| In the 1990s, there has been a growing split in Cuba's economy between the traditional socialist peso-based component and the internationalized dollar-oriented and marketized component. This schism has been caused by a conjuncture of circumstances, including the expansion of tourism and foreign and mixed enterprise; the contraction and loss of confidence in the socialist economy; the weakening of the monetary role of the peso (owing to the rapid inflation arising from the financing of the fiscal deficit through money creation), and a grossly overvalued exchange rate. This dual currency and structural bifurcation of the economy shaped the pattern of income distribution, thereby influencing the economic behaviour of the Cuban people. Cubans with access to U.S. dollars in the internationalized part of the economy have higher incomes than those without such access, owing to the difference between the unofficial exchange rate and the official (commercial) rate. Because of this situation, Cubans performing valuable social functions in the socialist economy are rewarded meagerly by society while those in the internationalized economy are relatively well rewarded. In consequence, Cubans "chase dollars" by any means possible, legal, semi-legal, or illegal. The bifurcation has thus stimulated the return of a variety of social ills which had virtually disappeared by the early 1960s. Some recent policies, notably the fiscal policies of 1994 (which lowered the deficit, decelerated monetary emission and reduced peso inflation, thereby increasing the demand for pesos), and some institutional changes have helped to reduce the unofficial exchange rate and to reduce the bifurcation. However, it will be necessary to continue and intensify this process of change in order to reintegrate the economy. Specially important elements in this respect will be exchange rate policy, further liberalization of small and medium-sized enterprise, and decontrol of prices (which will also call for the redesigning of the social "safety net"). |
