Raul Castro must increase Cubans' purchasing power
Posted on Thu, Apr. 03, 2008
The top item on Raul Castro's to-do list is increasing Cubans' spending
power. He hopes to do it by strengthening their near-worthless pesos,
which can't buy basic items like toilet paper and cooking oil, let alone
a DVD player or poolside mojito cocktail at the Hotel Capri.
Until the regular peso becomes more powerful, opening up resort hotels
and high-priced consumer electronics to all Cubans will remain a
bittersweet gesture, because nearly everything Cubans need or want must
be bought with a separate currency created for tourists and other
Castro's solution, now the talk of Cuba, is to 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
goods and services like rationed food, transportation and medicine. In
one Havana peso 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 these goods must be bought
with the ''convertible'' pesos tourists get when they trade in their
euros, dollars and other foreign currency.
Cubans can trade their regular pesos for the convertible pesos known as
CUCs (pronounced “kooks''), but at the murderous 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,'' complains 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. The government lacks the
hard currency needed to pay such high salaries, and 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
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
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 facing regular food and supply shortages must
turn to the CUC stores for basic items they can find nowhere else.
Examples: A four-roll package of toilet paper, available for what the
average government worker earns in two days. A bottle of cooking oil,
for four days of average 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 greatly expand the ability of
Cubans to legally work for themselves, dissident economist and writer
Oscar Espinosa Chepe said.
''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 communist system
lost preferential trade and aid in the Soviet Union's collapse.
To boost tourism and foreign investment, Cuba legalized the U.S. dollar,
at the time 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 invented about the same time and circulated at a 1-to-1 rate
with the U.S. dollar until 3 ½ years ago, when Fidel 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 Fidel as president in February,
there have been rumors that 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.