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HAVANA, Jun 9 2006 (IPS) - An increased tax on remittances sent to Cuba in dollars will bolster the flow of foreign exchange into state coffers, but will create further difficulties for the hundreds of thousands of families who are divided between Cuba and the United States.
“Supposedly, the increase is for the agency carrying out the money transfer. But it’s the customer who ends up paying,” a 45-year-old Cuban woman who lives abroad, and who spoke on condition of anonymity, told IPS. The Cuban authorities “know that they can continue to squeeze because we will continue sending money back.”
“Of course not everyone is able to,” she said in an e-mail message. “There are people who make a huge effort to send a bit of money every once in a while to their families in Cuba. And no matter how well off you are, no one wants to be losing money like this. You find yourself forced more and more to turn to illegal channels for helping your family, even though you don’t like to have to do that.”
The measure means in practice that a money transfer for 123 dollars will be converted in Cuba into 100 “convertible pesos” or CUCs, which were created in 1994 as a substitute for the U.S. dollar in internal transactions. Up to May 31, the ratio was 120 dollars:100 CUCs.
Two currencies are presently used as legal tender in Cuba: the regular peso and the CUC. The CUC was pegged to the dollar until October 2004, when the U.S. currency was removed from circulation on the island.
The new hike, or “margen comercial”, is a result of the fact that Cuba’s Central Bank now charges 23 dollars in fees instead of 20 for receiving a money transfer.
But the exchange rate could continue to rise as part of a Cuban policy to strengthen the CUC and in response to measures by Washington aimed at curbing to the utmost the Cuban government’s sources of foreign exchange.
The new increase coincided with an order by the U.S. administration of George W. Bush to close several travel and remittance agencies in the United States, including “La Perla del Caribe”, one of the most popular of the 250 agencies authorised to provide such services related to Cuba.
Inter-American Development Bank (IDB) expert Gregory Watson said at a Jun. 6 panel in Miami on the impact of remittances that it is more costly to send remittances from the United States to Cuba than to any other country in the region.
Total remittances to developing countries climbed from 58 billion dollars a year in 1995 to 167 billion dollars last year, according to a report presented this week by United Nations Secretary-General Kofi Annan.
The study also states that 191 million people were living outside of their countries of origin in 2005.
Around 1.5 million Cubans live overseas, including 1.3 million in the United States, according to Cuba’s Ministry of Foreign Relations. After the Cuban exile community in Miami, the largest groups of Cuban émigrés are found in Spain, where they total around 70,000, and Venezuela (50,000).
While at a global level, remittances are steadily increasing year by year, in Cuba the opposite has begun to occur, with the total shrinking from an estimated 1.26 billion dollars in 2004 to 1.17 billion dollars last year.
The Economic Commission for Latin America and the Caribbean (ECLAC) projects a further eight percent drop this year.
Local experts, in the meantime, say the purchasing power of U.S. dollars in Cuba has been reduced by around 30 percent since late 2004.
“My son used to send me 100 dollars every three or four months, and now, although he still sends the same amount, it is converted into 80 CUCs, which is spent even before I know it,” said architect Aurelia García, 47. “I would like to ask him for more, but he’s not doing that well either; he works nearly 16 hours a day to support his family.”
“My salary goes towards buying food in the farmers’ markets,” said García, who nevertheless considers herself among the privileged. “There are people who don’t have any family members or friends abroad, and they have to come up with some way to earn a few dollars. Now that would be a tough situation to be in.”
The options used to gain a few dollars by Cubans who have no source of remittances from abroad include self-employment, private family businesses, providing a variety of services to tourists, or more underground economic activities like selling a wide range of black market products, or prostitution (practiced by both women and men).
To cover their needs, Cuba’s 11.2 million people must turn to two totally different markets: one in pesos and the other in CUCs.
In the government exchange bureaux, a dollar trades for 0.92 CUC, on top of which a 10 percent fee is charged for the transaction. A CUC, in turn, trades for 24 pesos.
In Cuba, the average monthly income of a worker is 398 pesos.
According to ECLAC, the consumer price index rose 2.9 percent in 2004 and 4.2 percent in 2005.
Cubans receive their state salaries and pensions in regular pesos, which they use to buy a very limited range of subsidised rationed food items, or to purchase fresh produce in the farmers markets, where prices are governed by the law of supply and demand..
An average family of four dedicates 75 percent of their salary to basic food products sold at subsidised prices, which barely cover their minimum nutritional requirements.
The CUC, meanwhile, provides access to a much broader range of often essential goods, including food, clothing, footwear, and personal hygiene and household products – like powdered milk, cooking oil, shampoo or hair conditioner – in a chain of hard currency stores.
However, “most Cubans merely buy cooking oil, tomato paste and bar soap” in these stores, said an economist who preferred not to be identified.
“This limited range of products on their shopping lists is a reflection of the overall low level of income in hard currency, which barely covers basic needs,” he told IPS.
Although health care and education are free, and utility rates are extremely low, a survey conducted in Havana at the start of the decade found that a family of four would require seven times the average salary to meet all of their basic needs.
Government sources estimate that 60 percent of the Cuban population has access to dollars.
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