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Posted July 24, 2003 by publisher in Business In Cuba

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BBC news
Cuba has restricted certain dollar transactions, in what some are seeing as the twilight of a decade of economic liberalisation.

From Monday, state firms will no longer be allowed to use the US currency, instead being obliged to deal in the convertible peso, which was created in 1994 as a proxy for the dollar.

The central bank was keen to stress that the reform would not affect the general population, and was aimed purely at fostering “fiscal discipline”.
But some observers suggest it could be the first step in the gradual disappearance of the dollar from Cuba, where it has become an economic fixture since 1993.

Dollar dependency

Cuba allowed a measure of dollar circulation since 1993, when its economy was battered by the 1991 collapse of the Soviet Union, a key supporter.

Since then, emigre Cubans have sent some $600m-$700m to the country every year, and dollars are widely held and exchanged.

The deregulation was only ever intended to be temporary, and analysts say it is now gradually being reversed.

“They accepted the dollar with reluctance in 1993,” says Matias Travieso-Diaz, a board member of the US-based Association for the Study of the Cuban Economy.

“Now, they may be starting to think they can get along well without it.”

Since the mid-1990s, the Cuban economy has started to recover, mainly thanks to the rapid development of the tourist industry.

Hard or soft?

Mr Travieso-Diaz says the turning away from the dollar is part of a wider hardening of economic policy.

“It is the same with the attitude to foreign investment. They were very keen to bring it in in the mid-1990s, but now that the economy is on a more even keel, they are much more choosy.”

But not everyone agrees that this is a retrograde step.

John Kavulich, head of the US-Cuba Trade and Economic Council, says that Cuba needs to do something to tidy up its currency system.

Under the present arrangement, three separate currencies - the dollar, the convertible peso, and the standard peso - circulate simultaneously.

“It’s not a good idea for one country to use another’s currency,” Mr Kavulich says.

‘Herculean task’

Eradicating dollar transactions among state firms could help eradicate some pools of corruption, Mr Kavulich says, pointing out that corporate dollar accounts are notoriously opaque.

And if successful, replacing the dollar with the convertible peso should send out a strong signal to foreign investors.

“What they really want is to have confidence in the government’s ability to issue and run a stable currency,” he says.

“But it will be a herculean task.”

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