Beyond the Foreign Currency Market
Regarding the current debate on the partial dollarization of the Cuban economy, the majority of the population agrees on one thing: «Given the open nature of the economy, it is essential to have different sources of foreign currency so that the nation can sustain itself and also develop.
As the U.S. government has repeatedly revealed in its policy of maximum pressure on our country, it intends to drastically limit the possibilities of acquiring foreign currency, strangle the national economy and create the conditions for a social uprising.
Under these circumstances, given the negative effects of this policy on the export of goods and services, the development of tourism and the inflow of remittances through government channels, among others, it is necessary to resort to more secure means of acquiring foreign currency, and the domestic market is an option that cannot be avoided.
Cuba is going through complex times that require increasing the confidence of suppliers, who demand security and punctuality in the recovery of the money advanced, and this is possible by using the dollar throughout the commercialization chain of products, from purchase to retail sale.
This partial dollarization of economic activity is controversial. Cuban workers do not receive their salaries in dollars, the application of the official exchange rate is very limited, and the informal exchange rate for purchasing foreign currency is manipulated from abroad with speculative proportions. This reality does not offer greater direct access to the population, but the chain of commercialization does not end in the state market; its effects are transferred beyond its exit doors.
Selling goods purchased abroad in foreign currency and local goods whose quality allows it, with prices based on their purchase cost and a reasonable commercial margin, is a decision that benefits everyone. Let us analyze some reasons:
First, since the extension of the measure, there has been an increase in offers in Cuban pesos on the markets of non-state actors, still insufficient to cause a general reduction in prices, but the case of eggs and several food products is relevant.
Second, the informal exchange rate should tend to decline. Opinions on the expected unlimited increase of the informal exchange rate were very diverse, because with the increase in demand for foreign currency, the exchange rate would increase.
The upward effect should not occur for this reason, among others, because the dollar is redirected from imports to purchases in domestic markets; the centralized retail prices of six products of high commercialization level do not allow an increase in the cost of the dollar in Cuban pesos, and the reduction of the fiscal deficit exerts a restraining effect by reducing the money available in the economy to exchange for the dollar.
Thirdly, although official data has not yet been provided, as with any business, commercialization provides a favorable foreign exchange differential that allows resources to be distributed in favor of the standard family basket, among others.
In conclusion, the effects of the extension of the partial dollarization of the economy to the foreign exchange markets do not end at the exit doors of the establishment, and although it is too early to draw definitive conclusions, this measure is already showing partial results to the benefit of the population and the country.
*Master in Public Finance and member of AnecCuban National Association of Economists and Accountants (ANEC, in Spanish)
You Can’t Play with Money
Francisco Rodríguez Cruz
In recent days, a group of female journalists had the opportunity to visit the Quitrín Industrial Craft Development Center in Old Havana, where they received a nice tribute from the Federation of Cuban Women for March 8.
Perhaps the place where they spent the most time was the shop that this project maintains on Obispo Street, one of the main tourist arteries of the Historic Center. The participants appreciated, and some of them bought, some of the elegant combinations made in an adjacent workshop by the workers of this company, founded by Vilma Espín in 1986 to promote women’s employment.
«A lot of tourists come through here. If we could sell directly to them in dollars, we would have more opportunities to purchase raw materials to expand our production,» said one of the project’s directors.
If they were selling in dollars, I thought, my colleagues would almost certainly not have been able to buy their beautiful and very Cuban clothes that day with their Cuban peso salaries and a simple transfer from their cell phones. Or maybe they would have had to settle for a few inferior options in local currency next to a more exquisite selection in foreign currency.
This anecdote describes very well the dilemma in which the partial dollarization of the economy places Cuban society. On the one hand, the process helps the state to acquire convertible currencies more quickly and to dynamize certain economic activities, but on the other hand, it deepens the differences between the different markets and marginalizes or penalizes a large number of consumers.
As we are well aware, this is not the first time that the Cuban economy has faced this dilemma, introducing variants of partial dollarization with different instruments and scope. Moreover, the current conditions are difficult not only financially, but also socially and politically. Expert voices differ in their assessments of the possible effectiveness or not of the measure in such circumstances, but what is certain is that it was urgent to move the pieces on the monetary chessboard to try to stop or alleviate the current crisis.
The consensus in favor of this change must be built on the basis of more public information and transparency, one of the first and most important stumbling blocks that have started this new season of other foreign exchange shops, in our opinion, still unresolved.
You can’t play with money, says an old maxim of popular wisdom. And while it is true that managing (and communicating) the contingency in Cuba is extremely complicated for our government under the conditions of economic siege imposed by the ruthless U.S. blockade, it is essential that any transformation take into account, first and foremost, the situation of low-income workers and their families, as well as retirees and pensioners, who today are at a clear disadvantage.
Monitoring, controlling and explaining the results of this partial dollarization is an imperative that cannot be left only to the two ordinary sessions of the National Assembly of People’s Power during the year. Emphasis must be placed on the links between the revenues generated in this way and the satisfaction of other urgent needs of the population.
We must therefore remain impartial in the face of the doomsayers who say that this partial dollarization is nonsense, and also in the face of those who defend it as a magic solution. We simply have to put the performance of this measure under the magnifying glass of citizen observation.
