Cuba’s dependence on dollars leads to a divide, analysts say

It didn’t take long for much of the $300 that the retired Culture Ministry worker’s son wired him from Florida to make its way into the coffers of Cuba’s Communist regime.

Ten percent disappeared immediately when the state-owned bank took its commission on changing the money into convertible pesos, a fee that applies only to U.S.-dollar transactions. And 11% was sucked away by the government’s artificially low exchange rate.

Left with a little less than 240 pesos, or about $240, the 64-year-old artist headed to the hardware store to replace a water pump. It had broken months earlier, cutting his water supply to a trickle in the kitchen and forcing him to seal off his second bathroom.

That purchase set him back half of what he had left. The actual cost of the imported part was only 35 pesos before the 240% markup that is standard in the government’s aptly named Shops for the Recovery of Foreign Currency, or TRDs for their Spanish initials.

By the time he paid a plumber to install it, fixed his sputtering motorbike and bought food for himself, there was just enough left to take care of his last love and source of solace: an 18-month-old boxer with too much enthusiasm for the tiny paved yard behind his home.

“She eats like 10 men, but she’s all I have now,” he said as he wrestled the leaping dog to a standstill just long enough to kiss her snout.

By some estimates, such remittances are now more important to the Cuban economy than tourism or sugar. Hard-line opponents of Cuba’s Communist government contend that fees and markups on the money are more help to Fidel Castro’s regime than it is to its actual recipients, providing the government with a source of easy money and allowing it to avoid market reforms in the 15 lean years since the defeat of its Soviet benefactors.

But the truth may not be quite so simple. Experts say dollars sent from abroad also cleave this officially classless society of 11 million people into two parts, those who receive them and those who don’t, undermining Castro’s regime.

In the months since the ultimate leader had absented himself from his duties because of illness, Castro’s brother and political heir, Raul, has vowed to continue the socialist system. But Cubans on both sides of the economic divide are demanding less state control and more opportunity to work for themselves.

“The difference between those who get remittances and those without is, those of us with dollars can survive,” said the retired artist, who suffers from asthma and a nagging sense that he should have fled Cuba when he had the chance years ago

“The rest must steal to make ends meet or concoct ways of making money zurdo,” he said, using the Spanish word for “left-handed,” meaning “a secret or dishonest way.”

Dollarization

Analysts agree that legalization of the dollar in 1994 opened the door to the current social divide, and that Castro’s move a decade later to replace it with the convertible peso has done nothing to narrow it.

Dollarization “created a bifurcated economy that gives some people access to hard currency and others not. And until you get broad-based growth, that inequality won’t be solved,” said Phil Peters, Cuba analyst at the Lexington Institute, a think tank in Arlington, Va.

The commission the government collects to convert dollars amounts to a tax that the regime can redistribute to those without dollar income. Replacing dollars with convertible pesos allowed the government to increase pensions and wages modestly but can’t redress the disparity or the faulty economic logic shackling growth and production, Peters said.

Reports by the U.S. and Cuban governments and calculations by scholars of the value of remittances differ widely.

Some figures suggest transfers peaked at about $800 million in 2003 and fell to $500 million in 2005, after Washington started limiting transfers to $300 quarterly and restricting them to parents, siblings and children.

But Paolo Spadoni, an expert on the Cuban economy and a political science professor at Rollins College in Winter Park, Fla., says U.S. visitors to the island routinely circumvent those restrictions. Many send cash via third-country agencies or through an underground network of “mules,” or fee-charging couriers.

Judging by the booming TRD sales, remittances must have topped $1 billion a year by 2000 and grown to at least $1.3 billion in 2004, Spadoni said. Although it is difficult to determine whether there has been a significant drop-off since then, Spadoni said that dollar-store income rose almost 7% last year.

“In net terms, remittances are the biggest source of foreign exchange for the country, more than tourism and sugar,” he said.

The Cuban government has to invest about 80 cents for every dollar it earns from tourism, now a $2-billion-a-year industry, whereas remittances arrive with minimal state outlays.

But John Kavulich, senior policy advisor to the U.S.-Cuba Trade and Economic Council in New York, estimates that the value and influence of remittances to Cuba is far lower. A veteran analyst of centralized economies, Kavulich says Havana’s economic data are inflated.

He estimates the volume of remittances at no more than $450 million and says their influence on the overall economy is minimal compared with billions in aid from China and Venezuela. But for average Cubans, remittances are far more tangible.

Workers who depend on their $12 to $15 a month in earnings from state-run industries and offices frequently pilfer the output or skim from storerooms.

Inequality also exposes the “haves” to robbery and extortion, so most of them try to keep quiet about the comforts they have acquired with dollars. Most of those interviewed for this story spoke on condition of anonymity to protect themselves.

The artist’s pension is only $10 a month, but his home, a two-bedroom bungalow in a back street of the once-fashionable Miramar neighborhood, is crowded with brown upholstered furniture, modern appliances and a guest room-cum-office with a personal computer.

He owns a new refrigerator, a Samsung VCR, a Phillips television and a state-of-the-art sound system, all probably stolen by fellow Cubans at some stage in the distribution process. The artist then acquired the goods zurdo for about half the cost of the state-run stores.

“It’s very dangerous to have things,” he said in a voice barely above a whisper, fearful of eavesdropping neighbors who might report him to the ideological watchdogs of the local Committee for the Defense of the Revolution. “These days someone might kill you for your shoes.”

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Widening divide

Sending money to Cuba is uncomfortable as well.

The artist’s son, a 41-year-old news producer with a wife and three children, works with fellow exiles on South Florida airwaves, railing against remittances and travel to Cuba, contending they keep a dictator in power.

“I keep it to myself. If you get involved in discussions with [exiles], it gets nasty,” he said.

The artist’s second cousin sends what money he can with friends visiting the island.

“Sometimes you feel a little resentful, because it seems like the people there are so needy and they don’t understand how hard you have to work here to make that money,” said the 65-year-old retired businessman.

Then the guilt sets in, fueled by reflection on the miserable existence of those in Cuba who have no one to send them dollars.

Food at Cuba’s official dollar stores costs as much or more as in Los Angeles or Miami: $5.50 for 2 pounds of imported chicken parts from Arkansas, $2.25 for a 16-ounce bag of U.S.-grown rice.

Consumer goods are often double or triple what they would sell for in any U.S. city and are generally of lesser quality. A refrigerator of indeterminate origin sells for 2,100 convertible pesos, a Chinese-made hair dryer for 40.

Baby strollers cost the equivalent of $160, and their increasing presence on the potholed roads and sidewalks of Havana testify to the newfound buying power of those with relatives abroad.

Like increasing numbers of Cuban exiles in South Florida, the artist’s son and cousin believe their money is helping to widen the social divide in Cuba. They hope that pressure hastens an end to the Communist system, and they say Washington needs to lift its trade and travel bans to help Cubans get an understanding of their system’s failures.

“The United States needs to lift the embargo and let us spend whatever we want in Cuba. The people need to see us to understand that there’s more opportunity with a market economy,” the cousin said.

The struggle to earn dollars plays out daily in the streets and hovels of Cuba’s underclass.

Elderly women beg surreptitiously in the alcoves of Old Havana’s colonial churches. Mothers bring infants to tourist haunts on weekends to ask foreign visitors for “one dollar,” a name that still sticks to the convertible peso. Any service or skill is sold on the side, filling the need for plumbers, builders, hairdressers and shoe-shiners.

Manicurist Mari Dominguez keeps the tools of her trade in a battered shoe box under the sole chair in her one-room apartment: some cotton batting, a shaved wooden stick, a nearly empty bottle of nail polish remover and six bottles of colored lacquer so old the contents have hardened into layers.

Her son Josef, 32, recruits customers from Old Plaza in Havana’s historic center where he works as a gardener. But few dollar-carrying foreigners follow him through the maze of narrow streets and alleys to his mother’s salon.

Josef’s father fled to Florida 26 years ago with more than 120,000 others during the Mariel exodus and has sporadically sent small amounts of money home to his two adult sons. But Josef won a U.S. visa in a lottery in the late 1990s and was recently informed he could emigrate. His father promised to send the $1,000 his son needs for a medical exam, a security check, a Cuban exit visa and a flight to Miami

“I can help my mother better there than here,” said Josef in passable English. “I can do any kind of work. I’m strong and I want to be successful.”

“I don’t want to leave Cuba but I must, because there is no opportunity here.”

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carol.williams@latimes.com