Sunday, June 12, 2011

Translation: Guidelines debate 8, Exchange policy



Here is Part 8 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.

(For those of you who find these translations too detailed and technical to be of interest, I'll aim for a better balance between these instalments and translations and commentaries on other aspects of Cuba's socialist renewal. Having confirmed that the Cubans are unlikely to do an official English translation, I feel justified in making the effort to complete my unofficial translation of this very important document for those of you that wish to study these debates and changes in detail.)

A legacy of the post-Soviet Special Period, Cuba has two currencies: the regular peso and the convertible peso. The convertible peso replaces the US dollar which emerged as a de-facto second currency during the Special Period, following the collapse of Cuba's trade relations with the Soviet bloc. From a low of around 150 pesos to the US dollar in 1993-4, the convertible peso — which is now pegged to the US dollar — exchanges for 24 regular pesos. Yet for accounting purposes, state entities equate the two pesos, a purely nominal and fictitious equality that makes it all but impossible to determine the real levels of productivity and efficiency of Cuba's economic entities.

The inequality between the two Cuban currencies ultimately reflects the difference in labour productivity between the advanced capitalist countries and that of Cuba. This means that labour productivity growth must be taken into account in the process of revaluing the regular peso against the convertible peso with the aim of eventually unifying the two currencies. But the current exchange rate also reflects the existence of universal state subsidies for goods and services other than free health care and education and subsidies for inefficient, loss-making state enterprises. Thus gradually eliminating these subsidies and reasserting the role of wages linked to productivity (in those economic sectors where it makes sense to do so) is also a precondition for progress towards monetary unification.

As a consequence of the persistence of this cumbersome and divisive dual-currency system, a single dollar sent by someone living in the US to a Cuban relative living on the island can buy a considerable quantity of the highly subsidised, rationed goods guaranteed to all Cubans via the ration book system. That is, the dual currency system reinforces social inequality by allowing those with access to convertible pesos via remittances, tourism tips or black market activities usually linked to theft from the socialist state to pay for highly subsidised goods and services with a small fraction of their incomes, while other Cubans struggle to make ends meet on their state wages, salaries, pensions and student allowances. This explains the more than 12,000 proposals put forward in the popular debates regarding the implementation of the policy of currency reunification.

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.

Exchange policy

54. Progress will be made towards monetary unification in a process that will depend fundamentally on labour productivity growth, the effectiveness of the mechanisms for distribution and redistribution and the availability of goods and services. Given its complexity, this will require careful preparation and execution on the both the objective and subjective planes.

Progress will be made towards monetary unification, taking into account labour productivity and the effectiveness of the mechanisms for distribution and redistribution. Given its complexity, this will require careful preparation and execution on the both the objective and subjective planes. (55)

Eliminates the absolute conditionality of monetary unification on the growth of labour productivity, taking into account 276 opinions in 14 provinces. In addition, 12,658 proposals associated with its implementation were received.

Fiscal policy

55. Fiscal policy must contribute to a sustained increase in economic efficiency and of state budgetary incomes in order to underpin the necessary levels of public spending, in the interests of maintaining an adequate financial equilibrium.     

Fiscal policy must contribute to a sustained increase in economic efficiency and of state budgetary incomes in order to underpin the planned levels of public spending and to maintain an adequate financial equilibrium, taking into account the specifics of our economic model. (56)

Substitues "necessary" with "planned", since spending will be based on the incomes projected in the plan. Adds that the conditions of our country must be taken into account , 68 opinions in 13 provinces and the Isle of Youth.

56. The taxation system must become broader and more progressive to boost its effectiveness as a mechanism for income redistribution, while also contributing to the implementation of policies aimed at improving the economic management model.

The taxation system must be gradually broadened to boost its effectiveness as a mechanism for income redistribution, while also contributing to the implementation of policies aimed at improving the economic management model. (60)

Improves the wording for greater precision.

New guideline:

Apply a special, differentiated and flexible tax regime to stimulate agricultural production. (58)

Added to this chapter given the importance of this sector, taking into account 304 opinions in 13 provinces and the Isle of Youth.    

New guideline:

Study the application of fiscal stimuli that promote the ordered development the non-state forms of management [of social property]. (59)

Incorporates studying the granting of fiscal stimuli to the non-state forms of management in the establishment phase, given 236 oinions in 14 provinces and two National Assembly deputies.

57. The tax system will be based on the principles of universality and equity with regard to the tax burden. Higher rates will apply to those on higher incomes to contribute to reducing social inequality.  

The tax system will be based on the principles of universality and equity with regard to the tax burden. Its application will take into account the economic circumstances of the taxpayers and of the localities. Higher rates will apply to those on higher incomes to contribute, in this way among others, to reducing social inequality. (57)

Incorporates "its application will take into account the economic circumstances of the taxpayers and of the localities", taking into account 1,107 opinions in the 15 provinces and the analysis at the Congress.

New guideline:

Update the role of the tariff system within the economic model, prioritising prefererential tariff regimes and bonuses considered convenient to grant based on the principle that production that generates export earnings, and production that substitutes imports, must be profitable. (62)

Reformulates and separates out the original Guideline No. 60 to highlight the role of the tariff system, given 172 opinions nationwide.

58. The taxation culture must be promoted, and the social responsibility of the population and of state entities in the complete fulfillment of tax obligations, to develop the civic value of contributing to sustaining social spending and high levels of fiscal discipline.      

Promote the taxation culture and the social responsibility of the population and of state entities in the complete fulfilment of tax obligations, to develop the civic value of contributing to the sustainability of social spending and to high levels of fiscal discipline. (63)

Improves the wording for greater precision.

59. Social spending with be based on the real possibilites of the financial resources that are generated by the country's economy and the use of these resources will be rational, with the aim of guaranteeing the anticipated levels of service provision without affecting quality.

Budgetary spending will be based on the real possibilities of the financial resources generated by the country's economy and the use of these resources will be rational, with the aim of guaranteeing the planned levels of service provision without affecting quality. (64)

Substitutes "social spending" for "budgetary spending" to broaden the reach of this guideline; and "anticipated" with "planned", for greater precision.

60. Maintain the application of fiscal stimuli, and study other measures that contribute to eliminating the subsidies for production that generates export earnings and production for import substitution, maintaining the latter while the current exchange rate [i.e. the purely nominal exchange rate of 1 Cuban regular peso = 1 Cuban convertible peso — translator's note] remains in force. Priority will continue to be given to preferential tariff and bonuses that are considered convenient to apply, based on the principle that production that generates export earnings and production that substitutes imports must be profitable.     

Maintain the application of financial stimuli that promote national production in key sectors of the economy, especially those that generate export incomes and those that substitute imports, as well as those that contribute to local development and environmental protection. (61)

Reformulated to improve the wording and adds "local development and environmental protection", in line with 365 opinions in 14 provinces.

New guideline:

Strengthen the mechanisms of fiscal auditing that ensures the fulfillment of tax obligations, as a wells as the preservation and rational use of state property. (65)  

Adds fiscal auditing, both with regard to state property as well as budgetary incomes, on the basis of 991 opinons in 15 provinces and nine National Assembly deputies.  

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