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Cuban Government Desperate to Capture Dollars Because It Is Unable to Generate Them

DIARIO DE CUBA spoke with Cuban economists Elías Amor and Emilio Morales about the recent economic measures announced on the island.

US Dollars.
US Dollars. Reuters

The CUC is dead, and the scenario sketched by the recent measures announced by the government is one in which Cubans will be drained of foreign currency from abroad, and the country's economy will continue to languish. These and other ideas were expressed by Cuban economists Elías Amor, recently elected as president of the Unión Liberal Cubana political group ; and Emilio Morales, CEO of The Havana Consulting Group, in response to questions from DIARIO DE CUBA.

It’s not a financial strategy

When asked for his views regarding the opening of the new stores in "Freely Convertible Currency", (MLC) Elías Amor replied that, in his opinion: "it aims to drain foreign currency entering the country and centralize it in the State, preventing them from use in the informal economy or the activities of private businesspeople."

He added that "the government maintains its prohibition against capitalizing remittances to augment assets, a practice that in other Latin American countries is very favorable for development" but instead, "prioritizes their allocation to current expenses (food, cleaning and toilet, appliances, tourism packages, etc.)"

Lastly, he call this "a crude attempt to reduce the amount of money in circulation, demanding that operations be carried out with cards linked to bank accounts."

According to Emilio Morales, "it is a desperate measure with the purpose of capturing dollars from the Cuban diaspora, since the system itself is not capable of generating them." Thus, he believes that "the operation's aim is to obtain the dollars that Cubans residing abroad send to help cover the food, hygiene, transportation and communication costs of their relatives on the island. "

Both specialists agree that it is not a financial strategy, since it would first be "necessary for it to address the implementation of laws that facilitate free enterprise, the liberation of prices, the real liberation of productive forces, and laws that protect and promote free enterprise, allowing for an unfettered supply and demand market," Morales said.

"We must speak first of decentralizing the economy, of eliminating all those state companies that are now a burden, of handing over lands to their agricultural workers, for good, and not just on a usufruct basis, eliminating the hoarding system, and allowing the free commercialization of growers' production, and a long list of things," he concluded.

On the situation with the CUC after the opening of the new stores, Amor said that "measures have been taken for years to end it, such as the decision to provide change in CUP on purchases paid in CUC." Nor does he hesitate to affirm that "it is the currency that will come out losing in these operations of stores dealing in dollars."

Morales, for his part, expressed that the CUC "is literally a dead currency," so he believes that "foreign companies that operate on the island, apart from the fact that they have been owed debts for years, now must be pulling at their hair, with the death of the CUC."

In Amor's view, what will be inevitable is the appearance of a parallel currency market, since "since 1959 the underground economy has functioned efficiently, much better than the state one. It has responded to people's needs in a very creative way, reducing the deprivation created by rationing and Communist misery."

"An informal exchange market will emerge, which the authorities are going to pursue and repress, because the state CADECAS can't handle this process," he added.

Morales, meanwhile, pointed out that this parallel foreign exchange market "already exists, and is stronger than the official one."

Remittances will continue to flow to Cuba

As for remittances, Morales said that they will not be affected by these measures, because "they will continue to flow as they have until now, because there is no difference."

"Those who receive money now do not receive CUC on a card or in cash. Now what they receive is the equivalent of an 'electronic dollar', to call it something, since the real dollar remains in the hands of the military, in a bank, in a third country. You cannot get that electronic dollar deposited on the card in cash. If you are going to withdraw money, it is delivered to the customer in CUC or CUP," he explained.

In this regard, Amor said that "relatives who send remittances to their loved ones in Cuba will really appreciate that they can eat with dignity, and clean themselves and their homes every day, even if they have to pay high prices in dollars."

"Despite the difficulties that the pandemic is sowing everywhere, remittances, especially humanitarian ones like those arriving in Cuba, far from being reduced, are holding strong. Other expenses associated with the sending of money abroad will likely be dispensed with, but food, cleaning and hygiene will be guaranteed," he added.

Profits for the government and the military

When asked about the vitality that these stores could inject into the CUC stores, Amor said that he was clear "that the Government is going to make money off this commercial system, because it establishes very high margins on the products it sells to the population, and, as a an important portion is bought abroad, supply prices are negotiated downwards, generating very high levels of profit in this commercial activity. "

But the prospect of "these profits being allocated to the state markets in CUC and CUP, is unlikely," though it would be possible for them "to do with a part, above all, of the subsidized products."

According to Morales, "the strategy is solely and exclusively to rake in dollars. If the purpose is also to meet the demand of the stores in CUC and in CUP, it becomes an operation that is not profitable."

In the case of small and medium-sized businesses that do not make profits in dollars, the new scenario entails great difficulties, since, in Amor's opinion, although "these stores can be a source of supplies, in small quantities, for businesses", if they wish to post profits "they will have to adjust their sale prices in CUP to the supply costs in dollars".

"In a way, the government is going to condition the profitability of small and medium-sized businesses by selling to them at high prices that reduce their margins," he added.

Another Cuban experiment

When inquiring about the application of similar measures in other countries, Elías Amor said that he does not know "of any country in the world in which the government institutes a system for the sale of products in a legal tender different from that of the country itself, and a with the direct intervention of the banking system. This type of operation only makes sense in countries where the state absolutely controls the economy, such as Cuba."

Morales added that "in other countries the process of the dollarization of the economy has been through deep structural reforms and in a market environment characterized by free enterprise and price liberation, in markets governed by free supply and demand, and competition, without monopolies."

But Cuban production, in his opinion, will not be increased by the new measures because "this operation is based on the importation of merchandise, followed by its sale at prices at least 240% higher than the cost agreed to in the Mariel Port. Here there is no productive process in between."

"In order for production to be developed, there would first have to be a private company and the right to sell its products and services in the dollarized market, and to compete on an equal footing with state-owned companies, joint ventures, or foreign companies in the country," he added.

Elías Amor added that if "the products sold in the stores in 'MLC' were produced in Cuba by national industry, then the 'chains' that Díaz Canel talks about so much would actually exist."

However, as we are dealing with "imported products, the profits from the sale leaves the country in the form of imports, such that money comes from abroad in the form of remittances, the Communist Government mediates with the MLC stores, and the money obtained from sales goes out again, to bring more products. "

If the suppliers were national, explains Elías Amor, "this could benefit the Cuban economy, but I doubt that the Government would pay them in MLC; most likely it would be in CUP, and that business might not be as worthwhile."

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