Cuba plans first official peso devaluation since 1959
revolution, sources say
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[September 10, 2020] By
Marc Frank
HAVANA (Reuters) - Communist-run Cuba will
soon devalue the peso's one-to-one exchange rate with the U.S. dollar
for the first time since the 1959 revolution, according to three sources
who requested anonymity due to the sensitivity of the subject.
As part of the reforms, due before the end of this year, authorities
will also unify Cuba's two domestic currencies, according to two Cuban
sources and a foreign businessman, all with some knowledge of the plan.
The peso will be kept and the convertible peso, which is fixed on par
with the dollar for state business but exchanged with the public at 24
pesos to buy and 25 pesos to sell, will be eliminated, the sources said.
Cuba's government has said it will respect the peso's current rate with
the public for a time to allow residents to change their convertible
pesos for pesos and do so automatically for convertible peso bank
accounts.
"The most important measure is going to be changing the official
exchange rate used by the state companies," Omar Everleny, one of Cuba's
best-known economists, told Reuters.
"There are several proposals. It will never be one on one ... It is
between 10 and up," he said.
The peso's value versus the Canadian dollar, euro and other convertible
currencies also is expected to be adjusted downward based on
international market rates.
The Cuban economy is largely owned and run by the state, and exchange
rates are set by the government.
The measures are part of a package of reforms aimed at fighting an
economic crisis caused by tough U.S. sanctions under President Donald
Trump and exacerbated by the coronavirus pandemic and the bureaucratic
inefficiency of the island's Soviet-style economy.
Shortages of basic goods have worsened this year, with long lines a
common sight at many stores around the country. The closure of the
tourist sector has left many Cubans without work, although flights from
Canada resumed last week.
DOLLARS CIRCULATING
The government hinted in July it would adopt the monetary reforms and
other measures such as loosening centralized planning and restrictions
on small businesses, first called for by the Communist Party a decade
ago.
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People take pictures of a tanker entering Havana's bay in Cuba,
September 8, 2020. Picture taken September 8, 2020. REUTERS/Alexandre
Meneghini
According to the three sources, there will be a significant increase in state
wages, pensions and prices due to the devaluation of the peso by as much as 95%,
or to around 20 pesos to the dollar.
Everleny said the devaluation meant companies would have much higher costs and
prices would increase, requiring increased wages and pensions.
Economy and Planning Minister Alejandro Gil said in July that reforms were
needed to stimulate exports and reduce imports as the local currency is not
exchangeable on the international market to purchase goods and pay debt.
Experts forecast Cuba's economic activity will drop by nearly 10% this year,
after stagnating in 2019. Government officials have admitted the lack of a
convertible currency has forced postponement of debt payments and drastic cuts
in fuel, food and other vital imports.
Economists have long argued that the one-to-one official exchange rate - as well
as the different rate of the convertible peso and various exceptions by sector -
have stymied exports and encouraged imports because a dollar earned is accounted
for as a peso and vice versa, making it difficult to decipher if a company is
profitable.
The government began allowing the dollar to circulate electronically with a bank
card a year ago and is opening dollar stores offering everything from used cars
and domestic appliances to food and hygiene products.
The sources said they expected the dollar stores to increase at least in the
short term to provide stability and capture greenbacks to import goods.
Many Cubans receive hard currency from abroad and from servicing the tourism
industry.
"The monetary reform is very close. This is the moment," said Everleny, who
supports the measures even though he warned they could be traumatic for some.
(Reporting by Marc Frank; additional reporting by Reuters TV; Editing by Daniel
Flynn and Paul Simao)
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