By Serge F. Kovaleski
Washington Post Foreign Service
Sunday, March 21, 1999; Page A25
HAVANA—One of the many contradictions of this impoverished
communist country is its reliance on the U.S. dollar. Six years ago,
President Fidel Castro reluctantly legalized use of the currency to
encourage tourism and accommodate the heavy flow of remittances sent
by Cuban Americans to their relatives here. Today there are shops and
restaurants that accept nothing else.
But the government has never been happy about the presence of the dollar,
and not just because Castro considers it a vile symbol of Yankee
imperialism. Because of the prolonged U.S. economic embargo against
Castro's regime, Cuba has long had difficulty using the dollar -- which
dominates the world economy -- in commerce with other nations. As a
result, the government pays large commissions and other fees -- a reported
$260 million last year -- to financial institutions to change dollars into other
currencies, as well as cover other complex transaction costs.
So Cuba is preparing to embrace an alternative: the euro. Havana officials
hope the new currency will help them build trade ties with Europe and aid
Cuba in its nearly four-decade struggle against U.S. isolation efforts.
Cuba plans to start using the common currency on July 1 in transactions
with the 11 European Union nations that adopted it at the beginning of the
year. The Cuban weekly newspaper Juventud Rebelde, the official
publication of the Union of Communist Youth, recently said that the
country's state-run firms also should prepare to pay in euros when trading
with other communist countries -- China, North Korea and Vietnam --
beginning next January.
The euro currency is scheduled to start circulating in Europe in three
at which time, Cuban officials say, they will introduce the money
themselves -- most likely beginning with the thriving tourist sector. Now,
the 11 European nations that have joined the program have fixed their
national exchange rates to the euro and are using the new money for
computerized and credit card transactions.
Cuban officials said that at this stage it is unclear to what extent the
dominant role in Cuba's economy could be diminished. One high-ranking
Central Committee official said it is unlikely the greenback will ever be
phased out because it is needed for the remittances from overseas
relatives, which total about $800 million a year and are Cuba's
second-largest source of hard currency.
But for now, the government is counting on the euro to help it circumvent
the embargo and strengthen the island's commercial ties with Europe, its
largest source of trade, visitors and credit.
Cuba conducts more than 40 percent of its international commerce with
Europe while upward of 50 percent of its tourists are European. Most of
Cuba's debt, largely short-term, has been negotiated with European banks.
"The euro could be an effective weapon in the fight against the embargo,"
Ana Mari Nieto, a euro specialist at the Central Bank of Cuba, said in an
interview. "From a commercial point of view, we have a very strong
relationship with Europe. And from a credit point of view, Europe is also
the principal source of credit."
Trade with Europe is critical for this nation, which lost 85 percent of
markets with the collapse of the Soviet Union and its communist satellites
in Eastern Europe. Cuba is not a member of the International Monetary
Fund or the World Bank and has had difficulty obtaining credit from other
A senior State Department official contended that reviving Cuba's
economy is not a question of using a new currency but of Castro allowing
more opportunity for private enterprise, which is tightly restricted here.
Central Bank President Francisco Soberon has been cautious in
speculating about the extent to which use of the euro can better the
country's economic problems. "More than anything else, it means
prospects for improving the present situation," Soberon said at a recent
conference on the euro here.
Much depends on whether any countries in Latin America -- where the
dollar is widely used -- or elsewhere decide to adopt the euro too. If not,
Cuba would still be subject to paying currency exchange commissions to
trade with those nations.
"The euro may become the rival to the U.S. dollar as the international
currency, and where we are able to use the euro we will use it," the Central
Committee official said.
Analysts said that Cuba's decision to embrace the euro could make it
easier for the government to obtain credit as the European Union moves to
create euro reserves around the world.
Castro clearly relishes the idea that the dollar may now face a challenge
from the euro. "The dollar and the euro are keeping watch over one
another. The dollar now faces a prospective adversary," the Cuban leader
said during a recent speech. "The United States is anxiously wagering that
the new currency will struggle and fail. We are keeping a close eye on
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