Cubans have taken to the streets in cities across the country over the last week, in a wave of rare public protests to express their frustration with rising prices, falling wages and the failings of the island’s long-standing communist government to address these economic challenges.
Cuba’s coronavirus pandemic-ravaged economy shrank by 11 percent in 2020, the island’s economy minister said, the sharpest contraction since the collapse of the Soviet Union in the early 1990s.
Soaring global food prices this year and the island’s devalued currency — coupled with shortages of basic goods that predate the pandemic — have fuelled discontent. Both pro- and anti-government demonstrators have taken to the streets since Sunday.
Cuban President Miguel Diaz-Canel has blamed the protests on United States sanctions, accusing Washington of “economic asphyxiation”. But he also is acknowledging — notably for the first time — that the Cuban government’s policies have also played a role.
So what are the economic forces behind Cuba’s latest protests? Here’s what you need to know.
Start from the beginning. What kind of economy does Cuba have?
Cuba has what’s known as a command economy, where the government — not market forces of supply and demand — largely determine the production, availability and value of goods.
Command economies are central features of communist societies, and Cuba has been ruled by its communist party since forces led by Fidel Castro overthrew dictator Fulgencio Batista during the Cuban Revolution in 1959.
What does a command economy look like?
In command economies (also called planned economies), the government controls many of the means of production, while private ownership of industries, property and other resources is significantly limited.
Before the Cuban Revolution, a small elite owned much of the island’s land, industries and wealth. The revolution was designed to make Cuba a more equal society, and in many ways, it succeeded in that goal.
So if it tackled inequality, why is the economy such a mess?
Part of the problem is that government control of the majority of industries can lead to inefficiency, bureaucracy and mismanagement. That, in turn, can translate into shortages of goods, higher prices and frustration for citizens.
But the US embargo against Cuba has certainly done the island’s economy no favours.
Tell me about the US embargo.
Since 1960, the US — Cuba’s neighbour 145km (90 miles) to the north and once major trading partner — has maintained a trade embargo against the island in an effort to force its communist leaders from power.
The embargo, a form of severe economic sanctions, hasn’t achieved its goal, but it has made life for ordinary Cubans harder. Medicine, food and all sorts of other goods are in chronically short supply.
The embargo has also provided the island’s government with ammunition for its claims that its economic woes are the fault of the US.
Is the government blaming the embargo for its current economic problems?
Partly. In a speech Wednesday, Diaz-Canel slammed the embargo, which Cubans refer to as a “blockade”, as “cruel” and “genocidal”. But he also acknowledged for the first time that the Cuban government’s actions have played a role in people’s discontent.
“We have to gain experience from the disturbances,” Diaz-Canel said. “We also have to carry out a critical analysis of our problems in order to act and overcome, and avoid their repetition.”
In a tweet Thursday, Diaz-Canel said the embargo has made overcoming the island’s problems harder, tweeting that “the blockade surpasses any desire, it delays us, it does not allow us to advance at the speed we need”.
Has the Cuban government tried to fix the problems its policies have created?
On paper. Back in 2011, then-President Raul Castro announced reforms aimed at bringing more market-oriented policies into Cuba’s state-run economy, including allowing people to set up small businesses and eliminating some of the government’s notorious bureaucracy.
But 10 years later, the country’s leadership has been slow to enact many of those incremental economic reforms, leading to frustration — especially given the urgent conditions Cubans are facing right now.
What are some of those conditions?
The COVID-19 crisis has gutted tourism, cutting off a major source of income for Cubans who work in the industry and a major source of US dollars for the Cuban government. That’s especially bad news right now when surging commodity prices mean the government needs to spend more to import food.
Remittances, a lifeline for struggling Cuban families estimated at $2bn to $3bn per year, plunged after former US President Donald Trump tightened restrictions on Cuban Americans sending money back to the island. The pandemic has only served to further stifle the flow of remittances.
And a shortage of foreign currency and the US embargo have also hit Cuban sugar production hard, with the state’s sugar monopoly reporting that this year’s harvest stood at just 68 percent of the country’s planned 1.2 million tonnes, the lowest level since 1908, Reuters news agency reported.
What role does the island’s weakened currency play in the protests?
A big one. At the beginning of this year, the Cuban government formally ended its dual currency system, devaluing its peso for the first time since the 1959 revolution.
The Cuban peso, known as the CUP, was created as the island’s currency by the first president of the country’s post-revolution Central Bank, Ernesto “Che” Guevara. The CUP has always been used for everyday domestic transactions, and many Cubans are paid their wages in CUPs.
But thanks to the US embargo and some of the island’s state-run economic policies, the value of Cuba’s currency evolved to become a tricky issue. Following the collapse of the Soviet Union — Cuba’s major ally — the island allowed people to use the US dollar alongside the CUP starting in 1993.
So do Cubans still use the peso and the dollar?
Yes, sometimes. Faced with a cash crunch, the Cuban government reallowed “dollar stores” last year that let people buy goods like food, toiletries and electronics with bank cards loaded with US dollars or other foreign currency.
That, in turn, let the government snap up those dollars to help deal with its liquidity crisis.
But the Cuban government phased out a third currency — the Cuban convertible peso, known as the CUC — earlier this year, leading to problems.
What’s the deal with CUCs?
The Cuban government created the CUC in 2004 for conducting state business and buying goods from abroad after it banned US dollars. It pegged the CUC 1:1 to the greenback and stipulated it couldn’t be taken out of the country.
Until this year, those working in the tourism sector, for example, were still paid in CUCs, leading to disparities with Cubans paid in CUPs. That’s partly why Cuba’s government scrapped the CUC.
So what happened to all of the CUCs?
Cubans had through June to trade in their CUCs for CUPs. But the devaluation of the currency means they lost a significant amount of money in doing so, something that hit private-sector workers who have been paid in CUCs for years — workers like those in the tourism sector — particularly hard.
It has already been a tough year for those workers, as the coronavirus pandemic significantly curbed tourism and as former US President Donald Trump tightened the US embargo against the island.
What does the rest of the world say about the embargo?
Resoundingly: end it. For years, the United Nations General Assembly has taken a vote, and the results are overwhelming.
The UN’s resolution calling for an end to the embargo was adopted for the 29th time on June 23, with 184 countries in favour of ending it, three abstaining and just two voting to continue it: the US and Israel.
The vote is symbolic, however, since only the US Congress can actually end the economic sanctions against Cuba. So far, the administration of US President Joe Biden — and the US’s narrowly Democratically-controlled Congress — have not made a move to do so.
What have the protests achieved so far?
The Cuban government announced it would ease customs restrictions on food, medicine and hygiene products brought into the country by travellers, but it’s unclear how much of a difference that will make since tourism remains down as the pandemic continues.
More broadly, the protests have served to draw attention to Cubans’ plight and spotlighted long-standing issues that need to be addressed with new urgency.
The rapid growth the U.S. economy has seen is about to hit a wall – CNBC
The U.S. economy is expected to post another roaring growth spurt in the second quarter, before a slow and steady dose of reality starts to sink in.
Gross domestic product is projected to accelerate 9.2% for the April-to-June period, according to a FactSet survey. The Commerce Department will release its first estimate for second-quarter GDP on Thursday.
In a pre-pandemic world, that would have put annualized growth at its fastest level since the second quarter of 1983. However, the current circumstances and the outsized policy response they generated make this merely the third straight quarter of GDP that sits well above the post-Great Recession trend.
Things are about to change, however.
The economy is creeping back toward normal, the open checkbook from Congress is about to get tighter, and millions of sidelined American workers will be returning to their jobs. That means a gradual reversion to the mean for an economy more used to growing closer to 2% than the much stronger levels it has turned in during the reopening.
“Growth has peaked, the economy will slow a bit in the second half of this year, then much more noticeably in the first half of 2022 as fiscal support fades,” said Mark Zandi, chief economist at Moody’s Analytics. “The contours of growth are going to be shaped largely by fiscal policy over the next 18 months. The tailwind just blows less strongly, and may stop altogether by this time next year.”
It’s been a long road getting here, but the economy has gotten very close to its pre-pandemic self.
In fact, according to a running gauge that Jefferies keeps, overall output is at 98.6% of its “normal” level before Covid-19 turned everything upside down. The firm uses a slew of indicators to measure then versus now, and finds that while some areas such as employment and air travel are lagging, retail and housing have helped push overall activity to just below the 2019 level, at 98.6%.
“When I look holistically at household income dynamics and balance sheets, I see a very, very positive situation, very healthy fundamentals, and it’s hard to be pessimistic on the outlook,” said Aneta Markowska, chief financial economist at Jefferies.
Indeed, household net worth totaled $136.9 trillion at the end of the first quarter, a 16% increase from its 2019 level, according to the Federal Reserve. At the same time, household debt payments compared with disposable personal income fell to 8.2%, a record low going back to 1980.
But much of that net worth has been driven by increases in financial assets such as stocks, and personal income has swelled due to government stimulus payments that are slowing and eventually will stop.
Demographics holding back growth
Keeping up such a rapid pace of growth will be difficult in an economy that has long been held back by an aging population and lackluster productivity. Those issues will be exacerbated by dwindling policy support as well as an ongoing battle against Covid-19 and its variants, though few economists expect widespread lockdowns and the plunge in activity that happened in early to mid-2020.
“What we see is an economy growing robustly above trend albeit at a slower pace through 2023,” said Joseph Brusuelas, chief economist at consulting firm RSM. “Absent any productivity-enhancing policy support, we eventually will move back to trend because there’s not much we can do about the demographic headwinds, which will eventually drag growth back to the long-term trend.”
But there also are shorter-term headwinds that should temper those gaudy growth numbers.
An aggressive spurt of inflation brought on by supply constraints and huge demand related to the economic reopening will hit output. While many economists, including those at the Federal Reserve, are willing to write off the inflation as temporary with soaring used auto and truck prices contributing a large component, officials including Treasury Secretary Janet Yellen warned that the price increases are likely to continue for at least several months.
Inflation combined with fading fiscal support also then will serve as a growth limit.
“The economy is facing supply constraints with residential investment likely a drag and the change in inventories remaining negative,” Bank of America U.S. economist Alexander Lin said in a note. “Looking ahead, this is likely the peak, with growth cooling in the coming quarters.”
Capital Economics forecasts a below-consensus 8% GDP figure for the second quarter, then a drop to 3.5% in the following period.
“With surging prices squeezing real incomes we suspect the pace of monthly growth will remain lackluster, setting the stage for a sharp slowdown in consumption and GDP growth in the third quarter,” wrote Paul Ashworth, chief North American economist at Capital Economics.
The pandemic is another wild card.
Cases of the delta variant are spiking in a handful of states, and health officials worry that the U.S. could face a surge like the one hitting some European and Asian countries. Few if any economists expect another wave of lockdowns or similar constraints in the U.S., but pressure from abroad could hit domestic growth.
“Export platforms like Vietnam are being locked down now,” Brusuelas said. “Vietnam is becoming a more important cog in the global supply chain, so we are watching that closely.
Brusuelas added that the negotiations over the debt ceiling also could shake up things in the U.S. Yellen said Friday that extraordinary measures the U.S. may need to take to continue paying its debts could hit troubles as soon as October.
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Restarting a sustainable, export-oriented economy – Business in Vancouver
Clean, sustainable products and services will be key to B.C.’s economic recovery | Chung Chow
This column was originally published in BIV Magazine‘s Trade issue.
As B.C. looks to restart its economy, the demand for our province’s clean and sustainable products and services is surging across a variety of sectors, demonstrating the key role that trade will play in our economic recovery.
Exports increased 24% year-to-date for April – that’s up $3 billion over the same time last year. It’s a big boost for the provincial economy, with a majority of our exports being commodities in great demand. Our stringent environmental standards in wood exports, burgeoning clean tech sector and high standards in labour protections mean that when other markets buy from us, they’re also contributing to a cleaner and more socially responsible global economy.
B.C. was committed to international trade long before the pandemic. It creates new opportunities for businesses, and more importantly, it creates good jobs and prosperity for people in B.C. When businesses export, they are more resilient. Access to more markets means they have a more diverse customer base and aren’t as impacted by fluctuations in their local economies.
We have a program perfectly designed to help small businesses get their goods and services to new markets. It’s called Export Navigator. This program offers businesses free expert guidance on exporting. Businesses get connected with an expert advisor who will help “navigate” them through the export process. It’s hugely beneficial, helping businesses reach new customers for the first time and making the process a lot easier along the way.
We continue to support B.C. businesses in other ways as well. For example, we developed a series of grant programs to meet their unique needs, making over half a billion dollars available in direct supports. The Launch Online program helps businesses improve their online presence to attract and keep customers and meet demand as online shopping hit new heights during the pandemic. The Supply Chain and Value-Added Manufacturing grant helps B.C.-based manufacturers in the aerospace, shipbuilding, food processing and forestry sectors recover and grow, supporting them to seek efficiencies to continually keep goods flowing into the marketplace.
From natural resources and agrifoods to manufactured goods and high-tech goods and services, B.C. has a lot to offer to the world. We are a responsible, low-carbon producer of natural resources and manufactured goods, and we are working hard to make sustainability a larger part of B.C.’s brand and our global competitive advantage. Our priority is to help B.C.-based businesses start up, scale up, access global markets and succeed in the highly competitive world marketplace. The more we export, the more new dollars we bring into B.C. and generate revenue that supports government investments in health care, education and critical infrastructure.
We stand behind the high-quality goods that B.C. has to offer to the world. Globally, companies large and small are increasingly applying environmental, social and governance filters to their investment decisions. We are committed to growing our economy in a sustainable way, and are working on a new trade diversification strategy that will provide us with the opportunity to develop an updated, forward-looking and ambitious approach that aligns closely with these principles, while ensuring that our exporting businesses are maximizing the opportunities afforded to them through Canada’s existing free trade agreements. Our recently announced Mass Timber Demonstration Program is an example of how we are advancing technologies that can showcase to the world the possibilities of building with a more sustainable and environmentally friendly product from B.C.
The pandemic leaves behind many lessons and creates a once-in-a-generation opportunity for B.C. to redefine itself. We know the pandemic is not impacting everyone equally, with women and visible minorities being disproportionately impacted. This is why we are committed to continuing to grow strong, robust industries that can provide good jobs for all of B.C.’s diverse populations.
Growth in trade will be a big part of our economic recovery, and as we transition through our restart plan, we will continue to engage with businesses, industry and key stakeholders to ensure we’re supporting their efforts to expand globally.
Our goal is to diversify our trade sectors to include not just our natural resources, but clean tech, high tech, agritech and advanced manufacturing. We need to support our exporters and encourage new exporters to expand our opportunities in global markets and strengthen our resilience.
We’re committed to invest in people and in businesses to restore economic growth and we are confident that the entrepreneurial spirit of B.C.’s business community will rise to the challenge as we work together to build a better future with meaningful jobs and a strong, sustainable economy for all.
Ravi Kahlon is B.C.’s minister of jobs, economic recovery and innovation. George Chow is the province’s minister of state for trade.
This column was originally published in the July 2021 issue of BIV Magazine. The digital magazine can be read in full here.
ECB Lifts Restrictions on Bank Dividends as Economy Rebounds – Bloomberg
The European Central Bank said it will lift a cap on how much lenders can return to shareholders with dividends and share buybacks, while urging them to remain cautious given uncertainty in the pandemic.
The ECB “decided not to extend beyond September 2021 its recommendation that all banks limit dividends,” the central bank said in a statement on Friday. “Instead, supervisors will assess the capital and distribution plans of each bank as part of the regular supervisory process.”
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