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Commentary: Cuba's waves of change: The lingering impact of the embargo
Published on May 31, 2014 Email To Friend    Print Version

By Patrick Burchat
Research Associate at the Council on Hemispheric Affairs

Havana’s atmosphere is one of change and reform. Cuban President Raúl Modesto Castro Ruz has steadily implemented a series of economic reforms, not so much dialing back the revolution as creating a new, more pragmatic path to Cuban socialism. In a world where many socialist countries have enacted private market measures which served to create new capitalistic oligarchies, Cuba has taken a different route.

Havana has opened up the economy in a number of ways, allowing Cubans to buy foreign cars and buy and sell real estate, issuing more permits for entrepreneurs to initiate their own businesses, and lifting harsh restrictions on foreign business investment on the island.

Despite these widespread changes, US policy towards Cuba has remained a product of its Cold War rhetoric. President Castro’s reforms ensure new developments for Cuba and its socialism, but they also highlight long overdue changes needed in US policy.

Free Market Reforms

Easing into privatization, Havana has taken the initiative by issuing more licenses to those looking to start small businesses [1]. These privatization reforms have led many Cubans with savings, like successful artists, doctors, engineers, diplomats, and others with foreign currency, to leave their public sector jobs and start their own enterprises [2]. There are now over 450,000 private businesses registered on the island, and the number continues to rise [3].

Additionally, President Castro has modified real-estate law so that Cubans can now buy and sell their homes, allowing them to use their homes as a liquid financial asset [4].

Furthermore, Havana has phased out its two-currency system, under which the more valuable Cuban Convertible Peso was being used as currency for foreigners while the lower-valued peso (a rate of 1 Convertible Peso to 25 pesos) was being used by Cubans [5]. Although the process of merging these two currencies has generated some confusion surrounding the official value of the new currency, these measures should promote economic opportunity and growth on the island in the long-run [6].

Critics of these free-market reforms, however, say that they are compromising the socialist integrity of the Cuban welfare system and, consequently, Cuban society. In an attempt to stimulate participation in the public sector, the government has laid off approximately 500, 000 government employees [7]. Government planners hoped that this measure could also focus labor on more prosperous areas of the economy, such as lagging farm sectors.

These reforms are reminiscent of the economic initiatives to be found in the People’s Republic of China, beginning under Deng Xiaoping beginning in 1978, which eventually led to the destruction of the Iron Rice Bowl, the state’s social welfare system. Although China’s reforms led to a huge increase in GDP growth, many Chinese were left out of this prosperity.

However, a Cuban Justice Ministry official denied any compromise in Cuba’s socialist integrity, arguing that the Cuban welfare system would remain intact: “No one will be put on the street…the system of social justice will never be put at risk.” [8]

Contrary to allegations of being anti-socialist, these reforms are not intended to dismantle Cuba’s socialist system. They were a pragmatic response to factors such as the collapse of aid from the USSR, episodic natural disasters, a sagging display in world trade, and the continued hindrance of the US embargo. Havana stresses that despite Cuba’s loss in foreign trade and slow GDP growth in the last several years (having an average GDP growth rate over the last five years of 2.1 percent), not a single school or hospital has been closed [9].

Cuba has been able to weather countless troubles throughout the last several decades without compromising its social integrity; this is a fact that Cubans should be (and are) proud of. It is also important to note that 65 percent of Cuba’s GDP growth in 2011 was from its public sector, namely from healthcare, education, defense, and commerce [10].

The government’s stated goal with these new reforms is to revamp the country’s economic and social system in order to address the recent challenges, all without compromising the socialist ideals of the revolution. Alaim Pena, Third Secretary at the Permanent Mission of Cuba to the United Nations, has stated “No one will be left unprotected” economically, politically, and socially during the reforms [11].

Renewed Entrance into the Global Market

Along with the free-market reforms for Cubans, there have been numerous reforms made on behalf of foreign investors and multinational corporations. The administration of President Castro Ruz has recently completed construction a modern port facility in the new Special Development Zone (SDZ) of Mariel [12]. Within the SDZ, foreign investors and companies are allowed to install factories, research centers, and freely import raw materials. All of this is in addition to the 10-year long tax exemption that they may obtain [13].

Brazil’s investment of $957 million USD into the new port and SDZ serves as an example of Cuba’s success in attracting larger amounts of foreign direct investment (FDI) [14]. Brazil is joined by China, Venezuela, Russia, the Netherlands, Mexico, Spain, and Germany, all of which have taken advantage of initiatives to develop their economic ambitions within Cuba’s SDZ [15].

The Cuban legislature responded to this influx of capital by approving legislation in April which recognizes that FDI should play an integral role in the future growth of the Cuban economy [16]. As an added bonus, this legislation allows majority foreign ownership in joint-ventures between Cuba and foreign multinational corporations in the SDZ, and reduces taxes on wages paid locally by foreign investors [17].

This change in attitude toward foreign companies and investors demonstrates President Castro Ruz’s desire to help spur economic growth in Cuba. It is evident that his policies are much more open to global markets than those of his brother, Cuba’s longtime leader Fidel Castro Ruz. However, this change in policy is due to the President not having the financial support of the socialist countries that his brother heavily relied upon.

In this regard, it is evident that Havana’s reforms are born out of a pragmatic assessment of the economic environment now surrounding Cuba. Even the first Vice President of the Council of State, Miguel Díaz-Canel Bermúdez, has said that Cuba needs more hardline reforms if it wants to mend its deeply troubled economy [18].

Díaz-Canel Bermúdez had administered economic reforms in the provinces of Villa Clara and Holguín, all the while keeping tight party control over reforms in both provinces [19]. With President Castro Ruz set to step down in 2018 and Vice President Díaz-Canel predicted to take over, Cuba will continue to experience reforms with government oversight.

Economic Bullying

Despite these practical changes in Havana, the United States continues to strangle the Cuban people after 60 years of denying the country the ability to fully pursue economic prosperity. In an email to the author, the Press Officer at the Cuban Interest Section in Washington, Juan Jacomino, made reference to a Cuban report on UN Resolution 67/4 by saying:

“in addition to being the main obstacle for Cuba’s overall national development, the U.S. economic circle stands in the way of the island’s expansion of its trade relations with the world, severely impedes international cooperation to and by Cuba, and is marked by gross harassment of Cuba’s international financial transactions.”

That same report states that as of 2013 Cuba has lost over $1 billion USD because of the embargo and that it prevents Cuba from accessing capital markets for investment and growth, thereby harming Cuba’s domestic industries [20].

The US embargo hovers over Cuba as a reminder of America’s anti-communist, imperialist agenda that once dominated the island’s affairs. The embargo was made official law in 1992 and 1996 with the Torricelli and Helms-Burton Acts, respectively, which institutionalized it in the US legislature (previously, the embargo had merely been upheld only by an executive order) [21].

These measures state that Cuba must abide by humiliating concessions in order for the embargo to be lifted. These include handing over all property owned by US companies prior to 1959 (which was over 70 percent of the island), embracing a US-approved government, and submitting itself to the US court system so that US citizens can file suits against Cuba for lost property and capital [22].

Coupled with these exaggerated demands is the embargo’s responsibility for driving away foreign business in Cuba by imposing more than $800 million USD in fees on European and Canadian companies [23]. This shows that the embargo preventing Cuba’s desired degree of involvement with the world economy [24].

Regardless of its economic implications, the embargo still maintains pockets of support within the United States, most of it now coming from a vocal minority. Today this minority is being led by Senator Marco Rubio and Representative Ileana Ros-Lehtinen (R - FL). While this anti-Havana position has some limited support, it is languishing as time goes by amongst the embargo’s supporters.

Their position is also rather hypocritical because the same criticism towards many meaningful relationships between the United States and countries like China, Pakistan, and Saudi Arabia have not been leveled with such ferocity as those against Cuba. In fact, when it comes to anti-Cuban zealotry, Washington’s hostility is purely selective.

Additionally, human rights groups, like Amnesty International, have filed numerous reports on the Cuban embargo concluding that Washington is in blatant violation of human rights because it economically penalizes average Cubans, and it prevents them for obtaining essential materials such as medical supplies (various basic medical supplies are patented by US companies under the provisions of the World Trade Organization, prohibiting them from trade under the terms of the embargo) [25].

Although an outspoken modicum of support remains within the United States for the embargo, 187 members of the General Assembly of the United Nations have denounced the United States’ economic restrictions on the Caribbean nation [26].

Imperialism or Incompetence?

Despite international criticism and mounting evidence in opposition to the embargo, the US stance remains unchanged. This begs the question: Is the US embargo a vestige of remaining imperialist intentions on Washington’s part, or is it due to legislative incompetence? The answer lies with the interactions between the vocal minorities that are opposed to normalized relations with Cuba and the United States.

There is a pile of evidence that shows that the US embargo and the scope of US policy towards Cuba has been an utter failure. However, foes of reform like Senator Rubio and Representative Ros-Lehtinen have addressed this mounting evidence by increasing the volume and vitriol of their opposition to Cuba, succeeding chiefly in allowing cognitive dissonance to poison the debate.

This negative environment is dangerous for any supporters of ending the embargo, as was seen when former Governor of Florida, Charlie Crist, recently revealed, during his re-election campaign for 2014, his support for ending the embargo and was subsequently hounded by opposition [27].

In spite of onslaughts of bully-like opposition by Florida hard-liners, there have been recent signs of growing support for lifting the embargo, as demonstrated by the numerous open letters to President Obama from former government officials and business leaders criticizing the embargo [28]. In addition, 76 percent of the Cuban exile community favors normalized relations [29].

The vociferous opposition has managed, despite diminishing support for their struggle, to make the debate surrounding the embargo a polarizing and poisonous venture. Regardless of the various open letters calling for an end to the embargo, President Obama and Congress have barely budged on US policy. Apart from permitting more remittances and travel visas, President Obama and Congress have remained deadlocked on what to do with the embargo.

Meanwhile, the Cuban National Assembly, after a prolonged debate during the VI Congress of 2011-2012, rushed to adapt Cuba’s policies to reflect a changing domestic and global economic and political landscape. The Cuban National Assembly has properly acknowledged and begun to address a changing global and geo-political landscape, but the US Congress remains locked in stifling inaction.

For years the United States has insisted that, among other changes, Cuba make private market reforms. Now that Cuba has begun pursuing economic growth through the private sector and a forthright entrance into the global market, the United States still remains a restrictive and adamantly exclusionist presence. Cuba is changing; it is time US policy did the same.

References:
[1] Feinberg, Richard, “Is Cuba Going Capitalist? A Look At Four Cuban Entrepreneurs,” Brookings Institute, February 3, 2014
[2] Ibid
[3] Ibid
[4] Peters, Phillip, “Cuba’s New Real Estate Market,” Brookings, February; Tamayo, Juan O., “Cubans Uneasy About Currency Dump Convertible Peso,” The Sacramento Bee, May 20, 2014
[5] Tamayo, Juan O., “Cubans Uneasy About Currency Dump Convertible Peso,” The Sacramento Bee, May 20, 2014
[6] Ibid
[7] Bowie, Nile, “Cuba’s Economic Reforms: Socialism with Neoliberal Characteristics?” Russia Today, April 16, 2014
[8] Peters, Phillip
[9] “Cuba’s Economic Reforms: Strengthening the Cuba Revolution,” Marxism Leninism Today, March 25, 2012
[10] Mesa-Lago, Carmelo, “Will the VI Communist Party Congress Solve Cuba’s Economic and Social Problems?” Cuba in Transition, August, 2011,
[11] Marxism Leninism Today.
[12] Miroff, Nick, “At Mariel Port, Cuba Follows Chinese Blueprint,” Global Post, November 23, 2013,
[13] Ibid
[14] Hackel, Joyce, “Cuba Opens a Gleaming New Port and Bets that the US Will Lift its Trade Embargo,” PRI, January 30, 2014
[15] Miroff, Nick
[16] Feinberg, Richard, “Cuba’s new Investment Law: Open for Business?” Brookings, April 1, 2014
[17] Ibid
[18] Rainsford, Sarah, “Who Will be next to Lead Cuba?” BBC, April 1, 2013
[19] Lopez Levy, Arturo, “Cuba: The Beginning of the Post-Castro Era,” Huffington Post, April 4, 2013
[20] “Cuba vs Bloqueo”, Permanent Mission of Cuba to the United Nations, July, 2013; “Cuba GDP Annual Growth Rate,” Trading Economics, 2014
[21] Gott, Richard, 2004, Cuba: A New History, New Haven: Yale University Press
[22] Ibid
[23] Ibid
[24] Ibid
[25] “The US Embargo Against Cuba: Its Impact on Economic and Social Rights,” Amnesty International, 2009
[26] “As Speakers Denounce Use of ‘Cold-War Era Tools of Coercion’, General Assembly Again Calls for End to United State Economic Trade Embargo Against Cuba.” United Nations, November 1, 2010
[27] Sabatini, Chris “Charlie Crist’s Cuba Gambit,” Politico, May 21, 2014
[28] Adams, David, “Open Letter to Obama Calls for New Steps to Promote Change in Cuba,” Reuters, May 19, 2014
[29] Bryant, Nick, “New Voices Challenge Cuban-American Support for Embargo,” BBC, May 19, 2014,

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, visit www.coha.org or email coha@coha.org
 
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