• Lack of access to foreign currency means monopoly operator, Etecsa, is unable to invest in its network 
• It has an embarrassment of Cuban pesos, but no US dollars or any other foreign currency
• Etecsa has been fined by the government for not spending the unspendable…
• ... but ‘special tax’ on telecom services designed to raise 13bn extra pesos is to be introduced soon

Every now and then, the media gets a glimpse of what is happening in the ‘Alice Through The Looking Glass’ world that is the telecom sector in the geographically beautiful but economically blighted Caribbean island of Cuba. The country’s perpetually struggling national monopoly telco, Etecsa (Empresa de Telecomunicaciones de Cuba), does what it can to keep the aged and tottering fixed line network from total collapse but it is fighting a losing battle, not least because the government keeps it chronically starved of the foreign currency it needs to be able to buy infrastructure equipment, such as cables and network hardware. 

For that, Etecsa would need US dollars – but it hasn’t got any. Of course, Canadian dollars, Euros and British pounds would always come in handy as alternatives, but it hasn’t got any of those either. What Etecsa does have is Cuban pesos, but the currency is all but worthless in the country and completely worthless outside its borders, where no other companies in any other countries will accept it in payment for anything. 

Now, thanks to Translating Cuba, which has translated and published a 14ymedio article in English, we have learned that the state-owned telco has been fined (by the state, natch) for failing to spend its entire 2024 peso budget, even though it tried. The operator had already told the government that it had underspent by many millions of pesos because no foreign company in Cuba will accept them in payment either for goods or services, and the telco can’t spend them anywhere else. The proposed solution was to designate the underspent cash as profit and then divide it up between Etecsa employees, but the Cuban government took umbrage at that, levelled a fine on the telco, and sequestered the cash. It’s the kind of logic that makes the Mad Hatter’s seem positively Aristotelian.

Etecsa, keen not to get hammered again, has announced that, henceforth, it will collect as much hard currency as it can from anyone, anywhere, at any time. Various methodologies are being assessed, but they all eventually involve paying in US dollars. 

Recently, the minister of finance and prices, Vladimir Regueiro, announced that the national budget of 2025 would include the introduction of a “special tax on telecommunications services” that will generate an additional income of more than 13bn Cuban pesos. That sounds like a lot, but it’s currently the equivalent of $542m and, crucially, it’s still pesos…

That won’t help Etecsa which, according to the 14ymedio article, is in its worst ever state, unable to make basic repairs or replace the batteries that power mobile network sites. 

“We are tying pieces of cables together to repair the breaks,” one Etecsa employee told 14ymedio, adding that the company is going through “the worst crisis since its creation.” As a result of the foreign currency crisis, in 2022 the telco was unable to “fulfill its financial commitment to Nokia,” the island’s mobile data infrastructure supplier. 

Paying the price of a peculiar pecuniary policy

Money in Cuba is complicated in the extreme. Until fairly recently, the country used to have two official currencies: The Cuban peso (CUP) and the Cuban convertible peso (CUC). The Cuban convertible peso was tied, one to one, to the US dollar and used primarily by tourists and for foreign transactions. The almost worthless CUP was the currency used every day by locals. They were paid in it and spent it on rent, travel, basic utilities, and even more basic rationed food.

The system was created in an effort to stabilise the economy after the collapse of the Soviet Union, whose lavish subsidies kept Cuba afloat for 30 years (1961 to 1991). Once that financial prop was removed, the black market in hard currencies prospered as faith in the peso, never strong in the first place, simply evaporated. Eventually, and with no notice given to the general population, the Cuban government abandoned the dual currency system in January 2021, right in the middle of the Covid-19 pandemic when people were confined to their homes.

The Cuban CUP is now the only legal currency in the country, although services and goods are increasingly priced in US dollars and euros. The island is now taking tentative steps toward the introduction of a digital economy and is actually issuing some bank cards and a new digital currency has been introduced to go along with them. This is the MLC (Moneda Libremente Convertible) or ‘freely convertible money’ and guess what? Yes, it’s linked to the US dollar, and is used to buy goods in shops using the bank cards Cubans now have.

However, salaries are still paid in CUP, which can still be used to buy essentials, while special shops sell expensive imported food, pharmaceuticals, toiletries, electrical goods and even bricks, tiles, wood and cement, which can only be bought with MLC. 

Harking back to Lewis Carroll, it’s time to cite the Cheshire Cat: “I am not crazy, my reality is just different from yours.” That’s certainly true in the case of the Cuban monetary system, and Etecsa is paying the price of a bizarre experiment where a digital currency promoted as Cuban is actually the US dollar by another name. Indeed, that’s what ordinary Cubans call it – because that’s exactly what it is. 

– Martyn Warwick, Editor in Chief, TelecomTV