The announcement of the implementation of a foreign exchange market made by the Minister of Economy Alejandro Gil It has come with a message: the regime intends to combat the informal market and capture foreign currency to invest in the development of the country. The measure is an example of the desperate need for foreign currency in the face of the inefficiency of the Castro model to produce and export. It is also a last minute answer that try to cushion the bankruptcyexpressed in the lack of liquidity and international credits due to non-payment to foreign debt creditors.
But the foreign exchange market proposal launched by the minister is incomplete, mediocre, and it will not lower inflation levels or stabilize the national currency. With the new formula, the Government will only buy foreign currency, not sell it, harming citizens, who need it to buy food and products that can only be purchased in hard currency.
The measure also does not release the refusal to allow the deposit of dollars in cash in MLC accounts. Very important detail: banks can buy dollars, but citizens cannot deposit them in their MLC accounts. Therefore, we are not talking about an exchange system, but about a scheme that will further impoverish Cubans.
Said scheme was born lame, since it lacks accompanying measures that favor building that monetary stability in the short and medium term. The most logical thing would be to implement profound measures such as, for example, freeing the productive forces and fully entering into a true market economy and free enterprise. Without this step, the bet continues to be to apply patches to resolve specific crises.
After Gil’s announcement, the reaction has not been long in coming: the exchange rate on the black market already reaches the figure of 130 CUP and will have a growing trend in the coming months. If the regime persists in making this kind of silly competition without launching a serious package of accompanying measures, this fight against the black market will spiral into dire consequences.
However, the most important thing is to unravel what is behind this move of Alejandro Gil and Miguel Diaz-Canelwhich at first glance seems clumsy, but apparently hides other intentions.
Attempted financial coup
In reality, what is hidden behind the announcement is that, with the death of General Luis Alberto Rodríguez López-Calleja, CEO of GAESA, a financial power struggle has begun to brew in the country.
GAESA controls 90% of the dollarized market and the capture of currency in circulation in the country through three fundamental sources: MLC stores (Pan-American STORES, TRD Caribe, the network of gas stations, etc.); FINCIMEX, to capture remittances that arrive from abroad, and GAVIOTA, with its network of more than 110 hotels (absorbs more than 70% of what the hotel market generates) and its collateral services (car rental, restaurants, etc.) . For many years, this scheme deprived the government bureaucracy of direct access to the foreign exchange market, being directly subjugated to the mandate of the GAESA military empire. All this flow of hard currency deposits, plus the financial operations of other sectors of the dollarized economy, were concentrated in the Banco Financiero Internacional (BFI). This was how López-Calleja controlled most of the foreign exchange that entered the country. When he dies, the financial padlock no longer has an owner. This event opens a window that has started the struggle for financial control of the nation. As the saying goes “he who controls the money controls the power”.
For years, the Cuban bureaucracy has been deprived of access to foreign currency, always subject to superior vertical control, first by Fidel Castro and later by Raúl, through López-Calleja. Most of the state companies have operated in devalued pesos and are extremely inefficient. They have also been subsidized by the State itself, so they contribute very little to the country’s economy, rather they generate large losses.
It is under this circumstance that Alejandro Gil, with the support of Díaz-Canel, has launched the idea of a mechanism to capture the circulating currency. Neither Alejandro Gil nor Díaz-Canel dare to put their hands directly in the GAESA field and in the control of its operations. However, factors such as the decline in exports from the main sectors of the economy to critical levels, the stagnation of the recovery of tourism and the considerable decrease in the entry of remittances through official channels (FINCIMEX), as well as the vertiginous fall in the inflow of money from the export of medical services, have been used as a pretext to launch this mediocre system that tries to collect the circulating currency that floats in the streets and to which GAESA cannot access.
On the other hand, along with the measure, Alejandro Gil has hinted that, in the future, the prices of products and services will be handled in Cuban pesos. This means that, at some point, the current MLC stores will have to offer their products and services in national currency (CUP), which would be the minister’s dream. Following the logic of its strategy, GAESA will not have a mechanism to receive foreign currency directly and be able to buy abroad the goods that it usually sells in its extensive and almost monopolistic network of stores in the country’s dollarized retail market. In this way, the Cuban bureaucracy tries to trace a route to take control of foreign exchange collection, forcing GAESA to channel purchases abroad through the Central Bank.
In his television appearance, to explain the launch of the foreign exchange market, Alexander Gil expressed: “How should it work consistently a foreign exchange market? Logic says that the state must buy more currencies than those it sells, and that positive result is invested in the economy, generating offers of goods and services that are marketed in national currency, so that there is another incentive to exchange the currency”.
Later he said: “This is not a magical measure, which can be seen in isolation from the rest of those announced. Success lies in having a level of supply in national currency, which generates the incentive so that people who receive foreign currency from abroad or international travelers, want to exchange them for Cuban pesos”. With this argument, the minister intends to make it clear that the foreign exchange market would be the one that would take control of foreign currency capture, leaving aside the one that GAESA has until now.
Gil also confessed the main objective that he intends to achieve with this measure: “the strategic objective is that we operate in the economy in Cuban pesosbut with an exchange rate that guarantees the internal convertibility of the currency, and that gives real purchasing power”.
In other words, the minister made a future projection of how the national market should work with an economy managed in Cuban pesos, which would imply the disappearance of the dollarized market and, therefore, would dry up the sources of GAESA. In this hypothetical scenario, GAESA would not have access to collect dollars directly through its store networks. Therefore, to make your purchases abroad, you would have to depend on the currencies of the Central Bank.
Given the frustration accumulated since they assumed their positions as president and economy minister, respectively —without access to foreign currency, not even in times of pandemic, to allocate resources to buy medicines, vaccines, and improve hospital conditions—, Díaz-Canel and Alejandro Gil have taken advantage of the physical disappearance of Raúl Castro’s strong man to try to take control of finances, planning a financial coup against GAESA.
The immediate consequences
However, Díaz-Canel and Gil have made a mistake by launching this silly measure that, apart from aggravating the financial chaos, shows the ignorance of both of the laws of the market. Clumsiness will cost them dearly, because suddenly, they have put control of the country’s finances in the hands of the black market. Far from weakening the black market, they have strengthened it.
with the measure, Díaz-Canel and Gil have officially devalued the currency by 400% and, from now on, triggered a spiral in the swap war that, being in one direction, will result in a mechanism for injecting currency in Cuban pesos that will quickly become another factor of rising inflation.
For now, the market’s response has been clear: there are no queues or crowds at banks and exchange houses to sell foreign currency to the State. There are not and will not be in the market attractive offers in Cuban pesos to encourage citizens to exchange their currencies in state banking networks. Why would they want to do it, if the only place where they can buy what they really need, everything is sold in dollars?
For the population, the impact of this measure will be brutal. Salaries are going to evaporate in a couple of lunches. Pensioners will be totally unprotected. Prices will increase both on the casual market and in MLC stores. The frustration of the people will escalate even more, the protests will increase and anarchy will begin. That the country is drifting is no longer a perception, but a fact.
In the business sector, on the other hand, the blow will be devastating. Maintaining the official rate of 1 USD x 24 CUP will definitively bury the network of state companies. For foreign companies it will be a blow that adds to the financial corralito and the shock that the implementation of the Ordering Task gave them. The little production that still exists in some sectors of the economy will decline further. And if production falls, so will export levels.
The foreign exchange market implemented in a hurry as a measure to capture foreign currency, given the country’s bankruptcy in the midst of a multi-systemic crisis, to which is added the collapse of the energy matrix, beyond being an ill-conceived measure, of incalculable and terrible consequences, it is a clumsy and clumsy attempt at a financial coup against GAESA. He reveals that the death of General Luis Alberto Rodríguez López-Calleja has unleashed a struggle for power, and that this struggle has begun in the financial sector.
Judging by what has happened in the last two years, the Minister of Economy, Alejandro Gil, and even President Miguel Díaz-Canel, could have their days numbered. It would not be unusual for a dismissal to occur at any time. The spiral of mistakes and clumsiness committed by these two characters with their patchwork measures has plunged the country into a crisis never seen in 63 years and put Raúl Castro at a terrible crossroads, at 91 years old and unwilling to take the helm of a failure that no one can avoid.
All the economic measures taken by the Díaz-Canel government in the last two years have hit the target. Between the MLC stores, the Monetary Ordering Task and now the Unidirectional Exchange Market, they have put the country in a swamp from which it will be impossible to get out under the current conditions.
From now on, the blows for taking power can come from all angles. Meanwhile, the multi-systemic crisis is deepening and the breakdown of the system could come at any moment, at the hands of an unstoppable popular revolt or even the Armed Forces themselves.