Cohiba Cigarette Maker Sees Cuban Peso Change ‘Imminent’

Cohiba Cigarette Maker Sees Cuban Peso Change 'Imminent'
By Sabrina Valle and Anatoly Kurmanaev Jan 2, 2015 3:58 PM GMT+0100

Cuba's 20-year-old dual-peso system could end any time now and cigarette
maker Brascuba says it is ready for a new single currency.

"It's imminent," Alexandre Carpenter, co-president of Brascuba, a joint
venture between Rio de Janeiro-based Souza Cruz SA (CRUZ3) and
state-owned Tabacuba, said in a telephone interview on Dec. 30. "We are
prepared for it and expect it for the first quarter."

The plan for a single currency was disclosed in 2013 and comes as the
communist state of 11.1 million people seeks to lure more foreign
investment. Central bank President Ernesto Medina said in October that
the elimination of the dual system is a critical step in preparing the
economy for the global market. That preparation become more urgent last
month when U.S. President Barack Obama announced plans to restore
diplomatic ties with Cuba and ease trade restrictions.

Tourists visiting Cuba are currently given convertible pesos, known as
CUC, at a rate of one-to-one with the dollar. At the same time, Cubans
are paid in local pesos, or CUPs, which are fixed at about 25 to the dollar.

The system forces tourists to pay higher prices for goods and services,
while helping the state subsidize basic items for the local population.

Coming Soon

A single currency system would fuel a rise in domestic demand, Carpenter
said. Some of Brascuba's brands and other products such as Nestle ice
creams can only be bought using CUCs. Unifying the currency would
immediately increase the potential market, he said.

"Most likely, we'll have a boost in demand," Carpenter said. The
accounting and payment systems at Brascuba, which makes cigarette brands
including Cohiba and Hollywood, are already prepared for the new
currency, he added.

Brazilian construction company Odebrecht SA, responsible for works in a
port, airports and a sugar plant on the island, is also ready for a
single peso, according to a person close to the discussions who asked
not to be named because the government is keeping the information
private to avoid a run on the currency.

Venezuelan Oil

Unification is being driven by the fall in preferential oil supplies
from Venezuela, which have allowed President Raul Castro to maintain
subsidies on basic goods priced in non-convertible pesos, according to
Rafael Romeu, president of economic consultancy DevTech Systems and a
member of the Washington-based Association for the Study of Cuban Economy.

"Castro's government will no longer be able to inflate away the
inefficiencies of the economy by printing more unconvertible pesos,"
Romeu said in an e-mailed response to questions.

An official at Cuba's International Press Center didn't return a phone
call and an e-mail about the timing of unification.

Any economic shock from a change to the currency system could be partly
mitigated by increasing remittances from the U.S. Obama said he would
allow Cuban in the U.S. to send back as much as $8,000 a year to
relatives on the island, up from $2,000 now.

Romeu said the central bank will have to devalue the currency soon after
unification, as it doesn't have enough dollar reserves to back the
convertibility of the new unified peso. A weaker currency will increase
pressure on prices and boost inflation, he said.

"The bottom line is that the government will have to continue
eliminating subsidies until its deficit is closed and it no longer needs
to print away money," he said. "Because of Cuba's low wages you can
imagine how difficult it will be politically for the government to do that."

Source: Cohiba Cigarette Maker Sees Cuban Peso Change 'Imminent' -
Bloomberg -
http://www.bloomberg.com/news/2015-01-01/brascuba-ready-for-imminent-cuba-currency-unification.html