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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.

January 20, 2007|Carol J. Williams | Times Staff Writer

HAVANA — 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.

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