
capacity to thrive and expand their businesses.
For the financial system
The fusion of the peso and the convertible peso
consolidates the currency system, modernizing the
economic model to enhance foreign investment
accessibility and improve conditions for the
country.
Furthermore, the Central Bank of Cuba has
supported non-agricultural business owners by
accepting various freely convertible foreign
currencies like the US dollar, Canadian dollar, euro,
and new Mexican peso. This move assists
enterprises and cooperatives in overcoming
challenges related to importing essential inputs in
foreign currency or purchasing them from local
wholesale markets that operate in foreign
currency.
Service providers can temporarily import input
and raw materials tax-free under Resolution 321
to boost private sector production and service
provision.
To attract FDI and international cooperation
Cuba has begun implementing "open" policies to
attract FDI actively. The Castellanos project is
considered one of Cuba's efforts to attract foreign
investment, revive the mining industry, and
promote economic growth. The project will create
jobs for about 1,000 local workers directly and
indirectly, with an average income of about 130
USD/month. After completing this project,
Emincar will undertake a similar Santa Lucía mine
project in the neighboring area, with proven
reserves sufficient for ten years of exploitation.
Cuba has concentrated on Nickel and Cobalt mines
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in the Eastern region for about twenty years. Yet,
the focus might shift with numerous mining
projects now part of priority foreign investments.
This shift supports Cuba's aim to attract 2.5 billion
USD annually for steady growth.
CONCLUSION
Miguel Diaz-Canel, the new Cuban leader from
2018 to 2022 and re-elected in 2023, introduced
crucial economic reforms in response to pandemic
challenges and increased US sanctions, addressing
severe shortages of essentials like food and
medicine.
Economic policy reforms in Cuba signal the start of
a new era despite existing gaps and challenges.
These measures aim to boost incomes and living
standards, reflecting substantial progress desired
by businessmen and economists supporting
reform.
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