CONTRA EL PINGALISMO CASTRISTA/
"Se que no existe el consuelo
que no existe
la anhelada tierrra de mis suenos
ni la desgarrada vision de nuestros heroes.
Pero
te seguimos buscando, patria,..." - Reinaldo Arenas
The biggest change to the island’s economy isn’t the thaw in U.S.-Cuba relations
Photographs by Sebastián Liste for Bloomberg Businessweek
Havana’s Vedado neighborhood in March 2015.
The currency crisis starts about 75 feet into Cuba. I land in the
late afternoon and, after clearing customs, step into the busy arrivals
hall of Havana’s airport looking for help. I ask a woman in a gray,
military-like uniform where I can change money. “Follow me,” she says.
But she doesn’t turn left, toward the airport’s exchange kiosk. Called cadecas,
these government-run currency shops are the only legal way, along with
banks, to swap your foreign money for Cuba’s tourist tender, the CUC.
Instead, my guide turns right and only comes clean when we reach a quiet
area at the top of an escalator. “The official rate is 87 for a
hundred,” she whispers, meaning CUCs to dollars. “I’m giving you 90. So
it’s a good deal for you.”
I want to convert $500, and she doesn’t blink an eye. “Go in the
men’s room and count your money out,” she instructs. “I’ll do the same
in the ladies room.”
The bathroom is crowded, with not one but two staff and the usual
traffic of an airport in the evening. There’s no toilet paper. In an
unlit stall I try counting to 25 while laying $20 bills on my knees.
There’s an urgent knock, and under the door I see high heels. “I’m still
counting,” I say.
She’s back two minutes later and pushes her way into my stall. We
trade stacks, count, and the tryst is over. For my $500, I get 450 CUCs,
the currency that’s been required for the purchase of almost anything
important in Cuba since 1994. CUCs aren’t paid to Cubans; islanders
receive their wages in a different currency, the grubby national peso
that features Che Guevara’s face, among others, but is worth just 1/25th
as much as a CUC. Issued in shades of citrus and berry, the
CUC—dollarized, tourist-friendly money—has for 21 years been the key to a
better life in Cuba, as well as a stinging reminder of the difference
between the haves and the have-nots. But that’s about to change: Cuba is
going to kill the CUC. Described as a matter of fairness by President
Raúl Castro, the end of the two-currency system is also the key to
overhauling the uniquely incompetent and centrally planned chaos machine
that is the Cuban economy.
Photographs by Sebastián Liste for Bloomberg Businessweek
Lining up to exchange currencies in Old Havana.
Even in Cuba there are markets, and the effects of Castro’s October
announcement of a five-step plan for phasing out the CUC are already
rippling out to every wallet in the country. The government has issued
notifications and price conversion charts, and introduced new, larger
bills to supplement the low-value national peso. Over the next year, the
CUC will be invalidated—what Cuban economists call Day Zero—and then,
in steps four and five, the regular Cuban peso will become exchangeable
and be floated against a basket of five currencies: the yuan, the euro,
the U.S. dollar, and two others to be named later.
Thanks to the expected normalization of relations with the U.S.,
tourism, already the engine of Cuba’s current economic boom, is expected
to grow enormously—though by this time next year foreigners will be
required to negotiate their visits with mounds of regular pesos. Raúl
Castro is effectively gambling that he can release some control over the
economy in exchange for growth, ensuring the regime’s survival.
The reality, however, may be anything but orderly. During my visit, I
witness the hoarding of dollars, an unstable black market, and a deep
distrust of the government’s financial speculations. Get out of CUCs,
the rumors urge, and into dollars. For a 3 percent spread, a woman will
even follow you into a bathroom stall.
In January 1961, a cargo ship arrived
in the harbor of Santiago de Cuba bearing a load of freshly minted cash.
Cuba’s pre-revolutionary peso had been stable and valuable for decades,
a source of patriotic pride. Overnight, the Cuban revolution
invalidated the old peso and replaced it with new bills, signed by Che
Guevara and worth what the government said they were worth. The gesture
sidelined opponents, reduced the independence of the professional and
middle classes, and effectively seized the island’s remaining wealth in
one gesture. In 1967, when Che died, it was his face that went on the
currency, memorably gracing a 3-peso note that would get you lunch and a
drink. Today that same bill is worth 12¢.
The end of Soviet subsidies in 1991 brought real economic desperation
to Cuba. Dollars were traded on the black market. (In a dark Havana
alley, I once got 125 pesos for a single greenback in a hurried
transaction with a frightened man.) By 1994, in an effort to co-opt the
black markets and once again take hold of the island’s resources, the
government introduced the CUC. Initially this was strictly for tourists,
the only legal tender for all those mojitos and langoustines. The CUC
was pegged at 1:1 with the U.S. dollar, and just the commissions on
exchanging it—up to 20 percent—earned the Cuban government billions a
year.
Workers in a CUC shop managed by the government in Sancti Spiritus.
Photographs by Sebastián Liste for Bloomberg Businessweek
The CUC turned tourism into a lucrative lifeline during the 1990s,
and at first only a few essential imports—shoes, soap, tires—were sold
to Cubans in CUCs, at a few, heavily guarded stores. Today those
misnamed “dollar stores” exist in every neighborhood, and the CUC, first
intended to insulate Cubans from capitalism, is the only way to buy the
majority of consumer goods.
This is the Cuban dilemma: Salaries are paid in ordinary pesos, and
average just $20 a month, even though the cost of survival runs around
$50 a month, and must be paid for with CUCs at government stores that,
until now, accepted nothing else. As crazily inefficient as the existing
two-currency system appears, it has allowed the government to maintain
near-total dominance of the economy. The Cuban revolution has always
viewed money as a problem, not a solution. That’s why the peso of the
old republic had to be destroyed overnight in 1961. Having money let
people be independent and operate outside the system. “It’s part of the
DNA that Fidel imprinted on the revolution,” notes Ted Henken, a
sociologist at Baruch College who has specialized in the island.
What the government has finally grasped is that the two-currency
system has become economically and politically unsustainable. To get
around it, Cubans steal state resources, work black market jobs, and
even arbitrage the price differential between mangoes at opposite ends
of the country. “Those in the peso-only economy are completely dependent
on the government, which is in control of more than 85 percent of the
total economy,” says John Kavulich, president of the U.S.-Cuba Trade and
Economic Council in New York. For the citizenry to “have a legitimate
stake in the economy,” he notes, there should be one currency, used for
salaries and all stores, and traded openly. “It needs to happen,”
Kavulich says.
No política. That’s what Yamil Alvarez Torres says as he
settles onto a hotel sofa in Old Havana, his Under Armour socks showing a
fashionable amount of ankle from beneath pressed jeans and a striped
dress shirt. Alvarez looks the part of the new Cuban entrepreneur, a
successful restaurant owner who has bourgeois hobbies—dogs and free
diving—and an almost unlimited confidence in the future. But no
politics. Like most Cubans, he avoids talking or even thinking about the
nation’s closed and secretive political system too much.
Havana today is in physical bloom. A gallon of paint costs 30 percent
of a typical monthly salary, yet half the houses in the city seem
freshly painted. The once-ubiquitous and fuming thunder chariots of old
Detroit are either shined up with new chrome and paint or, more often,
sidelined by more recent and reliable Korean and Chinese vehicles. The
people I’d known on the edge of starvation over the last 20 years of
visiting are now fighting the creep of their waistlines and the return
of pastries and deep-fried everything at street-corner kiosks. Even in
1991, Cuba seemed more open than it was, an island without barbed wire
or machine guns, the friendly blue ocean serving as its Berlin Wall. Now
the openness is tangible: In December, Cuba and the U.S. announced that
the two intend to reestablish relations after more than four decades of
enmity. On Havana’s streets, there’s a charge of anticipation, and one
senses a people eager to embrace the world.
Photographs by Sebastián Liste for Bloomberg Businessweek
A “bookshop” located at the door of a private residence in Havana.
Until a few years ago, Cubans were not allowed to open private
businesses.
“It’s getting easier and easier to do business in Havana,” Alvarez
tells me. “If you get your logistics worked out, you can do it.” I’d
first visited his restaurant, Los Mercaderes, two years before, when
he’d opened it as a paladar, or home restaurant, and the place
had an empty, tentative feel. Now he has 50 employees and full tables
every night, with musicians treading out jazz and Buena Vista Social
Club hits from a tiny balcony; he and his wife have moved to another
property.
He’s nonplussed about the currency change: “If you are running a
business and doing well, you are going to do well with one currency or
two. ... Honestly, I believe that anything you do efficiently and
professionally is going to succeed in Cuba.”
Efficiency and professionalism require reversing decades of perverse
Cuban incentives, however. Most waiters are state-trained and paid in
worthless pesos: They often spend more time on break, or talking to
friends in the street, than attending to diners. “They expect to have
their job forever,” Alvarez says. “They get used to being bad.” So he
hires blank slates: English-speaking college grads, many of whom have
never seen the inside of a nice restaurant before. “The main thing,”
Alvarez says, “is we want zero experience.”
He sounds optimistic. “Very,” he says. “There are over 250,000
entrepreneurs in Cuba since the new opportunities. … This is a door
opening that isn’t going to close.”
If the opening has an official advocate, it’s Omar Everleny, the lead
economist at the Center for the Study of the Cuban Economy. The center
is in a onetime private residence in an elegant Havana neighborhood,
surrounded by embassies. Despite arriving at the building with an
appointment at 4 p.m., I find it empty; the next morning Everleny meets
me in the library, amid the smell of decaying paper, to walk through the
slow death of the CUC and the likely benefits for Cuba.
Everleny, like many Cubans, can recite the exact date economic
reforms began: Sept. 9, 2010. Raúl Castro had assumed control in 2006,
during his brother’s gastrointestinal illness. But his official
promotion to leadership took two more years, and not till the fall of
2010 did he spell out reforms that expanded self-employment, removed
limits on hiring by small businesses, and protected foreign investors
from expropriation. Joint-venture hotels are routine now, with 60,000
rooms available. A new container port at Mariel, built by the Brazilian
government, has created export capacity for a country that exports very
little. More important, Brazilian President Dilma Rousseff has gambled
that pharmaceutical production and other tightly controlled businesses
can thrive here.
Photographs by Sebastián Liste for Bloomberg Businessweek
The bar at Fabrica de Arte Cubano, a gallery/nightclub that has private investment.
The most probable scenario is that Cuba will reluctantly follow the
China model. Cuba isn’t embracing freewheeling capitalism—Cubans are
still allowed only one business each and are hemmed in on all sides by
monopoly controls—but the back streets of Havana reminded me of no place
more than the grim but awakening Beijing of 1987, when the People’s
Republic also had two currencies. Cuba limits self-employment to 201
categories, like Doll and Toy Repair (No. 128) and Breeder/Seller of
Pets (No. 26). Even so, the number of licensed entrepreneurs has grown
from 140,000 in 2010 to more than half a million today. Unlike a
previous wave of self-employment in the 1990s, which was limited to
survival-oriented trades like knife-sharpening (No. 6) or tire repair
(No. 113), about half of today’s licensed businesspeople are real
entrepreneurs, concentrated heavily in tourism and restaurants but
including taxi drivers, transport companies, clothing shops,
cooperatives producing baby clothes, and lots of construction.
Raúl Castro has meanwhile removed a series of prohibitions that
infuriated Cubans: They can now own cell phones, buy and sell their
houses, and even stay in the hard-currency hotels (817,000 did last
year) that were once the symbol of foreign privilege. Raúl has also
loosened, if not released, his grip on expression. Dissidents and regime
opponents who were long blocked from leaving the country are now
routinely seen at conferences in Miami, New York, and Brussels. In the
1970s, Cuba had some 15,000 political prisoners; today that number is
between 50 and 60, according to the Cuban Commission for Human Rights
and National Reconciliation.
The currency change is already happening, Everleny notes. Step one
was to tell people, to prepare them psychologically for the coming
transition. Step two, which began a week before my February arrival, was
to roll out new, larger-denomination peso bills, so that people could
pay higher prices without carrying a backpack.
The timing of the remaining three steps remains vague, in the Cuban
way. Raúl had said in his speech that the two currencies had to be
reconciled before the next Communist Party congress. That’s scheduled
for April 16, 2016. The only thing known was that Day Zero would come
before then.
To see how Raúl’s changes and the looming currency conversion are
playing out, I travel to Sancti Spíritus, a colonial town in central
Cuba I hadn’t seen for 24 years. I’d hitchhiked there in 1991, a two-day
epic that required waiting under bridges with crowds of kind but needy
Cubans and a return trip on a dilapidated train that stopped randomly
for hours. This time I buy a seat in an unmarked Moscovich, a legal
private taxi that roars inland, stopping only to slip behind a barn to
buy black-market gasoline, fuel that was manually cranked into our tank.
“Sorry about the smell,” my driver says, “but this is the only way.”
Six hours of driving sweep me into the flat, colonnaded city. Many
things are still as I remember them. The streets are sleepy, the bars
bleak, and the local bus network consists of eight-person carts towed by
horse. Yet even here there’s fresh paint, a computer repair business,
and private furniture shops. I try to pay for ice cream with CUCs,
making the woman laugh; the price is in pesos, 1/25th as much. The
reverse happens at night, in the town’s best restaurant. Because
everyone in the place is Cuban, I expect grim portions and pesos. But
the shrimp are superb, a sommelier shows off a genuine wine cellar, and
the Cubans all pay hard-currency prices, half a month’s salary on beer,
beef, and watching baseball. In two decades of visiting, this is the
first time I’ve shared a real restaurant with Cubans.
The storefront of a government-managed hardware shop in Sancti Spíritus.
Photographs by Sebastián Liste for Bloomberg Businessweek
In the morning I go to buy a refrigerator. Home appliances are one of
the most desirable items in Cuba, but their sale is restricted to a
narrow range of state stores called electrohogars, and Sancti
Spíritus has two of them off the town plaza. One is shut, the other
sleepy and small, with more floor space given over to selling ice cream
and soda than consumer durables. But in one corner are hair curlers,
electric frying pans, all-in-one laundry machines, and a few Daewoo
refrigerators. Many Cubans are eager to replace their 1950s fridges, but
buying a full-size model means coming up with 910.65 CUC. At the
bathroom-stall conversion rate, that’s $1,001, or twice the price of a
similar model on Amazon.com. It’s also—as a new price tag says—22,675
pesos, or about four years’ worth of the average Cuban salary. “If
you’re going to buy a refrigerator,” Everleny tells me, “you’re not
going to pay for it with 20s. You’d have to carry a trunk.” The release
of new, larger denominations of standard peso bills is meant to smooth
such transactions, but a year from now, with the peso possibly floating
against a basket of currencies, there’s a risk that hidden inflation and
exaggerated purchasing power could surface. Many people are hoarding
hundred-dollar bills simply to be safe.
On the way back to Havana, I ride on a CUC bus. In the past, regular
people had no choice but to ride peso buses that were scarce, slow, and
crowded. For 23 CUCs I get a seat on a punctual express that fills up
mainly with foreign tourists but also some Cubans, the kind who have
more than an average month’s salary to spend on a bus ticket. We pass
quickly through a string of grim cities—Colón, Cárdenas, Matanzas—all
poor and unvarnished yet bustling with shops and commerce I’ve never
seen before in Cuba. Like a vacuum, the unmet demand of Cubans is
pulling reform to the farthest corners of the island.
Photographs by Sebastián Liste for Bloomberg Businessweek
Even in the town of Sancti Spíritus, business is picking up.
Cuba has had a mixed economy for a
long time: socialist until the food ran out, free-market thereafter.
Critically, some of those markets are now legal and enriching, like the
new real estate market that has seen houses in prime parts of Havana
trade for hundreds of thousands of dollars (or CUCs, actually). There
are also smaller, more clandestine markets, even for things like data.
Many thousands of Cubans pay a fee to get what’s called el paquete,
an assortment of films, TV shows, video games, glossy magazines, and
books from inside and outside the country. Cuba is ranked alongside Iran
and North Korea for Internet censorship, with only a heavily filtered
intranet available at an hourly price. El paquete is therefore a
black-market delivery system, full of inefficiencies. The information is
hand-carried into the country once a month, and the collection of
American, Spanish, Mexican, and even Cuban media is passed around Havana
on a terabyte-sized drive, or shared via illegal Wi-Fi networks in
private homes.
The blogger Yoani Sanchez points out that this black market in
information sticks to a familiar Cuban rule—nothing in el paquete should
be explicitly political, to avoid drawing attention. But even the
apolitical is subversive here, she says; when Cuban readers flock to
lifestyle articles and glossy celebrity magazine covers, they’re
imagining themselves in a different country. Everything they see in this
digital realm—churros recipes, listicles on the secrets of
entrepreneurial thinking—is part of a different state of mind, a
terabyte of autonomy and desire.
Even though the economy looks better than at any time since 1991,
Cuba remains deeply, dangerously reliant on Venezuela’s collapsing
economy. The heirs of Hugo Chávez have kept the lights on in Havana by
granting Cuba 100,000 barrels of oil a day at about half the market
price. That effectively hides 45 percent of the island’s trade deficit.
Venezuela also pays $5.5 billion a year for the almost 40,000 Cuban
medical professionals who now make up half of its health-care personnel.
Neither support can endure unchanged.
When MasterCard announced it would begin accepting charges from Cuba
on March 1, the Cuban government slapped that down. U.S. airlines can
now start flying directly to Cuba, or so Washington says—but there will
likely be years of negotiations over safety, landing fees, and the
reciprocal right of Cubana, a state-controlled, military-operated
airline, to land its planes in Miami. The last thing on the Cuban list
of reforms is sharing power. The Communist Party reflexively insists
that nothing will change in Cuba, ever, but Obama’s rapprochement is
certain to have an effect. Dissidents, the politically ambitious, and
human-rights activists believe that some day they’ll be legally allowed
to exist and their now-secretive work can become routine. The death of
the CUC may turn out to be Day Zero for more than funny money.
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