CubaBrief: Pandemic’s impact in Latin America and the Castro regime’s attempt to drain and centralize foreign currency entering Cuba

Consequences of COVID-19 in the Americas is creating a global crisis that is being felt in this hemisphere. Mauricio J. Claver-Carone, candidate for the presidency of the Inter-American Development Bank (IDB) in an OpEd in The Gleaner on July 19th noted, “COVID-19 has spurred an economic crisis that risks pushing Latin America and the Caribbean into the largest economic contraction of its history. In fact, the International Monetary Fund (IMF) has predicted a 9.4 per cent contraction for Latin America, compared to 4.9 per cent for the rest of the global economy.”

In Cuba this crisis compounds a pre-existing one.

Cuba, prior to the arrival of the Castro regime in 1959, was able to feed itself from its own domestic production. Like both the Soviet Union and Mao’s China that ended with the imposition of communist centralized planning applied to agriculture in Cuba. This created widespread misery that persists to the present.

Today, 80% of Cuba’s food is imported, and much of it from the United States. In the first six months of 2020 the Cuban government purchased $81.6 million in U.S. exports with $62.99 million alone in the purchase of chicken and other poultry, and $5.38 million in corn purchases.

Chicken imported from the United States feeding Cubans across the island.

Chicken imported from the United States feeding Cubans across the island.

Despite this, the Castro regime and its agents of influence continue to claim that there is an “economic blockade” on Cuba. The Cuban government announced in February that there would be shortages of soap, detergent, and other hygiene products for at least the next two months.  Today, these hygiene products are available in dollar stores, and a 10% tax levied on the use of the US dollar that was instituted in 2004 was ended on July 20, 2020 by the Cuban dictatorship.

What is going on? The regime is scrambling for dollars.

Cuban economist Elías Amor, recently elected as president of the Unión Liberal Cubana interviewed in Diario de Cuba provides an insightful analysis:

“it aims to drain foreign currency entering the country and centralize it in the State, preventing them from use in the informal economy or the activities of private businesspeople.” He added that “the government maintains its prohibition against capitalizing remittances to augment assets, a practice that in other Latin American countries is very favorable for development” but instead, “prioritizes their allocation to current expenses (food, cleaning and toilet, appliances, tourism packages, etc.)” Lastly, he call this “a crude attempt to reduce the amount of money in circulation, demanding that operations be carried out with cards linked to bank accounts.”

Even in these dire economic times the Castro regime’s priority remains centralizing control and resources in the State, even if it negatively impacts Cubans, in order for the dictatorship to survive the economic downturn of the pandemic and its own inefficient long term policies.

The dictatorship giveth and the dictatorship taketh away.

Deutsche Welle, July 28, 2020

Opinion: The dollar determines Cubans’ everyday lives

From disbelief to outrage: In Cuba, special stores can offer goods for sale in a currency other than the Cuban peso. That’s a new low for the economic reality of the island, says Yoani Sanchez.

By Yoani Sanchez

It was still early in the morning when the first customers started lining up outside the specialist foreign exchange shops. At the start of the week, they began selling food and hygiene products against foreign currencies. After supply shortages gripped the country’s shops for months on end, Cubans were able to enter the new stores with full shelves and overflowing refrigerators, where payment could only be made using euros, US dollars, or other foreign currencies pre-loaded onto a debit card. 

Locals were in disbelief when news emerged via the independent press that the government would allow new stores to operate where citizens could purchase products with a currency other than the Cuban peso. Later, when President Miguel Diaz-Canel confirmed the rumors and more details became known, a wave of indignation grew.

The move has seen an economic divide between people across the island. On one side, there are those people who receive their salaries in Cuban pesos, on the other, there are those who have relatives abroad and are able to get money transferred to them.

There is an enemy that remains at the center of Cuba’s propaganda war, but whose banknotes have become a lifeline and support for the country’s failed economic model. The party leaders, who boast of national sovereignty, have been defeated by reality. Their own money is only worthless colored paper. It is green dollar notes which allow them to stay sitting on government benches until their pressed linen shirts burst open at the navel.

Growing distrust amongst the population

Now locals have been forced to place their hope in foreign countries, which they have long criticized, as they turn to them for promises. They claim that income from foreign exchange shops will allow them to supply other government businesses where pesos are still being used. But it is not easy to minimize public distrust.

On the streets, Cubans are aware that the dollar has completely replaced the local currency. It is the mainstay of the black market, plays a vital role in informal transactions, but at the same time excludes a large proportion of the island’s population from being able to make purchases. 

The percentage of the population able to shop at these 62 new stores is difficult to predict. Bank-issued debit cards, which can be used to purchase products in the new stores, barely exceeded 15,000 in number at the end of last year — granting only a tiny proportion of the 11 million-strong population access to the shops. However, there are over two million Cuban emigrants and a large portion of those send money back to the island to family and friends.

In 2018 alone, Cubans received $6.6 billion (€5.7 billion) in goods or cash from abroad, according to the US-based Havana Consulting. It is expected that some of this money will be included in the national accounts — along with income from healthcare workers working in foreign missions or goods imported by travelers, the so-called mules, for resale on the black market.

Not allowed

But the distribution of the dollar, which is either brought onto the island personally or through remittances, is still limited. Outside its radius are the people employed by the state without family members abroad, pensioners whose children haven’t emigrated, or those who do not own a company which allows them to draw banknotes with portraits of Abraham Lincoln or Benjamin Franklin. For them, products sold in foreign currency are virtually unobtainable. 

The shampoo, beef, the vast selection of tinned food, the cereal boxes for all ages, the various cold meats, the good coffee, the olive oil, the dried fruits, the sauces and dressings, the different sorts of pasta, the yoghurt, and the long-life milk displayed on the shelves in these shops are light years away from being in their hands. 

When customers filled their shopping carts at the start of the week, went to the checkout and paid with their magnetic cards loaded with a foreign currency, it marked a decisive point that everyone in Cuba felt, one which continues to tear rifts through society and one where its long-term consequences are unimaginable. 

https://www.dw.com/en/opinion-the-dollar-determines-cubans-everyday-lives/a-54318383

The Gleaner, July 19, 2020

Mauricio J. Claver-Carone | New IDB Leadership To Strengthen The Americas – Five Goals For Five Years

By Mauricio J. Claver-Carone – Guest Columnist

Inter-American Development Bank (IDB)   Photo: Mario Roberto Duran Ortiz

Inter-American Development Bank (IDB) Photo: Mario Roberto Duran Ortiz

On September 12, 2020, there will be an election for the next president of the Inter-American Development Bank (IDB), the most important regional development finance institution of the Americas.

This election will present a choice between a 21st-century model focused on an expedited recovery, innovation, and growth in the region – or more of the same that has produced limited results. Clearly, 2020 has proven to be a year that defies the status quo and requires a transformative vision.

My candidacy for the IDB presidency breaks with history, presents a commitment from the United States to the region, and offers a new approach that seeks to strengthen the bank’s role. The IDB should be on the frontier of development and sustainable economic growth, and as president, my tenure would represent a strategic realignment towards the Americas, improved governance, and a focus on our shared values of inclusion, prosperity, and security.

COVID-19 has spurred an economic crisis that risks pushing Latin America and the Caribbean into the largest economic contraction of its history. In fact, the International Monetary Fund (IMF) has predicted a 9.4 per cent contraction for Latin America, compared to 4.9 per cent for the rest of the global economy. This represents a steeper decline than the region previously experienced during the various 20th-century debt crises and The Great Financial Crisis of 2008. The effects will be devastating. Fortunately, the robust stimulus response of the United States, combined with the structural strength of the US economy, can contribute to a prompt recovery and growth throughout the region.

I believe in the concept of America Crece based on the notion that prosperity for one can lead to prosperity for all.

As the chief architect of the United States’ America Crece initiative, I will seek to turn this time of challenge into one of historic opportunity in order to redirect the antiquated vision of East-West financial and commercial chains and strengthen our North-South ties to increase joint investment. I will promote actions that boost access to capital, generate employment, promote fair and competitive wage growth, ensure the inclusion of women, and expand energy affordability to kick-start engines of growth in the Americas. I further recognise the importance of addressing challenges for the region beyond COVID-19 to include disaster resilience and the impact of climate change on vulnerable populations, small island-states, and critical sectors like agriculture, among others.

My 21st-century vision for the IDB is to mobilise the most innovative financial tools, incentives, and resources in a targeted and strategic manner that aligns with the region’s needs and builds ecosystems of sustainable economic growth. My leadership of the IDB will seek to expand its role as an incubator of new ideas that drive and catalyse private investment as well as invigorate traditional development tools that can accelerate economic recovery. I propose a five-point platform that will define my single five-year term (‘5-for-5’). These include:

• Prioritise economic growth and development of member countries: In its founding agreement, the established purpose of the IDB is “to contribute to the acceleration of the process of economic and social development of the regional developing member countries, individually and collectively.” The IDB must return to this founding principle and measure success exclusively by the success of its Member Countries.

• America Crece for the 21st century: Prosperity is a shared value, and the IDB should lead in identifying ways to work with the region to ensure prosperity for all. America Crece is a United States whole-of-government initiative to ramp up US private-sector engagement and catalyse energy and infrastructure investment in the region. The IDB should lead a whole-of-region approach, taking advantage of America Crece.

• Promote good governance: The IDB should set the gold standard for governance and decision-making on inter-American matters. New leadership will focus on building bridges and strengthening relationships with the governors and executive directors. Doing so is critical to establishing standards of transparency, best practices, and strong morale among member countries. IDB management must respect the primacy of governors and executive directors, listening to each constituency, in order to set policy for the institution.

• Strengthen US commitment to the region: The Western Hemisphere is bound by a set of common principles based on shared prosperity, democratic governance, and open markets. A US president for the IDB is recognition of the importance of building stronger ties within the Americas and ensuring mutual economic success. US leadership can take the IDB further into the 21st century – to the cutting edge of development and economic growth – as an incubator for creative solutions that will utilise private sector expertise and new tools.

• One-term commitment: The IDB has only had four presidents in 60 years. This has created a culture of self-interest and immobility. The office of the President should work for the people of the region, not be an entrenched interest in itself.

The IDB stands to play the most important role in its 60 years of existence. New leadership can redefine how it will chart the path toward recovery, growth, and resilience for the Americas.

To execute my vision, I commit to building an inclusive and representative senior team that will be the next generation of leadership. I believe in the value of shared success and in the transparent stewardship of the IDB. The region deserves nothing less. I stand ready to immediately start the hard work that must be done.

– Mauricio J. Claver-Carone is a candidate for president of the Inter-American Development Bank. He is deputy assistant to the president and senior director for Western Hemisphere Affairs at the US National Security Council. A former US Department of Treasury official, he served as US executive director at the International Monetary Fund.

http://jamaica-gleaner.com/article/focus/20200719/mauricio-j-claver-carone-new-idb-leadership-strengthen-americas-five-goals

Diario de Cuba, July 28, 2020

Cuban Government Desperate to Capture Dollars Because It Is Unable to Generate Them

DIARIO DE CUBA spoke with Cuban economists Elías Amor and Emilio Morales about the recent economic measures announced on the island.

DDC

The CUC is dead, and the scenario sketched by the recent measures announced by the government is one in which Cubans will be drained of foreign currency from abroad, and the country’s economy will continue to languish. These and other ideas were expressed by Cuban economists Elías Amor, recently elected as president of the Unión Liberal Cubana political group ; and Emilio Morales, CEO of The Havana Consulting Group, in response to questions from DIARIO DE CUBA.

It’s not a financial strategy

When asked for his views regarding the opening of the new stores in “Freely Convertible Currency”, (MLC) Elías Amor replied that, in his opinion: “it aims to drain foreign currency entering the country and centralize it in the State, preventing them from use in the informal economy or the activities of private businesspeople.”

He added that “the government maintains its prohibition against capitalizing remittances to augment assets, a practice that in other Latin American countries is very favorable for development” but instead, “prioritizes their allocation to current expenses (food, cleaning and toilet, appliances, tourism packages, etc.)”

Lastly, he call this “a crude attempt to reduce the amount of money in circulation, demanding that operations be carried out with cards linked to bank accounts.”

According to Emilio Morales, “it is a desperate measure with the purpose of capturing dollars from the Cuban diaspora, since the system itself is not capable of generating them.” Thus, he believes that “the operation’s aim is to obtain the dollars that Cubans residing abroad send to help cover the food, hygiene, transportation and communication costs of their relatives on the island. “

Both specialists agree that it is not a financial strategy, since it would first be “necessary for it to address the implementation of laws that facilitate free enterprise, the liberation of prices, the real liberation of productive forces, and laws that protect and promote free enterprise, allowing for an unfettered supply and demand market,” Morales said.

“We must speak first of decentralizing the economy, of eliminating all those state companies that are now a burden, of handing over lands to their agricultural workers, for good, and not just on a usufruct basis, eliminating the hoarding system, and allowing the free commercialization of growers’ production, and a long list of things,” he concluded.

On the situation with the CUC after the opening of the new stores, Amor said that “measures have been taken for years to end it, such as the decision to provide change in CUP on purchases paid in CUC.” Nor does he hesitate to affirm that “it is the currency that will come out losing in these operations of stores dealing in dollars.”

Morales, for his part, expressed that the CUC “is literally a dead currency,” so he believes that “foreign companies that operate on the island, apart from the fact that they have been owed debts for years, now must be pulling at their hair, with the death of the CUC.”

In Amor’s view, what will be inevitable is the appearance of a parallel currency market, “since 1959 the underground economy has functioned efficiently, much better than the state one. It has responded to people’s needs in a very creative way, reducing the deprivation created by rationing and Communist misery.”

“An informal exchange market will emerge, which the authorities are going to pursue and repress, because the state CADECAS can’t handle this process,” he added.

Morales, meanwhile, pointed out that this parallel foreign exchange market “already exists, and is stronger than the official one.”

Remittances will continue to flow to Cuba

As for remittances, Morales said that they will not be affected by these measures, because “they will continue to flow as they have until now, because there is no difference.”

“Those who receive money now do not receive CUC on a card or in cash. Now what they receive is the equivalent of an ‘electronic dollar’, to call it something, since the real dollar remains in the hands of the military, in a bank, in a third country. You cannot get that electronic dollar deposited on the card in cash. If you are going to withdraw money, it is delivered to the customer in CUC or CUP,” he explained.

In this regard, Amor said that “relatives who send remittances to their loved ones in Cuba will really appreciate that they can eat with dignity, and clean themselves and their homes every day, even if they have to pay high prices in dollars.”

“Despite the difficulties that the pandemic is sowing everywhere, remittances, especially humanitarian ones like those arriving in Cuba, far from being reduced, are holding strong. Other expenses associated with the sending of money abroad will likely be dispensed with, but food, cleaning and hygiene will be guaranteed,” he added.

Profits for the government and the military

When asked about the vitality that these stores could inject into the CUC stores, Amor said that he was clear “that the Government is going to make money off this commercial system, because it establishes very high margins on the products it sells to the population, and, as a an important portion is bought abroad, supply prices are negotiated downwards, generating very high levels of profit in this commercial activity. “

But the prospect of “these profits being allocated to the state markets in CUC and CUP, is unlikely,” though it would be possible for them “to do with a part, above all, of the subsidized products.”

According to Morales, “the strategy is solely and exclusively to rake in dollars. If the purpose is also to meet the demand of the stores in CUC and in CUP, it becomes an operation that is not profitable.”

In the case of small and medium-sized businesses that do not make profits in dollars, the new scenario entails great difficulties, since, in Amor’s opinion, although “these stores can be a source of supplies, in small quantities, for businesses”, if they wish to post profits “they will have to adjust their sale prices in CUP to the supply costs in dollars”.

“In a way, the government is going to condition the profitability of small and medium-sized businesses by selling to them at high prices that reduce their margins,” he added.

Another Cuban experiment

When inquiring about the application of similar measures in other countries, Elías Amor said that he does not know “of any country in the world in which the government institutes a system for the sale of products in a legal tender different from that of the country itself, and a with the direct intervention of the banking system. This type of operation only makes sense in countries where the state absolutely controls the economy, such as Cuba.”

Morales added that “in other countries the process of the dollarization of the economy has been through deep structural reforms and in a market environment characterized by free enterprise and price liberation, in markets governed by free supply and demand, and competition, without monopolies.”

But Cuban production, in his opinion, will not be increased by the new measures because “this operation is based on the importation of merchandise, followed by its sale at prices at least 240% higher than the cost agreed to in the Mariel Port. Here there is no productive process in between.”

“In order for production to be developed, there would first have to be a private company and the right to sell its products and services in the dollarized market, and to compete on an equal footing with state-owned companies, joint ventures, or foreign companies in the country,” he added.

Elías Amor added that if “the products sold in the stores in ‘MLC’ were produced in Cuba by national industry, then the ‘chains’ that Díaz Canel talks about so much would actually exist.”

However, as we are dealing with “imported products, the profits from the sale leaves the country in the form of imports, such that money comes from abroad in the form of remittances, the Communist Government mediates with the MLC stores, and the money obtained from sales goes out again, to bring more products. “

If the suppliers were national, explains Elías Amor, “this could benefit the Cuban economy, but I doubt that the Government would pay them in MLC; most likely it would be in CUP, and that business might not be as worthwhile.”

https://diariodecuba.com/cuba/1595954595_24024.html