Cuba’s Officialdom Admits Shortcomings of Price Caps
“May Be a Cure Worse Than the Disease”
Participants on a government TV program insist that price controls were a measure agreed upon with the private sector.
HAVANA TIMES – The price caps on six basic products last July was a measure agreed upon with private sector companies, participants on the government’s Cuban television program Cuadrando la Caja [Squaring the Box] argued on Sunday. “When a price is going to be capped, it always has repercussions,” said Glenys Gonzalez Almager, Havana’s Finance Director. “That decision must also be consulted [with producers] and, when implemented, it must be widely publicized,” she summarized, referring to that process.
The first news of the price cap on cooking oil, chicken, pasta, detergent, sausages, and powdered milk began to circulate when some private business owners were summoned to meetings to discuss the measure. However, few were invited to these meetings, and many disagreed with a policy that threatened, from the outset, purchases they had already committed to. The official maintained that, thanks to the tariff exemption, a consensus was reached.
However, the data presented in the program indicates that such consensus was conspicuous by its absence. Between 138,000 and 140,000 inspections were carried out in the first quarter of the year, and violations were detected in 60% of them, stated Silvio Gutierrez Perez, a director of the Ministry of Finance. Although these figures were referring not only to the price caps on six products for private retailers, but also to the so-called “consensus prices” imposed by municipalities, where, judging by what was said, producer discontent is even greater.
“We haven’t been able to achieve this in all municipalities,” admitted González, who believes these meetings are very enriching and highlight the difficulties farmers face, including the real costs of imports and the informal foreign exchange market they must navigate to obtain the necessary inputs for agricultural production.
Sunday’s program was titled “Price Caps: Solution or Illusion?”, and experts admitted on countless occasions that the measure is not only controversial but also a double-edged sword. “Although they are implemented with good intentions, seeking greater purchasing power and greater access to products for low-income people, it is probably the regulatory policy in which the state finds most contraindications or that can cause the most problems in practice,” said Carlos Enrique Gonzalez, a researcher at the Center for Cuban Economic Studies.
“The first thing that happens is that there’s a disincentive for production and supply: if you cap the price of a product, I’m not going to produce it, I’m not going to sell it, I’m going to move on to another product,” he reasoned, and said, forcefully: “It could be serious from a nutritional perspective, and a well-intentioned policy could have a negative effect.”
In the expert’s opinion, the price cap should be temporary, highly technical, and analyzed after the fact. According to this monitoring, he said the measure has worked for chicken and oil, but not for other products, although he did not mention whether a modification of the decision is being considered.
Gonzalez’s defense of price caps as a very concrete measure also clashed with reality when he reviewed the many times this policy has been used in recent years. The specialist mentioned the controls in 2016 and 2019, “and now again,” he acknowledged. He also admitted that it has also been tried with private transportation, where it has been a resounding failure. “Let’s just say the results weren’t the best,” he softened.
The guests agreed that pricing policy has changed a lot in recent years, although that small “great revolution” consisted of shifting control from the state to the municipality. “Only a few [centralized] ones remain, the decisive ones, such as milk, livestock, fuel… which are important prices,” said Gutierrez, who spoke of macroeconomic indicators, of the long years that Cuba has been mired in high inflation and a high state deficit. “Let’s say we have the perfect storm: an economy with fewer products and more money,” he said, since the Central Bank never stopped printing banknotes.
Carlos Gonzalez argued that medium-term change can only be achieved through investment, which Cuba does not dedicate to food. Last year alone, the Cuban government invested 14 times more in tourism than in agriculture, 37.4% compared to 2.7% of total investment. “In terms of production, it doesn’t make much sense to make new investments if you have previous investments and idle productive capacity. Focus resources on achieving the production of those idle capacities, not new investments (…) Then there are possibilities that have a greater impact in the medium and long term,” he explained.
However, in the short term, he sees no other option than price caps. “Today, I don’t see any immediate measure other than controlling and regulating prices,” he said. This sounded especially negative because, minutes earlier, he had stated: “When we talk about price controls, the cure may be worse than the disease.”
Translated by Translating Cuba.