Monday, September 25, 2023

Inflation and the weakness of the peso in Cuba are far from over

The high prices, the weakness of the Cuban peso and the impoverishment of the population in Cuba are far from being a solution, taking into account the economic policies that the regime continues to apply, he warned the economist Pedro Monreal.

“In these days There has been talk of macroeconomic stability as a “prerequisite” for exchange rate stability in Cuba, but it is advisable to temper expectations Why Exiting stagflation takes time and requires macro policies that are not clear are being applied today” Monreal said in red social X.

Stagflation in a country is the combination of inflation and economic stagnation. The economy is not growing, the cost of living is becoming more expensive due to high prices and unemployment can occur. This combination causes the Impoverishment of the population.

Monreal pointed out that “as usual in a period of recession The Cuban government has diligently used Keynesian logic to “pump” government spending to stimulate demand, but the resulting fiscal deficit and accompanying monetary liquidity have triggered inflation.“.

“It is not the case that the high inflation unleashed in 2021 is only the result of lax fiscal and monetary policy. There are also external factors, but above all these Inability of domestic supply to respond to increased demand” said.

According to the expert, this is typical The supply constraints of “centralized planning” economies were exacerbated in Cuba through the application of the economic package known as “order.” which, based on changes in relative prices, was presented as a vector out of the crisis, but failed.

“Macroeconomic policy in Cuba faces the problem that With the specific nature of the current stagflation, the use of conventional instruments is not sufficient such as fiscal spending, taxes, deficit, interest rates and monetary issuance,” he added.

For Monreal: “In the absence of a prior structural change that improves the responsiveness of the offer, Macroeconomic policies to support demand will not lead to the expansion of supply needed for stabilization, but rather to inflation and domestic currency weakness.“.

“Perhaps we’ll see something new with banking, ‘formalization’ of markets, ‘concerting’ prices, domestic aquaculture, etc.” Try to force administratively what will not come out of macro policy “They don’t have a structure that generates supply,” he reflected.

It is obvious, says the economist, that “bringing about structural change is much more complex than macroeconomic policy, which is already complex in itself.”

However, the economist complained: “The official economic paradigm remains anchored in centralized planning, and this is a political problem, not an economic one.“.

The downward trend of the Cuban peso, which began in September 2020, when the exchange rate against the dollar was just over 1 x 50 pesos, was exacerbated from January 2021 in line with the Cuban government’s application of the task order, when it plunged to 100 per Dollar.

The downward curve since the summer of 2022, with a brief recovery at the end of the year and until February 2023 (when it stabilized at around 150 per dollar), intensified from March 2023 and continues unabated to this day.

In August and The US dollar set a historic record against the Cuban peso (CUP).upon reaching the exchange rate in the informal market of one for 250 pesos. This is a figure that Cubans did not see even during the so-called special period of the 1990s and reflects the crisis facing the island’s economy. The minimum wage in Cuba was therefore set at just eight dollars and 40 cents.

One of the sectors that suffer most from the current impoverishment situation on the island is the elderly. Older people are condemned to pensions that have been devalued by inflation They have to live with their families to avoid falling into poverty. The reduction in the rationed basic basket, which in August only contained rice, sugar and five eggs, has not only affected her wallet but also her health.

Nation World News Desk
Nation World News Desk
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