Tag Archives: Monetary System

ASCE (ASSOCIATION FOR THE STUDY OF THE CUBAN ECONOMY), A Selection of Papers from the 2018 Annual Conference

The complete set of papers is here:  ASCE Conference Proceedings for 2018.

A complete set of all the papers from the annual ASCE conferences can be found here:  ASCE Conference Proceedings

Cuba: Los Retos Económicos del Gobierno de Miguel Díaz-Canel Omar Everleny Pérez Villanueva PDF version
Cuba 2018: Entre la Continuidad y la Oportunidad Dagoberto Valdés Hernández PDF version
Cuban Peso Unification: Managed Rate and Monetary Analysis Luis R. Luis PDF version
La Agricultura en Cuba: Transformaciones, Resultados y Retos Armando Nova González PDF version
Principal Elements of Agricultural Reforms in Transition Economies: Implications For Cuba? Mario A. González-Corzo PDF version
Cuba’s Economic Liberalization and The Perils to Security and Legality Vidal Romero PDF version
Growth and Policy-Induced Distortions in The Cuban Economy: an Econometric Approach Ernesto Hernández-Catá PDF version
Comparing The Quality of Education in Pre- and Post-Revolutionary Cuba Using U.S. Labor Market Outcomes Luis Locay and John Devereux PDF version
The Global Economy and Cuba: Stasis and Hard Choices Larry Catá Backer PDF version
Five Keys to Presidential Change in Cuba Arturo López-Levy and Rolf Otto Niederstrasser PDF version
Cuba’s Political and Economic Arteriosclerosis – It Is Not Just The Castros Gary H. Maybarduk PDF version
Cuban Tourism Industry in The Eye of The Storm Emilio Morales PDF version
Experiencias de Cuentapropistas Ted A. Henken PDF version
Cuban Demography and Economic Consequences Humberto Barreto PDF version
     
“The Revenge of The Jealous Bureaucrat”: A Critical Analysis of Cuba’s New Rules For Cuentapropistas Ted A. Henken PDF version

 

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EL REGRESO DEL DÓLAR A CUBA DEBILITA EL CUC

En el mercado negro, donde se realizan las transacciones entre particulares, el dólar cotiza ahora en 1,13 CUC en lugar de 0,95

14YMEDIO / MARIO J. PENTÓN, La Habana/ Miami | Octubre 23, 2019

El simple anuncio por parte del Gobierno cubano de que el dólar y otras divisas tendrán curso legal en la Isla dentro de unos días ha provocado un desplome del valor del peso convertible (CUC).

En el mercado negro, donde se realizan las transacciones entre particulares, el valor del dólar se cotiza ahora en 1,13 CUC en lugar de 0,95, según la plataforma online Revolico y varias fuentes consultadas en La Habana. Últimamente, a raíz de una mayor demanda provocada por los aumentos salariales, los cambistas pedían entre 1 y 1,05 CUC por dólar.

En las casas de cambio oficiales, las Cadeca, la cotización no se ha movido de 0,87 dólar por 1 CUC porque se trata de un mercado controlado por el Estado, a diferencia del mercado paralelo. donde rige la ley de la oferta y de la demanda. El Estado castiga la divisa estadounidense con un impuesto del 10% y una comisión del 3%, Además, las Cadeca no venden dólares, solo los compran.

“La gente está buscando la seguridad del dólar porque no ve claros los pasos del Gobierno con la economía”, dice vía telefónica Mongui, un cambista que trabaja en las cercanías del hotel San Carlos, en Cienfuegos.

Mongui pide 1,13 CUC por dólar, pero cuando el cliente compra más de 1.000 dólares le hace una rebaja y se lo vende por 1,08. “Ya tengo mi clientela fija, gente que va de mula a Panamá, Cancún y otros lugares. Ahora hay mucho nerviosismo porque el Gobierno le quiere quitar el negocio a las mulas“, agrega.

María Luisa, de 69 años, recibe unos 100 dólares mensuales que le envía su hijo desde Florida y cree que el incremento del valor de esa moneda debió haberse producido hace mucho.

“¿En qué cabeza cabe que el CUC valga más que el dólar, la divisa más fuerte del mundo? Fidel quitó los dólares de la circulación y a cambio nos entregó papelitos. Ahora quieren quitarnos nuevamente los dólares y darnos un número en una tarjeta magnética. Ellos siempre se quedan con lo mejor”, protesta.

María Luisa ha pedido a su hijo que le envíe las remesas en dólares y que para ello deje de utilizar Western Union, que convierte automáticamente las remesas en CUC a un tasa de 0,95 por cada dólar. “Prefiero que me mande el dinero con gente que viene de Miami. Así me rinde más. Lo cambio por fuera de Cadeca. Para ellos puede que sea un peso, pero aquí son 25”, dice la jubilada, que cobra 310 pesos de pensión.

Los dólares no servirán para pagar en efectivo, sino con tarjetas de débito en las 77 tiendas estatales donde se comercializarán productos importados, sobre todo electrodomésticos, motos eléctricas o repuestos para automóviles.

El anuncio no ha sido bien recibido por los clientes que tenían una tarjeta asociada a cuentas en pesos convertibles o pesos cubanos. “Ahora tengo que sacarme otra tarjeta porque la que tengo es de mi cuenta en chavitos (CUC) no me sirve”, lamentaba este lunes Rogelio, un jubilado que recibe remesas de sus dos hijos emigrados.

Los bancos amanecieron este lunes con largas colas en La Habana de clientes interesados en contratar la nueva tarjeta magnética con saldo en divisas. Ahí estaba Rogelio, delante de la sucursal del Banco Metropolitano, en los bajos del Ministerio de Transporte, para comenzar el proceso de apertura de la cuenta y la solicitud de la tarjeta. “Lo bueno es que no se necesita saldo alguno para abrir la cuenta pero lo malo es que esto de pagar con tarjeta es muy complicado en las tiendas”, explica a 14ymedio.

Los constantes cuelgues del sistema de comunicación entre los mercados estatales y los bancos convierten la experiencia de pagar con tarjeta en un dolor de cabeza. Los terminales de pago, conocidos como POS, se quedan con frecuencia sin servicio y sin conexión y los empleados no pueden procesar el pago por esa vía.

“Cuando uno va a una tienda y va a pagar con tarjeta toda la cola te mira con mala cara, porque saben que te vas a demorar bastante, entre una prueba y otra para lograr comunicarse con el banco”, explica Yusimí, una habanera que este lunes también fue de las primeras en solicitar la nueva tarjeta bancaria.

“Hace unos pocos años se estaba hablando con mucha fuerza de que estaba al doblar de la esquina la unificación monetaria, pero ahora resulta que se agrega otra moneda. Esto no hay quien lo entienda”, se queja Nelson, contable en una empresa estatal donde ha tenido que lidiar con las distorsiones que provoca la dualidad financiera.

El economista Pavel Vidal, que fue funcionario del Banco Central de Cuba durante varios años, considera que el regreso del dólar a la economía nacional dará “algún alivio rápido a los crecientes desbalances financieros que se vienen acumulando desde 2015”.

En una columna publicada en OnCuba, Vidal considera que en el corto plazo se observarán “efectos positivos” por estas medidas, como una mayor liquidez en divisas en los bancos y “mayores opciones de compra en mercados formales”. Sin embargo, el ahora profesor de la Universidad Javeriana de Cali (Colombia) considera que el regreso del dólar implica la pérdida de la autonomía monetaria y retrasa la salida de la dualidad monetaria peso/CUC.

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RE-DOLLARIZATION OF THE CUBAN ECONOMY !! ??

“Autorizar operaciones con divisas en algunos mercados de consumo y en algunas industrias es abrir la caja de Pandora a una redolarización acelerada del resto de la economía”, sostiene el economista Pavel Vidal

Agencias, Madrid | 24/10/2019 9:20 am

Los cubanos pueden desde esta semana abrir cuentas en dólares en bancos locales para adquirir electrodomésticos, motos eléctricas, e incluso encargar equipos específicos, con cargo a su tarjeta de débito, informa la AFP.

El gobierno los comercializará y busca así recaudar divisas, tratando de sortear el embargo que le aplica Estados Unidos desde 1962. A continuación, algunas claves para entender las medidas:

¿En qué consisten?

Se habilitará a finales de mes una red de tiendas estatales para la venta en dólares y otras divisas extranjeras de productos de fuerte demanda de importación, como equipos eléctricos, electrodomésticos de alta gama, autopartes y ciclomotores.

El pago se realizará con tarjetas de débito que podrán recibir transferencias desde el exterior o de otras cuentas (en dólares y en otras divisas), libre de impuestos.

También podrán importar algunos bienes específicos a través de empresas estatales (bajo la misma modalidad de la cuenta bancaria), sin depender de la caja central estatal.

¿Qué se busca?

El gobierno busca captar divisas, en momentos en que el gobierno de Donald Trump arrecia el embargo, con medidas que afectan al turismo, las inversiones, el envío de remesas y la importación de combustible.

“El país necesita divisas para financiar” su “desarrollo económico y social” explicó el ministro de Economía, Alejandro Gil.

Cuba, gobernada por el Partido Comunista (PCC, único), busca evitar la fuga de cientos de millones de dólares, debido a las crecientes importaciones particulares.

Según la consultora privada Auge, solo en la Zona Libre de Colón (Panamá) los cubanos gastaron este año un promedio de “20 millones de dólares mensualmente”.

Con el dinero recaudado, el gobierno podría hacer frente a la falta de liquidez de su sistema económico, pagar a tiempo a sus proveedores y adquirir insumos que necesita el país.

¿Cómo se beneficia el gobierno y el ciudadano?

“Es previsible que en el corto plazo se observen efectos positivos”, pronostica el economista cubano Pavel Vidal, de la Universidad Javeriana de Cali.

Los bancos estatales podrán fortalecer su liquidez en dólares y otras monedas extranjeras, y el gobierno garantizar una oferta de productos deficitarios en la red minorista, sin tener que emplear las divisas que destina a gastos prioritarios.

Por su parte, los cubanos tendrán acceso a productos que hasta ahora sólo podían adquirir en mercados informales y a precios competitivos, mientras que el sector privado local (13 % de la economía), gastará menos en viajes para abastecerse de insumos.

¿Se dolarizará la economía?

Gil niega que la venta interna en divisas conduzca a la dolarización de Cuba, que ya apeló a la moneda estadounidense entre 1993 y 2004 para sortear la grave crisis económica de los años 90.

Según el ministro, las dos monedas nacionales: el peso cubano (CUP) y el peso convertible (CUC, equivalente a 24 pesos cubanos) siguen circulando, y el comercio en dólares se realizará solo por vía electrónica.

Pero los economistas destacan que el proceso de dolarización no depende del soporte empleado, sino de que el dólar suplante en algunas funciones a las monedas domésticas.

“Autorizar operaciones con divisas en algunos mercados de consumo y en algunas industrias es abrir la caja de Pandora a una redolarización acelerada del resto de la economía”, sostiene Vidal.

¿Y la unificación monetaria?

Gil subrayó que las medidas no detendrán el proceso de unificación de las dos monedas nacionales, previsto desde 2013, sino que pondrán al país en “mejores condiciones” para alcanzar esa meta, con una industria y un comercio minorista fortalecidos.

La doble moneda está acompañada de tasas preferenciales de cambio para el sector estatal, lo que distorsiona la economía.

Vidal advierte que, lejos de solucionar “el (actual) complejo y distorsionante sistema de múltiples tipos de cambio y dualidad monetaria”, las nuevas medidas ahora “llevan a la economía a operar no con dos, sino con tres monedas”.

“La redolarización anunciada cancela la unificación de las monedas”, considera.

 

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CUBAN ECONOMY TODAY AND PERSPECTIVES FOR THE FUTURE, SUMMARY OF FINDINGS OF 28TH ANNUAL ASCE CONFERENCE

(An Excellent Summary Overview on the Cuban Economy from the Annual Meeting of the Association for the Study of the Cuban Economy, 2018.    A.R.)

By Joaquín P. Pujol

November 13, 2018

The 28th Meeting of the Association for the Study of the Cuban Economy  (ASCE) was held in Miami, Florida, July26-28, 2018. This conference differed slightly from prior meetings in that it had a higher participations from Cuban-based economists and students. In fact the two students that won the competition for the student essay awards live in Cuba.

The papers presented summed up the disastrous state of the Cuban economy and the very poor prospects for the immediate future, short of finding a new Sugar Daddy like the Soviet Union or Venezuela to subsidize Cuba.

The Complete Article: CUBAN ECONOMY TODAY AND PERSPECTIVES FOR THE FUTURE

TABLE OF CONTENTS

Measurement of the performance of the Cuban Economy

Impact of the 2010 policy reforms of Raul Castro’s 

Agricultural Policies

Petroleum

The issue of the Multiple Currency Regime

Public Sector Finances

Trade & Foreign Debt

The Impact of the Hurricane Irma

Political Oppression

Investment Requirements for Growth

Joaquín P. Pujol

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IS CUBA’S ECONOMY READY FOR THE 2018 LEADERSHIP TRANSITION?

Pavel Vidal Professor, Pontificia Universidad Javeriana Cali

CUBA STUDY GROUP, February 2018

Complete Article, English:  Pavel_Is Cuba’s Economy Ready English

Complete Article, Spanish:  Pavel En qué condicion llega la economia cubana a la transicion generacional

Introduction

Cuba has changed considerably in these last ten years of economic reforms, though not enough. Family income, tourist services, food production, restaurants, and transportation depend less on the state and much more on private initiative. The real estate market, sales of diverse consumer goods and services, and the supply of inputs for the private sector have all expanded, in formal and informal markets. Foreign investment stands out as a fundamental factor in Cuba’s development. The country has achieved important advances in the renegotiation of its external debts.

Nevertheless, many other announced changes were defeated by internal resistance, half-heartedly implemented, or put in place in ways that replicated mistakes of the past. The bureaucratic and inefficient state enterprise sector, tied down by low salaries and a strict central plan, impedes economic progress. Cuba’s advantages in education and human capital continue to be underexploited. Neither has the international environment provided much help. The U.S. trade embargo remains in place, the Trump administration has returned to the old and failed rhetoric of past U.S. policies, and Cuba continues to depend on a Venezuelan economy that does not yet seem to have hit rock bottom.

As a consequence, the growth of GDP and productivity has been disappointing, agricultural reform has produced few positive results, and Cuba is once again drowning in a financial crisis. The reforms implemented to date did not create sufficient quality jobs, and, all told, half a million formal positions were eliminated from the labor market.

The second half of 2017 proved especially challenging due to the impacts of Hurricane Irma and new restrictive measures announced by the U.S. government. To these difficulties one must add the decision of the Cuban government to freeze (temporarily) the issuance of licenses to the private sector.

Even so, the National Office of Statistics and Information (ONEI) reported that the economy has not fallen into recession. There are reasons to doubt these statistics, however. Such doubts only multiply when we take into consideration the decision to delay, or altogether avoid, the publication of reports on individual sectors of the economy and the state of the national accounts. For 2018, the government has proposed a rather optimistic economic growth plan (2% increase in GDP) that once again does not appear to appropriately evaluate the complexity of Cuba’s macro-financial environment.

Three highly significant events are anticipated this year: the generational transition within the government, new norms for the private sector, and the beginning of the currency reform process. These three issues have raised expectations on the island, but each may be tackled in a disappointing fashion.

…………………………………..

Conclusions:

Two Other Changes that Could Disappoint A generational transition in the Cuban government will take place on April 19, 2018. Beyond indications that Miguel Díaz-Canel will be the future president, there are no signals as to who will be vice president or who will direct principal ministries such as the Ministry of the Economy or the Ministry of Foreign Relations. Nor do we know where politicians of the “historic generation” will end up.

The new government will want to demonstrate continuity with the former in order to assure its position with various spheres of political power. It appears that the new government will not have its own economic agenda. We can expect that documents approved by recent Congresses of the Cuban Communist Party—which define the limits of reform, the desired development strategy, and the social and economic model to which Cuba aspires—will continue to serve as economic policy guides.

Whatever the composition of the incoming government, in the short term, Cuba’s new leaders will need to convince other state actors that they have the authority and will to, first, achieve the objectives laid out in the “Guidelines for Economic and Social Policy” (Lineamientos), and then deepen the process of reform, overcoming internal forces resistant to change. The new government will thus have to carefully assess the political costs and benefits of implementing reforms to different degrees and at varying speeds, but it will start with low initial political capital due to less popular recognition and a lack of historic legitimacy. Cuba’s new leaders, moreover, must confront these challenges at a time of renewed conflict with the U.S. government. The task is by no means easy, and we will have to wait to see how they handle it.

Another change we can expect this year is the publication of new rules governing the operations of the private sector, and thus unfreezing the issuance of licenses. A greater degree of control over tax payments, as well as efforts to more strongly “bank” the sector, appear to be two basic objectives of the forthcoming rules.

It is very important that the private sector contribute to the Treasury in proportion to its earnings. This is impossible to guarantee if private sector operations are not registered in banks. An effective and progressive tax system provides net dividends to all. The state budget would benefit, exorbitant gaps in income distribution could be avoided, and the societal image of the private sector would be improved. It will be much easier to defeat political and ideological resistance to expansion of the private sector when its income also serves to finance expenses in education and healthcare, and when individual contributions are in line with variable levels of income.

We still do not know if the new rules for the private sector will focus only on fiscal and banking control, or if new policies will address some of the many complaints that the private sector itself has made—high tax rates, the struggle to obtain inputs, and the difficulty of linking operations to foreign trade, for example. A draft of the rules that has circulated does not contain answers to these problems, but rather suggests a focus primarily on more control and penalization.6 If the rules that are ultimately implemented do not differ much from what appears in this draft, depleted prospects for the private sector will be the first disappointment Cubans face in 2018.

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SUN, SAND AND SOCIALISM: WHAT THE TOURIST INDUSTRY REVEALS ABOUT CUBA

Stuck in the past: The revolutionary economy is neither efficient nor fun.

The Economist, April 1, 2017

Original Article: STUCK IN THE PAST

TOURISTS whizz along the Malecón, Havana’s grand seaside boulevard, in bright-red open-topped 1950s cars. Their selfie sticks wobble as they try to film themselves. They move fast, for there are no traffic jams. Cars are costly in Cuba ($50,000 for a low-range Chinese import) and most people are poor (a typical state employee makes $25 a month). So hardly anyone can afford wheels, except the tourists who hire them. And there are far fewer tourists than there ought to be.

Hotel at Vinales; apparently constructed with Mafia money as part of their major money-laundering 1950s tourism investment project. (Photo by Arch Ritter, 2015)

Few places are as naturally alluring as Cuba. The island is bathed in sunlight and lapped by warm blue waters. The people are friendly; the rum is light and crisp; the music is a delicious blend of African and Latin rhythms. And the biggest pool of free-spending holidaymakers in the western hemisphere is just a hop away. As Lucky Luciano, an American gangster, observed in 1946, “The water was just as pretty as the Bay of Naples, but it was only 90 miles from the United States.”

There is just one problem today: Cuba is a communist dictatorship in a time warp. For some, that lends it a rebellious allure. They talk of seeing old Havana before its charm is “spoiled” by visible signs of prosperity, such as Nike and Starbucks. But for other tourists, Cuba’s revolutionary economy is a drag. The big hotels, majority-owned by the state and often managed by companies controlled by the army, charge five-star prices for mediocre service. Showers are unreliable. Wi-Fi is atrocious. Lifts and rooms are ill-maintained.

Despite this, the number of visitors from the United States has jumped since Barack Obama restored diplomatic ties in 2015. So many airlines started flying to Havana that supply outstripped demand; this year some have cut back. Overall, arrivals have soared since the 1990s, when Fidel Castro, faced with the loss of subsidies from the Soviet Union, decided to spruce up some beach resorts for foreigners (see chart). But Cuba still earns less than half as many tourist dollars as the Dominican Republic, a similar-sized but less famous tropical neighbour.

But investment in new rooms has been slow. Cuba is cash-strapped, and foreign hotel bosses are reluctant to risk big bucks because they have no idea whether Donald Trump will try to tighten the embargo, lift it or do nothing. On the one hand, he is a protectionist, so few Cubans are optimistic about his intentions. On the other, pre-revolutionary Havana was a playground where American casino moguls hobnobbed with celebrities in raunchy nightclubs. Making Cuba glitzy again might appeal to the former casino mogul in the White House.

The other embargo is the many ways in which the Cuban state shackles entrepreneurs. The owner of a small private hotel complains of an inspector who told him to cut his sign in half because it was too big. He can’t get good furniture and fixtures in Cuba, and is not allowed to import them because imports are a state monopoly. So he makes creative use of rules that allow families who say they are returning from abroad to repatriate their personal effects (he has a lot of expat friends). “We try to fly low under the radar, and make money without making noise,” he sighs.

Cubans with spare cash (typically those who have relatives in Miami or do business with tourists) are rushing to revamp rooms and rent them out. But no one is allowed to own more than two properties, so ambitious hoteliers register extra ones in the names of relatives. This works only if there is trust. “One of my places is in my sister-in-law’s name,” says a speculator. “I’m worried about that one.”

Taxes are confiscatory. Turnover above $2,000 a year is taxed at 50%, with only some expenses deductible. A beer sold at a 100% markup therefore yields no profit. Almost no one can afford to follow the letter of the law. For many entrepreneurs, “the effective tax burden is very much a function of the veracity of their reporting of revenues,” observes Brookings, tactfully.

The currency system is, to use a technical term, bonkers. One American dollar is worth one convertible peso (CUC), which is worth 24 ordinary pesos (CUP). But in transactions involving the government, the two kinds of peso are often valued equally. Government accounts are therefore nonsensical. A few officials with access to ultra-cheap hard currency make a killing. Inefficient state firms appear to be profitable when they are not. Local workers are stiffed. Foreign firms pay an employment agency, in CUC, for the services of Cuban staff. Those workers are then paid in CUP at one to one. That is, the agency and the government take 95% of their wages. Fortunately, tourists tip in cash.

The government says it wants to promote small private businesses. The number of Cubans registered as self-employed has jumped from 144,000 in 2009 to 535,000 in 2016. Legally, all must fit into one of 201 official categories. Doctors and lawyers who offer private services do so illegally, just like hustlers selling black-market lobsters or potatoes. The largest private venture is also illicit (but tolerated): an estimated 40,000 people copy and distribute flash drives containing El Paquete, a weekly collection of films, television shows, software updates and video games pirated from the outside world. Others operate in a grey zone. One entrepreneur says she has a licence as a messenger but wants to deliver vegetables ordered online. “Is that legal?” she asks. “I don’t know.”

Cubans doubt that there will be any big reforms before February 2018, when Raúl Castro, who is 86, is expected to hand over power to Miguel Díaz-Canel, his much younger vice-president. Mr Díaz-Canel is said to favour better internet access and a bit more openness. But the kind of economic reform that Cuba needs would hurt a lot of people, both the powerful and ordinary folk. Suddenly scrapping the artificial exchange rate, for example, would make 60-70% of state-owned firms go bust, destroying 2m jobs, estimates Juan Triana, an economist. Politically, that is almost impossible. Yet without accurate price signals, Cuba cannot allocate resources efficiently. And unless the country reduces the obstacles to private investment in hotels, services and supply chains, it will struggle to provide tourists with the value for money that will keep them coming back. Unlike Cubans, they have a lot of choices.

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CUBA ELIMINATES TAX ON US DOLLAR

Havana Times, March 17, 2016 |

HAVANA TIMES — The Cuban government announced today that it will eliminate its 10% tax on the use of the US dollar on the island. The good news for ordinary Cubans and tourists alike comes in response to Washington’s new measures to further relax the economic embargo on Cuba, reported dpa news.

“The Cuban government has decided to eliminate the 10 percent tax that it applies today on US dollars entering our country,” said Foreign Minister Bruno Rodriguez.

He said the decision should enter into force as soon as US authorities allow Cuban state institutions to use the dollar in transactions in the United States, as announced earlier in the week.

The new relaxations on the embargo, announced by the Obama government on Tuesday, officially entered into force on Wednesday.

Besides allowing Cuban institutions to carry out transactions in dollars in the United States the administration also relaxed travel restrictions on US citizens wishing to visit the island.

The gestures by both governments come as a prelude to president Obama’s historic three-day visit to Cuba starting this coming Sunday.

Rodriguez told a press conference in Havana that in the coming days Cuban state institutions will see if in effect the United States has eliminated restrictions on who can use the dollar.

The elimination of the tax in Cuba will be effective only after verification that the Cuban State can use the dollar in its operations passing through the United States, specified Rodríguez. “While there is financial persecution, the tax remains,” he said.

The 10 percent tax on the US dollar was imposed by the government of Fidel Castro in 2004. Many Cubans in Cuba receive dollar remittances from relatives or friends in the United States, and were the most hurt by the measure.

The tax “has served to compensate the Cuban financial institutions for the risks and costs” caused by the use of the dollar by Cuba internationally, Rodriguez noted.

The inability to use the dollar in international trade was to date one of the major impediments for Cuba to access markets.

Other ways the embargo still hurts Cuba

Rodriguez also criticized as inadequate the measures taken by the Obama administration to relax the embargo. The foreign minister said a number of restrictions still apply to Cuban institutions, for example their inability to export products to the United States.

The sanctions imposed by Washington on the island in the 1960s came in retaliation for the nationalization of US companies in Cuba after the revolution and can only be lifted by the US Congress. However, the Republican majority still opposes lifting the embargo.

Obama’s trip to Cuba on Sunday, the second by a US president to the neighboring island in 88 years, is part of the historic thaw initiated in December 2014, after decades of sharp differences.xx xxx

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FINANCIAL TIMES SPECIAL REPORT ON CUBA, June 16, 2015

Financial Times, June 16, 2015

Document here: Financial Times SPECIAL REPORT on CUBA June 16 2015

Authors:

John Paul Rathbone, Latin America Editor; Geoff Dyer, US diplomatic correspondent; Richard Feinberg, Professor, UCLA San Diego; Marc Frank, Journalist based in Cuba; Cardiff Garcia, FT Alphaville reporter

obama-castroTHAW IN US RELATIONS RAISES EXPECTATIONS; Tentative signs of openness heighten hopes, but is the island ready to do business?

NEW CONNECTION DIVIDES OPINION; President Obama’s overtures play better than expected at home — although not with everyone

STRAITS DEALING BRIDGES MANY GAPS; Retailers in Florida cash in on items needed by customers across the water

GLIMMERS OF GLASNOST BEGIN TO WARM ISLAND; Government retains a firm grip, but there are signs it is loosening a little

NEW PORT ZONE HARBOURS BIG AMBITIONS; A would-be capitalist enclave in a socialist state, the Mariel project is emblematic of change

STATE EXPERIMENTS WITH CO-OPERATIVE THINKING; From garages and restaurants to dealers in exotic birds, co-ops are expanding

CUBA’S NASCENT KNOWLEGE ECONOMY; The island could capitalise on a wealth of expertise in science

US COMPANIES STILL FACE INVESTMENT HURDLES; Bureaucracy, eroded infrastructure and regulatory risk are among hurdles

GOVERNMENT LIKELY TO END TO DUAL CURRENCY; Change would be part of reforms to remove price distortins

COMPENSATION IS KEY TO FUTURE RELATIONS; What now for legal claims by those who lost property in the revolution?

OPINION: WHAT CUBA CAN LEARN FROM VIETNAM; The island has the resources and location to create a balanced economy

 There is a new entry among Cuba’s roll of important dates. Alongside Fidel Castro’s 26th of July movement and the January 1 1959 “triumph of the revolution”, there is now December 17 2014. That was the day when Barack Obama and Raúl Castro, the US and Cuban presidents, announced that they wanted to normalise bilateral relations and end more than 50 years of cold war enmity.

 To be sure, communist Cuba was already changing. After formally becoming president in 2008, Mr Castro began a tentative economic liberalisation process to boost the country’s flagging economy — especially urgent now that Venezuela’s growing crisis jeopardises the $1.5bn of aid it sends every year. But the December 17 announcement lit a bonfire of expectations among US businesses — even if Cuba’s $80bn economy, for all its exotic allure, is much the same size as the Dominican Republic’s. “There is a new sense of excitement, of US companies coming to look and thinking of starting seed businesses,” says one long-established European investor in Havana. “It makes sense. Start small, learn how the system works and then see how it all goes.”

 So, how might it all go? Continue reading:  Financial Times SPECIAL REPORT on CUBA June 16 2015

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CUBA’S ECONOMY: DAY ZERO OR D-DAY?

The tricky task of unifying a crazy system of exchange rates

The Economist, May 16th 2015

Original here: UNIFYING THE EXCHANGE RATES SYSTEM

CUBA has two currencies and a mind-boggling number of exchange rates. So when President Raúl Castro set out four years ago to unify the currency system by 2016, it was not surprising that he gave few details on how he would achieve it. A year in advance, it is still not clear. Nor is there a fixed date. Cubans call the unknown day of reckoning Día Cero (“day zero”).

The main difficulty is not unifying the two currencies per se. They are the Cuban peso, which most people use, and the convertible peso (CUC), worth about $1, which is a dollar substitute used by individuals in tourism, for remittances and in the private sector. It would be relatively easy for the average Cuban to scrap the CUC and conduct all transactions in pesos. Already many goods can be bought with either currency. The exchange rate for the peso is 24 per CUC, a level that has changed little since the CUC was created in 1994.

But for the economy at large what looks like a relatively simple book-keeping exercise could have devastating consequences, because there is a parallel exchange rate, mostly hidden from the public, that is used in accounting by state-owned firms and foreign joint ventures. It is one peso per CUC (or dollar). The massively overvalued rate has been in place since the 1980s, when Cuba was subsidised by the Soviet Union. It creates huge distortions in the economy, allowing importers to buy a dollar’s-worth of goods for one peso, a wheeze that drains precious foreign exchange from the country. Cutting the overvalued rate to the cheaper one would be the equivalent of a 96% devaluation. This could bankrupt many state-owned firms, whose costs have been accounted for at the overvalued rate.

Augusto de la Torre, the World Bank’s chief economist for Latin America, says he doesn’t know of any country that has started unification with such diverse exchange rates, and that it could be “suicidal” to join them in one big bang at 24:1. Vilma Hidalgo, vice-rector of the University of Havana, urges caution. She says many segments of the economy, such as exporters and firms that struggle to compete against subsidised imports, would benefit from devaluation, but others could be devastated.

So Cuba is, typically, treading carefully. The government has started with hotels and the sugar and biotech industries. Though their new exchange rates are far from uniform, the most common is 10:1, which some think may be the target rate for unification. But even if the whole economy were to merge at that rate, it would still represent a 90% devaluation for most.

Typically, a country embarking on such an upheaval would get financial help from the IMF and World Bank. Because of its history of enmity with the United States, Cuba does not have that option. Ms Hidalgo hopes that rapprochement will spur enough trade and financial flows to support the new exchange rate. In the meantime, gradualism will remain the guiding principle, which means the distortions will persist. Expect many day zeroes.

Che Guevara: One of the Architects of Cuba’s Monetary Pathology, immortalized (?) on the three CUP and three CUC bills

CU107Three Peso in Moneda Nacional (CUP),  worth about $US 0.12 in mid-2015. 

Cuban3PesosThree “Convertible Pesos”  (CUCs), now ostensibly worth $US 1.00.

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Brookings Institution: CUBA’S ECONOMIC CHANGE IN COMPARATIVE PERSPECTIVE

Edited by RICHARD E. FEINBERG AND TED PICCONE

Full Document Here: Brookings, 2014:  Cuba’s Economic Change

                         TABLE OF CONTENTS

 Introduction and Overview    Richard Feinberg

Policies for Economic Growth: Cuba’s New Era,  Juan Triana Cordovi and Ricardo Torres Pérez

Economic Transformations and Institutional Changes in Cuba. Antonio F. Romero Gómez

Institutional Changes of Cuba’s Economic-Social Reforms: State and Market Roles, Progress, Hurdles, Comparisons, Monitoring and Effect. Carmelo Mesa-Lago

Economic Growth and Restructuring through Trade and FDI: Costa Rican Experiences of Interest to Cuba, Alberto Trejos

Monetary Reform in Cuba Leading up to 2016: Between Gradualism and the “Big Bang” Pavel Vidal Alejandro and Omar Everleny Pérez Villanueva

Exchange Rate Unification: The Cuban Case. Augusto de la Torre and Alain Ize

New Picture (2)

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