EFE (via 14ymedio), Havana, 2 January 2024 — One of Cuba’s biggest economic reform measures in decades will take effect in 2024, raising prices for energy, water, natural gas and petroleum and ending the universal food subsidy.
While stressing that its plan will not affect the poorest segments of the population, the government has highlighted the urgent need to address the economic crisis afflicting the country, which has seen a shortage of basic goods, a drop in gross domestic product (GDP) of between 1% and 2 % in 2023, and a fiscal deficit close to 19%.
The plan has sparked criticism from independent economists and opposition figures, however, who have pointed out that it will only exacerbate the island’s already obvious economic inequalities. Rather than an economic adjustment plan, they claim the reforms are little more than cosmetic changes with little substance.
One example is electricity, the cost of which will rise 25% this year for the top 6% of income earners
After making a surprise end-of year announcement of the so-called Macro-economic Stabilization Plan to the National Assembly, Prime Minister Manuel Marrero claimed that, given the “war-time economy” the country is facing, the state could no longer afford to waste money on certain subsidies.
One example is electricity, the cost of which will rise 25% this year for the top 6% of income earners.
Another change is that tourists will now have to pay for gasoline in hard currency while everyone else will see fuel prices rise. The government does not anticipate that this increase will apply to transport workers such taxi drivers, however.
Meanwhile, water bills will triple for those whose service is not metered while the price of liquified gas will increase 25%.
One of the most notable features of the government’s measure is an end to the subsidy which allows all Cuban consumers to purchase products at heavily discounted prices using a ration card, which has been around for over sixty years.
The other measures have a similar purpose. Given the severe liquidity crisis, the government says it will attempt to prioritize subsidies for people it considers to be economically vulnerable.
It pointed out that this does not mean the end of the ration book, only that prices for rationed goods will be based on an individual’s income.
Alejandro Gil tacitly acknowledged the island’s social differences, saying that “not everyone is in the same state of economic solvency”
In an interview on state television, economics minister Alejandro Gill was asked if it was feasible to maintain the same level of subsidy on products for the entire population when “not everyone is in the same state of economic solvency,” a tacit acknowledgement of the island’s social differences.
The ration system costs Cuba around 1.6 billion dollars a year at a time when the government lacks all the foreign reserves it needs to access the international market, which it relies on to supply 80% of the food the country consumes.
Cuba will adopt a new currency exchange rate, which for businesses transactions has been set at twenty-four Cuban pesos (CUP) to the dollar since 2021, when monetary reforms did away with the convertible peso (CUC), whose value was at parity to the dollar.
Independent economists have criticized that policy, pointing out that the elimination of the country’s dual-currency system almost three years ago has encouraged the growth of currency exchange on the black market where, as of Monday, the rate was 265 CUP to the dollar.
The government itself has admitted that this reform measure did not meet its objectives.
“Among the measures being proposed is one to restore state control of foreign exchange earnings. Part of what is happening today is that there is less supply in the state sector and more supply in the private sector because the private sector is, in some way acquiring hard currency through the informal market, the illegal market, and those currencies are not finding their way into the national financial system,” Gil explained.
Since the plan was announced, the government of Miguel Díaz-Canel has taken pains to point out that it is not a “neo-liberal package” or a “crash program”
Since the plan was announced, the government of Miguel Díaz-Canel has taken pains to point out that it is neither a “neo-liberal* package” nor a “crash program.”
This government’s claim, which has been a constant refrain in recent days, is a response to accusations from some in the opposition that these measures are similar to those adopted in recent decades by other, mostly right-wing, governments in the region.
Officials argue that this is merely an attempt to correct a handfull of economic “distortions” and that the objective is for the state to retake the reins and make corrections.
One Cuban economist who has criticized the plan is Pedro Monreal, who claims, “An economic package does not necessarily have to be neo-liberal to have affects similar to those of a traditional neo-liberal package.”
Translator’s note: A term used to refer to market-oriented reform policies such as eliminating price controls, deregulating capital markets, lowering trade barriers and reducing — especially through privatization and austerity — state influence in the economy. (Source: Wikipedia)
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