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Gaging Cuba’s Economic Reforms

Cuba under Raul Castro is undertaking economic reforms, allowing some private small business, shifting labor from the state to the private sector, freeing selected retail prices, improving management of state enterprises and allowing purchase and sale of residential housing and cars among private parties.  In this note I gauge Cuba’s progress in economic reforms using as a standard the Transition Indicators of the European Bank for Reconstruction and development (EBRD).  These indicators measure progress on the way to the establishment of a fully operating market economy.

Gauging Cuba’s economic reforms by means of the EBRD Transition Indicators can be deemed unfair.  After all it is the stated purpose of the Cuban government to update socialism and not to engage in steps to establish a market economy.  In other words, the official policy firmly states that Cuba is not pursuing a “transition” to a market economy.  As Raul Castro famously said in a speech to the National assembly in February 2009, “I was not elected to restore capitalism in Cuba”.  Nonetheless, it is useful to make an analysis of the present state of Cuban reform as if it were on the road to establish a market economy and to provide a comparison with transition economies in Eastern Europe, Central Asia and the Near East as measured by the EBRD indicators.  Besides as wags in Eastern Europe had it in the 1990’s, communism is the longest road between capitalism and capitalism.

Source: Scoring by author on the basis of EBRD methodology for Transition Indicators.

Source: Scoring by author on the basis of EBRD methodology for Transition Indicators.

The Transition Indicators gauge progress in six policy areas:  large scale privatization, small scale privatization, governance and enterprise restructuring, price liberalization, trade and foreign exchange system and competition policy.  A scale of 1 to 4 is set for each of these areas basically indicating movement between little progress (1) and standards of advanced market economies (4 or 4+ in some areas).  I used the methodology of the EBRD in gauging progress in each of these six areas.  The table above shows the scoring with a succinct explanation of its meaning taken directly from the EBRD methodology.

Progress in most of these areas is glacial with a score of 1 for both large scale privatization and competition policy, areas which have seen no reform policies or even aspirations of reforms in the Lineamientos of policy guidelines approved in 2011 by the communist party and the Cuban legislature.  A bit of progress can be seen on small scale privatization with 1.5 and governance and enterprise restructuring, though this is probably generous.  Price liberalization is one area where more progress has been made specially on retail pricing by private farmers and the self-employed.

The sum of indicators for Cuba is 8.2 which is below any of the 34 transition countries where indicators have been calculated using the EBRD methodology.  The lowest rating among those countries is Turkmenistan (10.7), followed by Belarus (13) and Uzbekistan (13.7).

The transition indicators are useful as a guide for policy inasmuch as one interprets Cuba’s “updating of socialism” as movement towards a partial or full market economy.  The score shows how little has been done and where to place efforts even in areas such as small scale privatization which are at the forefront of Cuban policy.

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