AMBASSADOR RICHARD HOLWILL
The U.S. policy of normalization toward Cuba in the Barack Obama Administration was reversed by President Donald Trump, largely because it failed to address an underlying issue. The Cuban “revolution,” though consolidated on the Island, was soundly rejected by the Cuban exile community who view their country as mired in an unresolved civil war. The importance of the Florida vote was sufficient to prompt President Trump to “cancel” President Obama’s efforts at normalization. Meaningful change will require a more comprehensive approach to the challenge of implementing an effective Cuba policy.
In truth, there is no justification for overt hostility toward Cuba. The Cold War is over, and the role that Cuba played in that conflict – an alliance with the Soviets, exporting violent revolution and doctrinaire socialism – has ended, as well. Going forward, the Biden Administration must adjust policies to reflect the fact that Cuba is on the verge of becoming a failed state, which would have negative consequences for the United States.
Cuba’s economy, struggling before the coronavirus pandemic, has slipped into a full-fledged crisis that is almost as bad as the “special period” following the collapse of the Soviet Union. The crisis has, however, forced the leadership to take tough decisions and has forced an acceleration of economic reforms.[i] President Miguel Diaz-Canel told the Council of Ministers that “not changing” would jeopardize the government’s “popular support.”[ii]
The reforms in question were approved in 2011 by the Cuban Communist Party with the promise that they would promote growth by giving freer rein to market forces, requiring state-owned enterprises to make a profit, promoting small private businesses and seeking foreign direct investment. Some segments of the Cuban political elite bitterly resisted those changes. They prevailed for a time because the economy was relatively healthy. The tourist sector was booming, and Venezuela was supplying oil at subsidized prices.
From 1991 to 2018, the number of foreign visitors increased more than 11-fold, from just over 400,000 to 4.7 million. The tourist sector got another big boost in 2014, when then-President Obama agreed with Raùl Castro to begin normalizing relations. The first step was to eliminate most restrictions on U.S. travel. The number of non-Cuban American U.S. visitors jumped six-fold, from 92,325 in 2014 to a peak of 637,907. In 2018, U.S. visitors composed about a quarter of all foreign visitors to the Island.[iii]
As President Trump moved to “cancel” Obama’s policies, he launched a campaign against tourism that led to a 20 percent drop in the number of foreign visitors to Cuba by the end of 2019. He imposed sanctions on companies shipping oil from Venezuela to Cuba[iv] and pressured countries to terminate Cuba’s international medical assistance programs, which cut annual revenue by about $250 million.[v] Finally, he placed limits on Cuban Americans sending remittances to relatives in Cuba, which denied the government about
$3.5 billion in foreign exchange. It also harmed about 60 percent of the population, for whom remittances are a means of survival.[vi]
Cuba’s GDP growth rate slipped to 1.3 percent in 2019.[vii] Then, the COVID-19 crisis hit Cuba in the spring.[viii] In March, Cuba closed the Island to all foreign visitors, which cost Cuba some $3 billion in lost revenue. That shortfall limited imports of basic commodities, including food and medicine. Reuters reported that Cuba missed its debt service obligation on October 31, 2020. It now appears that the economy contracted by more than eight percent within 2020.
The most important factor will be fully implementing the reforms needed to build a productive economy.
The depth of the crisis is such that even those who opposed the reforms now accept them. In July, the government announced that private and cooperative businesses would be allowed to hold convertible foreign currency bank accounts and import and export directly, rather than having to go through government agencies. To address food shortages, the government reduced price and administrative controls on private farms and farm cooperatives. It lifted the 10 percent tax on U.S. dollars entering the country and allowed additional stores to accept payment in convertible currency.
Many in Havana will tell you that the future depends on the policies of the newly elected U.S. President. In truth, the most important factor will be fully implementing the reforms needed to build a productive economy. The most significant of these was the elimination of the dual currency system, which had stimulated imports and discouraged exports. The Cuban Convertible Peso (CUC; pronounced kook) had traded at parity to the U.S. dollar. The CUC was used by tourists for hotel, food and retail purchases.[ix] Some experts believe that a single currency will stimulate productivity in coming years.[x] Other needed reforms include improvements to the commercial code and an expansion of the rights of entrepreneurs.
Those reforms will not, however, address the need for foreign direct investment (FDI). In 2014, then President Raùl Castro told Tom Donohue, then CEO of the U.S. Chamber of Commerce, that Cuba needed tens of millions of dollars in FDI per year. He did not say how Cuba would attract investors, many of whom have been reluctant to do more than take a cursory look at opportunities on the Island. Investors need long-term security in order to commit to a project, even an attractive project such as a tourist hotel on one of Cuba’s pristine beaches.
If U.S. policy is to help Cuba prosper, it must be seen as sustainable over the long term. No investment is secure if, in four years, the next U.S. President could “cancel” a diplomatic opening. The civil war between Havana and Miami continues, as evidenced by the Cubans on the Island celebrating Biden’s victory,[xi] while in Florida, Cuban exiles staged protests echoing the claim that the election “was stolen from President Trump.”[xii]
Yet for all of the negative rhetoric, a significant number of Cuban Americans are willing to take a new look at Cuba. I base that statement on a trip that I made as co-chairman of the U.S. Chamber’s Cuba Task Force in 2015. Several successful Cuban-American businessmen on the trip told Cuban officials that they had doubts about their hostility to Cuba. Referring to Fidel and Raùl, one said, “It makes no sense to harm 11 million people if you only want to hurt two.”
Bruno Rodrìguez Parrilla, Cuba’s Minister for External Relations, later told me that he and his colleagues had never before realized that senior Cuban exiles could be their best advocates. Although we discussed an initiative to establish an intra-Cuban dialogue across the Florida straits, the 2016 elections in the United States rendered that thought infeasible.
Going forward, U.S. policy toward Cuba must engage those in the exile community who are willing to reconsider the future of the Island. This could be done by encouraging the Vatican to sponsor such a dialogue. While it will be contentious, at least at first, it could lead to changes in tone that would not be possible through government-to-government talks between the U.S. and Cuba. It could even lessen the hostility expressed by Cuban exiles toward Cuba. In other words, such a dialogue could end the unresolved civil war, lead to sustained normality in relations between the United States and Cuba and lay the groundwork for Cuba’s economic recovery.
[i] Semanal, Progreso. “Montarnos En Este Tren y No Bajarnos Más.” Progreso Semanal, May 20, 2020. https://progresosemanal.us/20200509/montar- nos-en-este-tren-y-no-bajarnos-mas/.
[ii] Morales, Yudy Castro. “‘Contamos Con Una Historia Inspiradora Para Lanzarnos a La Pelea.’” Granma.cu. Granma, July 16, 2020. http://www. granma.cu/cuba-covid-19/2020-07-16/titulo-diaz-canel-sobre-nuevas-medi- das-cuba-vuelve-a-estar-retarda-pero-contamos-con-una-historia-lo-sufici- entemente-grande-e-inspiradora-para-ir-a-la-pelea-16-07-2020-18-07-49.
[iii] Feinberg, Richard E., and Richard S. Newfarmer. “Tourism in Cuba: Riding the Wave Toward Sustainable Prosperity.” The Latin America Initiative at Brookings and the Kimberly Green Latin American and Caribbean Center, December 2016.
[iv] Samuels, Brett. “Trump Admin Imposes Fresh Sanctions Targeting Cuba, Venezuelan Oil Industry.” TheHill, April 5, 2019. https://thehill.com/home- news/administration/437633-trump-admin-imposes-fresh-sanctions-target- ing-cuba-venezuelan-oil.
[v] Pentón , Mario J. “Cuba Will Lose Millions in Revenue If It Pulls Its Doc- tors out of Brazil, Experts Say.” Miami Herald. Miami Herald, November 16, 2018. https://www.miamiherald.com/news/nation-world/world/americas/ cuba/article221727185.html.
[vi] Semple, Kirk. “Cuba Says U.S. Restrictions Will Force Western Union Offices to Close.” The New York Times. The New York Times, October 28, 2020. https://www.nytimes.com/2020/10/28/world/americas/cuba-western-union-remittances.html.
[vii] “GDP Growth (Annual %) - Cuba.” The World Bank: Data. The World Bank. Accessed April 12, 2021. https://data.worldbank.org/indicator/NY.GDP. MKTP.KD.ZG?locations=CU.
[viii] Augustin, Ed, and Frances Robles. “Cuba’s Economy Was Hurting. The Pandemic Brought a Food Crisis.” The New York Times. The New York Times, September 20, 2020. https://www.nytimes.com/2020/09/20/world/americas/ cuba-economy.html.
[ix] Reuters. “Cuba Prepares for ‘Profound Transformation’ of Its Monetary System, Urges Calm.” NBCNews.com. NBCUniversal News Group, October 13, 2020. https://www.nbcnews.com/news/latino/cuba-prepares-pro-found-transformation-its-monetary-system-urges-calm-n1243173.
[x] Elestadocomotal. “El Paquete Económico Del Verano 2020: Comentarios Preliminares.” El Estado como tal, July 17, 2020. https://elestadocomotal. com/2020/07/17/el-paquete-economico-del-verano-2020-comentarios-preliminares/.
[xi] Grinspan, Lautaro, and Jimena Tavel. “Trump’s Latino Supporters in Miami Aren’t Ready to Accept Election Defeat.” Miami Herald. Miami Herald, November 7, 2020. https://www.miamiherald.com/article247052097.html.
[xii] Latino Trump Supporters Protest in Miami. YouTube. YouTube, 2020. https://www.youtube.com/watch?v=UXMDDQ-tmA8.
AMBASSADOR RICHARD HOLWILL served as U.S. Ambassador to Ecuador from 1988 to 1989 and has extensive experience in Asia, Latin America, Europe, and the countries of the former Soviet Union. From 1990 to 1993 he served as Counselor to the U.S. Arms Control and Disarmament Agency. He most recently served as vice president of public policy at Alticor in Washington, D.C. - the parent company of the Amway Corporation - where he managed worldwide government affairs efforts. He chaired a trade advisory committee for U.S. Trade Representative and the Asia Task Force at the U.S. Chamber of Commerce. He has testified before Congress on international trade issues and U.S. policy toward China. He has published two books on public policy and numerous articles in major publications. His areas of expertise include international trade, international investment disputes, and the resolution of business problems in foreign markets.