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

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B. Rapprochement

From 1979 to the early 1990s, the Cuban government initiated a strategy to re-establish relations with the émigré community, and government policy toward remittances also shifted. Cuba's policy stance toward remittances during this period can be characterized as being more receptive, but still highly restrictive. During this second stage, significant policy reforms that encouraged remittance flows included a liberalization of émigré travel policies, the opening of foreign currency stores, and introduction of financial transfers. Most importantly, Cuba instituted policies in a way that would attract remittances and ensure that they would be channeled toward the official economy.

By 1980, the number of Cubans residing in the US had reached more than 600,000, or approximately 6.3% of the island's domestic population (see Table 1). In speeches by Cuban government officials, including President Fidel Castro, Cubans living in the US, who had previously been stigmatized as gusanos, were now referred as members of the "community" (Martín and Pérez 1997:89). Political discourse not only shifted, so did government policy.

The Cuban government removed its categorical prohibition on family visits during the December 1978 Dialogue talks between the Cuban government and Cuban émigrés.15 For the first time, émigrés were allowed to visit their families for two-week periods, provided they stay in State-run hotels charged in US dollars. From 1979 to 1982, an estimated 150,000 Cuban-Americans made the journey (Marazul 2000). Despite moves to improve relations with Cubans living abroad, Cuba's migration policy, however, remained unchanged—migration was considered permanent.

Following this policy change, family visits became a primary vehicle for channeling private financial transfers to families. Remittances, however, were mostly in-kind. Emigrés were permitted to bring goods such as televisions, stereos, and other appliances with them as part of their luggage. A 1979 article in the Miami Herald estimates that over $150 million were transferred by April 1979 (Garcia 1996:52). During their stay, Cuban émigrés also brought cash remittances for their families. With dollar transactions illegal for Cuban domestic residents, recipient households had limited options for spending these resources themselves. Visiting émigrés, however, were allowed to purchase luxuries as well as necessities for their island families during their visits in Cuban foreign currency stores.16 These stores, known as diplotiendas and tecnotiendas, had first been opened to sell foreign diplomats a wide range of imported goods, as well as fresh and canned foods. Ordinary Cuban citizens were rarely authorized to purchase commodities in these stores.17 Thus, visiting émigrés converted their US dollars in diplotiendas.
As a part of normalization of émigré relations, mechanisms for receiving cash transfers from abroad were also introduced. Through the Banco Nacional de Cuba (BNC), Cuban citizens were allowed to receive foreign currency transfers from private parties abroad. The only restriction on receipts was that remittances had to be converted into Cuban pesos at the official one Cuban peso per US dollar exchange rate (Pérez López 1995:50). When a relative received a transfer from abroad, the BNC issued the recipient a transfer certificate that could be used only for purchases at state-operated foreign currency stores.
Despite significant policy shifts, the flow of remittances to Cuba from 1979 to the early 1990s remained limited for five reasons. First, regulations prohibiting the circulation of dollars deterred cash transfers to Cuban families on the island. While the Cuban government relaxed its restrictions on family visits, it tightened the penalties associated with holding foreign currency by codifying the penalties associated with these operations into the nation's criminal code. In 1978, the National Assembly approved a comprehensive criminal code that became effective on November 1, 1979. 18 Section 1 of Article 282 in the Cuban penal code prohibited the exporting of foreign currency, obtaining foreign currency balances in excess of needs, the selling, transferring or buying of foreign currencies, travelers checks, money orders or other instruments denominated in foreign currencies. 19 Individuals violating these laws were subject to incarceration for between one to eight years. Section 2 of article 282 prohibited the holding of foreign currencies or securities and the engagement in financial transactions outside Cuba either personally or through an intermediary. Individuals found to be holding dollars could be incarcerated for between six months and three years, as well as fined between 200 and 500 pesos.
Second, remittance sending depended primarily on those who were traveling to the island. The proportion of Cuban émigrés returning to visit their families diminished significantly as a result of the re-introduction of travel restrictions by both the US and Cuban governments in the early 1980s. Cuban government officials charged that the massive return of émigrés in 1979 incited the unrest that led over 10,000 Cubans to occupy the Peruvian embassy and eventually steered Castro into opening the Mariel port to 125,000 Cubans who left the island. It was Cuban-American/Cuban contact and gifts for recipient families, Cuban officials rationalized, that stirred islander discontent. Scholars also articulated this hypothesis, explaining that the incursion of émigré culture and American goods amounted to Cuba’s "Blue Jean Revolution" (Martín and Pérez 1997:52). In response, Havana limited émigré entry, in terms of visitation and correspondence, to prevent “another Mariel.” In 1985 Castro suspended family visits altogether until 1986 in retaliation for the Radio Martí broadcasts. When émigré visits were once again allowed, the number of visitors was capped at 2,500 per year until 1987 and then 5,000 per year until the early 1990s (Marazul 2000).
Third, Cubans on both sides had mixed reactions to the exchange of cash and goods after two decades of separation. The case of a Havana resident interviewed for this study is illustrative of the ideological conflicts experienced during these re-encounters and the struggle some felt when faced by their returning family's in-kind and cash gifts. Pedro20 was an eight-year old boy from a middle-class family in the Vedado neighborhood when Fidel Castro took power on January 1st, 1960. In the subsequent decades, Pedro rose to become a loyal Communist Party member with a prominent government position that included travel to foreign countries. Pedro remembers receiving packages from his aunts and his nanny, both of whom had left Cuba in 1960 and established themselves in Miami by the late 1970s:
When the packages started arriving, I was in my late 20s. I remember thinking "Who do they think we are?” My aunts did not come to visit, even though we had not seen them in nearly 20 years. Instead, they sent packages with the most basic items such as Colgate toothpaste and brand-name shampoo to my mother and their sister, a middle-class housewife with no formal affiliation to the Communist Party or the neighborhood mass organization unit. I was outraged by their lack of understanding. It seemed like an attempt to “colonize” those of us who had remained in Cuba. We didn't fight a revolution for Colgate toothpaste; we fought for more important rights. Moreover, they would never send personal letters telling us about their lives or asking us about ours in Cuba. Eventually, we lost ties with these family members and our relations never warmed.
Fourth, Cuban families’ basic needs were largely satisfied, and private investment opportunities were limited to the black market. Cuba had experienced an economic boom with 8.2% annual average per capita growth rates between 1970 and 1974 (Madrid-Aris 1997:217). Although trends were slowing down as a result of a short-term recession and the foreign debt crisis that hit the island's economy in 1976 when world market sugar prices plummeted, the Cuban economy continued to remain dynamic in terms of its macroeconomic indicators.21 For example, industrial and agricultural output improved, leading Cuba to experience 5.1% annual average per capita growth rates from 1980 to 1984 (ibid). The Cuban government had also initiated several market opening reforms, including the implementation of major wage reform in 1980 [the first since 1963] and the liberalization of private economic activity in the agricultural and State sectors of the economy. As a result, recipient families were not experiencing shortages caused by a severe economic contraction in the early 1990s.
The fifth reason for low remittance volumes, which is further developed in section IV of this paper, is related to US policy. Since the US embargo prohibited direct commerce between US and Cuban banking institutions, Cuban-American émigrés who wanted to send remittances had to utilize alternative third country remittance system routes. In the late 1970s and early 1980s the most common mechanisms for third country transfers were via money orders and money transmissions through non-bank financial institutions, mechanisms that Cuba had not developed with other Western economies.
Thus, remittance activity increased moderately during the second stage from 1979 to 1992. Funds were either carried directly by visiting émigrés or sent with those who were traveling to the island. However, private family transfers remained minimal in the 1980s. Under a situation in which holding dollars was illegal and there were limited channels for converting or spending these resources, migrants transferred minimal amounts of currency and goods to their island relatives.

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