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Tarea Ordenamiento

A lack of monetary control, inflation, and the impoverishment of Cubans: 80 days of the Tarea Ordenamiento legislation

Cuban economists Mauricio de Miranda, Elías Amor and Omar Everleny Pérez spoke with DIARIO DE CUBA about the initial consequences of the government measures.

A bodega in Havana, Cuba.
A bodega in Havana, Cuba. Diario de Cuba

Almost 80 days after the implementation of the government’s Tarea Ordenamiento measures, marked by a fall in the value of the Cuban peso, an increase in the price of basic necessities and services , and a decrease in subsidies, DIARIO DE CUBA spoke with Cuban economists about the main effects of the new measures on the country's population and government.

Among the issues that concern specialists the most is that of the dollarization of the economy: with the opening of hundreds of stores in Freely Convertible Currency (MLC) at which basic necessities are sold, the monetary unification loses its main effect and a "duality" is, effectively, maintained.

The increase in prices will leave the Cuban people in a situation of greater vulnerability, especially disadvantaged groups like retirees, as the increase in salaries and pensions is not enough to allow them to afford basic groceries and supplies, experts warn.

The Cuban private sector is also being significantly affected, as, despite the announcement of a supposed relaxation of regulations governing their activities, the long-awaited law on small and medium-sized businesses has still not been approved.

For the government, one of the biggest quandaries is what to do with a large part of Cuba's state-owned companies, now less profitable than ever. One option is to subsidize them with the consequent economic loss, the other is to close them down and lay off thousands of workers, depriving them of their salaries.

Mauricio de Miranda, a professor at the Universidad Javeriana de Cali, points out that the Tarea Ordenamiento is characterized by three main factors: exchange unification, wage and pension reform, and price reform.

The measure contains "very serious" errors, in De Miranda's view, who mentions that "exchange rate unification does not include monetary unification because it is occurring under the partial dollarization of the economy. In other words, the national currency is still not totally sovereign in the economy's internal transactions."

In addition, the currency unification "was done at least desirable moment, in the midst of a very acute crisis, when the country's ability to maneuver was very limited," says De Miranda. "An unrealistic exchange rate was applied that does not reflect market conditions; it is inflated, and the Central Bank cannot guarantee the sale of dollars because at this time it is suffering a severe liquidity crisis caused by the collapse of tourism and the reduction in remittances, among other things."

Another aspect the economist points out is that "the reform has focused on circulation, but the necessary changes have not taken place to ensure a response from the supply side; that is, from production, since the promised measures to support self-employment have yet to authorize more small and medium-sized companies."

De Miranda adds that "public sector salaries and pensions have not increased enough to offset the price increases for many necessary products, which has generated some skepticism about the calculation of a typical shopping cart. And these are just the biggest problems."

The expert doubts that with the current problems the new measures will manage to "order" the economy. Although three months is not much time to draw conclusions, "the measures comprising the so-called 'Ordering Task' are far from being adequate.

Elías Amor, president of the Cuban Liberal Union, points out that among the main problems of the new economic measures is "the increase in the general price level, of an unknown magnitude and in a very short time", which in his view "will aggravate inflationary expectations in economic agents for a long time, causing the negative effects that are generated by inflation in economies."

Second, Amor states that another problem with the new regulations is a "lack of control over the public deficit, which has risen to 20% of GDP, up from 8% in 2019. This increase will make it more difficult to develop and implement a deficit reduction policy, absolutely necessary to regain internal balance."

The economist points out that the Ordering Task has also spawned a "lack of monetary and exchange control", since "the unification of the currency can serve to withdraw the CUC's role, but it does not lead to a reduction in the role of cash in the hands of the public as a percentage of GDP, despite the government's actions to regularize and control the economy through the regular use of banks. The official exchange rate has been exceeded by the informal one, triggering expectations that, in the medium term, the authorities will have to undertake further devaluations. A good demonstration of this is that there are still no exports, despite the asymmetric devaluation."

Amor also states that the island has seen a "loss of purchasing power of salaries and pensions, accompanied by a drop in real wages as a consequence of the reduction and suppression of subsidies and gratuities", which entails "a general impoverishment of the population that earns income in CUP."

Other effects of the Tarea Ordenamiento pointed out by Elías Amor are the "threat of serious insolvency for many companies that have not been able to transfer increases in unit production costs to prices", the "massive incorporation of workers into the labor market as a result of families' loss of purchasing power", the" obsolescence of the programmatic documents that govern the economy," the "serious shortage of foreign currency, which has prevented payment of the foreign debt," and the "worsening of the structural crisis in sectors such as agriculture due to increases in supply costs, and price caps."

Omar Everleny Pérez Villanueva, a Doctor of Economics at the University of Havana, calls the Tarea Ordenamiento "a bitter pill", but one that "you had to take."

"I'm in favor of most of these changes. The thing is that they were made at the worst possible time, when the economy dropped by 11%, with shortages and structural imbalances that have been maintained over time, but, with this complexity, if you don't do something aggressive, there is no possibility of making progress," explained Pérez Villanueva.

The economist also explained that "many companies that had been profitable until January 2021 will no longer be so, and some figures that have been published demonstrate this. The Tarea Ordenamiento cannot be measured three months after its start. It must be given at least a year before we measure its true effects, because it is still in a phase of adjustments. Companies will have profitability problems and the state will have to subsidize many more than it had thought. "

"In addition, the budget has a higher deficit than usual; it is supposed to reach 20%, and under those circumstances it will not be possible to continue subsidizing many companies. They will have to consider what to do: let workers go to pay less in wages, reduce production levels... Now it will be revealed which companies are competitive and what their true production values are," he adds.

Regarding the population, Pérez Villanueva agrees that it will be among the most affected actors, especially "retirees", since "prices have shot up sharply, and those who earn less than 2,000 Cuban pesos per month will be greatly affected. There are people who are going to be above the average salary, who will not be in such a bad situation, but 80% will be below the average salary," he says.

"The price of electricity is still high," says Pérez Villanueva. The explanation that 85% of the population consumes less than 450KW/h speaks to the "low standard of living and limited appliances that Cuban families have," he points out.

"Why do I say this? Because a family cannot afford a single air conditioning unit on an average salary as it consumes 450KW per month. Nor can it have a freezer, which some may consider a luxury item, but in a country that suffers shortages, being able to store products that you acquire at a given time is sometimes necessary," he concludes.

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