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How Long will Cuba Avoid Economic Reform?

April 16, 2013

by Beatriz Casals

The framework of U.S.-Latin American relations, including relations with Cuba, has grown more complicated following the death of the late Venezuelan President Hugo Chávez. Even if Nicolás Maduro remains the Venezuelan president after his controversial victory over Henrique Capriles, it is not likely that oil-rich Venezuela will continue subsidizing the economies of Cuba, Nicaragua, Bolivia and various Caribbean states. Chávez’ largesse helped buy friends for his government, but Venezuela now has its own pressing needs.

At the same time, Cuban President Raúl Castro is searching for U.S. dollars just to avoid economic reforms. For 30 years, the Castro brothers depended on the Soviet Union to keep their communist government afloat with an estimated $5 billion in annual subsidies. After the collapse of the Soviet Union, Chávez became Cuba’s patron benefactor.

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As U.S. National Intelligence Director James R. Clapper put it in testimony on March 12, 2013, to the U.S. Senate Select Committee on Intelligence, “Cuba’s leaders are urgently trying to attract foreign investment” now that Chávez is gone.

For investors, Cuba is not a good bet. It has no oil or other significant natural resources—with the exception of nickel, which has been set aside for the Canadian Company Sherritt International. Moreover, “investing in Cuba” means dealing with the Castro government. There’s no such thing as private enterprise in Cuba. And if things turn sour between a foreign investor and the Cuban state, there’s no independent judiciary to which to appeal. On the Heritage Foundation’s Index of Economic Freedom, Cuba ranks ahead of only North Korea, and is listed 176th of 177 countries.

Havana has waged a prolonged public relations effort to convince Washington to lift U.S. trade sanctions and to extend it credit despite the Castro regime’s history of unpaid bills. The campaign was predicated on Cuba’s expectation that off-shore drilling would strike oil, but the joint ventures between Havana and oil companies based in Venezuela, Malaysia, Spain, and Brazil have all come up dry.

Illiquidity makes things worse in Cuba today. Foreign investors operating on the island are not being allowed to withdraw their money from Cuba’s banks and some investors are being given vouchers that can only be spent in Cuban government-owned enterprises, such as the Tropicana nightclub in Havana.

As it renews its effort to sell that proverbial “used car” to Washington, Havana is trusting that neither the Obama administration nor potential American investors will recognize that Cuba’s real goal is to lift what remains of the U.S. trade sanctions and open its gates to a flood of American tourists. If Cuba can end the embargo, it will not only have U.S. dollars and credit but also qualify for substantial loans from the World Bank, the Inter-American Development Bank and the International Monetary Fund.

Cuba counts on everyone else’s short memories. The Castro government is burnishing old claims that the U.S. embargo has damaged the island’s economy and hurt the Cuban people—a claim that’s sometimes echoed by foreign policy makers. The latter should pause to review Fidel Castro’s statements on the subject in a mostly-forgotten Playboy interview in 1967, seven years after the embargo began:

Playboy: What have been the effects of the U.S. blockade on Cuban overseas trade?
Fidel Castro: The effect of the American blockade has been to require us to work harder and better.
Playboy: Has it been effective?
Fidel Castro: It has been effective in favor of the revolution.”

In 1985, Fidel Castro told the world that other socialist countries “not only pay us much higher prices and sell their products to us at lower prices, but also charge us much lower interest for credit and reschedule our debt for 10, 15, or 20 years without interest.” He then went on to compare the Soviet Union to a cow and the United States to a goat. “In fact,” he added, “what are we supposed to do? There's an old folk saying that goes, ‘Don't swap a cow for a goat!’"

As second-in-command throughout Fidel Castro’s reign, Raúl Castro is just as responsible for the ruin of Cuba’s economy. Today, Raúl is the one shopping for gullible foreign investors willing to provide Havana with a cow or a goat. Under the current circumstances, Cuba’s president doesn’t have a lot of choices unless he frees the entrepreneurial abilities of the Cuban people.

*Beatriz Casals is an entrepreneur, a principal at Global Ethics Advisors, LLC, a founder of Casals & Associates, Inc. and served as president of the International Consortium on Governmental Financial Management and the Association for the Study of the Cuban Economy. 

Tags: Economic Reforms, Cuba

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