Power outages loom

Power outages loom
ELÍAS AMOR | La Habana | 7 de Julio de 2016 - 09:08 CEST.

What we had been auguring for months has come to pass: Castro's economy
is entering a phase of maximum intervention, very similar to a "Special
Period", whose consequences nobody can anticipate. The difficulty of
this juncture and the scope of the restrictive measures slated were
addressed in a talk given by Marino Murillo Jorge, the country's
highest-ranking economic official, at the National Assembly's
Commission on Economic Affairs, which, on its opening day, analyzed
compliance with the Economic Plan during the first half of 2016.

This is a plan that is facing a crisis as a result of the paralysis of
the "engines" that had driven the growth of Castro's economy.
Specifically, the problems are "falling oil and nickel prices, and a
failure to meet the sugar production levels and revenues called for in
the plan." The convergence of these critical phenomenon, internal and
external, impacts the financing of the economy and means that, once
again, Cuba will have to face "a tense situation with regards to
liquidity, which is not new, but entails taking a set of measures,"
Murillo said.

He went on to add that "services vital to the population shall be
maintained, as will internal monetary equilibrium, and what that means
for retail trade, as well as regulations designed to increase the Cuban
peso's purchasing power and the investment program linked to Cuba's
future development." These decisions will entail an increase in the
public deficit, doing irreparable damage to the internal balance the
economy needs to improve its international credibility.

Under such conditions, Murillo stated that it would be very difficult to
achieve 2% growth in the GDP, which may indicate that Castro's economy
is already in recession during the first half of this year, and, what is
more serious, this temporary situation could get worse in the coming months.

Murillo blamed the economy's lack of liquidity on "falling oil and
nickel prices, and failures to meet the sugar production and revenues
called for under the plan." The importance that the Castro regime
assigns to oil prices is noteworthy. In fact, it is the subject of the
only coverage this news received in the newspaper Granma, from which we
draw here. A reader with the handle ID PP96 wrote: "I don't understand
why the drop in the price of oil affects the liquidity of our economy.
Cuba is an oil-importing country. Thus, in my opinion, if prices fall,
this should be beneficial for the economy. This is confusing for me. I'm
not an economist. Please, could someone clarify this situation ...? "

The reader is absolutely right. Countries lacking oil (such as Spain,
for example, which imports 100% of the crude oil used in its economy)
are benefitting from lower prices on world markets, which allows them to
obtain trade surpluses because exports clearly surpass imports, and due
to the actual Terms of Trade (TOT). In contrast, for Castro's economy
the fall in oil prices is detrimental because the regime has received
from Venezuela, pursuant to an agreement between Castro and Chávez,
covert subsidies pegged to those prices that allow for the resale of
petroleum byproducts in other countries.

Thus, the Cuban regime wants to see, as if it were an oil-exporting
country, high oil prices, in order to be able to generate more resources
from that process of exchange and resale involving Venezuela. If prices
fall, as has happened, revenues decrease. Thus, an external factor
becomes an internal one affecting the economy.

In the case of nickel, the explanation seems more evident. Problems in
the sugar sector and failures to meet planned targets are "classics" of
the Castro economy, arising from the existing model, which quashes
economic freedom and property rights.

The regime's solution to the liquidity problem is to "reduce liquid
expenses as much as possible and exploit the numerous reserves existing
in inventories, as the economy today has 1.2 billion in useful inventory
over what is stipulated in the plan." What this means is that power
outages are close; that investments in infrastructure, so necessary and
urgent for the national economy, are cancelled or postponed sine die;
and that subsidized food prices will further impact the State's general
account, creating larger deficits, without this meaning that the goal of
increasing the population's consumption capacity will be achieved.

Under such circumstances remittances from families abroad, and tourism
revenues, will play a key role in bolstering liquidity in Castro's
economy. Murillo, however, did not devote a single line in his speech to
these questions. I wonder why that is.

Source: Power outages loom | Diario de Cuba -
http://www.diariodecuba.com/cuba/1467875293_23653.html