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Posted: 10/28/2004 3:19:10 PM EDT
[Last Edit: 10/28/2004 3:20:14 PM EDT by Airwolf]

Castro turns screws on his own people

Terence Corcoran
Financial Post

Thursday, October 28, 2004

HAVANA - In the heart of Old Havana, at a corner of Plaza de Armas, probably the city's most beautiful ancient square, a plaque on a building on a street bearing the unlikely name O'Reilly declares an unexpected affinity. "Two Island Peoples in the Same Sea of Struggle and Hope. Cuba and Ireland."

The sentiment might have made some sense decades ago, back when both Ireland and Cuba seemed locked in deathly and futile struggles against ominous forces and fates. Today Ireland is a burgeoning modern country, filled with life and freedom and an economy that generates annual GDP of about US$35,000 per capita. Ireland, in short, is no longer even remotely comparable to Cuba, whose 11 million people have been left to struggle alone in a hell-on-earth Communist dictatorship. Under Fidel Castro, GDP per capita is stalled at US$2,500, with most of the money going to the government and no prospect of growth to come.

And now even more money will go to the dictatorship. On Monday, Castro announced that as of Nov. 8 the U.S. dollar will be banned as a medium of exchange and the only currency Cubans will be able to use is the Cuban peso. After Nov. 8, any Cuban cashing U.S. dollars will have to pay a 10% discount to the government. It's a clever move that allows Castro to make a statement and turn the screws a little tighter on the Cuban people but without cutting off the flow of hard currency that he desperately needs to keep his regime in power.

I happened to have been in Havana this past weekend, on a fact-finding mission on behalf of a secret group imaginatively christened by its members The Garfield Mahood Cigar Product Research Society. Shortly after coming across the Ireland-Cuba plaque, I hailed a young man operating a bicycle chair to take me on a tour of parts of Old Havana, one of the world's greatest architectural relics. The negotiated charge for an hour, exorbitant by local standards, was $5 American.

Beginning Nov. 8, however, that young man will no longer be able to accept U.S. dollars, or even euros or yen or Canadian dollars. The official currency will then become the old convertible Cuban peso. Whether the new regime will dramatically change things will depend on how the new system operates, and on how much confidence people have in the peso as a store of value and medium of exchange. Regulations could also change at any time.

Castro allowed Cuba to become somewhat dollarized in 1993 after the fall of the old Soviet Union cut off up to US$5-billion a year in annual subsidies. In recent years, Cuba attracted foreign exchange from a few key sources. Tourism brings in more than US$2-billion. The Sherritt International nickel mine generates maybe US$500-million. Sugar and other crops bring in lesser amounts. A major source of dollars arrives every year from Cubans in Miami and elsewhere who send cash back to impoverished relatives in Cuba. The value of those transfers is estimated at somewhere between US$600-million and more than US$1-billion.

On one level, Castro's new anti-dollar policy looks like a clever ploy to respond to the Bush administrations recent attempt to raise pressure on Castro. The U.S. government recently limited the amount of money Americans could send to Cuba. This itself could threaten the number of dollars flowing to Cuba. By imposing new rules, Castro claimed he was merely responding the the "mafia-like" actions of the U.S. government.

Portraying the United States as a mafia-style operation has long been a Castro propaganda game. One of the few books readily available in Havana is a new paperback titled The Mafia In Havana: A Caribbean Mob Story. It claims to expose the links between the mafia, U.S. intelligence services and U.S. financial institutions before Castro and Che Guevera liberated Cuba in 1959.

On a broader level, reversing the dollarization of Cuba is much more than an anti-U.S. clampdown. It appears to be part of a much larger reversal of the limited economic reforms that had been allowed to develop during the 1990s. In recent months, dollar stores that sold a range of products were closed or curtailed. Private business operations have been shut down, and the government has tightened its control over government-owned companies that receive foreign currency, including the hotel and tourism trade.

Castro needs foreign currency to offset Cuba's faltering economy, damaged by hurricanes and rising oil prices. When Castro needs cash, the people will pay. Cubans, whose daily living standards are mostly at below any definition of the poverty level, will inevitably suffer from lost income and lost opportunity to augment subsistent incomes with foreign currency earnings.

The young man who bicycled me around Old Havana will no longer benefit from the occasional dollars, and whatever dollars he does get will be worth less on redemption. Touring the streets of Havana, once a rich and vibrant city, is like travelling through a unique society in which nobody has anything and there is nothing to buy. The music is good, and so are the cigars, but the people have nothing. Cuba is unique in the West: a product-free society. Castro apparently intends to keep it that way.
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