Economic Thoughts on Cuba

Some economic thoughts after my latest one week trip to Cuba. For reference, I've been to Cuba for music and cultural research beginning in 1995. From 2008-2018 I took a break. Always just in Havana. 

To me, the law of economics that is proved that most often, even more than S/D curves or competitive advantage, is that if the state doesn't allow a free market, the black/informal market will play its role. On display in Cuba in spades right now. 

First, I need to explain the money here. The main currency is the CUP. I don't even know what the acronym stands for, but it's the Cuban peso. The official exchange rate is 140 CUP/USD. But the only time that is used is if someone deposits dollars into a bank account. Which no one does. I exchanged my dollars into CUP for 170. In general, the informal exchange rate has been 160-180 for 2023. 

Second, there's another currency, the MLC (moneda libre convertible is my best guess) that is off-limits to most Cubans. Not for legal reasons, just practical ones. MLC are bought with USD or Euros at a 1/1 exchange rate. There are no physical MLC, it's all of a debit card. 

Most stores sell items in CUP. Inventory is limited. Then there are the stores that sell in MLC which are for tourists, foreign residents, and Cubans with access to dollars. These stores have better inventory, but even then don't have some necessities all the time. 

The informal market here is almost a missing since it's the primary market. Most transactions occur person to person. The stores with the most transactions are usually ones within houses. Arbitrage is huge here. Those with MLC can buy a crate of beer for 1 MLC (or $1) and then sell it out of their house for 200 CUP for a 17% on each one. Buying beer in a store in CUP is difficult since there hardly ever is any. When there is, the brand is random, the price is often equal to the street price if not more, and you're stuck with the quantity they're currently selling it in (20 or more but you only want one). Most of the Cubans I met are involved in arbitrage in one way or another. 

Gas lines are nuts. Some days only 5 cars deep. Today was about 10 cars deep and about 20 trucks waiting for diesel. Not sure what the price was. I'll have to try to find out. So no one can say "there's no gas," but you just need to wait in line for half an hour or more to get it. 

Huge amounts of construction going on. Mainly hotels. No idea where the capacity is going to come from. The newest hotels are largely empty. Perhaps 20% capacity. But about 5 new hotels in Miramar since my last visit 4 years ago with about the same number under construction. With all the problems in Cuba, though, I think it's never been better for purely tourist purposes. 20 years ago, the only "luxury" hotel was Melia Cohiba. Now there at least a dozen. None of the scarcity is visible for tourists. Tourist restaurants are well stocked. Hotels are clean and modern. Prices, though, have definitely risen. 

Aside from new construction, buildings are in very bad shape. Even in Miramar, the neighborhood of embassies and headquarters of foreign companies, there are buildings falling down. Centro Habana is even worse, with at least a building per block closed off because it could tumble at any second.

 If morale is any gauge, this is the worst Cuba has ever been. People have always said Cuba is bad (with a smile). This dates back to 1995 - the tail end of the special period. But every single person I asked, at least those old enough to remember it, agree that now is worse than the special period ever was. 

There's a simple solution. Free markets. And Cuba has a perfect example of the transition from socialist to quasi-capitalist in Vietnam. I wish they would pursue it. 

P. S. Oh my God, and how could I forget the amount of time wasted counting money. I went to exchange money with 5 $100 bills. The amount of money I got back was about 5 inches high. At that point I was happy to just take his word that it was $85,000 pesos, but that might leave me exposed to future estafa. So I counted it all. Kind of. 

Dinner in a restaurant can cost from 2 to 3 thousand pesos. The most common bills are 100 and 200 paid. That's anywhere from 10 to 30 bills that needed counted by the customer and then again by the waitress. They even have they're own way of counting: went they get to 1000 pesos, the bill that completed the 100 is folded perpendicularly to the rest as a type of band almost. This happens thousands of times a day in just the tourist sector in Havana. Imagine how many work hours it takes up throughout Cuba to count money making these bundles of 1000 pesos. And imagine how think a wallet is if it wants to carry $100 worth of pesos!