Within the next few months the Cuban government will ditch the Cuban convertible peso (CUC), one of the country’s two currencies, and one which is pegged to the US dollar. The CUC is designed to separate the heavily subsidized goods for the populace from the goods bought at higher prices by tourists, an industry which has become vital since the collapse of the Soviet Union. The CUC runs concurrently with the Cuban peso (CUP) which is worth much less. According to a 2013 survey by the IRI only about 20% of the sample that were employed were paid at least partially in CUC, and the fact that some goods are only available in CUC has created resentment amongst the ordinary Cubans who have little or no access to the second currency.

Photo courtesy of Agência Brasil ©2008

Photo courtesy of Agência Brasil ©2008

The new series of economic reforms under President Raul Castro demonstrate a willingness to embrace a degree of economic modernization so long as it can support the significant expenses of Cuba’s comprehensive welfare system. This hybrid of neoliberal policies and socialist entitlements stands to create a modernized Cuban economy and maintain the Communist Party’s power right under the US government’s nose. While the new economic reforms give potential trading partners hope for real political change in Cuba, the economic reforms are just as much a political calculation on Castro’s part as any other Cuban policy since the Revolution.

The reason for Cuba’s new reforms is to continue funding the highly subsidized entitlement programs that make education and healthcare free for all of its 11 million citizens. Despite the loss of subsidies when the Soviet Union collapsed the Cuban government has managed to maintain one of the best healthcare systems in the developing world and fosters an education system that is responsible for an extraordinary 99.8% literacy rate among Cubans. These programs have proven difficult to keep afloat with Cuba’s economic problems and the recent troubles in Venezuela, whose various subsidies and trade represent about $6 Billion USD a year for Cuba.

The end of Cuba’s divisive two-currency system is the latest signal of Havana’s intent to gradually transform Cuba from its archaic command economy to a wholly modern market-based economy. While about 79% of the Cuban workforce is employed by the government, recent layoffs show the commitment of the government to reform. The government has already laid off over half a million workers with the intent to move around 40 percent of government employees into the underpopulated private sector by the end of next year. In addition to the layoffs Havana has implemented a system of special tax-free development zones designed to entice private industry, and a law that came into effect in June that halves the tax rate foreign companies pay to do business on the island.

Cuba has also made recent overtures to the EU, negotiations between the Cubans and European Union began in late April, with Cuban hopes resting on the EU reversing its position on trade with Cuba over the Island’s significant human rights violations. Prominent French officials have visited the island already, demonstrating a guarded interest in helping French firms break into the market already populated by Brazilian and Mexican investment.

An important aspect of Cuba’s slow economic reformation is the political rationale behind it. Among the newest flurry of promotions by Castro is the architect of the reforms, and the new economy minister, Marino Murillo. The reason for Murillo’s appointment seems clear as Cuba institutes more and more of the economic changes which he played an integral part in designing. However, Murillo’s new position in the context of all the other officials in the round of promotions betrays a much more self-interested reason for reform on the part of the Communist party.

While the economic reforms are clearly intended to revitalize the Cuban economy, the recent changes are just as much for the benefit of the ruling Castro Regime as it is for the average Cuban. The ruling party knows that updating the economy gradually is vital to maintaining control. The Government cannot put much more stress on the already beleaguered Cuban people without risking serious unrest. At the same time, rapid economic change could destabilize the political system and threaten the Communist Party that has ruled Cuba since the 1959 revolution just as much as letting the economy stagnate also threatens stability. With the aforementioned in mind, Castro plans to slowly modernize the economy while maintaining the ideas of the revolution. Castro is attempting to create an economy that allows the Government to keep the universal education and healthcare systems in place without risking control over the country. The implementation of these changes is especially important given Raul’s announcement that he will be stepping down as President at the end of his five-year term at the age of 87, creating the possibility that Cuba will not have a Castro in control for the first time in decades (although Raul’s son Colonel Alejandro Castro Espin could be in the running).

The uncertainty that comes with the transition away from the leaders of the revolution is an issue that Castro and the Cuban Military (which controls the island’s politburo and is responsible for the very profitable tourism industry) are consciously attempting to mitigate. This process is especially delicate in the face of the (albeit limited) foreign influence that will inevitably spread through the economic reforms and tax-free zones. Castro has made several key promotions of younger members of the government, such as Murillo, to key positions, beginning the process of transitioning the leadership of Cuba towards a new generation of Marxist leaders.

A successful revival of the economy and maintenance of the Communist party through the transition away from the Castro Brothers could lead to stable political and economic systems for Cuba in years to come. On the one hand this is good for the Cuban people who face constant shortages and hardship, but on the other hand a successful Communist regime with serious longevity is the maintenance of one of the more repressive regimes in the region. Cuba is notorious for the suppression of dissidents and the restriction on rights such as the freedom of expression despite the condemnation of their actions by the international community and continued embargo by the United States. While these reforms certainly help the average Cuban if the welfare system is kept in place, the reforms are tragically just a new strategy for the Community party to retain control.