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Dollar decision a sign
of distress
Cuba's dedollarization
points to growing strains on the Cuban economy,
as the recent scarcity of fresh greenbacks
compounds the permanent shortage of foreign
exchange.
By Jane Bussey. jbussey@herald.com.
Posted on Thu, Oct. 28, 2004 in The
Miami Herald.
The decision by Fidel Castro to dedollarize
Cuba's economy is yet another sign of economic
distress for an island that has had a rough
year, Cuba analysts say.
Havana's move earlier this week to eliminate
U.S. dollars from circulation is a tacit
admission of the effectiveness of U.S. trade
and travel sanctions and is the Cuban president's
response to the United States, they say.
And the change comes at a time when Cuba's
economy is also starting to suffer from
skyrocketing oil prices and a drop in crucial
foreign investment.
Cubans may still hold dollars, but to spend
their money in any official establishment,
they must exchange their dollars for convertible
pesos -- known as chavitos or little pennies.
After Nov. 8, any exchanges will be subject
to a 10 percent government charge.
The decision to withdraw U.S. dollars from
the economy for the first time since the
American greenback was legalized on the
island in 1993 followed a Bush administration
directive in June that limited family visits
and remittances to Cuba in an effort to
dry up the supply of dollars.
Cuba watchers are expecting the number
of family visits to tumble by at least 30
percent, and remittances also could drop
substantially.
While these measures won't have the same
impact as the end of subsidies from the
former Soviet Union, which devastated the
Cuban economy starting in 1990, they are
still hitting home.
''That has hurt the economy,'' said Miami
lawyer Antonio Zamora, who just returned
from a visit to the island last week. "No
doubt, it has had a big impact.''
Cuba is now suffering from a scarcity of
cash brought on after the Bush administration
levied a $100 million fine on UBS AG, the
largest Swiss bank, because its trading
desk was supplying dollar bills to Cuba,
Libya, Iran and the former Yugoslavia, in
violation of U.S. sanctions.
SHORT SHELF LIFE
Dollar bills, it turns out, have a short
shelf life, measured in months and not years.
The crackdown left the island with a dwindling
supply of deteriorating bills.
''Bankers who deal with Cuba tell you that
there is quite a bit of lack of cash in
Cuba,'' Zamora said.
On top of that cash crunch is the reality
that Cuba does not earn enough foreign exchange
from exports, remittances and tourism to
pay for its financial needs.
''The bottom line is that they have a permanent
foreign exchange crisis,'' said Philip Peters,
a Cuba analyst who is vice president of
the Lexington Institute, a think tank in
Arlington, Va.
The dedollarization will bring money to
the government.
''The Cuban Treasury is going to mop up
a lot of liquidity with this measure,''
Peters said.
''Remittance flows may decrease even more,''
Peters said. "But it's not going to
stop the use of dollars in Cuba. They didn't
turn the clock back 10 years here. It's
still a dual currency economy.''
In the dedollarization decree read Monday
night by an aide as Castro sat nearby flanked
by Economics Minister Carlos Lage and the
Central Bank President Francisco Soberon,
the government lashed out at the United
States, saying Cuba was "protecting
itself from external economic aggression.''
Although tourism and other sectors are
expected to boost growth to around 3 percent
this year, there are storm warnings on the
horizon. Foreign investment in recent years
has been zero. Oil imports are costlier,
even with subsidies from Venezuela and Cuba's
own ability to supply slightly over half
its energy needs.
ADDITIONAL PROBLEMS
Mismanagement in the energy sector also
has added to the problems. Castro sacked
Energy Minister Marcos Portal Leon this
month after he failed to warn the government
about a crisis at a power plant.
Some business analysts in South Florida
say that Cuba turning its back on the dollar
is simply one-upmanship with the Bush administration.
''Castro is fanatical about always having
the last word on everything,'' said Paul
Alcazar, a director of the Cuban Liberty
Council, a Miami exile organization that
supports the embargo. "So if the United
States is going to restrict remittances,
he is going to change the system inside
Cuba and penalize the recipients by 10 percent
so he can blame Bush for it.''
Next week, American executives will get
a chance to view the impact of the recent
changes in Cuba first-hand at an international
trade fair in Havana, which starts Monday.
U.S. farmers and ranchers have sold some
$984 million of food and agricultural products
to Cuba since a 2000 change in U.S. rules
opened the way for American cash sales.
Commodity broker Chris Aberle, who is from
New Smyrna Beach, holds out hopes of signing
a slew of new orders, but acknowledges that
a productive outcome is far from assured.
''I am still going down with the prospects
of writing some more orders,'' said Aberle,
sales director of FC Stone, a subsidiary
of the commercial grain brokerage Farmer's
Commodities Corporation. "I am sure
we will know by the end of next week.''
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