http://havanajournal.com/business/entry/cuba_forex_controls_have_business_sector_in_uproar/

HavanaJournal.com: Cuba Business

Cuba forex controls have business sector in uproar

Posted August 05, 2003 by publisher in Cuba Business.
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By Marc Frank | Reuters

HAVANA - Managers and foreign companies doing business in Cuba are in an uproar over the government’s surprise move to introduce foreign exchange controls for state-run enterprises, but sources say the Communist nation has begun to reconsider the measures.

In a July 21 decree, the Central Bank announced that state companies could no longer use the dollar for transactions within Cuba that now must be conducted in convertible pesos, a Cuban unit that trades at par with the dollar on the island.

Enterprises were ordered to hand over their dollars. Companies would henceforth buy dollars from the Central Bank for their imports and debt payments as well as local purchases from joint ventures in Cuba, which will also be subject to the bank’s approval.

Foreign suppliers and businesses in Cuba that sell products to the state companies complained that they will face further delays of over two weeks in collecting payments and arrears from the cash-strapped state.

“It is a real mess,” said one Western diplomat. “This will lower financial confidence and paralyze trade,” said another.

Some foreign companies have stopped doing business with state-owned companies until the government clarifies how and when they will be paid for goods and services, foreign business sources in Havana have said.

Since the decree was issued, Central Bank President Francisco Soberon has met with diplomats and foreign business representatives to give reassurance that their interests will not be hurt, but few have been convinced, the sources said.

Local analysts and businessmen say the measures were taken by President Fidel Castro’s government in response to the hard currency crunch it faces due to a stagnant economy and scarce foreign investment.

“At recent party meetings and events, Castro has said decentralized trade had gone too far and too many dollars were in circulation,” a Havana Communist Party member said.

The decree also ratcheted up government controls over the accounts of state banks by regulating how much foreign currency they are allowed to have on hand and slapping new controls on Cuban accounts abroad.

CENTRAL BANK BACKTRACKS

But foreign banks responded to the decree almost immediately, saying they would no longer accept letters of credit from Cuban banks as there was no guarantee they would be paid.

The Central Bank responded within days of the decree.

“Letters of credit issued by Cuban banking institutions ... will be considered payment transactions that already have the Cuban Central Bank’s approval,” the government said in Resolution 68, issued on July 23.

Foreign governments and banks are demanding a similar exception for lines of credit, diplomats said.

Late last week the Central Bank reduced its commission for exchanging dollar for convertible pesos from 2 percent to 1 percent after local companies and foreign businesses protested. The bank has also waived currency controls for transactions of less than $5,000, business sources said.

Joint ventures between foreign investors and the Cuban government were exempted from the new exchange control, but now must wait for local clients to seek approval to pay them.

Cuban banks processing dollar transactions submit approval requests to the Central Bank only twice a month, foreign business sources said. In each case a detailed one-page form is needed describing what the dollars will be used for. The Central Bank has 16 to 30 days to respond from the date of the request.

“Let’s say there is only $50 million in hand and the requests amount to $75 million. There are priorities, so someone is going to be denied,” a Cuban government official told Reuters.

The dollar circulates freely in Cuba, along with the convertible peso and the Cuban peso, which currently trades at 27 pesos to the dollar in government exchange houses.

Member Comments

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On May 27, 2004, Léandre LITAMPHA wrote:

Je voudrais connaitre les prix du sucre, sortie d’usine Cuba, et a l’exportation pour la France et la Martinique dans la Caraibe.
Merci de bien vouloir me repondre.
LÈandre de la Martinique (Martinica)

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On July 13, 2009, john wrote:

Thank you for an insightful and useful post