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Posted November 08, 2004 by Dana Garrett in Castro's Cuba

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Michael A. Lebowitz | Z-Net

Currently based in Venezuela. Michael A. Lebowitz can be reached at Residencias Anauco Suites Departamento 601 Parque Central, Zona Postal 1010, Oficina 1 Caracas, Venezuela

* The measures announced by the Cuban government yesterday in relation to the use and circulation of the USD in Cuba are the latest in a series attempting to deal with the serious problems the Cuban economy faces.

Previous measures related to the USD include (a) the removal of US coins from currency two years ago, (b) the removal of the USD last year for inter-firm transactions and restriction of these to the convertible Cuban peso (set = to the USD), and (c) the temporary closure in May of stores and the raising of prices in USD by 10-30% for consumer items.

The latest decision removes the USD for use now in consumer purchases from businesses beginning 8 November and mandates that subsequent conversion from the USD (but no other currencies) into the convertible peso will carry a 10% tax (thus effectively lowering the value in Cuba of the USD relative to other hard currencies); this tax reflects the risk to Cuba of USD conversion in international transactions.

* The basic economic factors underlying these measures include the increased cost of importing oil (which presumably is significantly higher than projected in the Cuban national budget), the decline in the USD relative to the Euro and other hard currencies, the continuing problems in production and export prices for sugar and the significant damage done to the Cuban economy as the result of hurricanes.

These specifically-economic factors create a major problem in terms of the Cuban ability to import necessities. The immediate and most serious problem, however, is the effect of the Bush government measures to destroy the Cuban economy.

* No actions undertaken by the Cuban government can be understood outside the context of the efforts of the US government to put an end once and for all to the Cuban Revolution.

While the attempt to do away with this ‘affront’ to US hegemony in the hemisphere has been a continuing policy of US governments since the Revolution, no US government has pursued this goal in as unrelenting a manner (regardless of the effects upon ordinary Cubans) and has declared publicly its intention to succeed as has the Bush government.

In the context of the continuing US blockade, the Helms-Burton Act, etc, last April the US government announced restrictions on visits by Cuban-Americans to their families in Cuba and restrictions on remittances to family members sent from the US.

Both threatened significant reductions in the flow of USD to Cuba (and to Cuban family members), and these measures were the context for the Cuban response in May which increased the prices of imports.

While these U.S. restrictions now in effect have been well-publicised (and are the source of discontent among some Cuban-Americans), they are part of a larger package which includes the fine of $100 million by the U.S. Federal Reserve in May of the largest bank in Switzerland (USB) for transferring US dollar notes to Cuba, establishment of a task force to restrict the flow of foreign currencies to Cuba and this week’s crackdown (including the freezing of its US assets) on SERCUBA, a company that has facilitated the electronic transfer of funds by US residents to Cubans.

The purpose of the Bush government in all this is clear: ‘We are financially isolating SERCUBA to make it more difficult for the Cuban regime to obtain the hard currency it uses to oppress its own people and to prop up its government,’ explained Juan Carlos Zarate, a US Treasury Department official on Monday.

* Cuba’s new response is dramatic: it will have far- reaching effects on daily life in Cuba, and the decision to pursue it now reveals how seriously the Cuban government views the situation.

Removing the USD from use in consumer transactions with enterprises is consistent with the pattern of its previous measures—- the need to economise on the USD and to channel the USD money supply exclusively to use in international transactions.

It is very rational in this respect to substitute the convertible peso (which already has been serving as a substitute in internal transactions alongside the USD) but which has no value externally.

Most likely, the USD will continue to circulate within the domestic economy among individuals but the 10% tax on conversions to the convertible peso after 8 November (and the possibility that this tax could be increased at a later date) should lead to a significant displacement of the USD from domestic circulation and its replacement by the convertible peso.

Thus, the concentration of US dollars where they are most important to the Cuban economy will be the result of this response, and this shift should be concentrated in the period before 8 November.

* What will be the effect of the new Cuban measures upon Cubans? At this point we can only attempt to make some reasonable inferences.

So long as issue of the convertible peso reflects foreign exchange supplies, insofar as the convertible peso is required for all purchases from Cuban state enterprises the convertible peso should substitute increasingly for the dollar in transactions and as a store of value.

Although the dollar is not banned and, as noted, is likely to remain to some extent in circulation in personal transactions and in illegal exchanges (e.g., involving stolen supplies), to the extent that confidence in the convertible peso grows, a stable relationship in terms of its use should emerge. (The effective tax on the USD would encourage this.) Thus, all other things equal, the measure should be successful in establishing a new balance over time.

However, the immediate effect of this transition from the USD to the convertible peso may be uncertainty and confusion—- which will be limited to the extent that the Cuban government is successful in assuring the Cuban people that the convertible peso will function as a secure store of value.

* For most Cubans, demonstration that they can convert the national peso to the convertible peso as in the past (and at comparable rates) at the exchanges outside the agricultural markets will provide important assurance over time.

For those Cubans fortunate enough to receive regular remittances from relatives abroad, it is likely that the combination of the US restrictions and the new Cuban government measures to restrict and tax the USD (and the encouragement that remittances be sent in other than USD) ultimately will lead to a significant shift to remittances in other hard currencies (e.g. Canadian dollars) which will increase the difficulty of US government monitoring.

Those Cubans who will be most negatively affected will be people with large stocks of USD that they are hesitant to declare for fear that they will call attention to illegal activities; where they are unprepared to bring their supplies of USD to the banks for conversion—- and unable to quickly launder those supplies, they will suffer a 10% loss in USD wealth on 8 November.

In this respect, the opportunity that the new measures provide for monitoring illegal activity (both in terms of second economy commodity chains which involve stolen state property and also foreign government interference) is obvious.

* The transition to a new stable situation may not come easily, and there are many opportunities for disruption and uncertainty—-both internal and external—- because of the particular impact of the new measures. For this reason, it is worth stressing the matter of timing. The acceleration of measures by the Bush government against Cuba reflects, in part, its attempt to win the electoral votes of Florida.

The timing of the counter-measures by Cuba (and the short-run effects of these) may similarly reflect its way of communicating the destructive effects of the Bush policies to all US citizens (but especially Cuban- Americans).

* Finally, although the new Cuban monetary measures may solve the immediate economic crisis that Cuba faces, so long as US policy continues as it is, these new measures in themselves do little to solve the serious economic problems noted above. Further, every Cuban knows that the re-election of Bush will encourage a further acceleration of the attack on the Cuban Revolution.



  1. Follow up post #1 added on November 08, 2004 by Gregory

    Your economic analysis was lucid and greatly appreciated. Do you think there are any additional economic measures that the newly invigorated Bush Administration could take against Cuba in the next four years? What do you think they could be?
    p.s. I hope Michael is reading the commentary followup to his article.

  2. Follow up post #2 added on November 09, 2004 by Dana Garrett

    Gregory, I submitted the article to this site, so Michael is unaware of your post.  However, he can be contacted here:

    Michael A. Lebowitz can be reached at Residencias Anauco Suites Departamento 601 Parque Central, Zona Postal 1010, Oficina 1 Caracas, Venezuela

  3. Follow up post #3 added on November 10, 2004 by Gregory

    Michael is a personal friend of mine who I met several years ago here in Havana where I live. Unfortunately I have missplaced his email. Do you have it? I think it would be very interesting to have a discussion by economists like Mike on what are other possible US measures against Cuba that the Bush Admin might have up there sleeve. What more can they do short of an invasion or naval blockade?

  4. Follow up post #4 added on November 11, 2004 by Dana Garrett


    I’m sorry, but I don’t have Michael’ e-mail address.  I just found his article on the web and posted it here.

    Wish I could be more help. 

  5. Follow up post #5 added on November 29, 2004 by michael lebowitz

    Hi gregory,
      Thanks to Google, I’ve just stumbled across this. Actually, from everything that I’ve read on-line (much transmitted by walter lippmann’ invaluable CubaNews list—on Yahoo and by sub), nothing compares in analysis to what the Cubans (and you) are hearing regularly on the Round Table from Fidel and the Central Bank President. What the US can do (and will likely do—- in the absence of resistance in the US) is more of the same. It’ all spelled out in the US document outlining the plan for ‘regime change’ in Cuba; you can get a good summary of this from <cubastudygroup@scshop.com>.
        In solidarity,
        michael (.(JavaScript must be enabled to view this email address))

  6. Follow up post #6 added on November 29, 2004 by Dana Garrett with 252 total posts

    Dear Michael:

    I’m also interested in reading the info you mentioned on the .(JavaScript must be enabled to view this email address) web address, but when I go the site I get this address:  http://www.cruzio.com/

    Any chance you have a different address?


    Dana Garrett

  7. Follow up post #7 added on November 29, 2004 by michael lebowitz

    Try contacting Nancy Abbey <nabbey@cruzio.com>

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