Remittances and Cuba

Posted on Tuesday, 03.22.11

Remittances and Cuba
BY SERGIO BENDIXEN AND DONALD TERRY
www.sbendixen@bendixenonline.com

For the past decade, we have been working together in more than 30
countries on the issue of remittances. Those funds — typically $100,
$200 or $300 each month — have become a virtual "river of gold," adding
up to more than $300 billion a year to developing countries, more than
all foreign aid and foreign investment combined. Remittances are now
widely recognized as key contributors to social and economic development
in many poor countries.

But, not yet in Cuba.

Relatives abroad send money to family members quietly, through " mulas"
for fear of being charged with aiding the Castro regime, while
recipients take care in using the funds to avoid being labeled
"capitalists."

All this could change dramatically over the next few months — indeed,
the process may have already begun. In January, as a gesture signaling
efforts to improve relations with Cuba, President Obama relaxed the
restrictions on remittances to the island for the second time in his
administration.

The trend toward greater flexibility represents a historic opportunity
for Cuba and its people. Cubans living abroad have already been sending
home hundreds of millions of dollars a year, mostly from the United
States, despite previous U.S. government policies restricting the flow
of remittances to Cuba. Family matters.

As in other countries around the world, remittances represent a lifeline
for families who depend on this money to cover basic daily needs or to
provide a "cushion" for emergencies, including hurricanes or other
natural disasters.

At this point in time in Cuba, where the government has announced that
almost one million people are to be shifted from the government payroll
by the end of March, these remittances could also facilitate the
inevitable wrenching transition to the private sector. Experience over
the past decade, particularly in Latin America and the Caribbean, has
shown that person-to-person transfers are often used to fund small
business investments.

Cuba is no different: Limited research has shown that more than a third
of Cuban recipients would like to invest a portion of their remittances
in some form of business enterprise. Remittances to Cuba are already
providing important support to the incipient growth of the micro and
small enterprise sector, the most likely source of employment for a
growing number of Cubans.

Next month's Cuban Communist Party Congress provides a historic
opportunity for the Castro government to acknowledge the new U.S.
remittance policy, and match it with a gesture of its own, to the
benefit of the Cuban remittance recipients. Today, remittance delivery
in Cuba occurs within a closed and controlled space. According to the
Inter-American Dialogue, in 2009, Cuba had the lowest number of
remittance service providers in Latin American, and the cost to remit
was the highest. According to Cuban regulations, U.S. dollars sent to
Cuba can only be paid out at limited locations, where they are further
burdened with heavy foreign exchange taxes. This policy discourages the
sending of money and stifles formal remittance channels, resulting in
the rise of costly and insecure transfer methods.

As many countries in the Western Hemisphere have come to recognize,
governments play a key role in fostering secure and efficient remittance
delivery. In Cuba, the first steps toward enabling a policy framework
for transparent and accessible remittance transfers could include the
elimination of disproportionate taxes on small foreign exchange
transactions and the encouragement of alternative payment networks
throughout the country. Equally important would be a change in
government policy to affirmatively encourage the investment of
remittances, free of any restrictions.

A commitment from the Cuban government to allow all remittances to enter
the Cuban economy freely, unburdened by taxes or other cumbersome
regulations, could result in remittances reaching $2 billion to Cuba in
the coming years. Relatives abroad would be more likely to send larger
amounts if their money could be used to start businesses, meeting the
Cuban people's immediate needs and also contributing to the economic
development of the communities where they live.

It could also positively change the relationship of Cuba to its
diaspora. The time for the Castro government to act is now.

Sergio Bendixen is the founding partner of Bendixen and Amandi
International, a public policy, opinion research, and communications
consulting firm in Miami. Donald Terry, former general manager at the
InterAmerican Development Bank, teaches at Boston University Law School
and consults with the World Bank in Africa.

http://www.miamiherald.com/2011/03/19/2128051/remittances-and-cuba.html