Reaching out Cuba's New Economy and the International Response
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Reaching Out Reaching Reaching Out - Cuba’s New Economy and the International Response Response and the International Economy New - Cuba’s Cuba’s New Economy and the International Response Richard E. Feinberg Richard Richard E. Feinberg The Brookings Institution 1775 Massachusetts Ave., NW Washington, D.C. 20036 NOVEMBER 2011 brookings.edu Reaching Out Cuba’s New Economy and the International Response Richard E. Feinberg NOVEMBER 2011 Table of Contents Acknowledgements . iii Abbreviations . iv Introduction . 1 1 . The Cuban Economy: Distorted Development and Gradual Reforms . .5 2 . Cuba’s Emerging Market Strategy . 22 3 . International Development Cooperation: Cuba as Beneficiary . 44 4 . The International Financial Institutions: Relations with Non-Members . 61 5 . Updating Cuban Perceptions: Vietnam and Nicaragua in the Global Economy . 84 6 . Key Findings and Recommendations: Nudging History Forward . 96 About the Author . 102 Reaching Out: Cuba’s New Economy and the International Response Latin America Initiative at Brookings ii Acknowledgements any individuals and institutions were extraordinarily generous in lending their assistance Mto this project . Present and former executives and staff members of the IMF, World Bank, Inter-American Development Bank (IDB), Andean Development Corporation (CAF), and the Organi- zation of American States (OAS) provided off-the-record but indispensable accountings of past and present policies of their multilateral institutions . Officials at the U .S . Treasury Department (where I labored so many years ago) greatly enhanced my understanding of relevant U .S . legislation . The research of the economists of the Center for the Study of the Cuban Economy of the University of Havana provided much of the basis for my analysis of the Cuban economy, and special thanks are due to the Center’s director, Omar Everleny Perez Villanueva, and to international economist Jorge Mario Sanchez Egozcue . Also in Havana, Luana Reale was my knowledgeable guide to the European donor community . Ace journalist Marc Frank remains a constant source of reliable and well-framed information . I would especially like to thank those who read and offered most useful comments on all or portions of draft manuscripts, including Mario Arana, Jaime Biderman, Low- ell Blankfort, James Boughton, Juan Alberto Fuentes, Peter Hakim, Homi Kharas, Eric Leenson, Matthew Levin, Edmund Malesky, Robert Pastor, Rafael Romeu, Hernan Rosenberg, and Andrew Wolfe, as well as Brookings’ external peer reviewers . The lifetime scholarly commitments of Philip Brenner and Margaret Crahan to Cuban studies have been an important source of inspiration . The Peterson Institute for International Economics offered me valuable feedback at one of Wash- ington’s highest caliber gatherings, its Friday staff luncheons . The 2011 symposium on Cuba or- ganized by the Bildner Center for Western Hemisphere Studies under the leadership of Mauricio Font was a tremendous source of current analysis . I also wish to thank the Brookings Institution, The Christopher Reynolds Foundation, and the Woodrow Wilson International Center for Scholars for their vital financial and institutional support . Especially deserving of my appreciation are Ted Piccone and Emily Alinikoff of Brookings and Cynthia Arnson of the Wilson Center for their vital enthusiasm and warm friendship . Expert research assistance was provided by Savannah Thomas Arrigo, Ian McMurtry and Diogo Simas . Reaching Out: Cuba’s New Economy and the International Response Latin America Initiative at Brookings iii Abbreviations ABC Brazilian Cooperation Agency AECID Spanish International Development Cooperation Agency ALBA Bolivarian Alliance for the Americas Bancomext Banco Nacional de Comercio Exterior (Mexico) BNDES Brazilian National Development Bank CAF Andean Development Corporation CAFTA-DR U .S .-Central America Free Trade Agreement CARTAC The Caribbean Regional Technical Assistance Center (IMF) CEEC Center for the Study of the Cuban Economy CIDA Canadian International Development Agency CNPC Chinese National Petroleum Company CPS Country Partnership Strategy EC European Commission ECF Extended Credit Facility EDC Export Development Canada EMs Emerging Markets EEZ Exclusive Economic Zone FDI Foreign Direct Investment FSLN Sandinista Front of National Liberation (Nicaragua) GAE Grupo de Administracion Empresarial IBGE Brazilian Institute of Geography and Statistics IBRD International Bank for Reconstruction and Development IDA International Development Agency (World Bank) IDB Inter-American Development Bank IMDIL Initiative for Municipal and Local Development IFC International Financial Corporation IFIs International Financial Institutions IMF International Monetary Fund Reaching Out: Cuba’s New Economy and the International Response Latin America Initiative at Brookings iv MDGs Millennium Development Goals MEP Ministry of Economy and Planning MINFAR Ministry of the Armed Forces MINCEX Ministry of Foreign Commerce and Investment MININT Ministry of Internal Security MOUs Memoranda of Understanding NAFTA North America Free Trade Agreement NAM Non-Aligned Movement NOCs National Oil Companies OAS Organization of American States OECD Organization of Economic Cooperation and Development ONE National Office of Statistics (Republic of Cuba) PDVSA Petroleos de Venezuela, S .A . PRGF Poverty Reduction and Growth Facility PRI Institutional Revolutionary Party (Mexico) SEDP Socio-Economic Development Plan SOEs State-Owned Enterprises UNDP United Nations Development Program UNESCO United Nations Education, Scientific and Cultural Organization UNICEF United Nations Children’s Fund UNMIK United Nations Mission in Kosovo WBG West Bank/Gaza WFP World Food Program (United Nations) Reaching Out: Cuba’s New Economy and the International Response Latin America Initiative at Brookings v Introduction ive decades after Fidel Castro’s “26th of July Movement” marched victoriously into Havana on FNew Year’s Day, 1959, the United States and Cuba, separated by less than 100 miles of choppy wa- ters, remain deeply distrustful neighbors entangled in a web of hostilities . Heated U .S . policy debates over how best to respond to the Cuban Revolution—through legislation in the Congress or executive orders issued by the Executive Branch—implicitly assume that there are only two players in conten- tion: Washington and Havana . Yet, this conceit takes us very far from the realities of Cuba today . Since the collapse of its former patron, the Soviet Union, a resilient Cuba has dramatically diver- sified its international economic relations . Initially, Cuba reached out to Europe, Canada, and a widening array of friendly states in Latin America . Over the last decade, Cuba has reached out to forge economic partnerships with major emerging market economies—notably China, Brazil, and Venezuela . Spanish firms manage many of the expanding hotel chains in Cuba that cater to 2 .5 million international tourists each year . A Canadian company jointly owns mining operations that ship high-priced nickel to Canada and China . In the next few years, China is poised to spend billions of dollars building a large petrochemical complex at Cienfuegos . A Brazilian firm will modernize the Mariel Port so that it can accommodate very large container ships transiting the newly widened Panama Canal . Petroleum companies from ten or more countries have lined up to explore for deep- sea oil in Cuban waters in the Gulf of Mexico . Despite these advances, the Cuban economy remains in the doldrums (as described in Section 1) . The main constraint slowing the Cuban economy is not U.S. sanctions (even as they have hit hard). Rather, it is Cuba’s own outdated economic model, inherited from the Soviet Union, of central plan- ning . Cuba’s many commercial partners would like to invest more in Cuba and would prefer to purchase more Cuban exports to correct the imbalances in their bilateral trade accounts, but are frustrated by Cuba’s scant economic offerings . Reaching Out: Cuba’s New Economy and the International Response Latin America Initiative at Brookings 1 Section 2 of this policy paper tells the story of Cuba’s outreach to the dynamic emerging market economies, as seen from the perspective of Cuba and also through the eyes of its Chinese, Brazil- ian, Venezuelan and Mexican partners—examining their motivations as well as their anxieties and frustrations . How does Cuba fit into their international economic and geo-political strategies, and what are the domestic political drivers behind their friendships with Havana? Canadian interests are also explored, as Ottawa has sharply differentiated its Cuba policy from those of its close North American ally . While comprehensive U .S . sanctions attempt to undermine the Cuban economy, European coun- tries have been sending development assistance, albeit in modest amounts . European aid targets its resources to empower municipalities, private farmers and cooperatives—to strengthen social forces less dominated by Havana’s powerful bureaucracies . Section 3 describes these European and Canadian cooperation programs as well as the creative initiatives of the non-governmental or- ganization Oxfam, and draws lessons—pointing out potential pitfalls as well as opportunities—for future international development programs operating in the difficult Cuban context . One hundred and eighty-seven nations are members of the International Monetary Fund (IMF) and World Bank—virtually equivalent to the universal membership of the United