Tag Archives: Remittances

TRUMP’S NEW CUBA SANCTIONS MISS THEIR MARK

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BY WILLIAM M. LEOGRANDE | NOVEMBER 9, 2017

Original Article: SANCTIONS MISS THEIR MARK

REGULATIONS ON TRAVEL AND TRADE WILL LIKELY HAVE LITTLE IMPACT ON CUBA’S GOVERNMENT, HURTING ORDINARY CUBANS INSTEAD.

After two years of restored diplomatic ties, new U.S. regulations on Cuba are bringing back a thicket of travel, financial and trade restrictions – and a tougher stance toward the island. The goal of these restrictions, according to U.S. President Donald Trump, is to starve the Cuban government of money from travel, remittances and commercial ties. But the real victims of the new sanctions will be U.S. residents whose right to travel is curtailed, Cuban families who depend on remittances to survive, the struggling Cuban private sector, and U.S. businesses that will face an even greater disadvantage competing with Asian and European firms.

The regulations issued by the Treasury and Commerce Departments on Nov. 8 re-impose significant limits on educational travel to Cuba that former President Barack Obama relaxed. They also redefine “prohibited officials of the Government of Cuba” expansively, potentially cutting off remittances to hundreds of thousands of Cuban families. Finally, they prohibit anyone subject to U.S. jurisdiction from engaging in any “direct financial transactions” with entities controlled by the Cuban military or security forces that “disproportionately benefits” those entities.

All this marks the implementation of new sanctions Trump announced on June 16, 2017, at a Cuban American rally in Miami. The sanctions were mandated by the National Security Presidential Memorandum the president signed onstage, and included several major changes to the Cuban Assets Control Regulations (CACR), which spell out the operational details of the U.S. embargo.

Educational travel

In January 2011, Obama relaxed restrictions that former President George W. Bush had imposed on educational exchanges with Cuba – restrictions so onerous they eliminated most U.S. study abroad programs. Trump’s new regulations re-impose the Bush era restrictions, albeit with some exceptions for students accompanied by a representative of their U.S. academic institution. When combined with the State Department’s Sept. 29 travel warning advising people not to visit Cuba at all because of the injuries suffered by two dozen personnel at the U.S. embassy, the new restrictions on educational travel could drastically reduce U.S. study abroad in Cuba, which had been on the upswing since 2014.

U.S. visitors traveling under the “people-to-people” educational license (for educational travel not leading to an academic degree) can no longer travel on their own. They must now travel with organized groups under the auspices of a U.S.-based, licensed travel provider. Obama had lifted the group travel requirement in March 2016, providing an immediate boon to Cuba’s emerging private sector because individual travelers are much more likely to stay at private B&Bs (casas particulares), eat in private restaurants (paladares), take private taxis, and hire private guides. Most organized groups are too large for private rentals and thus have to be booked into government-owned hotels. Consequently, although Trump’s policy purports to boost Cuba’s private sector, the prohibition on individualized people-to-people travel hits the private sector hardest.

Although Cuban private businesses may suffer, the new travel regulations are not likely to put a huge dent in the number of U.S. visitors. The volume of travelers from the United States jumped dramatically in 2015, up 77 percent over 2014, after Obama and Cuba’s President Raúl Castro announced their intention to normalize relations in December 2014. This surge occurred before Obama ended the prohibition on individualized “people-to-people” travel. U.S. visitors are far more likely to be deterred by the State Department’s travel warning. Even then, a significant decline in U.S. visitors will not do serious damage to the Cuban tourist industry, which hosted four million foreign visitors in 2016 and is on track to host 4.7 million this year, of which only seven percent were non-Cuban American U.S. visitors.

Remittances

The new regulations redefine “prohibited officials of the Government of Cuba” to include all employees of the Ministry of the Revolutionary Armed Forces and Ministry of the Interior, thousands of ordinary Cubans who volunteer as leaders of their local Committees for the Defense of the Revolution, as well as senior government and party officials. The previous regulatory definition of prohibited officials, put into place by Obama in October 2016, was limited to members of the Council of Ministers and flag officers of the Revolutionary Armed Forces. The new definition encompasses hundreds of thousands of people, since the armed forces manage a significant number of commercial enterprises such as the Gaviota hotel chain and TRD Caribe retail stores, especially in the fast-growing tourism sector.

Cubans who are “prohibited” are not allowed to receive payments from U.S. nationals. That includes remittances and gift packages (Cuban Assets Control Regulations,  §515.570), so the new regulations could potentially deprive hundreds of thousands of Cuban families of support from their relatives abroad. However, the actual impact is harder to predict. There is no way to enforce this prohibition since the U.S. government does not have a list of all the people covered in the expanded definition. Moreover, Cuban Americans can carry funds and gift packages to family when they travel or can wire funds through third countries, just as they did in 1994 when former U.S. President Bill Clinton tried, unsuccessfully, to cut off remittances to punish Cuba for the balsero (rafters) migration crisis.

Apart from whether the new prohibition proves effective, it would seem to run counter to the purported aim of Trump’s policy to empower the Cuban people by directing U.S. funds to them, rather than to the Cuban government. Remittances are by far best way to do that because the dollars go directly to family on the island.

Transactions with military-linked enterprises

The most complex regulatory change is the prohibition on engaging in any “direct financial transactions” with businesses controlled by the Cuban military or security forces if they “disproportionately benefit” those forces. This is a potentially significant prohibition because the Cuban armed forces ministry administers commercial holding companies involved in everything from banking and port management to hotels and retail sales. The presence of military enterprises is greatest in the tourist sector, where both U.S. visitors and U.S. companies are most likely to encounter them.

The U.S. Department of State was tasked with creating a list of prohibited enterprises, which it released along with the new regulations. The list includes 180 entities, 58 percent of which are in the tourist sector, including 84 hotels – by far the largest category of businesses included. Some of the entities listed are holding companies for hundreds of retail outlets, but U.S. travelers and companies can still do business with subsidiaries of prohibited entities so long as the subsidiaries themselves are not specifically listed. Quite reasonably, the State Department took the view that it could not expect travelers to know which retail outlets might be subsidiaries of prohibited entities unless they were specifically named.

Senator Marco Rubio (R-Fla.) and Representative Mario Díaz-Balart (R-Fla.), who were the intellectual authors of the ban on transactions with military-linked enterprises, complained that the State Department’s list was not inclusive enough because “bureaucrats” were “refusing” to carry out Trump’s policy. Rubio wanted to see the entire Cuban tourist sector put off-limits because the Minister of Tourism, Manuel Marrero Cruz, is a former military officer. According to Rubio, that means the entire sector is controlled by the armed forces.

The Cuban government was not happy with the sanctions either. Josefina Vidal, Director General for U.S. Affairs in the Foreign Ministry, said the new measures “confirm the serious regress of bilateral relations as a result of the decisions adopted by the government of the President Donald Trump,” and called some of them “subversive.”

In truth, the impact of these sanctions on commercial relations with Cuba is likely to be limited. The Cuban government, adept at coping with U.S. hostility for the past half century, may feel the pinch, but it can look elsewhere for trade partners and tourists. Also, in order to avoid disrupting ongoing business relationships, the new regulations exempt existing contracts from the prohibition on doing business with military-linked enterprises. So, for example, Marriott-Starwood Hotels’ contract to manage hotels owned by holding companies administered by the armed forces ministry is not affected by the new regulations. Moreover, even future contracts will be allowed with military-linked businesses involving ports, airports, and telecommunications, which are the three sectors in which most U.S. businesses (cruise ship lines, airlines, and cell phone companies) now operate.

On balance, the regulatory burden falls most heavily on U.S. academic institutions, whose study abroad programs in Cuba will be curtailed; on U.S. travelers who can no longer travel by themselves on a people-to-people educational license; on Cuban-Americans whose families on the island who will no longer be eligible to receive remittances and gift packages; and on U.S. businesses that may want to sell goods to Cuba in sectors where their counterparts are commercial enterprises managed by the armed forces ministry.

The Cubans who will suffer most are small business owners, suppliers, and employees who cater to individual U.S. travelers; employees of state firms managed by the armed forces ministry and their families, who may lose remittances and gifts; and Cubans who might have found employment with U.S. companies whose potential business deals are now blocked.

The Cuban state will suffer only marginally from Trump’s new sanctions – certainly not enough to force it into the sorts of concessions Washington demands.

 

 

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TRUMP POLICY COULD CUT REMITTANCES TO A MILLION CUBAN FAMILIES

Huffington Post, 06/20/2017 12:45 pm ET

William M. LeoGrande and Marguerite Rose Jiménez

There is a poison pill hidden in President Donald Trump’s National Security Presidential Memorandum (NSPM) on Cuba that could deprive over a million Cuban families of access to remittances from their relatives abroad—a declaration of economic war on the very people that Trump claims his policy will empower.

Section 3(d) of the NSPM redefines “prohibited officials of the Government of Cuba” expansively, potentially including almost a quarter of Cuba’s entire labor force. The significance: Cubans who are “prohibited” are not allowed to receive payments from U.S. persons, and that includes remittances (Cuban Assets Control Regulations, §515.570).

The previous regulatory definition of prohibited officials was very narrow, limited to members of the Council of Ministers and flag officers of the Revolutionary Armed Forces. The new definition proposed by President Trump includes hundreds of senior officials in every government agency, thousands of ordinary Cubans who volunteer as leaders of their local Committees for the Defense of the Revolution, and—most importantly— every employee of the Ministry of the Revolutionary Armed Forces (MINFAR) and Ministry of the Interior (MININT).

Bottom of Form

MINFAR has some 60,000 active duty troops and MININT has some 35,000 police and Border Guards, and that’s not counting their civilian employees. Military service is compulsory for both men and women, so almost every family on the island will be affected by this new definition at some point.

More importantly, according to the U.S. government’s Cuba Broadcasting service, over a million Cubans are employed by the two big holding companies, GAESA and CIMEX, that report to MINFAR. If all these people are now to be considered “prohibited officials,” then a quarter of the Cuban labor force will no longer be eligible to receive remittances.

For Cuban state employees who are paid an average salary equivalent to about $25 a month, cutting them off from family remittances will have a devastating impact on their standard of living. By what possible logic can a clerk at GAESA, a truck driver at CIMEX, or a private in the Cuban army be defined as an “official” important enough to be prohibited from receiving help from their family abroad?

The alleged premise of Trump’s policy is to empower the Cuban people by directing U.S. funds to them, rather than to the Cuban government. Remittances are the very best way to do that because the dollars go directly to family on the island, at a rate of about $3 billion annually.

President Trump could have imposed limits on remittances directly and openly, as previous presidents have done, but that would have been very unpopular in the Cuban American community, so instead he has disguised a potentially massive cut behind the small print of an obscure regulation. Now it is up to the Treasury Department’s Office of Foreign Assets Control to write the new regulations in a way that averts this travesty.

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Remittances Drive the Cuban Economy

By Emilio Morales and Joseph L. Scarpaci, Miami (The Havana Consulting Group).— Fidel Castro’s government reluctantly accepted remittances from abroad in 1993 when it realized it needed access to hard currency to survive.

It was a devastating ideological blow at the beginning of the so-called ‘Special Period in a Time of Peace’ because it revealed that the Cuban exile community had become a lifeline for the island. Suddenly, U.S. dollars started inundating the island and would never leave. Both the Cuban society and the exile community were startled by this bold move.

The former Cuban leader probably never imagined that the forced opening up to dollars was going to become the most efficient driver in the economy over the last 20 years. Not a single Cuban economist foresaw that outcome. Today, remittances reach 62% of Cuban households, sustain about 90% of the retail market, and provide tens of thousands of jobs.

Money sent from overseas far exceeds the value of the once powerful sugar industry which, in 1993, began a huge decline from which it has not recovered. Remittances in 2013 surpass net profits from tourism, nickel, and medical products manufactured by the Cuban biotech industry.

Table 1. Remittances versus Other Sources of Hard Currency in Cuba, 2012 (in millions of US dollars)

No.

Source

2012

1

Remittances received in cash

$2,605.12

2

In-kind remittances

$2,500.00

3

Total remittances

$5,105.12

4

Tourism revenues

$2,613.30

5

Nickel exports

$1,413.00

6

Pharmaceutical exports

$500.00

7

Sugar exports

$391.30

Data sources: Calculated by The Havana Consulting Group, based on their data and open-source statistics published by the Oficina Nacional de Estadísticas e Información (ONEI), Havana.

The table above shows that remittances ($5.1 billion) outstrip the leading four sectors of the Cuban economy combined ($4.9 billion). Moreover, the figures for items 4 through 7 do not take into account expenses incurred in generating those gross revenues (i.e., costs of processing sugar, manufacturing drugs, food imports, etc.). Sending remittances does not cost the Cuban government money, but it circulates throughout he economy and supports most Cubans in some way.

White House Policies Trigger Growth in Remittances

Barack Obama’s arrival in the White House has directly influenced the increase in money being sent to Cuba. In the past four years, $1 billion USD of remittances have infused the Cuban economy.

Cash remittances in 2012 reached a record $2.61 billion USD; a 13.5% increase over 2011.

In other words, cash remittances outweigh government salaries by 3 to 1. The current monthly mean salary according to ONEI (the official government statistics agency) is 445 Cuban pesos, or the equivalent of just under $19 USD. Today, the economically active work force is 5.01 million workers, of which about 80% (4.08 million) draw state paychecks, whereas the balance is self-employed, agricultural, or cooperative workers.

If we use the official exchange rates that one Cuban convertible peso (CUC) equals 24 pesos (CUP) or one US dollar, the annual payout for state workers is three times less than the volume of money that Cuban émigrés send to family back home. Include in-kind remittance contributions (gifts, appliances, clothing, etc., brought to Cuba during visits), and the ratio leaps to 5.5 to 1.

Behind this growth in sending money to Cuba is the opening up of travel to Cuba as well as eliminating restrictions on sending money there. In 2012, just over a half a million Cubans residing abroad visited Cuba, making them the second largest tourist group in the island’s market; only Canadians (1.1 million visits) surpass them.

Out-migration from Cuba –about 47,000 annually on average over the past decade or nearly a half million émigrés—is also a contributing factor because those who have most recently left the island are the ones most inclined to send money back home. That was not the pattern with the original exile community in the 1960s; sending dollars to the island was forbidden back then.

We also need to acknowledge that several reforms introduced by the Cuban government in the past three years have encouraged remittances. This cash infusion helps to start home restaurants (paladares), B&Bs, car rentals, and more recently the buying and selling of private cars and real-estate. These businesses are aided by the 1.6 million cell phones in use today –available to the general public only since 2007—of which 70% are paid for by Cubans living off the island.

Never at a loss to encourage remittances, the Cuban government announced just last month the opening of 118 Internet stations that charge very high hourly rates. The new cyber cafés will initially cluster in the tourist poles across the island and the provincial-capital cities.

At the present, then, the role the Cuban diaspora plays in developing the island’s economy has never been greater, despite the restrictions on how and where money can be invested. However, the short term is unlikely to witness a greater influx of capital beyond the diaspora’s giving. Witness the failures in recent offshore gas and oil oil drillings that have come up ‘dry’ and the political and economic crisis in post-Chávez Venezuela is mired. This may create a broader space for the exiles to have a more direct hand in rebuilding the country.

Like it or not, Cuban exiles carry economic clout on the island. They have a lot of skin in the game; some of it is economic, and a lot of it is love of family. Their role in shaping the lives of many will be transformative in years to come, and on both shorelines that straddle the Florida Straits.

Last Updated (Tuesday, 11 June 2013 04:20)

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New Publication: The Cuban Diaspora in the 21st Century

A new analysis of the potential role for the Cuban diaspora was made public today – October 7, 2011 – in Washington and will be presented in Miami on October 10. It was produced under the auspices of the Cuban Research Institute of Florida International University and more specifically, the Project entitled “The Cuban Diaspora and the Development of the Entrepreneurial Sector” of the Cuban Research Institute in cooperation with the Cuba Study Group.

As can be seen from the Table of Contents below, the Report, while concise, is wide ranging in scope and constructive in orientation. It may prove to be an important catalyst in generating changes in attitudes and eventually policy on both sides of the Florida Straits. At least, I hope that this is the case.

A distinguished group of scholars produced this Report, including Uva de Aragón (Florida International University), Jorge Domínguez (Harvard University), Jorge Duany (the University of Puerto Rico), and Carmelo Mesa-Lago (University of Pittsburgh).  Orlando Márquez, director of Palabra Nueva, a journal of the Havana Catholic Archdiocese, joined the committee in March. The coordinator for the project is Juan Antonio Blanco (Florida International University), who also coauthored the report.

The complete study is available here:

The Cuban Diaspora in the 21st Century, FIU, October 2011

From the Preface by Juan Antonio Blanco:

The authors have analyzed relations between several states and their diasporas and studied the problems and potentials associated with the Cuban diaspora’s potential role in Cuba’s national development. While this document does not attempt to evaluate the measures adopted by the Cuban government in August 2006, it suggests that Cuba’s so-called economic update would have a better chance of success were it accompanied by a parallel update of the island’s migratory policy.
The authors have reviewed the tensions, conflicts, and traumas in the history of Cuban state’s relationship with its diaspora, but their emphasis is always on the future. Without glossing over problems, they prefer to scan the horizon for possibilities that could bring about a genuine normalization of relations between the diaspora and its country of origin; in particular, changes in existing migratory policy to bring it in line with universally recognized standards. Their analysis also includes the obstacles posed by United States policy toward Cuba, especially for the Cuban diaspora, and the need for their removal.
The members of the committee—who volunteered their services to produce this report—have formulated a series of recommendations for respectful submission to the governments of Cuba and the United States, as well as to the Cuban diaspora and Cuban civil society.
As the authors note in the conclusion to this document, “Many of the observations, conclusions, and suggestions expressed in this report are aimed at tomorrow, with the hope that they will eventually be implemented in whole or in part. Tomorrow can begin today, however, if the actors with decision-making power in this area so choose, as Cuba so urgently needs.”

Table of Contents

Preface 5
Summary 7
Introduction 11

A Better, Shared Future 11
Points of Departure  12
Advantages of a Shared Future 13

State-Diaspora Relations 16

Haiti: A strategically selective state 18
The Dominican Republic: A Transnational Nation-State 20
Cuba: Between Disinterest and Denunciation 23
Policies for Improving State-Diaspora Relations 28
The Role of Government Institutions 33
Relations with Non-Governmental actors 34
Dual Citizenship Laws 34
External Voting 35
Investment Incentives  35
“Brain Circulation” 35
Ethnic Tourism 36
Nostalgic trade 36
Relations with Charitable and Voluntary Organizations 37

The Cuban Diaspora: Possibilities and Challenges 38

The Cuban Diaspora in the United States 38
New Policies and the Diaspora  45

The Diaspora: Resources and Possibilities 47

Economic Capital  48
Social Capita 50
Human Capital 50
Symbolic Capital 51
Possible Diaspora Support for the Non-State Sector  52
Venture Capital or Joint Investment in Small Enterprises  53
Using Symbolic and Social Capital to Attract Financial Capital  55
Access to Foreign Markets, Marketing, and Outsourcing 56
Tools, Inputs, and Technology 57
Training and Consulting 58
Obstacles and Challenges 59
Policy Framework: Updating Cuba’s Migration Laws 61
The Subjective Context  63

Conclusions and Recommendations .65

Conclusions 65
Recommendations 68
To the Government of Cuba  69
To the Government of the United States70
To the Cuban Diaspora 72
To Cuban Society. 72
Epilogue 73

 

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Cheney Wells: “The Role of Remittances in Cuba’s Non-State Sector Expansion”

How recent changes in remittance policy by the US and Cuba may facilitate small-scale investment to support Cuba’s growing non-state sector

Attached is an interesting MA Thesis by Chaney Wells on remittances and their posible use for microenterprise in Cuba:
Abstract:
This study adds to the existing literature on the potential use of remittances for credit in a financially underdeveloped economy, focusing on Cuba, a country for which little is known about the relationship between remittances and investment. In the past, economic and legal conditions in Cuba, in addition to US and Cuban policies on financial transfers have resulted in a large majority of remittances to Cuba being used for basic consumption. The Cuban government’s changing stance on the non-state sector, as well as recent shifts in both US and Cuban policies on remittances have important  implications for remittance use in Cuba. This paper assesses the factors affecting remittance use, and makes the case that as a result of the concurrent shifts in US and Cuban remittance policy along with Cuba’s non-state sector expansion initiative, a more significant portion of remittances will be used for productive investment purposes, filling the void left by the underdeveloped financial sector.
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