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Currency Unification: Causes and Limits / Dimas Castellano

The road to exit the crisis is clear; what is lacking is the political will to travel it. Among the partial reforms the government of Raul Castro announced was the enforcement of a timeframe for measures to eliminate the dual currency, implemented following the loss of Soviet subsidies.  A look back at the topic helps to identify some of the causes and limitations of the announced timeframe.

In the period between the two great wars of independence that took place in the second half of the Cuban 19th century, the Island became the first country to exceed a million tons of sugar, of which more than 90% was exported to the United States.  That permitted the neighboring country to impose on Spain the reciprocal trade agreement known as the McKinley Bill, through which was established the free entry of Cuban sugar into that nation.

At the same time there was a high concentration of land ownership, especially in American companies.  In that condition of economic dependence, at the end of Spanish domination, the occupation government introduced the dollar as the basic monetary standard, which was imposed until the disappearance of the other currencies (French, Spanish, Mexican), which explains the presence of the dollar in the first years of the Republic born in 1902.

In that context, with the nationalist purpose of diminishing the dependence with respect to the American dollar, the government of General Mario Garcia Menocal dictated in 1914 the Law of Economic Defense, which gave birth to the national currency. That law established a gold standard as the monetary unit with the same weight and purity as the dollar. So, from a nationalist decision emerged the first version of dual currency in Cuba, which lasted until the ’50’s of the last century.

In a different way, in 1991, the disappearance of the Soviet Union provoked the loss of the enormous subsidies based on ideological relations, which overlapped decades of inefficiency of the Cuban model.  That fact, united with the depression in sugar prices, drove the country to a profound structural crisis baptized with the euphemism Special Period in Times of Peace. In answer to the crisis, the Cuban government, instead of undertaking a profound reform aimed at achieving a proper and efficient economy, defined a strategy aimed at saving the model and maintaining power. With that goal it introduced several contingency measures.

In 1993 the Basic Units of Cooperative Production were created, by which a beneficial interest in idle state land was given to workers; farmers markets and self employment were authorized; tourism and foreign investment were introduced; family remittances from abroad were admitted; possession of the dollar was decriminalized, and, in 1994, its free circulation was authorized, giving rise to the current dual currency.

As one might appreciate, the dual currency introduced in 1914 was motivated by reasons diametrically opposed to what happened in 1994. The first created the introduction of a national currency parallel to the dollar, the second legalized the dollar as a parallel to the national currency.

The road and political will

The causes that led to the dollarization in 1994 have their roots in the first revolutionary measures, whose declared goal was the disappearance of all commercial relations and, with them, the disappearance of money.  In 1960, all domestic and foreign banking entities that existed in Cuba were nationalized, in 1961 they were centralized in the hands of the State, while the direction of those activities was placed in the hands of the revolutionaries from the armed struggle.

The same thing happened with figures whose conception of the economy differed from those of the leader of the revolution, as happened with the economist Felipe Pazos Roque, founder and first president of the National Bank of Cuba since its foundation in 1948, who in spite of abandoning that responsibility because of his position against the Coup of 1952 and being named again as head of that institution in 1959 was replaced some months later by commander Ernesto Guevara.

The course of the process was more or less the following: the dollar was introduced in 1994; the convertible peso (CUC), a second national currency as an alternative to the dollar and the same value as the dollar, was created; in 2004 the circulation of the dollar was eliminated; then a tax of 10% was imposed on the dollar, and the CUC was re-valued relative to the dollar by 8%; in March of 2011 the original one-to-one value was resumed but the 10% tax remained. In summary, the duality was maintained thanks to which Cuba is the only country in the world with two national currencies, neither of which is really convertible.

The dollarization and the dual currency, besides magnifying social differentiation, increased the loss of value that the Cuban peso already had, one of whose manifestations was the expressed inflation in prices on the black market, the drop of wages and the discouragement of production.

Cuban currency, a representation of money, lost or reduced its functions as a means of value, an instrument for acquisition of goods, a means of accumulation of wealth, an instrument of liberation from debt and a means of payment. That’s why monetary unification, even if it constitutes an essential step for the current or for any other Government, will not resolve the current structural crisis, due to the fact that Cuban currency is not backed by the Gross National Product, that is to say, by the sum of goods and services that permit it to resume its functions and to be compared with foreign currencies.

The way out is in prioritizing productive efficiency, for which domestic and foreign investment is required, which would provide the country with capital, technology and markets, which in turn demands a new Law of Investments and the elevation of current salaries, which do not manage to cover more than one-third of basic necessities.  But as one can only distribute what is produced, the Government faces a complex contradiction: without increases in salaries, Cubans are not ready to produce, and without production, it is impossible to raise salaries, which will make monetary unification by itself futile.

In short, a comprehensive project that includes the decentralization of the economy, permits the formation of a middle class, removes the obstacles that stop production and restores citizens’ rights and liberties is missing. The road is clear, what is lacking is the political will to travel it.

Translated by mlk.

Taken from: Diario de Cuba
17 December 2013

Why the UBPC Cooperatives Failed

December 20, 2012 Leave a comment

cpa peopleindexLast August, the Cuban Council of Ministers approved a new General Regulation for the Basic Units of Cooperative Production (UBPC), which was complemented by a packet consisting of 17 measures.  The purpose, according to the daily Rebel Youth on September 23, consists of liquidating the dependency of those with respect to state enterprises.

The original Regulation issued in 1993, although it did not recognize the legal character of the UBPC, which is to say, the capacity to acquire rights and contract obligations, stipulated in its foundational points the correlation between production and income and the effective development of management autonomy.

The breach of those and other positive aspects was reflected in the poor results.  Of the 170 thousand hectares that the existing 1,989 UBPCs possess, almost 40% of their lands remain idle; although their extent represents 27% of the agriculture surface of the country, they produce only 12% of the grains, tubers and vegetables and 17% of the milk; only 27% have satisfactory results; the rest, to greater or lesser extent, present difficulties; in the year 2010 15% of the UBPCs closed with losses and another 6% did not even present a balance sheet; and their losses exceed 200 million pesos.

The UBPCs were created when it was demonstrated that the concentration of the country’s arable land in the hands of the State had generated disinterest of the agricultural workers, the generalized debasement of agricultural products and enormous expansions of vacant lands infected with the marabou weed.  A deplorable picture aggravated by the loss of the subsidies provided by the socialist countries of Eastern Europe.

In that context the country’s authorities decided to convert a part of the unproductive state lands into cooperatives, but without giving the requisite freedoms nor waiving the monopoly of property.  The ignorance of the essence of cooperativism and the subordination of economic laws to ideology explain both the cause of the failure and the effort to repair that decision with the recent measures.

The Declaration of Cooperative Identity, adopted in 1995 in the 2nd General Assembly of the International Cooperative Alliance (ACI), defines the cooperative as an autonomous association of people who voluntarily join to address their economic, social and cultural needs and aspirations by means of a business of jointly and democratically controlled property.

In accordance with this definition — of an organism like the ACI, that since 1985 binds and promotes the cooperative movement in the world — the UBPCs are not classified as true cooperatives since they were not created voluntarily by the owners of land and means of production but emerged from an agreement of the Communist Party.

In spite of the new General Regulation (Resolution 574 from August 13, 2012) the UBPCs will count on legal personality; the power to elect the administrators for the majority of the General Assembly of Partners; to buy products and services from any legal or natural person; to establish direct contractual relations with the input provider companies; and to decide the percentage of the utilities to distribute among the partners; other vital aspects are still missing.

Again it is the State and not the agricultural workers who make the decision to join in cooperatives.  If it is added to that that those workers are not owners but usufructuraries (a kind of leasee) of a state property, it is not difficult to envision that we are facing the beginning of a new failure and therefore the need to implement new reforms, good for the current government or good for the successor, until the UBPC members become collective owners of the land they work.

The virtual lack of agricultural cooperatives before 1959 is understandable because of the advances in the sugar industry since the end of the 19th century which had generated enormous landholdings through the dispossession of thousands of small owners.  What is absurd is that with a revolution that declared itself socialist, cooperativism, akin to that social system, has been absent and in its place they have experimented with arbitrary and subjective forms applied vertically by the revolutionary State.

Before 1959 there were in Cuba some hundred thousand landowners, to whom were added another hundred thousand to whom the Revolution delivered ownership titles with the First Law of Agrarian Reform of 1959.  Those two hundred thousand farmers constituted the basis for the development of a true cooperative movement.  Nevertheless, the concentration on the part of the State of 70% of the arable land was a coup de grace to a process of association that had contributed much to the Cuban economy and society.

The first manifestation of state arbitrariness in the agriculture cooperativization was the creation in March 1960 of the sugar cane cooperatives in areas that previously belonged to the sugar mills.  Nevertheless, the decision to monopolize landownership made these businesses become property of the State.  Then the true cooperativism was limited to a few associations formed over the base of private farmers.

Fidel Castro himself once expressed:  “those cooperatives have no real historical basis, given that the cooperatives are really formed with the farmer landowners.  In my judgment we were going to create an artificial cooperative, converting those agricultural workers into cooperativists.  From my point of view, and maybe applying some of the verses of Marti,slave of the age and the doctrines I favored of converting those cooperatives that were worker cooperatives and not farmer cooperatives into state enterprises.”

Not satisfied with most of the soil in the hands of the State, instead of promoting voluntary cooperativsm, there began a process aimed at diminishing the quantity of independent farmers.  In May 1961 the National Association of Small Farmers was created, and a policy aimed at trying to “cooperativize” the 200 thousand farmer owners began.  Farmer associations were created, then came the Mutual Help Brigades and next the Cooperatives of Credit and Services (CCS), made up of farmers who maintained ownership of the land and the means of production but lacked legal character.

cpaindexAfter 1975, with the thesis of the 1st Congress of the PCC concerning the need for cooperativization of the land, the development of the Cooperatives of Agricultural Production (CPA) were promoted, formed by farmers who united their farms and other means of production “voluntarily” as a means of socialist development of the countryside.

At the end of 1977 the number of CPAs was 136 and in June 1986 it was 1,369, representing 64% of the farm lands, at the same time that state ownership had increased to 75% of the arable land due to the reduction of volume of land in the hands of private farmers.

The results were not long in coming; Cuba has to buy from outside agricultural products that are perfectly growable in our soil, as is the case with the coffee that we have had to acquire in Vietnam, a country that Cubans taught how to reap the grain. That’s why insisting on reforms of the cooperatives without permitting the farmers to be the ones to voluntarily organize and without counting on the collective ownership of the land that they work, is to insist on failure.

Published Wednesday, November 21, 2012:  http://www.diariodecuba.com/cuba/14133-por-que-fracasaron-las-cooperativas-castristas

Translated by mlk

November 26 2012