Caribbean & Central America - September 2022

It sounds like a contradiction in terms, but in August the Cuban authorities tried to nationalise the foreign currency black market. 

Before August, under currency reforms introduced in 2021, there were two key exchange rates in the Cuban economy: an official rate of 24 Cuban pesos (CUP) to the US dollar, and a black-market rate oscillating around 120 CUP to the greenback. Driven by a need to build up scarce foreign-currency reserves, the Havana government is tentatively trying to ‘legalise’ or replace the black market with a system over which it will have greater control.

The move came in two steps. On 4 August the government said the central bank would begin to buy dollars in cash from individuals, initially at a rate of roughly CUP110.40. The preferential CUP24 rate would, however, remain in place for state companies and other official transactions. President Miguel Díaz-Canel said the aim was to “mobilise financial resource and inputs as quickly as possible” to deal with the country's economic needs. Critics said the move would be inflationary and that by buying, but not selling dollars to individuals, an unbalanced market was being created. However, on 23 August economy and finance minister Alejandro Gil said the central bank would on the following day also begin selling dollars to those who wanted them, under certain conditions. Gil said that the aim was to build and “control” a foreign-currency market.

Under the new arrangements, Cuban citizens wanting to buy foreign currency are allocated up to US$100 a day, initially at a price of CUP123.60. Central bank president Marta Sabina Wilson said that the amount of dollars offered for sale through this channel would be limited. Dollar sales to individuals would be offered through the network of exchange houses (known as Cadecas) and each Cadeca would be required to sell no more than it had acquired on the previous day. The aim was therefore to both buy and sell foreign currency to individuals, but to do so in a way that would build reserves. Wilson said central bank dollar purchases since 4 August had been ten times higher than in the previous month.

In the Mesa Redonda television programme to discuss the changes, Gil said that a range of domestic prices, including nominal salaries, basic goods and services, and gas and electricity tariffs, would continue linked to the CUP 24 rate, while others, deemed less essential, would be linked to the higher rate.

This led to a wave of critical comments (which were later removed from the associated website). One viewer commented “What a cheek to admit that my salary is based on the 1×24 exchange rate, but when it comes to buying what I need it is at 1×120. These are things like shampoo, cosmetics, food, confectionery for a child's birthday, and medicines,” he added.

The latest development shows that Cuba is still struggling to introduce a single, unified exchange rate, a goal that was announced at the beginning of 2021. Mauricio de Miranda, a Colombia-based specialist on the Cuban economy, said the latest change was “insufficient” and the country's economy would remain in crisis in the absence of “integral and systematic” economic reforms.

The available data for the first six months of this year suggests Cuba's post-coronavirus (Covid-19) economic recovery is faltering. First half currency revenues are estimated at US$2.5bn, well down on the US$4bn registered in 2019. Despite a surge in the price of key nickel and sugar exports, the economy has been hit by higher oil and food import prices, as well as by widespread power cuts.

The continuing US trade embargo has not helped. Foreign direct investment has slumped to below US$2bn-US$2.5bn a year, the amount which economists estimate is necessary to sustain GDP growth of 5% or more. The country is struggling to reschedule its Paris Club foreign debt. The recovery in tourism has been slow. GDP grew by 10.9% in the first quarter, but this reflected a low base of comparison (there was a sharp Covid-19 related recession in Q1 2021). The economy is not expected to reach its pre-pandemic levels until 2024-2025. 

• Oil facility fire

On 12 August the Díaz-Canel government announced that a fire, which began on 5 August in the industrial zone of Matanzas, in Cuba’s main oil terminal, had been extinguished. The fire, which is considered among the worst in Cuba’s history, has dealt a further blow to the country’s crumbling energy infrastructure and is believed to have killed at least two people, leaving over 130 injured and displacing hundreds of local residents.