14ymedio, Havana, 6 March 2024 — Among the Government’s pending and urgent tasks, said Cuban Prime Minister Manuel Marrero on Monday, is “the restructuring of the foreign exchange market,” set for February. Now in March, and without measures on the horizon, it is impossible to contain. In the midst of government inaction, the escalation in the price of foreign exchange is unstoppable, and the forecasts of the Observatory of Cuba’s Monies and Finance (OMFi) predict that both the euro and the dollar could exceed 340 pesos in the informal market this month.
In its monthly report, the OMFi, an independent project promoted by Cuban economists and journalists to provide information about the foreign exchange market and the evolution of the country’s financial and economic indicators, states that in February the euro reached 320 pesos, while the greenback (US dollar) reached 314 and the MLC (freely convertible currency) reached 268, which meant a depreciation of the national currency by more than 8% with respect to the foreign currencies and 5.1% in relation to the virtual MLC. Despite the disastrous data, it is a relief compared to the month of January, when the peso lost 18.5% of its value against the dollar and 17.6% compared to the euro.
“Due to the constant informal depreciation of the peso and the inaction of the economic authorities in terms of exchange rate policy, the gap between the multiple exchange rates in the economy continues to widen,” says the document, signed by the Cuban economist Pavel Vidal, a resident of Colombia.
The OMFi estimates that in March there will be, on average, a new devaluation of the national currency
The OMFi, which manages a model by which it predicts the depreciation of the peso, estimates that in March there will be on average a new devaluation of the national currency of 8% with respect to the euro and 9% against the dollar, with a maximum of 340 pesos or 330 in a more conservative scenario. According to its analysis, the consistent devaluation shows that there are no speculative factors behind the rise, but that its origin is related to “the permanence of fundamental imbalances connected with the crisis in national production, inflationary pressures and limited foreign exchange income in the economy.”
The argument responds, possibly unintentionally, to the constant accusation from the ruling party towards El Toque – which is part of the OMFi – of speculating with exchange rates by forcing a rise. In mid-2023, the independent media was the subject of criticism from the official Razones de Cuba, which accused it of cooperating with the United States in its “unconventional war” to force a social crisis. El Toque has explained its method of analysis and calculation to eliminate any unfounded suspicion, but the regime does not ease off. This same Tuesday, its Facebook account returned to the attack.
“What do you know about the induced inflation operation carried out by the CIA and carried out by El Toque? Inflation in Cuba is being generated, induced, with criminal manipulation of the exchange rate,” said the regime’s media. The objectives are to “attack the currency, not only to generate hyperinflation, but to contract production; to alter the distribution of goods, take them to informal markets and sell them at inflated prices; and, basically, to attack the economic measures of the Cuban Government.”
To the surprise of few, the publication has received an avalanche of responses in which users, loading their comments with irony, question the media for attributing so much power to an independent website and such little power to a Government with all the devices of the State in its hands.
“More than the objectives (of El Toque), they should explain how they do it, and how the Government is unable to counteract it,” says one of the most moderate. Because what is more than evident is the Government’s inability to take effective measures to stabilize the currency. By the way, El Toque has explained its methodology to the point of exhaustion and is quite convincing. The Government has no explanations and takes measures without listening to renowned national economists.”
The OMFi report points out that the most recent changes in tariffs, taxes and prices have been processed by the market “in an orderly manner,” but this could change depending on the decisions made by the Government, in addition to the uncertainty with which the market reacts to its policies.
The most recent changes in tariffs, taxes and prices have been processed by the market “in an orderly manner”
The coexistence of three rates for the currency, two official – 24 and 120 pesos for 1 dollar – and an informal one that is, in practice, the most widespread – by private and in current transactions – coupled with the de facto dollarization of the economy “distorts the relative price signals on which the productive sector and consumers must make decisions,” the report adds. This generates, it continues, great inequalities with a particularly negative impact on agriculture, since “the farmers must face both the prices set by the State with the official exchange rate and the market prices that follow the dynamics of the informal exchange rate.”
As for informal currency sellers, profitability remains high, and, according to the document, the trend is expected to continue in March, although there are indications of a possible – but unlikely – downward reversal. In addition, since January there has been a demand for currencies well above supply, which is the basis for the accelerating depreciation of the national currency. At the beginning of February there was a slight drop in demand, but it was not enough to change the upward trend. The supply of money has experienced a “discrete positive slope,” but, once again, it is not enough for a real impact to occur.
The report adds that, despite the fact that the depreciation of the Cuban peso was 18% in the last quarter alone, there are still a large number of buyers willing to pay the price that is asked for the currencies. “The behavior is consistent with the macroeconomic panorama and confirms that the fundamental factors that determine a high demand for foreign exchange (excess pesos in circulation, dependence on imports, dollarization and high inflation) and a low availability of foreign exchange (limited exports and remittances) have been consolidated. The temporary closure of Western Union’s operations has worsened the development of remittances in recent weeks,” it concludes.
Translated by Regina Anavy
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