A report published by the organization points to the military-run conglomerate as the main cause of inflation, blaming it for putting its interests before those of the nation.
14ymedio, Madrid, 20 May 2024 — War has been declared on the Cuban economy but it is not being waged from a department within the CIA. Instead, the attacks are coming from the executive offices of Cuba’s Business Administration Group (GAESA), the Council of State and its puppet, President Miguel Díaz-Canel. This is the conclusion reached by the organization Cuba Siglo 21 (Cuba 21st Century) and described in a report prepared by its vice-president, Emilio Morales, and released on Monday. In it, Morales blames the military-run business conglomerate, which has ties to the Castros and the country’s current political leadership, for the country’s high rate of inflation.
The report contains a detailed timeline of the inflationary spiral which began in 2016 after the creation of the International Financial Bank (BFI), a GAESA-owned entity that Morales estimates controls 95% of the island’s financial assets, including foreign currency reserves. This has stripped the Central Bank of Cuba (BCC) of any control it might have had over fiscal policy, which makes getting out of the country’s ongoing financial predicament that much more complicated.
Morales estimates that, since Miguel Díaz-Canel came to power in 2019, the dollar has increased in value by 1,537.5% relative to the Cuban peso
Morales estimates that, since Miguel Díaz-Canel came to power in 2019, the dollar has increased in value by 1,537.5% relative to the Cuban peso (CUP). This calculation is based on the official exchange rate at the time of 24 CUP to the dollar. This was the rate used as the basis for Cuba’s 2021 currency unification (known officially as the Ordering Task) though one that economists have always believed to be wildly unrealistic. By comparison, the exchange rate on the informal market as of May 2024 is about 395 pesos to the dollar according to “El Toque.” On Monday, the independent news site, which is reviled by the authorities who accuse it of grossly exaggerating the exchange rate, put the price of the dollar at 375 CUP.
The peso’s depreciation in recent years has reduced the average monthly salary in Cuba to 2,100 CUP (5.31 dollars), plunging the population into an unprecedented level of poverty. According to the report, the economist Omar Everleny Pérez calculated that in March the cost of a basket of seventeen basic consumer products was 19,976 CUP a month, 9.5 times the minimum monthly wage.
Morales cites multiple reasons for this situation but emphasizes “the corrupt control that GAESA — a corporation not subject to any form of financial oversight — has had over the country’s finances in the last eight years.” He also points to the inefficiency of a government subordinate to the military conglomerate and incapable of implementing “a coherent program that truly transforms the economic system and gets the country out of the multi-systemic crisis in which it is mired.”
The report claims there is data to indicate that around twenty-four billion dollars is being allocated by the corporation for “excessive and unjustified construction of new hotels.” It claims the government has subordinated the interests of the nation to those of GAESA, whose focus on construction is consuming 30% of all annual public investment. The report also points out that this has contributed to the collapse of large industrial sectors, most notably sugar and food production, but also social services, sectors traditionally prioritized by leaders of the Cuban Revolution. These include basic services such as education, health care, energy and transportation.
Morales points to “the corrupt control that GAESA — a corporation not subject to any form of financial oversight — has had over the country’s finances in the last eight years”
Another key issue that Morales identifies is the problem of debt default, which he estimates to be forty-six billion dollars versus the government’s figure of only twenty billion. The outlook going forward does not look any better considering that lines of credit have become almost impossible for Cuba to obtain even from its partners (notably Russia and China), which are inclined to help but only to a certain point.
The key turning point, according to Morales, was the Ordering Task, whose rollout he and many other economists believe was terribly mistimed. The plan, which had been in the works for more than a decade, has failed miserably. Its adoption, “without implementing real reform to liberate the forces of productivity, was a devastating strategic error,” the report states while providing some context.
By early 2021, when the pandemic was in full swing, tourism was down and so were remittances. The latter fell from 2.176 billion in 2019 to 1.972 billion in 2023 due to people fleeing the country and measures adopted during the Trump administration. It turned out to be the worst possible moment to implement currency unification. By this point, transfers of hard currency had fallen 36.8%, consumer goods were down 78.6% and international flights were down 76%.
Transfers of hard currency had fallen 36.8%, consumer goods were down 78.6% and international flights were down 76%
The goal of the plan was to eliminate Cuba’s dual currency system. Instead, it had a multiplier effect, introducing an array of currencies— the dollar, the euro, the MLC* and the Cuban peso — that now circulate throughout the economy. It was accompanied by an increase in wages that was supposed to offset the new prices but which proved to be illusory.
The final blow was the demise of the self-employment sector and the rise of a network of small and medium-sized businesses (MSMEs) controlled by oligarchs, who are the real power brokers in the country today. The report describes them as “a voracious army that hoards pesos in order to buy dollars on the black market, which they need to acquire supplies from overseas.” In an effort to better control the flow of cash, the government announced a series of banking reforms in August 2023 that it called “bancarización.” It did little to reign in what Morales calls the “financial circuit” created by the MSMEs, the self-employed and the general public. He describes it as a parallel system that operates independently of the state “to control the buying and selling of hard currency and which, in practice, sets the actual exchange rate on which the market relies.”
Morales proposes a series of solutions that have no chance of being adopted. They include the BCC taking control of the BFI and supervising GAESA’s operations while the government considers a transformation of the economic system than involves taking real steps towards a market economy that would allow productive forces to operate freely.
Other solutions that Morales believes the government should implement include allowing unrestricted and unconditional levels of investment by members of the Cuban exile community, repaying or renegotiating the country’s outstanding debts, and reestablishing political freedoms. He ends the report, saying, “If anyone believes that the author’s recommendations are too many, the fault lies with those who allowed the problems to fester.”
*Translator’s note: Spanish-language acronym for “Moneda Libremente Convertible” (Freely Convertible Currency), Cuba’s official digital currency, which is pegged one-to-one to the U.S. dollar.
Editor’s note: Brilliant translation! Thank you!!!
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