In Cuba, holiday cheer from Uncle Sam

HAVANA Tue Dec 28, 2010 1:42pm EST

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HAVANA (Reuters) - Cubans who receive money from the United States are getting a cash bonus this holiday season from an Obama administration decision that should also cut the flow of underground cash between the two countries.

The U.S. Treasury Department's Office of Foreign Assets Control has licensed Western Union to pay out remittances in Cuban currency instead of U.S. dollars, avoiding a local 10 percent surcharge on the greenback.

Previously, U.S. restrictions forced Western Union, the principal company allowed to send cash transfers from the United States, to make payouts in dollars.

"Before you received 80.4 convertible pesos per hundred dollars sent and now you receive 89.9 convertible pesos," said Yeny Santanilla, an employee at one of Western Union's 150 offices in Cuba.

Cuba's convertible peso is a local foreign exchange equivalent pegged at 1.08 to the dollar, but local authorities charge a 10 percent tax on U.S. cash in retaliation to the longstanding U.S. trade embargo against the communist-run country.

The sanctions make it illegal for anyone to deal with Cuba in U.S. currency without a license.

The change helps cash-strapped Cubans by cutting their government's take from remittances, said Cuba expert Phil Peters, at the Virginia-based Lexington Institute.

PURCHASING POWER

"Since Cuba imposes a 10 percent surcharge on dollar cash exchanges, and since the (George W.) Bush administration prohibited Western Union from providing remittances in Cuban currency, the Cubans who received remittances lost ten percent of their money when they converted it to Cuban pesos," Peters said.

"By allowing Western Union to pay out the remittances in Cuban currency, there is no more 10 percent loss in purchasing power," he said.

At a Havana Western Union office, Cubans, often hard pressed to make ends meet, were thrilled over their unexpected holiday bonus.

"This is fabulous," Laudelina Milanes said. "It is a bit more money for us, and our families over there also feel super good."

The Obama administration's decision follows last year's lifting of all restrictions on Cuban-Americans visiting home and sending money to Cuba.

The United States and Cuba have both tried to restrict and regulate remittances since the early days of Fidel Castro's revolution, driving family assistance underground.

Cuba legalized U.S. remittances in the early 1990s soon after the fall of benefactor the Soviet Union, but U.S. restrictions remained in force until last year.

Government insiders said remittances from all countries topped $1 billion this year, with about 80 percent arriving in cash.

Many Cuban-Americans either bring money when they travel to the island or send it by couriers, or "mules," who regularly transport goods and money to Cuba.

The government insiders said that should change now with the Obama administration's ruling, as it would be cheaper to send wire transfers than cash, making it easier for both governments to track the flow of money between their respective countries.

A spokesman for Western Union could not be reached for comment.

(Additional reporting by Rosa Tania Valdes; Editing by Jeff Franks and Vicki Allen)

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