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The Long-Awaited End to Cuba’s Two-Currency System / Ivan Garcia

November 2, 2013 1 comment

526ae183c9902-617x330Danilo, an illegal hard-currency speculator, has had a busy week. “I buy dollars, euros and convertible pesos. But after the government announced it would move to a single currency, I am without funds,” he says from a centrally located Havana boulevard.

Some of the CADECA currency exchanges have closed early because they did not have enough “chavitos”  to carry out transactions in convertible pesos, the stronger of Cuba’s two currencies.

Although the regime is trying to ward off panic by issuing an official statement indicating that the measures to be implemented will have no effect on savings, there were long lines to be found at branches of Banco Metroplitano.

“In only five hours fourteen customers closed their hard-currency accounts at the bank where I work” said an employee. The news comes as no surprise to one segment of the population.

An avalanche of rumors in mid-August about a possible devaluation of the convertible Cuban peso, or CUC, led hundreds of people to exchange their Cuban pesos, or CUPs, for hard currency.

“Two months ago I withdrew all the chavitos from my bank account and bought pesos. It isn’t clear how currency unification will be implemented but rumors are that, before it disappears, the convertible peso will be gradually devalued,” says a self-employed worker.

In Cuba rumors are often more credible than information found in the state-run media. Eusebio, an economist, believes the dual-currency system leads to distortions in prices, accounting practices and domestic commercial transactions.

“Many local businesses are profitable because they sell their merchandise in convertible pesos. For example, domestically produced mayonnaise sells for between 3.0 and 5.5 CUC, or roughly 75 to 132 CUP. Once currency unification occurs, this disparity will disappear and inflated prices, which result from the stronger currency, will have to be adjusted. Nothing will be solved by replacing the chavito with the Cuban peso if stores maintain rigid price structures in CUC or CUP. The real price of rationed rice is not 20 centavos a pound, nor is 800 CUC — or 20,000 CUP — the real price for a plasma screen TV. Currency unification will be complicated. Businesses will be affected and could suffer losses,” he claims.

Some chain stores are already selling products in pesos tied to the exchange rate of the convertible peso. Magaly, a high school teacher, does not believe this will solve anything. “If a large segment of the population cannot afford to pay 25 chavitos for food, they won’t have 625 pesos for it either,” she notes.

An official with a state agency asks for patience. “The salaries of employees who work in profitable industries which generate income in hard-currency (such as tourism, healthcare, Cubana de Aviación or ETECSA*) will begin earning salaries based on the new paradigm relatively soon. Their buying power will be increased. It will be healthy for the consumer as well as for society to re-emphasize the value of work. The inverted pyramid, where professionals earn salaries lower than that of a garbage collector, will gradually change,” though he did not provide details.

The convoluted announcement published in Granma raises more questions than it answers. People hope that by year’s end the guidelines for creating a single currency will begin to take effect.

When Fidel Castro made it legal to possess dollars on June 26, 1993, the Cuban peso and the U.S. dollar went into circulation. In May 2004 the United States fined the Swiss bank UBS for violating the embargo and for having “laundered” almost four billion dollars destined for Cuba. Fidel Castro was furious. Six months later, in November 2004, the dollar was replaced with the convertible peso. But for Castro it was not enough to remove the dollar from circulation. In March 2005 he imposed an 18% surcharge on dollars sent to the island.

When his brother Raul came to power in 2006, the goal became to attract more greenbacks, so he reduced the surcharge on the dollar to 10%. In spite of this undue financial burden, high food prices in hard-currency retail stores and slow turnover of hundreds of inventory items in state-run stores, the volume of remittances from family members overseas has grown phenomenally.

In the year 2000 the country brought in 986 million dollars in remittances. By 2013 it had grown to 2.6 billion. It is estimated to surpass 2.8 billion in 2013. This does not include almost three billion additional dollars in the form of food, clothing, cell phone account payments, household appliances and medications that enter the country through “mules” and travel agencies based in Florida.

A casual poll of twenty or so Havana residents, who these days argue passionately over the ramifications of currency unification, suggests that the main problems will continue to be poverty-level salaries and excessive regulation in an inefficient system.

According to the National Office of Statistics and Information the average salary in Cuba is about 466 pesos or some 20 dollars a month. In spite of lukewarm economic reform efforts, agriculture has yet to take off and industry needs something more than good intentions to be efficient.

Cuba imports everything from fruit for the tourist industry to toothbrushes for sale to the public. No one believes for a moment that the doing away with the dual-currency system will improve his or her quality of life. Rather, it will represent the beginning of a new set of challenges.

Iván García

Photo: Diario de las Americas

*Translator’s note: The state-owned telecommunications company.

29 October 2013

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Civil Disobedience Cuban Style / Ivan Garcia

November 2, 2013 Leave a comment

cuba-people-beyonce-620x330In Cuba people seldom go to extremes. Here you will not find a Mohamed Bouazizi ready to turn himself into a human bonfire in front of the Ministry of Housing to protest excessive taxes.

There are, however, a lot of Bouazizis around. Their way of rebelling is different. Cubans do not take to the streets to express their discontent. Nor do they organize massive demonstrations with signs or set up protest camps.

They protest at a snail’s pace or with sit-down strikes. Or they steal what they can from their workplaces. Or they behave inappropriately in public or they fail to pay their taxes.

During this month of October the tension within one segment of the population has been palpable. Private taxi drivers are furious. Many have received a notice from the tax office telling them of new levies they must pay.

“I have to pay $15,000 pesos ($740 US). And I know of cases in which taxi drivers have to pay $30,000 pesos ($1,300 US). There is one thing you can be sure of: Just like the rest of them I will not pay one cent,” says one Havana taxi driver, the veins in his neck bulging.

It’s obvious that the regime wants everyone to pay their taxes. They explain that is not an invention by Raul Castro. And like fearful parrots, the official media repeats that “our citizens should learn to have a tax-paying culture, those tax revenues become social benefits”.

The arguments fall on deaf ears.  The resentment that prevails among the self-employed workers sees that the States sees them as the enemy.

I’ll give a little bit of history. Throughout the years, the regime harassed the self-employed.  One night in 1968 all small businesses were closed. From grocery stores and hamburger vendors to Chinese restaurants and shoe repairers.

When in 1994 Fidel Castro opened the faucet to certain private initiatives he didn’t do it to slowly introduce liberal methods or a market economy.  No. It was a matter of political survival.

The public accounts were in red.  The State had to deflate if it wanted to be profitable.  Then it loosened its grip and permitted minor trades like umbrella repairers, peanut sellers or raw material collectors.

You could also sell coffee, rent a room or set up a restaurant with twelve chairs.  Always with the imposing high taxes to slow the capital accumulation.

At the end of 1999 Hugo Chavez came to the Miraflores Palace in Venezuela. A Santa Claus with petro-dollars. Castro took a step back and self-employed work was marginalized. Between 1995 and 2003, the number of self-employed dropped from 170,000 to 150,000.

But in the national landscape there was news. Fidel departed from power in July 2006 due to illness. The natural heir, his brother Raul, is almost the same although with different strategies.

He eliminated absurd prohibitions that classified Cubans as fourth class citizens. He allowed the rent of land, made it legal for Cubans to frequent tourist facilities, and legalized cell phones, the purchase and sell of homes and cars, and as of January, travel abroad.

Currently there are more than 436,000 self-employed workers.  According to the government, self-employment “has come to stay”.  But ordinary Cubans seem to be distrustful.

Other economic openings were cut off at the root with legal penalties and scorn in the public media.  Naturally, people think that the story could repeat itself.  Even more when they know that the government allows self-employment as long as they don’t make too much in profits.

Small businesses are controlled by an army of inspectors and harassed by high taxes. Therefore, the escape door of many self-employed workers is tax evasion.

In the island, citizens’ dissatisfaction is not a synonymous of strikes, indignant marches or street protests. The Cuban Bouazizi prefers the passive disobedience, either by stealing at work or not paying taxes.

 Ivan Garcia

Photo: Under the rain, people wait in front of the Saratoga Hotel to get a glance of Beyonce and her husband, rapper Jay-Z during their April 2013 visit in Havana to celebrate their fifth wedding anniversary.  Taken by NY Daily News.

Translated by LYD

2 November 2013