ECONOMIC GROWTH AND EXCHANGE CONTROL

By: Dr. Juan Triana Cordoví
Director of the Center of Studies of the Cuban Economy at the University of Havana

Cuba closed the first semester of 2003 with a positive dynamic in spite of unfavourable conditions in the fuel prices similar to those of the previous year and additional very low results in the sugar harvest.

Role of the Cuban convertible peso and Central Bank authority strengthened

On July 16, 2003, the Cuban Central Bank(CCB) issued Resolution Nr. 65 establishing that after July 21, 2003 all US dollar operations between Cuban enterprises will be performed in convertible pesos.

This is perhaps the most far-reaching measure of monetary policy in the country since US dollars were authorized as legal tender. The corresponding press release clearly states that the measure only concerns operations between Cuban enterprises and that both domestic foreign currency market will continue to be carried out in the US currency.

The Cuban financial system is made up by a group of banking institutions and other non-banking entities known as financial houses attached to ministries and other institutions since the reforms initiated in 1993. In these years, the financial houses have expanded the credit capacity of Cuban companies, but at the same time have been used by the ministries to redistribute foreign currency income at their discretion among subordinated enterprises, which at times has turned them into an instrument of ministerial tutelage over said enterprises.

The current measures considerably reinforces the role of CCB as regulator of monetary flow and guarantor of the country’s foreign currency liquidity, as well as the control of the banking system over the Cuban entrepreneurial scheme. At the same time it compels CCB to guarantee the full fitting of convertible peso and perform the sales of foreign currency to the entrepreneurial system as fast as possible in order to avoid possible frictions in the operation of the Cuban productive system and a feeling of uncertainty on the part of foreign trade partners and creditors that could momentarily increase the interest rates. In fact, the system has been designed to be operated electronically, which would speed up operations.

Taken from: Cuba Foreign Trade