Economists predict historic inflation in Cuba
HAVANA, Feb 17. The monetary reform undertaken by the Cuban government amid the global economic crisis and the coronavirus pandemic
will sink the real value of short-term workers’ wages between 15 and 50 percent, according to an analysis presented by renowned economists on Tuesday.
Pavel Vidal, who is a professor at the Javeriana University of Cali and worked at the Central Bank of Cuba, predicted a “historic” inflation between 474 and 952 percent, the highest in the recent history of the country.
Along with Vidal, Carmelo Mesa-Lago and Ricardo Torres, also experts in the Cuban economy, appeared. The three agreed that it was a good idea to start the reform process on the island. Economists call inflation the widespread and sustained increase in the prices of goods and services in the market.
Inflation is manifested in a greater amount of money that circulates in the country, which in the Cuban case, according to official figures, rose from 58.9 to 103.4 percent of the Gross Domestic Product between 2018 and 2019. In the 1990s, after the end of the communist bloc, inflation on the island reached 193 percent.
That crisis, which was called by the government a Special Period in Times of Peace, is remembered by Cubans as the greatest famine in the last six decades. Cuban economists use 1989, the last year before the crisis, as a point of comparison for their analyzes.
In recent years, the government has called for a resumption of the measures adopted in those years.
Cuba is experiencing a serious economic crisis
Vidal based his projection, among other elements, on the fall of the dollar, the increase in the value of imports, the increase in the Cuban fiscal deficit, as well as salaries and pensions, and the effects of the coronavirus pandemic on the island’s economy.
Cuba was forced to close its borders due to COVID19, with which tourism – one of its main sources of income – plummeted. In January 2021, Cuba put an end to the double currency and set a single exchange rate of 24 pesos to the dollar, a rate that has been low in the informal market where the dollar is priced at 50 pesos.
The State opened stores where it is only traded in dollars but does not have greenbacks to sell to the population, who have to resort to the informal market to stock up on the foreign exchange. Cuba raised salaries and pensions about five times and the prices of basic necessities up to 10 times.
The economist assured that although the government has tools to mitigate the blow of the adjustments, the lack of access to credit markets and the inefficiencies of the Cuban economy make it difficult to operate.
For his part, economist Carmelo Mesa-Lago, professor emeritus at the University of Pittsburgh, said that the effects of the monetary reform undertaken in January will be positive in the long term but that they will immediately have negative effects on society such as increased unemployment, inflation and the loss of subsidies to the most vulnerable groups in society.
“If the government was not able to expand subsidies to the vulnerable population when the economy was in a better situation, particularly between 2006 and 2015, it will be extremely difficult to do so now when it suffers the worst economic crisis since the 1990s,” said Mesa- Lake.
Cuba reduced the resources it allocates to social assistance to 0.4 percent of GDP in 2019, a figure that contrasts with the 2.2 percent that Raúl Castro inherited from the management of his brother Fidel in 2006 when he was forced to retire from power due to illness.
Alarming unemployment figures
Mesa-Lago also emphasized the growth of unemployment, which according to Marino Murillo, in charge of the government’s economic reforms, could reach up to 300,000 workers in unprofitable state companies.
The workforce of many of the state-owned companies is inflated, hiding real unemployment, reducing productivity and wages, said Mesa-Lago, who said that monetary unification is not enough to start the island’s economy, but rather requires “ deep structural reforms ”.
Mesa-Lago estimated hidden unemployment at 30 percent of the country’s workforce, which is why he ordered the government to unlock the private sector so that it can absorb all that workforce.
Cuba recently announced the expansion of the private sector but kept access prohibited in key areas for the country’s development, such as most professional services, wholesale trade, major industries, telecommunications, and the media.
