New regulations aim to stem foreign currency outflows

The Cuban Government has announced new measures aimed at reducing the outflow of foreign exchange spent on imported higher end consumer goods.

Under new regulations individuals will be permitted to use ten foreign currencies to buy products like televisions either in state stores or to import such goods through state-run companies under as yet to be determined mechanism. It is estimated that up to US$2bn a year is spent by Cubans on personal imports.

“Money is leaving the country in significant amounts to acquire these products and we need to capture it as a source of hard currency to restock our industrial base, our retail stores, our market,” Vice President Salvador Valdés Mesa said on Cuba’s flagship television programme Mesa Redonda.

Mesa told viewers that after a pilot with 12 stores, the programme would be extended to 77 outlets across Cuba. In this way, he said, Government hoped to increase the offer of domestic appliances in highest demand: electric motorcycles, flat screen televisions, air conditioners and spare parts for cars.

Under Cuban law it is legal to hold convertible currencies, but they cannot be used for domestic purchases. This regulation has led to individual traders (mules) developing a huge business from personally buying, importing and reselling products from distant locations including Mexico, Panama and Guyana.

Under the new regulations, Cubans who want to buy from one of the identified stores will have to use a dollar-denominated bank card on a bank account holding tradable currencies including Euros, US dollars, Canadian dollars, British pounds, Swiss francs, Mexican pesos, Danish, Norwegian and Swedish kroner, and Japanese yen. Cubans may bank for such purposes either offshore remittances or informal street exchange.

Other ministers speaking on Mesa Redonda were at pains to make clear that the new measures did not represent the dollarisation of the Cuban economy. Alejandro Gil, the Minister of Economy and Planning, told listeners that Cuba will keep its two national currencies: the convertible peso (CUC) and the domestic peso (CUP) while using the US Dollar “as a reference currency”.

He also noted that while Cubans could continue to travel and make purchases abroad, they would in future see competition for sales from the state with profits going towards upgrading local production. “The economy needs a push, a reactivation of our national industry. There’s demand there,” Gil said.

The new measures were, he said, “about moving from a centralised mechanism for the allocation of foreign currency in the commercial system to a more financially-led mechanism”. Gil said that while Cuban companies will receive the dollars for their reuse in accordance with the priorities of their own management, the US Dollar will not circulate in Cuba as there will be no transactions or operations in dollars other than those via electronic commerce. “This is not about dollarising the economy but creating incentives for the internal business system to move from allocated centralised mechanisms to financial methods”, Gil said.

In a further comment, Mesa said that the measure was progressive as it addressed market shortages and the need for the state to hold greater reserves of convertible currency. “At the appropriate time other measures will be announced, such as consumer credit, or instalment loans”. He also said that in the case of the self-employed, mechanisms to address their need to purchase raw materials were being studied “for when we have (the right) conditions”. He stressed that the new measures were not open to business but intended for families and that no resale or speculation will be permitted.

The new economic measures which appear to further fragment Cuba’s unique dual currency monetary system come into force on 28 October. All existing import tariffs and limits on personal imports remain in place.

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