Dollar's Purchasing Power Dwindles in Cuba

For many Americans, recent actions by Cuba that cheapened the dollar do not matter. After all, the U.S. embargo prohibits most travel to the Communist-run island unless licensed by the Treasury Department. But for those who do visit or send money there, in particular Cuban-Americans, have seen the greenback's purchasing power fall 20 percent over the last six months.

"This place was already expensive," said a U.S. businessman who visits often to sell food to the government, referring to the minimum 140 percent sales tax at state-run hard currency shops.

"But over the last six months it has become worse than any other country I do business with," he said, like others asking his name not be used.

"Because of the sales tax my dollar was already worth only around $0.40 at the stores, and now it is worth even less," he said.

As of this weekend the locally printed foreign exchange equivalent, the convertible peso, is worth 8 percent more against all currencies, including the dollar. The revaluation follows the replacement of dollars by convertible pesos as legal tender last November and a 10 percent tax slapped on the U.S. currency

No More Free Spending of Dollars

For over a decade one could spend dollars freely in Cuba at tourist spots or more than 5,000 state-run dollar-based stores, gas stations, eateries and clubs, without paying any exchange fee, or send dollars to relatives to do the same or exchange them for traditional pesos, 25 at the current exchange rate. But no more.

In November the dollar, which had circulated freely in Cuba, was no longer usable for any transactions. The convertible peso -- which was introduced in 1994 but was never accepted by businesses or residents -- became king by decree alongside the traditional peso, which has little value inside the country.

Cuban President Fidel Castro has declared war on the dollar. The veteran U.S. foe, now 78 and in power for 45 years, blames the Bush administration's efforts to block foreign banks from processing greenbacks obtained legitimately from family members in the United States or through tourism.

The Federal Reserve last year fined Switzerland's largest bank $100 million for illegally transferring freshly printed dollar notes to Cuba and three other countries subject to U.S. sanctions, and the Treasury Department established a special team to follow Cuba's dollar trail.

So starting in November one had to exchange, for example, $100 for 90 convertible pesos, after paying the 10 percent levy. As of April 9 that $100 is worth 80 convertible pesos due to the 10 percent tax, 8 percent devaluation of the dollar against the convertible peso and 2 percent exchange fee.

In Cuba's 90 percent state-run economy, prices are fixed by the government.

"If they keep cutting the dollar's value in no time it will be worth nothing," said Roberto, who sells snacks in Havana.

Getting Funds From Relatives

Santiago de Cuba housewife Eliana is one of about 30 percent of Cubans who receive an estimated total of $1 billion a year from relatives outside the country, mainly residing in the United States. That allows her to live relatively comfortably in a country where the average monthly wage of 260 pesos, equivalent to around $15, is not enough to make ends meet.

Since the collapse of European Communism plunged Cuba into a deep crisis, those with access to dollars have lived far better than others, making a hotel bellboy rich compared to many doctors and others professionals, let alone laborers.

Cubans scrape together convertible pesos any way they can to purchase basics like cooking oil, shoes, detergent and shampoo, available only in the government-operated shops. Some engage in petty theft or banned private initiatives. Others receive dollar bonuses and tips, and some, like Eliana, money from relatives.

"These measures affect me. When they started taxing the dollar my brother in the United States said he would send a bit more to make up the difference, but I do not know if he can this time," she said.

Central Bank President Francisco Soberon admitted the dollar's dwindling purchasing power aimed at leveling incomes by taking from the better off and giving to the less well off.

"There is a redistribution of income under way … these measures go to benefit the majority of our people," Soberon said.

Castro, during a television broadcast explaining the convertible peso's 8 percent revaluation, argued many Cubans abroad obtained good jobs due to Cuba's free and excellent educational system so they not only could send more dollars but should out of gratitude, even if the state took 20 percent off the top. One wonders if Eliana's brother would agree.