Thursday October 28, 6:56 pm ET

By Anita Snow, Associated Press Writer  

Cuba's Banks, Exchange Houses Begin Large-Scale Conversions of U.S. Money Into Local Currency

HAVANA (AP) -- Cuba's banks and exchange houses began large-scale conversions of U.S. money into a local currency on Thursday as Fidel Castro's communist nation moved to dump the dollar from general circulation.

Cubans lined up several hours before exchange houses opened to convert the American dollars widely used here for 11 years for the local Cuban convertible pesos that will now be the main currency accepted for consumer goods.

"I'm not going anywhere, I don't need dollars," said 68-year-old port worker Ramon Gonzalez, among about 80 people lined up outside the main exchange house in Old Havana.

"For me, it's just the same," Gonzalez said of the convertible pesos, tied at one-to-one to the U.S. dollar. "It just has a different face."

"As long as it keeps the same value, there is no problem," added 57-year-old custodian Alberto Serra.

Responding to stepped-up U.S. sanctions, Castro announced Monday that within two weeks, U.S. currency would be not be accepted at stores and businesses.

After Nov. 8, changing American money will carry a 10 percent commission fee that won't be applied to other foreign currencies.

"It's good news that there is now a currency for obligatory use in the country," said well-known dissident intellectual Manuel Cuesta Morua, adding it was important for every country to have its own currency. "The bad news is that it will hurt remittances received by citizens from abroad because it will reduce their buying power."

Authorities, meanwhile, said they were considering wider use of the euro as Cuba began rebuilding the hard currency base built mostly on dollars for more than a decade. Foreign tourists were advised to leave American money at home and bring other foreign currencies instead.

Since the government decided to replace the dollar with the local Cuban convertible peso beginning Nov. 8, authorities "have been studying coordinating with Cuba's Central Bank to extend the acceptance of the euro in other areas of the country," Tourism Minister Manuel Marrero said Wednesday.

"It is recommended that after that date that visitors to the country don't carry United States dollars," Marrero said at a news conference. He said visitors could exchange euros, Canadian dollars, British pounds or Swiss francs into convertible pesos after arriving here.

The euro is accepted already at several coastal resorts on this Caribbean island.

The currency switch appears aimed at eliminating Cuba's dependence on the money of its No. 1 enemy -- the United States -- for hard currency reserves, building up new sources of convertible foreign funds, and reasserting centralized control over the economy.

Tourism will be key in that plan.

Bringing in around $2 billion annually, tourism is the No. 1 source of hard currency Cuba needs to pay for petroleum, food and other critical imports.

Cuba's elimination of the U.S. dollar as a primary form of payment will make handling money easier for the Europeans and Canadians who represent about 75 percent of the island's estimated 2 million visitors annually.

Rather than changing national currencies into American dollars before traveling to the island, those visitors can change euros, Canadian dollars and other currencies into convertible Cuban pesos after arrival. And if they travel to a resort where euros are accepted, they don't have to change money at all.

Before large-scale conversions of dollars into convertible pesos began Thursday, Cubans started dumping their American money for another local currency, the Cuban peso, which trades 26 to the dollar and is used for government subsidized services and goods such as utilities and public transportation.

Adopted as a temporary measure in 1993, the widespread use of the American dollar was seen as a necessary evil for economic survival after Cuba lost its Soviet aid and trade with the collapse of eastern socialism.

Bills bearing the faces of American presidents became the main currency used by foreigners and Cubans alike at stores and other businesses the government opened across this island of 11.2 million people to capture hard currency for its international payments.

Communist leaders were always rankled by having to use the currency of their longtime enemy.

An increasing crackdown by the U.S. government this year on international banks shipping dollars to Cuba provided another reason to take it out of circulation.

The move to dump the dollar, however, was clearly planned for some time.

More than a year ago, the government announced that Cuban state companies would no longer conduct business among themselves in U.S. dollars and would have to sell the central bank any hard currency received from exports or sales. They all now use the convertible Cuban peso.

Cubans and others on the island can still hold unlimited amounts of American dollars without penalty.

http://biz.yahoo.com/ap/041028/cuba_dollar_3.html

The Miami Herald's latest analysis...

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Cuba's dedollarization points to growing strains on the Cuban economy, as the recent scarcity of fresh greenbacks compounds the permanent shortage of foreign exchange.

 JANE BUSSEY  | October 27  | Miami

(Miami Herald, syndicated)-

http://www.grandforks.com/mld/grandforks/news/world/10037829.htm

The decision by Fidel Castro to dedollarize Cuba's economy is yet another sign of economic distress for an island that has had a rough year, Cuba analysts say.

Havana's move earlier this week to eliminate U.S. dollars from circulation is a tacit admission of the effectiveness of U.S. trade and travel sanctions and is the Cuban president's response to the United States, they say.

And the change comes at a time when Cuba's economy is also starting to suffer from skyrocketing oil prices and a drop in crucial foreign investment.

Cubans may still hold dollars, but to spend their money in any official establishment, they must exchange their dollars for convertible pesos -- known as chavitos or little pennies. After Nov. 8, any exchanges will be subject to a 10 percent government charge.

The decision to withdraw U.S. dollars from the economy for the first time since the American greenback was legalized on the island in 1993 followed a Bush administration directive in June that limited family visits and remittances to Cuba in an effort to dry up the supply of dollars.

Cuba watchers are expecting the number of family visits to tumble by at least 30 percent, and remittances also could drop substantially.

While these measures won't have the same impact as the end of subsidies from the former Soviet Union, which devastated the Cuban economy starting in 1990, they are still hitting home.

''That has hurt the economy,'' said Miami lawyer Antonio Zamora, who just returned from a visit to the island last week. ``No doubt, it has had a big impact.''

Cuba is now suffering from a scarcity of cash brought on after the Bush administration levied a $100 million fine on UBS AG, the largest Swiss bank, because its trading desk was supplying dollar bills to Cuba, Libya, Iran and the former Yugoslavia, in violation of U.S. sanctions.

SHORT SHELF LIFE

Dollar bills, it turns out, have a short shelf life, measured in months and not years. The crackdown left the island with a dwindling supply of deteriorating bills.

''Bankers who deal with Cuba tell you that there is quite a bit of lack of cash in Cuba,'' Zamora said.

On top of that cash crunch is the reality that Cuba does not earn enough foreign exchange from exports, remittances and tourism to pay for its financial needs.

''The bottom line is that they have a permanent foreign exchange crisis,'' said Philip Peters, a Cuba analyst who is vice president of the Lexington Institute, a think tank in Arlington, Va.

The dedollarization will bring money to the government.

''The Cuban Treasury is going to mop up a lot of liquidity with this measure,'' Peters said.

''Remittance flows may decrease even more,'' Peters said. ``But it's not going to stop the use of dollars in Cuba. They didn't turn the clock back 10 years here. It's still a dual currency economy.''

In the dedollarization decree read Monday night by an aide as Castro sat nearby flanked by Economics Minister Carlos Lage and the Central Bank President Francisco Soberon, the government lashed out at the United States, saying Cuba was ``protecting itself from external economic aggression.''

Although tourism and other sectors are expected to boost growth to around 3 percent this year, there are storm warnings on the horizon. Foreign investment in recent years has been zero. Oil imports are costlier, even with subsidies from Venezuela and Cuba's own ability to supply slightly over half its energy needs.

ADDITIONAL PROBLEMS

Mismanagement in the energy sector also has added to the problems. Castro sacked Energy Minister Marcos Portal Leon this month after he failed to warn the government about a crisis at a power plant.

Some business analysts in South Florida say that Cuba turning its back on the dollar is simply one-upmanship with the Bush administration.

''Castro is fanatical about always having the last word on everything,'' said Paul Alcazar, a director of the Cuban Liberty Council, a Miami exile organization that supports the embargo. ``So if the United States is going to restrict remittances, he is going to change the system inside Cuba and penalize the recipients by 10 percent so he can blame Bush for it.''

Next week, American executives will get a chance to view the impact of the recent changes in Cuba first-hand at an international trade fair in Havana, which starts Monday.

U.S. farmers and ranchers have sold some $984 million of food and agricultural products to Cuba since a 2000 change in U.S. rules opened the way for American cash sales.

Commodity broker Chris Aberle, who is from New Smyrna Beach, holds out hopes of signing a slew of new orders, but acknowledges that a productive outcome is far from assured.

''I am still going down with the prospects of writing some more orders,'' said Aberle, sales director of FC Stone, a subsidiary of the commercial grain brokerage Farmer's Commodities Corporation. ``I am sure we will know by the end of next week.''

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© 2004 Herald.com and wire service sources. All Rights Reserved.

Associated Press

Cuba Ready to Buy More Food From U.S.

Sunday October 31, 12:56 pm ET

By Anita Snow, Associated Press Writer  

Just Days Before Election, Cuba Preparing to Purchase $150M More in American Food

HAVANA (AP) -- Just days before an American presidential election whose outcome could alter U.S.-Cuba relations, communist officials were designing deals to buy $150 million more in corn, wheat, cattle and other American farm products at a trade fair opening Monday.

Agribusiness giant Archer Daniels Midland of Illinois, Tyson foods of Arkansas, Splash Tropical Drinks of Florida, Marsh Supermarkets of Indiana and White Rose Foods of New Jersey were among 125 U.S. companies participating in the weeklong International Fair of Havana.

"This is happening at a crucial moment, during elections in the United States," Pedro Alvarez, chairman of the Cuban food import company Alimport said Saturday after inspecting stands at the exposition center where the Americans will display food samples.

"Many companies and their people will come after the elections," so they don't miss the chance to vote Tuesday, Alvarez said.

Alvarez declined to talk about the U.S. presidential candidates or express a preference.

Democratic contender John Kerry has said he would maintain more than four decades of trade sanctions against Cuba if elected president. But many on the island believe any change to reverse the U.S. government's increasingly tough policies on Cuba would be more likely with Kerry in the White House.

President Bush has steadily tightened restrictions on Cuba over the past four years, making it virtually impossible for most Americans to travel here legally, and tightening loopholes through which U.S. dollars have filtered into the country despite sanctions.

While the four-decade old trade embargo hurts Cuba, "it also has a serious impact on Americans, too," Alvarez said.

Under an exception to the U.S. sanctions, American food may be sold directly to Cuba on a cash basis.

Since Cuba began taking advantage of the exception in 2001, it has contracted to buy more than $900 million in American farm goods, including shipping and hefty bank fees to send payments through third nations.

The Cuban government's announcement last week that it was eliminating U.S. dollars from general circulation on the island will have no impact on the sales, said Alvarez.

He said the move to replace American money with a local currency called the convertible Cuban peso, and discourage importation of more dollars will not affect the island's ability to pay for American food and other imports with other types of foreign exchange, such as the euro.

Those payments are made through banks in third countries such as France -- because the embargo prohibits payments directly to the United States -- they are often more easily made in other euros or other foreign currencies anyhow, Alvarez said.

The more than 200 Americans expected later in the week from 26 states, Puerto Rico and Washington are among more than 1,000 business people from 45 countries that have signed up to participate in the fair. The state with the largest participation is Florida, with 27 companies represented.

Other countries showing a wide range of products at the trade fair include China, Brazil, Argentina and Venezuela.

Along with the United States, other countries showing food products are France, Spain, Germany, Canada, Great Britain, Vietnam, New Zealand, Venezuela, and Mexico.

http://biz.yahoo.com/ap/041031/cuba_us_trade_3.html