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HavanaJournal.com: Cuba Politics

Castro adjusts exchange rate for the Cuban convertible peso

Posted March 18, 2005 by Cubana in Cuba Politics.
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By Vanessa Bauza | Associated Press

In a speech meant to convey growing economic optimism, President Fidel Castro announced a 7 percent revaluation of Cuba’s currency, which will make the Cuban peso slightly stronger against the U.S. dollar beginning today.

The currency revaluation comes as the government has reasserted control over the economy, returning to greater centralization of a variety of industries, from tourism to state-run companies. It also follows the elimination of the U.S. dollar from circulation in November.

Castro said Cuba’s peso had grown stronger thanks to economic growth spurred by accords with Venezuela, which provides about half of Cuba’s daily oil consumption under preferential terms, and China, which is investing in the island’s lucrative nickel industry.

Beginning today, the rate for exchanging Cuban pesos into a currency known as the convertible peso, which is printed in Cuba and has the same value as the dollar, will be 25 to 1 rather than 27 to 1. Cuba has two currencies—the peso with which most Cubans are paid—and the convertible peso, which is used for sales of most consumer goods.

“With this measure, we are moving in a strategic direction to strengthen the national currency and continuing to increase our population’s extraordinary confidence in [the peso],” Castro said in a televised speech Thursday.

The Cuban peso’s value has fluctuated widely since the fall of the Soviet Union, which caused a near-paralysis of the island’s economy.

In 1989, the peso was valued at 7-to-1 against the dollar. Five years later it tumbled to 95 pesos to the dollar, said Carmelo Mesa-Lago, a leading Cuba expert and professor emeritus of economics at the University of Pittsburgh.

“Really a reduction from 27 to 25 is not a big deal because [the Cuban peso] has essentially been fluctuating two or three points [in recent years],” Mesa-Lago said. “This is sort of symbolic.”

In the early 1990s, when Cuba’s economy crashed, Castro was forced to implement modest reforms, from legalizing limited self-employment to luring foreign investors and tourists. But as the economy has gradually recovered, many reforms have been turned back.

Mesa-Lago said Castro feels emboldened because he is backed by his close ally, Venezuelan President Hugo Chávez.

“He’s depending on Chávez and the question is how long can he continue doing this?” Mesa-Lago said.

Castro’s announcement will give Cubans slightly more buying power for their peso.

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