Photographer: Yamil Lage/AFP/ Getty Images
The Cuban government has announced that the unification of its present dual currency system will begin on 1 January 2021. The exchange rate will be CUP24 to US$1 and as previously announced, the convertible peso, the CUC, will be abolished.
Speaking on Cuban television and radio, Cuba’s President, Miguel Díaz-Canel, sitting alongside Raúl Castro the First Secretary of the Cuban Communist Party, said that the conditions and all the necessary legal requirements are in place to begin a process that will see a new exchange rate, and remove “excessive subsidies” to industries. At the same time, he also announced a significant increase in income to enable Cubans to address the expected prices rise as the effects the devaluation are felt.
Noting that the process of monetary reordering (Ordenamiento Monaterio) “is of transcendental importance” and will have “a transversal impact on the entire economy”, he said that the process will enable the country to be better able to transform its economic and social model, “guaranteeing all Cubans more equal opportunities”…. “not through egalitarianism, but by promoting interest in and motivation for work”.
Observing that the task is not without risks, he warned that inflation could be higher than expected as a consequence of the supply deficit the country is experiencing. To address this, the President said, “abusive and speculative prices will not be allowed” and that there will be “containment measures and severe penalties for non-compliance”. He reiterated that “no one will be left helpless” and that the process will be undertaken based on maintaining national unity.
In his remarks Díaz-Canel stressed that an important component of the change would be for Cuba’s business system to “fully exercise the powers that have been granted” and to ensure that workers benefit from their company’s success.
It was also announced that:
• There will be a six-month period during which the CUC may be exchanged for the CUP at the new rate whether in cash or in a bank account;
• State salaries, pensions and social assistance benefits will rise as of 1 January;
• Salaries will be set at a minimum of CUP2,100 and a maximum of CUP9,510 based on the number of hours worked, but workers in special categories with higher educational qualifications, in certain locations, and who meet other specialist criteria including those in health care will receive additional income;
• The minimum age-related and total disability pension will be set at CUP1,528 with upward variations;
• All state-contracted employment related to foreign investment where the salary paid in CUP is set by agreement between the Cuban employing entity and the company cannot be less than that corresponding to each position in the current salary scale agreed with the joint venture;
• There will be new arrangements for the payment of those in specialist roles such as journalism, cadres of the Communist Party, workers in science, technology and innovation, highperformance athletes, for the arts, and in the Mariel Special Development Zone;
• After unification, the sale of regulated food products and medical supplies will be maintained through the supply book, but commercialisation will continue for items in the standard family basket with subsidies being gradually reduced;
• Modifications will be made to taxation on salaries above a certain amount and more generally to support the country’s social security system.
The announcements follow recent decisions to decentralise control over state enterprises enabling them to control up to 80% of their export earnings in exchangeable currencies, new measures to encourage foreign investment (see story below), and the encouragement of linkages between state and non-state enterprises to enable import substitution and to encourage exports.
The decision to finally unify the currency represents the first official devaluation of the peso since the Cuban revolution took place in 1959. What has become clear through multiple government statements beginning early in 2020 is that the process is being used to undertake several long overdue economic reforms recognised by most Cuban economists as being necessary to create an efficient socialist market economy.
The acknowledged danger in a socially planned economy is, however, price inflation and unemployment if, as subsidies end, continuing shortages in supply force newly uncontrolled prices upwards. To try to address this, Government has decided to increase significantly state salaries and pensions and incentivise Cuba’s underemployed and unemployed to work. However, what is far from clear is how some presently subsidised state companies and their employees will cope if after a year’s grace period the enterprise is not profitable and must close.
US sanctions, inefficiencies caused by Cuba’s largely unreformed state planning system, indebtedness, the import of at least half of what the economy requires in the way of fuel, food, and inputs suggest that turning the economy around will be challenging and require a high degree of flexibility, responsiveness, and continuing public consent for the changes to proceed smoothly and succeed.
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