Since 2020, Cubans have suffered from falling wages, deteriorating public services, regular electricity outages, severe shortages and a growing black market. Hundreds of thousands of people have fled the country.
Some blame this desperate situation on the Cuban government and its poor management of the economy. Others still point to the damage caused by the economic sanctions imposed by the United States since 1962.
But which of the two theses is more true? Both. The United States has deliberately caused harm, while The erroneous policies of the Cuban Government are due to inertia and a miscalculation.
Bad decisions
In January 2021, the Cuban Government introduced important monetary and price reforms. The reforms, which involved the devaluation of the Cuban peso against the dollar, They had to begin a process of aligning Cuban prices with international markets. The measure was expected to incentivize economic restructuring and innovation to improve efficiency, reduce dependence on imported goods and ultimately stimulate exports.
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But things did not go as planned. Public sector wages had more than tripled in December 2020 to protect living standards in anticipation of price increases resulting from the higher cost of imports. However, this salary increase was quickly surpassed, since Rising costs and consumer purchasing power drove up prices and began an inflationary spiral.
The inflation rate has softened since then. But The annual official rate remains alarmingly high, of around 30 percent (more than double the Latin American regional average).
Overall, the Caribbean has experienced a strong post-pandemic economic recovery. But Cuba's national income remains well below its pre-crisis level and, with export earnings still depressed and import dependence unchecked, there is little sign of restructuring.
The effect of sanctions
Biden has maintained sanctions against Cuba.
The effect of American economic coercion is less obvious, but no less significant. Cuba has been under a US trade embargo for the last 60 years, but a new stream of measures was introduced under the presidency of Donald Trump (2017-2021). Trump's policies cut service revenues, disrupted fuel supplies, blocked remittances and deterred foreign investment.
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Growth was tenuous and shortages were already beginning to emerge in 2019. But the most devastating action came in January 2021. One of Trump's last acts in office – which occurred a few days after the monetary reform – was add Cuba to the US list of “State sponsors of terrorism.”
The effect of this has been enormous. The interviews I conducted with representatives of foreign companies that do business with Cuba and with Cuban officials responsible for managing international trade confirm that Foreign companies delayed payments and abruptly canceled import shipmentsexport contracts and investment plans in the following months.
The resulting bottlenecks in supply and The loss of foreign currency triggered inflation, increasing frustration and uncertainty and preventing recovery.
But perhaps Cuba's biggest mistake was giving credence to Joe Biden's rhetoric in his 2020 US election campaign. Biden spoke of Trump's “failed Cuba policy” and promised to reverse his “harmful” policies. If that had happened, a softer tightening would have allowed some possibility of a positive supply response to monetary reforms.
Despite his electoral promises, Biden has maintained the sanctions, which has obstructed Cuba's access to foreign currency, putting the investment necessary for restructuring out of reach.
Bad moment
The pandemic has also contributed to economic turmoil. Cuba responded to Covid-19 by closing its borders and imposing strict lockdowns. This caused a strong economic contraction – highly dependent on tourism. and a serious depletion of its foreign exchange reserves.
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The pandemic also had a dramatic impact on the global economy. High fuel and food prices aggravated Cuba's foreign currency shortage, and supplies were further affected by logistical bottlenecks and high transportation costs.
Cuba had managed to contain the virus exceptionally well throughout 2020. But a major shock came in 2021 when Cuba had to deal with a surge in cases of a new variant. US sanctions blocked access to sources of Covid-19 support that were helping to alleviate hardship in other countries. Due, The Government had no choice but to cut investment and could not avoid the decline in real wages.
A way out of the crisis
Discontent fueled by Covid-19 restrictions and widespread shortages gave rise to a new wave of protests, revealing the level of fatigue with the way Cuban leaders had responded to these challenges. It is considered that Officials have been slow to fully acknowledge the government's miscalculations or the degree of hardship that Cuban households are experiencing.
As the inflation rate gradually declines, the Government is beginning to outline a recovery strategy. With no end in sight to US sanctions, The focus is on reforming the economic system.
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The reforms are wide-ranging and aim to address the economic distortions and inertia inherited from decades of strict centralized control. They include a gradual reduction in price subsidies, more targeted social assistance, improving the effectiveness and responsiveness of the state bureaucracy and opening up to private companies.
The aim is to stimulate innovation, boost investment and improve public services, which should ultimately raise growth and improve living standards.
But the restructuring process will be difficult. There will be winners and losers, and resistance to change is inevitable. The reform and recovery process also depends on the recovery of citizens' trust and investors, as well as to avoid new external shocks or blows by the United States.
EMILY MORRIS
THE CONVERSATION (**)
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