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Egypt is currently being affected by an economic crisis. The IMF approved a loan of $12 million (to be paid over the course of 3 years). Egypt will need to go through significant economic changes and painful measures will need to be taken. However the intentions of the loan is to increase confidence in the government and attract foreign investment. This is an example of nation branding but intending to attract investors not necessarily tourists. The IMF did not just loan them money, they set fourth conditions that Egypt needs to abide by which sounds like CDOs (Collateralized Debt Obligation.)

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An Egyptian street vendor in Cairo on Friday. The country is struggling with soaring inflation and shortages of staple foods. Credit... Amr Nabil/Associated Press

CAIRO - The International Monetary Fund approved a $12 billion loan for Egypt on Friday, in a move intended to stave off economic collapse in the Arab world's most populous nation as it grapples with a plunging currency, soaring inflation and shortages of staple foods.

The monetary fund signed off on the loan at a board meeting in Washington after Egypt raised $6 billion in external financing and agreed to significant economic changes, including allowing the currency to trade freely and reducing energy subsidies. Those measures, although painful, are intended to increase confidence in the government and attract foreign investment.

The first installment of the loan, $2.75 billion, was immediately disbursed. Tarek Amer, the governor of the central bank, confirmed that it had been received Friday. The rest will be paid out over three years.

But some economists warned that the monetary fund's loan was only the first of several painful yet urgently needed steps to stabilize Egypt's economy, and in the short term, conditions for ordinary Egyptians may continue to deteriorate, a worrisome prospect for the country's leader, President Abdel Fattah el-Sisi.

Mr. Sisi has relied heavily on Saudi Arabia to bolster the economy, which started to tumble in 2011 during the uprising that overthrew President Hosni Mubarak. The Saudis and, to a lesser extent, other Persian Gulf countries have given Egypt $30 billion in aid over the past three years.

But of late the relationship with Saudi Arabia has deteriorated, and Egypt has found itself cut off by its Saudi benefactor.

Egypt's economic crisis worsened this year as a severe scarcity of foreign currency led to inflation and shortages of essential goods like sugar, rice and medicine.

Saudi Arabia did not send expected shipments of discounted petroleum products for October and November, and Egypt was forced to spend precious currency reserves to buy those products from other sources.

Expected levels of revenue from an expansion of the Suez Canal have not materialized. In addition, remittances from Egyptian workers in the Persian Gulf have dropped.

Reluctantly, Egypt turned to the monetary fund.

To meet the fund's requirements, the government agreed to painful policy changes that it had long avoided. It created a value-added tax. It raised the price of gasoline, to about 21 cents from 16 cents per liter - still extremely cheap, but expensive for low-paid Egyptians. It has progressively peeled back electricity subsidies.

The government floated the currency this month, and it lost nearly 50 percent of its value, wiping out savings and halving salaries. From a fixed exchange rate that had the Egyptian pound officially trading at 8.8 to the dollar, the pound has now been devalued to 16.7 against the dollar.

The monetary fund's loan will inject more money into Egypt's economy and signal confidence in the government, making Egypt more attractive to foreign investors, said Angus Blair, chief operating officer of Pharos Investments, a bank based in Cairo.

"If you look at what's happening, they are making the right choices," Mr. Blair said. Referring to fellow bankers, he said, "It's not going to be easy, but they are pleased that there is new thinking, which is what Egypt needed."

But the loan could imperil the Egyptian authorities, who have had to take steps that have created hardship across the country.

Nearly all Egyptians have been affected by the economic crisis, from wealthy students who can no longer pay the rising tuition fees at private universities to families who can no longer afford basic foods like tomatoes.

But on Friday, few Egyptians turned out for protests against the rising cost of living, which were called for before the announcement about the monetary fund's loan.

Security forces in armored personnel carriers, including masked men carrying assault rifles, were deployed across Cairo and other parts of the country to discourage such demonstrations. Worshipers were sparse in mosques. Roads were nearly abandoned, and shops that are normally open on Friday remained closed.

Hardships are likely to worsen in the near future for Egyptians. Inflation is likely to keep rising this year as the floating currency begins to push up the price of essential goods.

The government recently rolled out social service programs that it says will increase assistance for the poor, but only five million Egyptians have benefited so far. One-quarter of the more than 90 million Egyptians live under the poverty line, and many more live hand to mouth.

The cash transfer programs offer modest assistance, with one component providing families a maximum of about $35 every three months and another providing about $21 a month.

"It's only enough for food," said Olfa el-Sellami, a media adviser for the Social Solidarity Ministry, which oversees the program. "They can buy chicken, some ducks, some vegetables to sell, some sewing thread."

The monetary fund has said that it supports food subsidies and that the Egyptian government will try to increase aid and opportunities for the poor, including efforts to build public nurseries and provide vocational training for women.

Despite the new loan, some economists expressed doubts that Egypt would be able to recover. Samer Atallah, a professor of economics at the American University in Cairo, suggested that it was unrealistic to expect that Mr. Sisi's government, which had ravaged the economy, would now save it.

Mr. Atallah, noting the estimated $30 billion that Saudi Arabia and other gulf states had given Egypt, asked, "Where has it gone?"

The Suez Canal project had "no financial feasibility," he said. The government has not taken responsibility for other missteps, such as the accidental killing of 12 Mexican tourists. It has not fully explained the downing of a Russian flight over the Sinai, which killed 224 people on board. The government has also been handing over projects to the military, from building roads to controlling food ration cards. And the prosecution of Egypt's top auditor, Hisham Genena, after he exposed severe corruption, is also a chilling sign, Mr. Atallah said.

"The policy instability, the corruption, the bureaucracy," Mr. Attallah said. "When domestic investors are thinking twice, why would international investors come?"

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Painful Steps Help Egypt Secure $12 Billion I.M.F. Loan

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CAIRO - The International Monetary Fund approved a $12 billion loan for Egypt on Friday, in a move intended to stave off economic collapse in the Arab world's most populous nation as it grapples with a plunging currency, soaring inflation and shortages of staple foods.

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After the presidential election there was an increase in the value of the U.S dollar against worlds currencies. Emerging market countries and corporations that have been indulging on cheap dollar debt will face an increase in interest rates. Examples of value difference we saw a 10% against Mexican Peso and an 8% against the Japanese Yen. As a Western Union agent I send remittances for people and this information is crucial for customers sending to Mexico (specifically) they ask me how the dollar compares to pesos. The higher the exchange rate the more they want to send.

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A currency exchange board in Istanbul on Nov. 24. The lira fell so low against the dollar last week that President Recep Tayyip Erdogan of Turkey urged Turks to sell the dollars that they have been hoarding and buy their local currency. Credit... Chris McGrath/Getty Images

By

The election of Donald J. Trump has set off a monthlong run of investor ebullience, whose highlight has been a sustained increase in the value of the dollar against the world's currencies.

It is a surge that has been embraced on Wall Street as a powerful emblem for a United States economy potentially poised to hit a higher gear thanks to tax cuts, government spending and regulatory relief - policy measures that the president-elect has promised to enact immediately.

But around the globe, the surge in the dollar is provoking financial jitters.

Emerging market countries and corporations that have been binging on cheap dollar debt for more than a decade now face a spike in servicing costs and elevated debt burdens.

And the global financial giants - banks, insurance companies and mutual, pension and sovereign wealth funds - that have financed this $10 trillion borrowing bonanza must confront a period of higher interest rates and tighter financial conditions that will make them less willing to extend credit to companies and investors alike.

"It is the ubiquitous nature of the dollar and its role in the global banking system," said Hyun Song Shin, the head of research at the Bank of International Settlements, a forum for global central banks. "When the dollar goes up, it directly impairs the risk-taking capacities of banks and investors alike."

Last month, shortly after Mr. Trump's victory, Mr. Shin released a paper, circulated widely since, arguing that the new "fear gauge" on Wall Street is the direction of the dollar.

A sharp move up in the currency should be seen as a blinking red warning light for investors, he wrote. When it moves in the other direction, then it is "risk on," to use trader parlance for when it is time to lay down speculative bets.

Since the election last month, a broad index for the dollar has risen 4 percent. This move, however, masks even sharper increases against a number of currencies.

The dollar has gained 10 percent against the Mexican peso and 8 percent against the Japanese yen.

Against the Chinese yuan, the move has been less pronounced - just 1.5 percent. But Mr. Trump's combative language toward China has ignited concerns in Beijing that local savers will try to send more of their deposits abroad, putting more downward pressure on the yuan.

The rockiest reaction so far to the dollar's tear has been in Turkey.

When the Turkish lira fell to its lowest level in decades against the dollar last week, the country's president, Recep Tayyip Erdogan, took the unusual step of urging Turks to sell the dollars that they had been hoarding and buy their local currency.

With its high levels of debt in dollars and reliance on volatile capital flows for its financing needs, Turkey, more than most of its peers, has been vulnerable to the episodic fits of the emerging markets contagion that have plagued the global economy in recent decades.

Boldly new, as well as contentious, Mr. Shin's thesis has not been wholly embraced by economists and policy makers.

For example, William C. Dudley, the president of the Federal Reserve Bank of New York, the regulator that keeps the closest eye on incipient financial risks, has made it clear on numerous occasions that the dollar's recent rise should be seen as a positive sign.

It is not just what a strong dollar says about a growing United States economy, but it is the further prospect that, as a result, Japan and Europe may also emerge from their years of deflationary slough.

"The dollar is firm because people view the U.S. economy as having a better outlook - that is certainly a good thing," Mr. Dudley said in a recent interview with CNBC. "So that is not something I would be particularly concerned about."

But as Mr. Shin and his team of economists at the Bank of International Settlements see it, it is not just the threat of the dollar's rise precipitating a crisis in a dollar-sensitive market like Turkey, South Africa or Brazil that is cause for worry.

His concerns also center on the global banking system and the possibility that the dollar's rise will accentuate what he refers to as an emerging dearth of dollars, which could bring back memories of the financial crisis in 2008 and 2009, when a global rush into dollars created a liquidity panic.

Short-term borrowing rates skyrocketed, forcing hedge funds to shut down and banks to fail.

"The lessons of the dollar is that everything is connected," he said. "Spillovers and spill backs can loom large.

One way to observe this phenomenon is to track how much it costs to borrow in dollars for banks that use the yen, euro and Swiss franc.

Since the election, the cost of borrowing dollars short term in all these currencies has risen markedly, with Japan being the outlier.

And in countries like Malaysia, where exporters are hoarding dollars in fear of the currency weakening further, central banks are imposing rules requiring companies to exchange as much as 75 percent of their export earnings into the local currency, the ringgit.

Connections between sustained periods of dollar strength and bouts of financial instability have been drawn by other analysts, like Julian Brigden at Macro 2 Intelligence Partners. In particular, he points to two such periods.

The first is 1979 to 1985, when the dollar rose over 80 percent after Paul A. Volcker, then the chairman of the Federal Reserve, increased interest rates and President Ronald Reagan came to power pushing tax cuts.

During this period, the Latin American debt crisis peaked and the United States' trade deficit with Japan grew to politically unacceptable levels, prompting what has come to be known as the Plaza Accord - an agreement between the United States, Japan and Europe, the likes of which has not been seen since, to force a weakening of the dollar.

Then there were the years between 1995 to 2002, when currency crises rippled through Southeast Asia and the implosion of the dot-com boom in the United States rocked stock markets.

During such eras of dollar strength, global central banks were forced to dip into their reserves to defend their weakening currencies, leading to what some economists are now calling quantitative tightening.

That would be the flip side of quantitative easing, the policy of the past decade where central banks have flooded the world with cash in a bid to spur growth and combat deflation.

"This is a concern for Fed Chair Yellen," said Paul Christopher, an investment strategist at Wells Fargo Advisors. "In the type of global economy we live in, she has to be careful about the dollar increasing too much, creating dollar shortages and liquidity problems as a result."

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Surge in Dollar Provokes Jitters in Emerging Markets Around World

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By The election of Donald J. Trump has set off a monthlong run of investor ebullience, whose highlight has been a sustained increase in the value of the dollar against the world's currencies.

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Post # 8 (Dec. 7, 2016): More money more problems.

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Post # 8 (Dec. 7, 2016): More money more problems.

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In Portland Oregon, companies will be required (in 2017) to pay an extra 10% in taxes if their chief executives receive compensations more than 100 times the median pay of their employees, companies exceeding 250 times will see a 25% surcharge. (I love this) This new tax will generate a $2.5-$3.5 million a year. Unsurprisingly the people opposed are the local companies who will be affected, they believe that this will not reduce income inequality. (as if making 100 or 250 more than someone is close to equal) After reading this I questioned if then these opposing companies would attempt to go transnational and involve themselves in market seeking to incorporate outsourcing and avoid this tax.

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Taxing companies that dole out outsize executive pay in Portland was the idea of Steve Novick, a former environmental lawyer who has been a Portland city commissioner since January 2013.

"When I first read about the idea of applying a higher tax rate to companies with extreme ratios of C.E.O. pay to typical worker pay, I thought it was a fascinating idea," Mr. Novick, a Democrat, said in a telephone interview. "It was the closest thing I'd seen to a tax on inequality itself."

Mr. Novick, who lost a bid for re-election last month, said he had begun weighing such a tax about a year ago, but did not discuss it publicly until September.

Another supporter of the tax is Charlie Hales, the mayor of Portland.

"Income inequality is real, it is a national problem and the federal government isn't doing anything about it," Mr. Hales, a Democrat, said in a telephone interview. "We have a habit of trying things in Portland; maybe they're not perfect at the first iteration. But local action replicated around the country can start to make a difference."

Mr. Hales, who did not seek re-election, will leave office at the end of the month.

Portland officials said other cities that charge business-income taxes, such as Columbus, Ohio, and Philadelphia, could easily create their own versions of the surcharge. Several state legislatures have recently considered bills structured to reward companies with narrower pay gaps between chief executives and workers. In 2014, a bill in California proposed reducing taxes for companies whose executives were paid less than 100 times above the median worker. The bill did not pass.

Among those objecting to the new tax was the Portland Business Alliance, a group of 1,850 companies that do business locally. Alliance officials have predicted that the measure would not have the desired result of reducing income inequality.

"We see it as an empty gesture," said Sandra McDonough, the alliance's president and chief executive, in a telephone interview. "We think they'd be far better off trying to work with business leaders to create more jobs that will lift people up and improve incomes." Publicly traded companies, she added, are "an easy group to pick on."

Mr. Hales conceded that the pay ratio is "an imperfect instrument" with which to solve the problems of income inequality. "But it is a start."

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Portland Adopts Surcharge on C.E.O. Pay in Move vs. Income Inequality

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Taxing companies that dole out outsize executive pay in Portland was the idea of Steve Novick, a former environmental lawyer who has been a Portland city commissioner since January 2013. "When I first read about the idea of applying a higher tax rate to companies with extreme ratios of C.E.O.

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This article critiques and explains some ways that President-elect Donald Trump hopes to restore more rapid economic growth here in the U.S. The major theme is concerned with “trade deficit” this topic stood out to me because we learned in class that America imports exceed exports by $500 billion a year, this fact was reiterated in this article. Therefore, if better (revised) policies were put into place this may help eliminate this “trade deficit drag” and in turn gross GDP would be higher and more people would be employed. Another theme however, is that on a macroeconomic level it’s not that simple.

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Economic View

Credit... Lily Padul

The economic policy of President-elect Donald J. Trump is still a work in progress. But if campaign rhetoric is a reliable guide, reorienting trade policy may become one of the main goals of the new administration.

Perhaps the best indication of Mr. Trump's thinking is a report released by the campaign in September. The report, "Scoring the Trump Economic Plan: Trade, Regulatory and Energy Policy Impacts," was written by Peter Navarro and Wilbur Ross. Mr. Navarro is an economics professor at the University of California, Irvine. Mr. Ross is an investor whom Mr. Trump has chosen to be secretary of commerce.

A major theme of the report is concern about the trade deficit. In recent years, American imports have exceeded exports by about $500 billion a year. Mr. Navarro and Mr. Ross argue that if better policies eliminated this "trade deficit drag," gross domestic product would be higher and more people would be employed.

That conclusion is correct, but only in a superficial sense. Gross domestic product is, by definition, the sum of consumption spending, investment spending, government purchases and the net exports of goods and services. If net exports rose from their current negative value to zero, and the other three components stayed the same, domestic production would increase and, consequently, so should employment.

But a fuller look at the macroeconomic effects of trade deficits suggests that things aren't so simple.

The most important lesson about trade deficits is that they have a flip side. When the United States buys goods and services from other nations, the money Americans send abroad generally comes back in one way or another. One possibility is that foreigners use it to buy things we produce, and we have balanced trade. The other possibility, which is relevant when we have trade deficits, is that foreigners spend on capital assets in the United States, such as stocks, bonds and direct investments in plants, equipment and real estate.

In practice, these capital inflows from abroad have been large. Net foreign ownership of American capital assets has risen to about $8 trillion from $2.5 trillion at the end of 2010. American companies moving production overseas get a lot of attention, but this data shows that capital has, over all, moved in the opposite direction.

It is easy to understand why foreigners are eager to buy American assets. Despite the meager recovery from the financial crisis and recession of 2008-9, the United States remains one of the more vibrant economies of the developed world. And if you want a safe place to park your wealth, United States Treasuries are your best bet.

The trade deficit is inextricably linked to this capital inflow. When foreigners decide to move their assets into the United States, they have to convert their local currencies into American dollars. As they supply foreign currency and demand dollars in the markets for currency exchange, they cause the dollar to appreciate. A stronger dollar makes American exports more expensive and imports cheaper, which in turn pushes the trade balance toward deficit.

From this perspective, many of the policies proposed by Mr. Trump will increase the trade deficit rather than reduce it. He has proposed scaling back both burdensome business regulations and taxes on corporate and other business income. His tax cuts and infrastructure spending will most likely increase the government's budget deficit, which tends to increase interest rates. These changes should attract even more international capital into the United States, leading to an even stronger dollar and larger trade deficits.

We have already started to see some of these forces at work. In the 10 days after Mr. Trump's victory, the interest rate on 10-year Treasury bonds increased by 46 basis points (0.46 of a percentage point). The dollar appreciated by about 4 percent against a broad basket of currencies to its highest level since 2002.

But what about those tariffs that Mr. Trump sometimes threatens to impose on foreign countries? They would certainly curtail the amount of international trade, but they are unlikely to have a large impact on the trade deficit.

When American consumers facing higher import prices from tariffs stop buying certain products from abroad, they will supply fewer dollars in foreign-exchange markets. The smaller supply of dollars will drive the value of the dollar further upward. This dollar appreciation offsets some of the effects of the tariff on imports, and it makes American exports less competitive in world markets.

But it doesn't matter much, anyway, because in reality, trade deficits are not a threat to robust growth and full employment. The United States had a large trade deficit in 2009, when the unemployment rate reached 10 percent, but it had an even larger trade deficit in 2006, when the unemployment rate fell to 4.4 percent.

Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here. (And similarly, it is why so many workers want to immigrate here.)

Mr. Trump says he wants to restore more rapid economic growth. That is a sensible goal. But focusing on the trade deficit is not the best way to achieve it.

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Want to Rev Up the Economy? Don't Worry About the Trade Deficit

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Economic View The economic policy of President-elect Donald J. Trump is still a work in progress. But if campaign rhetoric is a reliable guide, reorienting trade policy may become one of the main goals of the new administration. Perhaps the best indication of Mr. Trump's thinking is a report released by the campaign in September.

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Post #10 (Dec. 8, 2016): Eating off of Cuba's plate.

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Post #10 (Dec. 8, 2016): Eating off of Cuba's plate.

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This article describes how with a slowly opening economy, warming relations with the U.S. and with a higher volume of tourism (3.5 million people), Cuba is seeing a swelling demand for food. Goods that originally Cuban’s had access to, are now going to tourists and the hundreds of private restaurants, causing an increase in food prices and bare shelves.
This relates heavily to “proper nationhood” as discussed in lecture. Economic efficiency is not occurring if natives see a growth of inequality. Peaceful cooperation can’t happen. Democracy is absent if Communism is present, and human rights are being violated.
(similar story of "Life and Debt")

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Workers in a lettuce field this past week at a farm in Alamar, outside Havana. Credit... Mauricio Lima for The New York Times

HAVANA - For Lisset Felipe, privation is a standard facet of Cuban life, a struggle shared by nearly all, whether they're enduring blackouts or hunting for toilet paper.

But this year has been different, in an even more fundamental way, she said. She has not bought a single onion this year, nor a green pepper, both staples of the Cuban diet. Garlic, she said, is a rarity, while avocado, a treat she enjoyed once in a while, is all but absent from her table.

"It's a disaster," said Ms. Felipe, 42, who sells air-conditioners for the government. "We never lived luxuriously, but the comfort we once had doesn't exist anymore."

The changes in Cuba in recent years have often hinted at a new era of possibilities: a slowly opening economy, warming relations with the United States after decades of isolation, a flood of tourists meant to lift the fortunes of Cubans long marooned on the outskirts of modern prosperity.

But the record arrival of nearly 3.5 million visitors to Cuba last year has caused a surging demand for food, causing ripple effects that are upsetting the very promise of Fidel Castro's Cuba.

Tourists are quite literally eating Cuba's lunch. Thanks in part to the United States embargo, but also to poor planning by the island's government, goods that Cubans have long relied on are going to well-heeled tourists and the hundreds of private restaurants that cater to them, leading to soaring prices and empty shelves.

Without supplies to match the increased appetite, some foods have become so expensive that even basic staples are becoming unaffordable for regular Cubans.

"The private tourism industry is in direct competition for good supplies with the general population," said Richard Feinberg, a professor at the University of California, San Diego, and specialist on the Cuban economy. "There are a lot of unanticipated consequences and distortions."

There has long been a divide between Cubans and tourists, with beach resorts and Havana hotels effectively reserved for outsiders willing to shell out money for a more comfortable version of Cuba. But with the country pinning its hopes on tourism, welcoming a surge of new travelers to feed the anemic economy, a more basic inequality has emerged amid the nation's experiment with capitalism.

Rising prices for staples like onions and peppers, or for modest luxuries like pineapples and limes, have left many unable to afford them. Beer and soda can be hard to find, often snapped up in bulk by restaurants.

It is a startling evolution in Cuba, where a shared future has been a pillar of the revolution's promise. While the influx of new money from tourists and other visitors has been a boon for the island's growing private sector, most Cubans still work within the state-run economy and struggle to make ends meet.

President Raúl Castro has acknowledged the surge in agricultural prices and moved to cap them. In a speech in April, he said the government would look into the causes of the soaring costs and crack down on middlemen for price gouging, with limits on what people could charge for certain fruits and vegetables.

"We cannot sit with our hands crossed before the unscrupulous manner of middlemen who only think of earning more," he told party members, according to local news reports.

But the government price ceilings seem to have done little to provide good, affordable produce for Cubans. Instead, they have simply moved goods to the commercial market, where farmers and vendors can fetch higher prices, or to the black market.

Havana offers stark examples of this growing chasm.

At two state-run markets, where the government sets prices, the shelves this past week were monuments to starch - sweet potatoes, yucca, rice, beans and bananas, plus a few malformed watermelons with pallid flesh.

As for tomatoes, green peppers, onions, cucumbers, garlic or lettuce - to say nothing of avocados, pineapples or cilantro - there were only promises.

"Try back Saturday for tomatoes," one vendor offered. It was more of question than a suggestion.

But at a nearby co-op market, where vendors have more freedom to set their prices, the fruits and vegetables missing from the state-run stalls were elegantly stacked in abundance. Rarities like grapes, celery, ginger and an array of spices competed for shoppers' attentions.

The market has become the playground of the private restaurants that have sprung up to serve visitors. They employ cadres of buyers to scour the city each day for fruits, vegetables and nonperishable goods, bearing budgets that overwhelm those of the average household.

"Almost all of our buyers are paladares," said one vendor, Ruben Martínez, using the Cuban name for private restaurants, which include about 1,700 establishments across the country. "They are the ones who can afford to pay more for the quality."

By Cuban standards, the prices were astronomic. Several Cuban residents said simply buying a pound of onions and a pound of tomatoes at the prices charged that day would consume 10 percent or so of a standard government salary of about $25 a month.

"I don't even bother going to those places," said Yainelys Rodriguez, 39, sitting in a park in Havana while her daughter climbed a slide. "We eat rice and beans and a boiled egg most days, maybe a little pork."

Mrs. Rodriguez's family is on the lower end of the income ladder, so she supplements earnings with the odd cleaning job she can find. With that, she cares for her two children and an infirm mother.

Trying to buy tomatoes, she said, "is an insult."

Another mother, Leticia Alvarez Cañada, described what it was like to prepare decent meals for her family with prices so high. "We have to be magicians," she said.

The struggle is somewhat easier now that she is in the private sector and no longer working for the government, she said. She quit her job as a nurse to start a small business selling fried pork skin and other snacks from a cart. Now she earns about 10 times more every month.

"The prices have just gone crazy in the last few years," said Mrs. Cañada, 41. "There's just no equilibrium between the prices and the salaries."

While many Cubans have long been hardened to the reality of going without, never more than during what they call the "Special Period" after the collapse of the Soviet Union, a new dynamic that has emerged in recent months threatens the nation's future, experts warn.

"The government has consistently failed to invest properly in the agriculture sector," said Juan Alejandro Triana, an economist at the University of Havana. "We don't just have to feed 11 million people anymore. We have to feed more than 14 million."

"In the next five years, if we don't do something about it, food will become a national security issue here," he added.

The government gives Cubans ration books to help provide staples like rice, beans and sugar, but they do not cover items like fresh produce. Tractors and trucks are limited and routinely break down, often causing the produce to spoil en route. Inefficiency, red tape and corruption at the local level also stymie productivity, while a lack of fertilizer reduces yield (though it keeps produce organic, by default).

Economists also argue that setting price ceilings can discourage farmers and sellers. If prices are set so low they cannot turn a profit, they argue, why bother working? Most will try to redirect their goods to the private or black market.

"From the point of view of the farmer, what would you do?" asked Dr. Feinberg, the California professor. "When the differentials are that great, it requires a really selfless or foolish person to play by the rules."

Paladares sometimes go directly to farms to buy goods, and even provide farmers seeds for specialty products that do not ordinarily grow in Cuba, like arugula, cherry tomatoes and zucchini.

Most acknowledge that they distort the market in some ways, and this year the government stopped issuing licenses for new restaurants in Havana. But some restaurant owners argue that it is the government's responsibility to create better supply.

"It's true, the prices keep going up and up," said Laura Fernandez, a manager at El Cocinero, a former peanut-oil factory converted into a high-priced restaurant. "But that's not just the fault of the private sector. There is generally a lot of chaos and disorder in the market."

On the outskirts of Havana, Miguel Salcines has cultivated a beautiful farm. Rows of tidy crops stretch toward the edge of his modest 25 acres, where he employs about 130 people.

Though he grows standard products on behalf of the government, there is no product he is more excited about than his new zucchini. A farmer for nearly 50 years, he had never grown the crop before, but planted a batch two months ago.

Now, the vegetables are coming into shape, the spots of bright orange flowers visible amid the green plumage. He knows this crop is not for the regular market, or for the government. It is like the arugula he grows.

It is for the tourist market and, by extension, the future.

"We are talking about an elite market," he said. "The Cuban markets are a market of necessity."

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Cuba's Surge in Tourism Keeps Food Off Residents' Plates

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HAVANA - For Lisset Felipe, privation is a standard facet of Cuban life, a struggle shared by nearly all, whether they're enduring blackouts or hunting for toilet paper. But this year has been different, in an even more fundamental way, she said.