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US says embargo on Cuba is working as Castro banishes dollar

WASHINGTON, 26 (AFP) - Cuba's plans to take the US dollar out of circulation show that the US embargo is a success and has a stranglehold on the government of communist President Fidel Castro, the US State Department said.

"We think that this move is yet another indicator that Castro is refusing to do what's best for his own people. It shows that he's cynically trying to preserve a bankrupt regime at his people's expense," spokesman Adam Ereli said.

"We see it as a confiscatory measure that demonstrates that President (George W.) Bush's policy is working. It's squeezing the regime and causing them to take extreme measures that underscore its own inherent weaknesses," the spokesman added.

Castro, 78, announced late Monday that transactions in US dollars would be banned from November 8 as a response to "mafia-like" US moves on restricting remittances destined for Cuba. Greenbacks would be replaced in transactions with the local "convertible peso," worth one dollar locally though it has no value on international markets, he said in Havana.

In 1993, in the midst of economic free-fall on the heels of the collapse of the communist bloc, Cuba legalized free circulation of the dollar. Havana then in 1995 created the "convertible peso" to fill the gap between supply and demand for greenbacks on the island, a mechanism that until now funneled some -- but not all -- local greenbacks into government hands.

Assistant Treasury Secretary Juan Carlos Zarate called the Cuban move "an act of economic desperation" and a clear signal that President Bush's strengthened policies towards Cuba have hurt the Castro regime.

"In typical Castro fashion, his solution to this problem is to implement a measure that will directly benefit and bring profit to his regime, while hurting the Cuban people," Zarate said.

He said Cubans depended on dollar-based remittances from relatives in the United States to survive, and Castro will not only attempt to pool these US dollars for his own profit, but also shake down the Cuban people with a 10-percent penalty for the currency exchange.

In Miami, Cuban-Americans expressed anger at the measure, but vowed to continue to send cash to needy relatives in Cuba.

In a popular restaurant in the city's Cuban sector, Julissa Garcia, a Miami resident since the 1960s, said she was about to send 400 dollars to her brother in Cuba to help care for his cancer-stricken wife, "But I'm afraid of what's going to happen" when the dollar stops circulating.

"Everything there must be bought with foreign currency," she said. "They cannot even buy food. This is just another evil of this Mr. Castro. What am I going to do? My sister-in-law is dying and she needs me."

Francisco Rodriguez, owner of A Little Havana Check Cash, told AFP he had seen no immediate change in business, "although people are walking in and asking for details of the measure."

Cuba Begins Saying 'Adios' to U.S. Dollar

By Anita Snow, Associated Press Writer. Tue Oct 26.

HAVANA - Communist Cuba said "adios" to the Yankee dollar that shored up its struggling economy for a decade, launching a two-week process Tuesday to eliminate the U.S. currency from its stores and businesses in response to stepped-up American sanctions.

President Fidel Castro said widespread use of the currency of his country's No. 1 enemy, once seen as a necessary evil to stay afloat after losing Soviet aid and trade, would be halted to guarantee Cuba's economic independence.

Cuba is "protecting itself from external economic aggression," Castro said in a statement he asked his top aide to read on state television Monday night. The 78-year-old Castro was also there, looking animated despite the blue sling supporting his broken right arm after a fall last week that also shattered his left kneecap.

A local currency known as the convertible Cuban peso will be the only money accepted at most businesses across the island of 11.2 million people beginning Nov. 8, Castro's statement said.

Since the American dollar was legalized in Cuba in 1993, Cubans have used U.S. money to buy everything from refrigerators to daily necessities such as soap, cooking oil and other items not provided in monthly government rations.

Probably half of all Cubans have access to U.S. dollars, mostly in remittances from relatives abroad. Others get dollars in tips or through unauthorized pursuits ranging from private taxi services to prostitution.

Many Cubans with government jobs also receive part of their salaries in the convertible pesos - known as "chavitos" - that officially trade one-to-one with the U.S. dollar. Convertible pesos have long been accepted in lieu of dollars, but Cubans have preferred the American bills.

"Every country should have its own currency," John Kavulich, president of the U.S.-Cuba Trade and Economic Council, said by telephone from New York. "The trick will be to force Cuban citizens to accept the Cuban convertible peso and be just as comfortable putting them in their mattress as their dollars."

Castro told Cubans to tell relatives to now send family remittances in euros, British pounds, Canadian dollars, Swiss francs - anything but U.S. dollars.

The other foreign currencies can be changed into convertible pesos at exchange houses and banks without a fee, he said.

But starting Nov. 8, 10 percent will be charged to change U.S. dollars into convertible pesos "because of the situation created by the new measures by the United States government to asphyxiate the country," Castro said.

Castro said the move would help protect Cuba's economy as the Bush administration seeks to punish banks and businesses shipping American dollars here, despite U.S. sanctions.

The U.S. embargo was imposed in 1963, two years after Castro defeated the CIA-backed assault at the Bay of Pigs and declared his government to be socialist. Aimed at undermining Castro's government, the sanctions prohibit most trade and financial transactions between the two countries and bar most Americans from traveling here.

Earlier Monday, the U.S. Treasury Department cracked down on an electronic money transfer business known as Sercuba suspected of links to the Cuban government.

The U.S. Federal Reserve in May fined Switzerland's largest bank, UBS AG, $100 million for allegedly sending American dollars to Cuba, Libya, Iran and the former Yugoslavia in violation of U.S. sanctions.

Other U.S. measures aimed at reducing hard currency in Cuba took effect this summer, limiting how often Cuban-Americans can visit relatives on the island and decreasing how much money they can send in.

Although some Cubans expressed concerns the convertible peso would later be subject to the same devaluation pressures of other Latin American currencies, most didn't seem worried.

"This won't affect anything," Aurelio Serra said outside a Havana exchange house. "If money is sent here in another currency that is not the dollar, then nothing will be lost."

"The measures don't affect me," said Coralia Bauta, a cleaning woman who receives 10 convertible pesos as part of her monthly government salary.

People lining up at banks and exchange houses Tuesday were told to return Thursday, when tellers expected they would have enough convertible bills to change U.S. dollars. There was no run on changing money and stores seemed no busier than usual.

In a country where the average government salary is less than $15 a month, most Cubans pay no rent, enjoy heavily subsidized utility services and public transportation and free health care and education.

Government rations provide about a third of the food Cubans eat. But the rest - especially soap, detergent, cooking oil and the occasional piece of meat - is bought with American dollars. Produce is purchased at farmer's markets in Cuban pesos, yet another local currency that now trades at 26 to the dollar.

Holding American dollars was once punishable by jail time, but once the dollar was legalized, the government opened stores, restaurants and other businesses to capture hard currency to buy petroleum, food and other imports from abroad.

Although euros are accepted in a few resorts, the U.S. dollar has been the primary currency demanded at hotels and other tourist installations. Foreign companies doing business in Cuba pay rent, utilities, and all other services in American dollars.

Castro said the latest move did not criminalize U.S. dollars and Cubans can still hold unlimited amounts of American money. Existing bank accounts in U.S. dollars will be respected, he said, and withdrawals can be made in American money.

Cuba nets short-term cash-flow taking dollar out of circulation, eyes US vote

WASHINGTON, 26 (AFP) - Communist Cuba's taking the US dollar out of circulation will net it some needed liquidity while the move's timing seeks to cash in on international political prime time: the looming US presidential vote, analysts said.

President Fidel Castro, 78, in his first public appearance since breaking an arm and a leg in a fall last week, announced late Monday transactions in US dollars would be banned from November 8 as a response to "mafia-like" US moves on restricting remittances destined for Cuba.

But he did not mention that ending the free circulation of the dollar on the island -- legal since 1993 -- could come as an economic band-aid for a cash-strapped and isolated government that buys its imported oil and food in hard currency on world markets.

"The explanation they give is neither convincing nor clear. It is an official excuse for an urgent need for dollars," said Uva de Aragon, Associate Director of the Cuban Research Institute at Florida International University in Miami.

"Ten years of dollarization had opened a little space for Cubans, as they say over there, to get by or do a little business. And this puts an end to all that," she said.

"In the short run it is going to help the Cuban government, but in the long run it is going to have negative effects for the people and possibly for the government."

The US dollar no longer will be able to be used as local currency in transactions and was to be substituted for by the local "convertible peso." It is worth one dollar inside Cuba, but has no value on world markets.

Cubans whose relatives send then a total of more than 800 million dollars every year, as well as tourists -- stars of Cuba's main hard-currency earning industry worth two billion-dollars -- will have to make purchases in Cuba in convertible pesos. Hard currencies go to the government.

For John Kavulich of the New York-based US Cuba Trade and Economic Council, a non-partisan information clearinghouse on Cuba and business, the currency rule changes "may gain them some short term liquidity. But the question than is what does the government do with it?"

"Commercial and economic models are only functioning because of the largesse of third parties ... China has given grants, substantial financing, payment terms, commercial economic and financial assistance. And of course (ally and oil supplier) Venezuela, that is well known. Their indebtedness to Venezuela may exceed one billion dollars," Kavulich said.

Cuba has "tied it to the US presidential election, which is unfortunate. Because commercially economically and politically, it does make sense for government to say we don't want a third country currency as the preferred medium for exchange in their country.

"It makes sense ... But in Cuba's case, their decisions always have this overt political context that relates to the United States. And to say that actions by the US government are THE reason for this decision is misleading at best," Kavulich said.

Cuban citizens will still be able to possess a certain amount of US dollars, but using them in commercial transactions or in retail will be banned, a Cuban central bank statement said.

If they want to shop at special stores that sell goods for foreign currencies, they will have to convert their dollars to convertible pesos at a rate of one for one. But there will be a 10-percent tax imposed on each transaction involving US dollars.

"Cubans are going to have a lot of reservations about exchanging their money. A lot of people are saving up to leave, or to do something, and the 10 percent tax is going to keep some people from exchanging all their dollars," said de Aragon.

"The black market will be back. Things are getting more and more complicated, more and more closed off."

Kavulich underscored the importance of the political timing of the Cuban announcement, just ahead of the November 2 US presidential vote, taking effect just after it. He said Cuba may hope for a Kerry win which might lead to reversal of restrictions imposed by US President George W. Bush on Cuban-American travel, remittance and expenditure restrictions.

"We think that this move is yet another indicator that Castro is refusing to do what's best for his own people. It shows that he's cynically trying to preserve a bankrupt regime at his people's expense," State Department spokesman Adam Ereli said.

"We see it as a confiscatory measure that demonstrates that President (George W.) Bush's policy is working. It's squeezing the regime and causing them to take extreme measures that underscore its own inherent weaknesses," Ereli added.

In 1993, in the midst of economic free-fall on the heels of the collapse of the communist bloc, Cuba legalized free circulation of the dollar. Havana then in 1995 created the "convertible peso" to fill the gap between supply and demand for greenbacks on the island, a mechanism that until now funneled some -- but not all -- local greenbacks into government hands.

Summary: Cuba Does Away With Dollars

By The Associated Press. Tue Oct 26.

BUCK STOPS HERE: Cuba announces that as of Nov. 8, U.S. dollars will no longer be accepted in stores and businesses, saying it is trying to regain control of its economy as Washington cracks down on the flow of American currency to Cuba.

SEND EUROS: President Fidel Castro (news - web sites) asks Cubans to tell relatives abroad to send them euros, British pounds or Swiss francs instead of dollars.

HARD CASH: Castro legalized the U.S. currency in 1993 to cope with the loss of Soviet aid and trade.

US-Cubans angry Cuba took dollar out of circulation

MIAMI, United States, 26 (AFP) - Cuban-Americans in Miami were angry at news Havana would take the US dollar out of circulation, but vowed to still send cash to needy relatives in Cuba.

In a popular restaurant in the city's Cuban sector, Julissa Garcia, a Miami resident since the 1960s, said she was about to send 400 dollars to her brother in Cuba to help care for his cancer-stricken wife, "But I'm afraid of what's going to happen" when the dollar stops circulating.

On Monday, Cuban President Fidel Castro and the central bank announced that US dollars would not be used internally, but replaced by a convertible peso, one-for-one, with a 10 percent surcharge.

"Everything there must be bought with foreign currency," she said. "They cannot even buy food. This is just another evil of this Mr. Castro. What am I going to do? My sister-in-law is dying and she needs me."

Leslie Lozano, in his 30s, said he will continue sending money to the son of his ex-fiance.

"It makes no difference to me because I will continue to do it, always, whether they like it or not, because the people there have no coffee, they have no apples, and for me a person who cannot eat apples is not a human being."

It the neighboring city of Hialeah, several businesses specializing in sending money to Cuba said it was too early to tell what impact Havana's action would have on business.

Francisco Rodriguez, owner of A Little Havana Check Cash, told AFP he had seen no immediate change in business, "although people are walking in and asking for details of the measure."

An employee of Belen Pharmacy, which sends cash for its customers, said cash dispatches had fallen off sharply since the US tightened restrictions earlier this year.

"Now they ask for so many details we have to wait 24 hours for authorization," he said.

"People don't like that."

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