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Cuba Sets Price Controls In Bid To Fix Moribund Economy. But Will They Backfire?

cubecon.jpeg
Ismael Francisco
/
AP
A Cuban produce grocer counts cash at her stall in Havana this week.

Cuba's economy continues to sink. In the past year the island has seen increasing food shortages, utility outages and fuel scarcity. On Thursday Cuba's communist government took a drastic step. But it's one that economists say could backfire.

Thanks to the collapse of its ally and major oil supplier Venezuela, Cuba is having to spend more on fuel imports. President Trump's new restrictions on U.S. travel to Cuba have put a serious dent in the island's crucial tourism revenue. Then there's the dismal, inefficient output of Cuba's socialist economy itself. The government has recently had to ration food staples like chicken.

Now, in an attempt to get things under control, the Cuban regime is instituting price ceilings, at least on food and beverages.

But economists warn artificial price controls are a big reason Venezuela's economy imploded. That's because controls often discourage production – and not producing enough is the root of the economic crises in both Cuba and Venezuela.

The Cuban government's decision to raise salaries for more than a million government employees may worsen the situation further by creating inflation. That's another reason Venezuela's economy crashed.

Economists say a key solution is to allow more private business activity in Cuba.