ABSTRACT
In 1993, the third year of double-digit decline in Cuba’s gross domestic product (GDP), the Cuban government began to implement limited reforms. On July 26, in a speech marking the fortieth anniversary of the assault on Moncada, Castro explained that to increase the flow of hard currency (and save police time) the US dollar would be de-penalized. Visits by Cubans living abroad and remittances, recognized for the first time by Castro as ‘a source of foreign exchange’, would be encouraged, and those who received dollars from relatives or tourists would no longer have to exchange them for Cuban pesos. Instead special hard currency shops selling goods unavailable in the state rationing system would be established alongside the existing tourist/diplomat store network, and even dollar bank accounts would become available. Castro also promised the introduction of a convertible Cuban peso (this became a reality in December 1994).1 Soon after this announcement more than a hundred forms of self-employment were authorized, and, superseding the early Special Period mass mobilizations for agriculture, large state farms were broken up into smaller units operating with marginally more autonomy.2 Foreign investment expanded in profitable sectors of the economy such as tourism and nickel mining, though as a whole the ratio of investment to Gross Domestic Product (GDP) fell from 24.3 per cent in 1989 to an average of 6.3 per cent (of a much smaller GDP) in 1994-96.3 In 1993-94 the government gradually introduced incentives, such as hard/convertible currency bonuses, to retain skilled workers. By December 1994, approximately 110,600 Cubans were covered by incentive schemes.4 A further round of reforms in 1994 tackled Cuba’s fiscal deficit, which had increased from 6.7 per cent of GDP in 1989 to 33.5 per cent in 1993.5 Subsidies to inefficient state enterprises were reduced, and a new tax system prepared for implementation in 1995.6 Following the August 1994 disturbances in Havana, Castro bit the bullet and allowed farmers to sell surplus produce (after fulfilling state production quotas) at free market prices. The new markets provided a legal, if expensive, way to supplement meagre food rations. Several of these reforms had been tried before. Between 1973 and 1986 the government had experimented with material incentives, farmers markets, and self-employment, before Castro, offended by increasing inequality, launched a campaign of
‘rectification’. Cuba’s foreign investment law dated from the same period (1982), though the government did not have much success in attracting foreign investment during the 1980s.7
