Economist Javier Pérez Capdevila: "The rise of the dollar in Cuba may continue to be driven by the shortage of foreign currency"

The mathematician, doctor in Economic Sciences and Honorary Academician of the Cuban Academy of SciencesJavier Perez Capdevila has agreed to answer a questionnaireCyberCubawith three questions, two of them about inflation and the corrective measures that in his opinion can be implemented to correct the depreciation of the Cuban peso.He has also valued the announcement by Cuban Customs about the seizure of millions of Cuban pesosintercepted from January to March of this year at the island's airports.

How much and until when could the dollar continue to rise in Cuba this year?

Any forecast in this regard must be made based on time series data on the behavior of multiple variables and not only on price variations over time.

It must be taken into account that as long as the economic situation in Cuba continues to depend on a wide variety of factors, both internal and external, even some that behave as foreign or foreign variables, it is very unlikely to obtain a forecast that is sufficiently close to reality.

The upward trend of the dollar in the country It has been influenced by various elements, such as the shortage of foreign currency, the global economic crisis and often misguided government policies.

However, accurately forecasting how far and when this trend could continue is difficult, due to market volatility and economic policy uncertainty.

Overall, the dollar's rally in Cuba may continue to be driven by persistent foreign currency shortages, which may be exacerbated by declining tourism revenues and falling prices for key exports. Furthermore, international sanctions and restrictive economic policies may continue to put pressure on the Cuban economy, which could lead to further depreciation of the national currency against the dollar.

What measures should be implemented to correct the depreciation of the peso?

The Cuban government could implement measures to try to stabilize the foreign exchange market, such as stricter exchange controls or direct interventions in the market, but I believe that these actions could have a temporary impact on the trajectory of the dollar, but would not solve the underlying structural problems of the Cuban economy.

On the other hand, I maintain the criterion that measures such as those explained below, because they are more comprehensive in addressing both the internal and external factors that are contributing to this situation, could have a greater impact. I will try to briefly explain each one.

Economic diversification: The government could seek to diversify the economy to reduce dependence on tourism and traditional exports, which today have a notable level of vulnerability. Some examples would be promoting industries such as technology-related industries based on innovation, more technologically advanced agriculture and further promoting biotechnology, which could increase foreign currency earnings and help stabilize the exchange rate.

Promote foreign investment: Facilitating foreign direct investment in strategic and productive sectors can help increase foreign currency earnings and strengthen the Cuban economy. Policies and reforms could be implemented that improve the investment climate and provide legal security to foreign investors or Cubans residing abroad.

Prudent monetary policy: The Central Bank of Cuba could implement prudent monetary policies to control inflation and stabilize the exchange rate. This could include adjustments in interest rates and liquidity management to maintain macroeconomic stability.

Structural reforms: Structural reforms are needed to improve the efficiency and competitiveness of the Cuban economy. This could include the gradual liberalization of price and exchange controls, the modernization of the state business sector, and the promotion of private initiative and entrepreneurship on a larger scale.

Appropriate fiscal policies: Implementing appropriate fiscal policies that promote fiscal discipline and the sustainability of public finances is also crucial. This could include measures to increase tax collection, reduce non-essential public spending and improve the efficiency of government spending.

It is important to highlight that these measures must be implemented in a gradual and coordinated manner, taking into account the specific conditions of the Cuban economy and seeking a balance between macroeconomic stability and sustainable growth. Furthermore, political commitment and international cooperation are essential to support these reforms and promote economic development in Cuba.

And notice that I'm not even talking about the blockade, but the international sanctions and restrictive economic policies that can continue to put pressure on the Cuban economy are real (and I reiterate) and that those who are most harmed are the Cuban people.

Cuban Customs has denounced the smuggling of millions of Cuban pesos. What sense does it make to take Cuban pesos from the Island in this context?

At first glance, any economist who does not know the Cuban context would probably refer to speculation, black market or exchange rate arbitrage, but any Cuban economist, like me, would never value these aspects.

To answer with the greatest precision that God allows me, first of all I have to say that it does make sense to take Cuban pesos from the Island in this context.

There could be a marked interest in causing a reduction in the monetary supply, thus altering the country's monetary policy as related to the regulation of the money supply to control inflation and stabilize the currency but, in addition, it would force the government to incur expenses to replace the exported currency, which could affect the national budget and increase the economic crisis.