Cuban Demand: Power to the Peso!

Breitbart/AP ^ | 4/3/08 | ANITA SNOW

[kiriath_jearim]

HAVANA (AP) - 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 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 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 economy.

And no one understands such complex theories better than average Cubans, who survive month to month through budgeting, bartering and black-market dealing.

"Nobody knows how long it will take," said retiree Guillermo Soler, 70. "But we all know it's not going to happen immediately."

[erikm88]

Aahhh... the joys of socialism!

[goldstategop]

The problem is people are paid so low a state wage that they have no incentive to do more than work the minimum. Cuban leaders would like more productivity but people won't work harder without getting something tangible for their hard work and the Party is reluctant to relax its tightfisted control over the economy. Raul's reforms won't change the basic reality of the Cuban economy.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[fireforeffect]

Do we need any further proof that Castro is dead? Or at least as good as dead (coma)?

[StormEye]

"the Party is reluctant to relax its tightfisted control over the economy"

Liberal Democrats (Hillary, Obama) dream of such control over Americans. That's why they are always scheming to screw up the industries and the economy of America. They know that's where the ultimate control can be exercised. Fidel Castro's Cuba is their model economy to emulate.