“900 ml oil container. 30,000 bottles 500 CUP each bottle in cash, only CUP, no transfer accepted.” The Facebook groups of Cuban MSMEs are full of ads like this, which daily report on the numerous containers imported by the “new forms of management,” and the subsequent commercialization of their content on the island.
Until the end of 2022, many of these operations used digital currency. However, since the Central Bank of Cuba (BCC) limited the amount of transfers in January 2023, the percentage of cash transactions began to grow. Although formally the limitation was only aimed at exchanges between individuals, in practice, it affected the operation of new private enterprises due to Cuba’s unique economic dynamics.
It is not uncommon for business owners to pay contingent expenses — such as transportation or last-minute purchases — with their own money and then compensate by taking the money spent from the enterprise’s accounts. As the margins for these and other digital operations were limited, the natural reaction was to “bet” on the money in hand. The bancarization policy, dictated at the beginning of August, has consolidated the trend, which does not seem will be reversed in the near future.
This is what Marcos, administrator of a Camagüey-based MSME specialized in retail sales, thinks. “Economic activity is based on trust, first of all in financial institutions, and that trust in Cuba is mistreated. If I went to the bank right now to withdraw 10 million pesos from my enterprise’s account, it would be practically impossible for them to give it to me. But without that money, I cannot buy from those who import, or buy dollars ‘on the street’ to import. Nor does the State guarantee wholesale supplies or sell foreign currency. In these circumstances, the only option is to ‘avoid’ the bank.”
The logistics for any wholesale import to Cuba by enterprises involves the purchase of foreign currency in the informal market, its transfer to the country where the purchase will be made, and complicated procedures to deposit it in a bank account with which to pay the foreign suppliers. This last step of the process may involve additional expenses on the part of Cuban entrepreneurs since most banks do not accept the deposit of large amounts of cash.
Dialogue of the deaf
Before bancarization, Marcos’ MSME was one of many that accepted payments by transfer. He also paid some of his service providers, such as transporters, through this means.
The scheme worked until, with Resolution 111, it was decided to “bancarize” the bulk of commercial operations. The regulation was promulgated on August 2, in an attempt to tackle the cash shortage crisis that the country was facing due to inflation and the decrease in digital transfers. This October 16, on the Mesa Redonda TV program, Díaz-Canel acknowledged that the lack of physical money was the main reason for bancarization: “If we did not apply it, the cash deficit would have been greater,” he said.
With the measure, the BCC sought to make “transparent” at least part of the growing volume of business that was carried out without paying contributions or taxes.
Even though a period of six months was officially proposed for the implementation of “111,” and an additional three months for certain extensions, the BCC ordered its application without even having trained its workers. The “meetings with economic actors” also began to be held later.
Marcos, who attended one of the first meetings organized in Camagüey, remembers leaving with more doubts than he arrived with.
“There were those who asked how we would access foreign currency, having our money deposited in accounts, and those at the bank did not know what to say; another unanswered demand was the printing of more paper money or bills with a larger denomination; and the request that the State sell POS, or allow their import and then certify them. They only summoned us to that meeting to repeat to us that ‘bancarization is good,’ without further arguments. At least it didn’t happen like one in Las Tunas, in which they dared to act surprised when someone raised the issue of purchasing foreign currency. ‘You know it’s illegal to do it on the street.’”
The banking authorities insist, however, that there are no reasons for the resistance of a part of the business sector ― state and private ― to digitalize operations. On September 13, the vice president of the BCC, Alberto Quiñones, told journalist Lázaro Manuel Alonso: “We are going to critically analyze with those economic actors that we know today have withdrawn the service when they previously provided it…each of the banks with their clients are going to analyze it, they are going to review it, they are going to evaluate the causes and based on that there will be commitments on how these digital payments are incorporated in all economic actors, which is what the norm is today.”
In the same interview, Quiñones denied rumors about an alleged printing of higher denomination bills or the increase in the volume of cash in circulation.
The stubborn reality
At the same time that these statements were issued, Cuba suffered its largest wave of blackouts of the year: 1,021 megawatts were affected. After a temporary improvement, the following week the generation deficit again remained above 750 megawatts (almost a quarter of national demand).
The lack of electricity interrupts the operations of banks and ATMs, and limits digital telephone services (relay towers can only operate for a couple of hours on their batteries); without cell phones, it is not possible to use payment platforms such as Transfermóvil or EnZona.
A similar situation occurred in 2022 when another electrical crisis hindered commercial activity for months. But in the opinion of David, an informal currency exchanger, the context was less complicated because there were no limits in terms of quantity and amount for operations through digital platforms.
“In businesses like this, which use such large numbers, many operations could be done without cash, which was an advantage for those who needed the money for other uses. There was also more movement in the freely convertible currency (MLC) market, and there was no shortage of people who told you ‘make half of that payment to me in transfer’; furthermore, the peso had not devalued that much. In September of last year, the dollar was around 180 pesos! Now, any mule travels with 2,000 or 3,000 dollars, and if it’s a container, the investment does not go below 30,000 dollars. At 250 pesos, as the exchange rate is, we are talking about 7 and a half million pesos, an amount that in any other country would be unthinkable to move in cash.”
Shortly after Resolution 111 was issued, Dariel García, director of Gestoría Confias, warned on Facebook about the negative impact that the measure could have on the Cuban domestic market. “By limiting private enterprises’ possibilities of acquiring the MLC or currency they need for their operations, the first response has been to stop purchases and imports…we are talking about imports of food, raw materials, inputs, machinery and equipment… if the private sector does not continue importing, then we will not have more products, the shortage will return and prices will rise again.”
It is not a minor warning. Given the collapse of state supply, MSMEs have become suppliers of products such as chicken, oil, jams and beer, precisely the items that in recent months registered the greatest discounts, and have forced a slowdown in the inflationary trend of the Consumer Price Index.
A pound of chicken, which at the beginning of the year was priced at 350 pesos, can now be found for just over 200, while a liter of oil dropped from a thousand pesos to 650. “Who benefits from the reduction in these prices? There is no need for any discussion,” said economist Oscar Fernández, who is in favor of reviewing Resolution 111 to eliminate “its recessive effects.”
Citizens’ unease reached the point that on August 8, Díaz-Canel was forced to take it into account in a message through X, calling for “more information and answers to the doubts of the population and the economic actors.”
Question of currencies…that are leaving
In July, First Deputy Minister of Economy and Planning Leticia Morales reported before the National Assembly of People’s Power (ANPP) that during the first half of 2023, MSMEs had imported 246 million dollars, essentially “final products.”
Although this amount represented 5.3% of the purchases made by Cuba abroad, Morales insisted on the “distortions” it caused in terms of “non-state actors in the economy, with retention of foreign currency abroad to pay suppliers, without going through the national banking system.”
Her intervention took place on July 18, less than two weeks before the BCC issued Resolution 111, about which the ANPP did not provide any advance, even though it would have been the ideal space to discuss the measure. Bancarization was not, on the other hand, a last-minute decision.
In May, also in the ANPP, Deputy Prime Minister and Minister of Economy and Planning Alejandro Gil anticipated the possibility of this kind of “banking corralito,” by launching a generic complaint against “speculation.”
“No one is going to be asked to work at a loss, but speculation cannot be allowed, not earning five times more,” Gil said in a speech that was directly aimed at MSMEs.
“For imports you have to get foreign currency at the street price, regardless of whether the State only recognizes the exchange rate of 1×120. And outside of Cuba, you are obliged to pay commissions of up to 10% to deposit the money you brought in cash. It is a complex operation, much more difficult since customs tariffs were reestablished in January and the tax exemption that benefited new MSMEs for one year, and six months for those converted from previous businesses was eliminated,” explained one of the MSME owners where Marcos works. In principle, he is not planning to leave the business, but he does confess to having limited his purchases of inputs for the end of the year, “until we see what happens.” He’s not the only one.
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Note: The names of those interviewed have been changed to maintain their anonymity.
