ECONOMY-CUBA: Pesos Worth More But Still in Short Supply for Many

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Mar 18 2005 (IPS) - Cubans reacted with a mix of optimism and caution to the announcement of a new currency exchange rate, with a seven percent rise in the value of the Cuban peso against the U.S. dollar.

At a centrally located state-run currency exchange bureau, only three people were waiting in line to purchase the now cheaper Cuban convertible pesos (CUC), used in hard currency establishments in place of U.S. dollars, which were withdrawn from circulation on the island on Nov. 8.

As a result of a Central Bank of Cuba decision that took effect on Friday, one CUC (equivalent to one U.S. dollar) now fetches 24 regular Cuban pesos, as compared to 26 at the previous rate, while it now costs 25 Cuban pesos instead of 27 to buy one CUC.

The change in the exchange rate – the first since 2001 – was announced on Cuban television Thursday evening by Cuban President Fidel Castro.

Last October, it was also Castro himself who announced that the U.S. dollar would be pulled from circulation in Cuba two weeks later, and that a 10 percent tax would be charged on the exchange of U.S. dollars for local currency – whether convertible or non-convertible – from that point forward.

“The fact that the dollar costs less doesn’t mean that people are going to have more money. We’ve had the same amount of business here today as any other day, with no more sales than usual,” a cashier in a store that sells goods in hard currency – formerly U.S. dollars, then CUC – told IPS.

“We’ll have to wait to see what happens”, “It’s too soon to say”, “It’s good for me, but people who have dollars to change are going to have fewer pesos now,” were among the comments heard in a Havana farmer’s market, where meat and produce is sold in regular Cuban pesos.

María Rodríguez, a 68-year-old retiree, commented to IPS that she immediately sat down to calculate whether the new measure would help her monthly pension of 152 pesos stretch further.

“I don’t know anything about economics. All I know is that the little bit of money I get every month isn’t enough with prices like these,” she said, pointing to a price list offering a small bundle of onions for five pesos, a medium-sized cabbage for three, and one kilo of chick peas for 20 pesos.

Rodríguez works on a casual basis, hired by the families of sick people who cannot attend to them personally. It is a way to boost her income, and keeps her from becoming a “burden” on her daughter, the divorced single mother of a five-year-old boy.

Similar survival strategies have been adopted by many other Cubans faced with the greatly reduced buying power of the average Cuban salary since the 1980s and a lack of other sources of income, like remittances from relatives living abroad.

The economic crisis of the 1990s – sparked by the collapse of the east European socialist bloc and the disintegration of the Soviet Union, formerly Cuba’s primary trade partners – led to a drastic decrease in the real value of the Cuban peso salaries paid by the state, practically the only employer until that time.

A study released by the University of Havana’s Centre for Studies on the Cuban Economy revealed that until 1989, salaries represented 78 percent of household income on average, while in 2002, that proportion had dropped to 49.1 percent.

Viviana Togares, the author of the study, added that price increases led to a 32.3 percent decrease in the buying power of salaries between 1991 and 2002.

On Thursday evening, Castro alluded to the fact that the problem of inflation is being studied. He also admitted that there are many retired Cubans living on pensions of only 60 or 70 pesos a month, while 257,038 households (or 476,512 people, out of a total population of 11.2 million) are dependent on similarly limited social assistance benefits.

The economic crisis plunged large sectors of the workforce into poverty, sharply diminished the standard of living of much of the population, and led to the re-emergence of inequalities after three decades of austere egalitarianism.

In 1993, the open circulation of the U.S. dollar was part of a package of cautious reforms designed to lessen the impact of the economic crisis. In the early years of the crisis, when it was still illegal for Cubans to have U.S. dollars in their possession, the exchange rate on the black market reached 120 pesos to the dollar.

The new exchange rate – which means an increase in the value of the Cuban peso – is based on the prospects opened up by such factors as the agreements signed late last year with Venezuela and China, considered strategic for future economic development, along with the discovery of new oil deposits and a rise in nickel production through joint operations with the Canadian company Sherritt International.

“This measure is a step forward in the strategic direction of strengthening the national currency and continuing to build the population’s extraordinary confidence in it,” stated the Central Bank.