Pesos instead of dollars: A bad deal for Cuban employees of foreign firms

[El Presidente]

 

Reports from Cuba: Pesos instead of dollars: A bad deal for Cuban employees of foreign firms

December 26, 2020 by Alberto de la Cruz

 

14yMedio reports from Havana via Translating Cuba

Beginning in January, Cuban workers employed by foreign companies will no longer receive part of their salary in dollars. After currency unification takes effect, they will be paid only in Cuban pesos. Rodrigo Malmierca, Minister of Foreign Trade and Foreign Investment, made the announcement on Monday during a broadcast on State TV’s  Roundtable program while discussing the impact of the monetary transition.

According to Malmierca, the move will be a win for everyone. Workers, he pointed out, will earn more in Cuban currency and foreign firms will spend less of their hard currency while paying workers higher salaries. The question is: How many workers on the island will prefer a lot of Cuban pesos over a fistful of dollars? Heretofore, a salary in hard currency has been of the biggest incentives to work for a foreign company.

“Let’s suppose the worker in question is being paid 500 dollars, with an exchange rate of two to one. Now, maybe it won’t be 500 dollars anymore. It will be Cuban pesos instead. He will have fewer dollars but maybe the worker will get a much more attractive salary. This means that, in terms of labor costs, foreign investors will benefit since employers will be able to pay workers more while spending less foreign currency,” Malmierca explained.

Companies currently operating outside the Mariel Special Development Zone (ZEDM) use a special exchange rate. The dollar component of an employee’s salary is paid to a state intermediary, that gives the worker two pesos for each dollar. After currency conversion takes effect, the worker will receive twenty-four pesos for each dollar.

In contrast, the conversion rate for workers in the ZEDM is different. For the last six years the rate has been ten pesos for each dollar of an employee’s pay.

Curiously, Malmierca did not mention the so-called hard currency stimulation fund, which will allows a foreign employer to give monthly bonuses in dollars to every employee, an added benefit that for years has been the most attractive component of employee’s income.

In 2014 the payment system was restructured for private/public partnerships in Cuba. Law 118, which governs such partnerships, allows foreign companies to set up “convertible peso stimulation funds,” a situation that might change judging from Almierca’s comments.

“My salary as a chef is valued at 600 dollars a month,” says an employee at a joint-venture hotel in Havana who prefers to remain anonymous. “Until now I was getting 1,200 Cuban pesos through the Cuban employment agency plus about 350 dollars that the Spanish partner gave me as incentive pay.”

Though his salary will exceed 14,000 Cuban pesos, the chef fears that the loss of hard currency income will leave him worse off. “The price of everything will go up and all l’ll have is Cuban pesos, which I won’t be able to use in hard currency stores or exchange for dollars when prices on the black market rise.”

“What will happen is that an investor will now have to pay more because he’ll have to slip someth extra under the table,” he believes. With increases in the cost of living expected on January 1, “foreign businesspeople will have to motivate their employees better because otherwise they’ll plunder the hotels [where they work].”

According to Elías Amor, a Cuban economist based in Spain, it is unlikely that the changes the government has announced will benefit foreign-owned businesses even though they will be paying higher salaries with less hard currency.

“Malmierca should know that salaries do not increase as a result of government decisions but because of increased productivity. Salary-related decisions such as those he has announced do just the opposite,” he asserts. “And changes adopted during a period of economic instability due to the pandemic will not bring about anything good,” he adds, “The primary advantages of being paid by foreign companies is coming to an end.”

[jvd1291]

It would be very hard i imagine to run a business that operates in a socialist country like Cuba that makes top down decisions in this manner!

[Fugu]

With what they did and still do to their doctors abroad they are now going domestic.

Cuba desperately tries getting some ‘form’ of communism to work while relying on the means and continual aid (avoiding the term “blessings”) of free-market economy. Inevitably bound to clash.

And their people will be fed guinea pigs ......

[Jimmy_jack]

When will they give it up. It doesn’t work. What a shame.

[Nino]

56 minutes ago, Jimmy_jack said:

When will they give it up. It doesn’t work. What a shame.

"They - the minority at the helm" will never give it up as it works well for them as long as "they - the majority that gets shafted" accept and perpetuate this perverted system ....

A shame indeed.

[MrBirdman]

6 hours ago, nino said:

"They - the minority at the helm" will never give it up as it works well for them as long as "they - the majority that gets shafted" accept and perpetuate this perverted system ....

@nino is spot-on; any ruling cartel will only surrender power when the cost of holding onto it becomes great enough to force their hand. Only the Cuban people can tip that balance.

[Nino]

https://www.reuters.com/article/us-cuba-economy-analysis/analysis-cubas-looming-monetary-reform-sparks-confusion-inflation-fears-idUSKBN29418I

U.S. Markets

December 30, 20201:33 PM

Analysis-Cuba's looming monetary reform sparks confusion, inflation fears

By Sarah Marsh, Nelson Acosta

HAVANA (Reuters) - A major monetary reform that will hike prices and state wages in Cuba starting on Friday is sparking widespread uncertainty as the Communist-run island resumes market-oriented changes to its Soviet-style economy after years of flip-flopping.

The reform, announced earlier this month by President Miguel Diaz-Canel, will eliminate a complex dual currency and multiple exchange rate system that masked a host of government subsidies, pegging the remaining peso currency at a single rate.

To reflect the resulting steep devaluation and reduced subsidies, Cuba is raising prices on goods and services ranging from transport to electricity at varying rates. It will also quintuple pensions and wages in the state sector, which employs around two-thirds of the working population, from the current low rates to better reflect the real value of labor.

The measures, which will accelerate the transition from late revolutionary leader Fidel Castro’s paternalistic model, will bring more transparency to the economy and should help raise competitiveness over time, economists say, albeit only if combined with other reforms.

Yet the immediate impact of the changes remains a worrying puzzle to many Cubans already struggling to get by amidst the country’s worst economic crisis in decades, one that has spurred a partial dollarization of the cash-strapped, import-dependent economy.

Hours-long queues outside shops amid shortages of even the most basic goods have lengthened as some Cubans rush to buy what they can before the measures go into effect, the value of the dollar on the black market has risen and banks have been overwhelmed with queries.

Private businesses and foreign investors also are scrambling to gauge the impact on their operations and whether they can adjust prices and wages.

“It’s going to be tight, so I’m just buying what I can now,” said Sulema Sotto Rojas, a 57-year-old cleaner for a state firm, as she waited in line to buy cooking oil and tomato sauce at one store after waking up eight hours earlier to queue at another for chicken.

While she could actually stand to gain from the monetary reform, her company has still not confirmed her new wage level and the government has been making last-minute tweaks to some electricity and gas rates in response to widespread consternation that they were too high.

INFLATION WORRIES

The reform is part of a package of measures Communist Party leader Raul Castro unveiled a decade ago to make the economy self-sufficient after decades of dependence on Soviet and then later Venezuelan aid in the face of domestic inefficiency and a crippling U.S. trade embargo.

The government had stalled or even backtracked on some of the changes due to opposition from entrenched bureaucratic and ideological interests, but a new generation of leaders headed by Diaz-Canel has opted to resume them amid the current crisis.

That means, however, more short-term pain will be inflicted on an economy that already has shrunk 11% this year in the wake of the coronavirus pandemic and the tightening of U.S. sanctions.

Many state companies working with an exchange rate of one peso to the dollar likely won’t be able to survive at the new rate of 24 to one. The government says it will give these enterprises a year to become competitive, subsidizing them in the meantime, though that could prove too little, especially given the feeble global economy and Cuba’s lack of capital to upgrade its creaking infrastructure.

“If the government had taken structural reforms to boost the agricultural, private and state sectors first, the economy would be in a much better condition to face this,” said Ricardo Torres, an economist with the Havana-based Center for the Study of the Cuban Economy.

The Communist Party has resisted such moves because doing so would reduce its political power, said Pedro Monreal, author of a popular blog on Cuban economics.

Now it will have to pay the price, Monreal said, as a wage-fueled rise in demand for goods and services in the absence of an increase in supply will lead to inflation and further hardship in an economy with a flourishing black market.

“This is a purgative we need to take,” said Mauricio Alonso, who rents out rooms in his apartment in Havana. “Obviously it will generate inflation.”

BRAVE NEW WORLD

While Cubans are still struggling to figure out whether they will be better or worse off, one thing seems clear: those who have savings in a local currency or who work in the non-state sector, which will not automatically hike wages, stand to lose.

The government has set price caps on agricultural produce and said the fledgling private sector cannot raise prices more than threefold, with anything above that considered “abusive” and violators subject to fines.

Several business owners told Reuters they would need time to gauge the compensatory impact of smaller recent reforms, such as being able to import and export via state companies and to offset all costs against their taxes.

“There are many challenges at the same time,” said Liber Puente, the owner of a private tech firm, who hired a financial strategist to help him map a strategy. The entrepreneur, who wants to keep wages competitive vis-a-vis those in the state sector, said he would hold off on developing other projects until the dust settled, predicting six months of uncertainty.

One important unknown worrying all Cubans is the value of the greenback on the black market, as many basic items like shampoo and cheese can now only be purchased with dollars at special stores or with hard currency on the informal market supplied by “mules” from abroad.

The black market dollar rate has appreciated to around 1.5 times the official rate this year, given that it has become almost impossible for residents to acquire dollars through state financial institutions.

“Already prices are rising everywhere and not because of the currency reform, but because of the lack of dollars,” said Maykel Suarez, who owns a private cellphone repair shop.

The government says the controversial dollar stores, which were opened this year, are a temporary solution to its cash crunch. U.S. President-elect Joe Biden has said he will loosen the existing sanctions on Cuba, and Cuban officials expect tourism and trade to pick up slightly next year.

Havana has also tinkered with some other minor economic reforms over the past year, including allowing firms to retain a larger share of their export revenue rather than depend on the centralized allocation of hard currency.

Economists, though, are urging the government to quickly enact further-reaching structural reforms like the legalization of small and medium enterprises and the liberalization of the ailing farm sector to solve underlying problems.

“I just hope the measures that need to be taken in parallel to this (monetary reform) to increase production and services will be approved in a short time period,” said Omar Everleny, a Cuban economist.

[helix]

Only the Cubans can fix this. Another revolution required.

[BoliDan]

Micro economic adjustments always increases poverty rates. It is a statement given by the IMF prior to giving loan when they tell you the terms of their loan. 

Basically they are trying to create long term stability, but at the cost of short term increased poverty (for the already improvished as well as some skilled labor). They are getting ahead of this by asking families to eat their children's Guinea pigs for sustanence.

Its a pretty bad time to implement this strategy with the already big loss of foreign spending. Maybe the cubans will finally be fed up with the avarice of their state and act? I doubt the violent solution will ever foment, but i'm open to it... 

❤ you cubans. Hope shit gets better