Business & Economy

Cuba economic overhaul has caused partial dollarization, economists say

Havana, Feb 11 (EFE).- An economic overhaul launched just over one year ago by the Cuban government has led to a marked increase in prices and a partial dollarization of the Communist-ruled island’s economy, several economists say.

President Miguel Diaz-Canel’s government has defended the overhaul, known as the “Reordering Task” and the Caribbean nation’s most ambitious since the 1990s, although it has acknowledged some shortcomings in its design and implementation.

The centerpiece of the package was the long-postponed unification of the ordinary peso and the dollar-linked “convertible peso,” bringing an end to a decades-old dual currency system.

For the average Cuban, the Reordering has coincided with acute shortages of food and medicines and long lines at stores, including the convertible-currency (MLC) establishments that accept payment only in dollars even though the vast majority of people are paid in pesos.

But the greatest impact of the reform has been on inflation, with the prices of consumer goods surging more than 70 percent last year, according to official figures, while independent observers put the increase closer to 500 percent.

Economy and Planning Minister Alejandro Gil said this week that the MLC stores that were first opened in 2019 were a “social justice” measure, adding that without them “the country’s economic situation would be even more complicated.”

Those stores will continue to operate for now, Gil said, though adding that will depend on the country’s economic recovery and the government’s ability to beef up the Cuban peso’s real purchasing power.

The Cuban economy’s “partial dollarization” is counterproductive because it shows the government lacks confidence both in the peso and its own monetary reform, Pavel Vidal Alejandro, a Cuban economist and former Central Bank of Cuba monetary policy analyst told Efe from Cali, Colombia, where he teaches at Javeriana University.

The MLC stores are controversial in Cuba because they are stocked with supplies that people would like to buy but are unable to afford.

Only people with access to hard currency can shop there, meaning that ordinary Cubans who are paid in Cuban pesos and lack access to dollars – now harder to come by due to US sanctions on remittances – are excluded.

The local currency has sharply depreciated in recent months on the black market, while the dollar is gaining ground in terms of both daily use and as a substitute store of value.

The official exchange rate in Cuba is set at 24 pesos per greenback. But according to some estimates, including one by the Cuban independent online platform El Toque, the peso currently trades at roughly 100 per dollar on the black market. EFE


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