FINANCE-CUBA: The Euro, Potential Lifeline for Struggling Economy

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Nov 12 1998 (IPS) - The Euro, the European Union (EU)’s joint currency, has the potential to ease some of the pressure placed on Cuba by the U.S. embargo and boost its trade ties with Europe, according to various experts and officials.

If, “as expected, the new currency is consolidated, Cuba will not have to suffer the consequences that it now has to endure because it cannot use dollars abroad,” analyst Adolfo Gomez Gonzalez said in the latest issue of the weekly ‘Juventud Rebelde’.

Because of the U.S. blockade, the island cannot use dollars directly in international transactions.

Eleven of the 15 EU countries are to adopt the common currency on Jan. 1 next and, according to the official press here, the Central Bank of Cuba (BCC) plans to make the use of the new currency mandatory from 1 July 1999, in transactions that would normally have been done in the 11 currencies.

By the end of the year 2001, the Euro will have replaced the Ecu (European Currency Unit) throughout the EU.

‘Juventud Rebelde’, which is the organ of the Union of Communist Youth, said Cuban firms also must prepare to pay in Euros for trade operations with China, North Korea and Vietnam, starting in January 2000.

BCC President Francisco Soberon was more cautious. Even with the total consolidation of the Euro, he said, one cannot expect the damage done by Cuba’s inability to use dollars and the suffering that has caused to disappear. “More than anything else, it means prospects for improving the present situation,” Soberon said in a recent conference on the issue in Havana.

He said the issue was “especially significant” because of the growing economic relations between Cuba and Europe, with which Cuba conducts 44 percent of its trade.

In 1997, 52 percent of foreign tourists came from Europe. In addition, most of Cuba’s credit was negotiated with European banks, he said.

At the end of 1997, the EU accounted for about 30 percent of Cuban foreign trade, up from a mere seven percent in 1990, foreign trade sources said. Cuba’s 10 main trade partners include three EU nations, Spain, France and Italy. The others are Canada, Venezuela, Russia, Mexico, China, the Dutch Antilles and Argentina.

The Havana International Fair (FIHAV 98), held the first week of November, reflected the interest among EU firms in doing business with Havana. The most important booths were those of the EU and Italy, while those from first-time participants France and Britain came in for special mention.

“Having a booth at the FIHAV is an important signal that we are taking our trade relations with Cuba seriously,” said British Trade Minister Brian Wilson, who travelled to Havana to attend the fair.

For the past two years, France has been Cuba’s eighth largest trading partner and its second largest in the EU, after Spain.

Last year, trade between Cuba and France reached its highest level, 300 million dollars. Between 1992 and 1997, it amounted to 1.454 million dollars.

Trade with Britain is more modest (about 45 million for 1998). Britain is one of four EU members that will not adopt the Euro in January. The others are Sweden, Denmark and Greece.

Experts say the advantages for Cuba include the simplification of foreign currency operations – as a single currency will replace 11 – and the end of exchange rate fluctuations .

The single currency will also increase competitiveness and rivalry in the European banking sector, which in turn will lower interest rates and create better opportunities for financing, according to Juventud Rebelde.

Prevented by the blockade from obtaining loans from the main international credit agencies, Cuba gets only short-term, high- interest loans from foreign banks. Its debt now exceeds 100 billion dollars.

According to Spanish economist Jose Rodrigo, another participant, the benefits for the island are based on the fact that the Euro will become an alternative to the dollar. “Moreover, it will reduce substantially the cost of its operations with EU countries and unite Europe’s economic cooperation with Cuba,” Rodrigo said.

In his opinion, Cuba will also benefit from a multi-billion- Euro financial package, designed for Latin America by the European Investment Bank (BEI), and to be cover the 1999-2002 period.

With the irruption of the Euro and the existence of the dollar in the international currency system, there will be two big players that define the rules of the game, according to an analysis of the Latin American Economic System.