Saturday, June 4, 2011

Translation: Guidelines debate 7, Monetary Policy

Here is Part 7 of my translation of the booklet Information on the results of the Debate on the Economic and Social Policy Guidelines for the Party and the Revolution, an explanatory document that has been published together with the final version of the Guidelines adopted by the Cuban Communist Party (PCC) Congress in April. 

It's worth noting that two new guidelines have been added in response to the popular debate on the draft Guidelines to increase the availability of bank credit for personal loans. Another guideline specifies the need for banks to provide credit to the non-state sector (self-employment, small businesses and cooperatives). Until such loans become available, legal small business start-ups with access to funds acquired through illicit activities linked to the black market or money sent by relatives living outside Cuba will tend to dominate this emerging sector. 

The Guidelines mark a policy u-turn: rather than seeking to administratively suppress small-scale private enterprise, as has been the case ever since the March 1968 "Revolutionary Offensive" that expropriated the urban petit-bourgeoisie, Cuba's socialist state will legalise, tax, regulate and promote such enterprises in activities that are deemed both legal and socially useful. This just recognises reality: during the Special Period a substantial small-scale private sector has emerged, offering goods and services that the state sector has proved incapable of providing with quality and efficiency. 

Black-market entrepreneurial activity thrives on theft from the socialist state, which has reached endemic proportions during the post-Soviet Special Period. By offering assistance such as access to bank credit and the network of wholesale supplies stores projected in the Guidelines, the socialist state will give legal small private businesses, taxed and regulated for the benefit of their workers and the working people as a whole, a competitive advantage over those that do not opt for legality.  

On the other hand, higher wages better linked to productivity in the socialist state enterprise sector, and the decentralisation of economic management with more scope for worker participation, will strengthen the identification of work collectives with the enterprises they belong to. With their material wellbeing linked more to the performance of the enterprise than (as if often the case today) to workplace theft, workers themselves will tend to ensure that theft does not occur in their workplace. Illicit entrepreneurial activity linked to workplace theft and corruption should then retreat to relatively tolerable levels. 

Regulations governing the establishment of the non-agricultural cooperatives projected in the Guidelines have yet to be published, but there are numerous reports of municipal People's Power governments including such cooperatives in their local planning for the state's ordered retreat from small-scale production and services. The balance between self-employment, small businesses and cooperatives is not, sensibly, decreed in the Guidelines. What lies ahead is a period of experimentation to see what works best, adapted to local conditions.

The format is as follows: number and text of the draft guideline, followed by the text and number of the corresponding guideline approved by the Communist Party Congress, followed by the drafting commission's explanation for the change. You'll find it easiest to read on my blog where the amended guidelines are in bold.      

Monetary policy

46. Develop an appropriate monetary policy plan for the short, medium and long term aimed at achieving internal and external monetary equilibrium, not in an isolated way but as a unity.    

Monetary policy planning for the short, medium and long term must achieve internal and external monetary equilibrium in an integral manner. (45)   

Improved the wording to make it more comprehensible, 147 doubts expressed in 15 provinces.  

47. Establish appropriate rules for the issuing of currency and use opportunely the indicators that allow for its control.

In correspondence with monetary policy, establish appropriate rules for the issuing of currency and use opportunely the indicators that allow for its control. (47)

Reworded to make it more comprehensible, highlighting its connection to monetary policy.

48. Develop an efficient interbank market to allow for, among other objectives, the elaboration of a system of interest rates that is more rational and informed, and promote the use of monetary policy instruments — such as the administrative control of credit, the obligatory deposits of commercial banks in the central bank, the regulation of interest rates and loans to financial institutions — to manage conjunctural monetary disequilibria.

Develop a more rational and informed system of interest rates and promote the use of monetary policy instruments to manage conjunctural disequilibria, through the strengthening of the relationships between the institutions of the national banking system. (48)

Eliminates technical concepts to aid comprehension, 61 opinions in 12 provinces.

49. Apply a credit policy that is essentially aimed at supporting those activities that stimulate national production and those that generate incomes in hard currency or that substitute imports, and others that promote economic and social development. (Maintained as No. 50)

New guideline: 

Establish the necessary conditions and mechanisms to guarantee agility in the granting and repayment of credits. (51)

Responding to 1,131 opinions throughout the country and those of three National Assembly deputies.

New guideline:

Increase and diversify the availability of credit to the population for the purchase of products and services, taking into account the guarantees required by the banks, the capacity for repayment, an adequate monetary equilibrium and the planned macroeconomic indicators. (52) 

Considering 1,119 opinions nationwide and those of three National Assembly deputies.

50. Study the interest rates of savings accounts, the creation of special-purpose capitalisation and savings accounts, and access to personal credits for the purchase of goods and services.  

Guarantee an appropriate relationship between the interest rate paid on bank deposits and the rate for the repayment of loans. (54)

Reformulated to define more precisely the appropriate relationship between interest rates, 995 opinions nationwide.

51. Provide necessary banking services including the granting of credit to the non-state sector of the economy to contribute to its adequate functioning.    

Provide the necessary banking services, including the granting of credit, to the sector that operates according to non-state forms of management [of social property — translator's note] to contribute to its adequate functioning. Study the creation of capitalisation accounts for the acquisition of equipment and other purposes. (53)

Improves the wording and incorporates the original guideline No. 50, which referred to studying the establishment of capitalisation accounts, considering 125 opinions in 13 provinces and five National Assembly deputies.  

52. Direct monetary policy to regulate the quantity of money in circulation and the levels of credit, according to what is established in the [national economic] plan and utilising the instruments previously defined, with the aim of contributing to achieving monetary and exchange rate stability and the ordered development of the economy.     

Direct monetary policy to regulate the quantity of money in circulation and the levels of credit, according to what is established in the plan, with the aim of contributing to achieving purchasing power and exchange rate stability and the ordered development of the economy. (46)

Reworded to make it more comprehensible and to eliminate "utilising the instruments previously defined".

53. Among the population, the correspondence between the growth in the quantity of money and the circulation of retail merchandise, and the ability to manage this relationship in a planned way in the medium term, will continue to be the key to achieving monetary and exchange rate stability in this sector, a necessary condition for progress towards reestablishing the functioning of the socialist law of distribution (from each according to their ability, to each according to their work).    

The correspondence between the growth of the quantity of money in the hands of the population and the circulation of retail merchandise, and the ability to manage this relationship in a planned way, will continue to be the key to achieving monetary and exchange rate stability in this sector, a necessary condition for progress towards reestablishing the functioning of the socialist law of distribution, "from each according to their ability, to each according to their work". (49)   

Improves the wording for better comprehension, 33 opinions in 8 provinces. 

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