The Dollar Gains Strength in Cuba

The Dollar Gains Strength in Cuba / Ivan Garcia
Posted on January 5, 2016

Ivan Garcia, 4 January 2016 — José Manual Cordoví keeps his savings in a
rusty cookie tin. He runs a business forging windows, doors and iron in
a suburb of low hovels in Arroyo Naranjo, a municipality 40 minutes by
car from the heart of Havana.

Cordoví has no relatives or friends who are close to the olive-green
mandarins who could give him information. But incessant rumors have
encouraged him to change his savings in convertible pesos (CUCs) into
U.S. dollars.

"I think that in December or January, those people (the Government) will
unify the money and the Cuban convertible will disppear into thin air.
They say they'll respect the money that people have deposited in the
bank. But those of us who do business under the table or keep our money
under our mattresses could be screwed with a unification of money if
it's accompanied by a depreciation of the CUC," says José Manuel.

In Havana, those who have legal or clandestine businesses prefer to bet
on the dollar. While the State's official rate is 87 cents per dollar in
face of the convertible peso, people like Obdulio, an illegal jobber,
say: "The green bills from 50 to 100 dollars get 95 or 96 cents. I
bought others at 93 or 94."

Every morning, six days a week, Obdulio prowls around the State exchange
houses (CADECAs) in hunt of dollars.

"We independent money changers quote a higher price than the Government.
Cubans who live in Miami and those who cooperate in Venezuela or Ecuador
prefer to sell them to guys like me. Every day I buy 2,000 or 3,000
dollars that I sell later to a buyer at one to one against the chavito
(the CUC). Since a month ago, I've increased the buying of dollars. Now
few want to sell and many want to buy. It seems they smell something in
the air," said Obdulio, seated in a cafe on a central Havana avenue.

Doctors, engineers and sports trainers who render services in Ecuador,
Venezuela or Brazil buy important amounts of dollars to get trashy
goods, smart phones and home appliances that they later resell on the
Island.

Also, occasional "mules" who live in Cuba and travel to the duty-free
zone of Colón in Panama or a flea market in Peru or Miami buy dollars by
the thousands.

But is there any foundation for the popular intuition of a coming
monetary unification and devaluation of the convertible peso (which now
is redeemed at one convertible peso for 24 Cuban pesos)? I asked an
economist and university professor.

"In 2013, Raúl Castro's government planned to implement the unification
of the two currencies over a term of 18 months. But they haven't
accomplished it. The double monetary system creates distortions in the
finances and future business deals with foreign businessmen. There are
at least three exchange rates in Cuba. Certain businesses and
cooperatives value the CUC at 10 pesos. Others change the CUC at one
versus a dollar. And the private businesses and State exchange houses
evaluate the CUC at one for 24 or 25 pesos," says the economist.

And he adds: "Cuban finances are trapped in an unreal bubble. Our two
currencies, the Cuban peso (CUP) and the convertible peso (CUC) don't
float on the international exchange market. Their appreciation is
artificial, an extremely harmful State policy, since it doesn't motivate
tourists who bring dollars to change a lot of money because of the tax
that Fidel Castro placed on the dollar in 2005. The low salaries in Cuba
are a brake on the consumer. The unification of the money is not a
caprice; it's a measure that shouldn't be delayed any more."

"What could happen when the money is unified?" I asked him.

"There can be three possible scenarios. One: It could cause inflation.
Two: And this is already happening, many people would change their
savings or find refuge in the dollar due to little confidence in the
national currencies. Three: If the unification doesn't come preceded by
a significant devaluation of the convertible peso against the peso, the
monetary union would resolve little. They have taken some measures, like
issuing bills of high denomination, and sectors like Public Health and
ETECSA raising the salaries of their employees. But 1,500 or 1,600 pesos
(65 or 70 dollars) continues to be an insignificant salary in proportion
to the actual cost of living," emphasizes the economist.

The expert considers that simultaneously with the monetary unification,
they should reduce the inflated mark-ups of up to 300 percent in the
State dollar (CUC) stores.

"But the key is in the low productivity which, combined with the
laughable salaries, constitute a brake on the consumer, an important
base for emerging from the crisis. While there are no transparent norms,
a single currency and an exchange rate that is governed by the
international standard, growth in the volume of investments and foreign
businesses will not be spectacular," says the university professor.

In such a closed society as Cuba, where a small group of people issue
directives, it's very complicated to know when and how the monetary
unification will be carried out.

But there are interesting indications. A recent declaration by the
Republican congressman of Illinois, Rodney Davis, accelerated
expectations. Davis recently visited the Island on a trade mission, and
he declared that Cuban officials informed him that the monetary reform
would occur "within a month."

This past May, Marino Murillo, the obese czar of the Cuban economy,
offered some hints at a conference with students at the University of
Havana. He told them that at the end of 2015 or the beginning of 2016,
the expected monetary unification could happen.

"Don't ask me what day because I can't say anything, but keep everything
you save in Cuban pesos," said Murillo.

Although people like the blacksmith, José Manuel Cordoví, prefer to keep
their money in dollars.

Iván García

Translated by Regina Anavy

Source: The Dollar Gains Strength in Cuba / Ivan Garcia | Translating
Cuba -
http://translatingcuba.com/the-dollar-gains-strength-in-cuba-ivan-garcia/