Sunday, December 16, 2012

The New Cuban Economy: What Roles for Foreign Investment?

December 2012

The New Cuban Economy: What Roles for Foreign Investment?
By: Richard Feinberg

The Cuban revolution defined itself in large measure in terms of what it
was not: not a dependency of the United States; not a dominion governed
by global corporations; not a liberal, market-driven economy. As the
guerrilla army made its triumphal entry into Havana and the infant
revolution shifted leftward, a hallmark of its anti-imperialist ethos
became the loudly proclaimed nationalizations of the U.S.-based firms
that had controlled many key sectors of the Cuban economy, including
hotels and gambling casinos, public utilities, oil refineries, and the
rich sugar mills. In the strategic conflict with the United States, the
"historic enemy," the revolution consolidated its power through the
excision of the U.S. economic presence.

For revolutionary Cuba, foreign investment has been about more than
dollars and cents. It's about cultural identity and national
sovereignty. It's also about a model of socialist planning, a hybrid of
Marxist-Leninism and Fidelismo, which has jealously guarded its
domination over all aspects of the economy. During its five decades of
rule, the regime's political and social goals always dominated economic
policy; security of the revolution trumped productivity.

Fidel Castro's brand of anti-capitalism included a strong dose of
anti-globalization. For many years, El Comandante en Jefe hosted a large
international conference on globalization where he would lecture
thousands of delegates with his denunciations of the many evils of
multinational firms that spread brutal exploitation and dehumanizing
inequality around the world.

Not surprisingly, Cuba has received remarkably small inflows of foreign
investment, even taking into account the size of its economy. In the
21st century, the globe is awash in transborder investments by
corporations, large and small. Many developing countries, other than
those damaged by severe civil conflicts, receive shares that
significantly bolster their growth prospects. The expansion of foreign
direct investment (FDI) into developing countries is one of the great
stories of recent decades, rising from $14 billion in 1985 to $617
billion in 2010.1 While FDI2 cannot substitute for domestic savings and
investment, it can add significantly to domestic efforts and
significantly speed growth.

Today's ailing Cuban economy, whose 11.2 million people yield the modest
GNP reported officially at $64 billion3 (and possibly much less at
realistic exchange rates), badly need additional external
cooperation—notwithstanding heavily-subsidized oil imports from
Venezuela. As with any economy, domestic choices made at home and by
Cubans will largely determine the country's fate. Yet, as Cubans have
been well aware since the arrival of Christopher Columbus, the
encroaching international economy matters greatly; it can be a source of
not only harsh punishments but also great benefits. In the Brookings
Institution monograph Reaching Out: Cuba's New Economy and the
International Response, I explored the modest contributions already
being made by certain bilateral and regional cooperation agencies and
the larger potential benefits awaiting Cuba if it joins the core global
and regional financial institutions— namely the International Monetary
Fund, the World Bank, the Inter-American Development Bank, and the
Andean Development Corporation. This sequel explores the contributions
that private foreign investments have been making, and could make on a
much greater scale, to propel Cuba onto a more prosperous and
sustainable growth path.

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