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  HOME | Cuba

Financial Reforms Leave Cubans No Choice but to Enter Labor Market

HAVANA – Income from one’s job, or “la pincha,” is now essential as a matter of mere survival in Cuba, where in a bid to put everyone to work salaries have been sharply raised and subsidies slashed.

Even so, high inflation, a scarcity of resources and a recent peso devaluation threaten to stymie one of the Communist-ruled island’s most ambitious economic reforms in recent years.

Veralis Hernandez, a 28-year-old nurse who had been out of work for five years, is back earning a living at a Havana hospital with a monthly salary of 4,000 pesos (roughly $160 at the official exchange rate). Although the pay seems low, it is five times more than what a professional at her level had been earning in Cuba last year.

Facing severe economic problems stemming from a decline in aid from oil-rich but crisis-hit ally Venezuela, a pressing debt load, the drying-up of tourism revenues amid the pandemic and a ramping-up of the United States’ decades-old embargo, Cuba in January raised the state sector’s extremely low salaries – previously averaging less than $50 a month – by an average of 490 percent.

Prices, however, have also skyrocketed, occasionally due to supply and demand but in most cases via government decree.

Among the “regulated” basic items that the government had sold until now for a token amount and on a limited basis through a food rationing system, rice, bread, beans, cooking gas cylinders and electricity are now anywhere from 11 times to 25 times more expensive than before the island’s economic overhaul.

SUBSIDIES SHARPLY REDUCED

“If you increase the basic cost of living, you send a clear signal to those without a job: that they have to look for work. Anyone, even a family member or a friend, might have been able to pay those minimal amounts of the basic cost of living for you before, but not anymore,” Cuban economist Ricardo Torres told EFE.

Veralis, who stopped working as a nurse five years ago to take care of her grandmother, is motivated to be back at work because of the higher salary yet at the same time has no choice.

“I have a small boy. I need to give him a good quality of life and the best way I have is this. That’s why I decided to go back,” she told EFE.

Like her, more than 36,000 Cubans have entered the labor market thus far in January and most have found work in the state sector, according to the government, which says it has created 45,000 new jobs over that period.

Starting this week, a mobile app is facilitating access to job offers at state-owned companies and the restricted private sector, although the latter’s job-creation capacity, heavily reliant on tourism, has been significantly curtailed over the past year due to the coronavirus.

The app compliments a media campaign through which the island’s authorities have urged people to find work and justified an end to the socialist policy of heavily subsidizing basic products.

“This practice rests on a profound humanistic and social justice foundation, but it also led some to take that to mean that in Cuba you could live without working, that is at the cost of other people’s work and the state coffers,” the official daily Granma said shortly before the so-called Tarea Ordenamiento (Ordering Task), the name for the new package of economic measures, entered into force this month.

WHERE WILL THE NEW JOBS COME FROM?

“People are realizing that it’s necessary to work to have income and be able to have a dignified life with their families,” said Cuban President Miguel Diaz-Canel, who also pledged to prevent a situation whereby “someone goes looking for a job and doesn’t find one.”

Nevertheless, amid the country’s deep economic crisis, drastically increasing the number of employed people is a complicated task: “Where will those jobs come from? An economy in recession isn’t creating employment, but rather destroying it,” Torres said.

The economist sees two obstacles standing in the way of the government’s objectives: a lack of a sufficiently high level of investment to generate productive employment and already bloated state-sector payrolls.

In fact, when then-President Raul Castro expanded the scope of the private sector in 2010, the main goal was to reduce the swollen state workforce.

“If you have a budget deficit of 20 percent of GDP (gross domestic product), how can the government assign more resources to hire more people? It can’t,” the expert added.

The government’s strategy, according to Torres, consists of “transferring the responsibility of maintaining families from the state to the families.”

But for those who are unable to find work “the new situation means more impoverishment,” he said.

DANGEROUS PESO DEVALUATION

Another basic pillar of the government’s strategy has been the recent unification of the Cuban peso and dollar-linked “convertible peso” as one currency, bringing an end to a decades-old dual currency system.

Under the new system, there will now be just two means of payment in Cuba: the Cuban peso and the US dollar (with the official exchange rate set at 24 pesos to one greenback).

The dollar, which is not available at currency exchanges on the Caribbean island, can be used to buy higher-quality products at hard-currency stores.

Those stores, which do not accept the local peso, are a vehicle for the government to rake in the hard currency it needs to ease Cuba’s growing balance-of-payments deficit.

The difficulty of accessing dollars has caused its price to soar on the black market, where the greenback now trades for between 45 and 50 pesos despite threats of fines for speculators.

“You’re throwing more cash into circulation at a time of contraction in which there are no more goods and services nor more dollars in the economy. What’s going to happen? The price is going to go up. The black market keeps expanding and scarcity grows. It’s a logical and also a predictable outcome,” the economist said.

 

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