Cuba

Dragged down by the Venezuela crisis, Cuba seeks dollars to stay afloat

The Cuban government announced economic measures this week to seek dollars in a bid to stay afloat in the midst of an acute financial crisis triggered by its dependence on Venezuelan oil and new U.S. sanctions.

On Tuesday, Cuban Vice President Salvador Mesa and several ministers announced on television that the government was going to lower the prices of household appliances and other items on the condition that Cubans pay in dollars.

The move is an attempt to obtain a larger percentage of remittances sent from abroad.

“This is a reasonable short-term strategy,” said American University professor William LeoGrande. “But to solve the hard currency shortage in the longer term, the Cuban economy needs to increase its own export of goods and services rather than relying so much on remittances.”

Despite the price cut, many of the appliances and other merchandise that will be offered will be out of reach for many Cubans. For example, a one-ton air conditioner will cost $360, a washing machine $388 and a refrigerator $519. The average salary in Cuba? About $40.

Officials also said the government would soften its monopoly on imports by allowing designated state enterprises to “provide import services to natural persons.”

The measure may benefit the emerging private sector — referred to on the island as “cuentapropistas” — who will be allowed to import supplies and merchandise.

“There is no restriction for self-employed workers,” said Foreign Trade Minister Rodrigo Malmierca.

Cuentapropistas in Cuba were both surprised and skeptical.

“The new measures announced have taken us by surprise,” said Camilo Condis, who is self-employed as a construction contractor in Havana. “Although in recent years many Cuban economists had called for the creation of similar mechanisms, I don’t think anyone expected it.”

But Condis said the measures might not directly benefit private businesses,” as the list of products that will be sold seems to be limited to appliances and the like.”

“I will not say that I am very optimistic about it at the moment,” he added.

It is not clear when the changes will be implemented. Mesa said it would be a “gradual” process.

The vice president directly mentioned that the measures were taken in response to the “tightening of the U.S. blockade,” including new limits on remittances, one of the country’s primary sources of revenue.

The Minister of Economy, Alejandro Gil, acknowledged that the government “is not able to meet the demand” of domestic consumption and maintain the stability of products, due to lack of liquidity.

The announced decisions also attempt to stop the flight of capital out of the country and dismantle the informal market of the so-called “mules” — a term used in reference to Cubans who travel abroad to buy merchandise and resell it on the island.

The absence of wholesale markets also pushed many of the self-employed in the private sector to travel abroad to purchase supplies.

That practice has resulted in an estimated $2 billion loss in purchases for Cuba, according to estimates from the Havana Consulting Group, a research group based in Miami.

“The money that is going out to acquire these products is significant, and we must capture it as a source of foreign exchange to supply our industry, the store chains; in short, our market,” said Mesa.

The vice president also said that appliances, motorcycles, and other products would be sold at more competitive prices, similar to those in the region. But the products can only be purchased at specific stores with magnetic cards associated with bank accounts in dollars and other foreign currencies.

The president of the Cuban Central Bank, Irma M. Martínez, said that people who send remittances to Cuba could “redirect them to these accounts.”

The embargo regulations allow remittances to be sent to the island, currently through Western Union, but it prohibits banking transactions with Cuba. So Cuban Americans will not be able to send money directly to those bank accounts.

Observers inside and outside the island agree that none of these strategies amounts to the economic reforms the country needs.

“Although it is certainly positive for the government to remove middlemen and authorize the private sector to import some products, these measures represent an effort to lure in foreign exchange more so than substantive economic reforms,” said Ricardo Herrero, executive director of the D.C.-based Cuba Study Group. “We hope they will be accompanied by additional measures that focus on increasing productivity and market efficiency in Cuba.”

The announced measures also put a big question mark on Cuba’s dual currency system and its CUC, the hard currency that coexists with the weakest Cuban peso.

“That again [the government] has to resort to foreign currencies to make domestic markets work confirms that the policies and institutions that have guided the operation of the CUC since 2004 have failed,” said Cuban economist Pavel Vidal. “And a big question remains as to what will happen with the project to eliminate monetary duality.”

Cuba´s economic vulnerabilities were felt by its citizens last September when the government limited public transport and paralyzed some lines of the economy to save fuel. Díaz-Canel said on television that an oil tanker from Venezuela had not arrived in time due to the sanctions imposed by the Trump administration against the companies that facilitate those shipments.

Tensions between the United States and Cuba run high as the Venezuelan crisis remains unsolved. The U.S. supports the president of the National Assembly, Juan Guaidó, as the legitimate Venezuelan president. Cuba backs Maduro and has not shown signs of backing off despite the Trump administration’s toughened stance to apply “maximum pressure.”

Meanwhile, the government is running out of cash.

“Recent U.S. sanctions, especially the ban on cruise ship voyages to Cuba and the abolition of people-to-people educational travel, have exacerbated Cuba’s hard currency shortage by cutting tourism significantly,” said LeoGrande. But U.S. policy “has not, and will not, force the Cuban government to abandon its relationship with Venezuela, which is important to Cuba both economically and ideologically.”

“Cuba just doesn’t bow to threats,” he said.

Follow Nora Gámez Torres on Twitter: @ngameztorres

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