Cuba's Economic Strategy
C. Wood Chatham
In December 1992, then-Congressman Robert Torricelli
(D-NJ) told the
American public that the tightened embargo against
Cuba resulting from
his Cuban Democracy Act would topple President
Fidel Castro from
power in just a few weeks.1 Almost four years
later, US government
officials predicted that the Helms-Burton Bill
signed by President Clinton
12 March 1996, would deliver the final blow to
a suffocating Cuban
economy.2 Castro's inevitable fall has been forecasted
for thirty-eight
years now, so why is he still in power? With
the decline and imminent
collapse of Cuba's main export sector, the sugar
industry, and the
deterioration of preferential trade agreements
with the former Soviet
Union, how has the Cuban economy managed to stay
afloat? The answer
is that Castro has pursued a policy of encouraging
foreign investment.3 A
closer look at the promotion of foreign investment
and the tourism
industry in Cuba will reveal the basis of Castro's
strategy for survival.
Losing an Ally
In 1991 the situation facing Cuba looked grim,
and that of Fidel Castro
arguably worse. Long-time political ally and
trading partner, the Soviet
Union, was experiencing an economic and democratic
transition that
overturned the existing communist regime. The
fall of the Soviet Union
brought the demise of preferential trade agreements
that had sustained a
floundering Cuban economy in the face of an imposing
US embargo. The
basis of Cuban-Soviet trade was the exchange
of Cuban sugar for Soviet
petroleum. Cuba was the main beneficiary of this
exchange because the
USSR offered Cuba concessional prices for its
sugar and subsidized the
oil that it exported to the island nation. In
1985 the Soviet Union was
paying Cuba approximately 45 cents per pound
of sugar while the world
market price was just above four cents per pound.4
The collapse of the
Soviet Union initiated a wave of widespread panic
in the Cuban
economy. Cuban decline began in 1989, but the
crisis became fully
apparent in 1991. From 1989 to 1993 Cuba's GDP
dropped 35%,
imports plummeted 75%, the deficit rose to 33%
of GDP, and oil
imports from Russia declined from 13 million
to under 7 million tons per
year.5 Surely, thought Castro's opponents, he
would fall now.
Economic Reform
Rationing was implemented and power outages grew
increasingly longer,
but Castro refused to give up. Communism was,
in his mind, not finished
in Cuba. Yet today's communism is not what it
was prior to 1991. Cuban
officials quickly identified, accepted and began
to address the problems
that faced Cuba. They needed to find a major
source of capital, and they
needed it quickly. Sensing that attempts to salvage
the preferential trade
agreements with the Soviet Union were relatively
futile, Cuban officials
explored the next most feasible optionforeign
investment from
non-communist countries. They also acknowledged
that the sugar
industry was not capable of supporting Cuba as
it had in the past. The
recent dismissal of Nelson Torres, the Minister
of Sugar, echoes this
realization.6
The Central Committee decided to pursue economic
recovery through
the encouragement of joint ventures involving
a combination of federal
and foreign capital and the promotion of growing
industries such as
tourism.7 This policy represented a major victory
for the liberalization of
the Cuban economy, but a joint venture, an investment
involving the
state and an outside partner, still gave the
Cuban government a relatively
high degree of control over new investment projects.
While joint ventures
have been allowed in Cuba since 1982, foreign
ownership in any one entity
had been capped at 49%.8 In 1992, the addition
of Article 23 to the Cuban
Constitution attracted a wave of new foreign
investors by promising
security on their investments.9 The Cuban government
opened the flood
gates to foreign investment in 1995 by deciding
to allow 100% foreign
ownership in all sectors of the economy except
health, education, and the
military. Foreign investors were informed that
they would receive full
protection of their assets, the right to remove
profits from Cuba in hard
currency, and the right to acquire and develop
non-residential
properties.10 Cuba received a positive response
from foreign investors to
its policy reforms. Today there are over 260
joint ventures operating
within the Republic of Cuba compared to the 20
that existed in 1991.11
Big investors include Argentina, Australia, Brazil,
Canada, Italy, Mexico,
Spain, and the UK.
Tourism
The steady decline of the sugar cane industry
in the late 1980s forced
Cuban officials to search for an alternative
pillar to support the economy.
In 1987 the country's leadership decided that
it would give priority to the
development of the tourism industry in hopes
of exploiting the island's
natural abundance of sun-drenched beaches and
tropical alcoves. A few
years after this decision, Castro declared that
tourism, "will be the leading
industry, and since we haven't found those big
oil deposits, it is marvelous
to have at our disposal these extraordinary deposits
of natural resources
for tourism."12
In 1994 Cuba received approximately 630,000 tourists
producing about
$850 million in revenue. By 1996 the tourist
sector had grown
over 50% and was receiving over a million tourists,
bringing $1.3 billion
in gross revenues to Cuba. The forecasts for
1997 predict an additional
296,000 tourists and $300 million to this growing
annual figure.13 After
years of decline in GDP, Cuba saw a year of positive
GDP growth in
1994. Since 1994 when the domestic product rose
0.07%, GDP growth
has continued and accelerated to 9.6% in 1996.14
The economic sun is
starting to shine on Cuba.
US Embargo
The United States persists in casting a shadow
over Cuba, however, with
its antiquated embargo policy. Critics contend
that the US embargo on
Cuba is a relic of Cold War diplomacy that is
condemned by other
nations. The most recent vote of the UN General
Assembly was an
adamant 138 to 3 in favor of lifting US sanctions
against Cuba.15 The
embargo is largely ineffective; the US is not
gaining international
popularity by upholding its sanctions, and foreign
investors are not
noticeably intimidated by the new restrictions
imposed by the
Helms-Burton Bill. The French and Canadian governments
have been
especially vocal opponents in world trade forums.
The crux of the main
provisions, Titles III and IV, is that US nationals
with claims to
expropriated property in Cuba can sue any person
who traffics in such
property, and any individuals who do traffic
in these areas can be denied
an entry visa to the US. Trafficking is broadly
defined and refers to any
sort of economic activity relating to confiscated
property.16
Wayne Smith, a Senior Fellow at the Center for
International Policy,
commenting on the implications of the Helms-Burton
Bill before it
became law on 12 March 1996, notes that "[foreign
investors] are more
angered than intimidated by Helms-Burton and
predict that if it becomes
law few foreign investors will pull out." According
to Joy Gordon,
professor of political philosophy at California
State University-Stanislaus,
there have been few confirmed cases of companies
pulling out of Cuba.
A quick glance at the tourism industry will support
this affirmation.
Despite the passage of Helms-Burton and the tragic
incident of two
non-military planes being shot down over Cuban
waters in early 1996,
the number of tourists streaming into Cuba continued
to increase.17 The
Guitart hotel chain chose to pull out of Cuba
because of the pressures of
Helms-Burton, but they were immediately replaced
by the Tryp group
which wished to benefit from the growing Cuban
tourist trade.18 This
example shows that there are many investors who
are interested in getting
their foot in the door of the growing Cuban economy,
regardless of
Helms-Burton threats.
Cuba's Future
What does the future hold for the Communist Party
of Cuba? The recent
convening of the Fifth Party Congress would seem
to indicate that major
change and reform will not be the underlying
themes of Cuban
development in the years to come. The congress'
purpose was to
set economic and political policy for the next
five years, and Castro and
his advisers decided to endorse policies for
the maintenance of the status
quo.19 Castro also moved to cut the Central Committee
from 225
members to 150. The consolidation of power in
the hands of a few is
designed to facilitate the anticipated transition
of power from Castro to
his younger brother, Raúl. Cuban democracy
is a distant specter over the
horizon of the Atlantic.
The Communist Party may have retrenched itself
at the Fifth Party
Congress, but one must wonder, what is to come
of the changes Cuba
has already undergone? The reforms that were
intended to liberalize the
economy also possess the potential to introduce
socio-economic
inequities in Cuban society that could undermine
communist doctrines.
For instance, Derek Hall, of the US-based Tourism
and Leisure
Enterprises Unit, recognizes the disruptive element
inherent in the foreign
investment reforms in that "[tourism] also carried
the stigma of being the
vehicle for pre-revolutionary corruption and
vice and a symbol of
socio-economic inequality."20 Cuban officials
will have to deal with the
ideological paradoxes that result from the allowance
of foreign investment
in a socialist country, but they no longer have
to ask themselves how they
will survive under the US embargo. Now the question
would appear to
be: how will they prosper?
Notes:
1 Wayne S. Smith, "Cuba's Long Reform," Foreign
Affairs,
March/April 1997, p. 99.
2 "Background on the Helms-Burton Bill," (May
9, 1996), USIS,
<www.usis-canada.usia.gov/helms.htm>, October
3, 1997.
3 As Castro proclaimed in his 1993 Annual Speech,
"Who would have
thought that we, so doctrinaire, we who fought
foreign investment, would
one day view foreign investment as an urgent
need?" from Pablo Martin
de Holan, Socialismo o muerte de
socialismo?: An Analysis of the Political and
Social Situation in
Cuba, online, <gamma.management.mcgill.ca/\cuba/cuba.htm>,
October
3, 1996.
4 Jorge F. Pérez-López, "Cuban-Soviet
sugar trade: Price and subsidy
issues," Bulletin of Latin American Research,
1988, Vol. 7(1): p. 123.
5 Joy Gordon, "Cuba's entrepreneurial socialism,"
The Atlantic Monthly
Online, <www.theatlantic.com/atlantic/issues/97jan/cuba/cuba.htm>,
January 1997.
6 Larry Rohter, "Cuba's party peers ahead, then
votes to march in place,"
The New York Times, October 12, 1997, p. A6.
7 A. R. M. Ritter, "The Cuban economy in the 1990's:
External
challenges and policy imperatives," Journal of
Interamerican Studies
and World Affairs, Fall 1990, Vol. 32(3): pp.
139-142.
8 Gordon.
9 Jorge F. Pérez-López, Cuba's Second
Economy: From Behind the
Scenes to Center Stage (New Brunswick: Transaction
Publishers,
1994), pp. 155-156.
10 Gordon.
11 "Realities of 'MarketCuba'©," par. 27,
online, U.S.-Cuba Trade and
Economic Council, <www.cubatrade.org/market.html>,
October 3,
1997.
12 Fidel Castro, May 5, 1990, quoted in Granma
Weekly Review, May
27, 1990, p. 3.
13 "Realities of 'MarketCuba'©," pp. 32-35.
14 Gordon.
15 Smith, p. 110; Gordon.
16 "Background on the Helms-Burton Bill."
17 Gordon.
18 Smith, p. 102.
19 Lucia Newman, "For Cuba's Communists, the party
is far from over,"
CNN Online, <www.cnn.com>, October 7, 1997.
Also, Rohter, A6.
20 Derek R. Hall, "Tourism development in Cuba,"
in Tourism and the
Less Developed Countries ed. David Harrison (New
York: Halsted
Press, 1992), p. 111.
