10/01/13 - Fox News - Cuba targets dual currency system where waiters out earn lawyers.
HAVANA Cuba is the only country in the world that mints two national
currencies, a bizarre system that even President Raul Castro acknowledges
is hamstringing the island's socialist economy and must be scrapped.
Exactly how to do that is the problem.
Months after Castro made currency unification a centerpiece of a forceful
address to parliament, no details have been made public. But a pilot
program operating under the radar might hold clues to a way out.
Since the system was created in 1994, most islanders have been paid in
national pesos worth 24 to the dollar in exchange houses, while tourists
and the Cubans who attend to them receive a much more valuable peso pegged
at 1-to-1 with the U.S. greenback.
The imbalance means doctors and physicists can make more money driving
taxis or renting rooms than they can working in the professions for which
they spent years preparing. In his July speech, Castro denounced the setup
as having a warping effect on the economy and society in general.
Shaking up the dual currency system risks spiking inflation and creating
new winners and losers, always dangerous on an island that embraces the
goal of egalitarianism. It would also force a change in accounting rules
that would eliminate a huge subsidy to state-run enterprises at a time
when cash is so short.
But there are signs that change is coming, and hints at how the value of
the currencies might meet in the middle.
Pavel Vidal, a former Cuban Central Bank economist now at Colombia's
Javeriana University, told The Associated Press that a pilot program is
being launched with select state businesses operating at a 10-to-1
The businesses are in key sectors such as sugar, hotels and
non-agricultural cooperatives. There has been no mention in the official
media, but Vidal said it is happening and it's a good step.
"I think it's great because the elimination of the double currency must be
gradual," he said.
Even incremental change may be tough to pull off, and requires the
unraveling of Byzantine accounting practices that effectively allow state
companies to purchase dollars at a fraction of what ordinary Cubans pay
While the rate in exchange houses is 24 pesos to 1 convertible peso, or
CUC, the Cuban government treats them as equal in official accounts,
meaning state entities are getting them at a 1-to-1 subsidized rate.
"Whoever is getting these dollars at one-to-one is doing well, and that's
the official sector," said Rafael Romeu, former president of the
U.S.-based Association for the Study of the Cuban Economy.
Despite reforms under Raul Castro, the state still may be too inefficient
to quit the subsidy cold-turkey.
"They would be basically confronting their budget constraint in a serious
way, and I don't think they are ready to do that," Romeu said. "They would
have to cut a lot of social services."
The two Cuban pesos have been circulating in parallel since 1994, when the
loss of billions in Soviet trade and subsidies forced Cuba to reluctantly
open the economy to tourism, while trying to insulate most islanders from
its capitalist effects.
The idea seemed simple: Canadian and European travelers would spend hard
currency at government CUC shops catering almost exclusively to
foreigners, while Cubans would keep living a socialist ideal in the other
It hasn't worked out that way. As authorities pulled back on subsidies
that once covered almost all of islanders' housing and food needs, people
grew increasingly dependent on the added CUC income moonlighting in the
tourism industry or receiving remittances from relatives abroad.
The result is the upside-down wage structure where low-skill workers like
hotel chamber maids earn more from travelers' tips than professionals. A
53-year-old doctor recently left the medical profession after 25 years
because his $25-a-month salary was putting food on the table for just two
days a month. He now helps his mother rent rooms to tourists paying in
"Professional salaries are in a desperate situation," he said, speaking on
condition of anonymity because doctors generally are not authorized to
talk to foreign media. "There's no motivation, and every day they ask more
Contrast that with Rigoberto Sanchez Beltran, who pulls in about $70-$100
a month in tips for watching over parked cars at a tourist complex in
Havana. Getting by is still tough, but he knows the job gives him a leg up
on many of his more-educated neighbors.
"You get to know the regulars, and they give you a little more," he said.
Since 2010, Cuba has seen reforms including the legalization of a real
estate market, increased private small businesses and creeping
decentralization of state enterprise.
In July, Castro vowed that the dual currency was "one of the most
important obstacles to the progress of the nation."
He did not say, however, how the cash-strapped state would manage to pay
white-collar workers more.
Cuban officials have long argued that state salaries are effectively much
higher than the often-reported average of $20 a month if you factor in
things such as free health care, education and monthly food ration cards.
But today just about everyone acknowledges that low pay has been the enemy
of efficiency, doing little to inspire hard work. Employees often pilfer
supplies to resell or barter, or spend work hours on side projects that
bring in CUCs.
At stores that still offer cheaper prices in national pesos, goods from
soap to mops sell out quickly, snapped up by hoarders or black marketeers.
So finding basics such as cooking oil and eggs often entails a trip to a
"It's totally absurd that you get paid in one currency, but in order to
live you need to pay with another," said Margarita Nieves, 69. "Until they
fix that, they can't keep telling people there's no productivity."
Associated Press writers Andrea Rodriguez and Anne-Marie Garcia
contributed to this report.
Peter Orsi on Twitter: www.twitter.com/Peter_Orsi
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