Orestes, a Cuban black-market businessman, is doing something that should be unremarkable. From his living room in central Havana, he’s taking US dollars from a tourist and exchanging them for Cuban pesos.
“This moment is the worst moment in the history of Cuba, about economy,” Orestes says. Like many people I speak to, he declines to provide his last name for fear of retribution for his anti-government stance.
The 63-year-old also sells basic goods such as bread and beer, bought to supplement government food rations. Cuba — a country with no privately owned supermarkets (or official currency exchanges) and shortages of everything from food to medicine — is a fertile ground for flourishing black markets.
With triple-digit inflation making Cuba’s domestic currency increasingly worthless, US dollars are priceless — and the communist regime knows it. Informal exchanges have been a mainstay of the Cuban economy since the fall of the Soviet Union, and are largely tolerated by the government to combat food shortages.
President Miguel Díaz-Canel Bermudez touted 2021 economic reforms as the key to securing critical supply lines for the island; Cuba imports between 70% and 80% of its food. Key to the overhaul was the implementation of a digital currency known as moneda libremente convertible, or MLC, designed to put foreign currencies in the hands of the government.
Cuba recently endured its most severe economic downturn since the fall of the Soviet Union. Under the leadership of Fidel Castro, Cuba held strong economic and military ties with the Soviet Union until its collapse in the early 1990s, and the ensuing social crisis became known as the “special period”.
At the beginning of 2021, cheap Venezuelan oil dried up, Cold War-era American sanctions were tightened in the dying days of the Trump administration, and the COVID-19 pandemic decimated tourism to the island.
The Cuban government responded by scrapping its dual currency system, which had been in place since 1993. The Cuban convertible peso (CUC), which was in circulation alongside the Cuban peso, was replaced by the MLC digital currency. The old system was widely seen to be fuelling inequality because unskilled workers like taxi drivers were being paid in a CUC, which carried more value.
The new system was sold as a win-win: Cubans could load US dollars on to their MLC cards to buy “luxury” goods such as fans in state-owned stores, and the government could accumulate foreign currencies to service debts and purchase critical imports.
But Ricardo Torres Perez, a Cuban economist at the American University in Washington, describes the switch as a failed policy: “They got the timing very wrong in the midst of a pandemic. [There is] no way that could have worked.”
The peso underwent one of the largest currency devaluations in Latin America. While the official exchange rate is 24 pesos for US$1, the black market rate is closer to 200 pesos for every dollar. The “dollarisation” of the Cuban economy fuelled inflation that economists say is at least 100%, and possibly reached as high as 500% in 2021, according to Reuters analysis.
US sanctions and underdeveloped local industries mean Cuba has a critical shortage of export industries to rely on for economic growth. Even sugar, the industry on which the nation is built, has collapsed. Annual exports were sitting at 7 million tonnes in the 1980s (with about half going to the Soviet Union); now it’s roughly half a million tonnes.
It’s Cuba’s young people who are left with the least hope. Dayron, 26, studied at university for four years but now delivers food in Havana on an electric bicycle: “The government guarantees you a job, but the job is not good. It’s good in the sense that it’s a good job, but it doesn’t have good pay, good profit.”
Reverential murals of Cuba’s famous revolutionaries, from Fidel Castro to Che Guevara, are everywhere in Havana. But instead of following in their footsteps, many young Cubans are choosing to flee.
“We young people here do not want a revolution. We want to leave here, Cuba. Because every day it gets worse. There is no way to be free. The only way is to leave Cuba,” Dayron says.
Last year nearly 250,000 Cubans, or 2% of the population, migrated to the US, according to government data. Susan Eckstein, professor of sociology and global studies at Boston University, says emigration is exceeding even the numbers seen after the fall of the Soviet Union.
And the people fleeing, she says, are precisely those who Cuba needs most: “Brain drain is a crucial factor that is going to make it difficult for the Cuban economy to rebound.”
Perez says he sees little prospect of the communist regime changing tack without a popular uprising: “[The Cuban government doesn’t] have the political will to reform the economic model, because for them economic change is equivalent to losing their grip on power.”
Experts agree the key to prosperity for the Caribbean country is likely to require rekindling old alliances, 31 years after the breakup of the Soviet Union.
“The future for Cuba is in the hands of a global power, like China or even Russia. The way I see it is essentially them coming to the rescue,” says Perez. “I think the Cuban government is now betting on global geopolitics for survival.”
There is evidence of a tightening of relations between Moscow and Havana. In late June, a Cuban delegation returned from Moscow where a new trade agreement was formalised, promising to boost sugar exports, tourism and oil supply to the island, Reuters reported.
Citing Russia’s defence ministry, the agency also reported that at a meeting of defence ministers in Moscow, joint “technical military” projects were discussed.
Eckstein draws a line between Russia’s war in Ukraine and the fostering of closer ties with Cuba: “This is geopolitics at work, ‘Miami’s enemy is my friend.’ The US is very aggressively attacking Russia in the context of Ukraine, so Putin sees reason to work with the US enemies. So I think that’s what’s behind it on the Russian part. On the Cuban part, I think it’s get what you can, where you can.”
Cubans who lived through Cuba’s heyday in the Soviet era, such as the black-market businessman Orestes, are left to rue where it all went wrong: “It’s too sad because we trust in the revolution during a long time, and now I don’t know what happened. The most incredible [thing] is we see people from the government with Mercedes-Benz, nice houses, nice everything and people every time more poor. This is the trouble in Cuba.”
It’s almost as if the USA is trying to destroy the economy with no regard for the Cuban people! Who would have thought?
Ironic, isn’t it? The US has embargoed Cuba for decades, long past the point of where the country was under Russian influence, and now Cuba is once again turning to Russia from the desperation caused by the embargo.
The cruel continued embargo of Cuba by the US is a clear example of its much lauded values, democracy and ‘free world leadership’.
So true Snibbo.
A missed opportunity for Jake to dig deeper into what makes Cuba tick.
Yes, the US embargo has hurt the Cuban people for over 60 years. No mention of the fact that it is in violation of the Charter of the UN and of international law. But then when has the US ever supported or abided by UN resolutions or international laws that were not in its interests?
May I suggest, having spent time in Cuba, that the single party Socialist / Catholic country has done as well as could be expected with the above impediment.
Free health care, education from primary to university, food rationing and with the outbreak of COVID in 2020 their own vaccines Abdala and Soberana, both with efficacy rates of around 92%.
Cuba has a policy of sending medical staff to countries to assist in emergencies.
One of the first countries to send medical aid to Italy at the outbreak of COVID.
Offered to send medical aid to the US in 2005 to assist in the aftermath of Hurricane Katrina with the loss of nearly 1,400 lives, with the offer finally rejected by President Bush.
What a contrast with Australia. We allow ourselves to become tenants in our own country to largely US corporations, fleecing us of our natural wealth, with little to show for it.
As an example we see the brave and self-reliant Cubans standing up against the might of US big pharma and producing their own COVID vaccines and exporting them to mainly third world countries. We on the other hand flog off our own Commonwealth Serum Laboratories(CSL) and find ourselves at the mercy big pharma during the COVID pandemic.
Great. Another poster child for people to defend neo-liberalism.
If I had a dollar for every person who, on the one hand, are terrified that any form of government spending will turn a country into the Weimer Republic, Zimbabwe, Venezuela and now Cuba, whilst on the other hand show no concern about banks creating trillions of dollars in debt…..
Yep yeppity yep. Just abandon all hope and retreat into hedonism.
“The most incredible [thing] is we see people from the government with Mercedes-Benz, nice houses, nice everything and people every time more poor. This is the trouble in Cuba.”
Straight that, it’s almost as if Communist revolutions have a habit of installing new elites, corrupt, and inequality. Who would have thought?
It’s not like communism has any sort of monopoly on that sort of poisonous fraud.
Perhaps, but Cuba along with China, the US, Russia and other poorly run countries show time and again that: property rights and rule of are critical to sustainable growth, transparently regulated competitive markets are the best way to lift living standards, and a welfare state is important but should be well targeted.
Why is the third point relevant and how do we cater for a world post-AI and with ageing populations?
So in relation to your question:
Welfare is indeed important and key to overcoming inequality, but should not be so expansive as to constitute “middle class welfare” – hence being targeted. Wealthy retirees should fund their own ageing.
Regulated competitive markets means being clear where and when Ai is acceptable (see recent news that research grants limit use of Ai due to privacy concerns). Transparency means the reason and desired outcome of regulation is well explained to market participants (preventing monopolies, tackling climate change).
Finally, property rights means Ai should be accountable to the fact that it draws on other people’s work as part of the learning process (they cannot create and are essentially fancy regressions). I suspect we will come to a point where people who have had their content stolen will want their recompense.
I’m only interested in the welfare point (I agree about the rest).
Why is welfare – any kind – bad?
And why should we not be able to embrace AI, other types of automation and ageing populations without having to worry about a loss of jobs?
That time has arrived already – see suits from Sarah Silverman and others targetting Open AI.
You have not really given any argument as to why welfare should be “well targeted” – whatever that means – other than hand-waving.
I wouldn’t advocate an entirely untested welfare system, but I’d be happy to have some pretty loose thresholds – and most of what gets called “middle class welfare” is really just to support the privatisation of services that should simply be universally accessible and publicly funded (healthcare, childcare, education, etc).
Like non-communist Haiti for example, or non-communist Dominican Republic and evey other third world S’house capitalist paradise that accords great respect to free markets and property rights.
Dont forget that Australia is also famous for politicians who become mysteriously wealthy following a stint in parliament. Hawke and Keating both bought harbourside mansions after their time in politics. Hockey and Pyne are ones to watch.
Ka-ching.
I’d suggest the biggest problem with virtually any sort of post-agricultural society is hierarchy. It’s not in any hierarchical power structure’s interest to foster critical thinking, which absolutely cripples our greatest strength as a species – cooperation.
The only way to hardwire against corruption is anarchy.
Changing tack, Jake, not tact. As in tacking a sailboat.
Whenever a numpty like this turns up I always wonder, not “where do they find ’em?” – they seem to be bred in vats – but “WHY?”.