Cuba: There is no alternative to foreign investments (neue-deutschland.de)

Peso and CUC existed in parallel for 30 years – now this era is ending.

Photo: AFP / YAMIL LAGE

With the currency reform, only the peso nacional has been circulating in Cuba since January 1st. The convertible peso, which was never convertible, belongs to history. A wise choice?

Yes absolutely. I think the currency reform is well designed and offers the best of what was possible in Cuba’s current conditions. Clearly, it would look different if the framework were different: if Cuba had a diversified economy, if the government received loans from the International Monetary Fund (IMF) or other financial institutions, or if the private sector were larger. But none of that is the case, which is why the decision was made in favor of a regulated currency reform with a high depreciation rate – a “regulated big bang”, as some newspapers have called it.

“They refer to the exchange rate of one US dollar to 24 peso nacional, which has been in place for the private sector and the population for years, but not for state-owned companies …

I agree. That was not to be expected, because it was long discussed whether an exchange rate of 1: 5 or 1: 9 was realistic. But the architects of the currency reform immediately devalued a massive amount – that’s brave.

What effects does this have on the government sector, which previously calculated with an exchange rate of 1: 1?

This is a shock, but under administrative control, as attempts are being made to put a cap on inflation with maximum prices. The architect of the reform, Marino Murillo (economist and vice-president of the Council of Ministers, d. Ed.), Has already announced that the state-owned companies will be supported by a fund for about a year – then they should have adapted to the new conditions. These are clear guidelines.

Will currency reform make real prices visible for products that have been obscured for more than two decades because of different exchange rates?

Yes, that is an effect; it is already the case with electricity prices. Murillo gave the amount of subsidies there. As of January 1st, electricity prices have increased fivefold. The currency reform will make Cuba’s economy more transparent and calculable – that seems to me to be the most important effect.

Will the government be able to set price caps and enforce them? There is currently a shortage of many products.

Some products are simply not there, and the black market could break the price chain. Much depends on how quickly the economy reacts to the new requirements, how quickly the changeover works – that cannot be estimated yet.

What do you think of the salary model presented in parallel – does it make sense?

Yes, at first glance. It makes a well thought-out impression, in some cases it is already very detailed – right down to the tariff that a nude model can charge. These are curious details that illustrate planned economy thinking.

Are accompanying reforms missing to boost the domestic economy?

Yes, you can’t get any further with maximum prices alone. This creates hurdles that sooner or later collapse, which those responsible, including the Minister of Economic Affairs, have admitted. These are transitional measures – this also applies to the rationing of certain products. The big question is what role should the private sector, small and medium-sized enterprises, play. There is a lack of clarity and there are no reforms that could support the currency reform. With the help of the private and cooperative spectrum, the range of goods could be expanded, inflation mitigated and the growth of the black market contained – there is a need for action. The police alone are not enough, because they also want to eat.

How great is the pressure on Cuba in view of the even tighter US sanctions, the crisis in Venezuela and the loss of income due to the slump in tourism and exports?

That is why foreign investments are advertised, in which there may also be majority holdings. The island needs foreign currency, the economy is on the floor. I expect the gross domestic product to collapse by 8.5 percent and exports by 20 percent.

Critics warn that majority stakes could lead to a sell-off of the island’s economy. Right or wrong?

You have no alternative. The government has had the island’s resources since 1959 and I think they have not been well used. The investment rate is low, the productive industrial capacity has decreased – many companies are just better workshops. This will not change without a higher investment rate. Cuba has simply stayed where it is in many areas – the fleet of old US classic cars, but also the building fabric are good examples of this.

Further reforms in the private sector have already been announced. Can these support the currency reform?

There are supposed to be further liberalization in the private sector, further reforms for the small and medium-sized enterprises as well as the cooperatives, but the concrete laws are a long time coming. I see particularly great potential in the digital economy, because Cuba has IT specialists and is better positioned than Colombia, for example.

And agriculture?

There are approaches to decentralize the central Acopio purchasing system. Such processes take time, and the government does not want to give control over there.

Could it be that reform projects will not be presented until April at the PCC party congress?

Yes it can be. There is still a lot of resistance, but the pressure is high. It would be ideal if a reform concept were finally adopted that would provide a framework, as in China or Vietnam. In Cuba, all attempts to define a new socialist model have petered out. That creates uncertainty and no mood of optimism – but it does.

.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.