Cuba hopes to emerge from a serious economic crisis

By Valerie Hernandezinternational banker

SSoaring food and fuel prices, driven in part by the war in Ukraine, have compounded Cuba’s woes this year, with the Caribbean island nation already suffering the brunt of US sanctions. As such, the country’s recovery from the COVID-19 pandemic remains under serious threat, as citizens continue to queue for basic commodities, food and medicine, and hundreds of thousands of people leave the country. .

According to Prime Minister Manuel Marrero’s (Cruz) annual report, the Cuban economy fell by 10.9% in 2020 after several years of stagnation and before registering a timid recovery of 2% last year. The contraction in the 2020s was the sharpest in more than 30 years when the collapse of the Soviet Union in 1991 dealt a severe blow to the country’s grant inflows. But today, ordinary Cubans face widespread shortages of fuel, basic food and other basic necessities, highlighting a devastating combination of issues that are now severely affecting living standards, including the weight of sanctions imposed by the United States, the lack of tourism dollars due to the coronavirus pandemic and over-reliance on imported food and fuel.

Indeed, the debilitating impact of US sanctions on Cuba cannot be ignored, with the administration of former President Donald Trump implementing measures that have proven particularly consequential for the country. Trump has largely quashed efforts to relaxation with Cuba made by his predecessor, Barack Obama, and reimposed a general trade embargo, which continues to limit investment in the country. Specifically, the imposition of Title III of the Helms-Burton Act, which allows the United States to prosecute any entity that “trafficks” assets confiscated by the Cuban government, continues to weigh heavily on the Cuban economy. Other restrictive measures include cutting flights and cruises to Cuba; additional sanctions against banks that do business with Cuba; and the reinstatement of Cuba as a state sponsor of terrorism.

Sanctions also include limiting the number of remittances the Cuban diaspora can send home, while the United States has banned Western Union from sending funds to a military-run Cuban agency. This has meant that Cubans have increasingly had to rely on visitors to the island to physically deliver money to US-based friends and family. These harsh measures have created a severe shortage of foreign currency, prompting the government to open more hard-currency stores across the country that sell groceries and accept dollar-linked debit cards as payment. But these stores are invariably more expensive, while stocks tend to quickly disappear before being resold on the black market at a higher price when shortages increase.

“The Miguel Díaz-Canel government is riding through a perfect storm,” Emilio Morales, head of the Havana Consulting Group, a Cuba-focused consulting firm in Miami, told the US Digital Military Publication. Dialogo. “The lack of revenue from tourism, due to the pandemic, has been accompanied by the consequences of stricter measures taken by the administration of President Donald Trump to prevent the military from appropriating remittances, as well as revenues already down in the export of medical services. ”

Additionally, Cubans have historically relied on neighboring Venezuela, a country now under the same burden of US-imposed sanctions, to meet their fuel needs. Under the presidency of Nicolás Maduro (Moros), Venezuela has reportedly supplied more than 32,000 barrels of crude per day since 2019 to Cuba. But recent months have seen that number dwindle as Venezuela has been forced to hold on to more refined products for its domestic needs. As such, Cuba is now facing major diesel and gasoline shortages, with long queues at gas stations now being seen more frequently.

Additionally, conditions may well get worse before they get better, especially as recent reports from the island have indicated that the 2021-2022 sugar harvest has only reached 52% of its target. for the season. According to state-run news outlet Granma, 474,000 tonnes of sugar have been harvested this year, considerably lower than the 800,000 tonnes harvest produced last year, which was already the worst since 1908. According to the Minister of Economics and Planning (MEP) Alejandro Gil, Cuba was targeting 911,000 tons of sugar production this year, of which 500,000 tons would be for domestic consumption and the rest for the export market.

Sugar is one of Cuba’s largest and most iconic industries and has long been crucial to its rum production and a key source of foreign exchange and employment. Quoting state-owned sugar company Azcuba, the shortfall is due to a lack of inputs, including oxygen for sugar production, fertilizers, pesticides, fuel and spare parts for the factory’s machinery. . “The financial factor has been among the most influential in the harvest results, exacerbated by the intensification of the US government’s economic, commercial and financial blockade against the island,” according to the Granma report, which also noted that only 37 percent of the necessary herbicides and pesticides were available for use this season.

Added to this mix of problems is a sharp acceleration in prices. Inflation was thought to be around 70% last year, largely due to soaring import prices and the implementation of painful economic reforms, such as the end of the two-tier monetary system of the country and the increase in prices on a number of essential goods. Gil also attributed the price spike to sanctions, which blocked thousands of containers of undelivered goods at international ports.

All of this means that more than a few Cubans have left their country in search of greener pastures elsewhere. Indeed, some reports suggest the ongoing exodus to the United States is the largest since the famous Mariel boat lift, when 125,000 Cubans migrated to Florida between April and October 1980. According to data released by US Customs and Border Protection (CBP) immigration authorities detained 114,916 Cubans, with only Mexicans arrested in greater numbers during this period. According to Jorge Duany, an emigration expert who directs the Cuban Research Institute (CRI) at Florida International University (FIU), the ongoing migration is “without a doubt” the largest exodus from Cuba in the past four last decades. He cited several factors behind the mass migration when speaking to local Florida media. Tampa Bay Times: “the economic recession on the island, the intensification of economic sanctions imposed by the Trump administration and maintained so far by the Biden administration, the coronavirus pandemic and the social uprising of July 11” last year.

But some green shoots of recovery, albeit few, have begun to emerge for Cuba. “We are starting to see a clear and gradual recovery,” according to Gil, who recently acknowledged that some sectors are now seeing growth following the decline of the pandemic. Gil expects the economy to grow by 4% in 2022. That said, soaring food and fuel prices still require “bold” measures to bring inflation under control, although prices have started to rise. slow their upward momentum despite pressure on import prices. Gil also said in mid-May that the rise in the price of one of the main export products, the mineral nickel, was key to Cuba benefiting from a 38% increase in exports in the first quarter.

Cuba’s economy may also soon get some relief from the easing of US sanctions. On May 16, the US president announced he would lift some Trump-era sanctions on Cuba and Venezuela, the former set to see an expansion of flights, an easing of travel restrictions and the removal of the 1,000 limit. dollars per three months on shipment. remittances to the Caribbean island. The United States is also considering the prospect of bolstering consular services and reviving the family reunification program that Trump suspended in 2017.

The Cuban Foreign Ministry, however, described the US government’s announcement as positive but very limited in scope. The department acknowledged that the measures “identify some of the promises made by President Biden during the 2022 election campaign to mitigate the inhumane decisions adopted by President Trump’s administration, which have tightened the blockade to unprecedented levels and increased the “maximum pressure” policy never since applied against our country. But he also added that the U.S. government’s most recent announcements did not ease the blockade, or address the more significant aspects of Trump’s economic siege, “such as lists of Cuban entities subject to coercive measures. additional; nor do they eliminate travel restrictions for US citizens.

The popular tourist island is also banking on foreign visitors returning in the coming months as COVID restrictions continue to ease. Cuba had around four million tourists visiting the island each year before the pandemic, but that rate has slowed in recent years and thus cut off a vital source of revenue for the economy. Indeed, Cuba’s tourism industry is its biggest source of hard currency, but the island only fully opened its borders to visitors last November – later than most other countries in the region – a much of the work to increase tourism revenues remains to be done. “We decided that, whatever the cost, we had to preserve the health of the Cuban people,” said María del Carmen Orellana, vice minister of tourism. But, according to Pilar Álvarez Azze of the Ministry of Tourism, there is optimism that 2.5 million visitors will arrive on Cuban shores this year.

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