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Executive Summary
Emilio Morales, author of this study, affirms that remittances from abroad are the financial support for the subsistence of millions of Cubans. However, the government entity Grupo de Administración Empresarial S.A. (GAE S.A., popularly known as GAESA) has created a system to capture remittances that despite draining resources from the economy is close to collapse due to its own incompetence.
In thirty years, the exile community living abroad has sent Cuba remittances amounting to over $52 billion in cash plus $50 billion in consumer goods. This has been the largest interest-free line of credit that Cuba has received and the autocracy that controls power in the island has been able to use to achieve its interests.
The large magnitude of these remittances is an indication of the investment potential of an economic alliance between Cubans on the island and the diaspora in the future reconstruction and development of the country, once the necessary political and economic freedoms currently non-existent are in place.
The decision to authorize the sending of family remittances to Cuba implied a significant risk for the Cuban dictatorship from a political point of view. However, authorizing remittances, as well as foreign investment and international tourism, were calculated risks that the dictatorship decided to assume in order to ensure the survival of the regime.
Remittances were not conceived with a view to changing the economic model and developing the country. From the beginning, remittances to Cuba, as well as foreign investments and tourism, were conceived by Fidel Castro as a temporary response, which he could eventually reverse or regulate, if necessary, to the regime’s need for survival, not as a means to develop the economy. In other words, it was a “necessary evil” and always reversible.
Remittances constitute the financial means that has served to weave the dollarized retail infrastructure that exists today throughout the country. This began to be built with the dollars that came to the island from the exiles. Those who had been labeled by the regime as “worms” and “scum”.
The regime used several strategies to try to minimize the impact of remittances on society. As part of its political strategy to ideologically prepare the party members, the regime in its official discourse replaced the word “gusano” (worm), which was used for many years to refer to and demonize the Cuban diaspora, with the term “Cuban community abroad”. With this change, the Cuban government tempered the approach to the exile with a softer language to build its underhanded approach seeking much-needed dollars.
The author examines remittances in three stages. The first stage (1991-2006) corresponds with the process of reforms implemented by Fidel Castro to overcome the economic crisis called “Special Period in Times of Peace”. The second stage (2007-2018) corresponds with the period of reforms undertaken by Raúl Castro after he assumed power in 2006; the reforms began to take shape in 2008 and reached their apex after 2011 when the Congress of the Communist Party approved a broad package of economic and social policy guidelines. Finally, the third stage (2019-present), which may be called “continuity”, implemented under the presidency of Miguel Díaz-Canel, is marked by policy initiatives such as the creation and expansion of Free Convertible Currency (FCM) stores, the Monetary Reordering Task, the creation of a new Foreign Exchange Market and the so-called “bancarización” policy, intended to reduce cash in circulation and encourage electronic transactions through government institutions.
During the 1993-2006 period, Cuba received a total of 11,751 million dollars in cash remittances. During this stage, 85% of remittances came from the US. Apart from Western Union in South Florida, there were over 100 small agencies that sent remittances to Cuba. At that time, period remittances played an important role in the development of the entrepreneurial movement in the island.
The second stage (2007-2018) generated the highest volume of remittances, reaching a volume of over 31 million dollars in cash. During this period, remittances also played an important role in promoting entrepreneurship in the island.
During this second stage, the regime had the opportunity, if it had wished, to pave the way for prosperity and economic development. However, it chose to consolidate itself as a mafia state to retain power. “Post-communist mafia state” is not a pejorative term, it is a definition coined in sociology to describe an elite that has privatized the use of power and governs the country as a private organization that appropriates public resources. It is defined by the “privatization of power” to appropriate the principal sources of national wealth (in the case of Cuba mainly tourism, communications, remittances, export of professionals), develop parallel illicit economic activities (money laundering and others), and accumulate capital in tax havens without fiscal oversight. In Cuba, with this new mutation of the regime, remittances, given the unavailability of foreign credits, became the main source of financing for the new mafia state.
It is a sound business because, as the author demonstrates in this study, the dollars sent by the diaspora never reach the hands of the intended recipients in the island, they stay outside Cuba in the bank accounts of the companies managed by GAESA. Cubans receive notification of the receipt of remittances in bank cards that can only be used to buy in GAESA’s own stores (where they are sold products at double, triple, or higher multiple of their import cost) or to withdraw, in Cuban pesos, the equivalent of the foreign currency that was deposited, but at the official exchange rate which is many times lower than its real value. Cuban citizens can never actually withdraw the dollars sent by their relatives.
From the time they were first allowed, remittances in Cuba were always controlled by companies in the hands of the government military apparatus (Ministry of Interior, MININT, and Ministry of the Armed Force, MINFAR) Initially they were controlled by CORPORACION CIMEX and eventually by GAESA, who finally took over this business.
Pressed by the growth of citizen entrepreneurship and faced with loss of economic power in sectors such as tourism, retail, and transportation, among others, GAESA decided to stop the reforms and launch an offensive against the private entrepreneurs. The democratizing effect of remittances was stopped at the stroke of a pen.
During the third stage (2019-2023) there was a large decline in remittances, which fell by 70.8% in 2021 ($1,084 million) compared to pre-pandemic 2019 ($3,716 million. In 2022, the first post-pandemic year, remittances reached $2,040 million, a decline of 45.1% compared to 2019.
Even though this well-oiled machinery of citizen control and enrichment has been operating for 30 years, a process of dismantling of this system is beginning to be observed. This dismantling is coming from the diaspora and from Cuban residents on the island. The 45% decline in remittances in 2022 with respect to the year prior to the pandemic reflects this.
If the sending of remittances to Cuba in these 30 years has demonstrated anything, it is the real financial potential of the exile community, in close economic alliance with Cuban residents in the island, to be able to quickly transform the country the day that basic freedoms are restored and respected in the island. In as few as three years the country could be a different one. The lack of market-related and business freedoms — such as the absence of legal ownership of businesses, freedom to invest in any sector and unfettered ability of companies to expand – gave has prevented remittances from being capitalizable and therefore they have been mostly used by recipients for subsistence consumption.
The Cuban diaspora has the potential to inject more than 20 billion dollars in a period of 24 to 36 months in the island if the country took the essential steps to transition to a democracy with rule of law and free market. It is not only the multimillionaires of Cuban origin living abroad, but also the hundreds of thousands who constitute the diaspora who could invest part of their savings or take out lines of credit to set up businesses jointly with their relatives in the country of their birth.
The so-called Revolutionary Offensive of 1968 eliminated 55,636 medium and small businesses in Cuba. The policies implemented since then tightly controlling the conditions for approval and operation of any private enterprise have asphyxiated the potential of the national productive forces. The much-propagandized MSMEs barely number 8,000 enterprises and do not function in a context of a market and free enterprise.
The State insistence in authorizing the existence of any business is to be able discriminate against citizens for their political or religious believes or for the simple fact that they have another country for residence and exclude all of them (millions of Cubans) from investing in the Cuban economy. If the State does not legally recognize the private ownership of every business, then we are not in the presence of a private sector. No private sector, nor private businesses, or private entrepreneurs will exist in Cuba until the State -among other things- does not legally recognize the right of these business to decide in what sectors to invest, to select its partners among Cubans or foreigners within the island and abroad, to export and import directly, to set the prices of their products and services and sell them directly or through an agency of their choosing.
To take advantage of this potential, it is necessary to free the market and entrepreneurs from economic regulations that today reigns on the island and that the elites every now and then tries to hide its nature behind false entrepreneurs and MSMEs, that the oligarchy seeks to publicize to eliminate or circumvent the sanctions against the Cuban regime. Playing along with their maneuvers or even worse, to financially support them, would only prolong the agony of the Cuban people.
It is the Cubans residing on the island — in alliance with their relatives and friends abroad — who can truly be the co-owners of a new entrepreneurial fabric which, being truly free, would be the immediate and surest engine to promote the well-being of the population, as well as to promote national reconstruction and development.
