Economic matters are the top priority and deepest concern of nearly all Cubans. Nothing else comes close. That was crystal clear after a week in Havana last month, where I participated in a government-sponsored conference on US-Cuba relations and had the opportunity to meet with public officials, foreign diplomats, academics, journalists, and others. Cubans were also highly attentive to ongoing changes in US relations with their country. The nation’s politics was on the mind of many Cubans, but was a difficult subject to discuss, less because of fear or repression than because the island’s political system is so opaque.

Economic Tribulations

According to government statistics, Cuba grew by four percent in 2015, well above the Latin America average of less than one percent. But the numbers are deceptive. Poorly served by their country’s economy, most Cubans appear to be living in or near poverty. Cuba remains one of the region’s least productive and most highly troubled economies.

The main problem is that it Cuba does not produce very much of anything. It imports a major share of what it consumes, but does not earn enough from exports to pay the bill. Year after year, the country imports cost around twice as much as what it sells abroad. For the past decade or so, Venezuela has covered most of the shortfall, largely in exchange for the services of thousands of Cuban doctors, nurses, and other professionals sent to work in the Bolivarian Republic, but also with subsidized oil shipments.  The two other major sources of hard currency are international tourism and remittances, cash and goods, from Cubans living overseas.  With its mounting economic and political problems, Venezuela has been reducing its support, and it may soon dry up completely. Over the medium to longer run, Cubans are hopeful that the warming of the US relationship will generate increased foreign investment and bring new trade and tourism flows. It will take time, however—and depend on whether and when (1) the US finally decides to lift its trade embargo and (2) Cuba carries out a serious program of economic reform.  

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Coco Taxis in Havana, Cuba

The Cuba government also faces a severe fiscal challenge. A short walk almost anywhere in Havana, apart from tourist venues and where foreign diplomats reside, offers ample evidence of the country’s budget problems—its lack of resources  to maintain, fix, or replace existing infrastructure. The streets, sidewalks, and buildings (inside and out) are virtually all in grave disrepair. Many are crumbling. Everything in sight needs a coat of paint or plaster. Water and electricity shutdowns occur regularly. Streets are barely lit at night. For most Cubans, access to Wi-Fi is limited to a few public parks, where multitudes of young people pay two dollars an hour (or nearly ten percent of the average monthly wage) for access to unreliable signals. True, Wi-Fi use doubled in the past year, but Cuba, which boasts one of the best educated populations of Latin America, still has the lowest rate of internet access in the hemisphere.

Public services generally—including schools and medical facilities, for which Cuba has long been admired and praised—are deteriorating.  Hospitals, I was told, require patients to bring their own bedclothes, and often food and medicines as well. Many say the quality of education has slipped badly. Cuba does not conduct household surveys or publish data on family income and wealth, so there is no solid information on the extent or evolution over time of poverty and inequality. But no one disputes the fact that the salaries of teachers, doctors, and the great bulk of other state employees (which account for about 80 percent of the work force) are extremely low. Families without supplemental incomes, from remittances or unauthorized employment, for example, live in poverty and struggle to make ends meet. The elderly and disabled are in particularly harsh situations. A shock to the economy—for instance, from cutbacks in financing from Venezuela—could unleash a humanitarian crisis for a sizable share of Cuba’s population.

Powerful demographic shifts also threaten the country’s economic future. Cuba’s birth rate is among the lowest of the world’s developing nations, while large-scale emigration from the island has continued unabated for many years, and is now accelerating. The result is a constantly shrinking work force and an increasingly aged and dependent population, both of which will be obstacles to improved productivity and growth. Worse yet, many of those leaving are trained professionals. The Cuban government’s recent ban on the free travel of medical doctors is evidence of the problem—which is aggravated by US immigration policies which provide special, favored treatment to all Cuban immigrants and openly recruit Cuban doctors working overseas.

Nearly every Cuban I spoke with, including government officials, agreed that it would take substantial inflows of foreign investment and credit for the island’s economy to begin to grow and prosper. It was widely recognized that without foreign capital, appropriately invested, economic activity of all sorts will remain precarious, and the country largely impoverished.

Another point of consensus among Cubans of all political stripes was that Cuba’s economy would be stifled until the US embargo came off.  Most believed that ending the embargo, by itself, would bring immediate benefits. It would allow Cuba legally to use the US dollar in its international commerce, give all US companies the right to do business with Cuba, permit sales to Cuba on credit, and open the way for a likely surge in American tourism. International investors, bankers, and traders, who today are apprehensive about violating US laws, would be assured that they could transact business with Cuba without triggering US sanctions.

Still, Cuba will get the full payoff from the embargo’s removal only when the government begins to revamp its economic policies and practices.  To be sure, a number of reforms have been introduced in the past half a dozen years by the Raul Castro government. These have been welcomed by most Cubans—but they are widely viewed as insufficient.

The reforms are responsible for Cuba’s growing private sector. More than a million Cubans, about 20 percent of the workforce, are today self-employed or working in private businesses or cooperatives. No one is yet quite sure how vibrant this independent economy is, however. With statistics extremely limited, the evidence remains largely anecdotal. Clearly, there are many success stories, but survival rates and profitability of new enterprises are unknown. The great majority of businesses has only one or two employees and faces a variety of problems—including the lack of wholesale markets, heavy taxes, and burdensome and uncertain regulations.

Many Cubans are convinced that President Obama, by decree, can undo the lion’s share, if not all, the restrictions imposed by the economic embargo.

Building a private sector is only one of the many challenges confronting Cuba. Many other wrenching changes will be required. While disagreements have not all been resolved, an emerging convergence has formed among economic analysts (Cuban and foreign) on the fundamental adjustments needed to attract investment and spur growth in Cuba. These include replacing the country’s dual exchange rate with a single-valued currency; ending the government’s highly centralized control over the economy and giving government agencies and state-managed companies, as well private investors and entrepreneurs, greater autonomy in their operations;  adopting rules and regulations for the economy that are transparent and consistent, and cannot be arbitrarily interpreted or altered; and establishing independent mechanisms for resolving commercial disputes. The adoption of these and other reforms will require difficult decisions from the Cuban authorities, who have long rejected limitations on the economic power of the central government. Moreover, some of the changes will, at the outset at least, almost surely lead to increased inequality in Cuba and extreme hardship for some citizens.

One critical issue of considerable discord is whether the Cuban government should initiate some form of consultations with the IMF, World Bank and other international and regional financial institutions, and explore the idea of eventually joining these organizations. The idea is resisted by many in Cuba, who deeply distrust these institutions and are wary of their prescriptions. They are often portrayed as instruments of the US power, and thus as threats to Cuban sovereignty and its socialist order. But even those Cubans who oppose membership in IMF and other international financial organizations acknowledge that they could provide access to needed capital and might be a source of useful advice on some issues.

Many Cubans are convinced that President Obama, by decree, can undo the lion’s share, if not all, the restrictions imposed by the economic embargo. According to a considerable number of US attorneys, they may be right.  But there is also considerable legal opinion that the US president has done all that is allowed by law, and that a further easing of the embargo will require Congressional action (which the president has already urged). Moreover, how the president deals with the embargo is not merely a matter of legal interpretation.  Politics are centrally involved, and the embargo is a crucial part of the ongoing US-Cuban negotiations. What does seem certain, however, is that the embargo’s demise will provide a boost to the Cuban economy and improve the lives of most Cubans. It may also help to avoid a possible economic crisis on the island, which would present Washington with a complicated set of choices about how to respond. 

No one can forecast the reaction of the Cuban government to the end of US economic restrictions. It may encourage the government to accelerate the pace of its reforms, which could give considerable new impetus to the economy. But it could, just as well, by providing a measure of relief on the economic front, give the government breathing space to further postpone needed changes.

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Cuban cigar factory in Trinidad, Cuba

US-Cuban Relations: The Easy Part May Be Over

One year after Presidents Obama and Castro made their historic announcement, the US and Cuba have gone a long way toward repairing their fractured relationship. No, they are not yet especially friendly or supportive of one another. But they are today far more cordial and respectful of each other than at any time since the Cuban revolution.  The two presidents have met twice for extended conversations and their governments have restored normal diplomatic relations and opened full-fledged embassies in each other’s capital. Washington has removed Cuba from its list of terrorist sponsoring nations, and eased a large number of economic and travel restrictions. The two sides remain engaged in wide-ranging discussions and negotiations on the multiple issues affecting their relations.

Yet there is much to be accomplished. Although they regularly express satisfaction with the progress that has been made, the two governments have criticized each other for failing to act on key issues. While making clear his interest in traveling to Cuba this year, his last in office, President Obama, in a recent interview, said he wanted the right “talk to everyone” [in Cuba]. He also stated that he wanted to use the visit to highlight advances toward “the liberty and freedom and possibilities of ordinary Cubans,” while noting his concern that Cuba may have gone “backward” on that score. 

If President Obama decides to make the trip, which it appears he is now inclined to do, it would surely bolster the ongoing US-Cuban negotiations. Aside from ending the embargo, nothing would do more to build good will for the US among ordinary Cubans and raise their spirits as well. It would give Cubans the opportunity to demonstrate the high value they place on a warm, robust relationship with their closest neighbor. A successful visit would help to cement progress toward normal ties and make backsliding—in the US or Cuba—even harder, regardless of how the 2016 US presidential elections turns out.

The day following Obama’s interview, Cuba’s chief negotiator, Josefina Vidal, responded to his comments. In a speech at the Ministry of Foreign Affairs, she stressed that it was the US that was violating Cuba’s sovereignty, not the reverse. Her main target was the trade embargo, but she also condemned the continuing US occupation of Guantanamo Bay and the damage being done by US immigration laws, which provide a unique set of incentives and benefits to Cuban migrants, unavailable to those from any other country. She underscored the Cuban government’s disappointment that Washington had not altered its long-held aim of regime change in Cuba—stating that the US had merely shifted tactics while persisting in its strategy to replace the country’s socialist system. (Unmentioned was the difference between invading or blockading a country to revamp its politics, and Obama’s efforts to encourage change through peaceful and conciliatory gestures, including a prospective visit to the island.) 

Humanitarian grounds alone are sufficient justification to end the embargo’s commercial restrictions on Cuba—particularly since the embargo has never succeeded in advancing any US interests or goals.

Sub-secretary Vidal, however, was right about the central importance of lifting the embargo—that it has been and remains a sizable barrier to the island’s trade and growth and contributes a great deal to the widespread poverty on the island. Humanitarian grounds alone are sufficient justification to end the embargo’s commercial restrictions on Cuba—particularly since the embargo has never succeeded in advancing any US interests or goals. Nor is there much reason left for the US to maintain special immigration rules for Cubans. And the US occupation of Guantanamo Bay, which the US uses as an off-shore prison, contravenes global and regional norms, and is opposed by virtually every country in the world.

But Obama is also correct.  Cuba, no less than the US, has responsibility for bringing its policies and practices into line with international standards. Cuba is the only country in the Western Hemisphere that rejects free elections to select its leaders. Although democratic practice and the rule of law are regularly violated in many Latin America countries and often in the US as well, Cuba’s record on issues of human rights, freedom of expression, and judicial independence remains especially deplorable—and should be improved. 

Are Wi-Fi and Blogs Political Change?

It would be a wrong, however, for anyone to ignore the important social and political changes that have taken place in Cuba in recent years. The most dramatic change has been the surprisingly rapid expansion of a rich diversity of semi-autonomous institutions. These mostly small, Havana-based groups have created opportunities for debate and advocacy on a range of critical social, political, and economic issues—including race relations, women’s and LGBT rights, environmental challenges, cultural creativity, and freedom of expression. They convene meetings and forums, organize debates, prepare and distribute articles and reports, publish regular blogs and newsletters, and sponsor cultural events. Many are in regular communication with counterpart groups in other countries.  The thawing of US-Cuba relations has increased the confidence of these groups and given them a greater measure of optimism about the future. Many, I was told, have become bolder and more innovative in their work. 

Nonetheless, all of them are fragile and vulnerable. They occupy an undefined space in Cuba. They are not authorized by the government, but neither are they illegal. Neither permitted nor prohibited, they are sometimes harassed by authorities and worry about being closed down should they violate unspecified boundaries of expression or advocacy. But their members and staff say that they no longer have much fear of arrest or imprisonment. 

Despite the risks, the fact that these institutions exist and operate openly, and that their numbers are growing is ample reason for some optimism about the prospects for a more open society in Cuba.  The government has promised to create a law of associations, expected to be approved this year, which would give these organization a legal basis—and presumably greater protection. It could, however, also put a new set of onerous conditions on the associations. The outlook for a genuine and sustained political opening in Cuba would be far brighter if the Cuban authorities restricted themselves to stipulating what is prohibited—and allowed all else to operate freely, but they continue to insist on defining what precisely is permitted, leaving everything else to operate at some peril.

Cubans of all political stripes, even the strongest proponents of a full democratic transition, express anxiety about the enormity of the change that their country faces in the coming period. Their caution and concern are understandable. They are aware of the potentially high costs associated with change that Cubans will have to bear. Their history provides reasons for distrusting and fearing both Washington and their own government.

In contrast, few Americans will even notice the changes brought about by the opening of their country to Cuba. The impact on the US economy will be minimal (much less than Puerto Rico’s debt crisis, for instance).  Cuba is not a political issue in the US; it is unlikely it will have any impact at all on the 2016 presidential race. Nor has the US-Cuba rapprochement, though welcomed across the globe, much affected US foreign relations—not even in Latin America, where distaste for Washington’s  Cuba policies had been most intense. Today, bilateral agendas, not region-wide concerns, are the primary axis of US relations in Latin America.

The next few years will be a complex, uncertain, and potentially hazardous period for Cuba and Cubans. Raul Castro has publicly stated that Venezuela’s financial calamity could be extremely damaging for Cuba next year. At the same time, however, the continued easing or, even better, the lifting of the US embargo could bring substantial gains to the Cuban economy and to the well-being of most Cubans. The benefits would multiply to the extent that the Cuban government begins to restructure the country’s economy to take full advantage of the embargo’s demise. However, the government remains opaque on issues of economic reform, except to restate, over and over, that Cuba will modernize and adjust its economy but will not change it socialist system.

Cubans of all political stripes, even the strongest proponents of a full democratic transition, express anxiety about the enormity of the change that their country faces in the coming period.

Whatever changes the Cuban government decides to pursue, there is no question that economic reform will produce both winners and losers. Reform will produce a social order that may be more prosperous, but will probably also be more unequal and maybe less attentive to social needs, at least in the short-term. Still, most Cubans are hopeful, even optimistic, that substantial changes will take place and will make them and their families and children better off. But many—even those who express hope and optimism—are justifiably uneasy of the future.  

The least known and most unpredictable dimension of Cuba is the country’s political course in the coming period. Raul Castro, who assumed presidential powers from his brother Fidel nearly a decade ago, has announced that he will step down in 2018, and allow a new president to take over. The leading candidate for the position is Miguel Diaz Canel, who was named the nation’s first vice-president three years ago. Yet, since Cuba has established tradition or defined process for selecting the country’s leadership, no one can be sure that the transfer of power will, in fact, occur in 2018, who the successor will be, or how he or she will be selected.  Cuba will also confront the fundamental problem of other authoritarian regimes with unelected leaders: how to assure that its new president—who will not bear the Castro name, is not a hero of the Cuban revolution, and is not widely known— gains the authority and legitimacy needed to govern effectively.

 It is certainly possible that Cuba’s new leader could come to power through a peaceful and orderly transition. But it is also possible to imagine a rancorous, disruptive struggle for leadership among powerful groups and individuals. The Cuban military could well emerge as the dominant actor in the coming period. Led by Raul Castro for many years, the military already plays an outsized role in the country’s economy, including the vital tourist sector, and is widely viewed as the nation’s most powerful institution. The prospect of civil unrest and street protests cannot be discounted.

The current Cuban leadership could increase the odds of an orderly turnover of government with a few critical initiatives. The most important would be to establish a clear process for selecting the next president and transferring power to him. Other measures might include putting in place several fundamental economic reforms, loosening central government controls over the economy, and recognizing the legitimacy and value of a vibrant civil society. Washington could do most to facilitate an orderly transition in Cuba by taking a decision soon to lift its economic embargo.

Two forces have shaped Cuban politics and society over the past half-century—the leadership of Fidel and Raul Castro and the bitter hostility of the United States toward the island. In the next few years, both will have passed into history. It will be a period of uncertainty. Cuba’s future is unpredictable. While most Cubans are anticipating important changes, few expect radical alterations in any short period of time. No one expects that democracy or prosperity will emerge quickly. But most Cubans are hopeful that both are somewhere in their future.