Rocky road ahead for Cuba’s monetary unification

HAVANA — The long-awaited Day Zero for monetary unification and exchange policy in Cuba is becoming increasingly imprecise on the calendar.

While the new Guidelines set its arrival in the period 2016-2021, experts predict that, for the next five years, currency duality will continue to be a pebble in the shoe of the national economy.

At the latest Party Congress, President Raúl Castro predicted, without setting a date, that the solution to this problem “won’t be left for the Greek kalends” because “although it doesn’t represent a magic solution to the economy’s structural distortions, it will mean a fundamental boost to the rest of the tasks to update our economic model.”

Oscar Fernández Estrada, professor at the School of Accounting and Finances, believes that the process of unification won’t occur in the near future. And one of the arguments he raises is the current scenario of financial restrictions affecting the country.

He alluded to the liquidity “asphyxia” choking the Cuban economy, caused by various factors: payment of debts (renegotiations imply increases in disbursements); the situation in Venezuela, and the lack of international capital foreseen for this stage, since the Foreign Investment Act has yielded no fruit.

“The process of unification has economic costs, is extremely complex, and will always bring winners and losers,” Fernández says. “What has been said — officially — is that the final prices will be protected. That requires financing, for which we need to have reserves or a compensation fund. And we don’t have that.”

He explained that other countries have access to funding through international organizations such as the World Bank and the International Monetary Fund. That’s an impossible option for Cuba, at least for now, so, “to dare to unify the currency at this critical moment would be to worsen the situation.”

Fernández Estrada adds another variable that needs to be considered: the political juncture, which he calls “delicate.”

“We’re approaching the end of the mandate of the country’s top leadership,” he says. “To engage in a process of this magnitude, to eliminate duality on the eve of a generational changeover can be sensitive for political stability, because if the negative impact of the measure cannot be controlled at the moment of transfer, the conditions will be created for forces in the opposition to gain space.”

Juan Triana Cordoví, a professor at the Center of Studies of the Cuban Economy (CEEC), gives his opinion on whether the island is ready for the unification of its currency.

“Obviously, in a situation of difficulty, in terms of the increase in external financial limitations being experienced by Cuba, I don’t think this is the best moment to do it,” he says.

“Actually, there may never be a ‘best moment’ — just a ‘more appropriate’ moment. There’s the theory that we have to wait to be productive to take that step and I don’t know how far it is possible to achieve a boom in production and efficiency with the high exchange distortion we have. It’s like the question about the chicken and the egg, a vicious circle,” Triana says.

Duality: Cursed unto exhaustion

Monetary duality arrived during the most critical days of the Special Period, when it served as a lifesaver. But many have never forgiven its long permanence. It wasn’t until 2013 when the authorities decided to initiate a process to end the anomaly, whose advances are almost imperceptible and seldom made public.

Joaquín Infante, winner of the National Award for Economics, has not hesitated to stress the imperious need for unification, which “should have been done a long time ago.”

For years, the individual domestic coinbox has remained segmented and the implications there are fewer, except for the need to multiply 1×25 every so often. A more complicated scenario can be found in the macroeconomy and it’s suffered by the business companies, along with the personal budgets.

For the entrepreneurial economy, Infante says, it is a substantial fact that the businessmen can use the financial accounts as true tools for direction, without having to go outside the books to learn the value of their productions, profits and competitiveness.

In Fernández Estrada’s opinion, to overcome such a distortion is a strategic and vital issue, an old debt, something that should have occurred at the very start of the reform process, because many of the Guidelines cannot be put into effect. For example, to advance in the process of purification of the entrepreneurial sector is impossible because we can’t even measure its real performance.

“To eliminate the exchange duality is a condition to begin to evaluate the performance of the Cuban economy at all its levels,” he says. If this doesn’t happen, “it’s like piloting a plane whose instrument panel is giving you unreliable information.”

A benefit of the monetary reordering, according to the Cuban president, is the possibility of rectifying the phenomenon called “the inverted pyramid,” which prevents paying for work in a fair manner, on the basis of quantity, quality and complexity.

To Fernández Estrada, there is a latent danger: “The foreign investors won’t come until the unification is completed. They fear the risk of devaluation implicit in the process.”

According to the economist, the duality stands out from the list of internal factors that limit the establishment of foreign capital. He also refers to the obstacle of the [U.S. trade] blockade and the policy of betting on major projects, plus an excessive bureaucracy.

“We should empower local governments to sign contracts of lesser size. The approval should not necessarily come from the hands of a minister,” he points out.

Short-term solutions

“One of the hopes to emerge from this junctural crisis is a greater flow of foreign investment. For this we need mechanisms that protect investors from the monetary distortions of the national economy,” says Fernández Estrada.

That’s what happened in the 1990s, the specialist remembers. The economy was divided in two: an emerging sector was created that functioned under the conditions of a partial dollarization, while the rest of the economy came to an equilibrium. This will have to be studied today, so that the foreigners may invest in dollars and take home their profits in that currency.

According to him, the above is a proposal to evaluate, with the advantage of not repeating the errors made in the 1990s.

“This step can be taken right now, which does not mean that it won’t generate other conflicts, but we have to take the risk because what we need is for investors to come in,” Fernández says.

As to the process of unification, Triana Cordoví states that, even with the current scenario of restrictions, steps may be taken in a successive process of preparation. Meanwhile, a solution is to give the investors assurances that their money will not be confiscated or harmed.

“Devaluation, when done unannounced, becomes the seizure of goods. That has never happened in Cuba; the authorities have always backed people’s money. The government has been very respectful of that duty and I’m convinced that it will continue to be.”

That was Raúl Castro’s corroboration at the Seventh Party Congress. He confirmed the decision to guarantee bank deposits in international currency, in CUC and CUP, and also the cash in the hands of the population and the legal persons, foreign and national.

Monetary and exchange unification has a very rocky road ahead. All the more so, when some projections indicate that until 2021 the island’s GNP will grow only about 3 percent. And when the government says it will keep its commitment to leave no one unprotected.