Foreign investors cannot hire, fire, or pay Cuban workers directly. They must go through the government employment agency which selects the workers. Investors pay the Cuban government in dollars or euros and the government, in turn, pays the workers a meager 10% in Cuban pesos. Corruption is pervasive, undermining equity and respect for the rule of law.
By Jaime Suchlicki l October 22, 2014
If the U.S. were to end the embargo and lift the travel ban without major reforms in Cuba, there would be significant implications:
- Money from American tourists would flow into businesses owned by the Castro government thus strengthening state enterprises. The tourist industry is controlled by the military and General Raul Castro.
- Tourist dollars would be spent on products, i.e., rum, tobacco, etc., produced by state enterprises, and tourists would stay in hotels owned partially or wholly by the Cuban government. The principal airline shuffling tourists around the island, Gaviota, is owned and operated by the Cuban military.
- American tourists will have limited contact with Cubans. Most of Cuba’s resorts are built in isolated areas, are off limits to the average Cuban, and are controlled by Cuba’s efficient security apparatus. Most Americans don’t speak Spanish, have but limited contact with ordinary Cubans, and are not interested in visiting the island to subvert its regime. Law 88 enacted in 1999 prohibits Cubans from receiving publications from tourists. Penalties include jail terms.
- While providing the Castro government with much needed dollars, the economic impact of tourism on the Cuban population would be limited. Dollars will trickle down to the Cuban poor in only small quantities, while state and foreign enterprises will benefit most.
- The assumption that the Cuban leadership would allow U.S. tourists or businesses to subvert the revolution and influence internal developments is at best naïve. As we have seen in other circumstances, U.S. travelers to Cuba could be subject to harassment and imprisonment.
- Over the past decades, hundreds of thousands of Canadian, European and Latin American tourists have visited the island. Cuba is not more democratic today, as a result. If anything, Cuba is more totalitarian, with the state and its control apparatus having been strengthened as a result of the influx of tourist dollars.
- As occurred in the mid-1990s, an infusion of American tourist dollars will provide the regime with a further disincentive to adopt deeper economic reforms. Cuba’s limited economic reforms were enacted in the early 1990s, when the island’s economic contraction was at its worst. Once the economy began to stabilize by 1996 as a result of foreign tourism and investments, and exile remittances, the earlier reforms were halted or rescinded by Castro.
- Lifting the U.S. embargo and the travel ban without major concessions from Cuba would send the wrong message “to the enemies of the United States”: that a foreign leader can seize U.S. properties without compensation; allow the use of his territory for the introduction of nuclear missiles aimed at the United States; espouse terrorism and anti-U.S. causes throughout the world; and eventually the United States will “forget and forgive,” and reward the regime with tourism, investments and economic aid.
- Since the Ford/Carter era, U.S. policy toward Latin America has emphasized democracy, human rights and constitutional government. Under President Reagan the U.S. intervened in Grenada, under President Bush, Sr. the U.S. intervened in Panama and under President Clinton the U.S. landed marines in Haiti, all to restore democracy to those countries. The U.S. has prevented military coups in the region and supported the will of the people in free elections. U.S. policy has not been uniformly applied throughout the world, yet democracy is U.S. policy in the region. Cuba is part of Latin America. While no one is advocating military intervention, normalization of relations with a military dictatorship in Cuba will send the wrong message to the rest of the continent.
- Once American tourists begin to visit Cuba, Castro would probably restrict travel by Cuban-Americans. For the Castro regime, Cuban-Americans represent a far more subversive group because of their ability to speak to friends and relatives on the island, and to influence their views on the Castro regime and on the United States. Indeed, the return of Cuban exiles in 1979-80 precipitated the mass exodus of Cubans from Mariel in 1980.
- A large influx of American tourists into Cuba would have a dislocating effect on the economies of smaller Caribbean islands such as Jamaica, the Dominican Republic, the Bahamas, Puerto Rico, and even Florida, highly dependent on tourism. Careful planning must take place, lest we create significant hardships and social problems in these countries.
If the embargo is lifted, limited trade with, and investments in Cuba would develop. Yet there are significant implications.
- All trade with Cuba is done with state owned businesses. Since Cuba has very little credit and is a major debtor nation, the U.S. and its businesses would have to provide credits to Cuban enterprises. There is a long history of Cuba defaulting on loans.
- Cuba is not likely to buy a substantial amount of products in the U.S. In the past few years, Cuba purchased several hundred million dollars of food in the U.S. That amount is now down to $170 million per year. Cuba can buy in any other country and it is not likely to abandon its relationship with China, Russia, Venezuela, and Iran to become a major trading partner of the U.S.
- Cuba has very little to sell America. Nickel, one of Cuba’s major exports, is controlled by the Canadians and exported primarily to Canada. Cuba has decimated its sugar industry and there is no appetite in the U.S. for more sugar. Cigars and rum are important Cuban exports. Yet, cigar production is mostly committed to the European market. Cuban rum could become an important export, competing with Puerto Rican and other Caribbean rums.
- In Cuba, foreign investors cannot partner with private Cuban citizens. They can only invest on the island through minority joint ventures with the government and its state enterprises.
- The dominant enterprise in the Cuban economy is the Grupo GAESA, controlled by the Cuban military. Most investments are done through or with GAESA. Therefore, American companies willing to invest in Cuba will have to partner mostly with the Cuban military.
- Cuba ranks 176 out of 177 countries in the world in terms of economic freedom. Outshined only by North Korea. It ranks as one of the most unattractive investments next to Iran, Zimbabwe, Libya, Mali, etc.
- Foreign investors cannot hire, fire, or pay Cuban workers directly. They must go through the government employment agency which selects the workers. Investors pay the Cuban government in dollars or euros and the government, in turn, pays the workers a meager 10% in Cuban pesos.
- Corruption is pervasive, undermining equity and respect for the rule of law.
- Cuba does not have an independent/transparent legal system. All judges are appointed by the State and all lawyers are licensed by the State. In the last few years, European investors have had over $1 billion arbitrarily frozen by the government and several investments have been confiscated. Cuba’s Law 77 allows the State to expropriate foreign-invested assets for reason of “public utility” or “social interest.” In the last year, the CEOs of three companies with extensive dealings with the Cuban government were arrested without charges. They are Cy Tokmakjian of the Tokmakjian Group, Sarkis Yacoubian of Tri-Star Caribbean, both from Canada, and Amado Fakhre of Coral Capital, Britain.
- If the U.S. travel ban is lifted unilaterally now or the embargo is ended, what will the U.S. government have to negotiate with a future regime in Cuba and to encourage changes on the island? These policies could be an important bargaining chip with a future regime willing to provide concessions in the area of political and economic freedoms.
- The travel ban and the embargo should be lifted as a result of negotiations between the U.S. and a Cuban government willing to provide meaningful and irreversible political and economic concessions or when there is a democratic government in place on the island.
Jaime Suchlicki is Professor and Director of the Institute for Cuban and Cuban American Studies at the University of Miami. He is the author of Cuba: From Columbus to Castro, now in its fifth edition; Mexico: From Montezuma to NAFTA, now in its second edition and the recently published Breve Historia de Cuba. Prof. Suchlicki is also a contributor to SFPPR News & Analysis.