HAVANA.- Cuba is preparing to make strong corrections in its economy from January 1, at the same time as the unification of its currency comes into force, according to ancohe announced President Miguel Diaz-Canel.
This is a “Ordering Task”, which includes six basically financial actions planned and approved since 2013, which expected a better economic time for its implementation, but which are already imperative.
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The authorities have revealed some details to try to reassure the population, stating that this is not a neoliberal adjustment program, and that “no one will be forsaken.”
The measure aims to make the Cuban economy more efficient and facilitate foreign investment, at a time when the island, which has been deprived for months of foreign exchange from the tourism industry due to the coronavirus pandemic, needs fresh money.
“ The conditions are considered to be created to announce the start of the task from January 1, 2021 with a single exchange rate of 24 Cuban pesos for one dollar,” the president said in a message to Cubans on the national chain, accompanied by Raúl Castro, first secretary of the Communist Party (PCC, sole).
The measure, which seeks to correct distortions in the economy, consists in the gradual elimination within six months of the convertible peso (CUC) created in Cuba 26 years ago.
The Cuban peso (cup), until now used by the state to pay wages and collect basic services, will be the currency that will remain in force.
This measure “is not without risks,” said the president, stating that one of the main problems is that inflation is higher than expected, which is exacerbated by supply deficit, as well as the emergence of abusive and speculative prices.
Díaz-Canel noted that although it is not a “magic solution to all problems,” this task “will put the country in better conditions for the transformations it demands for updating” the island’s economic model.
The process, which had been announced in 2013 but constantly postponed pending the best time to implement it, is carried out in the worst possible context, when the Cuban economy is expected to fall by 8% this year, according to the forecasts of ECLAC, the UN economic commission for Latin America.
The president said that this is “one of the most complex tasks that the country has faced in the economic order”, also affected by an upsurge during the pandemic of the blockade imposed by the United States.
The lack of precision and the complexity of the problems arouse concerns among the population, and alerts from the academy about possible inflationary processes, which the government admits as a risk.
These are the actions envisaged:
Elimination of convertible weight (cuc). Cuba has had two coins for 26 years. The Cuban peso (cup), used by the state to pay wages and collect basic services; and the convertible peso (cuc), whose value is equal to the dollar and equals 24 cup. With this measure the authorities seek to eliminate some distortions of the economy and social inequalities.Unification of exchange rates. Perhaps this is the most important and sensitive measure, as it is what allows for a balance between the domestic economy and the external market, on which Cuba is highly dependent. There are currently two main exchange rates. One for state-owned enterprises (corresponding to 85% of the economy), which is a dollar worth cup and causes great distortions and imbalances in the economy. The other rate, valid for the general population, is a dollar equivalent to 24 cup. This will prevail as a single rate, reported Díaz-Canel, which will have direct and immediate consequences both for the macroeconomics and later for small domestic economies. Devaluation. With the new single exchange rate of 24 cup per dollar, there is a substantial devaluation of the national currency against the US currency for the business sector.Price increase. The authorities announce that there will be a widespread increase in prices and although they have not said its amount it is expected to be noticeable. According to the official announcement, the details will be informed in the next daysElimination of subsidies. The Cuban economy has been sustained by numerous state subsidies, both to maintain the inefficient state business system and for the daily lives of workers. It is proposed that the vast majority of these subsidies will be eliminated and that only some support remains, such as the price of children’s milk and medicines for chronic diseases. To balance all of the above, the government plans an average increase of 450% in wages and 500% in pensions. To do this, the authorities have determined a basic basket, the amount of which they have not disclosed. From that basket, the minimum wage will be fixed that will be in force in the country, thereafter.