By Paolo Spadoni
May 22, 2005
A few weeks ago, the government of Fidel Castro announced its intention to more than double the monthly income of a large number of state workers and retirees in Cuba. Beginning May 1, the monthly minimum wage on the island rose from 100 regular pesos to 225 pesos, and the minimum pension from 55 pesos to 150 pesos.
Castro’s measures are mainly aimed at leveling the social playing field in Cuba and fighting massive income inequalities among Cuban citizens that have emerged during the last decade, especially since the legalization of dollar-denominated remittances in 1994.
Some scholars estimate that Cuba’s Gini coefficient (which gauges the degree of inequality in a country’s wealth distribution) increased from 0.22 in 1986 to 0.41 in 1999 as a result of unequal access to hard-currency sources, with remittances representing one of the crucial factors that contributed to the new income disparity.
Where will the cash-strapped Cuban government find the money to implement such an ambitious social program?
As remittances clearly defy the revolution’s egalitarian precepts, it is conceivable that Havana is thinking of using these money transfers to reduce social stratification in what was once one of the world’s most equal societies.
In November 2004, the island’s authorities put an end to the commercial circulation of the U.S. dollar in Cuba in favor of the convertible peso, or CUC, a local currency that was pegged at par with the dollar since its introduction in 1994 but has no value outside the country. They also applied a 10 percent commission on dollar/CUC exchanges. Cuban citizens who receive money from abroad must now convert it into CUCs in order to make purchases in state-run hard-currency stores or acquire regular pesos in exchange houses.
Last April, Cuba decided to re-evaluate the convertible peso by 8 percent against all international currencies. The raised value of the CUC means that the Cuban government will obtain an 8 percent growth of its net profits from remittances, mostly sent by exiles in the United States. As remittances are now estimated to be approximately $1 billion a year, such an increase might be worth at least $80 million annually.
According to Cuban official sources, wage and pension increases will benefit more than 3.5 million Cuban citizens, for which the revolution will dedicate roughly 2.2 billion regular pesos to the annual budget. The U.S. dollar equivalent of this amount, at the current exchange rate, is about $80 million. Thus, all the Castro government has to do is collect remittances in exchange houses and redistribute its increased profits to those Cubans receiving the lowest income.
The only major obstacle remains the Bush administration’s recent tightening of restrictions on Cuban-American travel and remittances to the island. However, there are reasons to believe that Cuban-Americans will continue to remit to Cuba at least the same amounts they used to, if not more.
As the purchasing power of the U.S. dollar on the island has declined by about 20 percent in less than a year, Cuban exiles will have to make up the difference by sending more money if they wish to guarantee their relatives the same living standards as before. And considering that exiles may circumvent restrictions by traveling to Cuba through third countries and delivering remittances, as they always did, through mules or other informal mechanisms, it is likely that illegal money transfers will increase considerably.
The reality is that both the U.S. and Cuban governments stimulated bonding of potential economic worth between exiles and their relatives in Cuba during the 1990s. The Clinton administration, in particular, contributed to the deepening of family linkages by streamlining procedures for U.S.-based travel to Cuba, resuming direct flights between the two countries, and easing limitations on money transfers to the island. Once formed, family connections tend to become self-sustaining despite new regulations that may interfere.
Cuban authorities seem to have bet on this outcome. As recently stated by Francisco Soberon, the Central Bank president, “In the end, people will find a way to keep helping their families.”
Castro himself claimed that many Cuban exiles secured good jobs because they had received excellent training in Cuba at no charge, so they should send more dollars “out of gratitude,” even if the state took a sizable commission.
If this is the case, then remittances by Cuban-Americans could not only satisfy the basic needs of family members on the island, but also raise wages and pensions of millions of Cuban citizens with no relatives abroad.