Cuban President Diaz-Canel Gives the Mules a Reprieve Until Further Notice

The Cuban minister of economy raised the alarm in his speech on Tuesday, when he announced that imports made by natural persons would be regulated. (EFE)

14ymedio bigger14ymedio, Havana, 4 July 2019 — Cuban State Television’s Roundtable show has needed two days to explain,  with Miguel Diaz-Canel and his Economy Minister, Alejandro Gil Fernandez, the salary increase for state sector employees announced last Thursday.

Among the few novelties outlined by the duo responsible for the economic march of the nation was the advancement of a new regulation to reduce “the flight of foreign currency from the country” through the so-called “mules” that buy merchandise abroad to resell in the island.

Gil raised the alarm in his speech on Tuesday on the matter, when he announced imports made by natural persons for the private sector would be regulated, mainly from countries such as the United States, Panama and Mexico. A day later, he added nuance to his words stating that it is not about “prohibiting the current ways” but the State will launch “competitive offers” to counteract the phenomenon.

‘Mules’ are the main suppliers of clothing, footwear and appliances in the informal Cuban market. Many private businesses dedicated to hairdressing services, massages, repairs of electronic devices and even food preparation are supplied with some of the raw materials they need through the personal luggage of travelers.

Hence, after Gil’s first statements on Tuesday, many feared a cut in the amount and variety of products that can be imported. At the moment, the General Customs of the Republic maintains a strict regulation of personal imports, limiting even the number of copies of the same product that can be brought into the Island.

Regarding the salary increase, Díaz-Canel clarified that, since the measure will begin to go into effect this July, “we are working in an accelerated way” so that the changes also reach the education sector, which is on pause this month for summer vacation.

For the Cuban economist Elías Amor, resident in Spain, there will be time enough to realize the ineffectiveness of these decisions. “It will soon be seen that increasing wages does not benefit the budgeted sector, nor the economy, it is bread for today and hunger for tomorrow,” he criticized in his blog Cubaeconomía .

Amor warns that “the price increases will certainly happen, and will not come from the demand, that is the big mistake, because the salary increase is very limited, and does not support a big boost in spending.”

The economist thinks that the supply will not increase and that “without support for productivity the unit production costs will increase, and this will be transferred to the rest of the economy.”

In addition, he belives that “if you practice regulation measures and price controls, or price caps, the situation will be the same as always, and even worse.”

The Roundtable addressed the new economic measures for two consecutive programs, mainly focusing on the salary increase and tiptoeing around the rest of the actions, still to be finalized in the coming months.

There were allusion to a near term end of the dual currency system — the Cuban peso and the Cuban convertible peso — without specifying a date, and mentions of the possible use of cryptocurrencies caught the attention of many, but the ministers did not delve into these issues.

On Tuesday, Díaz-Canel insisted that the measures taken are not populist and, although he denied categorically that the current moment is similar to the so-called Special Period — a time characterized by a devastating shrinkage of the Cuban economy after the fall of the Soviet Union and the withdrawal of its support for Cuba — he did call to resuscitate ideas from that time.

“Also taken into account were all the directives of the Commander in Chief for the Special Period, which were issued at two moments in the 1990s. There are documents that are in the territories, that have to be dusted off, that everyone has to study, because there are things that we did in those moments that gave us a lot of results and then, unfortunately, we dismantled them and we have to return to development at the local level.”

The fear that the recent rise in wages will bring an increase in prices has been growing on the streets of Cuba after the official announcement of a plan of economic measures that will come into force gradually. Diaz-Canel, on the other hand, refused to go to that extreme and asked the population to help avoid inflation: “We are calling [on people] to act and think as a country,” he said.

In the program on Tuesday, the Minister of Finance and Prices, Meisi Bolaños, indicated that actions are already anticipated in the private sector, very focused on food services and transportation. “In this task the institutions responsible for monitoring and reviewing the behavior of prices, both wholesale and retail will participate.”

Previously, the Government has used the imposition of price caps to regulate product prices in agricultural markets and in private shared-taxi services in several municipalities of the country.

An extensive body of inspectors focused on the self-employment sector has been another of the tools to prevent inflation in the last year, but those decisions have not yielded the expected results. The price of the pound of pork has practically doubled in recent months, as has the cost of the average ride on an almendrón — privately-operated shared fixed-route taxi — as well.

Many private merchants responded to the price caps by taking their products to the black market, which has represented a very important source of supply in the lives of Cubans for more than half a century.

On this occasion, voices of concern have also begun to be heard, such as that of economist Pedro Monreal, who posed the question on his Twitter account “supposing prices are ‘frozen’ to prevent the supply and demand gap from manifesting as open inflation in legal markets, how much is the level of inflation on the black market estimated to be?”

Monreal warned that the increase in salary will bring an “increased demand for food in the second half of 2019 (2.550 billion CUP — Cuban pesos)”, which “would represent an increase of 49.3% compared to food sales in the 2nd semester of 2018. In order for such an increase to not be inflationary, a proportional increase in supply is needed.”

The wage increase establishes that minimum monthly salaries will rise from 225 Cuban pesos or CUP (equivalent to 9.3 dollars) to 400 (16.6 dollars). The median salary will rise from 767 Cuban pesos (30.6 dollars) to 1,067 pesos (44.4 dollars) and the maximum will rise to 3,000 pesos (125 dollars).

In the contributions of Diaz-Canel on Tuesday’s Roundtable the role of the eternal enemy and the usual dose of the ‘epic’ was not missing. The president said that Cuba will achieve “prosperity” despite the financial and commercial embargo imposed by the United States and hoped to correct the “internal blockade,” referring to productive inefficiency and excessive bureaucracy, a concept that until recently was only used by government opponents and the most critical voices.

So far, all the measures outlined have been aimed at the state sector, but self-employed workers trust that there will be reforms directed at them. For years they have been clamoring for a reduction in taxes, the legal capacity to import and export independently and a wholesale market with real preferential prices.

Another demand of this sector, which was only authorized on the island in the 90s, precisely during the Special Period, is that licenses be extended to the exercise of qualified professions, which now can only be practiced in state-run companies and institutions.


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