Economists ask what’s next for the Cuban economy

Economists ask what's next for the Cuban economy
BY MIMI WHITEFIELD
mwhitefield@MiamiHerald.com

The Obama administration has outlined an economic opening designed to
increase engagement with the Cuban people, but speakers at the 25th
annual meeting of the Association for the Study of the Cuban Economy
said Thursday that the policy's success depends on the Cuban
government's response and the pace and breadth of its ongoing economic
reforms.

The theme of the three-day conference at the Miami Hilton Downtown Hotel
was "Cuba — What's Next?" On Thursday, the theme generated more
questions than answers.

Vegard Bye, of the University of Oslo's Center for Development and
Environment, said there have been dramatic changes in Cuba in the past
10 years but "today there is more pausa (pause) than prisa (speed) in
the reform process, a play on Cuban leader Raúl Castro's declaration
that economic reforms would occur "without haste but without pause."

"I think there is change, but the question is, of course, is it
transformative," he said.

The Obama opening, which comes with the embargo still in place, allows
more trade with Cuba and travel by Americans as well as increases in
remittance allowances.

It has raised high expectations, said Carlos Seiglie, president of ASCE
and a Rutgers University economics professor. But he said those
expectations "are not consistent with the fundamentals underlying the
Cuban economy." Among the factors undercutting opportunities, he said,
are an unwieldy dual currency system, an overvalued Cuban Convertible
Peso (CUC), restrictions on Cuba's self-employed and on resource
allocation, and price distortions.

Emilio Morales, president and chief executive of the Havana Consulting
Group, added a few more barriers to the list: foreign companies'
inability to directly contract Cuban workers, no free access to the
Internet, a scarcity of hard currency, weak international reserves, lack
of judicial security and Cuba's non-payment of international debt.

"The Cuban government is the only one that can convert these barriers
into opportunities," Morales said.

Such restraints, said Seiglie, could force Cuba to undertake
"substantially more radical reforms" in the next couple years.

Cuba will be entering a "decisive period, beginning with the Communist
Party Congress next April and extending through the January 2017
National Assembly meeting, Bye said.

In 2018, Castro has said he plans to retire and has already named an
heir apparent. But Bye said the new generation of political leaders
"will not have the historical legitimacy that the older generation has."

In his opinion, the "changes have only one direction — they will continue."

Even if Cuba decides to adopt the Vietnamese model of authoritarian
capitalism, "it would require a tremendous change in the speed and
character of economic reforms," Bye said.

Ernesto Hernández-Catá , an economist and former associate director at
the International Monetary Fund, said Cuba should bite the bullet and do
its currency unification in one fell swoop, rather than gradually
because it fears it would have a chaotic effect and lead to high inflation.

It won't be an ongoing inflationary process, he said. Unifying the
currency and exchange rate "has to be done and has to be done rapidly,"
Hernández-Catá said.

Luis R. Luis, an economist and consultant, said the measures outlined by
President Barack Obama could contribute .5 percent to the Cuban economy
in the first year, mostly because of an increase in remittances and in
American visitors.

But he said, "Cuba needs to make economic changes to accompany these
changes."

Longer term if there is no longer an embargo, interaction with the U.S.
economy could result in a significant boost for the Cuban economy, said
Luis. But that, too, will depend on Cuban economic reforms, he said.

Among the participants at the conference were about a dozen academics,
journalists and an entrepreneur from the island and a group sponsored by
the Korea Institute for National Unification. The Koreans will discuss
how issues surrounding the integration of North and South Korea might
have parallels with the rapprochement between Cubans on the island and
the Cuban diaspora.

Source: Economists ask what's next for the Cuban economy | Miami Herald
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http://www.miamiherald.com/news/business/international-business/article29580784.html