For the Cuban peso you get significantly less today than before the currency reform.
Photo: imago images/Agencia EFE/Yander Zamora
Marilyn Hernandez is unhappy. The woman, whose name has been changed by the editors, designs ventilation systems for hotel buildings for a Cuban planning office, which are springing up all over Havana. Until the currency reform at the beginning of last year, when the Convertible Peso (CUC) was abolished and the Cuban Peso (CUP) was devalued, she earned quite well, as she puts it: 3,000 CUP a month. Although her salary was even increased as part of the currency reorganization accompanied by wage and price reforms, the low peso flight means that she can watch the value of her income melt a little more every day. “4,000 CUP isn’t enough, either way,” says the 27-year-old, and does the math: “A bottle of tomato puree costs 450 pesos, a packet of chicken 500 pesos; and eat out in a restaurant once, easily 1000 pesos are gone. I’m not even talking about clothes or a mobile phone.”
The loss of purchasing power does not affect everyone equally, says Omar Everleny Pérez, an economist at the University of Havana, to »nd«. “Employees or pensioners with an income of less than 3800 CUP are most affected.” That is roughly the value of the average shopping cart. At the time of the currency changeover, the government still valued it at 1528 CUP. “The situation is worst for those who earn the minimum wage of 2100 CUP, or for pensioners who have even less per month,” says Everleny Pérez. Today they have less purchasing power than before the currency conversion.
With the partial dollarization of retail over the past two years, many everyday necessities are now only available in foreign exchange stores. The official peso exchange rate to the US dollar is set at 24:1, but the exchange offices have stopped issuing foreign currency since the corona-related slump in tourism and tightened US sanctions eroded a large part of government revenue. Meanwhile, the unofficial exchange rate is rising and rising. In January alone, the CUP lost more than 30 percent in value and broke the sound barrier of 100:1 to the US dollar for the first time.
»Our economy grew by two percent in 2021. Since November, the borders have been opened, tourism has started again, the pandemic has dropped to a manageable level, private travelers are importing goods, and as a result of greater availability of foreign exchange and products on the street, the exchange rate is not falling, as might be expected, but rising sharply,« the daily newspaper »Granma« complained in an article headed »fraud«.
Everleny Pérez, on the other hand, sees logical reasons for the collapse of the currency: »The most important is the opening of the borders through which the Cubans were able to leave the country, with two clearly defined goals: firstly, to be able to access foreign markets such as Russia, Mexico and To buy Nicaragua to supply the national market, and on the other hand to emigrate.« And since the state does not sell any foreign currency, the larger demand is covered by the informal market. “Those who toyed with the idea of leaving the country for good sold most of their wealth in CUP, but they need US dollars.”
And with the peso weakness, the rate of inflation rises. For 2021, the government spoke of inflation of 70 percent, while independent economists spoke of 300 to 500 percent. Both are somehow right, says Everleny Pérez: “The state relies on the fact that there are prices for electricity, water and admissions to cultural institutions, for example, which rose sharply on January 1, 2021, but have not since.” On the other hand, prices for everyday goods, which are almost exclusively available in foreign exchange shops or on the black market, have multiplied, according to the expert.
Fighting inflation is one of the government’s priorities for 2022, stressed President Miguel Díaz-Canel at the end of 2021 before the National Assembly. Economy Minister Alejandro Gil took the same line. The way is to “increase supply, not through more imports, but through more production”.
Everleny Pérez takes a similar view: “The only possible and real strategy is to open up the economy even more, that is, to boost the production of goods and services and to remove existing obstacles in various areas of the economy.” CUP will also devalue even more so that it adapts more to the market, but that leads to higher prices, according to Everleny Pérez. He doesn’t believe »that this spiral of inflation will stop in 2022. There are many economic plans, but few concrete ones.
The employee Hernández, however, does not want to wait for better times – she has applied for a master’s degree in Spain. If that doesn’t work, she’ll go to Serbia, she says. It is one of the few countries that Cubans do not need a visa for. Her two sisters recently emigrated there.