The Latin American Report # 677

During this week, important political conclaves have taken place in Cuba. The first, always critical, was the Plenum of the Central Committee of the Communist Party, which brings together all members of the main decision body of the leading political force of the State and society here. The second was the session, also plenary, of the National Assembly of People's Power in Cuba, which formally constitutes the legislative power. The common point of debate in these fora, and in general at the societal level, is the so-called "Government Program to Correct Distortions and Reboost the Economy," which consists of ten objectives, all very challenging and interconnected.

The latest recovery or restructuring plans for the economy had disastrous results, and perhaps that is why many people do not have much confidence in this new one, especially because the real basis for executing certain actions and achieving the proposed indicators is not clear. Personally, instead of talking about a plan, I would have preferred a more concrete, targeted system of emergency measures, expressed in decrees and resolutions. However, in a way, this perspective has materialized in two critical points of the plan: the policy to attract foreign investment and the implementation of substantial changes in the foreign exchange market. Although neither of the two satisfy everyone—something that is, in general, very difficult to achieve—, I think that the first positive thing is the mere move.

Of course, the ideal is for that step to be as well-conceived as possible, but I believe that is better than the amorphous state in which government policy was regarding an humongous crisis that hits harder each time. I will only zoom in a bit on the foreign exchange market, because I have touched on it other times. Since the country has a chronic shortage of foreign currency, and therefore, the national currency is not convertible, the informal foreign exchange market has been setting the pace for the economy. The exchange rate there eventually distanced itself, over time, by approximately 1,980% from the original official rate of 1 USD = 24 Cuban pesos, or by more than 300% from a second rate of 1 USD = 123.60 Cuban pesos that began to apply in August 2022, which the State also could not defend, because it was not conceived for the private sector; even for the population, buys were limited to 100 dollars through a ticket or virtual queue system where one could wait, at a minimum, a year.

However, under those conditions, until November of this year, and always through state-run entities, the private sector imported 2.2 billion dollars, which generally correspond to end products. The authorities' dream is that raw materials are the ones imported to produce organic, internal value in the national economy, but the trend, so far, remains the same, as for next year there is talk of 2.6 billion dollars. That level of imports pressures the supply of foreign currency, and, to a large extent, it has been fueled through the informal market. Officials tread lightly around this reality, which has generated a scenario conducive to illegality.

But now, under the new scheme approved for the foreign exchange market, private actors gain access to a "segment" within the country's financial order where 1 USD = 410 CUP—an exchange rate, by the way, very close to that reflected by a disputed and not-so-independent "index"—, and which will operate under a regime of "managed float," that is, it is not a fixed rate. Citizens will access to this so-called third segment as well, experiencing a 232% increase against the rate of 1 USD = 123.60 Cuban pesos, which now will be available to government-picked entities only as the second segment.

According to the regulation, private actors—SMEs, self-employed workers, among others—will be able to convert into dollars, each month, up to 50% of the average gross income in Cuban pesos recorded in their fiscal accounts for the last inmediate quarter. One doubt I have is whether the country has enough capacity to meet the potential demand for foreign currency, because there are actors with quite high monetary capacity. I believe the authorities must have conducted a study on the current balance in those fiscal accounts and their regular movement, but the incentive of a legal and functional foreign exchange market may finally motivate the private sector to bank their operations, because as that volume grows, they will be able to buy more dollars. It could even have an effect on lowering prices to accelerate the feeding of fiscal accounts. The coming days and weeks will show us how the market shares will be divided between the informal and the official foreign exchange markets.

The second thing I wonder, in the context of the comprehensive U.S. sanctions regime that Cuba suffers, is whether that dollar credited here has tangible movement capacity in the international financial arena. Or whether the foreign currency accounts of the different economic actors registered in Cuban banks are duly recognized as part of it. Officials generally complain about the extraterritorial effects of the sanctions, i.e., related to contracts or commercial deals not connected, primarly, to American jurisdiction. Thus, to what extent these accounts could pay or receive dollars to/from a Roma-based partner? Yet, beyond my doubts, the important thing is to go on the economic offensive with concrete steps. Will see.

Bolivia

Former Bolivian President "Tuto" Quiroga criticized the removal of fuel subsidies adopted today by the still recently inaugurated Rodrigo Paz, accusing him of breaking an electoral promise. The government defends the measure under the argument that the subsidy would have cost about 3.5 billion dollars for this 2026. Experts concede that it is a shock measure, but necessary to overcome what Paz presents as an "economic, financial and social crisis" inherited from the socialist governments of MAS, a narrative that has been very useful to Javier Milei in Argentina.

Regarding exports, an interesting measure is the substantial relaxation of its regime, as companies will not have to certify the state of domestic market supply and the existence of fair prices. Paz also decreed other measures aimed at cushioning the impact of the more debated ones. Washington celebrated the reforms adopted, while transport workers are ready to protest.

EU-MERCOSUR

The foreign ministers of the countries comprising the MERCOSUR bloc will decide tomorrow whether to accept the postponement of signing the free trade agreement with the European Union, following dilatory tactics by France and Italy that once again put its conclusion in suspense. "If it is not concluded, there is nothing more to negotiate and we will direct our attention and energy to other important partners who are in line," said the head of Itamaraty in correspondence with the threat Lula had issued yesterday.

But the old union leader seems to have softened his stance after speaking directly with Italian Prime Minister Giorgia Meloni, who cites, like Emmanuel Macron, strong political pressures from farmers. Hungary also opposes the agreement, which, on the other hand, is strongly supported by Madrid and Berlin. The presidents of the European Council and the European Commission met with representatives of the agricultural sector in Brussels, who are not only protesting about the MERCOSUR issue.

Regional news brief

• Colombian President Gustavo Petro, whose administration has been marked by several corruption scandals, has come to the defense of his former finance minister, who was arrested this Thursday along with a former interior minister following respective orders issued by the capital's High Court. The magistrate who adopted the maximum precautionary measure maintains that both allocated public resources to traffic influence in the legislative branch.
  

• "The people who committed a crime against democracy have to pay for the acts committed," declared Lula this Thursday regarding a bill that seeks to reduce sentences against former conservative president Jair Bolsonaro and other participants in a 2023 coup attempt. Thus, the legislative initiative, already approved in the bicameral Brazilian congress, would be vetoed by the head of the Palácio do Planalto. "We need to take very seriously what happened in January 2023," he added, although, at the same time, he pointed out that Congress has the right to override his (constitutional) veto power. Bolsonaro is formally serving his 27-year sentence at the Federal Police headquarters in the Brazilian capital.
  

• In a new sign of the insecurity crisis experienced increasingly by Peruvians, the death of the councilwoman of the Chicama district municipality, in the turbulent region of La Libertad, was reported this Thursday after an armed attack carried out, apparently, in a public area where a Christmas activity was being held with the presence of minors, seven of whom were injured.
  

This is all for today’s report.