Economic Embargo: a Burden for Cuba’s Future

The United States embargo is relative. If Cuba had fulfilled its economic duties, it could buy merchandise in any other place without worrying about the shipping freight cost.

In spite of the embargo, Raul Castro can afford the luxury of buying Humvee jeeps – a United States army vehicle – to travel Cayo Saetía’s virgin prairies, in Holguin province, when the top brass goes hunting.

Therefore, who suffers the consequences of the embargo most is the average Cuban, not their rulers. Right now, the Cuban-American political lobbyists are exerting strong pressure in order to enforce the embargo restrictions.

As in any conflict, there are supporters and detractors. There is a phenomenon associated with the embargo of the utmost importance. It is the future compensation or restitution for those affected as a result of the massive nationalizations of American companies and Cuban citizens by Fidel Castro’s “olive green government” in the first years of the Revolution.

According to the Helms-Burton Act, even if there is a future democratic government in Cuba, the embargo would continue until the victims of the expropriation have been compensated. For many, it’s something simple. They naively believe democracy is a magic wand that will turn into gold all the shit accumulated after 52 years of economic disasters.

But it is not like that. See for yourself: Cuba owes money to everybody. We are the most indebted country in the world on a per person basis. To Russia we owe 25 million rubles. To Spain, China and the Paris Club, billions of dollars.

Add a few more billions to the Cubans, now U.S. citizens, who lost their properties. In fact, there are a significant number of legal suits in the United States on the issue of compensation.

It is known that the Castro brothers are not going to pay. Therefore, the huge debt will fall on the shoulders of a future democratic government. The more time it takes, the more money will be accumulated. And the Cuban government will have to pay. Or sit down and negotiate.

The changes in the island can be delayed from ten to fifteen years, but they will come. The design drawn up by the current government is based on military corporations that accumulate large investments. They have been distributing the nation among themselves. A real pinata.

A future administration will be bankrupt. Even with deep cuts in social services, encouraging foreign investment or implementing flexible laws and low taxes, it won’t be able to accumulate enough capital to pay the national debt.

Antonio Rodiles, economist, from one of the think tanks who resides in Havana, has looked deeply into the subject and addresses the issue in an article entitled “Liberalization of vacant land and dilapidated properties, a necessary step to initiate a recovery process”. It’s founded on the experience of the Eastern European communist countries.

According to Mr. Rodiles, a future Cuban democratic government could compensate by selling bonds, businesses, lots and vacant land to foreign companies or citizens affected by expropriation.

In this article, Oscar Espinosa Chepe, dissident economist, rationalizes that “in regard to the refunds, the Cuban reality advises other methods. With regard to housing, we are in favor of a massive granting of these properties, along with all the responsibilities inherent to the current onerous usufructuaries.”

Espinosa Chepe believes that the fairest approach could be the return of these properties to their former owners. “But because of the time elapsed and the transformations of these properties, some of them already destroyed; the best solution would be to pay the original owners, which could be done through bonds”.

To undertake the payment of the debts incurred by the Castro brothers, a future government would have to auction the businesses and draw up a severe adjustments plan. Wilfredo Vallin, attorney at law, believes it’s probable that many countries, the United States among them, will forgive the Cuban national debt.

But a real policy is not articulated on the basis of assumptions. It wouldn’t be a profitable strategy for a new government in Cuba to disburse huge expenses to pay for an inherited debt due to Castro’s economic anarchy.

If the Castro brothers, as it’s supposed, have no intention whatsoever of compensating the property owners, then it would have to be negotiated with a future transitional government. Lifting the embargo now is a good way to save time.

The businesses and economically affected citizens should be financially compensated, without affecting Cuba’s development, and without fiscal adjustments that provoke social unrest. After five decades, plus any extended delay to end Castro’s dynasty, it is not advisable to require more sacrifices from the people.

Now, without another word, Cubans have to make a new holes in their belt. But when they get used to living in freedom, at the first change, outraged, they will throw themselves to protest on the streets. Those are the benefits of a democracy.

Video: Cay Saetia. Located in the Bay of Nipe, north of the province of Holguin. Despite being considered Raul Castro’s “private island,” the town lives off of tourism, which it is controlled by Gaviota S.A, a group run by the military. One of the main attractions are the safaris, where tourists can see camels, deer, antelopes, water buffaloes, boars, horses and parrots among other species.

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Translated by: Adrian Rodriguez

July 27 2011

What 100 Dollars Can Buy in 2011 Cuba

Photo: Rolando Pujol, EFE

Rigoberto still remembers the smell of the green bills sent monthly from his brother in New Jersey. “They were so stiff you could stand them up in a line one behind the other. With those 250 dollars he sent me, you could buy almost twice as much as now,” he remembers, coming out of the small Western Union in the Carlos III mall, where he just changed 300 dollars.

But in 2005, Fidel Castro was caught by authorities of the  U.S. Treasury Department changing old notes for new, in a count of 4 billion dollars that Cuban entities had on deposit in branches of the Swiss bank UBS. This led to a fine of $ 100 million that the Swiss bank paid without protest, but they ended their transactions with Cuba.

Then a remarkably tense Castro placed a ‘revolutionary tax’ of 20% on the currency of his public enemy number one. By the way, the charge is a tax of 8% on other currencies. As a result, the dollar’s purchasing power fell into a tailspin. Even before the excessive tax on the dollar, the hard currency stores in Cuba had raised the prices between 15% and 30% on their goods.

Every year, in particular from Florida, the more than 800,000 Cubans who live there send some billion dollars to their families on the island, by Western Union, through “mules,” or agencies that spring up like weeds

That same amount in 1999 had a purchasing power  1.4 times higher compared to the present. Here’s an example. With $100 in 2011 you can buy $60 worth of goods versus $99 before. Right now, prices of food oils in hard currencies have been increased: those of domestic manufacture, from 2.15 to 2.40 and those imported from 2.40 to 2.60. Oil is one of the most consumed household products, because the amount assigned by the ration system — about a cup a person a month, is not enough.

Between the 10% ‘revolutionary tax’–since March it has been cut in half–and the price increases for staples, people see how magic dilutes dollars sent by relatives.

In 1993 hard-currency stores (TRD) sprung up and spread around the country. Before that, there were few shops selling in dollars and they were for diplomats, foreign experts and tourists. But the TRDs were born with a ferocious tax voracity.

With taxes of around 240% for most products offered. In addition to raising the dollars so necessary to the half-empty coffers of the nation, this caused a notable economic strain. As if that were not enough, Cuban companies, burdened by low productivity and high costs, happily sell goods for foreign currency in order to be profitable. This phenomenon we call “closed-circuit production.”

According to Orlando, a retired economist, these goods and services offered in dollars bring about a two-headed economy. “All companies that operate in foreign currencies, buy and sell their services in that currency, while their workers are paid in Cuban pesos.” The average wage in Cuba amounts to about $20 a month.

If you make a tour of stores in Havana, you will notice that there are a lot of domestically produced goods. The absurdity is that many times, items such as fruit juices, textiles or mayonnaise, cost more than imported ones.

Economists believe that this phenomenon will delay the unification of the two currencies: the Cuban peso (CUP) and Cuban Convertible Peso (CUC). A situation that strongly affects workers, who are paid in pesos and have to buy an important part of the basic market basket in hard currency.

If you want to dress in fashion, you have to pay with money in which the State does not pay you. It’s the same if you buy a washing machine. To repair the 60% of homes in poor condition in the country, you need hard currency. The worst thing is that to obtain hard currency you can’t depend on the labor force. Unless you are a notable musician, outstanding intellectual, elite athlete or government official, with the ability to travel abroad, your legal currency income will always be small.

Only 25% of State employees are paid a tiny percent of their salaries in hard currency. This happens with ETECSA, the only telecommunications company in Cuba, that pays department heads $10 to $40 a month in hard currency. “The ten dollar bill just enough to buy me a bottle of oil, a box of detergent and some soaps,” says Mirta.

That is why remittances are vital to families on the island. The figures speak for themselves. In one way or another, 60% of Cubans receive dollars or euros sent regularly by relatives and friends abroad. That slight majority, from 2000 to date, has seen the purchasing power of the dollar decline by 40%.

To this, add the global economic crisis engulfing the United States and Spain, the main countries where Cuban exiles live, many compatriots are really struggling. And to keep sending the same amount of money in 1999, even less. Now the money reaches only to eat.

Either way, recipients of remittances are privileged. There is 40% of Cubans who see dollars only in the movies. For them it’s a real headache.

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April 5 2011