Cuba admits it will have to dollarize some sectors to recover income

Cuba will take measures such as selling tourist services in foreign currencies or charging tariffs to private importers in those currencies, although this will imply a partial dollarization of its economy, Prime Minister Manuel Marrero acknowledged on Wednesday.

“This government’s vision is not at all to dollarize the economy,” but in this scenario “we need to go down this path, in order to achieve that one day the Cuban peso recovers its value,” said the official, insisting that the island lives in a “war economy.”

Cuba is going through a severe crisis that has persisted for almost five years and has left the State without foreign currency and with few resources to meet its expenses or support its accounts.

Marrero, whose speech was broadcast on state television and reported by official media, spoke at length at the first plenary session of the People’s Power Assembly – Parliament – to report on the measures taken by the government in the midst of an inflationary process that has liquefied purchasing power, increased shortages and deficiencies of all kinds.

Among the measures announced is the introduction of payment in dollars for non-state importers; payments in this currency will be gradually implemented for port services and the acceptance of cash in foreign currencies will be permitted in key sectors such as tourism.

In the opposite direction, the use of the Cuban peso (CUP) will be mandatory for all transactions within the country.

Marrero did not indicate the date from which these measures would come into effect, but insisted that the plans will be gradual, as was done at the beginning of the year with the increase in electricity, fuel and transportation rates.

For decades, trade in Cuba was in the hands of the State within the framework of a centralized economic model, but since 2010 there has been a timid opening to private initiative that gained a strong boost following the crisis in 2021, when small and medium-sized enterprises (SMEs) were authorized to operate with the aim of boosting national production.

SMEs began to form in all areas, from small workshops making furniture or packaging, to shops producing finished products such as imported food. Even so, the state sector remains the main employer.

The paralysis caused by the COVID-19 pandemic, a drastic increase in US sanctions to pressure political change and an internal financial reform (monetary unification) unleashed the crisis, which was expressed on the streets by shortages and the consequent increase in prices.

Private entrepreneurs and SMEs gained prominence by starting to import all kinds of finished products.

Marrero revealed on Wednesday that in 2023 the non-state sector – which must use state agencies to operate – imported goods worth 1.3 billion dollars, while by June 2024, they had imported 936 million dollars.

Furthermore, since the State does not sell dollars to these businessmen, they go out and buy them on the black market, generating “an uncontrollable spiral of demand for foreign currency” in parallel or illegal areas, Marrero said.

The government has insisted in recent days that it is not seeking to demonize SMEs or the private sector, but rather to regulate their operations, making them compatible with the socialist state system.

At the same time, prices have skyrocketed. Officially, inflation in 2021 was estimated to be much higher by experts, at 70%, in 2022 at 39%, and in 2023 at 30%. This week, during the pre-plenum meetings of Parliament, it was reported that this year it would be around 30%.

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