From one crisis to another
As Cubans celebrate victory over COVID-19, another crisis looms.
On Sunday, the head of epidemiology at the Cuban Ministry of Public Health reported no new COVID-19 cases for the first time in 130 days. The good news comes amid a phased reopening of the island. Residents are now freer to move around the island without fear of being fined or imprisoned.
But the celebratory shouts will be muted. The Cuban economy appears to be in worse shape than any point in recent history, reminding many of the "special period" of the 1990s. Journalists on the island report that it is difficult or impossible to find basic goods. Long lines for fuel and food are the new norm.
This economic downturn in Cuba is both familiar and new.
Familiar because Cuba never really recovered from the fall of the Soviet Union. In the past 30 years, times have rarely – if ever – been "good."
New because recent events are causing trouble in Havana. A downturn in tourism due to COVID-19 has gutted Cuba's largest industry. The Trump administration has tightened the U.S. embargo. Venezuela, Cuba's largest trading partner, is going through its own political and economic crises.
The re-dollarization of Cuba
To help boost the economy, the Cuban government is making a major policy change. In an effort to increase revenue for the government and make common goods available to more Cubans, the U.S. dollar is now an acceptable currency on the island. On Monday, the Cuban government eliminated a 10% tax on converting USD to Cuban currency, a levy which has been in effect since 2004. As part of the new policy, 62 "dollar stores" are opening on the island, allowing Cubans to use USD to purchase everything from chicken to detergent.
Interestingly, purchases must be made with a dollar-backed credit card, not cash. I'm not sure, but it seems the government is trying to avoid the bad optics of letting Cubans use greenbacks on the famously anti-capitalist and anti-imperialist island.
Justifying the new policy
Economist Arturo López-Levy, professor at Holy Names University in California, believes the Cuban government is taking advantage of its success in fighting COVID-19 to move forward with some overdue reforms:
“In the midst of an economic crisis of very uncertain scope and duration, the Diaz-Canel administration is using the political credit of its successful management of the pandemic to implement economic reforms postponed for more than a decade.”
I agree that if minor market liberalization is the goal, there's no time like the present. But the dollarization of certain sectors in Cuba will not be welcomed by all. Here are some of the reactions we're likely to see:
Government hardliners won’t like it. They will see dollarization as a retreat from socialist values.
Government progressives will cautiously embrace the new policy, hoping it will alleviate the current economic situation.
Cubans that don’t have access to USD won’t like it. For those who don’t have family in Miami to send remittances, this new policy will feel exclusionary and classist. Especially since dollar store appear to have full shelves – while the regular, Cuban currency stores are largely empty.
Cubans who have access to dollars will be very happy. Remittances from the US constitute Cuba's second largest source of income, so many Cubans will enjoy their newfound abundance.
Although the results may be unequal, the situation is dire enough to merit nearly any good faith effort to provide Cubans with food and fuel. President Diaz-Canel is spending valuable political capital to make this happen, so let’s hope it helps.