Cuba's price control is short-term fix to production problem, economist says

Cuba's Finances and Prices Ministry issues 3 new resolutions

HAVANA – In a move some economists fear heads in the wrong direction, officials in Havana plan to cap prices on certain basic goods.

Starting Aug. 1, items such as water, fruit juice, soft drinks and beer will have set prices at small private cafeterias and bakers, the typical spots for the average Cuban. 

The government is setting the control as a way to make sure the population can afford and access these products which are often out of reach because of demand from the private sector. 

In Marianao, a Havana neighborhood, the owner of of one of the many cafeterias that line up along the military hospital said the government needs to lower the products' whole price so businesses like his can make more profit. 

Economist Omar Everleny Pérez said the price controls are a short-term fix to a long-term production problem. 

Pérez believes Raul Castro's reforms allowing for the legalization of small private businesses were a step in the right direction. 

"They have to open self-employment," Pérez said, referring to the restricted private sector that allows Cubans to offer services such as transportation and run small businesses such as bed-and-breakfast hotels, restaurants and hair salons. 

The price controls come as Cuba's Resolution 302 of the Finances and Prices Ministry under Cuban President Miguel Diaz-Canel mandates businesses "cannot increase current prices and tariffs of products and services."

Two other new resolutions, the 301 and the 300, focus on taxing personal income, social security contributions and increasing salaries and pensions. 

Entrepreneurs in the non-state sector said they are preparing for the policy to hurt their profit margins. The rule excludes imported products. Those who are not compliant risk losing their business license. 

The shortage of national products is increasing Cubans' reliace on imports. Diaz-Canel announced earlier this month that the state is going to stimulate local production. Pérez said the state needs to increase production to increase supply and lower prices. 

Pérez is among the economists who believe price controls should only be used temporarily, because when they are left for too long they can impact inflation and fuel black markets. 

About the Author:

In January 2017, Hatzel Vela became the first local television journalist in the country to move to Cuba and cover the island from the inside. During his time living and working in Cuba, he covered some of the most significant stories in a post-Fidel Castro Cuba.