Page 17 - MONTT LATIN AMERICAN MAGAZINE, SEPTEMBER 2021 (English)

Cuba: Stagflation and Recession, the Worst Economic Scenario
What lies behind the protests on the island is inflation that reaches 300 percent, which the authorities conceal and which destroyed the purchasing
power of wages and the cuatous savings of Cubans.
What happened to Cuba’s budding protest movement? against the communist regime?
Cuba economic reforms
The prestigious British publication, The Economist Intelligence Unit (EIU) reported that it managed to detect clear symptoms of stagflation in Cuba since 2020. It is one of the worst realities that can affect a country since it implies the coincidence of economic stagnation and inflation, two processes that do not usually occur together.
The stagnation seems confirmed, and even the recession, with the GDP falling continuously since the second half of 2019, leading the EIU to estimate growth for this year at 0,2 percent, insufficient to overcome the outlook for the Covid-19 crisis, which plunged GDP by -10,9 percent.
Runaway Inflation
The threat of inflation is spreading through the Cuban economy in 2021 with three-digit rates.
In the absence of official information, this increase, which the EIU places above 300 percent in its latest study, began to worry economists, although the authorities do not seem concerned about a particularly serious phenomenon, new in Cuba and direct responsibility of the policies adopted.
If the current trend consolidates, the worst thing is that inflation could end up eroding a very significant part of the state budget for 2021, reducing the purchasing power of wage earners, while reducing the value of household deposits in the banking system. In other words, uncontrolled inflation generates poverty, and it is usually a leading indicator of social unrest, protests and social outbreaks with notable political consequences. For observers in this context, the social outbreak of July 11th was just the beginning that could come back and unfold at any moment.
Experts argue that despite the serious consequences of uncontrolled inflation, the regime looks the other way, or perhaps wants to take
advantage of the scenario. Both things are possible at the same time. The increase in savings deposits in the middle of the pandemic in Cuba was due to a reaction from families to cover themselves against possible problems, in a country in which the State is unable to react. In 2020, the share of bank deposits in GDP increased to 53,3 percent, eight points more than the previous year, reaching all-time highs. In total, Cuban families and entities accumulate in bank deposits around 56,896 million pesos in nominal value, according to the latest official figures, relative to 2020. The size of these deposits is impressive. Its loss of value can be very negative.
Inefficient System
“The economic situation in Cuba is so critical that it is the fundamental factor that generates the protest,” says Carmelo Mesa- Lago, an expert on the Cuban economy, professor at the University of Pittsburgh and author of several books on the subject. “Cuba maintains, along with North Korea, the strongest central planning system left in the socialist world. This is inefficient and has failed around the world ”. To understand how Cuba got to the situation it faces today, says Mesa-Lago, it is necessary to remember 2002, when President Fidel Castro changed economic policy to close the least productive sugar mills and boost the most productive ones. “But, of course, that did not happen,” explains the specialist. Production fell to levels never seen before. Last year, according to official data, Cuba produced less than 800,000 tons of sugar, of which half must export to China to meet its credit and trade commitments. This means that less than 200,000 tons remain for domestic consumption. “So, part of the problem is due to an internal policy of the Government of Cuba,” says Mesa-Lago.
Montt Latin American Magazine p17