WEBINAR «MONETARY REFORM AND ECONOMIC SITUATION IN CUBA» 22/03/2021
On March 22, 2021, the Webinar on the "Monetary Reform and Economic Situation in Cuba" took place, organized within the framework of the I + D + i research project of the Autonomous University of Madrid (UAM) on the blocked transition in Cuba: reforms and counter-reforms.
The session was moderated by Susanne Gratius (Professor of International Relations, UAM, Spain). The interventions began with Pavel Vidal (Professor of Economics, Pontificia Universidad Javeriana, Cali, Colombia), followed by José Antonio Alonso, Professor of Applied Economics, Complutense University of Madrid (UCM), Spain. The two experts presented the possible advantages and challenges of the monetary reform in Cuba. This reform began on January 1, 2021, with the main objective of making the Cuban convertible peso (CUC) disappear in 6 months. This reform begins in the context of large economic, political and social imbalances aggravated by the situation created by the COVID-19 pandemic.
The researcher Pavel Vidal began by exposing the implications of this reform, starting with the acceleration of inflation with a possible double scenario: one of inflation of 952% and a transfer rate of 0.8. The second scenario with inflation of 474% and a transfer rate of 0.3. Added to this, there is the uncertainty about the possible devaluation of wages. Both the devaluation of the exchange rate and the possible opening of the economy to small and medium-sized companies are two changes that can lead to other necessary transformations.
The benefits of the reform can be seen in the economic incentives with an increase in exports and the participation rate in the labor market. Moreover, there will be a reduction of labor costs in dollars, and greater financial transparency, including the improvement in the calculation of the investment return, and the financial risk. However, long-term challenges such as future fiscal deficits, hyperinflation, and the stability of the banking system, must be taken into account. On the other hand, in the short term, the relative price shock should be managed without a competitive market. As possible positive events for the Cuban economy, the researcher pointed out: the possibility of achieving immunity with national vaccines that would allow the reactivation of tourism, one of the main sectors of Cuba; or an eventual decrease in economic sanctions against Cuba by the Biden-Harris Administration.
In the following intervention, José Antonio Alonso began by highlighting that the reform opens a process of uncertainties. He stressed that two sectors are more favorable to the reform, which have limited access to effective power. One of them is the academic sector, born as a result of small reforms; and the other is the self-employed group linked to private businesses. However, two other sectors are more reluctant to the reform. One of them is the communist party, and the second is the armed forces group, which presents more ambiguities, with some sectors more prone to the reform.
A second factor that can cause the readjustment is the persistence of the crisis that has been dragging Cuba for years, and that has been exacerbated by COVID-19. The researcher emphasized that the pandemic has been the turning point to undertake this reform, which has been postponed for years. According to professor Alonso, the costs of this reform are concentrated in the short term, while the benefits will be seen in the longer term. The deterioration of living conditions added to social discontent in a society exhausted by the expectations created by the government can increase social discontent that could create protests against political leaders.
There is the possibility of getting quick foreign exchange with tourism. However, being the sector most affected by the health crisis, it is uncertain whether there will be a prompt recovery. Moreover, Cuba has limited fiscal capacity, with a poorly articulated system for the provision of fiscal resources, which leads to limited access to international financing. Furthermore, the researcher added the factor of uncertainty and a turning point on whether the Cuban State is exploring different financing alternatives (including bilateral negotiations). Therefore, it should be taken into account that there is limited fiscal capacity, so it will be necessary to see how the state will respond and how will be the access to international financing.
By way of conclusion, there is no turning point, there is the need to look forward as this reform will create a domino effect, due to the necessity to carry out other reforms in order to accomplish a great restructuring. However, a progressive sequence of changes could produce a new stagnation, which is produced by the inability to manage the costs of the reforms. Likewise, there is a need to explore the possible funding from financial institutions to carry out this reform, taking into account the needs of the Cuban population, to try to alleviate the penalties of civil society.