The urgency of the Cuban economy in light of the Middle Eastern conflict

Since the outbreak of the conflict in the Middle East, we are witnessing a time of particular turmoil where the economy has become the primary concern for investors, businesses, and workers in general, due to the uncertainty and rapid changes in events that occur almost overnight. The prices of oil, gas, and fertilizers soar one day, and the next, comments from President Trump lead to unexpected gains in stock markets that were starting to turn red. Governments find it very challenging to interpret the signs of these events and adopt the most appropriate measures to confront such a turbulent scenario in the best possible way.

For this reason, at this moment, what the leaders of specialized international economic organizations have to say is particularly relevant and important. One of them has already spoken: the Managing Director of the International Monetary Fund, Kristalina Georgieva, who warned governments around the world on Monday that "they must prepare for extreme scenarios in an increasingly unstable international context, marked by geopolitical conflicts, energy tensions, and a succession of crises that are testing the resilience of the global economy."

The message from the IMF is timely, as it catches many countries trying to anticipate how events may unfold in the short to medium term, in an environment of significant uncertainty. The IMF estimates that the steady increase of 10% in oil prices, as a result of the crisis, could raise global inflation by about 0.4 percentage points, in addition to causing a slight decline in global economic growth. In other words, dependence on oil remains an economic upheaval factor for countries, and the efforts in renewables over the past decades fall short of addressing situations like the current one.

And here comes the most relevant part of what Georgieva said, when she explicitly urged governments to "focus on the factors they can control." Immediately, the question arose as to what those factors might be, and the answer could not have been clearer or more emphatic; there are three priorities: "strengthening economic institutions and public policy frameworks, maintaining fiscal space to act in times of crisis, and, above all, being agile in responding to unexpected shocks."

In Havana, where the leaders are concerned about the rising price of oil and have announced their support for those who, at first glance, seem unlikely to emerge victorious from the conflict, they should keep this message from Mrs. Georgieva in mind.

Basically because the communist regime, in relation to the organizational design of the Cuban economy, has never given due attention to the role of economic institutions and the most appropriate and efficient framework for public policies. In Cuba, there is only one framework, the one established mandatorily in the Constitution. A framework whose application has led to a failed state like the current one, in which they are trying, at all costs, to maintain the rules of collectivist socialism. Rules that have practically been left behind in all countries around the world, but in the last dictatorship of the west they insist on maintaining at any cost, at a high price for Cubans.

The second recommendation from Mrs. Georgieva is even more important than the first. She referred to the need to maintain fiscal space to take action in times of crisis. This is something that has never been respected in Havana, as there is a long tradition of budget deficits that strain monetary control of inflation through the expansion of the money supply to finance the unproductive apparatus of an excessive state. The fiscal space of the Cuban communists is nonexistent.

And finally, Havana has never been quick to respond to unexpected shocks. Issues are analyzed, weighed, evaluated, measured, and calculated, but the result remains the same: they are never resolved. According to Ms. Georgieva, shocks will keep coming and impacting the Cuban economy, which, like the economies of the rest of the world, will have to face successive crises that may further complicate the necessary departure from the Marxist paradigm and the requirement for fiscal control, even if this conflict ends soon.

The message from the director of the IMF is very concerning. The Cuban economy is not prepared to overcome this economic situation, as it cannot even manage these three factors that could provide a pathway to solutions in the face of the crisis. Under these conditions, the urgency and priority of an economic dialogue to address the crisis may be more necessary now than ever, but the risks involved are formidable.