Business & Economy

Cubans still waiting for bet on economic reform to pay off

Havana, Jan 7 (EFE).- The first anniversary of Cuba’s most ambitious economic overhaul since the 1990s finds the island mired in a crisis aggravated by the project the Communist government calls the “Reordering Task.”

Admittedly, the program was launched under difficult conditions, as the combination of the Covid-19 pandemic and the intensification under Donald Trump of the embargo imposed on Cuba by the United States in 1962 drove the economy into recession.

The centerpiece of the package was the long-postponed unification of the ordinary peso and the dollar-linked “convertible peso,” bringing an end to a decades-old dual currency system.

President Miguel Diaz-Canel’s government has acknowledged shortcomings in both the design and the implementation of the plan, leading to “undesired results” and widespread “dissatisfaction.”

Officials accept that they must “rectify and adopt new decisions,” Prime Minister Manuel Marrero said in a speech to the National Assembly.

For the average Cuban, the Reordering has coincided with acute shortages of food and medicines and long lines at stores, including the convertible-currency (MLC) establishments that accept payment only in dollars even though the vast majority of people are paid in pesos.

But the greatest impact of the reform has been on inflation, with the prices of consumer goods up by more than 70 percent, according to official figures, while independent observers put the increase closer to 500 percent.

The currency unification has fueled inflation without fixing the fundamental problem of the convertibility of the peso, Cuban economist Pavel Vidal Alejandro told Efe from Cali, Colombia, where he teaches at Javeriana University.

“Economic authorities are giving impetus to a partial dollarization with the use of the (MLC) banking dollar, which is a counterproductive signal that shows the government doesn’t have confidence in the Cuban peso and in its own monetary reform,” the former Cuba Central Bank official said.

The Reordering Task “turned out badly,” the University of Havana’s Pedro Monreal said.

Though median pay more than quadrupled as part of an across-the-board salary hike that was part of the reform package, the cost of basic goods has increased nearly eightfold, Monreal wrote on Twitter.

“To resolve elevated inflation is the principal economic challenge,” Finance Minister Meisi Bolaños Weiss said, while her counterpart at the Ministry of Economy and Planning, Alejandro Gil, has laid out a list of priorities for 2022 that includes achieving macroeconomic stability and restoring the centrality of the peso.

In an article in Cuban Horizon, a publication of Columbia University Law School, Cuban economist Mauricio De Miranda urged the government in Havana to eliminate the MLC shops, embrace a flexible exchange rate, allow foreign banks to operate on the island and liberalize international trade.

Vidal sees some grounds for optimism: the gradual recovery of tourism and Cuba’s success in creating its own Covid-19 vaccines “can give energy to economic growth and help to control inflation.”

He also points to potential benefits from the government’s decision last year to open additional sectors of economic activity to private firms. EFE


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