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Feinberg: IMF, World Bank can jump-start Cuban economy
CubaNews / December 2011

By Larry Luxner

It’s time for international financial institutions (IFIs) like the World Bank and the International Monetary Fund to re-engage Cuba — a process that can only help the is-land as it embarks on painful reforms aimed at weaning Cuba’s 11 million citizens from their dependence on the state economy.”

That’s the word from Richard E. Feinberg, senior fellow at the Brookings Institution and professor of international politics at the University of California-San Diego.

“Drop the assumption that Cuba is a unitary actor. Rather within Cuba, there’s an epic struggle between forces of reform and the status quo,” said Feinberg. “What is normally done around the world in such circumstances? The role of the international community is not to stand on the sidelines and just throw verbal barbs, but to get our hands dirty and join in the fray.”

Feinberg, speaking Nov. 18 to an audience of 125 people at the Brookings Institution in Washington, is the author of a recently issued report titled “Reaching Out: Cuba’s New Economy and the International Response.”

The 108-page study is available at

“Cuba today is increasingly globalized. It’s engaged with many developed, capitalist economies and emerging-market economies. And most interestingly, there are some indications Cuba is now ready to engage with the IFIs under certain circumstances.”

He noted that 187 countries belong to the IMF and World Bank — literally every nation on Earth (not including microstates like Andorra, Monaco, Lichtenstein and San Marino) except for Cuba and North Korea.

“Now is the time for the international development community to engage in Cuba, to support the incipient economic reform process.

“Let’s be a part of history in the making. It’s time the IFIs complete their historic goal of full universality,” he said, noting that North Korea will probably one day be reunited with South Korea, and hence will be absorbed into a state that’s already a member of the IMF.

“That makes Cuba the only full country left out,” Feinberg said. “IFI engagement with Cuba should begin with technical assistance prior to membership, and the IFIs should beef up their expertise on Cuba.”

For years, Cuba refused to have anything to do with IFIs; Fidel Castro considered the IMF, World Bank and similar institutions imperalist tools. Yet Cuba’s economy is tanking compared to the rest of Latin America, which is doing quite well at the moment.

According to Feinberg’s statistics, Cuba’s annual per-capita income is $6,000. That com-pares unfavoably with the Dominican Republic ($8,000); Costa Rica and Brazil ($11,000) and Mexico, Uruguay and Chile ($14,000).

“Social gains have been eroding, and the Cubans understand this [will continue] unless they can get their economy going,” he said. “Industrial output is only 40% of where it was in 1989. Agriculture is stagnating, there’s little foreign investment, low medium wages and a chronic crisis in the balance of payments. Nobody can live by wages alone in Cuba today.

“What I’m pointing out here is known to every Cuban,” Feinberg continued. “Raúl Castro knows this. Take a stroll around Havana and it’s all painfully obvious. You see a lot of unemployed and disaffected youth. In Cuba today, open dissent is still dangerous, but in the area of economic policy, there’s a very wide and vibrant debate. Change is clearly in the air.”

Feinberg noted the explosion of private markets throughout Havana, even though the goods sold there are relatively expensive (see article on page 6 of this issue).

“New restaurants are popping up all over Havana, and the real-estate market is beginning to open up. The Cuban-American community is also starting to bring goods and capital to their relatives to take advantage of these new opportunities in micro-entrepreneurship,” he said. “At the same time, we have no illusions. There are forces of resistance. State ministries and the Communist Party retain their hegemony. The state sector remains overwhelmingly dominant when it comes to employment, production and price-setting.”

All of which why it’s important for Cuba to gradually resume its links with IFIs. Feinberg pointed out that Cuba withdrew from the World Bank in 1960, and quit the IMF in 1964. It is also not a member of the Inter-American Development Bank.

“Admission does not imply approval of their policies. And I’m not talking about membership tomorrow. That would be too stunning for Cuba, and for the United States as well,” he said. “But there are many precedents of IFIs working with non-member states. Countries friendly to Cuba — China, Canada, Brazil and the EU — could fund technical assistance programs like policy advice and training. China would barely notice.”

Feinberg said the Obama administration understands intuitively that it is in the U.S. national interest for IFIs to engage in Cuba.

“That argument is self-evident to people in the executive branch,” he said. “A gradual, step-by-step engagement would respect Cuban sensibilities. Within the IFIs, Cuba has many friends, including the emerging market economies. Cuba’s path to full membership is through progress on economic reforms. Cuba can learn from the experiences of others.”

Contrary to conventional thinking, the United States does not have formal veto power over Cuba’s membership in the IMF or World Bank, even though the 1996 Helms-Burton Act does require the U.S. government to vote against membership for Cuba.

“Sanctions denying resources to the IMF are not workable, but IMF technical assistance to Cuba would not necessarily trigger Helms-Burton,” he explained.

“In case loans were approved, Helms-Burton would require us to take out of the IMF an equal amount of resources. Explain to me how you’re going to do that.”

Feinberg said that “from a practical point of view, if we were to follow technical assistance funded by third-party trust funds, that would not violate Helms-Burton. It would not be a legal problem for the United States. If interpreted creatively, those pieces of legislation would not present insuperable obstacles to create a pathway for Cuba to engage with the IFIs.”

Simply put, he said, Washington “should devote more resources to understanding the changing Cuban economy, and should not politicize nor stand in the way of Cuba’s step-by-step readmission to the international financial community. We do not have to play an active role here. We simply should not stand in the way or throw a temper tantrum.”

Feinberg said Cuba could possibly get help from the Andean Development Corp. as well as the IDB, not to mention the 15-member Caribbean Community (Caricom).

“It’s in the interest of all Caribbean countries for Cuba to be part of these institutions, merely because of the spillover effect. Whatever happens in Cuba, the spillover is huge,” he said. “Indeed, the IFIs are not fulfil-ling their obligations when they ignore the inevitable impact of Cuba on other member states. It’s also in the interests of countries which do business with Cuba — which is to say, the entire world outside the United States. For so many reasons, the IFIs have been negligent when it comes to Cuba.”

Two other experts invited by Brookings participated in the Brookings panel: Gary Hufbauer and Carlos Alzugaray Treto.

“Certainly it would be against the interests of the U.S. and the Cuban people to see the IFIs entrenching state-owned enterprises, [or to] strengthen a state-owned enterprise in which a Spanish or Canadian venture has a long-term monopoly grip, which would freeze out U.S. competition,” said Hufbauer, a senior fellow at the Peterson Institute for International Economics.

“On the positive side, even though Cuba may not be a member of the World Bank, it is a member of the World Trade Organization, and the IFIs could help Cuba get on the path to respecting its WTO obligations.”

Alzugaray, Cuba’s former ambassador to the EU, is now a visiting professor at Queens College in New York.

“I think most Cuban economists would agree with Richard’s arguments about Cuba’s engagement with IFIs. For many years, and at Fidel Castro’s initiative, there was an annual conference on globalization, and the World Bank and IMF were always invited to these conferences,” said .

“But as long as the U.S. position is framed by regime change,” he warned, “it’s going to be very difficult for any initiative from the United States to be accepted in Cuba.”

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