Cuba Central Bank Advocates Stronger Peso, Fewer Subsidies

HAVANA (AP)--Cuba's central bank is urging the government to gradually unify the island's two parallel currencies and cut back on "indiscriminate" subsidies, according to an internal report obtained by The Associated Press Friday.

The document, which was distributed to Communist Party members, says a single, strong peso would boost productivity and morale in Cuba. The island now has two separate currencies: one for locals, and one designed principally for foreigners.

Party members were instructed to discuss the bank's recommendations between April and June. One of those members provided a copy of the document to a local journalist.

The report, a rare glimpse into the back rooms of one of the world's last communist economies, says Cuba would be more efficient if its currencies were streamlined. But it warns the transition should be gradual, with incremental revaluations to narrow the gap between the two pesos over time.

Rumors have circulated that Raul Castro, who replaced his brother as president in February, is planning to strengthen the ordinary peso, which is now worth about 21 per U.S. dollar. The convertible peso is currently worth slightly more than a dollar.

The government controls more than 90% of Cuba's economy, paying the typical Cuban state worker a regular peso salary worth about $19.50 a month. It also operates upscale grocery and department stores catering to tourists and foreigners that charge in convertible pesos.

But because many products are not sold in regular pesos, Cubans who are paid in that currency must buy items such toilet paper and cooking oil at the more expensive convertible-peso stores.

As a result, many blame their low buying power on the double currency system, fueling support for a single currency "as a magic and definitive solution," the central bank document said.

But to suddenly boost the peso against its convertible counterpart, the report warned, would drive Cubans to buy expensive, imported goods at drastically reduced prices - leaving state stores with little income to restock shelves and sparking shortages.

About 60% of Cubans have access to at least some convertible pesos, either by exchanging foreign currency from relatives in the U.S., or by working for foreign firms or in jobs that let them collect tips from tourists, government figures show.

The central bank's report also suggests that the government reduce " indiscriminate" subsidies to cut state expenses and ease the burden of strengthening the currency.

All Cubans receive the same subsidized services: free health care and education, an inexpensive selection of basic foods, utilities and public transportation. Few pay for housing.

The 700,000-member Communist Party plans its first party congress since 1997 in the second half of this year.

(NOTE of Cubanalisis: Congress will be in the second half next year, 2009)