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Cuba since the fall of the U.S.S.R.

By Terence Hilton-Clarke

©Copyright 1996

ECONOMIC IMPACT / ECONOMIC POLICY

Cuba's economic fallout has been primarily due to two factors: the collapse of the Soviet Union and the United States embargo. The fall of the U.S.S.R. led to the loss of trade subsidies. This in turn led to a decline in both Cuban exports to the U.S.S.R. ( 40%) and Cuban imports ( 38% ) by 1992. In addition, trade with Eastern Europe, which "accounted for 13 percent of Cuba's trade with the Soviet Bloc, has been largely terminated." (Purcell). Such events have been responsible for a dire shortage of supplies - equipment and fuel - which has subsequently crippled the island's economy. The scarcity of basic provisions such as food and clothing has involved an increase in rationing, a growth in black market activity and the incidence of social tension. The embargo has meant that Castro has been unable to turn to the United States for help.
The initial fragmentation of the East Bloc in 1989 goaded Castro into declaring the "special period." This policy involved a series of reforms that concentrated on domestic food production, the promotion of tourism and production of biotechnology. However, the aforementioned global factors have hampered Castro's attempts to salvage the economy and to maintain social order. The signs of economic breakdown were already in evidence by 1990. Internal output fell by 17%, whilst the lack of fuel forced a shutdown of factories.
"The noose of economic stringency tightened in Cuba in 1991." (Cameron).The ultimate collapse of the Soviet Union contributed a 25% drop in foreign trade. Earlier that year Soviet President, Mikhail Gorbachev, declared that U.S.S.R. - Cuba relations would be based "solely on political and economic links", while trade "would be based on commercial interests alone." (Cameron,1992). Meanwhile, increasing shortages extended to such products as eggs and bread that were rationed for the first time. The following year, 1992, saw a continuation of the difficulties: lack of fuel, leading to power cuts, lasting 3 - 4 hours per day; shortages of basic supplies such as cooking fat and soap emanating from the decision to cut down on imports and a late commencement of the sugar harvest, an event that ultimately curbed the eventual production level by 50% in 1993 - the lowest in 30 years.

In 1993 Fidel Castro started undertaking important domestic reforms in order to ease the effects of these events on both the economy and society. In July, the Cuban government legalized the possession of U.S. dollars. Now, a few privileged citizens would be able to spend the currency in special shops. Then, in September, Castro authorized private enterprise in some 100 trades, crafts and services. Among the statutes of this decree: entrepreneurs would be allowed to directly benefit from their work and they would be allowed to negotiate prices with clients. Entrepreneurs would NOT be allowed to hire other people while graduates (especially doctors and family managers) were to be prohibited from engaging in private enterprise. (Cameron, 1994). Some of the other reforms instituted by the Castro administration since 1990 are: the reduction of the fiscal deficit; the dollarization of the economy, the "pseudo decentralization and pseudo-debureaucratization" of economic decision making; the decision to allow market forces to influence prices; the introduction of the free convertible peso; bonuses for workers in some trades; the establishment of a few corporate businesses; the freezing of savings accounts containing over 10.000 pesos and the promotion of foreign investment."
(Castañeda and Montalvan(1994).

The last of these reforms (foreign investment) seemed to be indicative of a Cuba movement towards a free market enterprise. By 1994, several countries had some stake in the island, including Spain, Canada, Mexico and Israel. To be more specific: at this point the Tel Aviv-based firm, BM Corp., were running two citrus-packing houses with a total investment of $ 22 million. Meanwhile, Spain's Grupo Sol had a stake of $ 58 million in the resort industry and Dutch companies were involved in tobacco. " Of all Western countries involved in trade and investment in Cuba, Canada is the most active." (Luxner ( 1994). In 1992 Canadian exports into Cuba totalled $ 114.2 million (mainly wheat, dairy products, meat and industrial machinery) while Cuban exports to the North American country (nickel oxides and raw sugar) came to $ 211.9 million. Additionally, Canada was the leading foreign investor in Cuba's mining operations.The Cuban Liberty and Solidarity Act (1996) will now serve to constrain these advancements.

Tourism was another sector in which the Cuban government sought investors and additional revenue. In 1991 the instigation of several tourism projects " designed to increase foreign exchange earnings and attract one million visitors by 1995" (Carmeron, 1992) involved an increase in arrivals (25%) and receipts (39%) during the first quarter of that year. During 1992 the industry was given a boost when Cuba's membership into the Caribbean Tourism Organization was approved by the Organization's board of directors. That year, tourism receipts increased another 23%." (Cameron, 1993). The early 1990's saw a profusion of Spanish hotel chains. On November 1, 1993, Iberostar S.A. took over the management of two 266-room hotels - the Hotel Triton and the Hotel Neptuno. By mid 1994, Cuba had three joint venture hotel projects: the Varadero mega-resorts into which Grapo Sol invested U.S. $ 78 million, Kawamo Caribbean Hotels and Posadas de Mexico.

For Sanguinetty, the major purposes of foreign investments are: to rebuild the economic capacities of the country, to generate employment (crucial to the restructuring of the general economy); to rebuild productive capacities " to satisfy internal demands for goods and to develop a strong export sector."(Sanguinetty, 1994). He also identifies some potential obstacles to investment:"barriers" which may serve to detract foreign companies. These internal factors include planning insufficiencies (unreliability of supplies, deplorable communications, lack of security, government intervention in various sectors), unfavourable conditions emanating out of the current economic crisis, a high level of public disorder, widespread malnutrition, extreme fiscal disequilibrium, and a general atmosphere of instability."(Sanguinetty, 1994).

Nevertheless, the queue of prospective companies, which were lining up prior to the Cuban Liberty and Solidarity Act, is indicative of the economic potential that exists in Cuba at this moment. There are some who certainly see Cuba becoming a vital component in the regional, economic sphere. Great overtures have been made via the members of CARICOM and Cuba has a major role in the Association of Caribbean States (A.C.S.). At the ACS Summit in Port of Spain, in July 1995, Castro expressed a desire to forge closer economic links between Cuba and the rest of the Caribbean. For Pregg and Levine: " The reintegration of Cuba will have substantial impact throughout the Caribbean regional economy, but the impact will be very uneven by sector and country. There are also important distinctions between the short-term adjustments that are likely to take place in trade and investment patterns and the long-term restructuring of economic and political relationships." Pregg and Levine, 1993 ).
They go on to envision Cuba's reintegration, stimulating economic growth within the region as a whole. Finally, they see "the emergence of Cuba as an active, substantial participant at the centre of the Caribbean economy," one which " will alter the balance of political relationships in the region ...." (Pregg and Levine, 1993). Ultimately, a grouping of Cuba, the Dominican Republic, Venezuela and CARICOM countries could serve as " a greatly enhanced counterweight grouping" (Pregg and Levine, 1993) as opposed to NAFTA.

There are some commentators who view a free market economy as only taking place in a post-Castro era. Bryan Roberts declares that serious "economic reform will begin in Cuba only after the current regime has relinquished power." (Pregg and Levine). In fact, the government has been blamed for many of the island's economic problems. According to Castañeda and Montalvan, the economic downfall "is the result of an abrupt encounter of an inherently inefficient system and over expanded social services, military and administrative expenditures combined with no massive external aid. It is also the legacy of drastic allocative and structural errors and failures, together with the absence of a required adjustment in the context of a very competitive and dynamic post-Cold War economic environment ...." (Roberts, 1994). Such sentiments have also served to highlight the major aim of United States policy towards Cuba at this moment in time. This is, essentially, the removal of Fidel Castro from power. For some observers, this is the only way whereby Cuba will be able to rejoin the economic market. For others, however, the forced removal of Castro from power can only lead to additional problems and may even lead to instability, thus prolonging the chances of a peaceful conciliation. This question will be examined towards the end of this paper.

TABLE II : Cuban Foreign exchange Receipts ( in millions of U.S.dollars)1989-1992

Category
1989
1990
1991
1992
a) Total Exports $ 5.392 $ 4.910 $ 3.585 $ 2.150
Selected exports:
Sugar 

Citrus 

Tobacco 

Coffee 

Medical Products 

Other

$ 3.914 

      139 

        85 

        40 

        58 

      331

$ 3.645 

      150 

      110 

        35 

      100 

      300

$ 2.575 

      120 

        95 

        35 

        50 

      275

$ 1.250 

      110 

        90 

        30 

        50 

      250
b) Tourism expenditure 
c) Remittances 

d) Foreign direct investment 

e) Economic assistance
$    240 
      100 

        50 

        24
$    268 
      100 

        50 

        29 
$    300 
      100 

        50 

        30 
$    350 
      100 

        50 

        30

 

  Table III: Cuban Imports ( in millions of U.S. dollars )
 

Category 1989 1990 1991 1992 %decline 
1989-1992
Food 
Raw materials 

Petroleum 

Chemical Products 

Machinery and Equipment 

Other manufactured goods 

Other 

Total Imports

$ 1.011 
      307 

   2.598 

      530 

   2.531 

   1.115 

        32 

   8.124

$  840 
    240 

 1.950 

    390 

  2.380 

     925 

       20 

  6.745


 $ 720 

      60 

  1.240 

     270 

     820 

     480 

       20 

  3.610 
 

$   600 
       60 

     850 

     120 

     350 

     210 

       10 

  2.200


   41 

   80 

   67 

   77 

   86 

   81 

   69 

   73 
 

 

      SOCIAL IMPACT

In early August 1994 rioting broke out in the streets of Havana, after police had prevented a ferry loaded with would-be emigrants from leaving the harbour.
This action led to Castro's announcement on August 7 that, if the United States did not take "quick and efficient measures to halt the promotion of illegal departures," the Cuban coast guard "would be instructed not to prevent people from leaving."(Cameron1995). This triggered off a mass exodus of Cubans, on board of rafts and other small craft, bound for Florida. On August 19, U.S. President, Bill Clinton, sought to stem this flow by announcing that " Cubans arriving in Florida will no longer be given automatic refugee status."(Cameron, 1995).

Cuban refugees were either returned to the U.S. Naval base at Guantámano Bay or interred at camps in Panama. In September, following a week of meetings, the U.S. and Cuba reached an agreement whereby the U.S. agreed to admit at least 20.000 Cubans in 1994, in line with a decade-old agreement, and would grant an additional 6.000 visas to Cubans already on the waiting list. In return, Cuban authorities would restore coastal patrols in order to prevent people from leaving. This exodus, in itself, is tantamount to economic problems that the island had suffered through. It is also indicative of the social impact of this economic strife.

Up to 1994, more and more people were leaving the island illegally with the number increasing from 467 in 1990 to 2.549 in 1992. Tremendous pressures have resulted from the austerity measures taken at the onset of the "special period" in 1989- 1990. " Priority has been given to the maintenance of health care and education, the achievement of self-sufficiency in food production, the expansion of tourism development to obtain hard currency and the expansion of foreign investment while retaining central planning."
(Griffin, 1992).

This policy has called for great sacrifices. Energy conversation has been very evident during the early 1990's. Power outages have been a daily occurrence while bicycles and horse-drawn carts have been superseding motor vehicles on the streets of the capital. The shortage of basic supplies and subsequent rationing has encouraged an increase in illegal activities such as black marketing and petty theft, along with the promotion of general corruption. The lack of jobs to match educational achievement has promoted growing unemployment, for which there has been an inability to provide benefits. The mounting problems have all threatened to debase the "motivation and discipline" on which the social system thrived.

However, commitment to the cause and achievements of the revolution still remain very strong, particularly among the older generation. These achievements are basically the "cradle-to-grave health care, free and universal health care and generous social security payments. Castro brought these benefits to millions who had almost nothing before the revolution.... ' There is no way you can take away the achievements of the revolution', says 35-year old Pedro Monreal. ' They are instilled on the hard disk of my generation.' Cubans insist they will manage to keep these benefits and still revive their shattered economy." (McGeary and Booth).
It does seem doubtful, though, that this veneration is as widespread among the younger group of Cubans. While Castro has been able to appeal to nationalism in his opposition to the United States embargo, this generation are hoping for a better life. It is this lifestyle that is being beamed into Cuba daily via the propaganda broadcasts of Radio and T.V. Martí from Miami. While Cuban authorities have been able to scramble some of these signals using sophisticated Soviet equipment, it is the craving for these observed lifestyles that may lead to instability. This kind of solution may hinder the island's chances of establishing a free-market economy in the near future.

INTERNATIONAL RESPONSE/CUBA-UNITED STATES RELATIONS

The current stand-off between the United States and Cuba, as it is, will not serve to improve conditions in Cuba. On the contrary, the United States policy towards Cuba may only serve to further destabilize an already fragile social milieu. The Cuban Liberty and Solidarity Act has proven a tremendous setback in relations between the two countries which had been improving, if only at a snail's pace.
In October 1995, President Clinton eased travel restrictions to Cuba by Cuban Americans, academics and members of the clergy. He encouraged U.S. news organizations to set up offices on the island and advocated student exchanges between Cuba and the United States. The Act has now pushed the situation further away from an amiable solution and closer to a volatile fallout. This comes on the heels of the Cuban Democracy Act (1992), which also served to strengthen the U.S. embargo while increasing pressure on Castro through additional measures. The C.D.A. permits the unrestricted donation of food for humanitarian purpose, allows for exports of medicines and medical supplies to Cuba, provides for the upgrading of telephone lines between the United States and Cuba for the purpose of forging communication linkages between the two countries. Also, the Act includes provisions for direct U.S. Postal mail delivery to Cuba and, of course, the tightening of the U.S. embargo. The C.D.A. fit into the overall scheme of U.S. policy objectives, prior to the latest Act, which were basically "internal democratic reform, an end to human rights abuses, and an end to insurgency abroad". (Michael Kozak

{Principal Deputy Secretary of State for Inter-/american affairs} in a speech reproduced in Castro's Special Period in A Time of Peace[1990].)

The components of this policy included: the absence of normal diplomatic relations; the diplomatic isolation of Cuba from international organizations and from regular bilateral ties with other countries; the U.S. economic embargo which "aims to deny Cuba the means to carry out policies inimical to the United States"; the broadcast of "unbiased news information" to the people in Cuba. (Kosak).

According to Robert G. Torricelli, the main architect behind the C.D.A. : " It was... the original intention of the Cuban Democracy Act both to provide incentives to the Government of Cuba to begin the long-awaited, inevitable process of democratization and isolate the Castro dictatorship and to promote communication with the people of the island in the hope they could experience a revolution in democratic expectations taking place around the world." (Torricelli to Senate Subcommittee hearing (November 18, 1993).

The Cuban Democracy Act was only a year old when, in 1993, measures were already being drawn up to strengthen the embargo even further. The bill, proposed by Congressmen Jesse Helms and Dan Burton was in response to the continual involvement of foreign companies doing business in Cuba. According to Lincoln Diaz-Balart at a subcommittee hearing in February 1995: " The fundamental reason that Castro has been able to remain in power is because of the assistance and the co-operation he has received from other nations and their investors .... the bill that you have introduced in the house of representatives .... will strengthen the embargo, and directly attack the investments in corroboration with Castro that some substantial capitalists in the international community are making in Communist Cuba today." (Diaz-Balart to Senate Subcommittee, February 23, 1995).

The bill remained dormant in the house for three years until March 1996 when the shooting down of the two "Brothers to the Rescue" aircraft prompted the immediate, and rash, passing of it.

In its basic form, The Cuban Liberty and Solidarity Act: allows Cuban-Americans and additional U.S. citizens to sue foreign companies, in American courts, for damages incurred through the use of U.S. property confiscated by the Castro Government since January 1, 1959 - this measure aims at "halting foreign joint ventures with Cuba"; bars from entry into the United States "aliens using confiscated property claimed by a U.S. national, officers or shareholders with a controlling interest in firms 'trafficking' in expropriated properties, and their families" ; puts into law presidential sanctions which will be suspended upon the imposition of a "transitional" Cuban government; stifles aid to former Soviet states "equal to their aid and credits for intelligence facilities in Cuba" and it requires the U.S. executive directors in such financial institutions such as the World Bank and International Monetary Fund to oppose loans extended towards the current regime "until a democratic elected government is in power."
(Measures cited in Trinidad Guardian Newspaper, 1996).

This Act effectively projects Cuban-American relations onto a different plateau. By codifying past foreign policy (i.e. the U.S. embargo) into U.S. law, the Act has signified a large-scale commitment to the removal of Fidel Castro from power, a commitment that now extends, domestically, into the area of U.S. jurisprudence. Nevertheless, Cuba has retained international support from Canada, CARICOM and the European Union (E.U.) who have all condemned this harsh measure.

United States policy has not been without the influence of the Cuban-American element. Since 1960, tens of thousands of Cubans have fled the island. Most have settled in south Florida with a significant number establishing themselves in New Jersey. While many members of this community have found themselves amongst a modest middle class, there is a wealthy group of Cubans, mostly residing in the city of Miami, who are descendants of the upper class families who left soon after Castro came into power.
Overall this segment of the American population has had a significant impact on U.S. policy towards Cuba. Some of the younger generation of refugees have achieved prominent positions in the American society. While many have become doctors or lawyers, others, such as Diaz-Balart, Robert Menendez and Ileana Ros-Lehtinen, have worked their way up the political ladder and are now members of Congress. In fact, Menendez assisted in the creation of the Cuban Democracy Act.

There have been also many support groups formed out of this exile community, the most important of which is the Cuban American National Foundation. This body has thrown its weight behind many of the foreign policy measures adopted by U.S. governments over the decades. One member, Francisco Jose Hernandez, went so far as to declare that "the lifting of the embargo would amount to a betrayal of the Cuban people's hope for freedom and democracy, a moral Bay of Pigs".

(Hernandez to Senate Subcommittee, 1994).

Meanwhile, the Foundation's President, Jorge Mas Canosa, has summed up U.S. policy :"It is up to Fidel Castro to make his mind up, and think about the Cuban people and think about the nation. And the day he calls a free and democratic election, I think that we are all in agreement and have a full consensus. That day the embargo should be lifted."

(Canosa to Subcommittee, 1995).

But it seems very much doubtful as to whether current United States policy can achieve this goal. It has always been the intention to remove Castro from power through whatever means, fair or foul. In the 1960's, several attempts on his life were allegedly engineered by the Central Intelligence Agency. Three years ago, one Donald Shulz, stating that "the time has come to take up Castro on his recent proposals to step down in return for a lifting of the U.S. embargo on Cuba," devised a plan whereby Fidel and Raul Castro would agree to relinquish power in the spirit of nationalism and love for the Cuban people. (Shulz, 1993). Details of this settlement would include a suitable place of exile for the two brothers and the instigation of plans for economic and political transition. And, as alluded to earlier, statements have been made concerning the "necessary" removal of Castro, prior to the establishment of a free market economy.

Nevertheless, many opinions have been voiced concerning the invalidity of present U.S. policy. It has been very noticeable that, while strict measures have been aimed at bringing down Castro, the Cuban people as a whole are the ones most severely affected by the embargo. As Purcell (1992) points out, current policy is also based on the assumption that "Cuba's continuing economic deterioration will automatically lead to a democratic and capitalist Cuba."

 



Cuba

Introduction

Historical Background of Cuba before Castro
Part 1

Historical Background of Cuba before Castro
Part 2

Cuba Under Castro

Cuba Since the Fall
of the USSR


Conclusion

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