Cuba: U.S. Sanctions Underscore the Need for Meaningful Reform

By Ricardo Torres*

Cruise ship at Havana Harbor in April 2018/ kuhnmi/ Flickr/ Creative Commons

Washington’s new measures to tighten the embargo will hurt the Cuban people, especially the private sector, but Havana has little choice but to double-down on reform and make its economy more efficient and independent. Holding Cuba responsible for Venezuela’s resistance to U.S. regime-change policies in that country, and for alleged “acoustic” incidents harming U.S. diplomats in Havana, U.S. Secretary of State Mike Pompeo and National Security Advisor John Bolton last week announced steps that, taken together, amount to almost full reversal of the engagement that former Presidents Barack Obama and Raúl Castro announced four and a half years ago, in December 2014.

  • Among key measures is full enforcement of Title III of the Helms-Burton law of 1996 – ending waivers that three predecessor administrations had invoked – and allowing even Cuban-Americans who were not U.S. citizens at the time to sue companies involved in business dealings (“trafficking”) involving properties nationalized by the Cuban government since 1959. The U.S. officials have also pledged regulations clamping down on remittances to Cuba (which had already been regulated to ensure that senior government officials did not receive them); prohibiting dollar transactions through third-party financial institutions; and stopping “non-family” travel to the island. Details will not be known until the regulations are published, a process that usually takes several months.

The U.S. actions come at a delicate moment for the Cuban economy, will certainly worsen the country’s balance-of-payments situation by increasing the cost of international transactions, and will directly affect key sectors that depend on tourism and remittances.

  • Among the hardest hit will be Cubans engaged in private businesses, who depend on remittances for investment and foreign visitors as customers. At the end of 2018, a little more than 1.4 million formal jobs were in the non-state sector, including the self-employed (cuentapropistas), members of cooperatives, and private farmers – almost equal to the 1.6 million in state enterprises. Many others work in the informal sector to supplement their incomes.
  • The perceived increased risk posed by the U.S. measures will also cause foreign companies to postpone or cancel entirely plans to invest in Cuba.

Trump Administration efforts last year to reverse Obama-era policies, coupled with other challenges – including the weakening of the Venezuelan economy and the shift of a previously key partner like Brazil – are taking their toll on the Cuban economy. In addition, an accumulation of important internal problems has made the country vulnerable. Austerity measures announced as early as in summer 2016, including a reduction in imports and energy rationing in the public sector, have already hurt. Even in the context of a good international environment and improving ties with the United States, the Cuban economy grew slowly over the past decade. The ups and downs in policies dealing with the private sector, agriculture, and in the derailed process of reform in the dominant state sector – as well as setbacks in efforts to attract foreign investment – underscore the economy’s deep structural flaws and damage caused by deficient responses and successive delays.

In these changing times, appeals to “Resist!” are no longer enough. Aggravated by the U.S. measures, the expected worsening of the economic situation will disproportionately affect the most vulnerable of the Cuban people. The external problems could be the argument that the Cuban government needs to push aside obstacles to domestic economic reform. The country has immense internal potential but has been held hostage to the ideological purism that many profess.

  • The government of President Díaz-Canel has already announced new measures to stimulate the development of state enterprises, cooperatives, and the private sector itself. Foreign dependence has proven to be disastrous for Cuba. No foreign power is going to come to resolve the flaws of the Cuban model. Broadening and deepening reform, liberating the domestic productive powers, seems to be the only possible way forward in addition to rethinking international alliances and embracing markets more broadly.

April 23, 2019

*Ricardo Torres is a professor at the Centro de Estudios de la Economía Cubana at the University of Havana and a former CLALS Research Fellow.

Cuba: Sticking to the Plan

By Fulton Armstrong

Miguel Diaz Canel

Cuban President Miguel Díaz-Canel. / Irene Pérez / Cubadebate / Flickr / Creative Commons

As Cuban President Miguel Díaz-Canel passed the six-month mark in office this month, his administration – not surprisingly – continued to produce no surprises.  His rhetoric and policies, similar to the package of constitutional reforms now undergoing consulta popular and scheduled to be approved by referendum next February, are an extension of Raúl Castro’s tightrope walk between continuity and gradual change.

  • Speaking at the UN General Assembly in September, Díaz-Canel condemned the “selfishness and exclusion” of capitalism as the cause of poverty, instability, climate change, and other ills. He also proclaimed, “The generational change in [Cuba’s] government should not deceive the enemies of the revolution; we are continuity, not rupture.”  He welcomed the almost-friendless Venezuelan President Nicolás Maduro to join one of his biggest public appearances.  Showing his pragmatic side, however, Díaz-Canel also met in New York with U.S. technology companies and icons of U.S. capitalism – Google, Bloomberg, Microsoft, Twitter, and others – declared his hope to “computerize [Cuban] society,” and welcomed the announcement of the first U.S.-Cuban biotech joint venture.  Upon his return to Havana, he launched his own Twitter account.
  • On economic reform, Díaz-Canel has continued the same halting approach toward market socialism as did Raúl. New regulations announced in July, to be implemented in December, seemed designed to restrain the growth of the private sector rather than accelerate the reform program.  New mechanisms to ensure that cuentapropistas pay more taxes and operate within the law will dampen their growth in the short term and aggravate contradictions in current policies – for example, curbing black-market purchases of supplies without creating wholesale markets for them.

Ongoing national discussions on constitutional reforms, launched by the National Assembly in July, are compatible with Díaz-Canel’s approach to change.

  • The new document reaffirms two tenets of the Communist Party’s revolutionary platform – the party’s continued leading role as sole political representative of the Cuban nation, and a commitment to a socialist system in which state property predominates and universal social services remain free. But, importantly, the draft omits the goal in the 1976 constitution of “building a Communist society,” signaling the leadership’s recognition that private property and markets will be a permanent feature of the new Cuban model.  It reconfigures policymaking processes to increase efficiency (such as by formalizing the position of Prime Minister), increases the autonomy of local government, and separates more clearly executive and legislative functions.  An amendment allowing same-sex marriage has sparked heated public debate and given rise to an unprecedented political organizing drive by churches opposed to it.
  • The amended constitution does not significantly expand the space for private enterprise, but it provides a stronger legal foundation for the reforms that have already been implemented in various waves since 1992. The draft also strengthens protections of Cuban and foreign-owned private property and investment, providing guarantees against future expropriation.

When introducing changes over the years, the government has routinely, if not obsessively, emphasized continuity – and Díaz-Canel’s administration is proving to be no different.  The signs of change are often nuanced, whereas hardline positions, which tamp down progressives’ expectations and assuage conservatives’ anxieties, are unmistakable.  Díaz-Canel’s adherence to Raúl’s program gives him both essential political cover emphasizing continuity as well as a platform for continuing gradual change.  That formula doesn’t help him with some major challenges, such as the need to unify the country’s two currencies, that have loomed large for several years.  But Díaz-Canel’s gradualist approach – particularly if enshrined in a new constitution next year – is compatible with the view held by many Cubans that change should be evolutionary, not disruptive, even if they wish it went faster.  Washington’s curtailment of bilateral normalization is depriving the private sector of much-needed resources to drive change, but the country’s continued international outreach and expansion of internet access have given entrepreneurs a moral, if not economic, lifeline.  Cubans have often said they’ll do change “their own way,” and Díaz-Canel, with his abundance of caution, may be leading that process. 

October 31, 2018

Resources and the New Developmentalism

By Paul A. Haslam*

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Resource nationalism is driving the most significant shift in Latin American development policies of the past decade.  It is rarely talked about yet is constituting a new developmental model that is being adopted by governments of diverse ideological inclinations.  It has involved reforming taxation regimes dating from the 1990s to extract more “rent” from natural-resource intensive industries; strengthening and extending state capacity; using rents to support social spending by the state, including anti-poverty programs; and – most importantly – linking resource abundance with industrial policy.  It is the basic framework of the post-neoliberal development model, and examples are many.  The splashier headlines in the past decade focus on various instances of nationalization, including the expropriation of YPF in Argentina (2012); Venezuela’s erratic nationalization program; and Bolivia’s dramatic military occupation of foreign-owned gas facilities in 2006 – all intended to achieve these goals.  Early this month, the provincial government of San Luis, Argentina, presented a project-law to create a new provincially owned mining company, San Luis Minera (SAPEM) – joining many fellow provinces that have created or breathed new life into state-owned enterprises (SOEs), particularly in the mining sector.

By and large, these enterprises exist to associate with multinationals, following the trail blazed by Argentina’s YMAD (in Catamarca) and Fomicruz (in Santa Cruz) during the dawn of Argentina’s mining boom in the late 1990s.  The SOEs typically offer the rights to prime potential lands claimed by the state, handle the administrative and regulatory requirements of the province, and in some cases, negotiate the social licence with nearby communities.  In exchange, they get a small net profits interest (typically around 8-10 percent), which results in rent for the province.  The multinational does everything else: raises the money; plans, builds and operates the mine, and sells the mineral.

These are not the rent-seeking policies typical of low-capacity governments.  The enduring principles of the liberal regime (such as low royalty rates) have pushed revenue-hungry governments to explore creative options such as these to capture rent from their mining sectors.  The new SOEs are also an institutional innovation that aims at leveraging natural resource wealth for economic development, as governments also expand resource-funded social spending.  One of the objectives of Morales’s “nationalization” of Bolivia’s oil and gas resources, for example, was to “revitalize” the state-owned YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) as an engine of development.  Nor is this “resource nationalism” exclusively a project of the left: Chile increased royalty rates in a “Special Tax” on the mining sector in 2005, and Colombia and Peru have hiked taxation on mining as well.  Brazil has continued to use of SOEs like PETROBRAS.  It’s still an open question, however, how successfully the rents generated by this new model can be combined with industrialization or development strategies that deliver enduring benefits. 

*Dr. Haslam teaches at the School of International Development and Global Studies, University of Ottawa, Canada.