Economic experts and businesspeople say Russia’s invasion of Ukraine is deepening Cuba’s three-year-old currency crisis as import costs rise, undermining a nascent recovery and threatening further hardship for residents.
Vital imports, including fuel and grain, have seen prices soar between 25% and 40% this year, putting further pressure on a government chronically strapped for dollars, said the businessmen, who include three foreigners with years of work in joint ventures as well as the head of a Cuban factory. “The Cuban government feels the pain, as does the general population and the nascent sector of Cuban private entrepreneurs. Things are going to be very difficult for Cuba in the short and medium term,” said Canadian lawyer Gregory Biniowsky, who has been consulting on business and investment in Cuba for decades.
The Cuban businessman, who like his foreign peers requested anonymity, said state companies were already working under difficult conditions before Havana’s longtime ally Russia attacks Ukraine in February and that these conditions deteriorate. “We are impacted by power, fuel and other reductions in our allocated plans. We were already scratching the barrel to keep going and now it’s getting worse,” he said.
Communist-ruled Cuba imports about 60% of the fuel and 65% of the food it consumes, according to the government. Soaring import costs risk worsening shortages, already forcing citizens to queue for food, medicine and other basics. In late March, Economy Minister Alejandro Gil said rising prices were undermining plans to cut import costs, adding that gas shortages and power outages were partly due to rising prices. fuel and disruptions to navigation.
“Until the month before last … a 40,000 ton diesel tanker cost us $35-36 million,” he said, “and today that same ship costs $58 million “. Cuban gasoline and electricity prices are set by the state, which absorbs the higher import costs. The same goes for some foodstuffs, which the government distributes through a rationing system, leading to shortages and soaring prices in the informal market when it runs out of cash.
“The collapse of the Russian economy will have serious repercussions on trade and financial relations with Cuba. And you also have more indirect impacts through rising prices,” said Cuban economist Ricardo Torres. WHERE IS THE MONEY?
The war-induced price spikes are just the latest blow to the country’s finances, which have already suffered from former US President Donald Trump’s sanctions on US tourism and remittances and the coronavirus pandemic. which has closed tourism elsewhere. “They’re taking hit after hit on the chin,” said one of the foreign businessmen.
The Cuban government did not respond to a request for comment for this story. Cuba is not a member of the International Monetary Fund or any other global lending body from which it could seek assistance to cushion the crisis.
Cuban pesos are not exchangeable outside the Caribbean island nation, making it dependent on dollars earned from exports and services such as tourism to pay for everything from fuel, food and medicine to agricultural supplies, machinery and spare parts. The cash crunch led to a 40% drop in imports during 2020-21, the government reported, even as it failed to honor countless payments to creditors and suppliers, more than a dozen diplomats and businessmen told Reuters at the time, and stopped exchanging foreign currency for pesos on the domestic market.
Cuba’s economy shrank 9% in the first two years of the pandemic, according to official figures, as shortages caused by the government’s tight budget led to unprecedented power outages and protests last July. The government was forecasting 4% growth this year, but tourism and some other sectors like sugar were well below expectations in the first quarter, according to state media.
“Investors are all very worried because rising prices can only worsen shortages, power outages, transportation problems and the ability of our state partners to pay us,” said one of the men. foreign affairs.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)