Remittances to Cuba: A Detailed and Cogent Explanation

Many families use remittance money to remodel their homes. (14ymedio)

14ymedio biggerElías Amor Bravo, Economist, July 21, 2021 – President Biden has ordered his Administration to carry out a rigorous study of the remittances that are sent from the United States to Cuba. The objective is to determine how residents of the United States can send money to the country without benefiting the framework of the communist regime. The idea is that remittances should serve to provide a better quality of life for Cubans and not benefit the regime, an idea that stumbles over unquestionable facts.

The Cuban economy is completely controlled and determined by the state. The means of production are state-owned and the loopholes that exist for private enterprise are very narrow and complex because they require resorting to the black market while also operating in the crosshairs of State Security.

This being the case, this Remittances Working Group created by Biden will have a difficult time solving the Sudoku puzzle that will allow “identifying the most effective way to send remittances directly to the Cuban people.” without going through the control of the regime. Others have tried it before, and ended up throwing in the towel.

There is no doubt the remittances that Cubans living in the United States send to their relatives on the island have become the main source of foreign exchange for the Cuban economy during the pandemic. Without tourists, without oil from Venezuela to re-export, with limited income from doctors posted abroad, without foreign investment and exports of goods, the regime has devised a series of measures to drain this flow of remittances into the state coffers.

At each step taken by the control mechanisms established by the United States Administration to ensure that remittances reached the desired destination, the Cuban regime responded with harsh slaps, showing its absolute opposition to losing control of the money that enters the country by this route. There have been months of intense boxing, in which no one has emerged victorious. Only the people of Cuba who have relatives abroad have been harmed by the measures that have been adopted, on both sides of the Straits of Florida.

The subject of remittances and their effects is well known in the economic literature. So President Biden’s working group would do well to read all the work published by The Havana Consulting Group in recent years, where they work out the dynamics of the economic processes behind such financing.

By way of summary, I advance some conclusions. Remittances are necessary for many Cuban families to get out of situations of misery. But they cannot be used as investment capital or allocated to businesses except in a few cases. Nor can they easily be used for housing, because there is no legal framework for it.

Remittances tend to be spent on essential goods bought in MLC (Freely Convertible Currency) stores, and when they reach a certain level, families use them to indulge in some additional pleasure, in privately run but state-owned restaurants or hotels.

In general, they do not involve improvements in domestic equipment, in the motorization index or even help to finance bank loans, due to the prices and the insecurity that such expenditures generate, almost always associated with explaining where the money comes from. For all these reasons, a good part of the money from remittances moves in informal markets, both in exchange and goods. Even under these conditions, the state exercises its control.

The most obvious example is that the communist economy of Cuba has been prepared by the government to reduce and drain the remittances that reach Cubans, but it is incapable of generating added value with them.

For this reason, remittances in Cuba have not meant an improvement in economic development, well-being, or development of the population, as occurs in other countries, but rather they generate a vicious cycle of dependency that can in no way be considered positive for the national economy.

From the above, it can be concluded that 80-90% of the remittances that arrive in Cuba end up in the hands of the regime, recycled for its operations, almost always of unproductive current expenditure. It is unavoidable. The owner of the productive assets of the country all he has to do is open his hands so that the dollars fall. The control exercised by the communist government over the financial and banking system is absolute. Banks in fact function as state offices with direct links to state security as information agents.

Moreover, communications and new technologies are also under state control, because they are also owned by them. Sending money to Cuba through the financial system and new technologies is to place it directly in the coffers of the state, which Biden does not want to benefit with remittances. If others have failed in this endeavor, what are the possibilities now that the money of Cubans who fled the country which they didn’t want to live in, will serve to support its authoritarian government?

The protests that have rocked the island since July 11 may be a valid argument to advance this issue. Chronic shortages of basic products, restrictions on civil liberties, and the government’s poor management of the Task Order, coupled with the outbreak of the coronavirus, have increased levels of social unrest to unexpected heights. And the government knows it. Its violent and uncontrolled reaction is disproportionate to the social protests that are fully justified by the economic situation. Ceding numantine* positions in matters of reserves is within reach because the regime needs them.

But if nothing is expected from a government used to getting away with it for 63 years, perhaps a little more proactivity could be interesting. Suspending remittances for a time until those responsible for the repression of the demonstrations are identified, or stopping any shipment until the more than 500 who were detained after the protests leave prison, can be a good way to start playing with a firm hand, a game that the communist regime will have lost before it started.

Its dependence on remittances in the current environment in which Venezuela can no longer meet its commitments is critical. Linking the continuity of remittances to steps that the regime would never take on its own initiative can be a good lesson for everyone to understand what is first and foremost in the framework of relations between the United States and Cuba.

It is the carrot and stick doctrine that authoritarian regimes reluctant to grant reforms are perfect for. Then there will be time to facilitate a supposed development of diplomatic and consular relations between the two countries.

If the White House succeeds in its endeavor, so be it. Everything that can contribute to facilitate a transition to democracy, freedoms, and human rights for Cubans is primary.

Someone could say that remittances are essential for the Cubans who receive them and they would be absolutely right.

But freedom, democracy, and political pluralism are fundamental for all Cubans. And that is the message that has to be transmitted to the tyranny. Let’s see if they want to understand.

*Translator’s note: The Spanish expression Defensa numantina may be used to indicate any desperate, suicidal last stand against invading forces. (Source: Wikipedia)

Tomás A.


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