Working Paper # 15 Remittances To Cuba: An Evaluation of Cuban and us government Policy Measures Lorena Barberia September 2002 Abstract



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Working Paper # 15
Remittances To Cuba:

An Evaluation of Cuban

and US Government Policy Measures
Lorena Barberia
September 2002

Abstract


Since the commencement of hostilities between Cuba and the US in the early 1960s, both governments have repeatedly attempted to influence private family money transfers across borders. This study undertakes a retrospective assessment of Cuban and US government policy on remittances from 1959 to the present. Tracing policy shifts and targeted outcomes, the paper argues that (1) the aggregate flow of remittances and their uses are highly sensitive to macroeconomic, political, and institutional factors in Cuba, the receiving country, and are less sensitive to the policies imposed by the sending country, the United States; (2) Cuban government policy has been successful in attracting remittances and partially successful in channeling these flows toward the State-controlled economy; and (3) Cuban government policies are encouraging the use of these flows for consumption and less so for savings and direct investment.

Table of Contents




Working Paper # 15 i

Remittances To Cuba: i

An Evaluation of Cuban i

and US Government Policy Measures i

Abstract ii

Table of Contents 1

List of Abbreviations and Acronyms 2

I.Introduction 1

II.A Review of the Literature on Government Policy Directed at Remittances 2

III.Cuban Remittance Policy: From Prohibition to Leveraging 4

A. Prohibition 5

B. Rapprochement 7

C. Courting Remittances 10

1. The Development of a New Financial Architecture 12

2.The Liberalization of the Consumer Market 17

3. Fiscal Policy: Income and Sales Taxes 20

4. The Official Remittance Transfer System 21

5. Migration Policy 24



IV.US Policy: From Prohibition to Controlling 25

A. Prohibition 26

B. Partial Lifting on the Sending of Remittances 27

C. Attempts to Control and Cap Remittance Flows 28



V.Conclusion 32



List of Abbreviations and Acronyms




ATM

Automatic Teller Machine

BCC

Banco Central de Cuba

BFI

Banco Financiero Internacional

BNC

Banco Nacional de Cuba

BPA

Banco Popular de Ahorro

CADECA

Casas de Cambio S.A.

CACR

Cuban Assets and Control Regulations

CANF

Cuban-American National Foundation

CEEC

Center for the Study of the Cuban Economy

CIMEX

Corporación Cimex S.A.

COMECON

Council for Mutual Economic Cooperation

DACRE

Dirección de Asuntos de Cubanos Residentes en el Exterior

ECLAC

United Nations Economic Commission for Latin America

EIU

Economic Intelligence Unit

INIE

Instituto Nacional de Investigaciones Económicas

MINFAR

Ministry of the Revolutionary Armed Forces

LIBOR

London Interbank Offered Rate

MINREX

Ministry of Foreign Relations

OFAC

US Treasury Office of Foreign Assets Control

S.W.I.F.T.

Society for Worldwide Interbank Financial Telecommunication

TRD

Tiendas de Recuperación de Divisas


Remittances To Cuba: An Evaluation of Cuban and US Government Policy Measures1
Lorena Barberia2

  1. Introduction

In the 1990s, there were comprehensive changes in policy regulating the receipt and use of dollars in Cuba and a surge in the number of émigrés sending money to their friends and family on the island. Despite significant migration in the last four decades, the economic impact of remittances (the transfer of private income to other households) remained limited for Cuba until very recently. These flows are no longer insignificant. Indeed, today they comprise one of Cuba's largest sources of foreign currency earnings, as important as the country's export income and revenues from tourism.


In absolute terms remittances are as important for Cuba’s economy as they are for other countries in the Caribbean, roughly equivalent to those received by the Dominican Republic and twice as high as those received by Haiti. Indeed, a 1998 survey of Latin American immigrants’ remittance behavior found that the percentage of Cuban-Americans sending remittances is higher than Mexican-Americans and lower than Dominican-Americans.3
In a recent study on remittances and markets, Manuel Orozco (2000) argues that government actors play as crucial a role as do senders and recipients—the players most commonly studied. Orozco’s work draws attention to the importance of systematically studying the effect of government policy on remittance behavior. In the case of Cuba, both the migrant-sending and receiving governments have repeatedly attempted to influence remittance flows since the commencement of hostilities in the early 1960s.
Both governments initially blocked remittances. From the early 1960s until 1993, Cuba prohibited the circulation of foreign currency and limited receipt of remittances to in-kind transfers. The United States, the primary destination of Cuban émigrés for the last four decades, has periodically prohibited direct financial transfers to Cuba since imposing an embargo on Cuba in 1962. Over time both governments have relaxed their restrictions. Beginning in 1978 and more dramatically since the legalization of the dollar in 1993, the Cuban government has embarked upon a strategy to increase the flow of dollars being sent by émigrés via official channels. The US, which first legalized remittances in 1978, has since then attempted to cap the amount of private funds sent to the island, and from 1994 to 1998 banned the sending of private family transfers altogether.
Following early work to establish a conceptual framework for this study of remittances in the case of Cuba by Monreal (2000) and efforts to document US and Cuban government policy by Díaz Briquets and Pérez- López (1997), the aim of this study is to contribute to the remittance literature and to address the questions raised by case study evidence on remittances to Cuba by undertaking a retrospective assessment of Cuban and US government policy on remittances from 1959 to the present. Section II reviews the literature on the interaction between government policy and remittances. Section III tracks the policy measures introduced by the Cuban government—first to attract remittances, then to influence their domestic uses—and assesses how successful these have been. Section IV maps and evaluates the efficacy of the policies implemented by the United States governing remittance flows to Cuba.
The research material for this paper is based on both primary and secondary sources. Primary data are drawn from interviews conducted by the author during 2000 in the US and Cuba. As part of a collaborative research project on transnational ties, interviews were conducted by the author on a nonrandom snowball sample of 77 residents in Greater Miami Dade County, Florida and Greater Union City Hudson County, New Jersey and 28 residents in Havana, Cuba.4 In Havana, the author conducted interviews with 28 government officials, researchers, church officials, and/or industry-related representatives. In addition, 6 interviews were conducted with remittance firms in the US, Canada, Spain and the Caribbean. The field interviews with Cuban families on both sides of the Florida Straits, and in particular their references to the Cuban and US governments, were the initial impetus for this paper. Many respondents expressed distrust and fear about whether these interviews would go to “the Government.” Similarly, the interviews highlighted the difference between the private behavior of Cuban families and the practices officially permitted by both governments and how these both changed over time. Finally, secondary information including Cuban and US government policy documents, statistical data, as well as studies on migration, remittances, and the Cuban economy were analyzed.
Utilizing this data, this study argues that (1) the aggregate flow of remittances and their uses are highly sensitive to macroeconomic, political, and institutional factors in Cuba, the receiving country, and are less sensitive to the policies imposed by the sending country, the United States; (2) Cuban government policy has been successful in attracting remittances and partially successful in channeling these flows toward the State-controlled economy; and (3) Cuban government policies are encouraging use of these flows for consumption and less so for savings and direct investment.


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