Pesos Instead of Dollars: A Bad Deal for Cuban Employees of Foreign Firms

Until now employees of foreign firms had the benefit of receiving a portion of their salaries in dollars. (Accor)

14ymedio bigger14ymedio, Havana, 22 December 2020 —  Beginning in January, Cuban workers employed by foreign companies will no longer receive part of their salary in dollars. After currency unification takes effect, they will be paid only in Cuban pesos. Rodrigo Malmierca, Minister of Foreign Trade and Foreign Investment, made the announcement on Monday during a broadcast on State TV’s  Roundtable program while discussing the impact of the monetary transition.

According to Malmierca, the move will be a win for everyone. Workers, he pointed out, will earn more in Cuban currency and foreign firms will spend less of their hard currency while paying workers higher salaries. The question is: How many workers on the island will prefer a lot of Cuban pesos over a fistful of dollars? Heretofore, a salary in hard currency has been of the biggest incentives to work for a foreign company.

“Let’s suppose the worker in question is being paid 500 dollars, with an exchange rate of two to one. Now, maybe it won’t be 500 dollars anymore. It will be Cuban pesos instead. He will have fewer dollars but maybe the worker will get a much more attractive salary. This means that, in terms of labor costs, foreign investors will benefit since employers will be able to pay workers more while spending less foreign currency,” Malmierca explained.

Companies currently operating outside the Mariel Special Development Zone (ZEDM) use a special exchange rate. The dollar component of an employee’s salary is paid to a state intermediary, that gives the worker two pesos for each dollar. After currency conversion takes effect, the worker will receive twenty-four pesos for each dollar.

In contrast, the conversion rate for workers in the ZEDM is different. For the last six years the rate has been ten pesos for each dollar of an employee’s pay.

Curiously, Malmierca did not mention the so-called hard currency stimulation fund, which will allows a foreign employer to give monthly bonuses in dollars to every employee, an added benefit that for years has been the most attractive component of employee’s income.

In 2014 the payment system was restructured for private/public partnerships in Cuba. Law 118, which governs such partnerships, allows foreign companies to set up “convertible peso stimulation funds,” a situation that might change judging from Almierca’s comments.

“My salary as a chef is valued at 600 dollars a month,” says an employee at a joint-venture hotel in Havana who prefers to remain anonymous. “Until now I was getting 1,200 Cuban pesos through the Cuban employment agency plus about 350 dollars that the Spanish partner gave me as incentive pay.”

Though his salary will exceed 14,000 Cuban pesos, the chef fears that the loss of hard currency income will leave him worse off. “The price of everything will go up and all l’ll have is Cuban pesos, which I won’t be able to use in hard currency stores or exchange for dollars when prices on the black market rise.”

“What will happen is that an investor will now have to pay more because he’ll have to slip someth extra under the table,” he believes. With increases in the cost of living expected on January 1, “foreign businesspeople will have to motivate their employees better because otherwise they’ll plunder the hotels [where they work].”

According to Elías Amor, a Cuban economist based in Spain, it is unlikely that the changes the government has announced will benefit foreign-owned businesses even though they will be paying higher salaries with less hard currency.

“Malmierca should know that salaries do not increase as a result of government decisions but because of increased productivity. Salary-related decisions such as those he has announced do just the opposite,” he asserts. “And changes adopted during a period of economic instability due to the pandemic will not bring about anything good,” he adds, “The primary advantages of being paid by foreign companies is coming to an end.”


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