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As Cuba-U.S. Relations Thaw, Remittances Stoke New Tensions

Emigrés are sending more cash to relatives back in Cuba, exacerbating inequality in the country.

When President Barack Obama announced plans to restore diplomatic relations with Cuba and ease travel and trade restrictions, he argued that the U.S. could have a bigger impact on the island nation through engagement than through the continuation of its decades-old diplomatic and economic embargo. He seems to be right, in at least one respect.

Remittances from Cuban-Americans to relatives who stayed are fostering a growing class and racial divide in Cuba, analysts say. Most of the money is flowing to white Cubans, who are far more likely to have relatives in Florida than are their black compatriots.

“Afro-Cubans were less likely to emigrate because they benefited disproportionately from the revolution,” says Ted Henken, an expert on the Cuban private sector at Baruch College of the City University of New York. “Many years later they have far fewer relatives abroad who can send them remittances.”

Remittances to Cuba are now estimated at between $1.5 billion and $2.5 billion a year, or roughly 1 to 2 percent of gross domestic product. More than 80 percent originates in the U.S., with most of the rest coming from Spain and Latin America. The total looks set to jump because the Obama administration has relaxed rules on remittances this year, allowing Americans to send four times as much money as before — up to $8,000 annually. That is a princely sum for a country where the per capita income is about $6,000 a year, based on the official exchange rate (and far less based on black market rates). Monthly salaries average only $20 at the black market rate, but that is mostly disposable income for Cubans because the state provides free housing, education and health care and subsidizes food prices.

Havana is increasingly sensitive to criticism that remittances are fueling a nascent business sector and fostering inequalities that Fidel Castro sought to eradicate with the socialist revolution of 1959. In several speeches, President Raúl Castro, Fidel’s brother, has asserted that the regime’s objective is to create a “sustainable socialism.” Under tepid market-oriented reforms, the government has allowed small-scale private businesses and large hotel joint ventures to operate, hoping they will draw workers from the bloated state sector, generate new tax revenue and free up government resources for the benefit of the neediest Cubans.

Remittances are benefiting the less needy, though. “This money goes only to about 20 percent of the Cuban population,” says Manuel Orozco, a senior fellow at the Inter-American Dialogue, a Washington-based think tank. Cuban scholars estimate that 30 to 40 percent of Cubans identified as white receive dollar remittances whereas only 5 to 10 percent of blacks do.

Whatever advantages Afro-Cubans may have received as a result of the revolution — in terms of access to jobs, housing, medical care and education — have diminished over the past quarter century. The collapse of the Soviet Union in 1991 put an end to Soviet subsidies and trade benefits that had sustained Cuba, sending the economy into a tailspin. In recent years Venezuela had stepped into the breach to provide low-cost oil and other aid, but that country’s economic crisis has slashed that support as well. The economic squeeze helped persuade the Castro regime to seek to normalize relations with the U.S.

The evidence of growing income disparities is visible in Havana neighborhoods. In Vedado, renowned for its early–20th century Greek Revival townhouses, renovated and repainted façades mark the residences of people receiving remittances; the majority of homes have discolored walls and sagging porches. Farther east, in the old commercial neighborhood of Centro Habana, poorer families crowd into decrepit, two-story, 19th century tenements known as solares because their inner courtyards are exposed to the sun.

The most glaring urban poverty is found in the squatter settlements off eastern Havana Bay, known as Llega y Pon (“Come and Squat”). Wood, adobe and concrete shacks have sprouted over the past decade, with a jumble of wires illegally siphoning electricity from utility poles. The residents, many of them Afro-Cuban, fled the countryside and settled there without government permission in hopes of finding employment.

The recipients of remittances are also using the money to go into business. According to research by Orozco, more than half of the remittances used for businesses are invested in bed-and-breakfast establishments and restaurants, known as paladares, that cater to foreign tourists — mainly Canadians, Europeans and, increasingly, Cuban-Americans. About 400,000 Cuban-Americans visited Cuba last year, or five times the total in 2008. They carry roughly half of the estimated remittances; the remainder is sent through money transfer firms such as Western Union and MoneyGram.

The remittance business is too small for most American banks, and in any case they claim that Havana and Washington need to clarify banking rules before they can consider opening up shop in Cuba. “The banks are greeting the thaw with tempered enthusiasm,” says David Schwartz, chief executive of the Florida International Bankers Association.

At an association conference in Miami last month on money-laundering compliance, participants from several financial institutions expressed concerns about a number of obstacles they saw toward doing business in Cuba: fears that anti–money laundering regulations would not be properly enforced in Havana, exposing their own institutions to charges of noncompliance in Washington; worries that money sent to individuals or businesses may be siphoned off by correspondent banks in Cuba; and concern that the Republican majority in Congress will reject an administration request, expected by the end of April, to remove Cuba from the list of states sponsoring terrorism.

“As long as Cuba remains on that list, banks will be reluctant to act in any way that would subject them to regulatory enforcement actions,” says Fernando Capablanca, a director of Miami-based Ocean Bank and president of the Cuban Banking Study Group, a nonprofit entity that monitors financial services in Cuba.

Still, a number of large U.S. corporations have expressed interest in doing business with Cuba following President Obama’s call to restore full diplomatic relations. They include farm and construction equipment makers John Deere and Caterpillar, hotel manager Marriott International, agricultural commodities trader Cargill and food and beverage conglomerate Pepsico.

“Banks are going to follow their important customers,” says FIBA’s Schwartz.

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