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What is in store for the Cuban economy in 2022? Can the "Order" be reordered?

Specialists in the Cuban economy offer DIARIO DE CUBA their forecasts for 2022.

Images of dollars on a wall in Havana.
Images of dollars on a wall in Havana. Diario de Cuba

After one of the worst years for the Cuban economy in memory, marked by the failure of the economic reform implemented by the Government since January 1, 2021, DIARIO DE CUBA spoke with three specialists about what could lie ahead in 2022.

Along with the fiasco of the "Ordering Task," Cuban society suffered a serious food shortage in 2021, blackouts, and a health crisis marked by the expansion of Covid-19, the lack of medicines and overwhelmed hospitals.

Last year the authorities predicted GDP growth of around 6%, which, in itself, would not represent an end to the crisis due to the precipitous downturn in 2020, but those numbers were too optimistic, and GDP ended up increasing by only 2%.

Regarding the new forecast of the island's government, which estimates a 4% increase in GDP in 2022, Cuban economist Mauricio de Miranda, a professor at the Universidad Javeriana in Cali told DIARIO DE CUBA that this figure is hardly very buoyant after the previous 11% drop.

Although he stated that he had no definitive grounds to decide whether the government's objective is viable, he pointed out some elements that make it dubious.

Tourism, for example, "is just recovering and the national productive apparatus continues to be almost paralyzed," noted De Miranda. "Agriculture has undergone a systematic contraction over the three quarters, as has Industry, and the Commerce, Hotels and Restaurants sector also shows negative results in the first and third quarters."

"Without making a technically sound forecast, I would say that it is very difficult to achieve 4% annual growth. And that growth, if it did occur, would not be enough to overcome the crisis, because it's not temporary, but rather structural," he added.

In the opinion of economist Elías Amor, president of the Cuban Liberal Union, "the forecast of 4% GDP growth is unattainable under current conditions, because the communist social model is exhausted and requires structural changes that the regime is unwilling to initiate."

"All the documents on which the economic strategy is based are outdated, and they don't reflect the changes that have occurred in the world economy in recent years; above all, after the pandemic. The regime's main problem is that it doesn't know how to make the Cuban economy depend on its internal engines, so it continues to depend on international financing, to which Cuba doesn't have access, because it has defaulted on its debt commitments," he added.

Analyst Rafaela Cruz stated that "forecasting 4% GDP growth for next year is fainthearted," because "taking into account that 2021 was the year in which Latin America recovered almost everything it lost in 2020, it could be expected, taking into account the Cuban economy's great dependence on international tourism, that 2022 would be the year of Cuban recovery; that is, that it would grow by at least 10%."

Another issue addressed by economists was inflation, a phenomenon that has patently affected Cubans' purchasing power this year. In Amor's opinion, to reverse this situation the authorities must apply anti-inflationary policies, which requires "that the Central Bank of Cuba adopt an attitude that is autonomous and independent of the Government."

"The cash in circulation must be controlled, for which the public deficit must be reduced so that money does not have to be created via sovereign bonds. And, above all, there must be an increase in the productive supply and economic transactions, freeing economic actors, state and non-state, from the obstacles that prevent them from functioning," he said.

Cruz, meanwhile, stated that "a serious problem with sustained inflation over time is that it is incurable if the conditions that cause it do not change. Objectively, inflation was created by the issuance of money, but it is fueled by the fiscal deficit. These are two different phenomena. The first is no longer having an influence, but the second is very much alive."

She also mentioned that "a very pernicious effect of sustained, high inflation like Cuba's is that it begins to form part of consumers and entrepreneurs expectations, penetrating people's psychology, and then a situation is generated in which each economic agent tries to anticipate the inflation that they believe will come."

In Cruz's view, "the most sensible thing would be to accept the current price level as a fact and reduce what objectively feeds inflation: the fiscal deficit," for which "the government would have to be ready to let its companies fail and be replaced by other generators of value, in addition to a worsening of the basic services provided by the State. "

In Mauricio de Miranda' s view "the only possible option is to create the conditions for increased production; that is, the supply of goods."

The specialist argued that "when there is a shortage it is impossible for prices to fall, much less when the State started printing money not backed by anything. The effect of these types of measures is inflationary. However, the government continues to  implement half-baked, poorly designed reform."

"It is necessary to eliminate the severe restrictions that still thwart business ventures, and to eliminate the 'tolls' that are imposed on private and cooperative businesspeople, which make their production uncompetitive. The most important thing at the moment is to increase production," he added.

When asked if it would be possible for the authorities to modify the economic measures of the Ordering Task to make them effective, Rafaela Cruz said that there is still "room to continue, as they say, by liberating productive forces," which would mean "adapting more and more capitalist economic mechanisms within the Castro regime, embracing more financial and less administrative control mechanisms, giving more autonomy to state companies, freeing up international trade and investment a bit, and further deregulating domestic trade."

In any case, she believes that "none of this will provide the productive boost that the country needs and that it sought to achieve through the monetary shock of the Ordering Task. Another thing would be for them to get out of their comfort zone and make real changes, liberalizing the economy like the Chinese - something they have refused to do because they know that this would be the beginning of the end of Castroism."

In Mauricio de Miranda's opinion, the Ordering Task "was badly designed, adopted at the wrong time, and badly planned." Furthermore, "doing it in the midst of the worst crisis in the country in the last 30 years was a mistake, as was adopting an overvalued fixed exchange rate."

"I honestly believe that the country needs something like a Marshall Plan. I don't think it is possible, in the short or medium term, to improve economic conditions, even applying all the necessary reform, because the magnitude of the investments that are required is immense, the State lacks the capacity to make them, and the national private sector does not have the capacity to save enough," he added.

In his opinion, the current situation leaves the island "in the hands of direct foreign investment, which does not have enough incentive to invest in Cuba, because the country is not an attractive domestic market, due to its scarce purchasing power; or investment by the Cuban community abroad, which needs much more than an appeal by the Government. This leads to the need for profound institutional reform leading to the recognition of the political rights of the community of Cubans residing abroad, and to clear legal guarantees for their investments, which, until now, are not visible."

Elías Amor was blunt: "the Ordering Task should never have been applied," as in his opinion it was implemented "at the worst moment."

"I said at the time that it was going to be a resounding failure, because before its launch the regime needed to have promoted concrete measures such as regulating the market, liberalizing prices, adjusting wages to productivity, calculating the equilibrium exchange rate with fundamental analysis, reducing subsidies to companies, and lowering taxes at the same time, which could've achieved the objectives set," he added.

"The problem is that now they don't know where they are and, for the same reason, they don't know what to do to get out of the vicious circle they have created," he concluded.

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