Economist explains why the dollar will return to 150 Cuban pesos, like the special period

Economist Pavel Vidal explained on Monday why the dollar hit 150 pesos on the informal market, news that reminded many Cubans of the hard times in the 1990s.

Vidal said in the touch That this news “takes us back to 1993, when the worst moments of the special period passed. Now, as before, the exchange rate is a reflection of the contraction in national productive activity, scarcity, monetary imbalances, despair and confusion.”

“150 was reached after a rather busy month in the informal exchange market, which coincides with the decision of the Central Bank of Cuba (BCC) to intervene in this market as of August 4, the average value of the CUP rate / US dollar exchange rate increased by 18.6 Pesos and the maximum value for August (145) exceeded the maximum value for July by 27. A similar thing happened with the exchange rate in relation to the MLC (bank dollar).

For the economist, “The big mistake was the decision to pursue net dollar buying in CADECA and bank operations. This means taking the US dollar out of a market where there is no US dollar surplus, there is shortage, and it is very clear that it has continued to rise in the informal market for more than two years. Tourism and the lack of remittances are two main factors in this imbalance.”

“The financial system’s willingness to buy more US dollars than it will sell is highly inflationary. In this way, the official exchange market becomes a net issuer of single cash, while the economy is flooded with cash coupons due to excessive monetization of fiscal deficits.”

“In addition, it pushes for a larger devaluation of the informal exchange rate (as already happened in August and continues in September) and this is transmitted to production costs and final prices of products in consumer markets (the so-called pass-through effect of inflation).

Pavel Vidal pointed out in the touch That “the Cuban government’s desperation in obtaining foreign currency to be able to pay for imports and support the revitalization of productive activity in US dollars is understandable. However, the exchange market is not the way. (…) to the extent that private companies and farmers Cooperatives (and other state and mixed economic actors, but operating under the conditions of this market) are included in this market, as it has been declared, this will have a greater impact on national productive activity.

“The way things are, 120 could end up being 24 new. It is true that residents and tourists prefer buying and selling foreign currency in safe facilities and within legality, but everything has limits. The gap between the official rate of 120 and the unofficial rate continues ( around 150), the informal market will regain its position.”

The economist emphasized that “it is necessary to accelerate and deepen structural reforms. Given the scale of the current crisis, transformations that would have appeared a decade or two ago may seem advanced, today they are not enough and are delayed. Due to time and again postponed. of changes in the model of socialism Bureaucracy and the constant commitment to the monopoly of the state corporation, it is not possible to get out of the current crisis with isolated and partial measures. ”

“The current crisis has left new marks on the production system undermining its ability to return to pre-pandemic levels, in a scenario in which there has been no change in sanctions policy under the Biden administration. Infrastructure (which is clearly visible these weeks in the electricity system) and workforce cuts , due to record migration limiting the productive potential to which we can aspire. Fiscal deficits, inflation and severe imbalances in the balance of payments require much access to a macroeconomic stability plan. It will cost the restoration of confidence, certainty and hope.”

“The unofficial exchange rate in the market reflects all these structural and situational factors. It was also moved by expectations and the confusion caused by economic policy announcements,” added Pavel Vidal. the touch.

According to the previous source, the price of the dollar and the euro reached 150 pesos in the unofficial market this Tuesday, September 6, 2022, while the MLC (freely convertible currencies) is at 152 pesos.

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