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The communist failures that await Obama when he goes to Cuba

The communist failures that await Obama when he goes to Cuba
Published: Mar 5, 2016 8:05 a.m. ET
Ration books, worthless currency show Cubans need more economic opportunity
By BARRY D. WOOD

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.

Source: The communist failures that await Obama when he goes to Cuba –
MarketWatch –
www.marketwatch.com/story/the-communist-failures-that-await-obama-when-he-goes-to-cuba-2016-03-05

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