Cuba’s Deepening Economic Crisis Is Putting Diaz-Canel in a Bind

A woman selling avocados waits for customers in Havana, Cuba, July 9, 2022 (AP photo by Ramon Espinosa).

By William LeoGrande Cuba’s Deepening Economic Crisis Is Putting Diaz-Canel in a Bind

HAVANA—Cuba is suffering. That was the inescapable conclusion from a recent trip to the island. The aged electrical grid is collapsing for lack of maintenance and spare parts, causing sporadic blackouts across the island. Factories bereft of raw materials and electricity are only operating part-time. And whether it’s the lack of enough food in stores, fuel at gas stations or medicine in hospitals, the hardships facing the Cuban people are palpable.

The twin blows of U.S. sanctions and the COVID-19 pandemic have drastically reduced Cuba’s foreign exchange earnings, plunging the island into its worst economic crisis since the collapse of the Soviet Union. Foreign exchange receipts have dropped 45 percent, prompting a reduction in imports of 27 percent in 2020 and 40 percent in 2021. The result is pervasive shortages of all kinds of goods.

The first blow hit in 2019, when the Trump administration adopted a policy of “maximum pressure” to cut off Cuba’s sources of foreign exchange. Trump blocked the flow of most family remittances sent by Cuban Americans abroad, causing cash remittances to fall from an estimated $3.7 billion in 2019 to $1.9 billion in 2021. He also prohibited most travel to the island by non-Cuban Americans and drastically curtailed air service from the U.S. in a bid to cripple tourism. His administration tried to interdict Venezuelan oil shipments and successfully pressured Latin American countries to end all medical service contracts with Cuba. Trump activated Title III of the 1996 Cuban Liberty and Democratic Solidarity Act to deter foreign investors by threatening them with litigation in U.S. courts for profiting from property that belonged to U.S. citizens and corporations before it was nationalized by the Cuban government. And in its final months, the administration put Cuba back on the list of state sponsors of international terrorism, crippling Cuba’s ability to engage in international financial activity.

The COVID-19 pandemic hit even harder. Cuba’s preventive health care system and strict quarantine policy made it more successful than most countries at containing the virus at first, and the country was able to develop its own vaccines to quell the outbreak. But the economic impact was devastating. On March 24, 2020, the government closed the island to all nonresidents, shuttering the tourist sector, which makes up the largest component of Cuba’s economy, generating more than $3 billion annually. The number of foreign visitors fell by 75 percent in 2020 and 92 percent in 2021. Tourism began to gradually recover in 2022 but is still only a third of its pre-pandemic levels.

These external shocks have been exacerbated by runaway inflation triggered by an economic reform gone awry. On Jan. 1, 2021, the Cuban government implemented the long-awaited unification of its currency and exchange rates, creating a single Cuban peso and a single exchange rate pegged at 24 pesos to the dollar. Economists predicted that the reform would trigger inflation, so the government raised state salaries to match the anticipated increase in prices. But inflation surged far more than expected, forcing the government to devalue the currency to 120 pesos to the dollar. The black-market rate is 33 percent above that. The price surge has yet to subside, with many Cubans reporting that their salaries are not adequate to meet their basic needs.

The most poignant and, for Cuba, the most costly manifestation of the public’s exhaustion is the sharp increase in emigration.

The depth of the economic crisis has produced an unprecedented level of popular frustration, anxiety and discontent. The first clear manifestation came on Jul. 11, 2021, when, in a rare and largely spontaneous display of mass popular protests, thousands of Cubans across the island took to the streets, chanting anti-government slogans and demanding it take action to improve their living conditions. When rolling electricity blackouts spread last year, dozens more demonstrations broke out in the neighborhoods hardest hit. Last fall, popular discontent was registered in the lowest voter turnout ever for city council elections.

But the most poignant and, for Cuba, the most costly manifestation of the public’s exhaustion is the sharp increase in emigration. Frustrated at the slow pace of economic reform and the government’s lack of a strategy to address the crisis, more Cubans are leaving the island than ever before. In 2022, more than 313,000 arrived in the United States, almost all of them opting for the land route through Central America and Mexico to the U.S. southern border. That is the most arrivals in any year since 1959 and twice as many as arrived in the Mariel boatlift of 1980, the peak prior year. Those leaving Cuba are disproportionately young, posing a serious demographic problem for a country that has a low birth rate and an aging population. In addition, for a country that prides itself on its educational system, the loss of human capital is crippling for future development.

Cuban leaders seem well-aware of the problems they face, both economic and political. President Miguel Diaz-Canel routinely recites the litany of obstacles that must be overcome to get Cuba back on the path to development. On the economic front, the government needs to curb inflation, fix or close unprofitable state enterprises, reduce the fiscal deficit, rebuild Cuba’s failing infrastructure, pay the foreign debt and attract more foreign investment.

Unfortunately, most of these tasks depend on forces beyond Cuba’s control—namely, global food and energy prices, the post-pandemic recovery of international tourism and, most importantly, U.S. sanctions policy. Last May, U.S. President Joe Biden relaxed some of Trump’s restrictions on travel and remittances but left the others in place.

In the political arena, the government has more autonomy. By tightening down on dissent, including arresting and harassing critics, the government has prevented any organized opposition from coalescing. But it has done nothing to strengthen public confidence in its ability to tackle the underlying problems driving discontent. Diaz-Canel exhorts government officials and Communist Party cadres to be open and responsive to people’s complaints. But as the political environment has polarized, even constructive criticism has come under fire for giving ammunition to Cuba’s enemies.

A major obstacle is the government’s own internal division between those who favor accelerating the reforms then-President Raul Castro began in 2011, and those arguing that the pace of reform should slow down amid the current crisis. That battle appeared to have been won by the former in July 2020, when Diaz-Canel launched new reform measures, but the politically costly mismanagement of the currency and exchange rate reform has reenergized the debate.

Regardless of the pace of reform, to recover the public’s trust, the government will have to demonstrate that it’s responsive to people’s needs and has a viable strategy to get the country out of the current crisis. That’s a daunting task for a government that can no longer rely on the prestige of Fidel and Raul Castro, or their ability to forge consensus among a fractious political elite.

Yet the task is urgent if the government hopes to restore the population’s faith in the future, convincing Cubans, especially young Cubans, that their dreams can best be realized by staying on the island rather than leaving for Miami or Madrid.

William M. LeoGrande is professor of government at American University in Washington and the co-author with Peter Kornbluh of Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana (University of North Carolina Press, 2015).

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