Cuba’s new parliament will face a familiar economic hangover
For Jose Guerra Ferrer, a Havana-based industrial engineer, “the economic situation in Cuba is bad”. “I hope it can be addressed by the new parliament,” he says, with reference to national assembly elections this weekend.
In recent years, Cuba’s parliament has implemented gradual policy adjustments to try and ease economic constraints and that is Guerra Ferrer’s hope with the country’s upcoming elections.
The country’s highest political body is assembled through committees such as trade unions and student organisations. Once candidates, most of whom are members of the Communist Party of Cuba, or PCC, are nominated, they can confirm their choice for president.
That is certain to be the incumbent, Manuel Diaz-Canel, who took over from Raul Castro in 2018. The following year, in 2019, Diaz-Canel, a PCC stalwart, adopted a new constitution. Amid growing political dissatisfaction, it was designed to modernise Cuba’s entrenched state apparatus.
Voter absenteeism has become a feature of recent elections in Cuba. Turnout for the November 2022 municipal elections, for instance, fell below 70 percent for the first time, indicating disengagement in a political system that depends on public support.
Decades of sanctions
After US-backed leader Fugencio Batista was toppled in 1959, Cuba became a one-party-state led by Fidel Castro and his successors. Since then, the PCC has defied expectations by surviving decades of economic isolation and the disintegration of the Soviet Union, a key ally.
Since the early 1960s, the cornerstone of US foreign policy towards Cuba has been a controversial trade embargo, among other restrictions. Then, in 2015, the Obama administration began normalising relations with Cuba, including a shift away from sanctions.
By contrast, Donald Trump reintroduced old measures and added new ones as well. He barred US tourism and limited the amount of money Cuban Americans could send to their relatives (some remittance restrictions have been eased under President Joe Biden).
“The truth about sanctions is that repercussions are multilayered,” says Guillaume Long, Ecuador’s former minister of foreign affairs. “Governments are prevented from following standard protocols, which undermines state-building capacity.”
He stressed that “there is no doubt that Cuba’s economy has suffered under US sanctions”. The country also experienced a painful adjustment after the collapse of the Soviet Union in 1991. Up to that point, the USSR supplied 90 percent of Cuba’s petroleum needs and 70 percent of all other imports, including food and medicine, mostly at subsidised prices.
Between 1989 and 1994, Cuban trade with the former Soviet Union plummeted by 89 percent. While domestic production was squeezed, the government consolidated its control over the economy. Large public enterprises have survived through privileged access to credit and foreign currency.
Today, Cuba’s economy remains undiversified and commodity-dependent. Tobacco and sugar account for roughly 30 percent of foreign exchange earnings. Cuba also exports healthcare services by sending physicians and nurses to Brazil and Venezuela. Tourism, meanwhile, represents an important source of revenue.
Elsewhere, the PCC has succeeded in establishing reputable education and healthcare systems. Not only is Cuba’s life expectancy higher than the United States’, it is also the smallest country in the world to have successfully developed a vaccine against COVID-19.
Due to the outsized role of tourism in Cuba’s economy, COVID-19 dealt the island a body blow. Tourist arrivals fell dramatically during the pandemic, from four million in 2019 to just 356,000 in 2021, Bloomberg News reported. Foreign currency inflows slowed significantly.
To cope with falling international reserves, the PCC was forced to unify Cuba’s dual exchange rate system in January 2021. This involved devaluing the Cuban peso (CUP), which had been set at parity with the US dollar for decades, to the then unofficial rate of 24 pesos per greenback.
However, the new rate was “overvalued” according to Alberto Gabrielle, a senior researcher at Sbilanciamoci, a Rome-based political think tank. “The devaluation did not achieve an equilibrium in Cuba’s import-export mix, causing a scarcity of goods and nudging up inflation,” he added.
Though difficult to measure, Cuba’s official consumer price index rose by 70 percent during 2021. Unofficial estimates showed that inflation increased between 100 percent to 500 percent over the same period. “Queues at supermarkets and pharmacies went from long to longer,” said Gabrielle.
Together with a surge in coronavirus cases at the start of 2021, the hit to purchasing power led to a groundswell of social unrest. In July of that year, Cuba witnessed the largest anti-government demonstrations in years.
Though public dissent is forbidden, thousands of protesters took to Cuba’s streets, voicing concerns over food supplies and the handling of the pandemic by the authorities. The protests were quickly stamped out, but they did succeed in rattling the regime.
“The government got scared, especially when inflation persisted into 2022,” noted Gabrielle. To counter these trends, authorities introduced a second exchange rate for personal transactions in August 2022 at CUP120:$1. This cooled the demand for dollars and eased import price pressures.
At roughly the same time, Cuba was struck by two concurrent shocks. On August 6, the island’s main fuel import facility – the Matanzas supertanker – was struck by lightning. Three of its tanks caught fire, triggering electricity blackouts nationwide.
A month later, in September, a powerful storm surge rolled across western Cuba. Hurricane Ian knocked out the national power grid. It also prompted thousands of evacuations and caused extensive physical infrastructure damage, including to tobacco and sugarcane fields.
Gradual opening up
Even before the events of last year, the PCC agreed to expand private sector activity in an effort to boost output and relieve goods shortages. In February 2021, the government agreed to grant private company status for 2,000 listed professions (up from 127 previously), facilitating partnerships with foreign investors and limiting state control over commercial activities.
While a new law granting equal commercial rights for private companies and state firms has yet to be agreed upon, the government is hoping that piecemeal reforms will stimulate growth.
“Heterodox policies will be maintained, but a gradual opening will probably be the direction of travel for the new parliament,” said Guillaume Long.
Until then, large numbers of Cubans are expected to try and leave the country. A record 220,000 Cubans were caught at the US-Mexico border in the fiscal year 2022, which ended on September 30, Reuters news agency reported. In December 2022 and January 2023, US Customs and Border Protection reported nearly 50,000 encounters with Cuban migrants.
The experience of Guerra Ferrer, the engineer, is not uncommon, “I have many friends who’ve emigrated. My son may also leave to help my wife and I once we retire.”
China’s economy is raising red flags across markets as rebound disappoints
Financial markets have been raising red flags recently about China’s economy, but analysts said Wall Street is missing the big picture.
Growth in the world’s second largest economy accelerated to 4.5% in the first quarter from 2.9% in the fourth quarter following the relaxation of COVID restrictions late last year.
But more recent data have pointed to slowing growth in retail sales as well as drops in home sales, industrial production and fixed-asset investment.
That disappointed investors hoping for a bigger post-COVID rebound and led Wall Street to trim its growth estimates for the full year. Worries about China’s economy have rippled through markets.
Earlier this month, the yuan fell past a psychologically important level of 7 per dollar for the first time this year. The price of copper, once expected to see sizable gains due to high demand from Chinese factories, hit a four-month low in mid-May.
Meanwhile, shares of luxury brands that are reliant on China’s consumer base, have started tumbling on stagnant activity.
Chinese equity markets were not immune to slowing performance, as the CSI 300 index continued to slip this week. At the end of April, declining hopes for added stimulus brought the Shenzhen and Shanghai indices down by $519 billion in one week alone.
The stalling performance prompted Rockefeller International’s Ruchir Sharma to call the rebound narrative a “charade.”
But for one analyst, the growing pessimism around China’s economy could stem more from unrealistically high expectations and Wall Street’s tendency to prioritize immediate metrics over long-term outlooks.
“I feel sorry for these people in some ways, because every time the Chinese release some data, they have to say something about it,” Nicholas Lardy of the Peterson Institute for International Economics told Insider.
Heightened anticipations may be due to China’s response to the 2008 financial crisis, when Beijing infused the economy with massive stimulus and achieved double-digit growth, Pantheon Macroeconomics’ Duncan Wrigley said.
However, it also led to a huge debt hangover that China has worked to resolve for much of the last decade. So while demand is slowing, limiting debt growth is equally prioritized by party leaders, he said.
The country set a more conservative 5% growth target in March, which both analysts see as achievable. Although the country will avoid full-scale stimulus to reach the goal, it has a number of tools to ensure growth keeps ticking upwards.
Despite its aim to limit debt, China could increase the availability of cheap loans to sectors in need, as well as lift the lending quota for the three main policy banks, while allowing them to invest in local projects, Wrigley said.
If this isn’t enough, he noted that the People’s Bank of China could ease financial conditions later in the year, such as decreasing the reserve requirement ratio for banks.
But youth unemployment remains high, while heightened geopolitical risk may deny China’s access to foreign technology.
And private investment, a major source of growth in China, has nearly collapsed in the past 15 months, Lardy said.
This may have to do with stringent regulation of Chinese business, as President Xi Jinping expands the role of the state in the market, dissuading business owners from investing in their firms, he said.
“That’s the one big negative factor that I worry about more than all the other things that we have talked about. Why is private investment so weak?” he said.
Quebec proposes making French mandatory for all economic immigration programs
Quebec Premier Francois Legault has proposed major changes to Quebec’s economic immigration criteria.
Speaking on May 25 with the Minister of Immigration, Francisation and Integration, Christine Frechette and the Minister of the French Language, Jean-François Roberge, Legault says the changes will ensure that nearly 100% of new economic immigrants to Quebec will know French before they arrive in the province by 2026. This is meant to promote Francophone economic immigration in Quebec.
“As we have seen for several years, French is in decline in Quebec,” said Legault. “Since 2018, our government has acted to protect our language, more than other successive governments since the adoption of Bill 101 under the Lévesque government. But if we want to reverse the trend, we must go further. By 2026, our goal is to have almost entirely Francophone economic immigration. We all have a duty, as Quebecers, to speak French, to transmit our culture on a daily basis, and to be proud of it.”
Discover if You Are Eligible for Canadian Immigration
Knowledge of oral French will be required for adults. This is meant to ensure that those who wish to settle in Quebec will be able to communicate in French throughout day-to-day interactions at work and in their communities.
The changes are part of a new permanent immigration program for skilled workers in Quebec. The province says the Skilled Worker Selection Program will “take into account the diverse needs of Quebec.”
Candidates in the program will be evaluated in four categories that have not yet been made clear, but the province says that three of the categories will require that the principal applicant and their accompanying spouse have knowledge of French.
There will also be revisions to existing programs. For example, the work experience requirement will be removed from the Quebec Experience Program for graduate students from a French-language study program.
Family reunification measures include making it mandatory for the guarantor to submit a plan for reception and integration that will support the learning of French for the person they are hosting.
Immigration is a shared responsibility between the federal and provincial governments. Quebec’s agreement is unique from other provinces in that it can select all its economic immigrants. Quebec does not have the authority to select family class sponsorship applicants or those who arrive in Canada as refugees or other humanitarian classes.
For 2023, Quebec has targeted that 65% of newcomers admitted to the province will be economic class.
Increasing immigration numbers in Quebec
The province is also considering raising the number of permanent selection admissions from 50,000 to 60,000 per year by 2027. This is in stark contrast to Legault’s recent comments that there was “no question” of Quebec accepting any rise in the number of newcomers and publicly rejecting the federal Immigration Levels Plan, which has a target of 500,000 permanent residents admitted to Canada each year by the end of 2025.
These changes also follow Quebec’s Immigration Levels Plan for 2023, where it was announced that the province would move away from plans that forecast only the coming year and begin introducing multi-year plans for immigration by 2024.
Why the changes?
Quebec is unique in Canada as it is the only province where French is the official language. The province is fiercely protective of its language, saying it is vital to protecting Quebec’s unique culture and status.
Legault is the leader of the Coalition Avenir Québec (CAQ) and is currently in his second term as Quebec’s premier, having been reelected last October. One of the main pillars of the CAQ party is to protect the French language in Quebec.
Immigration was one of the key issues in the recent election. Throughout his campaign, Legault said that Quebec would allow only 50,000 immigrants per year into the province as it would be difficult to accommodate and integrate more than that into Quebec society. He said that accepting more than that would be “a bit suicidal.”
Regardless, Quebec, like the rest of Canada, is experiencing a labour shortage as the population ages and the birth rate remains low. A report released last March by the Canadian Federation of Independent Business shows that the province could face an annual shortfall of up to nearly 18,000 immigrants, who would be able to fill Quebec’s labour needs.
Lira hits record low, but stocks rise after Erdogan win in Turkey
The Turkish leader won the presidency for a third time after a run-off vote on Sunday.
The Turkish lira has plunged to record lows after the re-election of President Recep Tayyip Erdogan, a sign that currency markets are not confident in the country’s economic future after the longtime leader’s re-election.
The Turkish currency weakened to 20.01 to the dollar on Monday after the high-stakes run-off a day earlier.
But Turkish stocks, on the other hand, rose as Erdogan entered a third decade in power with the benchmark BIST-100 index up 3.5 percent and the banking index rising more than 1 percent.
The lira fell to a record low as the country battles a cost of living crisis and depleted foreign reserves.
On the campaign trail, Erdogan pledged to slash inflation to single digits and boost economic growth, a message he reiterated in his victory speech late on Sunday. But analysts said his economic policies are unorthodox and predicted they will lead to more pain for Turks.
“In our view, Erdogan’s biggest challenge is Turkey’s economy,” Roger Mark, an analyst at the Ninety One investment management firm told the Reuters news agency. “His victory comes against a backdrop of perilous economic imbalances with his heterodox economic model proving increasingly unsustainable”.
Hasnain Malik, head of equity research at Tellimer, an emerging markets research firm, told the agency: “An Erdogan win offers no comfort for any foreign investor.”
“Only the most optimistic would hope that Erdogan now feels sufficiently secure politically to revert to orthodox economic policy,” he said.
Interest rate cuts sought by Erdogan sparked a devaluation of the Turkish lira in late 2021 and sent inflation to a 24-year peak of 85.5 percent last year. The president had argued that higher interest rates cause inflation while central banks around the world were raising rates to reduce price rises.
Turkey’s struggling economy, also reeling after the country’s devastating double earthquakes in February, was a major thorn in Erdogan’s prospect for re-election.
The leader has defended his economic policies, reassuring Turks that investment, production, exports and an eventual current account surplus will drive up Turkey’s gross domestic product.
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