A Distorted Business Model
The result is a badly distorted business model in which the government needs to offer just enough retail products to entice consumers to exchange hard currency, while keeping prices steep enough to discourage high volumes of sales. And there is a large, pent-up demand for cars on the island, even at big markups, since the government has tightly restricted sales for decades.
In other countries whose currencies have little or no exchange value on international markets, big-ticket import items like cars are often priced in U.S. dollars or euros.
But since the communist government is the exclusive retailer and the sole banker on the island, there’s essentially only one pool of money to draw from.
If a would-be car buyer goes to a Cuban bank and trades in $250,000 in U.S. dollars to get enough CUCs to buy a new Peugeot, that’s a great deal for the government.
But a more likely scenario is that the few Cubans who could pay such prices belong to the small class of business owners, artists and wealthy farmers who have stockpiled large amounts of Cuban currency and need somewhere to spend it.
According to Pavel Vidal, a Cuban economist and former monetary policy adviser at Cuba’s Central Bank, the reform process initiated by President Raul Castro will continue to expose some of the island’s most glaring “distortions.”
“These distortions originate from a closed economy that is monopolized by the state,” he said, “and dependent on state companies with very low productivity that survive by paying extremely low salaries and charging extremely high prices by taking advantage of their monopoly power.”