The Balance Sheet Is Not Going To Solve Inflation in the Cuban Economy

Margarita Acosta, Director of Price Policy for Cuba’s Ministry of Finance and Prices . “When one talks about Price we are referring to one of the most complex and controversial economic categories.”

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 21 October 2023 — Does updating the balance sheets really help to achieve more rational prices? Perhaps in communist Marxist logic, yes, but for a long time economists have known that the laws of the market are far superior to any instrument of central planning. The Cuban economy is a good example of this.

Apparently Margarita Acosta, director of Price Policy for the Ministry of Finance and Prices, believes that yes, it is possible to face the drama of inflation that the country is currently experiencing by publishing legal rules, which aim to “make costs and expenses transparent, seek efficient reserves and from there promote price decreases.”

It should not be only Ms. Acosta who believes in the superiority of planning. Her action must also be supported by President Díaz -Canel, Prime Minister Marrero, and up and down the ladder. The communist hierarchy is hard to determine in some cases.

What does this curious action of the Ministry consist of?

First of all, it is mandatory to prepare the so-called “cost sheet” for all economic actors. Both non-state and state producers and providers of technical-productive services must submit to this instrument of the regime’s economic control. The measure is considered key among those undertaken in the country to achieve more rational prices and face the abusive ones, a claim of the population. A claim that, in this way, goes nowhere.

Secondly, the rule will be published when only two and a half months have passed since Resolution 148 of 2023 was issued, published in Official Gazette No. 64 of July 6, in which the Ministry “conducts a process of preparation and training with its territorial directorates, local governments, universities and the National Association of Economists and Accountants of Cuba.”

In statements to the Cuban News Agency, Margarita Acosta Rodríguez, director of Price Policy of the Ministry of Finance and Prices (MFP), clarified that the main objective of the legal norm is to make costs and expenses transparent, look for efficiency reserves and go from there to price decreases, as long as it does not imply deterioration of the results or that the products are sold at a loss.

Thirdly, what is striking is that the authorities recognize that the established methodology and the cost sheet themselves do not solve inflation problems. Of course not. Inflation is not only a supply phenomenon but is also based on the imbalance with demand. No matter how many balance sheets are concocted, the price that the consumer is willing to pay has a much greater influence on inflation. They’re wasting time. Or they don’t do what needs to be done. And that’s how it goes.

This is why the authorities defend the cost sheet, because they point out that “it constitutes the starting point for the evaluation of price agreements, which lead to more effective and favorable regulatory measures for the population in products and services with the greatest impact, and in social consumption.” Price adjustments. Yes, you have heard correctly, it is a twisted way of trying to avoid market adjustment via supply and demand. The regulation and price intervention of the communists do nothing but distort the free adjustment of the markets and create conditions for harmful shortages.

Fourth, the leaders say that a “training process is underway at all levels given the complex context in which the regulations must be implemented.” Unbelievable. In all the economies of the world, millions of transactions between sellers and buyers occur every second, and you don’t have to train for anything.

Those who interact in the markets know their objectives, products and needs well, so there is no need for other agents outside the processes to interpret in their own way “concepts, purposes and how much can become a decisive tool in the negotiations between the parties and in the price agreements of local governments with the economic actors.” Precisely, that negotiation of the local powers with the economic actors should be liberalized and not subject to any control, and that could be an important path to improvement.

The Ministry’s director of price policy said that representatives of more than 3,500 entities of the business system, including budgeted units and more than 12,000 non-state economic actors, have been trained on Resolution 148/23. Figures, in any case, absolutely insufficient if compared to the dimensions of the Cuban economy. In the seminars it has been explained “that the cost sheet can be made with a criterion of flexibility, according to the characteristics and complexities of each activity, but this does not mean that prices are formed by spending methods and that this procedure replaces the Cost System of the entity.”

In short, they want to prepare the cost sheet anyway but at the same time point out that “prices must indicate what national productions and services cost and the real cost of imports, which will gradually allow the elimination of subsidies to business activity, promote greater negotiation between the parties, stimulate the search for reserves of efficiency in costs and expenses, and make real social spending transparent.”

It is a serious mistake. Prices  come from supply, as in this case, but also from demand. A product can be released on the market with a high or low price. Marketing strategists know this and set up different mechanisms in each case. You can’t walk blindly like they do in Cuba, or with only one eye, when you need both. That’s what the communists are unable to recognize.

And here come the different methods. For the formation of prices by correlation, “that is, by comparison, [they use] the references of import and export of goods and services, similar to the external and also domestic market, provided that their origin and the general bases for their determination in reasonable ranges are demonstrated.”

For setting prices in the non-state sector, the regulations are based on the agreements of local governments with economic actors in the commercialization of products and services with the greatest impact on the population and entities, which is established in resolutions 329/20, 84/21 and 263/22, all from the Ministry of Finance and Prices. In this negotiation, the local powers impose conditions on economic agents, almost always unfavorable, which takes away their interest in negotiating.

The authorities insist that in order to conduct business, “it is essential to know the cost sheet of each producer, an essential tool in the negotiations between the parties, and therefore it is planned to close the year with progress in this task.” From this point, “a gradual effect is expected on the decrease in wholesale prices in some productions and services, so that they contribute to lowering the retail prices of those products in high-impact activities, such as in the fast-food economy.” They make it clear.

Translated by Regina Anavy


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