* Jaime Suchlicki
A recent proposal to modify the U.S.-Cuba embargo and allow investments and travel to Cuba, introduced by a small bi-partisan group of members of the U.S. Congress, is likely to fail. Yet it shows the lingering perception that internal change in Cuba can be fostered by U.S. policies and that the 60 years of intransigent Cuba policy can be modified with travel and investments.
For some investors, Cuba has the appearance of offering significant opportunities. It is the largest island in the Caribbean, with a population of over 11 million; it is close to the United States, which should provide a large and prosperous market; it has a well-educated and trained population; and it suffers from a great need for material goods and for the rebuilding of its deteriorating infrastructure. Also, as the Castro era draws to an end and U.S.-Cuba relations eventually are normalized, tourism, mining, agriculture, and construction will become significant targets for foreign investment.
And yet, in reality Cuba combines the worst features of underdeveloped and communist societies. It is probably the most inefficient among the former socialist nations. By far, it is also the poorest in terms of per capita income. It follows, therefore, that all the drawbacks and disadvantages to investing in less developed and socialist countries apply with special emphasis to the Cuban case. Cuba combines the worst of both worlds as far as investment opportunities are concerned.
Moreover, Cuba’s economic decline in the last five years has reached catastrophic proportions, with no end in sight for the deflationary spiral. The entropy of the Cuban economy as it keeps on contracting has no parallel in recent history, perhaps with the exception of the Cambodian experience under the Khmer Rouge.
Cuba’s extreme dependence on foreign trade and the adoption of its economy for nearly three decades to an unnatural and immense Soviet subsidy inflow, which created an artificial economy that has now disappeared, paradoxically has proved to be its own nemesis. Cuba does not have a viable economy of its own. As nearly every category of inputs keeps on decreasing, so the spiraling vicious circle of pauperization keeps on descending unremittingly.
In Cuba there is no internal market to speak of. Consumption is limited by a strict and severe rationing regime. Whatever transactions take place outside it are in the illegal black market, which operates with scarce dollars and stolen merchandise. Meanwhile, the Cuban peso continues to depreciate as its purchasing power becomes nil and its function as a means of exchange approximates the vanishing point. This process is being accelerated by a huge and persistent governmental budgetary deficit and the virtual absence of any stabilizing fiscal and monetary policies. Under such extreme conditions and with no foreign exchange reserves, convertibility is totally out of the question.
Sugar production, Cuba’s mainstay export, has reached levels comparable to that of the Great Depression period, while the prices of other supplementary primary commodities continue their downward trend in the international market.
Efforts at diversifying production both for domestic and export purposes have proved to be notorious failures, despite enormous amounts of misplaced investment. Furthermore, the economic and social infrastructures of the nation are not only in a state of disrepair but are actually collapsing. The outdated electric grid cannot supply the meager needs of consumers and industry, transportation services have almost vanished, communication facilities are totally obsolete, and sanitary and medical services have deteriorated so badly that contagious diseases of epidemic proportions constitute a real menace to the population.
Under these present conditions it would be risky, if not foolhardy, to invest in Cuba. Even the export sectors, like tourism, which seem to be relatively prosperous and immune to the economy’s malady, will eventually fall victim to the general poverty of the country. It is impossible for isolated sectors of enclaves of economic activity to survive indefinitely under such cataclysmic conditions.
One other point of extreme importance to consider when evaluating the economic wisdom of investing in Cuba under Castro is that of the general subsidization of economic activities. The extremely lax fiscal, tariff, and labor policies now in force are likely to be rapidly replaced by more economically rational ones as soon as the current regime is supplanted. The present policies can only be understood as the desperate actions of a political system in urgent need of short-term financial resources in order to retain its grip of power.
Related to the preceding point is the crucial issue of the structural changes that will eventually take place in the price system as Cuba inevitably undergoes its transformation from a centrally planned and administered economy into a market-based one. At that time, a revolutionary mutation will take place in the cost accounting and price practices and calculation of business enterprises. There is no way now for an investor to anticipate the impact of such reforms on supply and demand conditions, and thus on the market position, solvency, and profit-making potential of his economic enterprise. The East European experience is a prime example of the enormous difficulty involved in salvaging apparently healthy enterprises once a change of economic system has taken place.
There is also a veritable maze of legal problems posed by the issue of the legality of foreign investments and the validity of property rights acquired during the Castro era. Obviously, both Cuban nationals and foreigners whose properties were confiscated during the early years of the revolution will reclaim them as soon as this becomes feasible. The United States, as well as other countries whose citizens’ assets were seized without adequate compensation, stand ready to support their nationals’ claims. Additionally, Cubans living in different parts of the world eagerly await the opportunity of exercising their legal rights before the Cuban courts in a post-Castro situation. Again, the East European example is a good indication of the complexities, delays, and uncertainties accompanying the reclamation process.
A different kind of problem is that posed by the legality of investments and the legitimacy of property rights relating to assets and facilities that did not exist before the Castro regime acceded to power. This, indeed, is an extremely sensitive and technically convoluted issue. It should be noted that exaggerated popular sentiments and a politically incendiary rhetoric will certainly await those who are now investing in Cuba. At the very least, they should expect to deal with a conflicted social climate and an adverse business environment. That is, at this time investors will invariably encounter an ambience in Cuba that is not conductive to productive operations.
As for the purely legal matter of the status of investment projects and contractual obligations entered into during Castro’s tenure of power, there is no dearth of scholarly opinions questioning their validity before a court of law. Under the precepts of international law, agreements subscribed to by usurping authorities and/or others that are clearly harmful and detrimental to the public good or commonwealth, or which violate the civil rights of the population (such as the case of forced or coerced labor), are considered null and void.
None of the above addresses a fundamental issue of extraordinary moral impact: lending assistance to a totalitarian regime that cruelly and callously has systematically violated the most elementary human rights of the Cuban population. The Cuban regime stands condemned by the United Nations and the Organization of American States as one among the few throughout the world that share that notoriety.
If investment and trade embargoes imposed in the past on those political systems that have been convicted of heinous crimes and abominable deeds against their populations have any sense and can claim to be morally justified, the case of Cuba must be among the most salient ones, symbolizing a country whose population has been uninterruptedly governed by a totalitarian regime for sixty-four years.
It is to be hoped that investors and entrepreneurs, cognizant of the drama of the Cuban people, will realize their ethical and moral obligations and abstain from lending success to a regime that will be harshly judged by history as well as by those who have been victimized by it.
*Jaime Suchlicki is Director of the Cuban Studies Institute, CSI, a non-profit research group in Coral Gables, FL. He is the author of Cuba: From Columbus to Castro & Beyond, now in its 5th edition; Mexico: From Montezuma to the Rise of the PAN, 2nd edition, and Breve Historia de Cuba.
