Dual economy of Cuba

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Sign in Havana informing people on how to pay in CUC currency Cartel Centro Comercial Plaza Carlos III 20160305.jpg
Sign in Havana informing people on how to pay in CUC currency

The dual economy of Cuba was developed after the dissolution of the Soviet Union, which caused major economic changes on the island. Tourism was regarded as the only stable sector of the Cuban economy and became the subject of policy changes to enhance its development. Cuba legalized the use of the US dollar and created a dual currency system, one based on the dollar and the Cuban convertible peso with the other system based on the Cuban peso. Different institutions and businesses operated on only one side of the currency divide. The Cuban peso, used mostly by Cuban nationals, could not buy imported goods. [1] The goal of the dual economy was to create one economic sphere designed to use foreign investment, while keeping it separate from the other economic sphere of domestic activities. [2]

Contents

The dual economy involved various policies that divided Cuban nationals and foreigners. These systems dividing tourist facilities, currencies, and healthcare, have been informally termed "tourism apartheid, [3] [4] "dollar apartheid", [5] and "medical apartheid". [6]

Since 2020 Cuba began to suffer under an economic crisis that hadn't been seen since the Special Period. To try to revitalize the economy the CUC currency was eliminated in 2021 and instead the Cuban peso is directly convertible to US dollars. [7]

History

Special period

With the dissolution of the Soviet Union in 1991 Cuba lost much of its Soviet financial aid which it had become dependent on. [8] The loss of Soviet trade which comprised 80% of the islands foreign trade, created an economic crisis called the "Special Period" in Cuba which was defined by mass shortages. The Cuban government quickly began focusing on developing tourism on the island as the only economic sector that was believed to be able to regrow the Cuban economy. [9]

By 1990 the Cuban government began floating the idea of formal segregation between foreigners and Cuban nationals. [9] Between 1992 and 1997 it was a crime for a Cuban national to even associate with a foreigner. After condemnation by human rights groups, Cuba changed policy and now associating with tourists is an informal taboo that often results in police harassment. [10] Most of the tourist facilities developed since the 1990s are all inclusive resorts concentrated together in enclaves on the Cuban coast. The construction of geographically separated resorts, restrictions on Cuban nationals entering tourist facilities, and the prohibition on associating with foreigners have led critics to speculate that the Cuban government worries about the political consequences of encounters between Cubans and foreigners. [9]

On 5 August 1994 protests erupted in Havana. These protests had been built up by years of Cuban nationals receiving visits from their exiled relatives who were observed to be much more financially successful, as well as the luxurious lifestyle possessed by many of the island's new tourists. These factors had driven in the idea that Cuban nationals were suffering under a worse standard of living not experienced by those outside the island. [8]

After the protests, Cubans were allowed to legally possess US dollars and shop at Dollar stores. This new dollar economy mostly benefitted white Cubans who were more likely than black Cubans to find work in lucrative tourism jobs or have family in the United States who could send remittances. [11] The Cuban government also legalized the ability for Cubans to open small private businesses. [12]

After the special period

Cuban nationals were not permitted to stay at hotels for foreigners until policy was reformed in 2008. [13]

In January 2021, a process of currency unification began, with Cuban citizens being given six months to exchange their remaining CUCs at a rate of one to every 24 CUPs. [14] On 15 June 2021, it was announced that the CUC would remain exchangeable in banks for a further six months but that no shops would accept them from 1 July. The final date for exchanging CUCs was 30 December 2021. [15]

Laws and practices

There were various practical applications of the dual economy and many informal popular titles have been developed from them. Most of these informal titles utilize the term "apartheid" to describe the policies.

Cuban nationals were once prohibited from entering all tourist facilities except as employees, and the entire tourist economy operates under the Cuban convertible peso, which was originally illegal for Cuban nationals to use. This practice of segregation has been informally called "tourist apartheid". Since its inception the prohibitions were reformed and Cuban nationals were then allowed to use the Cuban convertible peso. [3]

The once prohibition to use the CUC by Cuban nationals and the later material inequality caused by most luxury goods only being accessible in the dollar economy had led critics to name the currency system "dollar apartheid". [5]

The Cuban government also promotes its healthcare facilities for the use of foreign customers, which has been charged to limit the healthcare of Cuban nationals for the preference of foreigners. This medical system has been informally labeled "medical apartheid" by critics. [6]

Effects

Black market

Many necessities that all citizens need can be found in Cuba's dollar stores. This has caused a greater need for dollars among the Cuban populace; however, the government only pays its employees in the Cuban peso. This leaves official jobs that pay in dollars only to be found in tourism or other foreign enterprises. The demand for dollars without ample jobs paying in dollars has caused much of the Cuban populace to turn to the black market to supplement their income. [16]

"Inverted pyramid"

Cocotaxi with driver, in Havana. Tourist facing jobs, like taxi driver, are some of the highest paying jobs in Cuba. Cuba 2012 (8611274909).jpg
Cocotaxi with driver, in Havana. Tourist facing jobs, like taxi driver, are some of the highest paying jobs in Cuba.

The emergence of the dual economy had a major impact on the underlying egalitarianism espoused by the Cuban revolution. [17] [18] [19] Two parallel economies and societies quickly emerged, divided by their access to the newly legalized U.S. dollar. Those having access to dollars through contact with the lucrative tourist industry suddenly found themselves at a distinct financial advantage over professional, industrial and agricultural workers. [17] [20]

Since US Dollars and the CUC are the more valuable currency they're more sought after in the general economy. Most jobs that pay in CUC are in tourism, thus other professionals such as doctors, who don't work in tourism only make a fraction of the income of hotel workers. Many professionals often try to moonlight in the tourism industry to make up the difference in income. [21] This state of affairs has been referred to as the "inverted pyramid" by Cuban nationals to characterize the inverted income return on education that well-educated professionals face on the island. [22]

Internal migration

As tourism played an increasing role in the economy, a large percentage of young people migrate to resort towns seeking employment in the tourism industry. [23] Many of them working in menial jobs can earn more through tips than they can employed as professionals. Thus, there is an economic and social divide emerging in Cuba between those employed in the tourist industry and others.

Researchers find that the flocking of citizens to tourist regions such as Havana creates ‘tourist bubbles.’ This means that the isolated areas of the country visible to tourists are well maintained and developed to meet expectations of an ‘authentic’ experience while residents of surrounding areas continue to struggle with poverty, crime, and general deterioration of living conditions. Since jobs in the tourist sector are so lucrative, these areas experience an incredible influx of residents which cannot possibly be supported by the number of opportunities in the legal job market. As such, many of the citizens who flood tourist areas turn to illicit alternatives such as prostitution or unlicensed self-employment (often offer taxi services, currency exchange, host casas particulares, etc.) [24]

Racial inequality

Afro-Cubans have been noted to have been put at a greater disadvantage in the dual economy. Afro-Cubans are less likely to get dollar remittances from family abroad since most Cuban exiles living abroad are white and are less likely to be small farmers who can sell their surplus foods in the dollar economy. Many of the Palestino migrants to Havana were Afro-Cuban, and Palestinos were often blamed for the rising crime rates in the 1990s, for this reason many Afro-Cubans face discrimination and frequent police harassment in Havana. [25]

Many coveted tourism jobs in the Cuban economy are under the management of foreign investors. While all government enterprises in Cuba are formally dedicated to not practice discrimination in hiring, foreign investors are allowed to hire based on personal standards of "suitability". This legalized practiced had led to allegations of informal racism since most workers at tourist enterprises end up being most often white Cubans. [26]

Tourism enclaves

Resort in Varadero, Cuba Cuba, Varadero. 2013 - panoramio (64).jpg
Resort in Varadero, Cuba

The dual economy, which incentivizes foreign investment and tourism, has created tourism enclaves on the island. In 2004 around 80% of foreign tourists resided in Havana or Varadero, with no major tourist destinations elsewhere. [27] It has been inferred that the preference the Cuban government has for developing separated tourist enclaves is to reduce the interactions Cubans have with the often more luxurious lifestyles of foreigners. Most of the resort enclaves outside Havana are on the islands of northern archipelagos, which are a good geographic distance from the mainland and often have no permanent residents. [28]

Old Havana has been the subject of major redevelopment efforts. Many buildings have been architecturally restored, and many have been made into hotels. This redevelopment has come at the expense of the relocation of many locals who had their apartments turned into hotels, as well as a total lack of revitalization efforts elsewhere in Havana or Cuba in general. [29]

Related Research Articles

<span class="mw-page-title-main">Economy of Cuba</span>

The economy of Cuba is a planned economy dominated by state-run enterprises. In the 1990s, the ruling Communist Party of Cuba encouraged the formation of worker co-operatives and self-employment. In the late 2010s, private property and free-market rights along with foreign direct investment were granted by the 2018 Cuban constitution. Foreign direct investment in various Cuban economic sectors increased before 2018. As of 2021, Cuba's private sector is allowed to operate in most sectors of the economy. As of 2023, public-sector employment was 65%, and private-sector employment was 35%, compared to the 2000 ratio of 76% to 23% and the 1981 ratio of 91% to 8%. Investment is restricted and requires approval by the government. In 2021, Cuba ranked 83rd out of 191 on the Human Development Index in the high human development category. As of 2012, the country's public debt comprised 35.3% of GDP, inflation (CDP) was 5.5%, and GDP growth was 3%. Housing and transportation costs are low. Cubans receive government-subsidized education, healthcare, and food subsidies.

Transportation in Cuba is the system of railways, roads, airports, waterways, ports and harbours in Cuba:

A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation state. Under this definition, the British Pound sterling (£), euros (€), Japanese yen (¥), and U.S. dollars (US$) are examples of (government-issued) fiat currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance; i.e., legal tender laws may require a particular unit of account for payments to government agencies.

<span class="mw-page-title-main">Dollar</span> Name of monetary currency

Dollar is the name of more than 25 currencies. The United States dollar, named after the international currency known as the Spanish dollar, was established in 1792 and is the first so named that still survives. Others include the Australian dollar, Brunei dollar, Canadian dollar, Eastern Caribbean dollar, Hong Kong dollar, Jamaican dollar, Liberian dollar, Namibian dollar, New Taiwan dollar, New Zealand dollar, Singapore dollar, Trinidad and Tobago Dollar and several others. The symbol for most of those currencies is the dollar sign $; the same symbol is used by many countries using peso currencies. The name "dollar" originates from the "thaler" suffix in the name of a 29 g silver coin called the Joachimsthaler minted in Bohemia.

The peso is the currency of Argentina since 1992, identified within Argentina by the symbol $ preceding the amount in the same way as many countries using peso or dollar currencies. It is subdivided into 100 centavos, but with 10 pesos being worth about 1 US cent in early 2025, smaller denominations are not issued or in normal use. Its ISO 4217 code is ARS. It replaced the austral at a rate of 10,000 australes to one peso.

<span class="mw-page-title-main">Currency board</span> Monetary authority which maintains a fixed exchange rate to a foreign currency

In public finance, a currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target. In colonial administration, currency boards were popular because of the advantages of printing appropriate denominations for local conditions, and it also benefited the colony with the seigniorage revenue. However, after World War II many independent countries preferred to have central banks and independent currencies.

In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national currency in relation to a foreign reference currency or currency basket. The opposite of devaluation, a change in the exchange rate making the domestic currency more expensive, is called a revaluation. A monetary authority maintains a fixed value of its currency by being ready to buy or sell foreign currency with the domestic currency at a stated rate; a devaluation is an indication that the monetary authority will buy and sell foreign currency at a lower rate.

<span class="mw-page-title-main">1998–2002 Argentine great depression</span> Economic disaster

The 1998–2002 Argentine great depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed fifteen years of stagnation and a brief period of free-market reforms. The depression, which began after the Russian and Brazilian financial crises, caused widespread unemployment, riots, the fall of the government, a default on the country's foreign debt, the rise of alternative currencies and the end of the peso's fixed exchange rate to the US dollar. The economy shrank by 28 per cent from 1998 to 2002. In terms of income, over 50 per cent of Argentines lived below the official poverty line and 25 per cent were indigent ; seven out of ten Argentine children were poor at the depth of the crisis in 2002.

<span class="mw-page-title-main">Cuban peso</span> Currency

The Cuban peso also known as moneda nacional, is the official currency of Cuba.

The convertible peso was one of two official currencies in Cuba, the other being the Cuban peso. It had been in limited use since 1994, when its value was pegged 1:1 to the United States dollar.

The Convertibility plan was a plan by the Argentine Currency Board that pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. The peso was only pegged to the dollar until 2002.

<span class="mw-page-title-main">Patacón (bond)</span> Argentine bond

The Patacón was a bond issued by the government of the province of Buenos Aires, Argentina, during 2001. The patacones were used to pay government bills, including state employees' salaries during a period when the economic crisis caused regular currency to be scarce. Patacones then circulated in the economy in much the same way as pesos.

<span class="mw-page-title-main">Tourism in Cuba</span>

Tourism in Cuba is an economic sector that generates over 4.7 million arrivals as of 2018, and is one of the main sources of revenue for the island. With its favorable climate, beaches, colonial architecture and distinct cultural history, Cuba has long been an attractive destination for tourists. "Cuba treasures 253 protected areas, 257 national monuments, 7 UNESCO World Heritage Sites, 7 Natural Biosphere Reserves and 13 Fauna Refuge among other non-tourist zones."

<span class="mw-page-title-main">Cuba</span> Island country in the Caribbean

Cuba, officially the Republic of Cuba, is an island country, comprising the island of Cuba, Isla de la Juventud, and 4,195 islands, islets and cays surrounding the main island. It is located where the northern Caribbean Sea, Gulf of Mexico, and Atlantic Ocean meet. Cuba is located east of the Yucatán Peninsula (Mexico), south of both Florida and the Bahamas, west of Hispaniola, and north of Jamaica and the Cayman Islands. Havana is the largest city and capital. Cuba is the third-most populous country in the Caribbean after Haiti and the Dominican Republic, with about 10 million inhabitants. It is the largest country in the Caribbean by area.

The term Palestino is the Spanish word for "Palestinian". The word "Palestino" is used in Cuba as a disparaging nickname for illegal migrants within the country. The nickname is used as a rhetorical device, that compares illegal migrants in Cuba to Palestinian refugees, inferring both are homeless wanderers. The term has also expanded to mean all people from the Oriente province, or people from outside Havana, regardless of migrant status.

In Cuba between 1993 and 2004, a dollar store, officially Tiendas de Recaudación de Divisas or Tiendas Recuperadoras de Divisas, was a government-owned shop that sold goods solely in exchange for hard currency, originally mainly to foreigners and tourists, in the same way as a friendship store in the People's Republic of China or an Intershop in East Germany.

Prostitution in Cuba is not officially illegal; however, there is legislation against pimps, sexual exploitation of minors, and pornography. Sex tourism has existed in the country, both before and after the 1959 Cuban Revolution. Many Cubans do not consider the practice immoral. In Cuban slang, female prostitutes are called jineteras, and gay male prostitutes are called jineteros or pingueros. The terms literally mean "jockey" or "rider", and colloquially "sexual jockey", and connote sexual control during intercourse. The terms also have the broader meaning of "hustler", and are related to jineterismo, a range of illegal or semi-legal economic activities related to tourism in Cuba. Stereotypically a jinetera is represented as a working-class Afro-Cuban woman. Black and mixed-race prostitutes are generally preferred by foreign tourists seeking to buy sex on the island. UNAIDS estimates there are 89,000 prostitutes in the country.

<span class="mw-page-title-main">Outline of Cuba</span> Overview of and topical guide to Cuba

The following outline is provided as an overview of and topical guide to Cuba:

<span class="mw-page-title-main">Dollarization of Cuba</span> Policies implemented for the Cuban economy after 1993

The dollarization of Cuba refer to macroeconomic policies implemented with the aim at stabilising the Cuban economy after 1993. They were initially enacted to offset the economic imbalances which was a result of the dissolution of the Soviet Union in 1991. The main aspect of these reforms was to legalize the then illegal U.S. Dollar and regulate its usage in the island's economy.

References

  1. ↑ Jimenez, Marguerite; Kirk, John; LeoGrande, William (2014). A Contemporary Cuba Reader The Revolution Under Raúl Castro. Rowman and Littlefield Publishers. p. 174. ISBN   9781442231009.
  2. ↑ Herrschel, Tassilo (2006). Global Geographies of Post-Socialist Transition Geographies, Societies, Policies. Taylor and Francis. p. 15. ISBN   9781134356768.
  3. 1 2 Economics—Advances in Research and Application: 2013 Edition. ScholarlyEditions. 2013. p. 615. ISBN   9781481675208.
  4. ↑ Post-socialism is Not Dead Reading the Global in Comparative Education. Emerald Group Publishing Limited. 2010. p. 359. ISBN   9780857244185.
  5. 1 2 Shaffer, Kirwin (2022). A Transnational History of the Modern Caribbean Popular Resistance Across Borders. Springer International Publishing. p. 180. ISBN   9783030930127.
  6. 1 2 Cuba A Country Study. Federal Research Division, Library of Congress. 2002. p. 150. ISBN   9780844410456.
  7. ↑ Frank, Marc (11 December 2020). "How Cuba's monetary reform will take place and impact the economy". reuters.com.
  8. 1 2 O'McKee, Jesse (200). Ethnicity in Contemporary America A Geographical Appraisal. Rowman and Littlefield Publishers. p. 149. ISBN   9780742500341.
  9. 1 2 3 Simoni, Valerio (2015). Tourism and Informal Encounters in Cuba. Bergahahn Books. pp. 39–40. ISBN   9781782389491.
  10. ↑ Corbett, Ben (2007). This Is Cuba An Outlaw Culture Survives. Basic Books. ISBN   9780465009961.
  11. ↑ Encyclopedia of the African Diaspora Origins, Experiences, and Culture · Volume 1. ABC-CLIO. 2008. p. 349. ISBN   9781851097050.
  12. ↑ Sawyer, Mark (2005). Racial Politics in Post-Revolutionary Cuba. Cambridge University Press. p. 76. ISBN   9781139448109.
  13. ↑ Insight Guides Cuba. APA. 2014. ISBN   9781780058429.
  14. ↑ Yaffe, Helen (10 February 2021). "Day Zero: how and why Cuba unified its dual currency system". LSE Latin America and Caribbean blog. Retrieved 17 February 2021.
  15. ↑ "Información de Interés".
  16. ↑ Comparative Racial Politics in Latin America. Taylor and Francis. 2018. ISBN   9781351750974.
  17. 1 2 Ternto, Angelo : Castro and Cuba : From Revolution to the Present p114
  18. ↑ Facio, Elisa. During the Special Period [ permanent dead link ], Global Development Studies, I, 3–4 (Winter 1998-Spring 1999), 57–78. Republished in DES: A Scholarly Journal of Ethnic Studies, Volume 1 Number 1, University of Colorado Department of Ethnic Studies.
  19. ↑ Farah, Douglas. Catering to Foreigners Instead of Cubans Puts Castro on Defensive Washington Post Foreign Service Sunday, 9 August 1992.
  20. ↑ http://www.miami.com/mld/elnuevo/news/world/cuba/16032860.htm Cuba: dólares ahondan las diferencias de clase El Nuevo Herald
  21. ↑ "The Truth About 'Tourist Apartheid' in Cuba". yahoo.com. Yahoo! Life. 2015.
  22. ↑ A Contemporary Cuba Reader Reinventing the Revolution. Rowman and Littlefield. 2008. p. 286. ISBN   9780742555075.
  23. ↑ "Tourism In Cuba Threatens To Drive Up Income Inequality, Regional Disparities, Risk". 11 August 2015. Retrieved 31 July 2016.
  24. ↑ Bailey, Nick (2008). "The Challenge and Response to Global Tourism in the Post-modern Era: The Commodification, Reconfiguration and Mutual Transformation of Habana Vieja, Cuba". Urban Studies. 45 (5–6): 1079–1096. doi:10.1177/0042098008089854. ISSN   0042-0980. S2CID   53760094 – via Sage Journals.
  25. ↑ Gonzalez, Edward; McCarthy, Kevin; Constant, Louay (2004). Cuba After Castro Legacies, Challenges, and Impediments. RAND Corporation. p. xvi–xvii. ISBN   9780833036179.
  26. ↑ Blue, Sarah (2007). "The Erosion of Racial Equality in the Context of Cuba's Dual Economy". Latin American Politics and Society. 49 (3): 41–43. doi:10.1111/j.1548-2456.2007.tb00382.x. JSTOR   30130810. S2CID   154554347 . Retrieved 25 October 2022.
  27. ↑ Morris, Andrea (2020). Migrant and Tourist Encounters The Ethics of Im/mobility in 21st Century Dominican and Cuban Cultures. Taylor and Francis. ISBN   9781000074536.
  28. ↑ Poverty and Development Problems and Prospects. Channel View Publications. 2001. ISBN   9781845418496.
  29. ↑ Estrada, Alfredo (2016). Havana: Autobiography of a City. St. Martin's Publishing Group. pp. 55–57. ISBN   9781250114662.
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