RIO DE JANEIRO, BRAZIL – The Cuban government on Friday, January 1st, put into effect a monetary overhaul in hopes of improving the country’s economic performance amid the pandemic and the tightening of U.S. sanctions against the island.
The reform eliminates the dual currency system in place on the island since 1994, and increases salaries, pensions and social security payments while transforming the pricing structure completely.
MONETARY UNIFICATION
Cuba’s planned economy has been operating with the Cuban peso (CUP) and the Convertible peso (CUC), pegged to the U.S. dollar at par and worth 24 times as much as the CUP.
However, the CUC has had different exchange rates for the public, joint ventures and state-owned enterprises over the past three decades, which has created distortions in the economic system, according to the island’s authorities.
With the new measures in place, one dollar will equal 24 CUP, and the CUC will be out of circulation by the end of June.
Havana resident Sonia Cruz told Xinhua that the government is moving on the right track and making wise decisions to make Cuban socialism more prosperous.
“As a state employee, I was paid in CUP but needed to convert most of my salary into CUC to buy hygiene products and food. That made things more complicated,” said the 60-year-old while waiting in line to withdraw money from a cash machine near a bank.
Nationwide, automatic teller machines are no longer dispensing CUC notes as grocery stores, shopping centers and state-operated businesses are giving changes only in Cuban pesos.
“We are taking steps and making reforms to improve our economic performance,” said Aile Ruiz, a private sector employee. “This is something that will also enhance competition between businesses and boost entrepreneurship.”
Cuba’s Central Bank will update the daily exchange rates of Cuban pesos with foreign currencies.
Local authorities said low-income families will be helped to cover basic expenses, while state-owned companies that report losses due to the financial reform will get subsidies from the government for one year.
SALARIES, PENSIONS AND PRICES
The Caribbean nation increased national average salaries, pensions and social security payments fivefold, which will improve the purchasing power of millions of people across the country.
Rene Perez, a bus driver who transports commuters from Havana’s historical downtown center to the city’s outskirts, told Xinhua that these measures will help young people feel more committed to their work.
“I will earn a higher salary and be able to improve my family’s living standards,” said the 22-year-old. “This is something that will certainly make our economy more prosperous.”
Besides, the social security system will provide more than 118,000 people with assistance as nearly 1.7 million senior citizens will benefit from the increase in pensions.
Among them is 70-year-old Pedro Suarez, who retired in 2010 after having worked for more than 30 years for the state sector.
“For people like me, the longed-for moment has arrived. Now, I expect produce prices at the farmers market will not go so high,” he said while rocking himself.
The government said private sector workers are not allowed to increase prices more than threefold in light of the potential inflation provoked by the Cuban peso’s devaluation.
ECONOMIC CONTEXT
It comes as Cuba expects a gradual recovery of the economic activity during 2021 after the country’s gross domestic product decreased by 11 percent last year.
The island has already eliminated a 10-percent tax on dollars to absorb more hard currency, which allowed citizens to use dollars to buy food, hygiene products, electronics and other goods via bank cards from stores.
Also, the Caribbean nation launched a “single window” system for foreign trade and investment to expedite export and import processes while attracting overseas investors to the island.
Oscar Fernandez, senior professor of the School of Economics at the University of Havana, told Xinhua that keeping inflation in check will depend on the country’s capacity to streamline internal factors limiting Cuban economy’s take-off.
“The only way to successfully go through this complex economic process is by applying scientific research the same way we have done it during the pandemic,” said Fernandez.
Meanwhile, Ricardo Torres, a senior researcher at Havana’s Center for the Studies of the Cuban Economy, said the monetary overhaul would be highly consequential to the island’s economic and financial system.
“At the end of the day, real consumption and improvement of living standards of people will depend on the steady increase of productivity, which is related to the implementation of more profound measures,” added Torres.
Source: Xinhua
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