Cuba is experiencing its worst economic crisis in 30 years. Since 2020, Cubans have experienced a decline in wages, deteriorating public services, regular power outages, severe shortages and a growing black market. Hundreds of 1000’s of people have this he fled the country.
Some blame this desperate situation on the Cuban government and its economic mismanagement. Others point to the damage brought on by long-standing US economic sanctions, which have been in place to various degrees since 1962.
But which one is more true? Both caused economic damage. The United States did this on purpose, while the Cuban government’s flawed policies are the result of inertia and miscalculation.
National Office of Statistics and Information, CC BY-NC-SA
Case against the government
In January 2021, the Cuban government introduced major currency and price reforms. The reforms involving the devaluation of the Cuban peso from one dollar to the US dollar to 24 per US dollar were intended to initiate the process of equalizing Cuban prices to international markets.
The move was expected to encourage economic restructuring and innovation to improve productivity, reduce dependence on imported goods and ultimately boost exports.
But things didn’t go according to plan. In December 2020, public sector wages were greater than tripled to protect living standards in anticipation of price increases due to higher import costs. However, this wage increase was quickly overtaken as higher costs and consumer purchasing power pushed up prices and began an inflationary spiral.
Since then, the inflation rate has declined. But the official annual rate continues to be alarmingly high, level about 30% (greater than twice the regional average in Latin America).
The Caribbean overall experienced a robust situation economic recovery after the pandemic. However, Cuba’s national income stays well below pre-pandemic levels, and with export earnings still low and an unchecked dependence on imports, there’s little indication that any restructuring has occurred.
The effects of American sanctions
The effects of US economic coercion are less obvious, but no less important. Cuba has been under a US trade embargo for 60 years, but that is latest stream of funds was introduced during the presidency of Donald Trump (2017–2021). Trump’s policies cut service profits, interrupted fuel supplies, blocked transfers and inhibited foreign investment.
Economic growth was limited, and shortages began to emerge in 2019. But the most devastating actions occurred in January 2021. One of Trump’s last actions in office – which got here just days after currency reform – was add Kuba on the US list of “state sponsors of terrorism”.
The effect of this was enormous. Interviews I conducted with representatives of foreign corporations doing business with Cuba and with Cuban officials liable for managing international trade confirm that in the following months, foreign entrepreneurs delayed payments and abruptly canceled deliveries of imported goods, export contracts and investment plans.
The resulting supply bottlenecks and loss of foreign exchange increased inflation, increasing frustration and uncertainty and stopping economic recovery.
Perhaps Cuba’s biggest mistake, nevertheless, was believing Joe Biden’s rhetoric during his 2020 US election campaign. Biden talked about Trump’s “failed Cuba policy” and he vowed to reverse its “harmful” policy. If this were to occur, less stringent currency constraints would create some scope for a positive supply response to monetary reforms.
Despite campaign guarantees, Biden left Cuban sanctions in place. This made it difficult for Cuba to access foreign currency, putting the investments mandatory for restructuring out of reach.
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Bad time
The pandemic also contributed to Cuba’s economic turmoil. Cuba responded to Covid-19 by closing its borders and imposing strict lockdowns. This caused a pointy economic collapse and a serious depletion of foreign exchange reserves.
The pandemic also had a dramatic impact on the global economy. Tall fuel AND food prices worsened Cuba’s currency shortages, and deliveries were further disrupted by logistical bottlenecks and inflated shipping costs.
Cuba actually did exceptionally well at containing the virus throughout 2020. However, a significant shock got here in 2021 as Cuba struggled with a rise in the number of cases latest variant of Covid-19.
US sanctions have blocked access to sources of Covid-19 support which have helped ease difficulties in other countries. As a result, the government had no selection but to reduce investment and was unable to prevent real wages from falling.
You are on the lookout for a way out of the crisis
The result has been dissatisfaction over Covid-19 restrictions and widespread shortages protests, which revealed dissatisfaction with Cuba’s leadership’s response to these challenges. Officials are believed to have been slow to admit the government’s miscalculations or difficulty level what Cuban households experience.
As the inflation rate regularly declines, the government does so I start sketching recovery strategy. There isn’t any end to American sanctions in sight, we are specializing in reforming the financial system.
The reforms are wide-ranging and aim to address economic distortions and inertia inherited from a long time of tight centralized control. These include a gradual reduction in price subsidies, more targeted social protection, improvements in the efficiency and responsiveness of state bureaucracies, and opening up to private enterprise.
The aim is to stimulate innovation, boost investment and improve public services, which should ultimately spur economic growth and raise living standards.
But the restructuring process It shall be hard. There shall be winners and losers, and resistance to change is inevitable. The process of reform and economic recovery also relies on rebuilding the shaken confidence of the public and investors, in addition to avoiding further external shocks – or deliberate blows from the US.
