[Congressional Record Volume 140, Number 149 (Thursday, December 1, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: December 1, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
UNITED STATES POLICY TOWARD CUBA
Mr. SIMON. Mr. President, this past summer the Clinton
administration chose to tighten the economic embargo and accept more
Cuban immigrants in response to thousands of Cuban rafters who set sail
to Florida. I question its goals in tightening the embargo against
Cuba. Tightening the embargo, which is already tighter than the one we
have against Iraq, could lead to a major crisis in Cuba. The embargo
against Cuba only makes the situation there worse by restricting the
supply of food and medicine to people who desperately need it, without
lessening Castro's grip on the Cuban political machinery. Our recent
experience in Eastern Europe has shown us that sealing Communist
countries from contact with democratic societies is not the answer.
Progress can be obtained by encouraging a steady flow of information
and goods between Cubans who seek change and Americans.
During the 104th Congress, the administration and Congress should
take a close look at our current policy toward Cuba. It is in the
interest of the United States to encourage democracy and the rule of
law in Cuba, but it is not in our interest to continue a policy that
causes needless suffering and that has proven unsuccessful. I urge my
colleagues to read the following article from the National Journal,
``The Cuban Conundrum,'' by Bruce Stokes. It provides a good outline of
current U.S. policy toward Cuba and what it could lead to.
I ask that the article be printed in the Congressional Record.
The article follows:
[From the National Journal, Sept. 17, 1994]
The Cuban Conundrum
(By Bruce Stokes)
In recent weeks, the searing television images of women and
children in inner tubes and flimsy rafts braving the shark-
invested waters of the Straits of Florida to flee Cuba have
momentarily overshadowed the more complex, underlying story
of the economic collapse that sparked the exodus.
While the Clinton Administration has, for the time being,
apparently resolved the crisis by agreeing to take in more
Cubans as legal immigrants, the long-term challenge that
faces Havana--and Washington--is the reconstruction of the
Cuban economy through its transformation, in one form or
another, from a socialist to a market economy.
The stakes in such a transformation are high.
``An early restructuring to a market-oriented economy could
produce a very quick and robust recovery from Cuba's present
crisis situation.'' said Ernest H. Preeg, an economist at the
Washington-based Center for Strategic and International
Studies.
But failure could unleash a new torrent of Cuban
migration--legal or illegal--to the United States. Already,
more people have tried to flee Cuba this year than in the
previous decade. And with Cuba's geographic proximity to
Florida, a large Cuban-American population to welcome
refugees and the wide disparity between the standard of
living in Havana and what's available in Key West, just 90
miles away, experts say it's possible that as many as a
million Cubans may want to emigrate to the United States
rather than wait for better times in Cuba.
The experts seem to agree that the transformation of Cuba's
economy has already begun. But there's no agreement on how
far it has gone or how much further Cuban President Fidel
Castro is willing to go.
``Castro is gradually losing power to market forces, and
the reform process appears irresistible,'' Carmelo Mesa-Lago,
a professor of Cuban studies at the University of Miami,
said. But unfortunately, he added, ``I don't really think
they understand how the market works.''
And lulled by 35 years of false hopes of Castro's imminent
demise, few American economists or U.S. government officials
have begun to prepare for the day when a new, transitional
Cuban government will have to make the market work or risk
backsliding into deeper economic and political chaos.
``This thing is going to catch them with their pants down,
and they are unprepared,'' said Armando M. Lago, the
president of Ecosometrics Inc., a Bethesda (Md.)-based
consulting company and the current president of the
Association for the Study of the Cuban Economy.
The Clinton Administration's instinctive reaction to the
new flood of Cuban boat people was to tighten the current
U.S. trade embargo on Cuba. It was decision driven more by
domestic political considerations--chief among them the
desire to placate the conservative Cuban-American community--
rather than with any forethought of its debilitating impact
on emerging market forces inside Cuba.
It's been up to Congress and some Cuban-American economists
to begin to lay out a new economic strategy for dealing with
Cuba. Their plans include a lifting of the embargo calibrated
to political and economic reforms inside the island nation,
detailed blueprints for the macro-economic stabilization of a
transitional Cuban economy and guidelines for foreign
investment and trade expansion.
When and whether these plans are tested, of course, depends
on how long Castro remains in power.
desmerengamiento
Like a giant, tempting meringue, the Cuban economy is
collapsing in on itself, its frothy exterior no longer
supported by the hot air that first gave it form. This
process--what the Spanish call desmerengamiento--is well-
known to pastry chefs the world over, but economists have
never seen such a dramatic economic contraction.
From 1989-93, the Cuban economy shrank by nearly half,
according to most reliable estimates. This contraction
exceeds that experienced by Cuba during the Great
Depression in the 1930s, Mesa-Lago said, and is much worse
than the economic deterioration suffered in recent years
in Eastern Europe.
The Cuban economy is rapidly disengaging from the global
marketplace. In 1993, the value of Cuba's exports and imports
was less than a third of what it was in 1989. (See table)
Eastern Europe and the former Soviet Union, once Castro's
main trading partners, will no longer sell him machinery and
oil at cut-rate prices, and they refuse to buy Cuban sugar at
prices far in excess of the world market price.
Reflecting this economic breakdown, the value of the Cuban
peso has plummeted. While a Cuban peso is still officially
worth $1, the black market exchange rate in August was 130 to
$1.
``Cuba has become an undeveloping country,'' Preeg said.
Nothing works.
In Havana, power blackouts are a daily occurrence. With
gasoline and spare parts in short supply, automobiles, trucks
and buses are disappearing in favor of bicycles and ox carts.
Unemployment is soaring because at any given time more than
two-thirds of Cuba's industrial plants are closed, owning to
a lack of power or raw materials.
Government rationing provides only about half of the food
that average families need to survive, forcing them to turn
to the underground economy. And while state-set prices for
many basic goods and services have changed little in the past
three decades, no such constraints exist on the black market,
where inflation is rampant. In May, Cuba's monthly minimum
wage would buy only a two-pound chicken or a pound of pork or
four liters of milk in unofficial markets.
In a society that once prided itself on meeting basic human
needs, the human toll of food shortages in mounting.
Infectious diseases that were once thought to have been
eradicated, such as tuberculosis and malaria, are returning.
In early 1993, the U.N. Children's Fund reported that half of
all Cuban infants in their first year of life showed symptoms
of anemia.
To reflate the collapsing Cuban economic meringue, the
Castro government has introduced some elements of a market
economy into what was once an autarkic socialist state. Some
foreign investment is now allowed. To encourage farmers to
grow more food, many state farms have been turned into
cooperatives, and the prices of agricultural products have
been increased somewhat to stimulate production. Taxi
drivers, hairdressers and workers in more than 130 other
categories can now sell their services on the open market.
And the widespread use of the dollar as the preferred medium
of exchange has been legalized.
But the economic reform process is a halting one, raising
uncertainty about the evolution of Cuban capitalism. In the
past few months. For example, the government has arrested
people for making ``too much'' money in the flourishing
dollar economy. The scope of permitted ``family business''
has been scaled back. And tax rates have been raised on self-
employment income.
``The adopted measures and reforms are incoherent,
inconsistent and ill-conceived in design; incomplete in
scope; incorrect and delayed in execution; and, consequently,
inadequate in impact,'' George Plinio Montalvan, a former
chief economist of the Organization of American States, said.
The problem, Mesa-Lago said, is that ``Castro listens to
different ideas and implements only those that appeal to him
most--he lacks a blueprint.''
FIDELISMO WITOUT FIDEL
Most experts see only two designs for the Cuban economy of
the future.
Now that the emigration turmoil has subsided, the likeliest
scenario is that Cuba will renew its tentative reforms and
evolve toward a Nicaraguan-style economy, in which the state
continues to play a major role. Under such conditions, there
will be an increasing number of small and medium-sized
private companies. But the commanding heights of the economy
will be controlled by large, public enterprises. And while at
some point Castro will step down or die, his cadre of
bureaucratic apparatchiks will continue to drive economic
decision making.
But this option holds little attraction to the outside
world because, at best, it would provide only modest economic
growth. And the paucity of serious research on such an
eventuality is primarily because many conservative Cuban-
Americans, who provide much of the money for academic work on
Cuba, see a Nicaraguan-style Cuba--what they call ``Fidelismo
Without Fidel''--as their worst nightmare. It would delay
indefinitely the emergence of a truly free market economy in
Cuba. And, more important to some of them, it would postpone
their own return to power.
``There is distaste among many Cuban-Americans to consider
the unconsiderable,'' admitted Matias F. Travieso-Diaz, a
partner in the Washington law firm of Shaw, Pittman, Potts &
Trowbridge.
The scenario preferred by most Cuban-Americans and
Administration officials is a fairly rapid transition to a
market-style economy. Most economists agree that only this
course will provide Cuba with the rate of sustained economic
growth needed to bring unemployment down to manageable
levels, while continuing to provide sufficient social
services to ensure political stability.
The first obstacle on this path is the U.S. embargo against
trade with, and investment in, Cuba.
The 1961 Foreign Assistance Act first imposed the trade
ban, both to pressure Cuba into compensating Americans for
property nationalized by the revolutionary regime and to
punish the Castro government for its embrace of Communism.
The 1992 Cuban Democracy Act extended the embargo by denying
foreign subsidiaries of U.S. firms the licenses they need to
trade with Cuba. And to signal its dissatisfaction with the
Cuban government's failure to curb the current exodus of boat
people, the Clinton Administration has banned all dollar
remittances to Cuba from relatives or friends living in the
United States. (Previously, remittances of as much as $500
per quarter were permitted.)
It is an article of faith among older, more conservative
Cuban-Americans--and the politicians they have supported--
that any loosening of these economic screws will only prop up
the Castro government and postpone the transition to a market
economy. To this end, hard-liners have supported escalation
of the embargo through imposition of an economic blockade on
Cuba.
Younger, more moderate Cuban-Americans and critics of the
current U.S. policy toward Cuba question why trade with China
and Vietnam is viewed as a means of liberalizing their
socialist economies, while trade with Cuba is rejected as
counterproductive.
``If the goal is as peaceful and as productive a transition
as possible,'' said Andrew Zimbalist, a professor of
economics at Smith College, ``engagement rather than
isolation has proven to be a better policy.''
But engagement is prohibited by the Cuban Democracy Act,
which requires democratic elections in Cuba before
the embargo can be lifted. Such sequencing flies in the
face of the experience in Eastern Europe, where democracy
came at the end of the transition from socialism, well
after the seeds of capitalism had been planted and
nurtured and had borne fruit. And, said Rep. Charles B.
Rangel, D-N.Y., ``we are losing billions of dollars in
business opportunities to invest and trade with Cuba.''
There is growing sentiment on Capitol Hill to reverse the
policy of isolating Cuba. Rangle has proposed the Free Trade
With Cuba Act, which would repeal the Cuban Democracy Act and
the embargo; open up travel, mail and telecommunications
services; and launch new negotiations on U.S. economic claims
against Havana and on the human rights situation in Cuba.
Claiborne Pell, D-R.I., the chairman of the Senate Foreign
Relations Committee, and Lee H. Hamilton, D-Ind., the
chairman of the House Foreign Affairs Committee, have
proposed a similar unilateral lifting of the ban on travel,
remittances and commercial sales of food. And Rep. Robert
Menendez, D-N.J., has introduced legislation that would offer
a transitional Cuban government humanitarian assistance and
help in downsizing its military.
Rolando H. Casteneda, a senior operations officer at the
Inter-American Development Bank, and Montalvan have suggested
a step-by-step approach, linking the expansion of U.S.
economic ties with Cuba to Cuban political liberalization.
They suggest that the United States take the first step by
permitting commercial sales of U.S. food, medicine and
medical instruments to Cuba and rescinding the recent
prohibition on all remittances. If Cuba then agrees to free
political prisoners and adhere to international human rights
conventions, Castaneda and Montalvan say, the United States
should lift what's left of the trade embargo. If Havana
implements market-based economic reforms, Washington in
return wouldn't stand in the way of International Monetary
Fund (IMF) loans to Cuba. Finally, once Cuba adopts a new
constitution and has free and fair elections, they say, the
United States would lift its ban on travel and investment,
support a restructuring and some forgiveness of Cuban debt
and further open the U.S. market to Cuban goods.
None of these proposals is likely to pass Congress this
session. And all face an uphill political fight.
``The idea that opening a McDonald's in Havana will make
Castro into a Thomas Jefferson blows my mind,'' said Jose S.
Sorzano, the chairman of Austin Group Inc., a consulting firm
in Arlington, Va. Once the embargo is cracked, conservatives
predict, the pressure from U.S. commercial interests to
quickly normalize economic relations without regard to
political concessions by Castro will prove inexorable and
Washington will end up trading something for nothing.
Moreover, for most lawmakers, there is potential pain and
little gain for supporting an end to the embargo. The
business community is not pressing for liberalization. In the
past, lawmakers who have advocated an easing of tensions with
Cuba have been Red-baited. Finally, if the Administration
dares to change its stance and supports a calibrated
relaxation of the embargo, conservative Cuban-Americans have
threatened to pillory President Clinton for waffling on yet
another foreign policy issue.
RESTITUTION V. COMPENSATION
Once the economic transformation of Cuba has begun, the
biggest obstacle to normalization of economic relations with
the United States will be the claims against the Cuban
government by Americans whose property in Cuba was
nationalized after the revolution.
``It's the crazy-aunt-in-the-basement issue,'' said Robert
E. Freer Jr., a senior partner in the Washington law firm of
Freer & McGarry. And like the unpredictable relative it's a
highly emotional issue likely to cause hitches in lifting the
embargo and serious clashes between the exile community and
the people in Cuba today.
In the 1960s the U.S. Foreign Claims Settlement Commission
valued the nationalized property--primarily industrial
plants, commercial buildings and farmland--at $1.8 billion.
It's now valued at $5.6 billion. And then there's all the
confiscated property, much of it residential, that was
owned at the time of the revolution by Cuban citizens who
subsequently became U.S. citizens.
Claimants have different interests in resolving the status
of the assets. Some large U.S. corporations, especially those
with a brand name to protect, want restitution of their
original property. Similarly, many middle and upper-class
Cuban-American refugees who left a lot of property behind in
Cuba have an economic and emotional stake in the return of
their original holdings. Others who have little desire to
return to Cuba would be happy with financial compensation for
their losses. And some Cuban-Americans who made their
fortunes in the United States only care that the confiscated
properties be privatized at auction so that they will have a
crack at them.
Freer, who's the general counsel to the U.S.-Cuba Business
Council, contends that restitution will ensure an immediate
infusion of foreign investment and modern management in Cuba.
But fights over restitution delayed the privatization of
property in Eastern Germany for years, holding up foreign
investment. Moreover, Montalvan argued, ``restitution would
install the same distribution of wealth in Cuba that you had
before the revolution.'' Americans would control 90 per cent
of Cuba's electricity generating capacity, its entire
telephone system, most of its mining industry and some of its
best land, providing dry tinder to rekindle Cuban
nationalism.
Compensation--on the surface, a more straightforward
resolution of the problem--sparks similar controversy. It
could burden an already indebted Cuba with new foreign
obligations. It took the Foreign Claims Settlement Commission
six years to come up with estimates of losses. ``To ask a
country in the midst of rebuilding to administer that kind of
thing, or deal with claimants on an individual basis, is
absolute folly,'' Montalvan said.
Nevertheless, Travieso-Diaz said, ``the paramount issue is,
when and how is the title going to be put to rest?''
Claimants' lawyers have threatened to use the courts to delay
the privatization of their former properties until some
restitution or compensation is made. To avoid that
economically debilitating eventuality, Travieso-Diaz
suggested that some partial compensation for claims, some
percentage on the dollar, is inevitable.
The sleeper political issue could be what to do with small
and medium-sized businesses, which have sentimental and real
estate value, and residential property. These were the
hardest claims to resolve in Eastern Germany and the Baltic
states. The Cuban-American community has largely disavowed
any interest in restitution of former residences. But this
is, in part, a tactical move to counter Castro's propaganda
that Cuban-Americans want to return to steal people's homes.
Notwithstanding such disavowals, reclaiming family homesteads
could suddenly have a powerful emotional appeal once the
opportunity arises.
containing inflation
Clearing the underbrush of the embargo and foreign claims
issues merely sets the stage for tackling the fundamental
economic challenges facing Cuba's transition to a market
economy.
The first problem is to contain the seemingly inevitable
inflation that's triggered by the end of socialism. The
government subsidies inherent in a state-run economy mask
inflation by making up the difference between what consumers
pay and what the price of a good or service would be if the
value were determined strictly by supply and demand. As
Cuba's economic crisis worsened in the past few years,
subsidies grew, and by 1993 Cuba's budget deficit was equal
to a third of the value of its economy. By printing money to
cover those subsidies as domestic production shrank, the
Cuban government provided average citizens with plenty of
money, but little to buy. As a result, a huge volume of
excess liquidity has been built up that will feed
inflationary fires if restraints on prices are lifted.
To stimulate production to meet demand and get the Cuban
economy moving again, most economists recommend an immediate
end to price controls, which could lead to a tripling or
quadrupling in prices. The trick will be to stabilize those
prices once they have initially adjusted so that the
inflation rate doesn't spiral out of control.
This requires curbing the flow of money into the economy
and sopping up some of the excess liquidity. Economists
prescribe a reduction in government spending and some hard
budget constraints; a freeze on public-sector wages and a
cutback in public-sector employment, including the military;
the imposition of new taxes; and a positive real interest
rate to encourage savings.
capital from abroad
Domestic macroeconomic stability is a necessary, but not
sufficient, condition for a robust economic recovery in Cuba.
If Cuba is to climb out of its economic hole, it also needs
new capital from abroad.
Cuba's needs are great. In the mid-1980s, the Soviet Union
pumped an estimated $4.4 billion a year into Cuba's
economy--about 15 per cent of its gross national product.
With the collapse of the Soviet Union, however, that
largess ended, and Cuba will somehow need to make up the
shortfall. In addition, Manuel Cereijo, a professor of
engineering at Florida International University in Miami,
estimates that Cuba will need $3.6 billion over a decade
to reconstruct its rundown transportation system and
another $2.5 billion to modernize its telecommunications
system.
Simply lifting the current ban on remittances, economists
say, could inject as much as $1 billion a year into Cuba's
economy.
Cuba has an estimated $10.8 billion debt with European and
Asian lenders and a 20 billion-ruble obligation (about $100
million at the current exchange rate) to the former Soviet
Union. To obtain some breathing room during its economic
transition, economists say, Havana will first have to
negotiate a moratorium on repaying its debts and then
renegotiate them at some fraction of their original value.
There is ample international precedent for such debt
restructuring, and the lenders should be obliging because
Cuba hasn't paid any interest or principal on its debt since
the mid-1980s.
A speedy resolution of the debt question would open lending
windows at the IMF and World Bank. Depending on the initial
exchange rate, Cuba's per capita income may be judged to be
low enough to qualify for concessional loans, a definite
plus. Economists estimate that Havana will initially need to
borrow at least $750 million a year. The main sticking point
could be bureaucratic inertia.
``From the time Latvia turned democratic and applied for a
loan and got it, it took 18 months,'' economist Lago said.
``If the international financial institutions take that long
in Cuba, with the current economic conditions, there will be
mass starvation.''
Foreign aid is another likely source of foreign exchange.
Many economists think that Cuba will need as much as $1
billion a year in foreign aid. With the shrinking U.S.
foreign aid budget, however, Havana cannot expect much help
from Washington.
Foreign investors could provide an additional supply of
capital. Foreign investment in Cuba has been growing. By the
end of 1993, there were 83 joint ventures in the industrial
sector and 29 in tourism, with Spanish companies in the lead.
Foreign interest was further whetted in June 1994, when it
was announced that Grupo Domos of Mexico had bought 49 per
cent of EmtelCuba, the national phone company, for $1.5
billion. But despite all this hoopla, many of the investments
have involved little cash upfront, and economist Preeg
estimates that real foreign investment may have totaled only
$50 million in 1992.
Long constrained by the embargo, U.S. companies have only
begun to show any interest in Cuban investment opportunities.
(Business consultants, for example, tell stories of U.S. oil
companies scouting for gasoline station sites.) Lago and Jose
F. Alonso, a senior economic researcher with Radio Marti,
estimate that direct foreign investment in Cuba could reach
$250 million a year 5 years into an economic transition and
top $1 billion a year 15 years out.
At first, investments are likely to center on a few key
sectors of the Cuban economy:
Sugar.--Sugar plantations and mills are Cuba's largest
employers, and sugar exports provide its largest single
source of foreign exchange. The 1994 sugar harvest was 3.4
million tons, less than half the harvest in 1989. Four of
every five sugar mills in Cuba were built before World War
I, and many need to be replaced.
Tourism.--Tourism, Cuba's second largest source of foreign
exchange, is deemed by many economists to have the greatest
economic potential. Cuba once dominated the Caribbean tourist
trade, but had only 3.2 per cent of the market in 1992.
Alonso and Lago think that Cuba's market share could rise to
11 per cent with adequate investment and to 15 per cent if
gambling returns.
Minerals.--Cuba has the fourth-largest nickel reserves in
the world. But Cuban mining technology, largely from the
former Soviet Union and Eastern Europe, is obsolete, pushing
up production costs at a time when world nickel prices are
falling. As a result, Cuba's nickel production has fallen
dramatically in the early 1990s. Reviving it will be costly.
Manufacturing.--Manufacturing plants for textiles, shoes
and sporting goods all have the potential to start up
quickly. The key will be the revival of small and medium-
sized firms, the conversion of military airports and ports to
civilian export use and the reconstruction of Cuba's public
infrastructure to support industrial expansion. Low wages
will initially be a major draw for new investors, but labor
costs will have to rise if state food, education and health
care subsidies are trimmed.
Most economists who have studied Cuba advocate, as part of
the initial economic stabilization package, a sharp
devaluation of the peso to ensure that Cuban-made products
are competitive internationally. They say that this should be
coupled with partial convertibility of the peso, to enable
investors to repatriate their profits. Such a move would not
be without risk, however, because it could fuel inflation.
Cuban investors will also want greater access to the U.S.
market. Without most-favored-nation trading status, however,
Cuban exports would face prohibitive U.S. import duties.
Cuba's poverty would also qualify it for lower tariffs under
the U.S. generalized system of trade preferences. And
admission to the Caribbean Basin Initiative and the North
American Free Trade Agreement (NAFTA) is on every Cuban-
American economist's wish list.
CUBA AFTER 35 YEARS OF CASTRO
[Selected economic indicators]
------------------------------------------------------------------------
1989 1990 1991 1992 1993
------------------------------------------------------------------------
Change in gross social
product (equivalent to
gross domestic product)
(Percent)................. 0.1 -3.1 -25 -14 -10
Exports (in billions of
pesos).................... 5.4 4.4 3.6 2.3 2.1
Imports (in billions of
pesos).................... 8.1 6.4 3.7 2.5 1.7
Sugar production (in
millions of metric tons).. 8.1 8.4 7.6 7.0 4.2
Budget deficit as per cent
of GSP (Percent).......... 11 16 NA NA 34
------------------------------------------------------------------------
Source. George Plinio Montalvan
MAJOR OBSTACLES
But trade expansion and increased foreign investment in
Cuba face major obstacles.
In the 1950s, the United States bought nearly three million
tons of sugar from Cuba, accounting for more than half of its
total exports. Today, the United States imports only one
million tons of sugar from the entire world. Increasing the
import quota, even by several hundred thousand tons, as a
gestuer of support for Cuba would garner Havana only a few
hundred million dollars in revenue. Moreover, upping the
quota would draw severe opposition from U.S. sugar growers.
Expanding tourism in Cuba will come largely at the expense of
the tourism-dependent economies of other Caribbean nations,
leading to new requests for aid from them. And any proposal
to include Cuba in NAFTA is likely to be rapidly enmeshed in
domestic U.S. politics, with labor unions fearing job losses
to apparel and other labor-intensive assembly operations that
could shift to Cuba.
Moreover, Cuba currently lacks the basic legal and
institutional framework needed to assure foreign investors
that their funds are safe. Cuban law doesn't sufficiently
protect private property rights, the court system doesn't
adequately enforce the law and there are no bankruptcy
procedures to speed entrance and exit from the marketplace.
Moreover, the recent experiences of foreign investors have
already given ammunition to critics in Cuba. They complain
about investment deals at bargain basement prices. They
object to foreign control over national industrial assets,
such as the telephone company, and natural resources, such as
some of Cuba's best beaches, which are now off-limits to most
citizens. They resent the selling off of the nation's
patrimony--Grupo Domos obtained a 55-year monopoly over
telecommunications services. And they question the benefits
of foreign investment for average workers. Under the current
system, foreign investors must contract with the Cuban
government for labor. Havana is paid $400 per month per
employee. The workers are paid an average of 250 pesos per
month, less than $3 on the black market. The government
pockets the difference. ``It's an incredible case of
exploitation,'' Lago said.
To set a new standard for foreign investors in Cuba,
Castaneda of the Inter-American Development Bank and
Montalvan have drafted a set of foreign investment guidelines
that have been dubbed the Arcos Principles (after Gustavo
Arcos Bergns, the secretary-general of the Cuban Committee
for Human Rights in Cuba). Signatories would pledge to hire
Cubans directly instead of through a government intermediary,
commit themselves to a 48-hour workweek, hire regardless of
political background and allow employees to organize
independent unions. In a swipe at the tourist oasis that
exists amid the desert-like Cuban economy, investors would
pledge to grant all Cubans equal access to all public areas--
such as beaches and hotels--and equal access to the goods and
services that are now often reserved for tourists.
PRESERVING THE SOCIAL SAFETY NET
The greatest threat to the success of Cuba's economic
transportation into a market economy is the social and
political unrest that could accompany a further fraying of
its already tattered social safety net.
During an economic transition, Cuba's high unemployment
would be expected to climb even higher. The first victims are
likely to be those on the state payroll. Cuba's regular armed
forces are 200,000 strong. Argentina protects a landmass 25
time the size of Cuba, with a population three times Cuba's,
with an army, navy and air force just a 10th the size. Cuba
has a million civil servants out of a population of 11
million. Most economists think that the government could
function adequately with 150,000 employees.
To sop up the expected legions of jobless workers.
Montalvan said, ``Cuba will need a WPA-type program,''
referring to FDR's famous public works program.
Cubans pride themselves on their long life expectancy,
their low infant mortality rate and their widespread
literacy--all fruits of the revolution.
But, Lago said, ``there is clearly an over-investment of
resources in the Cuban health system.'' Hospitals have long
served as employer of last resort. Fully half of all health
care workers are gardeners, cleaners and cooks. Moreover, the
average Cuban visits a doctor 9.3 times per year. Americans
make the trip only 5.6 times per year.
Analysts forecast draconian cutbacks in medical staffing.
And, shades of Clinton, they suggest payroll taxes for basic
health care and a fee for all additional services.
Similar changes may be needed in the social security
system. Cubans don't pay for their pensions. Analysts say
that this has to change, at least for those under 50 with
some productive years left. The retirement age may also have
to be raised. Cuban women currently can retire at 55, and men
at 60.
``People will have to understand that they will have to
take care of themselves,'' Cereijo said.
But any significant shrinkage of the social safety net
risks exacerbating existing racial and class differences in
Cuban society. Most of the Cuban-American community that will
be investing in and returning to Cuba is white and middle
class, while more than half the island population is black
and poor. Tensions have already flared between whites in Cuba
with relatives abroad (who, until recently, had access to
dollar remittances and could live off the underground
economy) and blacks (who were confined to the peso economy).
During a transition, such friction could worsen.
European intellectuals like to gloat that ``Cuba will be
America's East Germany''--a debilitating drain on the U.S.
economy that will give Washington a lesson in humility when
Americans begin preaching about making the transition from
socialism to a market economy.
The analogy is overdrawn. Cuba's population of 11 million
is only two-thirds that of the former German Democratic
Republic. Its economy is less than a fifth the size of East
Germany's. And the United States has no intention of ever
merging the Cuban and American economies, with all the costs
that would entail.
But as Cuba's most significant neighbor, it is the United
States that will have to foot the bill if Cuba's impending
economic and political transition is botched. Faced with that
reality, Washington has some tough choices--on the U.S. trade
embargo, on claims against the Cuban government and on the
nature of any post-Castro economic stabilization program. Is
the goal of U.S. policy a short-term one--to punish Cuba and
bring about Castro's rapid downfall, regardless of the long-
run impact on the island nation's economy? Or are the
interests of the United States best served by easing the
transformation of Cuba into a market economy, even if it
means that Castro might stay in power longer than some
conservative Cuban-Americans might wish? Will the U.S.
interests in having a politically stable Cuba best be served
by restoring to its original owners all property seized after
the Cuban revolution and by imposing fiscal discipline on
Cuba or by policies that attempt to avoid reimposing the old
patterns of the distribution of wealth in Cuba and by seeking
to preserve the Cuban social safety net?
The recent, at least temporary, resolution of the migration
crisis could once again relegate Cuba to the Administration's
back burner. But as long as Washington continues to overlook
Cuba's underlying economic problems--which drove its people
onto all those makeshift rafts in the first place--they will
continue to fester, and ultimately guarantee that Cuba will
come back to haunt Washington again soon.
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