Cuba’s Sinking Economy – Causes, Consequences & Remedies

Irene Estefanía González / Inter-American Dialogue

On July 11, the Inter-American Dialogue hosted an extended discussion on “Cuba’s Sinking Economy – Causes, Consequences & Remedies” with Ambassador Vicki Huddleston, the former chief of the US interest section in Havana, and Dr. Carmelo Mesa-Lago, an economist and Cuba expert at the University of Pittsburg. Michael Shifter, president of the Inter-American Dialogue, delivered opening remarks and Peter Hakim, president emeritus and senior fellow at the Dialogue, moderated the event.

Dr. Mesa-Lago started the event with an overview of the dour state of Cuba’s economy. The evidence of the island’s economic decline is present in a number of indicators: the fiscal deficit has increased to 8.7 percent of GDP, industrial output is at a third of its peak since 1989, and mining, fishing, and agriculture production have all declined over the past five years. After a recent peak in 2015, Cuba’s GDP growth rate has dropped to a meager 1.5 percent, a number many economists believe the Cuban economy will not meet. As this economic downfall, Cuba is on track to face an economic crisis as bad, if not worse, than the “período especial en tiempos de paz” when the Soviet Union collapsed in the early 1990s.

With new restrictions on remittances, travel, and foreign investment, both panelists agreed that President Trump has accelerated Cuba’s economic decline in exchange for the Cuban-American community’s votes. Dr. Mesa-Lago noted that two specific measures, the US enacting of Title VI of the Helms-Burton Act to freeze foreign investment and the heavy restrictions on US tourism to the island, have accelerated the crisis, although it is difficult to quantify to what degree. Ambassador Huddleston remarked that current US policy “only adds to the disaster for the Cuban people,” but is unlikely to force the regime to reform or collapse. Thus, she saw President Trump’s recent actions as “just plain dumb,” as she foresaw increasing sanctions as causing unnecessary pain and pushing Cuba towards US adversaries like Russia and China.

While new US sanctions against Cuba have certainly damaged the country’s economy, Dr. Mesa-Lago was quick to point out that Cuba’s economic crisis started before President Trump’s election, and thus was not only caused by US policy. Rather, Venezuela’s economic meltdown has fueled the island’s economic collapse over the past half-decade. Venezuelan aid to Cuba has fallen from its peak by 50 percent, Venezuelan oil exports have decreased by 70 percent, and Cuba’s export of professionals to Venezuela, especially doctors, has fallen by 25 percent since its peak in 2013. Ambassador Huddleston argued that President Obama’s opening to Cuba softened the blow of Venezuela’s collapse on the Cuban economy by encouraging the government to pursue more structural economic reforms and increasing tourism and remittance flows. However, any benefits US policy brought to the island have been erased by President Trump’s sanctions.

US sanctions and the Venezuelan crisis may have sunk the Cuban economy, but Dr. Mesa-Lago ultimately attributed the island’s economic disaster to the country’s economic system. He argued that the restrictive central planning system is inherently flawed, generating unnecessary scarcity for consumers and uncertainty for business. Dr. Mesa-Lago acknowledged that reforms had been made under both Castros, but new licenses for restaurants and rentals have been frozen and major agricultural reforms still need to be undertaken. Although there was some speculation that the new Cuban president may hope to continue some of these reforms, Dr. Mesa-Lago viewed any advocacy by the current government to make the deep reforms that are necessary as purely rhetorical.

Since structural reforms to the Cuban economy and an end to the economic crisis in Venezuela are unlikely in the short-term, Ambassador Huddleston looked to the future of US policy in Cuba as a possible near-term relief. She saw US policy as an unresolvable “family feud” that has been leveraged by presidential candidates since John F. Kennedy approved the Bay of Pigs invasion. Most Democratic presidential candidates want to avoid offending Cuban Americans in Florida, so many candidates have been publicly avoiding the issue. More conversations on how a Democratic administration might reverse Trump’s policies are unlikely since the Cuban-Americans have grown more hawkish on sanctioning the Cuban government. Yet, she expected that a Democratic administration would attempt to reimplement at least some of President Obama’s reforms. Nevertheless, the harm inflicted by the US on the Cuban economy in the short-term eliminates “the possibility… of American moral and humanitarian leadership in the world.” And for what purpose? “For winning Florida.”

Watch the recording of this event here

Press coverage: If Venezuela Falls, So Does Cuba, Experts Say (US News, July 11, 2019)