Los Angeles Times
January 1, 2006

Despite Government Efforts, Cubans Hold Tight to the U.S. Dollar

By Carol J. Williams
Times Staff Writer

HAVANA More than a year after the communist government here replaced the U.S. dollar with a convertible peso, the greenback remains in the hearts and hands of the Cuban people.

Prices for most goods are still listed in dollars. Tens of thousands of families still get handouts from U.S. relatives in dollars, much of it funneled in by visitors to skirt the Cuban state bank's 10% cut for conversion. Taxi drivers, private restaurants and those with rooms to rent still accept payment in U.S. currency.

"We have more trust in dollars," said a partner in an Old Havana paladare, one of the private but heavily regulated eateries some Cubans are allowed to operate in their homes. Anyone who can afford to save money does so in U.S. dollars, he added.

The resilience of the dollar here has created a complicated, three-tiered monetary system, as the convertible peso, or CUC, also circulates alongside the official moneda nacional, or MN. Most Cuban salaries are paid in moneda nacional, which consumers must exchange for convertible pesos, at a rate of 25 to 1, if they want to shop in what are still referred to as dollar stores the only source of meat, milk and most consumer goods. Neither the convertible peso nor the moneda nacional has any value abroad.

The attempt to "de-dollarize" Cuba was instituted in November 2004, purportedly because the economy had recovered from the gut punch dealt by the 1991 collapse of the Soviet Union and the loss of billions in aid and subsidies Moscow had provided. The dollar became legal tender in 1994, at the close of an austerity program dubbed the Special Period in Peacetime, during which the gross domestic product fell by a third and Cubans lost an average of 22 pounds.

Remittances from U.S. relatives now total as much as $1 billion a year, and ordinary Cubans can still legally hold and save dollars. But the government has reeled in hard-currency earning and spending autonomy granted to state industries and services during the special period.

Cuba reported 5% economic growth in 2004, and President Fidel Castro said just before Christmas that 2005 would see an 11.8% expansion.

Foreign analysts say the growth figure is inflated by inclusion of subsidies and intangible benefits such as social services. The U.N. Economic Commission for Latin America and the Caribbean, which calculated that Cuba's 2004 expansion was 3%, dropped the island nation from its report for 2005, saying the data made available by Havana were insufficient to calculate reliable figures.

The nation does a healthy trade with Venezuela and China, but independent analysts suspect that Cuba has undisclosed debts and a widening trade deficit as exports grow at a much slower pace than imports.

Even the most critical analyses, though, peg the 2005 growth at upward of 5% and bolster claims by Economy Minister Jose Luis Rodriguez Garcia that Cuba has turned the corner on post-Soviet privations.

"The country has begun to overcome the shortages of the crisis period," Rodriguez told the National Assembly in December. He said tourism, nickel sales and the export of services accounted for "the highest performance in revolutionary history," referring to the 47 years since Castro's anti-capitalist guerrilla force came to power.

With all but about 2,000 legally self-employed service providers earning state salaries averaging $15 a month, the boom times are hard to see on the streets. The government raised salaries for most state workers by 25% in 2005, but a 4% inflation rate, an artificial devaluation of hard currencies when the convertible peso was introduced, and a severe crackdown on pilferage and private enterprise in recent weeks have served to counterbalance that increase.

Castro deployed thousands of university students and young Communist Party supporters to oversee gas station operations in December after disclosing in a national address that more than half the gasoline in the country was being stolen. He also dispatched police to raid farmers markets and arrest vendors and bicycle taxi drivers who couldn't show a state license.

"You can't survive without doing something on the side," said a 39-year-old teacher who sells homemade salsa CDs and cassettes to tourists.

"We work to eat. That's all our salaries cover," said a cardiovascular nurse who left that job eight years ago to work as a hotel maid. "You need dollars from tips or from family outside for clothing and anything else."

Energy shortages have eased, apparently one public dividend of the economic upturn that can be traced to lucrative trade with Venezuela and China.

The number of doctors deployed abroad rose to 26,000 last year, with more than half working in Venezuela in exchange for 90,000 barrels a day of oil on favorable credit terms. Venezuelan President Hugo Chavez, Castro's most generous ally, also began bankrolling eye operations in Cuba for Latin American poor at risk of losing their vision. Those services brought in an estimated $3 billion to state coffers, and mining exports and the 2 million tourists who visited the island generated another $3 billion.

Though Rodriguez disclosed few figures, he said imports grew 36% in 2005, presumably dominated by fuel purchases from Venezuela and food bought from U.S. producers.

Pedro Alvarez, head of the Cuban state food import agency Alimport, said the firm was expected to have spent more than $500 million on U.S. commodities by the end of 2005.

Like other economic figures, though, the food purchase numbers are seen by outside analysts as distorted. John Kavulich of the U.S.-Cuba Trade and Economic Council says Alimport includes shipping and finance costs in its total. The New York-based analyst reported U.S. food sales to Cuba totaling $392 million in 2004, compared with Alimport's figure of $473 million.

Mounting outlays for food and fuel and shrinking sales of traditional products such as sugar could signal a looming cash crunch, analysts point out, especially if the tiny private sector is further shackled and unable to deliver tax revenue.

Paolo Spadoni, a University of Florida scholar and specialist on the Cuban economy, deems the currency manipulations "largely symbolic." But together with the raises for state workers and import of low-cost Chinese appliances, he said, they've signaled to Cubans that the government is intent on closing the gap between those with access to dollars and those without.

That quest for social leveling plays to revolutionary ideals but has had the effect of pushing down the haves more than lifting up the have-nots. Street crime has become so rampant in Havana that tourists are encouraged to stick to a single street, the bustling main drag of the historic old town. Begging from tourists has become so widespread that the main sightseeing venues are inundated by emaciated old women and the maimed.

"The same government that created great equality in the 1960s is now presiding over a system of rising inequality," said Damian Fernandez, head of the Cuban Research Institute at Florida International University. He estimates that as much as 25% of the country of 11.3 million lives in extreme poverty. With the governing elite of the Communist Party benefiting most from foreign investment in tourism ventures, Fernandez said, "the revolutionary rhetoric now rings hollow."