Tripled prices

By Guillermo Rodríguez Rivera

The recent decision by the Cuban government to remove from its bloated payrolls more than one million workers who earn wages without really contributing to the production of material goods or services, and the new authorization for the development of a private economy are launching a new stage in the evolution of the ailing Cuban economy.

Since the demise of the Soviet Union and the European socialist bloc, which formed the Council for Mutual Economic Assistance (CMEA), of which Cuba was also a part of, special emphasis was placed on obtaining foreign exchange through a strong network of stores that sold goods for freely convertible currencies, in order to alleviate the acute deficit caused to Cuba by the loss of 85 percent of its markets.

In fact, prices of these shops were calculated in U.S. dollars, so it was best for the client to convert his currencies – francs, German marks or Spanish pesetas – into U.S. currency. In 1993, when Cuba lost its beneficial trade with the European socialist countries because they abandoned that social system, dollar possession was decriminalized in Cuba.

Dollar flow was authorized and the number of Cuban businesses products and services sold for that currency was greatly expanded.

While the CMEA existed and Cuba was a member of it, the country had a parallel market in national currency. Now it reappeared, but only in dollars.

In 1968, the huge national network of retail trade was nationalized. Since then, the Cuban state has had an exclusive that can be called, without fear of error, a monopoly.

To me, almost all monopolies are bad. I say “almost” because there are activities – the production and marketing of weapons of all kinds for instance – that should be clearly monopolized by the state to significantly reduce the commission of violent acts and to keep war from being promoted by the manufacturers of weapons who profit from it. The gun makers become a force that determines the policy of the country, as in the case of the U.S. military-industrial complex.

From the outset, the Cuban trade monopoly has left consumers with no alternative. You can go from one store to another, and only rarely will you find a product you couldn’t find in the previous store or at a different price. No store is interested in competing with the others or emulating them.

Unanimity prevents the development of any initiative. No special attention is paid to the customer, because if he becomes annoyed, all he can do is go to another store that’s exactly the same.

In this article, I would like to focus specifically on the prices of products sold in those stores.

The current hard-currency shops (Tiendas Panamericanas, TRD and others) have their antecedents in the shops that, more than 20 years ago, sold their goods for A, B and C bonds  that Cubans who traveled abroad bought with the hard currency they brought from abroad, generally converted into U.S. dollars.

When the crisis of the 1990s turned hard-currency remittances in one of the main sources of dollars to the country, bonds were no longer needed. Dollar circulation was allowed, and any citizen could buy with them. But the prices of products rose by more than 200 percent.

One of the leading brands of cooking oil sold in those hard-currency stores was the Mexican “La Patrona.” It cost 1 dollar a gallon, but when the dollar began to circulate freely, the price rose to US$2.40.

In those days of rising prices, I received an invitation to participate in an event in Mexico. Out of curiosity, I went to a retail market and checked the price of “La Patrona” oil. A 1-liter plastic bottle, exactly the same as the one marketed in Cuba, was sold in the Mexican-peso equivalent of 80 cents of a dollar, one-third of what a consumer paid in Cuba.

In a sense, by buying at a very high price all the products sold in our hard-currency stores, Cuban consumers have been subsidizing the violent crisis suffered by the national economy following the collapse of the USSR and the socialist camp.

The question is: how much longer will this subsidy last? Now that the subsidies that the state gives to certain products – in line with the wages it pays – will be removed, will the products largely subsidized by consumers continue to be sold?

It is true that many Cubans receive remittances in dollars or euros – and even in pounds sterling and Canadian dollars – which places them in a consumer status much higher than the Cubans who do not receive them.

Those who receive remittances can buy those products with greater ease, but, for a long time now, those stores have had among their regular customers Cubans who do not receive remittances and collect their salaries in local currency only. In fact, the dollar remittances are already taxed by the discount the dollar suffers when traded for CUCs [convertible pesos].

Every month, a Cuban housewife has to buy 3 CUCs, because the CADECAs do not change fractionary money – i.e., 75 Cuban pesos from her salary or her husband’s – to pay for the 2-and-some CUCs for a liter of oil at the TRDs or the CIMEX shops. The ration-card oil is not enough and, for years, the available oil has been not imported but domestic.

The average worker has to constantly go to these stores to buy not luxury items – is a refrigerator or a television a luxury item? – but daily necessities, such as cooking oil, tomato paste, bathroom soap, washing detergent, toilet paper.

Much has been said about the subsidies given to products sold to consumers below cost. It is logical that a healthy economy should seek to be rid of these subsidies. But I also think that it must apply fair prices to the products sold in hard-currency stores. And I think we need to do that for the following reasons:

1. Prices that are tripled or nearly tripled place a very heavy burden on the economy of Cuban workers and devalue the already inadequate wages in national currency, which cannot cope with the high prices.

2. The subsidy granted by these prices to our economy can prompt our finances to “lean” on the support they receive from those prices, giving our producers no incentive to be more efficient. High prices offset the shortfall in production, but also keep production from growing.

3. The exorbitant price of any product encourages its theft and illegal resale: a bottle of sunflower oil is easily sold on the black market for US$1.90, taking into account the US$2.40 that the state-run store charges for it legally.

Perhaps our economy cannot, dragging all the old problems it now drags, restore fair prices now, but I think our state should consider it an essential need for the near future, prior to the unification of the two currencies that circulate in the country.

It means eliminating another subsidy that distorts the economic process and severely hampers the already precarious economy of the Cuban citizen who does not receive payments or remittances in foreign currency.

 

Guillermo Rodriguez Rivera, a professor at the University of Havana, is a writer.