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American Remittances Speed Change in the Cuban Economy

Money sent to relatives or friends in Cuba by individual Americans are helping foster free enterprise and a higher standard of living.
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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.”

“Whether it’s $1.4 billion or $3 billion, it’s a lot of money. It plays a significant role in the Cuban economy.”

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.”

Image: US Restores Diplomatic Relations With Cuba
A young family walks through Centro Habana, which is the neighborhood with the highest population density in the capital city, January 21, 2015, in Havana, Cuba.Chip Somodevilla / Getty Images

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.

"These categories of self-employed workers have increased tremendously in the last five years. It’s now about 10 percent of the entire labor force."

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.

Image: Cuban cigars for sale are on display at a hotel in Havana
Cuban cigars for sale are on display at a hotel in Havana.ENRIQUE DE LA OSA / Reuters

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.”

New Ferry Routes to Open Between U.S., Cuba

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.”