Home » Political Economy Corner » What if…the U.S. Ended the Cuba Travel Ban and the Embargo? by Jaime Suchlicki

What if…the U.S. Ended the Cuba Travel Ban and the Embargo? by Jaime Suchlicki

Ending the embargo and lifting the ban for U.S. tourists to travel to Cuba would be a major concession totally out of proportion to recent changes in the island. If the U.S. were to lift the travel ban without major reforms in Cuba, there would be significant implications:

  • Money from American tourists would flow into businesses owned by the Castro government thus strengthening state enterprises. The tourist industry is controlled by the military and General Raul Castro, Fidel’s brother.
  • American tourists will have limited contact with Cubans. Most Cuban resorts are built in isolated areas, are off limits to the average Cuban, and are controlled by Cuba’s efficient security apparatus. Most Americans don’t speak Spanish, have but limited contact with ordinary Cubans, and are not interested in visiting the island to subvert its regime. Law 88 enacted in 1999 prohibits Cubans from receiving publications from tourists. Penalties include jail terms.
  • While providing the Castro government with much needed dollars, the economic impact of tourism on the Cuban population would be limited. Dollars will trickle down to the Cuban poor in only small quantities, while state and foreign enterprises will benefit most.
  • Tourist dollars would be spent on products, i.e., rum, tobacco, etc., produced by state enterprises, and tourists would stay in hotels owned partially or wholly by the Cuban government. The principal airline shuffling tourists around the island, Gaviota, is owned and operated by the Cuban military.
  • Over the past decades hundred of thousands of Canadian, European and Latin American tourists have visited the island. Cuba is not more democratic today. If anything, Cuba is more totalitarian, with the state and its control apparatus having been strengthened as a result of the influx of tourist dollars.
  • A large influx of American tourists into Cuba would have a dislocating effect on the economies of smaller Caribbean islands such as Jamaica, the Dominican Republic, the Bahamas, Puerto Rico, and even Florida, highly dependent on tourism for their well-being. Careful planning must take place, lest we create significant hardships and social problems in these countries.

If the embargo is lifted, limited trade with, and investments in Cuba would develop. Yet there are significant implications.

Trade

  • All trade with Cuba is done with state owned businesses. Since Cuba has very little credit and is a major debtor nation, the U.S. and its businesses would have to provide credits to Cuban enterprises. There is a long history of Cuba defaulting on loans.
  • Cuba is not likely to buy a substantial amount of products in the U.S. Cuba can buy in any other country and it is not likely to abandon its relationship with China, Russia, Venezuela, and Iran to become a major trading partner of the U.S.
  • Cuba has very little to sell in the U.S.

Investments

  • In Cuba, foreign investors cannot partner with private Cuban citizens. They can only invest in the island through minority joint ventures with the government and its state enterprises.
  • The dominant enterprise in the Cuban economy is the Grupo GAESA, controlled by the Cuban military. Most investments are done through or with GAESA. Therefore, American companies willing to invest in Cuba will have to partner mostly with the Cuban military.
  • Cuba ranks 176 out of 177 countries in the world in terms of economic freedom. Outshined only by North Korea. It ranks as one of the most unattractive investments next to Iran, Zimbabwe, Libya, Mali, etc.
  • Foreign investors cannot hire, fire, or pay workers directly. They must go through the Cuban government employment agency which selects the workers. Investors pay the government in dollars or euros and the government pays the workers a meager 10% in Cuban pesos.
  • Corruption is pervasive, undermining equity and respect for the rule of law.

Conclusions

  • If the travel ban is lifted unilaterally now or the embargo is ended by the U.S., what will the U.S. government have to negotiate with a future regime in Cuba and to encourage changes in the island? These policies could be an important bargaining chip with a future regime willing to provide concessions in the area of political and economic freedoms.
  • The travel ban and the embargo should be lifted as a result of negotiations between the U.S. and a Cuban government willing to provide meaningful and irreversible political and economic concessions or when there is a democratic government in place in the island.

1 Comment

  1. Felipe P. Manteiga says:

    In policy analysis, we have learned there is a demand for policy change and supply of policy. Policieis do not change until the actionable price price point is reached. Price discovery takes place though iterative steps converging on the policy mix desired.

    On the supply side, the assumption behind the well reasoned Suchlicki note is that U.S. interest are better served by holding on to the embargo until State Dept. negotiators gain something in return from the Cuban government. This negotiation would bring the U.S. position to a preferred point of (dynamic) equilibrium. On the demand side, the assumption builds on the presumption the Cuban government wants an end to the embargo.

    I would pose the U.S. will be better served by ending the embargo because this policy carries a heavy cost. These costs are not only in terms of diplomacy, but also in economic and social currency (this policy violates important international laws and treaties, and the U.S. is a law abiding nation) which might bring increased costs in negotiations with other countries. So, the locus forming the supply envelope would generate a “curve” laying significantly to the right of the one projected from the author’s presumption.

    On the demand side, what evidence support the assumptions that the Cuban government wants to end the embargo? I have not seen convincing evidence because the productive and service delivery capacity of Cuba is currently a disaster. On the medium term, of course, lifting the embargo would place significance pressure on the productive and marketing schemes in Cuba. And that fundamental economic change is not well received by the Cuban Authorities. The bureaucracy running the island has more power than the Vietnamese one had. The latter was forced to allow production and productivity improvements, to yield its power to more market friendly transactions. The Castro regime does not seem to have the power to enforce those changes. So, by keeping the embargo the potential demand for substantive changes is aborted.

    This neoclassical conclusions may also converge with the institutionalist principal agent outcome.

    On top of these ruminations, one must keep in mind policy parameters. Clinton gave away the Cuban policy domain to Congress when he negotiated the Helms-Burton legislation tightening U.S. policies towards the island in exchange for his re-election. I believe the supply side in the House is pretty dry–no matter who benefits or gets hurt.

    So, the status quo will remain, and the legacy of Castro will stay on the island for many years….unless there is a flotilla with hundreds of thousands of Cubans desperately crossing the Straights or dying in the attempt. It does nos seem anyone care about that.

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