Cuba’s monetary reform: surgery or sedatives?

 

Echoes from the 28th annual conference of the Association for the Study of the Cuban Economy, Miami, that took place from July 26th until July 28th.

 

Vicente Morin Aguado, in Havana Times

 

HAVANA TIMES — Pavel Vidal Alejandro, professor at the Pontifical Xavierian University in Cali, Colombia, and former professor and researcher at Havana University and Center for the Study of the Cuban Economy, responded to some of my questions about Cuba’s inevitable currency unification process: “Ten years ago, I would have told you that a gradual process was needed, but it’s been such a long time that now it needs to be done as soon as possible.”

 

HT: The government of the hour always takes the blame, but has Cuba really had the conditions it needs to get this reform process off the ground?

 

PVA: Maintaining this current situation is very expensive, inefficiency becomes eternal, statistics are distorted, there are no incentives for foreign investment. The dilemma lies between the foolproof benefits in the medium/long term and the immediate shock to the economy once it is implemented, which might even make it collapse.

 

HT: Let me ask again, could it have happened, and can it happen?

 

PVA: The government is analyzing when the best time will be, they need financial resources to cushion the impact. There may be many reasons for this: Cuba’s international reserves are suspiciously low as facts suggest, a powerful moneylender, let’s say the International Monetary Fund (IMF) or the World Bank, are institutions which the Cuban government refuses to belong to. Likewise, the state budget has a deficit of 12% of the national Gross Domestic Product (GDP), an extremely high figure which reduces the possibilities of this option.

 

HT: Clearly, the much-needed moneylender implies a political decision, far-removed from university classrooms, but if “currency unification” is carried out, the exchange rate is what really concerns ordinary Cubans. Some economists mention two exchange rates, one for the public sector and another for the population, our interviewee dares to give some more precise figures.

 

PVA: There will definitely only be one exchange rate because we need to finally do away with the two that currently exist in all of their variants. It will be the closest to the highest rate prior to unification, between 20 and 24 pesos in Cuba.

 

HT: You said before that it should be a speedy change now. What do you mean by this exactly?

 

PVA: Speedy won’t be months either, but I imagine in maybe three years, with the feasible fiscal instruments, credits, subsidies necessary to soften the blow.

 

HT: Speaking about this blow to the economy, do you mean the initial dire consequences?

 

PVA: “Yes, there will be unemployment, labor will have to move from the inefficient public sector, which will have to shut down, towards emerging sectors, the growth of which needs to be encouraged. For example, investments in export sectors, which will have incentive then, and not to mention the important private sector, which is the only sector to grow and create jobs in recent years.”

 

HT: Contrary to the sound advice given by people who have certainly burnt the midnight oil studying the economy, Cuba’s current government (which was installed by the previous government) has shown that it is inconsistent, according to recent contradictory measures, bringing private enterprises to a halt, even passing a controversial article in the new draft constitution. Months ago, a Vietnamese delegation headed by the First Secretary of the Communist Party of this Asian country came to Cuba, leading us to speculate about whether the Vietnamese experience will serve as inspiration for Cuba.

 

PVA: They have been thinking about Vietnam because it shares some similarities, such as getting rid of the rations booklet, a public sector undergoing reforms and especially the decision to hold onto its political regime. Nevertheless, there are significant differences between both countries too.”

 

HT:  Important decisions normally hide an interpretation that is never made public knowledge, which is capable of voiding any analysis no matter how well it is argued. Do you have something to say about this, a lurking suspicion?

 

PVA: Everything depends on whether those in power decide to carry out a deep reforms process, a structural process we say in economics, which is capable of really changing the country. This would imply closing down inefficient companies, which will be tough but consistent with better economic management, moving labor from the public sector to emerging sectors, like I’ve already mentioned, and allowing comprehensive management and/or investment in activities that generate exports, improving efficient companies and giving the economy wings to really fly, among other things.

 

HT: And the other possibility?

 

PVA: It could be a fictitious reform, where they only change the exchange rate, just the common denominator which people are already applying on the street, without really changing anything, just making it look like they are changing things.

 

HT: The final handshake with Pavel Vidal Alejandro, in the conference room at the Miami Downtown Hilton Hotel during the recently concluded 28th annual conference of the Association for the Study of the Cuban Economy (ASCE), (July 26-28), leaves us with doubts on the ruling government’s unofficial policy in our country.

 

 

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