Less Dollars, More Control

As of November 8, 2004, U.S. currency is no longer legal tender in Cuba. Alleging that “the U.S. government has intensified its economic war on the people of Cuba,”(1) the Castro regime’s latest decree has abruptly reversed what many had seen as the irreversible “dollarization” of the Cuban economy since 1993, the year in which Havana legalized the possession and widespread use of U.S. currency in the island.

In addition to imposing the Cuban convertible peso as the sole legal tender currency for all domestic cash transactions, “Resolution 80,” issued by the Central Bank of Cuba on 23 October 2004, introduced a number of new regulations and restrictions affecting Cuban nationals as well as foreigners.(2) While the Cuban convertible peso will continue to be exchanged at parity (1:1) with the U.S. dollar, as of November 15 a ten-percent surcharge will be levied on the purchase or exchange of U.S. dollars. For the time being, the surcharge will not apply to the purchase or exchange of euros, Canadian dollars, British pounds sterling, and Swiss francs. Likewise, credit card transactions, including those backed by American banks, are exempt from the ten-percent fee.

The new rules also restrict the hard currency transactions of foreigners in Cuba. Thus, cash deposits in U.S. dollars are no longer accepted into bank accounts “maintained by trading associations based on joint or foreign capital, and foreign representations in Cuba, including diplomatic ones.”(3)

As the restriction on the cash transactions of “foreign representations” in the island indicates, one of the political motives behind the new measure is to impede the U.S. Interests Section in Havana, European embassies, or any other would-be promoters of democracy in Cuba from providing financial assistance to dissidents, human rights activists, independent journalists, and others trying to build a free civil society from within Castro’s totalitarian regime. By preventing any foreign aid from reaching members of the opposition movement, Castro may yet succeed in his intention to asphyxiate critics of his regime “like fish in an empty fish tank,” as he threatened to do in a November 2002 speech.(4)

ULTERIOR MOTIVES

The Cuban government’s determination to “de-dollarize” the economy transcends monetary or even broadly economic considerations. The myth that economics dictates politics does not apply when it comes to Fidel Castro’s island. The Central Bank of Cuba’s resolution is the latest in a series of carefully devised measures aimed at centralizing political and economic control. It effectively curtails what little economic freedom the Castro regime had ceded to the Cuban people during the so-called “Special Period” of the 1990s. Having weathered the worst of the post-Soviet years, Castro is no longer in fear of an economic implosion, at least not as long as European and Canadian tourists continue to leave their euros and (Canadian) dollars in the island. Moreover, with Venezuelan protégé Hugo Chávez funneling as much as 78,000 barrels per day of “subsidized” (i.e., gratis) oil to Cuba (5), and comrade Hu Jintao arriving in Havana later this month to “enhance cooperation in biotechnology, telecommunications, mining, and petroleum,”(6) Castro gets by with a little help from his friends.

By contrast, Castro is concerned with achieving an absolute centralization of power in order to ensure an orderly succession when the time comes for el Comandante to permanently exit the stage. To that end, the Cuban government has taken a number of steps to maximize its political and economic control over the Cuban people as well as over foreigners doing business in, or with, the island:

· July 2003: Cuba’s Central Bank decreed that the island’s 5,000 state-owned enterprises relinquish their U.S. dollar holdings in exchange for convertible pesos, thenceforth the sole legal tender currency for all domestic business-to-business transactions. For the 400 state-owned enterprises importing merchandise, international transactions of more than US$5,000 (five thousand) dollars thereafter required case-by-case authorization from the central bank. (7)

· March 2004: Cuba’s Ministry of Labor issued a decree, effective October 2004, removing 40 occupations from the official list of authorized jobs for the self-employed. The legally self-employed in Cuba number about 150,000, a mere 2 (two) percent of the labor force and down from over 200,000 in the mid-to-late 1990s. The government continues to grant two-year self-employment licenses for 118 occupations, but the self-employed are routinely harassed and not allowed to compete with state-owned enterprises, particularly in offering goods or services to tourists. (8)

· April 2004: The Cuban government revoked the right of most of the 400 state-owned enterprises previously authorized to directly import merchandise. (9)

· May 2004: The Cuban government abruptly announced that it would close down the island’s entire state-owned foreign-currency retail sector (so-called “dollar stores”), provoking a one-day rush to buy essential products not otherwise available and generating a substantial infusion of cash (U.S. dollars) for the regime’s coffers. Upon reopening two weeks later, the government raised prices on most goods by an average of 15 percent. (10)

· November 2004: Cuban Vice President Carlos Lage disclosed that foreign companies operating autonomously in “free-trade zones” would have to either form a joint venture with a Cuban state-owned enterprise or leave the island. (11)

EFFECTS OF THE NEW MEASURE

Castro has driven a record number of Cubans – some 700,000 in the first week alone, according to Cuban government figures -- to exchange their dólares for newly-printed Cuban convertible pesos, colloquially referred to as chavitos.(12) Those who have not wanted to turn in all their U.S. dollars for what they perceive as the equivalent of “Monopoly” money have instead opted to exchange greenbacks for euros. As one Havana resident explained, “I traded everything I had for euros. I don’t know if it was a good thing to do, but I feel safer.” Others, particularly those who had legally or otherwise amassed large sums and even small fortunes by the island’s standards [where the average state salary, paid in ordinary non-convertible Cuban pesos, is equivalent to US$12 a month], have opened new U.S. dollar-denominated bank accounts in a rush to avoid the looming 10-percent surcharge on dollar transactions. (13)

According to Francisco Soberón, Minister-President of the Central Bank of Cuba, “A lot of people are opening accounts in important amounts of money. We didn’t know how much people were saving under their mattresses.”(14) While the Cuban government has not released any figures on how many dollars it has actually taken out of circulation, one European banker estimated the total amount coerced from the Cuban people in the first two weeks alone at about US$200 million. (15)

For the Cuban government, the rapid influx of hundreds of millions of U.S. dollars will, at least in the short-term, more than compensate for any losses incurred due to reduced remittances from, and travel to the island by, Cuban-Americans. For the average Cuban struggling to make ends meet, the “de-dollarization” of the economy will likely further increase the cost of living. Indeed, quasi-independent farmers (those who have been allowed to sell their surplus at market prices after fulfilling production quotas for the state) have already raised prices for beans, rice, yucca, and other staples of the Cuban diet by as much as 20 percent.(16) Ultimately, the Castro regime’s intricate web of disincentives and restrictions on the use and possession of foreign currency will, as intended, keep the beleaguered people of Cuba imprisoned within the confines of what was already one of the world’s most economically repressed societies.(17)

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Notes

1. From the opening paragraph of "Resolution No. 80/2004," Central Bank of Cuba, 23 October 2004, official English version [http://www.granma.cu/ingles/2004/octubre.../44resol-i.html].

2. For the complete original Spanish text of the decree, see "RESOLUCIÓN No. 80/ 2004," Granma, 26 Oct 2004, [http://www.granma.cubaweb.cu/2004/10/26/...articulo06.html].

3. Cf. Resolution 80, IV, Article 11.

4. Cf. "Fidel Castro: Regime Invulnerable, No Oxygen for Dissidents," Cuba Focus, Issue 28, (November 4, 2002), [http://ctp.iccas.miami.edu/FOCUS_Web/Issue28.htm].

5. Cf. "Castro's Venezuelan Bonanza," Cuba Focus, Issue 54, (April 20, 2004), [http://ctp.iccas.miami.edu/FOCUS_Web/Issue54.htm].

6. Cf. Xinhuanet, "Latin American Ambassadors on President Hu's upcoming tour," Beijing, November 8, 2004, [http://news.xinhuanet.com/english/2004-1...ent_2192689.htm]. On the Sino-Cuban strategic alliance, cf. "Crouching Tiger, Hidden Dragon: China in Cuba," Cuba Focus, Issue 58, (September 7, 2004).

7. Cf. Marc Frank, "Cuba sets rules on dollar use by state companies," Reuters, Havana, July 21, 2003; "Cuba forex controls have business sector in uproar," Havana, Reuters, 3 Aug 2004.

8. Cf. Andrea Rodriguez, "Cuba freezes some licenses in move to cut private jobs," The Associated Press, Havana, 6 May 2004; "Small business just got smaller," The Economist, October 14, 2004.

9. Cf. Marc Frank, "Communist Cuba Reins in Capitalist Enterprise," Reuters, Havana, April 13, 2004.

10. Cf. "Anuncia el Gobierno de Cuba medidas inmediatas en respuesta a las acciones agresivas de la administración de Bush," Granma, 11 May 2004 [http://www.granma.cubaweb.cu/2004/05/11/...articulo05.html]; Anita Snow, "U.S.-dollar stores reopen in Cuba with higher prices," Havana, The Associated Press, 25 May 2004.

11. Cf. Fernando Ravsberg, "Cuba: adiós a las zonas francas," Havana, BBC, November 1, 2004, [http://news.bbc.co.uk/hi/spanish/latin_a...000/3973445.stm].

12. Cf. Anita Snow, "Cuba Looks to Save Peso from Devaluation," Havana, The Associated Press, 2 November 2004.

13. Cf. Dalia Acosta, "To Sell or Not to Sell," Havana, Inter Press Sercive (IPS), 2 November 2004, [http://www.ipsnews.net/africa/interna.asp?idnews=26111].

14. Quoted in Anita Snow, "Cuba Looks to Save Peso from Devaluation," note 12 above.

15. Cf. Anthony Boadle, "Nervous Cubans sawp Yankee dollars for pesos," Reuters, Havana, October 28, 2004.

16. Cf. "El negocio va viento en popa," Cubanacan Press/CubaNet, Santa Clara (Cuba), November 8, 2004, [http://www.cubanet.org/CNews/y04/nov04/08a6.htm].

17. Cf. The Heritage Foundation/The Wall Street Journal, Index of Economic Freedom (2004 edition), [http://www.heritage.org/research/feature.../countries.html]. For the detailed profile, see:[http://cf.heritage.org/index2004test/country2.cfm?id=Cuba].

Staff Report, Institute for Cuban and Cuban-American Studies, University of Miami