[Marxism] Cuba's dependence on dollars leads to a divide, analysts say

[Walter Lippmann <walterlx@xxxxxxxxxxxxx>]

This is a good article and worth reading all the way through. To fully
grasp why this phenomenon occurs, one more element is helpful here.

If the only thing you knew about the cost of living in Cuba, which also
includes the exchange rates which Cubans on the island are charged
for changing foreign currencies into Cuba convertible pesos (the only
money which is legal tender on the island), you might be mystified at
that 10% surcharge which the Cuban banks add on to the cost of
changing dollars, which isn't added to changing any other currencies.
Why would the Cuban government do this? Is it some irrational and
anti-American political move by the "Castro regime", or does it have
a more practical origin? As far as I can tell, the motives are mainly
quite mundane in origin.

It's not a mystery, however. Since Washington does everything that it
can to prevent Cuba from participating in the world economy, such as
by harassing those banks which took the physical dollars foreigners
brought to the island to spend, even to the extent of fining one Swiss
bank $100 MILLION USD for this, the Cuban government decided that
it had to either recover the extra cost, or discourage the use of U.S.
cash dollars, by charging a fee for the trouble it causes Cuba. Mostly
this harms Cubans on the island who receive remittances from their
families in the United States. Cuba would probably stop doing this if
relations between our two countries were normalized. In the longer
run, Cuba would probably want to strengthen the regular peso in
its own domestic market - on the island, for a raft of reasons which
would be too long to get into here. In invite readers who wish to
discuss this aspect to do so.

Here's a Cuban government explanation of this.
http://www.granma.cu/ingles/2004/noviembre/mier17/476peso-i.html

One other element might possibly be coming into play, but not being an
economist, I'm less able to speculate intelligently: the declining weight
of the U.S. dollar in international finance could play some role here,
but I defer to those who know more about this than I do. 

ECONOMISTS: please help add more to what we know about this!


Walter Lippmann, CubaNews
http://groups.yahoo.com/group/CubaNews/
http://www.walterlippmann.com/

=============================================

http://www.latimes.com/business/la-fi-cubaremit20jan20,1,6442153.story?coll=la-h\
eadlines-business&track=crosspromo
or
http://tinyurl.com/38aejq
LOS ANGELES TIMES

GLOBAL CAPITAL
Cuba's dependence on dollars leads to a divide, analysts say
U.S. remittances benefit the government through foreign-exchange fees.
But they also create an inequality that may undermine the regime.
By Carol J. Williams
Times Staff Writer

11:27 PM PST, January 19, 2007

HAVANA Ãââ It didn't take long for much of the $300 that the retired
Culture Ministry worker's son wired him from Florida to make its way
into the coffers of Cuba's Communist regime.

Ten percent disappeared immediately when the state-owned bank took
its commission on changing the money into convertible pesos, a fee
that applies only to U.S.-dollar transactions. And 11% was sucked
away by the government's artificially low exchange rate.

Left with a little less than 240 pesos, or about $240, the
64-year-old artist headed to the hardware store to replace a water
pump. It had broken months earlier, cutting his water supply to a
trickle in the kitchen and forcing him to seal off his second
bathroom.

That purchase set him back half of what he had left. The actual cost
of the imported part was only 35 pesos before the 240% markup that is
standard in the government's aptly named Shops for the Recovery of
Foreign Currency, or TRDs for their Spanish initials.

By the time he paid a plumber to install it, fixed his sputtering
motorbike and bought food for himself, there was just enough left to
take care of his last love and source of solace: an 18-month-old
boxer with too much enthusiasm for the tiny paved yard behind his
home.

"She eats like 10 men, but she's all I have now," he said as he
wrestled the leaping dog to a standstill just long enough to kiss her
snout.

By some estimates, such remittances are now more important to the
Cuban economy than tourism or sugar. Hard-line opponents of Cuba's
Communist government contend that fees and markups on the money
are more help to Fidel Castro's regime than it is to its actual
recipients, providing the government with a source of easy money and
allowing it to avoid market reforms in the 15 lean years since the
defeat of its Soviet benefactors.

But the truth may not be quite so simple. Experts say dollars sent
from abroad also cleave this officially classless society of 11
million people into two parts, those who receive them and those who
don't, undermining Castro's regime.

In the months since the ultimate leader had absented himself from his
duties because of illness, Castro's brother and political heir, Raul,
has vowed to continue the socialist system. But Cubans on both sides
of the economic divide are demanding less state control and more
opportunity to work for themselves.

"The difference between those who get remittances and those without
is, those of us with dollars can survive," said the retired artist,
who suffers from asthma and a nagging sense that he should have fled
Cuba when he had the chance years ago

"The rest must steal to make ends meet or concoct ways of making
money zurdo," he said, using the Spanish word for "left-handed,"
meaning "a secret or dishonest way."


Dollarization

Analysts agree that legalization of the dollar in 1994 opened the
door to the current social divide, and that Castro's move a decade
later to replace it with the convertible peso has done nothing to
narrow it.

Dollarization "created a bifurcated economy that gives some people
access to hard currency and others not. And until you get broad-based
growth, that inequality won't be solved," said Phil Peters, Cuba
analyst at the Lexington Institute, a think tank in Arlington, Va.

The commission the government collects to convert dollars amounts to
a tax that the regime can redistribute to those without dollar
income. Replacing dollars with convertible pesos allowed the
government to increase pensions and wages modestly but can't redress
the disparity or the faulty economic logic shackling growth and
production, Peters said.

Reports by the U.S. and Cuban governments and calculations by
scholars of the value of remittances differ widely.

Some figures suggest transfers peaked at about $800 million in 2003
and fell to $500 million in 2005, after Washington started limiting
transfers to $300 quarterly and restricting them to parents, siblings
and children.

But Paolo Spadoni, an expert on the Cuban economy and a political
science professor at Rollins College in Winter Park, Fla., says U.S.
visitors to the island routinely circumvent those restrictions. Many
send cash via third-country agencies or through an underground
network of "mules," or fee-charging couriers.

Judging by the booming TRD sales, remittances must have topped $1
billion a year by 2000 and grown to at least $1.3 billion in 2004,
Spadoni said. Although it is difficult to determine whether there has
been a significant drop-off since then, Spadoni said that
dollar-store income rose almost 7% last year.

"In net terms, remittances are the biggest source of foreign exchange
for the country, more than tourism and sugar," he said.

The Cuban government has to invest about 80 cents for every dollar it
earns from tourism, now a $2-billion-a-year industry, whereas
remittances arrive with minimal state outlays.

But John Kavulich, senior policy advisor to the U.S.-Cuba Trade and
Economic Council in New York, estimates that the value and influence
of remittances to Cuba is far lower. A veteran analyst of centralized
economies, Kavulich says Havana's economic data are inflated.

He estimates the volume of remittances at no more than $450 million
and says their influence on the overall economy is minimal compared
with billions in aid from China and Venezuela. But for average
Cubans, remittances are far more tangible.

Workers who depend on their $12 to $15 a month in earnings from
state-run industries and offices frequently pilfer the output or skim
from storerooms.

Inequality also exposes the "haves" to robbery and extortion, so most
of them try to keep quiet about the comforts they have acquired with
dollars. Most of those interviewed for this story spoke on condition
of anonymity to protect themselves.

The artist's pension is only $10 a month, but his home, a two-bedroom
bungalow in a back street of the once-fashionable Miramar
neighborhood, is crowded with brown upholstered furniture, modern
appliances and a guest room-cum-office with a personal computer.

He owns a new refrigerator, a Samsung VCR, a Phillips television and
a state-of-the-art sound system, all probably stolen by fellow Cubans
at some stage in the distribution process. The artist then acquired
the goods zurdo for about half the cost of the state-run stores.

"It's very dangerous to have things," he said in a voice barely above
a whisper, fearful of eavesdropping neighbors who might report him to
the ideological watchdogs of the local Committee for the Defense of
the Revolution. "These days someone might kill you for your shoes."

*

Widening divide

Sending money to Cuba is uncomfortable as well.

The artist's son, a 41-year-old news producer with a wife and three
children, works with fellow exiles on South Florida airwaves, railing
against remittances and travel to Cuba, contending they keep a
dictator in power.

"I keep it to myself. If you get involved in discussions with
[exiles], it gets nasty," he said.

The artist's second cousin sends what money he can with friends
visiting the island.

"Sometimes you feel a little resentful, because it seems like the
people there are so needy and they don't understand how hard you have
to work here to make that money," said the 65-year-old retired
businessman.

Then the guilt sets in, fueled by reflection on the miserable
existence of those in Cuba who have no one to send them dollars.

Food at Cuba's official dollar stores costs as much or more as in Los
Angeles or Miami: $5.50 for 2 pounds of imported chicken parts from
Arkansas, $2.25 for a 16-ounce bag of U.S.-grown rice.

Consumer goods are often double or triple what they would sell for in
any U.S. city and are generally of lesser quality. A refrigerator of
indeterminate origin sells for 2,100 convertible pesos, a
Chinese-made hair dryer for 40.

Baby strollers cost the equivalent of $160, and their increasing
presence on the potholed roads and sidewalks of Havana testify to the
newfound buying power of those with relatives abroad.

Like increasing numbers of Cuban exiles in South Florida, the
artist's son and cousin believe their money is helping to widen the
social divide in Cuba. They hope that pressure hastens an end to the
Communist system, and they say Washington needs to lift its trade and
travel bans to help Cubans get an understanding of their system's
failures.

"The United States needs to lift the embargo and let us spend
whatever we want in Cuba. The people need to see us to understand
that there's more opportunity with a market economy," the cousin
said.

The struggle to earn dollars plays out daily in the streets and
hovels of Cuba's underclass.

Elderly women beg surreptitiously in the alcoves of Old Havana's
colonial churches. Mothers bring infants to tourist haunts on
weekends to ask foreign visitors for "one dollar," a name that still
sticks to the convertible peso. Any service or skill is sold on the
side, filling the need for plumbers, builders, hairdressers and
shoe-shiners.

Manicurist Mari Dominguez keeps the tools of her trade in a battered
shoe box under the sole chair in her one-room apartment: some cotton
batting, a shaved wooden stick, a nearly empty bottle of nail polish
remover and six bottles of colored lacquer so old the contents have
hardened into layers.

Her son Josef, 32, recruits customers from Old Plaza in Havana's
historic center where he works as a gardener. But few dollar-carrying
foreigners follow him through the maze of narrow streets and alleys
to his mother's salon.

Josef's father fled to Florida 26 years ago with more than 120,000
others during the Mariel exodus and has sporadically sent small
amounts of money home to his two adult sons. But Josef won a U.S.
visa in a lottery in the late 1990s and was recently informed he
could emigrate. His father promised to send the $1,000 his son needs
for a medical exam, a security check, a Cuban exit visa and a flight
to Miami

"I can help my mother better there than here," said Josef in passable
English. "I can do any kind of work. I'm strong and I want to be
successful."

"I don't want to leave Cuba but I must, because there is no
opportunity here."

*

carol.williams@xxxxxxxxxxx




________________________________________________
YOU MUST clip all extraneous text before replying to a message.
Send list submissions to: Marxism@xxxxxxxxxxxxxxxxxxx
Set your options at: http://lists.econ.utah.edu/mailman/listinfo/marxism