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Cuba is preparing to embark on sweeping economic reforms on 1 January which include, first and foremost, the monetary and exchange unificationand an almost five-fold increase in wages to deal with the expected devaluation and surging inflation.
Change thus results in a system that has lasted more than 25 years, with a double circulation of currency, a Cuban peso and another “convertible”, called CUC and equivalent to the US dollar. The measure was adopted after the crisis following the fall of the Soviet Union – then the island’s main ally – but over the years it ended up fostering unproductiveness, experts agreed.
As announced by President Miguel Díaz-Canel, this is a “command task”, which includes six mainly financial actions. In reality, they had been planned and approved since 2013, and they were waiting for a better economic time for their application, but they cannot already be postponed, according to the government itself.
“We reaffirm the importance and importance of this task, which will put the country in better conditions to carry out the transformations required by the updating of our economic and social model on the basis of the guarantee to all Cubans of greater equality of opportunity, rights and social justice, ”explained Díaz-Canel Thursday evening during the announcement.
A warehouse in Havana informs that the CUC is not accepted, the convertible peso which will stop circulating on January 1. Photo: AFP
The measures announced aim to make the economy more efficient and facilitate foreign investment, at a time when the country needs new cash after months of foreign currency deprivation from the tourism industry due to the coronavirus pandemic .
The authorities have unveiled some details in an attempt to reassure the population, assuring that this is not a neoliberal adjustment program, and that “no one will be left defenseless”.
However, the lack of precision and the complexity of the issues is raising public concerns and academy warnings about possible inflationary processes, which the government admits as a risk.
Cuban President Miguel Diaz-Canel announced the reforms in a televised speech Thursday. Photo: EFE
Here are the main measures planned:
1- Elimination of the convertible peso (cuc)
Cuba has had two currencies for 26 years. The Cuban peso (cup), used by the state to pay salaries and collect basic services; and the convertible peso (cuc), whose value is equal to the dollar and is equivalent to 24 cups. With this measure, the authorities seek to eliminate certain distortions in the economy and social inequalities.
2- Unification of exchange rates
Maybe it is the most important and sensitive measurementThis is what allows a balance between the national economy and the foreign market, on which Cuba is highly dependent.
There are currently two main exchange rates. One for SOEs (corresponding to 85% of the economy), which is a cut valued at one dollar and which causes large imbalances in the economy. The other rate, valid for the general population, is one dollar equivalent to 24 cups. This will be the one that prevails as a single rate, reports Díaz-Canel, which will have direct and immediate consequences both on the macroeconomics and later on small national economies.
The main actions planned by the Cuban government for the unification of its currency from January 1, 2021. / AFP
3- Devaluation
With the new single 24 cup-to-dollar exchange rate, there is a substantial devaluation of the national currency against the US currency for the business sector.
4- Price increase
The authorities are announcing that there will be a general price increase and although they have not indicated the amount, it is expected to be notable. According to the official announcement, details will be communicated in the coming days.
5- Elimination of subsidies
The Cuban economy has been supported by numerous state subsidies, both to maintain the state’s inefficient trading system and for the daily lives of workers. It is proposed that the vast majority of these subsidies be eliminated and that there is only some support left, such as the price of milk for children and medicines for chronic diseases.
6- Increase in wages and pensions
To balance all of the above, the government plans an average increase of 450% in wages and 500% in pensions. Thus, the minimum wage will drop from 400 to 2,100 Cuban pesos (from 17 to 87 dollars). Currently, the average salary on the island is 879 Cuban pesos ($ 37), according to the state’s National Statistics Office.
Source: AFP and AP
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