Ration books, worthless currency show Cubans need more economic opportunity
WASHINGTON (MarketWatch) — As President Barack Obama prepares for his March 21 visit to Cuba, I wish he would speak to my Colombian friend Elsa who recently returned to the States from two weeks on the island. Elsa is a surfing instructor, promoting what is a new sport in Cuba. During her stay she boarded with a family in Havana and as Spanish speaker obtained insights into daily life that are unavailable to many tourists.
Elsa is deeply impressed with the warmth and generosity of Cubans and optimistic about the slow transition underway to something resembling a market economy. She hopes that as Cuba shifts away from communism it will retain the revolution’s advances in education and health care.
But arrayed against Elsa’s hopes is deep worry about economic failure that deprives Cubans of any prospect of improving their low living standards.
At this point in telling her story, Elsa takes out a cell phone and scrolls to photos of her host’s ration book. There it was, the well-worn “libreta” possessed by every Cuban that is emblematic of communist failure.
Along the left hand column are commodities — rice, beans, cooking oil, sugar, salt, etc. Its agriculture in shambles from decades of shifting policies, Cuba now depends on imports for 80% of its food.
Fifty-eight years into its revolution Cuba is still rationing basics, and worse, rations have been cut, no longer providing minimal levels of nutrition. People can’t subsist on six pounds of rice per month, 20 ounces of beans, one cup of cooking oil, and 12 eggs. Milk is in short supply, chicken and meat are rarities.
As in Eastern Europe and the Soviet Union under communism, shortages are suppressed inflation.
A second glaring failure is the existence of multiple exchange rates and two currencies circulating simultaneously. The resulting distortions are huge, compounding inefficiencies. Tourists and foreign businesses change money at 1 peso to $1 while the free market rate is 25 to $1. Cubans are paid in near-worthless national pesos, their wages averaging 600 pesos or $24 per month.
Communist Cuba inadvertently promotes income inequality. People receiving remittances from abroad or with access to hard currency — like cab drivers or hotel maids — can be relatively privileged. Meanwhile ordinary people languish, unable to consume even at basic levels. Without food rations, free housing and health care, Cubans would sink deeper into poverty.
For years the government has promised to unify the two currencies but there’s been no action. Pavel Vidal, a professor at Colombia’s Universidad Javeriana and a specialist on the Cuban economy, says Raul Castro’s goal was doing currency unification before the 7th Communist Party Congress this April. Vidal doubts the timetable will hold.
There are political and economic risks from unifying the currencies. The dual exchange-rate system is a major source of government income. Hotels, for example, hand tourism proceeds to the government at the official rate while the state pays hotel workers at the market rate, pocketing the difference between the rates.
Cuba, of course, blames the United States for its economic difficulties. Despite Obama’s moves to normalize relations, the 1962 U.S. embargo restricting bilateral trade remains in place. Congressional Republicans say there is no chance of it being lifted while Cuba’s communists are in power.
John Kavulich, president of the U.S.-Cuba Trade and Economic Council, says normalization will proceed slowly with the Cubans pressing for an end to the embargo while they move slowly on allowing U.S. investment. Kavulich does expect action this year on unifying the exchange rate.
Analysts say that Cuba’s tentative moves to restructure its economy would be greatly assisted by renewing its membership in the International Monetary Fund and World Bank from which it withdrew in the 1960s, denouncing them as tools of imperialism. Both entities could provide Cuba with policy guidance and money. The Obama administration is believed to have dropped its opposition to Cuba rejoining the IMF but so far Cuba has shown no interest in doing so.
If Havana wants to revive agriculture and abolish rationing it should reconsider its position.
Barry D. Wood reports on the global economy. He visited Havana most recently a year ago.