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Two problems – what is to be done?

November 15, 2011

Any Cubaphile will be able to identify two significant problems facing the country – a dual currency and overly centralised planning and decision making in parts of the economy. I have mentioned these issues in previous posts but will place a caveat on the rest of this post by saying that the information is a bit of a synthesis of what I have seen and though and what others (tourists and Cubans) have expressed. Other far more intuitive and capable people have long ago identified the problems I am blogging.

The first issue – a dual economy. Cuba has Moneda National – Cuban pesos or cup – in which people are paid and convertible pesos – cuc – in which many tourist activities but also many ‘luxuries’ are priced in. 25 cup equals one cuc. You can easily guess which one Cuban people prefer. The average wages for a Cuban person ranges somewhere between 300 to 600 cup per month. I can buy a sandwich or hotdog from some places (private and state run) for around 10 cup – 40 cents cuc whilst a beer in other places costs 1 or 2 cuc. With all these prices remember the conversion rate of 1 to 25. Some places will charge both in cuc and cup, like the coffee shop I mentioned in and earlier post. As a tourist, if you know the charge in cup you can sometimes pay in cup rather than cuc, 5 cup (20 cents) for the coffee rather that 2 cuc.

The two currencies and their unequal purchasing power stem, broadly, from 2 periods in the Cuban economy. The low cup wage relates to the period of Soviet patronage. The USSR heavily subsidised the Cuban economy such that the provision of almost everything people needed was supplied by the state at no or very low cost. The trade between the USSR and Cuba was political – massive subsidies in return for a presence under the nose of the US. The local wage was low by international standards however because of the heavy subsidisation provided a fairly high standard of living. The low personal wage was offset by a large social or collective wage.

As the USSR collapsed, Cuba lost access to its patron and most of the goods and services (including consumer items) supplied by the soviet system. In order to survive Cuba needed to open it itself to the rest of the world. As this door opened an internationally tradable currency was necessary, which was the CUC. The currency is pegged more or less 1 to 1 with the US dollar.

What we have now is a somewhat schizophrenic situation of dual currencies grounded in 2 historical periods, Soviet and post Soviet. As a rough rule of thumb, goods and services for Cuban people that originate in Cuba can be priced in cup. Goods and services originating from the global market are priced in cuc. There are exceptions to this rule. For example the state provides a heavily subsidised (though diminishing) basket of basic foods and hygienic products like soap and washing powder. Any of these items purchased from overseas are subsidised to fit a cup economy. This subsidised basket of products is sufficient, I am told, for around 10 days in the month.

The result of this two paced currency is significant parts of the economy being beyond the purchasing power of the cup. In order to participate in that part of the economy Cuban people need access to cuc’s. That currency can be accessed in a number of ways – the street hustle (cigars, fleece the tourist at a bar or coffee shop) or prostitution. There is also the bolsa de izquierda, the ‘left bag’ or black market. A bit of theft from work and sold in this market or pocketing a bit of money on the side. For example, I brought an ice cream on the street for 5 cents cuc. The money didn’t go in the till but in the pocket of the girl serving the ice creams. Another common way is to work in the service sector with tourists being a waiter, maid or taxi driver and making money from tips. It doesn’t seem uncommon to have doctors, teachers or scientists working as waiters or taxi drivers. For the Cuban economy this must surely amount to a significant misallocation of skills and a loss of productivity. High skilled people employed in low skilled jobs.

The second problem is an overly centralised control of the economy. Until recently almost all of the economy was controlled and planned centrally. Decisions on what was to take place and when was determined away from the point of sale and work. One long standing exception to this rule has been in the production of food where semi self determining collectives of workers and private farmers have had some ability to plan determine what and when they grow food. This stems from the urgent need to Cuba to feed itself following the Soviet Collapse. Only in past year or so have measures been taken to start to free up the economy and allow decision making closer to the source the enterprise operates. For example, barber shops were state run and barbers state employees. Now they have the ability to operate the barbers shop as a collective entity, make some decisions as to what they will do and when and share the profit of their work. Ownership and decision making is assuming a mixture of private and staff collective co-operatives. This must surely have a positive impact on productivity and people’s sense of ownership of their work but, the changes are only formative at the moment.

The paradoxes of a dual currency and centralised planning have established a series of contradictions in the economy. If not dealt with properly they seem to have the potential to perhaps cause some fairly widespread and significant harm for the Cuban population. The sudden and dramatic collapse of the USSR resulted in a grab for power and wealth by a minority whereas the majority of the population saw their standards of living diminish. Any changes in Cuba must surely, as a necessity, be structured to benefit the many over the interests of the few. At least, that would be my hope and certainly my expectation of how we would structure things in New Zealand.

The current situation here seems a bit like a balloon filling to capacity with air. The balloon is showing signs of stress and even some danger of popping. A slow release of air may deflate the balloon enough so that it remains intact. The Cuban state is attempting to release the air, release some of the pressure. The danger may exist that somewhere along the line a pin pops the balloon and causes a sudden release of air. The balloon goes from inflation to deflation in a fraction of a second. What is left of the balloon isn’t much. Scratch the surface of the sun and sand Cuba a little and you start to see or be told about the problems. I hope the balloon remains intact whilst necessary changes are put in place. No one I have spoken with however seems to have either the full answer or a crystal ball sufficient to gaze into the future and determine the outcome. Me, as a nosy and opinionated outsider, least so.

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