Cuba's Growing Problems with Cash and Administrative Price Ceilings

Last Saturday, I left home to replenish my food supplies. The result was rather modest, because there is simply no way for the Cuban government to guarantee that private vendors accept digital payments. We are facing an extraordinary cash shortage, which has led to a preposterous degradation of the digital payment system: it is becoming almost useless.

To be conservative, I would say that fewer than 10 percent of the small businesses occupying spaces along the iconic Calle 124 in Havana's Marianao municipality accepted digital payments. A sort of commercial fair is held there every Saturday, allegedly offering products at modest prices. Those businesses that did accept digital payments limited them to just 1,000 Cuban pesos through their personal bank accounts, rather than through the accounts linked to their tax records.

To speak of 1,000 Cuban pesos today is to speak of water slipping through your fingers. That amount buys roughly 1.3 kilograms of rice, or 1.4 pounds of chicken, or a small combo consisting of a 400-gram can of tomato paste and a 500-gram package of spaghetti.

But the main frustration this situation produces is not knowing where responsibility lies among the different actors involved. This is not about portraying the private sector as the villain. We deserve to know how, in an unprecedented and irresponsible manner, the State banking system's capacity to meet the demand for cash collapsed.

This was not a problem that suddenly emerged one morning. It was the result of a crisis that had been building for some time. Now, once again, price controls are being imposed on the premise that the profit margin should not exceed 30 percent of a product or service's costs. But experience has shown that administrative imposition does not solve the underlying problem. Inflation is not defeated; it is merely repressed or hidden.

And this is where another fundamental issue emerges: the lack of transparency throughout the supply chain. How can we independently determine a reasonable price for products that are currently in very short supply—such as cooking oil or eggs—without a comprehensive understanding of the costs incurred along specific supply chains?

Local governments are promoting the same reference prices everywhere. But this approach leads to the absurd implication that the cost of getting a liter of cooking oil onto the shelves of an establishment in Havana is the same as the cost of getting that same liter onto the shelves of a business in my municipality in faraway eastern Cuba. Transportation, logistics, procurement costs, and other differences disappear from the equation.

And this brings me to the main point—and where I will conclude. How is it that, under Mexican capitalism, to cite one example, the government and the private sector have been able to sit down and reach voluntary agreements to stabilize the prices of essential goods, while in Cuba dialogue is not even seriously attempted? Of course, such a dialogue might not be particularly convenient for some interests and inconsistencies within the Cuban state apparatus. But a functioning economy cannot be built on distrust, administrative decrees, and opaque supply chains.

Source for the cover image, generated with GPT technology.