I am going to ask for a difficult, almost impossible exercise: suppose that the country (Cuba) is in a normal situation, that is to say with blockade more and without pandemic. I would like to point out that after sixty years of the American blockade – this situation which does not depend on Cuba – is, for some of us, ânormalâ even if in itself and in relation to the rest of the world it is extremely abnormal.
Thus, with a blockade and without a pandemic, the situation in Cuba at the end of 2019 was already quite compromised in macro terms. Remember that just in December of this year COVID-19 appeared. Let’s move on to the data from there:
Since 2015, Cuban gross domestic product (GDP) has experienced a sustained downward trend, which resulted in negative growth in 2019, and an average of 1.7 for the period, a low level, if we take take into account, on the one hand, that these were the years of the boom in American tourism, hotels and private inns, overflowing with tourists, and on the other hand, that it was a period when the restructuring of the debt with the Paris Club was reached.
Gross capital formation at current prices for this period did not exceed 10.5% of GDP, despite the enormous constructive effort in the real estate sector. In constant prices, it was 15.4%.
Investments in the real estate sector – practically all made with national capital (state investment) – reached 10,910,400 pesos, which contrasts with what was invested in agriculture in the same years, 710.3 million , and fishing, 44.4 million, mining 305.9 million, sugar industry 606.2 million and manufacturing industry 1,518,900.
Imports of goods and services over the same period have stagnated, resulting in 2019 to 87% of those of 2015, while exports of goods and services have declined since 2015 and in 2019 reached only 84% of 2015 Its impact on the current account and the balance of payments is very negative.
Debt service accumulated between 2016 and 2019 reached $ 10.375 million, according to estimates by The intelligent unity of the economist. This represents 18.8% of total exports of goods and services for the period 2016-2019 and 113% of exports of goods for the same period.
Meanwhile, in tourism there is a significant growth from 2015 to 2017 (more than one million tourists) but already in 2018 and 2019 the number of tourists has gradually decreased to 4,263,115 against 4,593,914 in 2017 . The occupancy rate did not reach 50% in all types of facilities and in âfive starâ hotels, it was less than 60% since 2017. International tourism revenues fell by 3 million in 2018 and 2019.
Add to this a budget deficit of over 6 billion in 2019 and sustained monetary growth in supply from 42.5 billion in 2015 to 106.5 billion in 2019.
I used this data from 2019 to mean that even before the pandemic the situation of the Cuban economy was very difficult and foreshadowed that any adjustment that had to be made would put the economy to its limits. But the expected adjustment was not just any adjustment, it was 2,400%. Few countries have had to make such adjustments in such precarious conditions, without being able to resort to international flows of resources and with an undiversified economic fabric and a highly degraded production system for lack of investment. In short, an economy with very limited room for maneuver, also weighed down by years of inertia and prudence in the application of its reform program.
When the Reorganization task was announced in mid-2020, the informal market exchange rate had risen from 24 Cuban pesos (CUP) per dollar to over 35 CUP per dollar.
Adjustment policies all have short-term impacts, usually on decisive variables, and these impacts are almost never positive. Devaluation stimulates price growth and can lead to inflation. They “adjust” the structure of the economy, eliminating firms which are not efficient under these new conditions and may produce unemployment, unless the industries which “win” in this process generate enough jobs to compensate for this. that is destroyed or new. appear, often as a result of new capital inflows. These “compensatory” effects, however, generally take more time.
Implementing an adjustment policy and pretending not to pay the price for it seems to contradict reality itself.
The data for 2020 confirmed what was almost predictable in 2019, but made the issues more complex. The âReorganization Taskâ was announced in mid-2020 and was implemented in January 2021. The results of these first months of 2021 show âhow things turned outâ.
In short, things were as follows:
- Exchange and monetary unification have not really been achieved. Today, the population is faced with at least three exchange rates: the formal rate, for which wages have been “adjusted”; the informal sector, which unbalances the same salary; and what is paid for this new “currency” called freely convertible currency.
- Inflation is practically out of control, which will not be solved with “monetary” and price measures alone, because the phenomenon responds to multiple causes, among which is the supply deficit (less production and less money). ‘imports) is the most visible.
- An increasingly large informal market, with galloping inflation, where all kinds of goods compete and which has become a quasi-compulsory market, given the inability of the state store system to maintain a stable supply of freely convertible currency and in CUP in the markets which still survive in this last currency. Can we think that garage sales could contribute significantly to such a large supply deficit?
- A sector of state-owned enterprises which has not yet succeeded in internalizing the “benefits” of the unification of exchange rates, losing the supposed advantages of the initial devaluation (24 CUP = 1 dollar) against this other which occurs in the informal market (70 CUP = 1 dollar) and this generates disincentives, even for exporters, to whom 20% of export earnings are changed at the official rate, losing 46 CUP per dollar delivered against the rate of informal market.
- A closed trading system, which cannot accept physical dollars because it cannot bank them and which cannot sell physical dollars because it does not have enough.
The margins for action are narrow, of course, but there is room to act.
Increasing supply becomes a hollow slogan if the retail market is not allowed to diversify and the oligopoly that exists today is broken.
For national production to cover part of the unsatisfied demand, it will take more time, but above all it takes a lot of investment in the goods-producing sectors, for which investments will have to be redirected from the real estate sector to agriculture, industry and fishing and to the traditional export sectors: mining and sugar.
There is no doubt that MSMEs will be able to contribute, but it will be necessary to âchange a lot of mindâ even as these structures are seen as an inseparable part of the Cuban trading system. The diversity of actors forces a lot to change, including the way in which the ministries themselves view these new actors.
Foreign Direct Investment (FDI) has never been more necessary and has never been so withdrawn on a global scale and even more so for Cuba. Adapting the regulations that govern approval processes to these times and to the country’s urgent needs should no longer be postponed.
Modernizing the banking system, thinking and staging it as a modern banking system and making it fulfill its own roles – which it does not or partially fulfill today – should not be long in coming.
“How things were” doesn’t have to be in the future.