It took off in 2020. A bad year was left behind, the precise evaluation of which requires an almost act of divination, given the total lack of data provided publicly by the authorities. For the first time in a long time an official GDP growth estimate is not given, which, although I don’t share as a leading indicator of economic development, at least it conveys an idea.
Several events significantly affected the performance of 2019. To the insufficiencies of the internal economic policy to boost the domestic productive potential are added the new and very severe restrictions imposed by the United States administration, which limited the availability of fuels, affected visitor flows, and reinforced the atmosphere of distrust for foreign investors, among other effects.
However, it cannot be said that it has been a year of inaction on the part of the Cuban government, nor that its efforts have been reduced to “cyclical” survival. In parallel, some measures with an impact on economic life were unleashed. For example, there was a close to 68% increase in the average salary in budgeted entities; and a set of small transformations towards greater decentralization in state enterprises was introduced.
But, without a doubt, of all of them the one with greatest media coverage was the opening of stores for the sale of consumer goods directly in dollars, through debit cards.
Dollarization officially expands
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During the first days after this decision was announced, on October 15, 2019, the CUC in the informal markets showed a depreciation of 10-20 percent fueled by speculation and expectations, and with the promise to continue being depreciated if the State did not intervene as a currency supplier.
However, the State did not intervene, in fact, it further restricted the sale of foreign currency from its banking institutions, it did not eliminate the 10 percent tax charged for the exchange of dollars in cash and, despite the predictions, the informal market seems to have stabilized at a rate close to 1.10 CUC = 1.00 USD.
The authorities recently announced an expansion of this dollarized offer. The opening of more stores throughout the national territory, the inclusion of new products to the sales list, as well as the beginning―finally―of the “imports by request,” are the three elements announced as the “new measures” that come to deepen this policy.
After three months of its launch, taking into account the total absence of figures in what was explained by the officials, it is not possible to assess how the initial objectives are being met. “The measure has proven its validity,” “has been evolving dynamically,” “demonstrates its fairness,” are some of the statements made, positive with no evidence. Once again, without data, we would have to get help from a brave pythoness.
It is not difficult to establish, even without figures, some gaps in that triumphalist approach. The state of chronic shortages that any observer would have found on February 6, for example, in the auto parts stores in the capital, is already a testimony to unexplained problems.
The direct acquisition of the first currencies should have immediately guaranteed the restocking in these markets. They should have been, since their birth, packed markets restricted by demand, since they don’t require―in theory―the complex and diminished central currency allocation mechanism for their reproduction. Each product that is incorporated into this system must strictly comply with the principle that “it never ends” under penalty of damaging the sustainability and credibility of the mechanism.
The type of products that have been decided to offer is another striking issue. Until now, a magnificent opportunity to promote the acquisition of means of production, so necessary to unblock sectors such as agriculture, has not been taken advantage of, instead the policy has bet on consumer goods that reinforce a rentier pattern and an import vocation.
Measures proposed by Cuban economists in the face of the crisis
Redirecting imports on request
Special mention should be made of the now repeated promise of “imports on request,” whose procedures had been formulated three months ago in Resolution 383 of the Ministry of Foreign Trade and Investment (MINCEX). Here, it seems, there would be a 180 degree turn.
First, the foreign trade minister said last October that the sale price of these imports would comprise “a small profit margin because the goal is to provide the service, not to get rich at its expense.”
If this rule is maintained, the incorporation of cars for sale presents a conflict. If, as announced now, 85 percent of the price of cars is a source of revenue―without doubting the fair destination of that collection―the trade margin must necessarily be higher.
It could be asked whether the price formation policy of the remaining products that can be imported will respond to the ministerial logic of facilitating the operation through minimum margins, or of maximizing the revenues through the “Guinness record” method followed with car prices. The urgency that characterized the explanations given at the time of the launch of this policy in October now showed its totally opposite face.
On the other hand, on that occasion it was announced that 11 enterprises would be authorized to operate the purchases. Among them were entities belonging to MINSEX itself, the Ministry of Industries, CITMA, ETECSA communications enterprise, the Ministry of Tourism, one directly subordinated to the Council of Ministers, as well as three others belonging to the Group of Business Administration SA (GAE)
After less than ninety days and without having made the first import, eight of these enterprises were unauthorized for some reason that was not made public. Now all import operations on request for sale in dollar stores are operated by only three enterprises: CIMEX, SASA and Tiendas Caribe, all under the control of the GAE system.
But the biggest problem lies not in the monopolistic control of the State over this economic activity, but in the dangers of reducing even any potential space of competition between state entities.
If the building of an economy for the consumer is really what is intended, all monopolies that do not rely on minimum cost guarantee must be fought.
Cuba: re-dollarization of the economy and failure of the CUC
Dollarization vs Reunification
This emerging foreign exchange market can be extended according to the course taken by the economic policy during 2020. It will depend on the speed and radicalness with which the monetary reunification process is decided, as well as the dimensions granted to the private sector.
The idea that a part of the national industry can export its productss at the border is one of the main potentialities of this mechanism―as noted in previous works―by allowing participating enterprises to brake the ties of the Liquidity Certificate.
However, even if undertaken with resolution, this process could take some time―perhaps years―before it begins to bear fruit.
Then, the authorities’ betting on this option would be presented in frank contradiction with the idea of a short-term exchange unification process, which should guarantee by itself a stable and unified convertibility for the Cuban peso.
If the decision is to carry out the unification in the course of this year, and the goal is to devalue the exchange rate as much as necessary to find its balance and to purge it of major distortions, then a parallel mechanism of dollar stores becomes redundant.
Unless the tactic is another: to advance a process of partial dollarization, which divides the economy into emerging and traditional sectors, a model experienced successfully during the 1990s, where the emerging sector transfers most of its operations to dollars while producing gradual devaluations for the traditional sector, and attempts are made to control the uncertainties associated with social costs. Who knows.
Until the provided information of public interest is understood, no longer as a citizen right, but as a vital need for subsistence under current conditions, for economists and other social scientists called to provide solutions, we will have no other alternative but to continue guessing.
* This text originally appeared in Progreso Semanal. It is being reproduced with the permission of its publishers.
Authors
Oscar Fernández,
oscarfer
