US eases financing and export rules for Cuba

1 February 2016

Issue number 857

Food price inflation and growing inequities in income are leading the Cuban government to modify some market reforms to assuage public sentiment.

Although there has been no substantive official comment on the subject in the state media, the issue was considered at the late December meeting of the Cuban National Assembly when a number of delegates called for a return to price controls and President Castro indicated the need try to bring prices more closely into line with income.

Prices have risen because of low productivity, poor weather, and increasing demand caused by wage inequality, in part fuelled by the market-oriented reforms that have created tens of thousands of self-employed Cubans, who in many cases work in both the state sector and run small businesses. Price inflation has also been fuelled by those in receipt of remittances from overseas and in some areas of Havana in particular by the growing numbers of privately owned restaurants catering to visitors and Cubans.

The situation has not been helped by a reported recent decline in the number of food vendors in cities uncertain about their ability to trade as the government tries to address the issue by mounting in the official media a campaign against middlemen and speculators, as well as those buying directly from farmers and others.

The majority of Cubans –around 70% – work in the state sector. Although there are increasing variations in income, the reported average wage is around only US$25 per month; although government figures show that after a long period without change, state wages rose by on average around 13% in 2014.

Food prices are significant for most Cubans. Recent comments by the Economy Minister, Marino Murillo, suggest that lower income Cubans spend about 75% of their salary on food – they receive free social services and subsidised utilities and pay nothing in rent – while Juventud Rebelde, the Union of Young Communists daily has reported that basic foods prices rose 15% in both 2012 and 2013 and 28% in 2014.

However, a growing number of ‘cuentapropistas’ working in areas like tourism, transport, and privately-owned restaurants are with government encouragement doing significantly better with the consequence of forcing up prices and demand, against a background of limited supply. This has meant that with some market oriented rules in play, prices have moved toward what such relatively higher income Cubans are willing to pay.

The consequence of the subsequent food price inflation, has been in recent weeks greater government intervention in the purchase, distribution and sale of food at fixed prices through price controlled markets.

According to Reuters, quoting the local Communist Party weekly Invasor, in the central province of Ciego de Avila the government will resume ‘the old strategy’ of buying and transporting all crops once it receives more vehicles from the central government. The news agency also reported that in Artemisa province, close to Havana, the Cuban state has opened outlets that sell basic foods at fixed prices and a similar plan was announced in Tribuna de La Habana for the capital that will involve the creation of one price controlled market in each of its 105 districts.

 

This is an extract from the Caribbean Council’s weekly Cuba Briefing, a leading publication that provides detailed and accurate news on economic, social and political developments inside Cuba to corporate interests with a long term economic relationship with the island.

The publication is available internationally on a subscription-only basis for those in business, government and the academic world who wish to understand on a weekly basis developments relating to Cuba.

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