[2] This term describes the state of the present system as a collapsing meringue referring, rather appropriately, to a light fluffy mixture of sugar and beaten egg whites.
[3] The first mass exodus of Cubans to the United States took place during 1959-63, when some 500,000 refugees fled the Castro regime; the second large wave of emigration took place in 1980 --the Mariel boat-lift-- when approximately 120,000 Cubans entered the U.S.
[4] A former supporter of the U.S. trade embargo on Cuba, Bergner proposed a policy of "flooding" Cuba with U.S. goods and tourists, stating that among other problems its continuation could lead to a large flow of refugees to the United States. See "Let's Stop Isolating Cuba," The Washington Post, January 3, 1992. In Cuba After Communism (Cambridge: The MIT Press, 1992), Eliana Cardoso and Ann Helwege also call for an immediate end to the trade embargo and travel restrictions.
[5] There have been several analyses of possible outcomes in Cuba, including (1) a policy change by Castro, (2) his departure from the scene not resulting from a conspiracy, (3) a coup d'etat by elements of the armed forces, (4) a popular explosion, and (5) U.S. intervention. In presenting a cogent analysis of possible outcomes in Cuba and implications of each in terms of the effect on the climate for policy-making, Ernesto Betancourt concludes that only (1) and (3) hold realistic possibilities of achieving a transition without significant bloodshed. Thus far, Castro has systematically rejected any meaningful policy change, and Betancourt indicates that "the more Castro delays his departure or setting the machinery for an orderly transfer of power, the more likely that the armed forces will become discredited." See "Revolutionary Propensity, Possible Outcomes and the Political Climate for Cuba's National Reconstruction," in Association for the Study of the Cuban Economy, Cuba In Transition, Volume 2 (Miami: Florida International University, 1993), p. 1-27.
[6] Unfortunately since the most recent issue of the Anuario Estadístico de Cuba is for 1989, it is not possible to present detailed data on recent trends in the Cuban economy in tabular form, as it would be for most other countries. The analysis that follows is based on official government statements, news reports, and other scholarly research. Almost all macroeconomic figures are state secrets, known to relatively few individuals. This invites corruption by those in the know.
[7] Year the "Rectification Process" began following the Third Congress of the Cuban Communist Party. The Rectification Process meant a reversion to a Stalinist socialism and the rejection of all partial institutional and liberalization reforms of the late 1970's and early 1980's. Three of the most important and popular institutions abolished were the Free Farmers Markets, the bonuses to motivate workers for increases in productivity and quality and reductions in cost, and private enterprise in a wide range of trades and services.
[8] The events in the former Soviet Union in August 1991 started the rollback of the large subsidies provided to Cuba in the form of high prices for its sugar and nickel, the financing of a major trade deficit, and some development loans granted on concessional terms.
[9] G. Zuikow, O. Paviushkina, A. Mijolov and M. Tregubenko, Informe sobre la economía de Cuba (Madrid: Fundación Liberal José Martí, 1991) estimated a decline in GSP of 7 percent in 1990 and 20 percent in 1991. Julio Carranza Valdés, "Cuba: Los retos de la economía," Cuadernos de Nuestra América, CEA, 1992) reported a drop in GSP of 3.4 percent in 1990, 24 percent in 1991, and 15 percent in 1992. The authors estimate a further decline of 10-15 percent in 1993.
[10] Newspapers and individual accounts suggest a rise of approximately 300 percent in black market prices between July 1991 and July 1992. See footnote 62 for our definition of "effective" real wages.
[11] Newspapers and individual accounts suggest a rise of approximately 300 percent in black market prices between July 1991 and July 1992.
[12] Jorge F. Pérez-López, "Economic Reform in Cuba: Lessons from Eastern Europe," April 1991, mimeo., Table 1. In 1993 the government acknowledged a budget deficit of $4.2 billion; hence, assuming a level of revenues similar to that in 1990, this equals a 34 percent deficit.
[13] Dollar remittances from Cuban expatriates has increased social tensions and inequalities. Incentives to work within official non-dollar labor markets have been be further undermined, while those to work in informal markets have grown.
[14] Results of country-wide municipal and local elections held December 20, 1992 are very revealing. According to an exit poll conducted by an official agency for use by the leadership whose detailed results were leaked, 30.5 percent of the population --2.4 million persons-- voted "No" to the slate of candidates (expressed by crossing out their ballots) and another 2.1 percent abstained (blank ballots). The percentages in urban areas were higher; in Havana, there were 36.1 percent "No" and 4.9 percent abstentions. The government simply reported that 97.7 percent of eligible voters participated, thus showing support for the system. See ABC (Madrid), 17 January 1993, p. 48, 49 and editorial comment, p. 25.
[15] G. Zuikow et al, 1992.
[16] The sugar-for-oil barter agreement signed on November 4, 1992 between Cuba and Russia appears to represent a subsidy to Cuba calculated at approximately US$150 million for 1993. For a description, see Shaw, Pittman, Potts & Trowbridge, Free-Market Cuba (Volume 2, No. 1, Winter 1993), p. 4.
[17] According to Fidel Castro the value of imports dropped from US$8.1 billion in 1989 to US$2.2 billion in 1992 and declined further to US$1.7 billion in 1993.
[18] See La Sociedad Económica, "Cuban Non-Sugar Agriculture: A Background Review of Cuban Citrus, Fisheries, Market Vegetables, Potatoes, Rice, and Field Cops," Bulletin 32, July 30, 1993.
[19] Approximately US$3 billion of Cuba's convertible currency debt is with Paris Club members, and the remainder is with European and Japanese commercial banks and suppliers. However, information on terms and conditions of the loans is necessary to make a more accurate determination regarding the current debt outstanding.
[20] See Matías F. Travieso-Díaz, The Wall Street Journal, January 8, 1993, p. A15.
[21]Policy is made by the self-appointed and perpetual first secretary, who is concurrently president of the republic, chairman of the State Council, chairman of the Council of Ministers, and commander in chief of the armed forces.
[22] In 1991 the government established the "Sistema Único de Vigilancia y Protección" due to increasing robbery in public enterprises. Preference has been given to communist party members for work activities in joint venture enterprises, the tourism sector, and other activities where higher wages are paid, dollars and imported goods are available. Also, substantial sums of hard currency may well have been deposited abroad in secret accounts by the ruling nomenklatura, anticipating the nearing collapse of the regime.
[23] It may be expected that Cuban expatriates will try to rescue their relatives from any bloodshed.
[24] U.S. Congress, National Defense Authorization Act for Fiscal Year 1993, H.R. 5006, Title XVII -- Cuban Democracy Act of 1992.
[25] By a "fundamental" change in government we mean the effective termination of the present totalitarian socialist government --i.e. not merely a cosmetic change in the leadership-- and its replacement by some form of provisional or coalition government that has expressed commitment to a democratic process.
[26] The Aspen Institute, Inter-American Dialogue, "Cuba in the Americas: Reciprocal Challenges," Washington, D.C., October 1992, p. 8.
[27] On July 27, 1993 a bill (H.R.2758) was introduced by 17 congressmen of both parties, with the short title of "Free and Independent Cuba Assistance Act of 1993," calling on the U.S. Government to provide financial, educational and humanitarian assistance to Cuba in the event a transitional government pledged to democracy assumes power. However, the first draft of this bill appears to unnecessarily restrict the President in determining what constitutes a "transitional government."
[28] A recent statement to this effect was by Assistant Secretary for Inter-American Affairs Arthur F. Watson in a speech on October 26, 1993 before the Cuban American National Foundation: "The United States remains dedicated to adequate compensation for these losses by the government of Cuba at the earliest possible opportunity, as called for in the Foreign Assistance Act of 1961 and reinforced by the Cuban Democracy Act."
[29] For example, 22 U.S.C. 287r instructs the United States Executive Director to the Inter-American Development Bank to vote against any loan or other utilization of funds of the Bank for the benefit of any country which has expropriated property owned by United States nationals, unless prompt, adequate and effective compensation has been made, good faith negotiations are in progress, or the matter is in international arbitration. Similarly 22 U.S.C. 284j provides identical instructions to the United States Executive Directors of the World Bank and IDA, while 22 U.S.C. 286e-11 requires the Secretary of the Treasury to instruct the United States Executive Director to the International Monetary Fund "to actively oppose any facility involving the use of Fund credit by any Communist dictatorship" unless the Secretary certifies that extension of credit would, among others, advance "market-oriented forces in that country."
[30] Matías Travieso-Díaz and Stephan M. Bleisteiner, "Some Lessons for Cuba from the Legal Changes in Eastern Europe," April 1993, p. 19.
[31] To use some well-known examples, poet Jorge Vals could make a claim for damages resulting from 22 years of unjust imprisonment; the mother of student leader Pedro Luis Boitel could likewise claim damages resulting from the wrongful death of her son while unjustly incarcerated; human rights activist and poet María Elena Cruz Varela could bring suit against the government for assault and unjust incarceration. Well-documented examples of state-sponsored mistreatment and torture are detailed in Charles J. Brown and Armando M. Lago, The Politics of Psychiatry in Revolutionary Cuba (New Jersey: Transactions Press, 1991).
[32] It is interesting to note that Article 26 of the 1976 Constitution provides that "any person suffering damages or loss income or value unduly caused by public officials or government agents during the performance of their duties has the right to claim and obtain the corresponding reparation or indemnification as provided by law."
[33] Title V was added by Public Law 88-666 (78 Stat. 1110), approved October 16, 1964.
[34] See Geneva Initiative on Psychiatry, Psychiatry Under Tyranny: An Assessment of the Political Abuse of Romanian Psychiatry During the Ceausescu Years, Amsterdam, 1992, p. 14.
[35] See FCSC Decision CU-0249, American Cast Iron Pipe Company.
[36] Ralph J. Galliano, "The Resolution of U.S. Cuba Claims: Toward a Democratic, Free Market, Post-Castro Cuba," Washington, D.C., the Selous Foundation, May 20, 1993, p. 5, 6.
[37] An interesting paper in support of restitution is Robert E. Freer, Jr., "The Significance of Restitution in the Economic Recovery of Cuba," paper prepared for the Cuban American National Foundation's Blue Ribbon Committee on the Economic Reconstruction of Cuba, May 25, 1993. The author indicates that he represents certified claimants who seek the return of their property. The National Association of Sugar Mill Owners of Cuba (Asociación Nacional de Hacendados de Cuba, Inc.) is also very active in this regard. A.R.M. Ritter, while acknowledging that it has "only a limited role to play," does not rule out restitution; see "Financial Aspects of Normalizing Cuba's International Relations: The Debt and Compensation Issues," Cuba In Transition, Florida International University, 1993.
[38] Freer recognizes that a process of restitution "will, to some degree, inhibit the rapid privatization of property. Forcing claims into the courts could well cause a lengthy lag between the claim and the actual vindication of title." Freer, op. cit., p. 12.
[39] The FCSC certified corporate awards totalling US$1.6 billion at the time of confiscation, most of which took place in July/August 1960. As a matter of interest, official U.S. Government statistics place the total value of U.S. investment in Cuba in 1960 at US$956 million. (See Survey of Current Business, August 1961, Table 3, p. 22, 23.) While the latter figure might represent book value, the discrepancy serves to highlight the need for careful review of the FCSC's awards.
40 Such an inventory would represent a case of Coke for every four persons in Cuba in 1960, an unlikely possibility. The FCSC originally felt that an estimate of 500,000 cases would be more reasonable.
[41] North American Sugar Industries alone owned a tract of land of approximately 42 miles by 30 miles (3,300 square kilometers) and three sugar mills, including two of Cuba's largest.
[42] See Jorge A. Sanguinetty, "Some Issues About Expropriation Claims In Cuba," ASCE Newsletter, Spring Issue, May 1993, p. 10, 11.
[43] According to recent documents, between 80 and 90 percent of dwellings in Cuba are at present privately owned, many with titles issued by the Castro government. Our policy suggestion includes recognition of the validity of these titles to all "peaceful occupants," that is, excluding properties occupied by certain classes of persons, such as the nomenklatura, those whose titles were issued within twelve months of a change in government, etc.
[44] At present Cuba has regular armed forces of approximately 300,000 (including 6,000 Ministry of the Interior troops, 35,000 internal security troops, and a 20,000-man special police battalion) plus 135,000 army reserves, in addition to militia, rapid reaction battalions and other non-regular forces. (See: Defense Intelligence Agency, Handbook on the Cuban Armed Forces, Defense Research Reference Series, DDB-2680-62-86, Washington, D.C., 1986, p. I-12.) This may be compared with Argentina, a country with a land mass 25 times the size of Cuba's bordering on five other countries, with three times Cuba's population, and has a total armed forces of some 20,000.
[45] In "Red Army Scare," (Forbes, March 1, 1993, p. 68-69), Paul Klebnikov refers to an interesting program underway in Russia that offers four-month courses in marketing and business administration to former Soviet Army officers; apparently, veterans of the Afghan war --Afghantsy-- because of their work ethic and discipline, are an emerging managerial and entrepreneurial class. A similar approach might be taken with Angola veterans in the Cuban army.
[46] Population projections place Cuba's population age 6 to 17 years at approximately 230,000 for the 1990 to 1995 period. Fertility rates had been decreasing throughout the 1960's and 1970's, but increased again toward the end of the 1980's.
[47] The OAS proposed the holding of elections, a general amnesty for those taking part in the fighting, the surrender of unauthorized arms, and the convening of a constitutional assembly within six months of an elected government taking office. The OAS mediation effort also persuaded rival Dominican groups to agree on an interim president. Finally, a special fund was set up to provide food and medicine relief to the population. See, for example, Indar Jit Rikhye, The Theory and Practice of Peacekeeping (New York: Published for the International Peace Academy by St. Martin's Press, 1984).
[48] If the situation in Cuba deteriorates much further, rather than waiting for a popular explosion and ensuing bloodshed, the Secretary General of the UN might act on the basis of the request for assistance from the international community contained in the "Declaration of Cuban Intellectuals" of May 20, 1991. See Of Human Rights, Dossier: El caso de María Elena Cruz Varela (Washington, D.C., May 1992), Document No.3, p. 4-5. A team including some of the persons mentioned might be dispatched to Cuba to attempt to convince the current leadership to allow a rapid and orderly transfer of power for the good of the country and to avoid bloodshed.
[49] The configuration of the CNR or provisional government should be such that Cuban expatriates are a small, although important, minority. Excluding expatriates will not result in reconciliation.
[50] Vito Tanzi, "Introduction," in Tanzi (ed.), Fiscal Policies in Economies in Transition (Washington, D.C.: International Monetary Fund, 1993), p. 2.
[51] Inertial inflation can be defined as inflation today being approximately equal to what it was yesterday. Inertial elements can cause inflation to rise sharply, i.e. huge changes in relative prices are likely to force the price level upwards and the price maximizing behavior of the state enterprises will tend to make prices soar. If there are inertial elements, some kind of incomes policy is indispensable to eliminate them.
[52] The significant scope and depth of some recommended policies and reforms may require their ratification by a duly elected constitutional government.
[53] A first order of business should be the preparation of a list of data requirements, with priorities for obtaining the information.
[54] Simultaneously, a comprehensive system of reforms should grant substantial economic autonomy and legal status to state enterprises.
[55] The reaction of large enterprises to price liberalization will be quite natural. Every enterprise will try to raise its price as much as possible and cut production. Allowing monopolistic firms the freedom to set their own prices runs the risk of severe monopolistic distortions, which cannot be rectified by entry of new firms until factor markets are developed. There will be difficulties in buying or leasing land, in obtaining inputs from state firms, and in securing intellectual property rights. When a monopoly is combined with powerful and aggressive unions, inflationary wage increases can also occur, creating two significant problems: (1) a large price increase can lead to a large wage increase in the monopolized sector, which could have administrative or transmission effects to the whole economy; and (2) disguised monopoly profits can slow down the process by which high profits attract entry and thus competition.
[56] Ronald McKinnon and Sebastián Edwards make a strong case for this sequence.
[57] This policy recommendation is based on the experiences of Poland (1990-1991), Yugoslavia (1990-1991) and Nicaragua (1991-1993) and the initial proposals made by Jeffrey Sachs for Peru and Russia. See Carlos Paredes and Jeffrey D. Sachs (editors), Peru's Path to Recovery (Washington, D.C.: The Brookings Institution, 1991), p. 130 and Graham Allison and Grigory Yarlinsky, Window of Opportunity (New York: Pantheon Books, 1991), p. 68. Rudiger Dornbusch has also favored a policy of initial exchange rate overshooting, moving later, after some basic stabilization has been achieved, to a crawling peg.
[58] For example, Cuban citizens could receive money from abroad but would not be able to acquire foreign exchange for non-business travel for, say, two years. In Czechoslovakia citizens were permitted to acquire up to US$250 for foreign travel.
[59] This was done in Colombia by President Gaviria in 1991 --the so-called "revolcón"-- because there was a marked delay in imports which was increasing inflationary pressures at a time of expanding international reserves. One risk of gradualism is that economic agents will not recognize the extent to which it is needed, and the well-intentioned gradualism might be considered as procrastination. Announcing the non-negotiable schedule for tariff reductions should reduce this risk.
[60] Similarly, there is a large stock/flow disequilibrium between foreign obligations and exports as reflected by a high debt/export ratio.
[61] An alternative, albeit less desirable because it would be considered as confiscatory, would be the introduction of a new currency (1 new peso= 3 or 4 old pesos). The price level adjustment operates through increasing the denominator to reduce real monetary balances, while the new peso operates decreasing the numerator. Another alternative is a forced conversion of currency into bonds; however, this means that the government would start stabilization with a high ratio of interest-paying debt to GNP.
[62] An alternative is to allow wages to rise by only a fraction of inflation and impose heavy penalty taxes on the wage bill of enterprises that exceed the limit. "Effective" real wages (nominal wages adjusted by a weighted average of official prices and black market prices) in Cuba are much lower than "apparent" real wages (nominal wages adjusted by the official price index). As soon as prices are liberalized and the black market disappear, "apparent" real wages will decline and reach the "effective" real wage level. This will appear to be a decrease in real wages but it is rather the elimination of fictitious official prices.
[63] A quality control program including inspection and certification should be encouraged in order to increase the quality of exports of some products (e.g. citrus fruits) and should be financed by user charges.
[64] It is interesting to note that private capital remittances to El Salvador and to the Dominican Republic averaged approximately $300 and $315 million per year respectively during 1989-91, and reportedly reached $700 million for El Salvador in 1992.
[65] See Chapter 5 and the Appendix of Ernest H. Preeg, Cuba and the New Caribbean Economic Order (Washington, D.C.: Center for Strategic and International Studies, 1993).
[66] Matías F. Travieso-Díaz and Stephen M. Bleisteiner have outlined nine basic and indispensable elements of legal and institutional reforms required to have a working market economy: constitutional law changes, laws for the re-institution of private property and the privatization of state-owned enterprises, laws governing the creation and operation of business enterprises, general commercial law, law providing tax investment incentives, antitrust and intellectual property protection laws, laws regulating the financial system, bankruptcy law, and labor law and social welfare legislation. See Matías F. Travieso-Díaz and Stephen M. Bleisteiner, op. cit.
[67] Any dispute about a contract should be resolved by judges who have no stake in the dispute and whose jobs do not depend upon the pleasure of the current political leadership. Also alternative conflict solution measures should be created.
[68] In Cuba, military industries consist mainly of machine-tool and repair facilities.