Tuesday, July 27, 2010

No cigars: embargo lift wouldn't do much for Cuba's paralyzed economy

By Palash R. Ghosh | July 27, 2010 7:27 AM EDT

No cigars: embargo lift wouldn't do much for Cuba's paralyzed economy

While a chorus of voices in the U.S. increasingly demand that the Obama
administration completely drop its economic embargo and 'normalize'
relations with Cuba, such an event would not necessarily positively
impact the Communist island – at least not in the near-term.
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Desmond Boylan / Reuters

The physical infrastructure in Cuba and the existing economic system
there are so dilapidated that it would take a long time even for a 'free
Cuba' to become anything resembling a decent modern economy, according
to Dr. William N. Trumbull, interim dean at the College of Business and
Economics at West Virginia University in Morgantown.

"Cuba is an utter disaster," he said. "Their economy is a basket case
because of its economic system, not because of the embargo. Lifting the
embargo might help a bit, of course, but not by much. The real problem
with Cuba is itself."

Indeed, the economy in the 'workers paradise' is lurching. The nation's
biggest industries – tourism, mineral exports and agricultural
production – are each reeling for a variety of reasons. Revenues from
these businesses are falling and, as a result, foreign debt is soaring
(estimated at about $1.5-billion).

"Let's take tourism," Trumbull noted. "Cuba is a less attractive
destination that its neighbors in the Caribbean because the quality of
services is poor; and due to their rigid, fixed currency system, more
expensive to travel to than, say, Jamaica or the Dominican Republic."

Apparently, many curiosity-seekers are attracted to Cuba because of its
tragic and mysterious history, but the return rate for tourism is quite

Worse, the bottom has fallen out of the nickel market – once Cuba's
number one generator of foreign revenues.

But perhaps nothing symbolizes the economic plight of Cuba better than
the collapse of its sugar industry. Once virtually synonymous with the
sugar cane and sugar plantations, Cuba is now actually importing sugar!

In fact, the Cubans import about 80 percent of their food, Trumbull cited.

"People running businesses either don't know what they're doing or their
equipment is old and bad," Trumbull said. "They have phenomenally low
productivity, and no incentive to do anything."

Trumbull also cautions that economic data about Cuba are at best
unreliable and suspicious. For example, he scoffs at the notion that
Cuba enjoys a very low unemployment rate of below 2 percent (as some
sources indicate).

"Poverty is widespread in Cuba, especially as you go out of Havana," he
said. "The average salary for a Cuban worker is probably about $19 per

Of course, the main obstacle to any kind of normalization between these
two long-time enemies lies with the bearded figure of Fidel Castro.
Although he stepped aside from power in 2006 – giving day-to-day control
to his younger brother Raul --- it is believed Fidel still runs the show
from behind the scenes.

Fidel's commentaries against the U.S. and its foreign policy remains
intransigently hostile.

However, it must be remembered that the embargo is not 100% iron-clad.
In recent years, Cuban-Americans have been allowed to travel to Cuba to
see relatives (and send precious cash remittances); student groups,
trade delegations and certain other Americans are also allowed to go
there, subject to U.S. government approval.

More importantly, U.S. companies are permitted to export foodstuffs to
Cuba – on a cash-only basis.

"The amazing thing about this is that this represents a one-way trade,"
Trumbull said. "They export nothing to us – and even then, the U.S.
actually comes out as Cuba's fifth-largest trading partner (behind
Canada, China, Spain and The Netherlands).

2002 was a particularly bad year for the Cuban economy – the island was
smashed by devastating hurricanes and the Soviet Union pulled out its
last military base.

Under the Russians for decades, Cuba exchanged sugar-for-oil at
extraordinarily favorable rates for Castro – on the order of a massive
$4-billion annual subsidy.

After the Soviets departed, the Venezuelans took up the slack – by
exporting oil to Cuba on preferential terms in exchange for
Cuban-educated doctors and medical professionals.

It is believed Venezuelan transports about 100,000 barrels-per-day of
petroleum to Cuba.

However, even this relationship is on slippery ground.

"The Venezuelan economy is itself in trouble, it's not a good place to
be dependent upon," Trumbull noted.
"Consequently, Cuba is reaching out to Iran and even their old Russian
friends for their oil needs."

In addition, although Cuba does receive a sizable number of tourists
from Europe, especially Italy and Spain, relations with the European
Union (EU) are less than simpatico.

In 1996, the EU adopted a policy of "soft sanctions" that make full
economic cooperation with Cuba contingent on an improved human rights
record. Political prisoners and inmates dying of hunger strikes – like
dissident Orlando Zapata Tamayo recently – in Cuban jails makes such
cooperation extremely difficult to establish.

Moreover, while a number of European, Israeli and Canadian businessmen
have tried to set up shop in Cuba, they are apparently pulling up takes
in droves.

"Cuba is a wretched place to do business," Trumbull stated. "They don't
permit profits to be repatriated, and they freeze foreign accounts--
since they don't really have much in the way of foreign reserves."

One part of the Cuban story that Communists can indeed take some pride
in is their near-100% literacy rate (which, of course, produces all
those doctors and nurses they export overseas as human capital). They
produce more doctors per capita than any other country on earth.

But Trumbull points out that Cuba has always had high educational
standards, even before the 1959 revolution when strongman Fulgencio
Batista ran the country.

There is some hope for normalization of relations between the U.S. and
Cuba. For one thing, Fidel and his brother are either in their 80s or
almost there. Also, sentiment against the embargo appears to be easing
in the U.S., even among the Cuban-American community.

Naturally, any significant change in policy toward Cuba will occur
slowly and methodically – and even longer for the island's economy to
wake up from a half-century slumber.


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