HAVANA (AFP) – Cubans awoke on New Year’s Day to a new currency structure under long-awaited economic reforms that come with a double-edged sword of salary increases and price hikes.
The reforms entered into force on the communist island on Friday – dubbed ‘Day Zero’ – just weeks after they were announced by President Miguel Diaz-Canel.
The policy is intended to make the Cuban economy more efficient and easier to understand for foreign investors 62 years after Fidel Castro’s communist revolution.
The plan will see the convertible peso, which is pinned to the dollar and was introduced in 1994 to replace the United States (US) currency, phased out over six months.
This will leave only the regular peso, worth about 24 times less.
Inflation will soar as a result, and authorities have warned of a 160-per cent average hike in prices.
Bread and electricity costs will rise, and in an added blow, the government has said it will also curb subsidies on some consumer goods as part of the reforms.
In exchange, the minimum wage will be hiked from CUP400 to CUP2,100 (about USD15 to USD80.)
Many are concerned higher salaries will not make up for inflation.
“Everyone is worried. The Cuban lives in fear,” said 36-year-old merchant Yusbel Pozo.
“The future is uncertain,” he added. “We don’t know what is going to happen. The electricity (price) is going up, food will follow.”
Last year, the Cuban economy shrank 11 per cent, its worse decline in 27 years.
The country is reeling from sanctions toughened by the administration of US President Donald Trump, and a decline in tourism and remittances due to the coronavirus pandemic.
University of Havana economist Ricardo Torres told AFP that despite months of planning, some aspects of the reform “are beyond the government’s control, such as the possibility of uncontrolled inflation”.