Sales in convertible currency and the cycle that must be broken

Recently I wrote a brief comment on Facebook on this important topic that I now expand with other thoughts, but including and trying to keep the brevity of original note, without insisting on extensive arguments, which have already been expressed many times.

I say that from an economic point of view there is no sustainable reason not to keep stores that self-finance well stocked, since they sell in convertible currency and at prices that leave a significant margin for the state to finance other priorities. Not guaranteeing the permanent flow of supplies to these stores is like “spending the capital,” the long lines in these establishments are neither necessary nor justified. Obviously in stores where sales are in the national currency the situation is inevitably different due to the current scarcity that for known reasons affects Cuba today.

They are two commercial circuits to which different economic logics correspond, although the reason for the first is to strengthen the second.

I must not fail to point out that current convertible currency stores should offer so-called high-end products and not basic necessities.

As a result of immense difficulties generated by [foreign] attacks and by decisions that, in my opinion, must be rectified, the commercial circuit of the economy has become stagnant, a permanent cycle that repeats and reinforces itself.

As is known, the store replenishment cycle in convertible currency is torturous and long. Millions of dollars are owed to their traditional suppliers because part of their income is not used systematically and on time to maintain replenishment, that is, to replace the capital — a source of new income.

This means that providers tend not to give large amounts on credit because it is already difficult to open a letter of credit. Usually, given the circumstances, they deliver small quantities of products and do not restock until they collect. The contracts are to be paid by bank transfers during a period of 150 to 180 days without further guarantees.

There are cases where stores try to replenish before the merchandise runs out to speed up the cycle. But since there is no credit, it is very difficult to complete the operation. Those who finance external providers do not concede much. Most have had to refinance unpaid debts and are reluctant to grant new loans to the country. Some even withdraw from the Cuban market.

On the other hand, a number of economists agree that the system of forcing currency to be deposited in magnetic cards makes them fill up little by little and spend at the same rate, so that when the little is spent, oftentimes due to prudence, you have to refill them and make new queues for that, at the bank and in the stores, which delays and makes the process even more cumbersome. Curiously, a product to which they tried to apply the previous deposit cards and later discarded is fuel. So far the sale of fuel has been carried out more quickly compared to the eternal lines found at stores.

Finally, the issue of the practically inconvertibility of the Cuban peso (CUP) is very complex. It is necessary to find some way for CUP holders to gain entry to the foreign exchange market so as to gain access to that circuit through a more expensive dollar — how the black market for currencies has been working can be used as reference. This, in addition to making the process more inclusive and increasing incentives, can also be a regulatory factor to restore financial balances.

As can be seen, in the context of pressures, blockades, aggressions and inefficiency that the national economy has experienced, a kind of financial and commercial impasse has been created from which it is necessary to come out with other concepts and alternatives, some of which have already been implemented before in the also very difficult years of the Special Period.

In economics, if you use up your capital, there is no possible future and if this happens, you have to replace it and keep it fast.

It is necessary to get out of the situation of defaults and persistent indebtedness. I take into account the priorities and the tremendous shortage of foreign exchange, but precisely for that reason it is necessary to maintain the financial and commercial flow, otherwise it would be “bread today and misery tomorrow.” You can’t get stuck in the short term.

For example, as the economist Joaquín Benavides puts it, an alternative would be to create a financial institution in the Mariel Free Trade Zone so that it can finance only suppliers who sell in foreign currency stores. For this they would need a guarantee that they will get paid. Thus the International Financial Bank arose and developed, even before the Special Period, financing imports for the economy and tourism, with payments guaranteed by the Bank.

Expectations for a better scenario in the relations with the United States, and the potential solution to the pandemic through vaccines, are reasons to open these new spaces and overcome the existing obstacles. But I insist that this route is, in my opinion, necessary with or without the blockade, with or without a pandemic, and that’s without ignoring in the least what these mean. It is part of the comprehensive reform in which progress must be made. The monetary order cannot be isolated.

[Taken form the Cuban economist’s Facebook page.]