Caribbean & Central America - March 2011 (ISSN 1741-4458)

On 14 March the Cuban central bank announced an 8% devaluation in the hard currency convertible peso, taking it back to parity with the US dollar. The move amounts to economic realism by the cash strapped Cuban authorities. It will boost exports (approx. US$2.8bn in 2009), tourism revenues (est. US$2.0bn annually) and the value of remittances (est. at up to US$1.0bn annually), and should also encourage more foreign investment in the island.
    However, it will also make the cost of basic (imported) essentials, many of which can only be found on the black market or in hard currency stores, more expensive. It may also reinforce the economic divide between Cubans with access to dollars (via remittances) and those without. The Cuban peso, in which public sector wages are paid, will remain at 24/25 to the dollar.
In theory the government led by President Raúl Castro, which is in the process of laying off half a million state workers in order to cut costs (many of whom it hopes will find employment in the nascent small entrepreneurial sector), ought to adjust public sector wages (approx US$20/mth) in order to compensate, though there is not much evidence that the government is minded to do so.
The central bank statement, published in the daily Granma, said that the move would stimulate export activity and, more optimistically, the process of import substitution. It should also allow the central bank to progress debt negotiations with foreign creditors. Limits on payments on foreign companies (first imposed in 2008) have been removed gradually. Curiously, the statement also said that a 10% tax on dollar exchanges (which mainly affects US dollar remittances) would remain in place - in December 2010 the government had said it was scrapping this levy.