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

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C.Courting Remittances

In the 1990s, Cuba comprehensively shifted its policies to increase and channel the flow of remittances into the official economy. Spurred by a severe contraction in the Cuban economy caused by the abrupt collapse of Soviet aid and trade in 1989, this third stage would prove to be the most far-reaching. The fundamental shift in policy aimed at attracting remittances is best understood within the context of the factors that contributed to the economy’s collapse and the constraints faced by the Cuban government, which limited the government’s policy options.
The onset of the crisis was sparked by the collapse of Cuba's external trade, which by the late 1980s had become concentrated with its trade partners in the Soviet Union, Eastern Europe and China. By 1989, over 80% of Cuba’s trade was with its COMECON partners. Cuba had become highly dependent on imports for basic necessities and primary inputs in industrial production, such as food and fuel. Moreover, with the collapse of Soviet aid, international financing for these costly imports was limited to short-term, costly international borrowing options. As Table 2 indicates, exports decreased from nearly $6 billion in 1989 to under $2 billion by 1993—a 67% decrease in three years. In the same period, Cuba's imports decreased by 73%. As a result of this precipitous shock, the Cuban economy’s gross national product shrank by more than 32% between 1990 and 1993.
The crisis then magnified and reverberated in the domestic economy. In the face of continuous declines in production and supply, the prices of dollars and goods in the black market, as well as excess peso circulation, all surged. The black-market peso-dollar exchange rate depreciated at an accelerating rate. At the start of the crisis in 1989, the black-market rate was 7 Cuban pesos per US dollar. By June 1993, Cuban consumers were exchanging 165 pesos for one US dollar (ECLAC 1997:127). Household consumption declined by 33% between 1989 and 1993 (ECLAC 2000:44) As the crisis intensified, dollars and in-kind transfers from émigrés flowed into the economy illegally and unofficially. For example, ECLAC (2000) estimates that roughly $311 million in net transfers entered Cuba between 1990 and 1993.

Recognizing that Cuba had entered a “special period", the Castro Administration adopted stabilization measures to restore fiscal and external balances. Based on an export and foreign direct investment driven growth strategy, the government sought to promote traditional primary commodity exports, such as sugar, nickel, and tobacco, as well as tourism. As part of its macroeconomic stabilization strategy, the government initiated a series of reforms. Beginning with the legalization of the US dollar in 1993, Cuba then developed a coherent plan to maximize the State’s capture of these resources, the majority of which derived from tourism and remittances.22 Indeed, from the onset, President Fidel Castro explained that the intent was not only to "legitimize, but to ensure that [the Cuban government] captures a percentage, through commerce, of these dollars, so that as [Vice President] Lage explained, they can be used to benefit the population as a whole."23
During the 1990s, the change in Cuba’s remittance policy took place in three phases, with each wave of reforms furthering the State’s channeling of these resources into the official economy. Significant shifts were first undertaken in monetary policy. These policies were expanded with a second wave of reforms targeted at increasing the flow of remittances through official channels by the augmentation of consumer spending and investment options in the economy. In a third wave, official remittance transfers schemes were introduced, and return migration was permitted for the first time.

1. The Development of a New Financial Architecture

The legalization of dollar circulation and operation in the domestic economy was the first step in Cuba’s monetary policy reform.24 Fidel Castro announced the de-penalization of foreign currency holding during his July 26, 1993 speech celebrating the anniversary of the Moncada Barracks uprising. During his speech, Castro specifically cited the government's desire to increase the flow of remittances as a critical component in its decision to de-penalize foreign currency operations:
We must increase our income in convertible foreign exchange… Transfers or remittances of money from abroad is an extremely important source of convertible currency in the country, one of the sources that exist in the country and it circulates in the country—or, to say it better, it is in the people's hands. A system was established for some time: money could be spent in foreign currency and it was collected in dollars in Cuba, but in a special period situation … the peso loses a lot of its value and then no one sends foreign currency to be exchanged for pesos. Other means are sought to send them [dollars]. They enter the country practically in a clandestine way…25 This is a source of foreign exchange… the idea is that it is no longer a crime to hold foreign currency, to exchange currency that is held, or even to open accounts in foreign currency.26
The legalization of the dollar was an important first step because it sanctioned significant flows that had spontaneously begun to increase in response to the crisis. After Castro's July 1993 announcement, both the Cuban Peso and the US Dollar were allowed to circulate freely in the domestic Cuban economy.27 Cubans could utilize dollars for their purchases in the State’s diplotiendas and in the black market.
Table 2, above, summarizes Cuba’s foreign currency earnings and obligations between 1989 and 2000. The data, compiled by ECLAC’s Mexico office in their comprehensive study of the Cuban economy in consultation with Cuba’s Central Bank and Ministry of Finance, clearly shows an increase in remittances in response to the government's decision to legalize the dollar in 1993. International balance of payments statistics include remittances in estimates of net transfers. Cuba follows a similar methodology, reporting remittances in its balance of payments statistics. The overall volume of remittances is calculated as "the turnover of dollar shops minus dollar earnings accounted for by official payment of dollars (mainly through incentive schemes)” (Morris 2000). Since these figures are based on an assumption that the majority of remittances are spent by consumers in the State’s dollar stores, they are only rough estimates and should be interpreted with caution. Throughout, this study refers to remittances and private transfers interchangeably and uses official data as a benchmark, noting the aforementioned measurement problems and biases. Net transfers, which are almost exclusively remittances, surged with legalization, increasing from $43 million in 1992 to $470 million by 1994, the year after the legalization of the dollar.
While effective in legitimizing and attracting remittance flows to the island, the legalization of dollar holding and circulation soon began to undermine the government's ability to effectively manage its monetary policy and its distribution of resources. Because the State paid all wages and salaries for the overwhelming majority of the population in Cuban pesos, exchange rate stabilization was key to giving peso earners greater buying power in the unofficial economy. Yet, the government had little, if any, control over the unofficial black market exchange rate. Further, the primary mechanism whereby the government could appreciate the Cuban peso’s unofficial exchange rate in the domestic black market, which was by selling dollars the Government itself was trying to obtain for international purchases, ran in opposition to its external balancing needs. The Cuban government therefore had to reconcile domestic needs with its ability to finance the trade deficit and foreign borrowing.

a. The Convertible Peso and the Exchange Rate

By 1995, the Cuban government introduced a solution to these countervailing pressures. The government created domestic convertibility through the introduction of an extra-official exchange rate between Cuban pesos and US dollars and a domestically “convertible peso” that would replace the need for the US dollar in commercial transactions. 28 Concurrent with these measures, the Cuban government opened dollar exchange bureaus, Casas de Cambio S.A. (CADECA), where US dollars could be exchanged for convertible pesos at a one to one exchange rate and Cuban pesos at a fluctuating exchange rate. 29

The Central Bank of Cuba issued “convertible pesos”, which were promissory notes equivalent to legal tender for domestic transactions in US dollars and backed 100% by dollar reserves. An extra official exchange rate was introduced by CADECA to allow dollars to be sold for Cuban pesos. Both of these measures gave the Cuban government an enhanced ability to collect scarce dollars in circulation by exchanging them for legal notes and Cuban pesos. The reverse transactions, whereby Cubans would be allowed to purchase dollars with their Cuban pesos, were initially not allowed and when the policy was liberalized in the late 1990s, a cap of $100 was established.
The monetary reforms undertaken in 1995 were confidence-building measures designed to increase consumer confidence in the value of the Cuban peso and its use in domestic transactions, while permitting the government to capture foreign currency in circulation. By December 1995, the Cuban government had opened 16 exchange offices. By 1999, there were 77 CADECA money exchanges operating. According to estimates published by the Center for the Study of the Cuban Economy (CEEC 1997), CADECA collected $10 million emitting a portion of convertible pesos and Cuban pesos equivalent to 225 million pesos in 1996. ECLAC (2000:170) estimates that CADECA are now collecting an average of $20 million annually.
In analyzing these flows, it is important to note that dollar earnings from sectors such as tourism and small-scale enterprise economic activity might be the sources for a portion of these exchange volumes. 30 Nevertheless, a significant portion of this total derives from remittance recipients. With these qualifications in mind, the evidence suggests that in comparison to net transfers, the policy of introducing exchange bureaus has provided the State with a partially effective means for capturing a relatively minor portion of remittance flows.
Another way that the State profited from these monetary reforms was through seigniorage, commonly defined as the gains derived from the issuing of new monies. 31 The convertible peso was an effective means for the government to increase its borrowing capabilities, exchanging foreign currency for Cuban government paper with a promise that the paper had value equivalent to that of the dollars being collected. Based on these foreign currency earnings, the Central Bank engaged in seigniorage by making short-term loans to government enterprises and private borrowers with interest rates based on LIBOR32 points at 90-day terms; ECLAC (1997:132) estimates that through this mechanism, the Cuban government is able to gain 1% on dollar circulation.
Finally, the introduction of domestic convertibility stabilized exchange rates. As Table 3 shows, the Cuban peso continued to depreciate against the dollar until 1994. Once monetary reforms were implemented, the peso began to appreciate. After a 66% appreciation 1995, the peso continued to appreciate against the dollar at an average annual rate of 6% per year until 2000.

Moreover, Cuba’s Minister of Economics and Planning, José Luis Rodríguez, attested to the positive effect remittance flows had on the extra official exchange rate in a January 1999 interview. When questioned about the size and magnitude of these flows in 1998, Rodríguez responded that in his opinion the decrease in the exchange rate from 25 to 20 pesos to the dollar was the most effective proof that remittances had not declined during the year in question (INIE 1999).

b. Banking Reforms

Complementing the de-penalization of dollar holding and reforms in monetary policy, the Cuban banking system was reformed to attract remittance flows by diversifying financial banking instruments and improving trans-national transfer mechanisms. The net effect of these reforms has been to improve the banking and financial infrastructure to ensure that foreign currency transactions, including remittances, are rapid and transparent.

First, Cubans were permitted to open checking and interest-bearing savings accounts. By December 1995, 2,508 savings accounts had been opened and total deposits were equivalent to $4.4 million.33 One year later, the number of interest-bearing dollar savings accounts had grown to 4,500, and total deposits equaled $9.5 million. Two years later, the number of accounts had grown five-fold. According to the US-Cuba Trade and Economic Council, Inc. (2000a), personal US dollar-denominated deposits were estimated at $50 million in 1998. Confirming this trend, Francisco Soberón, President of the Central Bank of the Republic of Cuba, reported at the end of December 1999 that greater confidence in the banking system had resulted in a 57% increase in US-denominated deposits during that calendar year. As is the case with CADECA, however, the proportion of dollars brought in through this mechanism remained relatively minor.
Second, the State diversified its banking system by creating new State-owned banks and permitting foreign banks to open branches in Cuba. The Banco Nacional de Cuba had been the only banking entity allowed to operate from 1960 to 1984. In the late 1980s, Cuba opened its banking sector and allowed newly created State-owned commercial banks to enter the financial market.34 By 1998, there were at least three new Cuban banks in the financial market—the Banco Internacional de Comercio created in 1994, the Banco Metropolitano S.A. created in 1996, and Banco de Crédito y Comercio created in 1997. These banks, licensed to operate in Cuban pesos and convertible currencies, were created principally in order to increase and modernize banking services for Cubans and foreigners operating commercial transactions in US dollars. Moreover, State-owned banks have modernized themselves, installing ATMs and introducing debit cards in order to promote deposits in foreign currency.
In addition, foreign-owned banks such as the Dutch-owned ING Barings and the Spanish-owned Banco de Sabadell have representative offices in Havana, and Caja Madrid, a Spanish savings bank, has opened a non-bank financial institution joint-venture with Cuba’s Banco Popular de Ahorro (BPA)(Robinson: 2002). In May 1997, with Law No. 172, the government undertook further reform by dividing the Banco Nacional de Cuba (BNC). The Banco Nacional de Cuba was split into a regulatory central bank, the Banco Central de Cuba (BCC), and a commercial bank, which retained the bank’s original name, BNC. A regulatory structure for commercial banks and non-bank financial institutions was adopted with Law No.173.
Third, Cuba undertook reforms to link its banking and financial institutions directly to international capital markets: In 1990, Cuba joined S.W.I.F.T., a global bank-owned cooperative supplying secure messaging services and interface software that links 6,766 financial institutions (banks, brokers, investment managers, securities depositories and clearing organizations, and stock exchanges) in 189 countries (including the United States). 35,36 Since then, the government has also authorized new entities to use S.W.I.F.T. For example, the eight State-owned Cuban banks, the Banco Central de Cuba, Banco Financiero Internacional, S.A., Banco Internacional de Comercio S.A., Banco de Crédito y Comercio, Banco Popular de Ahorro, Banco Metropolitano S.A., Banco Nacional de Cuba, and Banco Exterior de Cuba, all use S.W.I.F.T. for commercial banking transactions.37

  1. The Liberalization of the Consumer Market

The development of the financial architecture was a necessary and effective first step toward ensuring that private family transfers from abroad would be funneled into the formal economy. Following these efforts, Cuba developed a second wave of reforms targeting consumers. Measures included the creation of spending and investment options at the consumer or household level. Since 1994, the State has developed so-called “dollar stores” and agricultural markets where families can purchase food and household goods. Similarly, the opening of private sector self-employment and housing provides new, albeit limited, investment options for remittance recipients. Cuban tax policy has also been modified to extract earnings from remittance flows, albeit indirectly. When the government introduced the first post-revolutionary income tax system in 1994, remittances were the only dollar earnings that were not taxed. Ad valorem duties in dollar stores and agriculture markets have proven to be effective instruments for indirectly taxing remittance recipients. These policies leverage remittances, while avoiding direct policies that would be disincentives to senders and recipients.

a. Consumer Spending: Dollar Stores and Agriculture Markets

Following the legalization of the dollar in 1993, Cuba revamped foreign currency stores, which had been in operation since the late 1970s, opening them to Cuban consumers. It did so by diversifying the number of stores and state enterprises operating dollar stores, by increasing the stock of Cuban household goods, and by linking these stores to the new financial architecture that was being developed.

As these stores operate in dollars, the majority of consumers using them are those employed in tourism and especially remittance recipients. Cuba diversified ownership and expanded store operation nationwide through various Cuban state enterprises, including firms such as Cimex, TRD-Caribe, Cubalse, and Caracol, each of which owns a particular dollar store chain. For example, the “Tiendas de Recuperación de Divisas” (TRD) stores are owned by TRD Caribe, part of the Ministry of the Revolutionary Armed Forces’ (MINFAR’s) Financial Division. By 2000, this chain had opened over 400 TRD stores throughout the island.38
In addition, the stock of goods has changed to better meet consumer needs and preferences.39 Whereas initially, dollar stores were targeted to foreign tourists and contained luxury items, today they contain a vast array of basic food items, such as eggs, proteins, milk and coffee—goods that are no longer available in sufficient quantity through the State-rationed libreta. These well-supplied stores also sell processed foods, such as tomato paste, cooking oil, and fruit juice—goods that are available only in these stores. Finally, some stores also contain sections with clothing, consumer electronics—fans, televisions, air-conditioners—and beauty supplies.
art of the strategy to cater to consumers has included shifting toward more efficient local suppliers. State enterprises have increased the proportion of domestically produced goods sold in dollar stores. Table 4 presents a summary of total annual dollar store sales from 1993 to 2000, as well as the proportion of these sales that can be attributed to domestic production. In 2000, 48% of goods sold by dollar stores were manufactured in Cuba. Cuban food processing and light manufacturing industries, for example, grossed $137 million and $200 million respectively by 2000 (EIU 2001:22).

Dollar stores have introduced modernized payment systems, facilitating the link between receiving remittances and consumer spending. Cuban consumers visiting some dollar stores can conveniently use their Transcard electronic debit cards. Western Union has also located its offices in CIMEX-operated dollar stores. Consumers can pick up remittances sent by a relative at the Western Union desk and seamlessly proceed to purchase a range of commodities from basic household items to nonessentials.

Liberalized in 1994, the purpose of agricultural markets has been to increase the supply, diversity, and availability of food for Cuban households. By 1999, food spending in these markets represented approximately 10% of household expenditures (Peters 2000:13). The majority of sales in agricultural markets go to private farmers, cooperatives, State farms, and intermediaries. However, here too, the State has introduced measures to capture earnings. Similar to the strategy of locating Western Union and CADECA bureaus within or alongside dollar stores, CADECA bureaus have been conveniently located within agriculture markets. However, unlike dollar stores, agricultural markets are required to operate in Cuban pesos.
As mentioned in the previous section, exchange bureaus placed in agriculture markets have been only partially successful in attracting dollars. The strategy to encourage remittance flows through dollar stores, on the other hand, has proven highly successful in several terms. First, dollar stores are sources of State financing. State enterprises operating dollar stores charge an average 240% markup on goods. A small proportion of this markup is reinvested within the State enterprise to finance production and operations. The majority of revenue extracted from dollar store markups is directed toward the State budget. Second, the significance of the magnitudes of dollar store sales relative to Cuba’s balance of payments is striking. By 2000, gross annual sales in dollar stores were $1,250 million in comparison to $850 million in net transfers. Finally, the shift to domestic, and mostly State-owned, suppliers has reduced the State’s need to finance costly imports, which have to be paid in foreign currency.

b. Investment Options: Formal and Informal Assets

Whereas Cuban government policy has liberalized options for consumer saving and spending that indirectly tap into remittance flows, policies to liberalize small-scale “self-employed” business activity and housing, two common uses of remittances cited in the international literature, have remained limited. The restrictions on private investment are consistent with the State's strategy to limit the productive uses of remittances outside the State sphere of the economy.
Starting in 1993, the Cuban government authorized self-employment and liberalized the small-scale transportation and service sectors of the economy, which require comparatively lower start-up costs and levels of investment.40 Since then, roughly 3% of the Cuban labor force has maintained licenses to work as cuenta propistas, or self-employed workers with private businesses in 170 different occupations. Small-scale private business activity in university-trained professions and in the manufacturing and industrial spheres of the economy were not liberalized.

Several policies have been introduced to limit the growth of the self-employed sector. Workers in these mostly service sector firms must be family members. Self-employed business operators are required to obtain their supplies from State distributors or to prove that the goods were obtained from officially registered, tax paying suppliers. Despite these restrictions, there are reasons to presume that remittance flows have entered the private sphere of the economy. Many of these activities, such as paladares or family restaurants, have required significant start-up capital and continued investments. These capital requirements far exceed the income available to Cubans through formal jobs. Moreover, the lack of credit markets and sustained economic contraction make it difficult to conceive that these investments are being made exclusively with domestic capital. As Duany (2000) documents, "anecdotal information indicates that many cuentapropia workers frequently receive dollars per remittances."

Housing has been cited as the most significant unmet need of Cubans during the 1990s, and significant expenditures are required to undertake rehabilitation and repair. Most of these costs surpass the salaries of peso earners, yet according to Hamberg (2001: 6), 85% of Cubans own their own homes and between two-thirds to three-quarters of all units created since 1959 are "self-built." While scarce and costly food needs took precedence over housing reparations for most Cuban consumers, self-building and rehabilitation continued throughout the decade of the crisis. It is likely that remittances financed these expenditures, as in other countries, where private family transfers have been used to purchase and finance homes. In the case of Cuba, government policy has tightly constrained investments in housing and real estate property exchanges since 1959. Non-transferable property rights have been reinforced by stiff regulations and penalties for illegal housing sales, as well as for self-building in the 1990s. Those choosing to undertake self-building must pay penalties.

3. Fiscal Policy: Income and Sales Taxes

In August 1994, a personal income tax system was introduced as part of tax reform. For the first time since 1959, progressive taxes ranging from 5% to 50% on personal income earned through wages, salaries, interest, dividends, and income derived from currency exchange were collected from Cuban households. Remittances are not considered income and therefore are excluded from income taxes as specified in Ley 73. However, private family household transfers from abroad are indirectly taxed through income and consumption taxes.

As income duties tax all earnings of productive economic activities in the dollar-based economy, remittances targeted toward these areas are indirectly taxed. Recipients depositing their dollars in savings accounts pay taxes on the interest earned. Recipients investing in private self-employment pay income taxes on their profits, as the tax code obliges businesses to pay taxes in the same currency as their earnings. Therefore, self-employed businesses whose sales are in US dollars are required to pay taxes in the same currency. The earnings of those in the self-employed sector, such as paladares and room rentals, now comprise two-thirds of total income tax earnings (ECLAC 2001: 68). Nuñez Moreno (1998:8) estimates that cuentrapropistas paid income taxes equivalent to 1% of the total State budget in 1998.41
Other indirect mechanisms for taxing remittances have been introduced with value-added taxes on final sales conducted in US dollars. These taxes, for example, have been instituted at artisan handicrafts markets where light manufacturing products, such as shoes, are sold. Luxury taxes have also been instituted on items such as tobacco. Although data on the proportion of fiscal revenues collected in US dollars are not available, total indirect taxes now amount to 45% of fiscal revenue (ECLAC 2001:70).

4. The Official Remittance Transfer System

Whereas the first and second wave of policy reforms focused on domestic infrastructure, the third wave of reforms are targeted toward developing Cuba’s external infrastructure by establishing official remittance channels and strengthening relationships with the Cuban émigré community vis-a-vis migration policy. Strategically, Cuba first developed a domestic strategy and shifted toward remittance and migration policy only after in-country channels were in operation and policymakers had had a chance to test their effectiveness in attracting and directing ongoing private flows toward the official economy.

Cuba has created a wide variety of options for remittances to be sent through bank and non-bank channels, which have been developed primarily through the government-owned CIMEX Corporation. Because US policy restricts the amounts and channels for sending remittances through banks, money transmitter companies, and postal services, the Cuban government has made special efforts to create a variety of transfer instruments accessible from the United States via third countries. Table 5 presents a summary of the official remittance transfer system operating in Cuba as of 1999. These six channels are described below.
First, funds can be wired through banks in many European, North American, and Latin American countries, including Mexico, Venezuela, and Spain, which have established cooperation agreements with the Cuban government operated banking system. The bank emitting the transfer charges a fee to the sender and the Cuban bank charges a commission to the recipient. For example, cash transfers can be sent from Banco Exterior de España-Argentaria in Spain to recipients’ accounts in the Banco Financiero Internacional (BFI) in Cuba with average wire fees ranging from 2.5 to 5.0%.
Second, remittances can be sent via a direct money transfer service through money transmitters or remittance forwarders. On July 8, 1999, the Cuban government-operated Fincimex S.A., a subsidiary of Corporación Cimex S.A., in cooperation with Western Union Financial Services International began a direct cash remittance service between Cuba and the US. Western Union has opened offices throughout Cuba in CIMEX-operated TRD (Tiendas de Recaudación de Divisas) stores, where Cuban recipients can pick up their transfers in US dollars. Western Union requires cash payment and charges $29 per transaction regardless whether the amount is $25 or $300.42 Transaction fees, which range from 10 to 30%, are charged to senders and split between both firms, with the Cuban firm receiving a proportionately larger share of the total.

The growth in money transmitter companies who service Cuba has been remarkable. As of June 2002, there were 100 Western Union-CIMEX offices in Havana and 14 provincial offices operating in Cuba. In addition, there are several other money transmitters that wire cash to Cuba throughout Canada, Latin America, and the US. MoneyGram, the second-largest money-transmitting company in the US, opened its operations to Cuba in December 2000.

Third, remittances can be sent to a debit card held by individual Cuban recipients. The debit card, Transcard, is very similar to a check card with respect to appearance and usage. The Cuban government-operated Fincimex S.A., a subsidiary of Corporación Cimex S.A., in cooperation with TransCard, issued by Canada-based TransCard Canada Limited, jointly manages the Transcard remittance service. Senders from anywhere in the world (including the United States) remit funds via a money order, bank wire, or electronic fund to a specified recipient account number in Canada. Transcard Canada then transfers these funds to a debit account in Cuba within three working days. The revenue derived from the service fee, which ranges between 5.0 and 5.5%, is shared between the two firms.
Cuban consumers receive the equivalent dollar sum as a pre-paid credit. Consumers can carry an unlimited amount of funds on a single card that can be used for purchases in a wide variety of stores on the island. As Table 5 shows, there were 98,000 cardholders in Cuba in 1999, equivalent to 1.5% of the working age population. According to Transcard Canada Limited, "over 33 million in US dollars were transferred to Cuba from fund capturing agents in Florida in 1999. ”43 In October 2000, Transcard Canada modified its remittance forwarding service to comply with US regulations. Prior to this date, remitters in the United States could send an unlimited amount of funds to Cuba via Canada. The new reforms require US remittance senders to use a pre-authorized, US based agent or merchant for deposits. In United States, Transcard has agency agreements in place with Va Cuba Inc. and MoneyGram Payment Services Inc.44
Fourth, private family transfers can be sent via couriers. Courier companies, such as DHL and A.I.S. (American International Service), operate door-to-door service from the US to Cuba. DHL, which has operated in Cuba since 1990, sent 80,000 packages to Cuba in 1998 for $81 per pound (US-Cuba Trade and Economic Council 1999). While other courier firms have more competitive prices, this channel remains the most expensive in comparison to the other five options available to remittance senders.
Fifth, relatives living abroad can authorize their families in Cuba to utilize credit cards on which they agree to pay balances. Credit cards accepted in Cuba include Visa credit cards, issued by Visa International’s Mexico subsidiary Banco Confia, and MasterCard credit cards, issued by MasterCard International. In addition, remittance senders can use credit cards issued by Cuba's Banco Financiero Internacional, Argentina’s CabalCard and Mexico's Banamex credit card.45 According to the US-Cuba Trade and Economic Council (2000a), “the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury in Washington, D.C., permits individuals not subject to United States law to use Visa credit cards and MasterCard credit cards for transactions within the Republic of Cuba provided that the Visa and MasterCard credit cards are not issued by United States-based financial institutions.”
Sixth, Cuba has entered agreements to facilitate transfers via postal money orders in Latin America and the Caribbean, as well as Europe. In June 1999, Correos de Costa Rica, S.A. signed an agreement with Correos de Cuba to transfer remittances electronically between the two countries. A maximum of $500 can be transferred per day; a 9% commission fee is split between the companies. According to an interview reported in the press, the Costa Rican Postal Services Director cited the significantly higher commissions charged by other services in the Cuban remittance market as a primary motivation for becoming involved in this business venture. According to Director Ricardo Toledo, “Costa Rica views this as a labor on humanitarian grounds (La Prensa 11 June 1999).”
Although data on total official flows were not available for all six channels, it is reasonable to expect that the majority of official remittances are sent either through money transmitters or debit cards. The quantity and value of the remaining channels, which include banks, courier, credit cards, and postal service transactions, can be expected to be at relatively low levels within Cuba, as the majority of transactions are in specie, rather than financial instruments. As Table 5 presents, an estimated $283,650 million were sent through official channels in 1999. Based on official ECLAC estimates of remittances in the same year, roughly 40% of the total volume of remittances would have been sent through official channels.

5. Migration Policy

With a worsening economic crisis during the 1990s, Cuban émigrés increasingly left for economic reasons, rather than as part of a political exodus, as had occurred during the early years of the revolution. Indeed, a 1993 University of Havana study of 188 rafters whom the Cuban government intercepted at sea found 83% to be seeking refuge in the States to help island family in need. (Martinez, et al. 1996). Recognizing a shift from political to economically driven migration among émigrés, especially those who left the island after 1980, Cuba undertook significant policy reform to improve relations with émigrés and, for the first time in five decades, to facilitate temporary migration.

Since 1994, the Ministry of Foreign Relations has maintained a special office, Dirección de Asuntos de Cubanos Residentes en el Exterior (DACRE), dedicated to émigrés relations. The office sponsored two conferences on the Nation and Migration, and published a quarterly magazine. Travel policies for émigrés returning to visit their families have eased with the introduction of a multiple entry permit in 1996 and, for the first time any émigré over the age of 60 can return permanently to Cuba.46 Political discourse has advanced as well, with senior government officials referring to émigrés as members of the "community", as well as "compatriots living in the United States" (Martín and Pérez 1997:114).
Policies have also been instituted to expand citizenship rights for émigrés. For example, the Cuban government has even extended investment and bank account privileges to émigrés. Émigrés, according to the 1993 Foreign Investment Law, enjoy private property and investment rights denied to remaining islanders (although the US embargo prohibits Cuban-Americans from taking advantage of the government opening). They also may now open dollar bank accounts in Cuba. Meanwhile, during the second Nation and Migration Conference in Cuba, Cuban-Americans gave testimony to the National Assembly on the effect of a new citizenship law, making recommendations on how changes could be incorporated to address émigrés “trans-national” character.
Finally, Cubans who legally leave the island are no longer required to consider migration as permanent. The government has gradually lowered the age for those seeking to visit their relatives abroad, a common exit route for migration. Whereas previously only men over the age of 55 and women over the age of 50 were allowed to visit their relatives abroad, by 1994 any Cuban over the age of 18 could apply for an exit permit (Martín and Pérez 1997: 4). For the first time, the Cuban government also liberalized migration policy to permit temporary departure. Those who obtain legal permission, Permisos de Residencia en el Exterior, may reside outside of Cuba for up to 11 months with full citizenship rights and privileges, as long as they pay a fee for each additional month after the first month they reside abroad. Fees vary across countries by income level. Whereas émigrés living in the US or Europe pay $175 per month, those living in Mexico or the Dominican Republic pay $30 per month.47 Migration scholars estimate that 10,000 such permits have been granted.48 Those who choose to leave illegally, such as the estimated 45,000 Cubans who left between 1990 and 1994 during the balsero crisis, are excluded from these terms. 49
In sum, private family transfers from abroad, mainly from US-based senders, surged dramatically in the 1990s. The legalization of the dollar in 1993 was a critical first step, but the development of a domestic and external financial architecture for remittances has been crucial in establishing a long-term strategy to sustain their continued flow. In 1999, net transfers were reported to have increased to $828 million. Throughout the decade, official data show that remittances grew at an average rate of 44% per year. Yet, official data also show that growth rates declined from the peak rates in the early 1990s immediately following dollar legalization. However, official data on net transfers, the majority of which are remittances, confirm that the Cuban government strategy has been moderately successful in attracting remittance flows via official channels, through the wide-ranging set of financial instruments it developed in the 1990s.

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