As the Dollar Approaches 300 Pesos, the Cuban Government Talks About ‘Intervening’ in the Informal Market

The Government is preparing measures for February to control the foreign exchange market. (14ymedio)

14ymedio bigger14ymedio, Madrid, 30 January 2024 — Economic reforms are coming together for the Cuban Government, which is expected to announce changes in the foreign exchange market this February. In the first Council of Ministers session held this year, the Minister of Economy, Alejandro Gil, set an immediate date on a priority issue for the country, although the words he chose for the announcement sowed more doubts than clarifications.

“It is said that the Cuban Government’s projections include intervention ’from the’ informal foreign exchange market, but it is not clear if it meant intervention ’in’ the market. Perhaps it expresses a confusion between intervention and exchange policy,” Cuban economist Pedro Monreal wrote in his X account.

In Monreal’s opinion, expressed in a second message, “intervention (an instrument) can be useful to contain fluctuations in the exchange rate and stabilize it, but it is not effective for making permanent changes in rates resulting from an exchange rate policy that is not compatible with general macroeconomic policy.”

A lot of work is being done on this because of the impact it has on promoting a productive stimulus”

Gil announced that regulations will be announced in February to “reorder local development projects” and decentralize the price approval of natural and traditional medicine. Then he talked about what is really important. “In that month, progress will also be made in the presentation of proposals to restructure the foreign exchange market, intervene in the informal market and control the type of exchange in the country, which includes the determination of the exchange rate and the formation of prices. A lot of work is being done on this because of the impact it has on the promotion of a productive stimulus,” the minister said.

A month ago, during the joint television appearance of Gil and the Minister of Finance and Prices, Vladimir Regueiro Ale, to announce the first changes of the complicated package to stabilize the economy, the official had already referred to the great importance of the foreign exchange market, which he considers “one of the main distortions that the economy is facing.”

The ministers specified that private individuals buy foreign currency in a parallel market that allows them to import goods while the State sector is left without that currency. But they didn’t mention that State companies have access to the official exchange rate (1 dollar x 120 pesos), while those who are forced to resort to the illegal market find the dollar being paid at almost 300 pesos.

“Why is the State sometimes not able to be an offerer of goods and services as it should be? Some of those currencies move in the other circuit. If there were for both… But there isn’t. (…) That has to be corrected,” said Gil, who neither then nor now said anything that could allow us to glimpse the measures to be taken.

“Why is the State sometimes not able to be an offerer of goods and services as it should be? Some of those currencies move in the other circuit. If there were for both… But there isn’t”

In September 2023, two extensive articles published in Cubadebate and signed by an official of the Ministry of Economy, Joel Ernesto Marill Domenech, addressed the economic situation and launched a series of proposals that could help – or not – the authorities, if they allowed themselves to be advised by these experts. The specialist suggested a national currency flotation system similar to the model applied with the euro, although Monreal considered at that time that the idea was “unviable” because the country has no foreign exchange reserves or production to support its own currency.

Monreal’s proposal was, rather, a foreign exchange market of “two levels: business operations with banks and retail operations in Cadeca [currency exchanges] (using the official exchange rate)” and a mobile parity regime (which combines a fixed nominal value that is adjusted by factors such as inflation and a floating rate). In his opinion, that would allow more flexibility to control the small devaluations that occur.

The two experts clashed over a main issue. For Marill, it was essential to stabilize the economy before proceeding with the exchange rate reform, while Monreal considered this dangerous because of the delay it could entail.

The Government seems inclined not to let more time pass than already has. However, the economist also warned of something: “The first step of the sequence should be to support the transformation of the small private commercial production component of the agricultural system into a more diversified private component with the greater weight of national capital. Without an increase in the national food supply, there can be no material backing of the national currency. The rest would be like pouring water into baskets,” he said. None of that is being done.

That idea has come, without being experts in economics, to many readers of Cubadebate, who have reminded the Government that no measure will work in the current supply conditions and they even remind readers that the inflation rate – which is expected to increase as soon as fuel prices rise in two days – gets worse almost by the hour. In the words of one of them: “When someone from the Government said that the State would recover the exchange rate, which was supposedly in the hands of the online site El Toque*, the dollar was quoted at around 270 pesos. It is already quoted at around 280. In a few days, Health and Education workers have lost the increase that has not yet reached them.”

*Translator’s note: El Toque is an independent digital newspaper that provides daily  exchange rates for the Cuban peso in all markets, including that of cryptocurrency.

Translated by Regina Anavy


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