Cuban demand: Power to the peso!
Posted on Thu, Apr. 03, 2008
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By ANITA SNOW
Associated Press Writer
President Raul Castro has lifted restrictions on consumer goods and
hotel stays, but most Cubans get paid in virtually worthless pesos,
which can't buy basic items like toilet paper, let alone a DVD player or
poolside mojito cocktails at the Hotel Capri.
Nearly everything Cubans want or need must be bought with a separate
currency created for tourists and foreigners. So, until the regular peso
increases in value, Castro's moves will be bittersweet gestures.
The new leader's solution, now the talk of the island: merge the two
currencies. But this turns out to be much easier said than done.
Shelves remain virtually bare at the few stores where Cubans can buy
things in regular pesos, which they mostly use for heavily subsidized
items like rationed food, transportation and medicine. In one store,
recent offerings included a half-dozen motorcycle helmets, a thin
blanket and a single pair of boy's underwear.
Overpriced DVD players, flat screen televisions, French cosmetics and
Uruguayan steaks are now available to anyone who can afford them at the
elite stores Cubans call "el shopping." But they must be bought with the
"convertible" pesos tourists get when they trade in their dollars, euros
and other foreign currency.
Cubans can use their regular pesos to buy convertible pesos known as
CUCs (pronounced "kooks"), but at a dizzying exchange rate of 24-to-1.
And even then, few can afford expensive goods on average salaries
equivalent to $19.50 a month.
Regla Jimenez' 15-year-old daughter wants an MP3 player for her
birthday, but "I can't give it to her," complained the 45-year-old
office worker, who earns the equivalent of $17 a month. "With my salary
of 350 Cuban pesos, my priority is food."
If only Castro could declare a 24-fold increase in the value of all
state salaries with a wave of his hand.
It would cause an unprecedented buying spree, but with a terrible
hangover when the few available goods are gone.
And the government lacks the hard currency needed to pay much higher
salaries, so Cubans could soon find themselves even worse off, with
little reason to work harder, save more and spend their pesos.
"Let's assume the government decides tomorrow to gradually reach one
single monetary system and starts by making one CUC equal to eight pesos
instead of 24," said Carmelo Mesa-Lago, a Cuba economics expert and
professor emeritus at the University of Pittsburgh.
"People will immediately change their pesos to CUCs, which suddenly buy
three times as much, and clean out the shops. Then what does the
government do the next day?"
The dual currency system is despised among Cubans because it has created
two classes of people in a socialist society supposed to be based on
egalitarianism: the 60 percent who have at least some access to CUCs,
and the rest who don't.
In pockets of extreme poverty, especially in western Cuba, people are
restless over their dire living conditions. Even middle-income workers
in Havana can hardly benefit from their newly announced freedoms.
"Now I can go to hotels. That's nice, but with what? Not on my salary,"
said Silvita, a 42-year-old doctor who like many Cubans would not give
her last name to international media.
"If they don't give the peso more value or create one money system, I
think these measures will be worse. Because they'll just remind us that
our salaries don't buy anything."
Economists say Castro could start to reconcile the gap by offering the
new goods and services in pesos, rather than CUCs.
"That will increase the demand and raise its value," said Arch Ritter, a
Cuban economy expert at Carleton University in Ottawa, Canada. "If you
can only buy these things in CUCs, that's not going to be much help."
But dropping the value of the CUC precipitously also could lead to
disaster, since Cubans often face shortages of basic goods and must turn
to CUC stores to acquire them. There, a four-roll package of toilet
paper costs what the average government worker earns in two days. A
bottle of cooking oil is four days wages.
Castro and other Cuban officials say productivity must be increased
before the currencies are reconciled.
But because low state salaries discourage Cubans from working harder,
what the government really needs to do is loosen restrictions on Cubans
working for themselves, dissident economist and writer Oscar Espinosa
"Over time, wealth could be created and the offering of products and
services could grow," Espinosa Chepe wrote in an essay this week. "Truly
productive work positions could be established, and that could allow the
use of an enormous excess of work force that today is not taken
advantage of by the state sector."
Cuba's dual economy emerged in the early 1990s, after the Soviet
collapse led to the loss of preferential trade and aid.
To boost tourism and foreign investment, Cuba legalized the dollar, the
only currency accepted at stores created exclusively for foreigners.
Called "diplotiendas," they stocked imported luxury items but also many
basic goods that Cubans could obtain nowhere else.
The CUC was created about the same time and circulated at a 1-to-1 rate
with the dollar until 3 1/2 years ago, when Fidel Castro banned the
greenback. The Central Bank later revalued the CUC so that it now trades
at one to $1.08.
The values of the CUC and peso are artificially set by the Cuban
government, and neither is traded on international markets.
Since Raul Castro replaced his brother as president in February, there
have been rumors the peso's value would be increased from 24 to 15 per
CUC, raising the average monthly salary to nearly $30. That sparked a
brief run at exchange houses as people began trading CUCs for pesos,
hoping to profit in the end.
In the short term, allowing Cubans to buy previously off-limit
electronics could soak up many of the pesos people have hoarded. But
real reforms, like merging the two monetary systems, are inescapably
tied to other fundamental changes in salaries, production and
investment, in a country where the government controls 90 percent of the
And no one understands such complex theories better than average Cubans,
who survive month to month through budgeting, bartering and black-market
"Nobody knows how long it will take," said retiree Guillermo Soler, 70.
"But we all know it's not going to happen immediately."
Associated Press Writers Anne-Marie Garcia in Havana and Katherine
Corcoran in Mexico City contributed to this report.