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  Cuba Opts to Legalize the Dollar

By Douglas Farah
Washington Post Foreign Service
Sunday, July 25, 1993; Page A01

HAVANA -- Faced with a steep economic decline and punishing U.S. trade embargo, Cuba's Marxist government is embarking on its deepest and riskiest economic changes since the revolution, including legalizing the use of American dollars by Cubans.

The opening to dollars -- despite three decades of hostility toward the "enemy to the north" -- was outlined by senior Cuban officials in interviews and briefings for reporters and potential foreign investors last week. Officials describe the revisions as carrying a steep social cost and acknowledge they could lead to other changes difficult to predict or control.

Carlos Lage, vice president of the Council of State and Cuba's leading economic planner, said, "Socialism is related to the state ownership of the means of production and economic planning. We will not abandon that idea . . . but we realize that idea is not absolute.

"We conceive the economic . . . measures we are taking not as definitive or finished, {but} a permanent process of adaptation in the life of our country . . . to the new circumstances," Lage told the visitors. "What at one time was not admissible, or what we thought was not admissible, can become admissible as our economic opening goes forward. The gravity of the situation can force us to take measures that at one time we could not conceive of."

In a speech Friday, President Fidel Castro, as part of what officials said would be an extensive educational campaign to help the population understand the sudden shift in government policy and justify it, declared:

"We have serious problems and we have to solve them to survive. There are two different sets of things: the things we have to do to perfect socialism and the things we have to do for the revolution to survive."

One of the consequences is a drastic cutback in celebration of July 26, the date chosen by Castro as the birthday of his revolution. Instead of addressing hundreds of thousands on Monday, he will speak to 2,000 -- and save the strain on a transportation system virtually destroyed by fuel shortages.

Lage said measures in addition to the dollar legalization were under study, including legalization of privately owned business and services, such as plumbing, carpentry and small businesses. He also said there was a chance for a return to farmers being allowed to sell some produce privately rather than to the state.

Castro experimented in 1986 with such farmers' markets, which quickly became popular, but shut them down as ideologically impure.

Little could be more fraught with danger for Communist Cuba than the decision on dollars. Almost since the triumph of Castro's revolution in 1959, holding foreign currency has been a crime punishable by a fine and imprisonment. Although the Cuban peso and the dollar supposedly trade on par, in the black market the rate has shot up to 60 to 1.

Dollars already have proven divisive here over the last seven years as Cuba has attempted to revive tourism. The visitors' foreign exchange can be spent only at resorts and in "diplomatic shops" forbidden to Cubans -- a major source of popular resentment. Now the government is catering to those with access to dollars -- such as waiters tipped in foreign-currency restaurants, but more importantly Cubans with relatives in Miami willing to send money.

Lage said a network of stores would be set up across the country to sell goods in dollars to ease intensifying food shortages. The shortages are by far the most severe difficulty facing the island, with government-supplied monthly rations shrinking. A food black market, in pesos, is the result.

Officials said the measure, awaiting formalization, would open a floodgate of hundreds of millions in dollar remittances from exiles that could help Cuba ride out its exchange crisis.

The 32-year-old U.S. trade embargo, cutting off Cuba from its traditional market, has contributed to the overall economic difficulties. But the main trigger was reduction and then abolition of massive aid from the former Soviet Union.

Cuban officials hope that with a new infusion of dollars from abroad, and the profits of recirculating them, the state will have more resources to meet fundamental needs that require hard currency, such as petroleum -- which the Soviets had provided at concessionary rates.

Despite the embargo, U.S. officials said people in the United States were allowed to send each family member in Cuba a maximum of $300 every three months. However, because it has been illegal for ordinary Cubans to have dollars, few relatives have sent large amounts.

What is not clear is how the United States will react, and whether the U.S. Treasury Department will have the will or ability to monitor the transactions.

In a sense, the new move will only legalize what already was happening in Cuba, as Castro acknowledged in a June 29 speech to the National Assembly.

"We have penalized the possession of hard currency. It is a headache for the police but it circulates anyway," Castro said. "Let's stop making it a crime in which thousands and thousands participate. . . . There are those who go to buy a pig, and now, instead of paying in pesos, they pay in dollars."

The barriers to the use of dollars began to crumble almost immediately after Castro spoke, setting off a wave of buying by Cubans at the previously forbidden "diplomatic stores."

Until recently, the parking lots of the dollar stores held a few cars with diplomatic license plates and guards often checked documents at the entrance to verify the person entering was, in fact, a foreigner. But even though it is still technically illegal to hold dollars, the parking lots last week were filled with cars with national license plates and documents are no longer checked.

Scores of Cubans were inside, buying cartloads of things no longer available on shelves in the state-run stores, including meat, chicken, beans, cooking oil and rice.

"When I first heard what Fidel said, I came in with a dollar to buy a pack of cigarettes to see what would happen," one elderly shopper explained. She got the cigarettes. "So I went back with $10 and bought more things. Nothing happened. So now I am buying everything I can in case they change their minds."

The sudden influx of Cubans into the stores prompted a complaint from diplomats, who succeeded in getting the stores to maintain checkout counters just for diplomats so they would not have to spend great amounts of time doing their shopping.

"This will help sate the pent-up demand for things and reduce the pressure on Castro," said a diplomat. "He is sacrificing what he thinks he needs to, without making sacrifices that radically alter the political system."

Even many who said they would not be able to get dollars looked forward to the change.

In a nearly bare government-run distribution center in colonial Old Havana, where people lined up to receive a meager ration of potatoes, a lively discussion of the merit of the plan broke out when a reporter asked what people thought of it.

"It will help, it will do away with the black market and we will all be better off," said Mariblanca Gonzalez, a schoolteacher.

"All we need is food," said another elderly man. "If we have food, we will stop complaining. It is not that we want the government to fall, but we are hungry."

But Lage acknowledged the social cost of allowing a certain sector of society -- those with access to dollars -- special privileges.

"This will create differences among people, greater than what we have now and greater than we are used to having since the revolution," Lage said. "It is necessary for our people to understand we need the hard currency for the benefit of the entire population, and that the inequality or privilege that can be created are realities we must allow."

Others saw it as risky because the government is in effect allowing the creation of economic power outside state control.

"The result is a particularly pernicious kind of inequality," said Jorge Dominguez, a Cuba specialist who is a visiting senior fellow of the Inter-American Dialogue in Washington. "The more loyal you were, the less advantage you have today."

Dominguez called the measures "a very big step" because for the first time, "in an important matter like this, the government has renounced the political right to intervene in an economic transaction."

"If it works right, it will give them some breathing room," said Dominguez. "But they will need supplies to meet people's demand. Can they get them? They need credit, and that is pretty iffy. It won't work right if it just means more money circulating."

Lage acknowledged other problems, such as how to revalue the Cuban peso to compensate those with only peso income. One of the fears expressed by some officials is that professionals who spent years studying, such as doctors and engineers, may leave their jobs for less prestigious but much more lucrative positions where access to dollars is greater. Lage said no salaries in Cuba would be paid in dollars.

The sudden collapse of the Soviet Bloc not only cut Cuba's aid and petroleum but removed the island's main export market. Now, sales of sugar, tobacco and nickel provide income sufficient to buy only half of the petroleum products consumed three years ago. The result is rationing of oil-generated electricity. Overall, imports have fallen by 70 percent.

Blackouts of up to 12 hours a day have left many factories idle. Agricultural production has fallen, including of sugar and tobacco, for lack of fertilizers, pesticides and tractors.

While the U.S. trade embargo used to be widely described here as having limited impact until 1990, because of the flow of goods and resources from the Soviet bloc, Cuban officials now say it has cost the economy some $40 billion.

The Cuban Democracy Act introduced last year by Rep. Robert J. Torricelli (D-N.J.) punishes even foreign subsidiaries of U.S. companies that do business with Cuba, and officials here say this has increased greatly the cost of acquiring needed imports.

Lage called the embargo "illegal" and "criminal" because of the suffering the shortages of food and medicine was bringing to the Cuban people. He said it raised transportation costs of imports about 40 percent.

© Copyright 1993 The Washington Post Company

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