Reports from Cuba: One economic slip-up after another

Javier Herrera writes in the Havana Times:

Cuba: One Economic Slip-up after Another

Hellbent on modernizing the Cuban economy, the Cuban Government is committing one monumental mistake after another. It would seem they didn’t have economists serving as advisors to their insane ideas and that they make decisions without consulting or learning the reality or economic framework they’re working with.

It’s worth pointing out that economic reforms that have been implemented in Cuba aren’t the result of a decision made overnight, analyses have been made and plans have been written up over more than ten years, according to their own words. Nor have they been implemented taking into account citizens’ or ordinary families’ income, these reforms have rather been pushed by their mere survival instinct as the ruling class.

After the “Currency Reform” they bragged about so much, which was implemented in January 2021 to eliminate the dual currency system and thereby the difference between those who had and didn’t have access to foreign currency, the country has been sunken into the harshest crisis it’s ever known in its revolutionary (post 1959) history. In addition to not eliminating the dual currency system, we now have multiple currencies circulating such as the Euro, USD, MLC, CUP and whichever foreign currency the Cuban National Bank happens to accept, while the State is selling basic essentials pretty much only in these currencies.

Unaware or ignoring the way the market economy works that they’ve tried to kick start, the Government is poking around in the dark and slipping up time and time again, trying to fix the mistakes it makes with new, even more catastrophic measures than the last. The extent of this chaos is so great that we have even heard the Cuban President talk about “reorganizing the Organizing process”, referring to the Currency and Economic reforms.

So many economic faux-pas and poor production by state-led industries – which is pretty much all of national industry -, has led to inflation rates never seen before here, not even during the notoriously known “Special Period” (of the post-Soviet 1990s). Today, the dollar is being sold on the illegal or underground market for over 225 Cuban pesos (CUP), the currency Cuban workers earn in with an average wage of 4000 pesos per month. Most pensions are under 2,000 pesos.

The absence of basic goods and services in national currency has meant that money leaving the Banks’ coffers as wages, never returns as it ends up in the hands of private business owners who are selling food or other products at exorbitant prices. Then, this money is reinvested in buying strong foreign currencies as a self-defense mechanism given the ups and downs in currency rates, or is spent abroad on new merchandise, which is sold for a high price, yet again. A lot of this strong foreign currency is also used by Cubans who emigrate for good and must pay all of their expenses in dollars or euros.

The situation foretold leads to hyperinflation where demand for goods goes above and beyond supply and, as a result, the trend is that prices increase, like they do in any free market. This abnormal currency circulation goes hand-in-hand with a lack of liquid funds in banks and the recipe for an even greater economic collapse is sealed.

Now, it’s normal to find companies with significant wage defaults to workers. ATMs without cash have also become commonplace recently, with long lines at those that do have cash and even lines in the early morning to see if the ATM is restocked. Often there isn’t any cash in the bank, and withdrawing cash for any urgent need is impossible.

Faced with the dilemma of printing more bills that will only increase the amount of money in circulation and thereby inflation, the State is now limiting the sum of money people can withdraw on their bank cards or from their bank accounts, restricting citizens’ ownership of cash and making the general population more unhappy as their access to their own economic resources is now restricted.

As a last resort, administrators of the Cuban economy have now decided that privately-owned businesses that don’t implement electronic payment methods, within a six-month timeframe, will have their work licenses revoked. This measure was announced in the extraordinary issue of the Cuban Republic’s Official Gazette, with Resolution 111/2023.

This measure might seem harmless anywhere else in the world, but it’s a clear alarm bell here in Cuba. First of all, we have to bear in mind the fact that Cuba’s I.T. network is awful and it’s quite common for the largest state-owned markets – selling in foreign currency – not to make a sale because “There isn’t any connection”.  In addition to technical hiccups, we can add the fact the Cuban Government has a long history of interfering in citizens’ private affairs, including their economy, without the presumption of guilt or any other legal reason to interfere in a Cuban’s personal finances.

This attempt to try and implement a bank freeze just leads to greater distrust towards the Cuban banking system and state institutions.  Distrust also leads to further discontent and despair, which will give a further boost to the unstoppable exodus on the island in recent years for sure, with over a third of a million inhabitants of a working age having left Cuba.

The worst thing about all of this is that it confirms the Regime’s stubbornness in failing to recognize its failures and being able to reverse all of the crazy things that have crossed their minds. Instead, they just take pleasure in blaming the US Government and the economic embargo it’s imposed for all of this chaos, while the people suffering abandonment, shortages, malnutrition and a lack of basic essentials such as medicines and food are ordinary Cubans.

It’s time the Regime understands that the crisis here in Cuba isn’t economic or temporary, it’s systematic. The Cuban crisis is innate to the chosen economic system, and this is tied to the political regime in power. Since the early years of the Revolution, their inability to create goods and services was clear and they only managed to afford the first 30 years of government thanks to aid – which wasn’t selfless – from the Soviet Bloc that existed at the time, especially the Soviet Union.

After the Socialist Bloc collapsed, economic distortions became clear, and the crisis has just been getting worse ever since. One day, it was the Special Period, then it was a “temporary” fuel crisis, then it was the 240 measures announced by Trump, then it was COVID-19, then the Biden Administration… the reality is that they always blame an external actor, and they don’t take a serious look at the real shortcomings in the economic model the ruling elite have chosen and imposed.

They won’t solve the economic, and political, crisis the Cuban people are suffering with bank freezes, or resolutions pulled out of their sleeve, or financial restrictions. Sticking their nose in private, individual or company finances won’t help the Cuban State manage to reduce inflation and recover liquidity either.

It’s time Cuban leaders wake up and take effective measures to alleviate the crisis of the Cuban people… I don’t think they’d be very happy if the Cuban people woke up instead.