American Remittances Speed Change in the Cuban Economy

American Remittances Speed Change in the Cuban Economy
by ROB LOVITT

Call it dollar diplomacy, one money order at a time: Even as officials
in Washington and Havana are hashing out the details of their countries'
newly normalized relations, individual Americans are helping foster free
enterprise and a higher standard of living in the island nation.

"Roughly one-third of Cubans receive money from abroad," said Jorge
Duany, director of the Cuban Research Institute at Florida International
University in Miami. "When you send $100 or $200 a month to Cuba — where
the average salary is around $24 a month — that makes a substantial
difference in people's standard of living."

Such funds, known as remittances, have been playing an increasing role
in the Cuban economy since September 2009, when restrictions on the
amount of money Cuban-Americans could send to family members in Cuba
were eliminated.

Then, in January, the limits for Americans without a family connection
were raised from $500 to $2,000 per quarter, or $8,000 per year.

Calculating total U.S. remittances to Cuba is exceedingly difficult due
to the informal nature of the market. In addition to money transfers,
Americans who can legally travel to Cuba are allowed to bring up to
$10,000 in remittance funds.

"There's a wide range of figures out there," said Alanna Tummino,
director of policy for the Americas Society/Council of the Americas, an
advocacy/public awareness group based in New York. "The State Department
says anywhere between $1.4 (billion) and $2 billion; other outlets say
the real number could be closer to $3 (billion) to $4 billion."

Based on figures compiled by the World Bank, that's equivalent to 2 to 5
percent of the country's 2013 gross domestic product of $77.15 billion.

That's only if the numbers are accurate. Manuel Orozco, a fellow at the
Inter-American Dialogue, a Washington-based think tank, believes the
actual numbers are significantly lower. After polling Americans of Cuban
descent in 2014, he estimated total remittances from the U.S. at $770
million, a figure that he thinks could double to $1.4 billion by the end
of 2016 thanks to the steadily loosening restrictions.

"Whether it's $1.4 billion or $3 billion, it's a lot of money," said
Tummino. "It plays a significant role in the Cuban economy."

The money is flowing in at an opportune time. Traditionally, says Duany,
most Cubans worked for state-run companies, leading to bloated payrolls,
bureaucratic inefficiency and financial mismanagement. Five year ago,
the government officially recognized the problem and laid off
approximately 500,000 workers in response.

At the same time, Cuban officials loosened the restrictions on private
enterprise, opening the door to entrepreneurship in a widening array of
business categories. Chief among them are a variety of tourist-friendly
services, including small restaurants ("paladares"), family-run B&Bs
("casas particulares") and taxis.

"These categories of self-employed workers have increased tremendously
in the last five years," said Duany. "It's now about 10 percent of the
entire labor force — around half a million people."

Given the difficulties of raising funds through traditional channels,
such as bank loans, remittances play a significant role in supporting
self-employment. According to a 2014 survey by union activists, funding
for 32 percent of new businesses in Cuba came from remittances, second
only to personal savings.

Going forward, it's likely that remittances will play an even larger
role as a result of the ongoing normalization of diplomatic relations,
the recently loosened limits on allowable funds and the proliferation of
methods and points of payment.

Western Union, for example, has become a major conduit for U.S.
remittances since re-entering the Cuban market 15 years ago. The company
declined to share specific numbers, but spokeswoman Pia DeLima said she
expects the business to grow as more people get more comfortable with
the concept.

"We opened in Cuba with 36 locations; we now have more than 400," she
told NBC News. "The key is that the more points of access you have, the
more likely people will use these channels."

In the meantime, most observers believe the latest loosening of limits
on U.S. remittances will allow more Cubans to take the plunge into
self-employment, especially for those hoping to launch more
capital-intensive enterprises than room rentals and home-style restaurants.

"Before, there wasn't a whole lot someone could do with $2,000 except
maybe buy a laptop and some software," said Tomas Bilbao, executive
director of the Cuba Study Group, in Alexandria, Va. "But with a higher
level (of funds), now you're cooking with fire."

Source: American Remittances Speed Change in the Cuban Economy - NBC
News -
http://www.nbcnews.com/business/economy/american-remittances-speed-change-cuban-economy-n397796