The Cuban peso lost 86% of its value in one year, and the regime entered a new crisis

Cuba’s government announced that official retail inflation represented 42.08% in January 2023, based on a survey of “official prices” dramatically affected by nationwide shortages.

Monthly inflation reached 2.32% in the first month of the year after a peak of up to 4.21% in October 2022.

But the official figures are far from alternative estimates.

In practice, shortages of key goods and services are supported by transactions in informal markets, with prices much higher and tied to the evolution of supply and demand.

US economist and professor at Johns Hopkins University, Steve Hanke, estimates that the country’s real inflation climbed to 81% year-on-year during the month of February, practically double what was announced by the government.

According to the same indicator, Cuba observed a level of inflation that exceeded 220% year-on-year in October of last year.

It also postulates that the Cuban peso, unified under the new monetary system after the disappearance of convertibility, lost up to 86% of its value compared to the US dollar throughout 2022.

The monetization of the regime’s brutal fiscal imbalances between 2020 and 2021 led to the collapse of the monetary system, and despite the financial repression, the inflationary outburst became unstoppable.

The Miguel Diaz-Canel regime regulated an official devaluation of 380% since August last year, but despite the strong correction of the exchange rate, the gap concerning the informal market represents 50% and accounts for the inflation that still remains repressed by the system.

The socialist system entered into crisis when the Government incurred significant fiscal imbalances in 2020 (a deficit of almost 18 points of GDP), in addition to the high deficits maintained in previous years.

Cuba recorded an imbalance that averaged 5% of GDP between 2008 and 2019, and by 2021 it rose to 11.7% of output.

The only feasible alternative to finance the imbalances was monetization.

The Government unified the exchange market (with strong controls on access to foreign currency), eliminated the convertible peso (CUC) linked to tourist services, and generalized the current peso for most of the country’s transactions, a currency lacking in value and backing.

The result was a violent inflationary explosion, followed by shortages after the entrenchment of numerous price and quantity controls throughout the island. None of these policing methods achieved concrete results in stabilizing the country.

With information from Derecha Diario

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