Elimination of the 10% Tax on the Dollar

The Cuban convertible peso and a US two dollar bill. (EFE)

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14ymedio, Elías Amor Bravo, Economist, July 17, 2020 – Let’s imagine a government that spends 61 years calling another government an enemy, accusing it of economic harm. That includes, among other things, a prohibition against using the other country’s money. It also condemns to prison those who are caught transacting on the informal economy (the black market). Then, having said this, the government has no other solution but to return to authorizing transactions in said prohibited money for the purchase of food and cleaning products that are basic to the population.

And in addition, the authorities of this government maintain that the same old measure is fair and benefits all Cubans inside and outside the country. Incredible, because this is Cuba in the time of Díaz-Canel, and this is how the international communication media have covered this news coming from the Island.

Fidel Castro did it another way. When, in the middle of the Special Period he saw that the dollar was devouring the Cuban peso and that the national money was scorned by the population in the face of the free-for-all that brought with it the collapse of the Berlin wall, he created a fictitious currency, the CUC (Cuban Convertible Peso), in order to collect hard currency directly, and he didn’t bat an eyelid.

The dual currency in Cuba has been here for a quarter of a century and could continue indefinitely, in spite of the strain it puts on the functioning of the economy.  But Fidel Castro created the CUC, and no one up to now has had the courage to eliminate it. The CUC won’t survive the present measures. That’s for sure.

But let’s go to the heart of the matter, which has attracted the attention of the international media. It’s clear that this country, which had prohibited the use of the foreign enemy’s money, had established a tax of 10% on transactions, generally on remittances made in said currency. All of a sudden they decide to eliminate this tax. As there are few governments that act this way, you have to ask why the Cuban Regime has decided not to charge this 10% on transactions in dollars.

The question is easy to answer. Basically, a system of commercial intermediation was conceived last year with the sale of appliances, air conditioners, computers, auto parts, refrigerators, etc., and now they want to extend it to basic goods and cleaning products in 72 shops that will certainly have everything, as opposed to the State stores where, after long lines and wait times, you normally can’t get the product you want. Let’s say that, in addition, they have announced more products and shops for August. The Cuban Government sees commercial transactions with hard currency as a way to overcome the present Covid-19 crisis.

Why are we saying this? Basically, because now food can be imported and paid for with the hard currency that’s collected in the dollar stores by the sale of products—hard currency that doesn’t exist in the national economy because tourists haven’t come to the Island in four months, as the Minister of the Economy recognized. Thus, the dollars needed to buy corn or rice from the U.S. can be obtained in the shops which sell in Moneda Libremente Convertible [Freely Convertible Money). These shops are being inaugurated on Monday, July 20, by the Communist Regime, and everyone is very happy because the threat of a food crisis is thereby removed from the dismal scenario of the Cuban economy.

But this same measure has two sides, like the money. Side A is positive, because it allows Cubans who have access to dollars to open accounts in certain banks, obtain debit cards and embark on buying what they want in the stores. But the question is, what happens to the 80% of Cubans who have no access to the dollar, nor family in the exterior to send remittances?

This is Side B. They would have to save a lot, which is very complicated with the salaries they are paid, and they would have to exchange Cuban pesos with the dollar. The Cuban peso will be the first to notably depreciate in the informal market, and, most probably, these Cubans won’t be able to buy anything in these stores.

Surely Cubans will regulate this injustice in the informal economy, with creative formulas that show us how clever and capable they are. Meanwhile, State Security is training to put an end to the so-called “illegalities”, which are nothing less than a cry for freedom.

For the moment, let’s say adiós to the 10% tax on transactions with dollars, which Fidel Castro also established in 2004 to respond to what he called “attacks of the embargo”. The reality is that nothing has changed since then, even if the application of Title III of the Helms Burton Law has made things more complicated. Now the Cuban Communist Regime has decided to eliminate the tax so people won’t lose that 10%, which still doesn’t make anyone jump for joy.

No one should expect these measures to revolutionize an economy that, according to the latest data from CEPAL (the Economic Commission for Latin America and the Caribbean), will sink to -8% in 2020 (remember that in April they had estimated only -3.8% because things were going badly, and what is worse, much worse, is that this decline will continue). The Government has reacted by applying, inside the profit margins allowed, a measure that tries to obtain all the hard currency circulating in the country from remittances (the only hard currency that presently comes in).

The older generation remembers Fidel Castro’s dialectic against the U.S. and the threat of the dollar. Decriminalizing the possession of dollars took place in 1993 during the so-called Special Period, but before that date many Cubans suffered imprisonment and heavy fines for having dollars. History can’t be easily forgotten, and much less should it fall into oblivion when the past is reconstituted.

Before 1959, the U.S. wasn’t insulted for meddling in the Cuban economy. Prices in stores were established in dollars, and the peso was on a parity with the dollar. The Cuban economy rested on more solid fundamentals.

So much demagoguery and long hours with speeches empty of content in order to stop selling pork, shampoo and hamburger meat in dollars to Cubans in a series of select shops. Basic products in prices given in dollars in a country with two official currencies in circulation, the historic Cuban peso and the Castro invention called Cuban Convertible pesos. Sometimes history goes backwards from good sense to those who offend it by playing Russian roulette. What’s going to happen in Cuba starting from next Monday, July 20, has a lot to do with those lost battles by governments and political regimes, in which there is no type of justification for supporting them.

What’s bad about all this is that they want to present these measures as something beneficial for the Cuban people, when they aren’t. That 80% of Cubans don’t have access to the dollar leaves many people on the margin of this commercial system oriented to capturing hard currency. This causes discontent, because no one is going to understand this difference. In Cuba, the access to buying goods and services that don’t exist in other shops isn’t going to be a function of the value of work, strength, motivation or performance, without having family or friends in the exterior to send dollars. Is this the moral lesson that the Castro Regime wants Cubans to have? If those who govern the country have nothing better to do than insult those who question these measures, let them retire and make way for others. They are losing very valuable time that can’t be recovered. Luckily, Cubans know it.

Translated by Regina Anavy


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