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Cuba opens an embassy, but faces long, hard road to prosperity
Diplomatic Pouch / July 16, 2015

By Larry Luxner

Next Monday, the Cuban flag will rise for the first time in more than half a century over its stately old mission on Sixteenth Street — marking the opening of Washington’s newest embassy in years.

Likewise, Secretary of State John Kerry will travel to Cuba to raise the Stars and Stripes over the newly christened U.S. Embassy fronting Havana’s oceanfront Malecón.

The twin events together mark a huge milestone in U.S.-Cuba relations, but in economic terms, the hard work for this communist-ruled Caribbean island of 11.2 million is only beginning.

On July 14, Carlos Gutiérrez — the Cuban-born former secretary of commerce under President George W. Bush — told a panel at the Atlantic Council why he thinks the Obama administration is right to reverse course and open up to Cuba after 54 years of the White House doing exactly the opposite.

“This is more than just symbolism. It’s a real step forward,” said Gutiérrrez, long a staunch supporter of the U.S. embargo against the Castro regime. “Cuba wants to change. But as we all know, there’s so much more to do.”

The event, sponsored by the council’s Adrienne Arsht Latin America Center, coincided with release of a report by Cuban economist Pavel Vidal and Scott Brown, former IMF mission chief for Albania. The 24-page study, titled “Cuba’s Economic Reintegration: Begin with the International Financial Institutions,” examines how former centralized economies like Albania and Vietnam were helped by membership in the World Bank, the International Monetary Fund and regional development banks.

Vidal addressed the panel briefly via a videoconferencing link from Havana. In addition to Gutiérrez and Brown, participants included Rafael Romeu, president and CEO of Miami-based DevTech Systems Inc. and José Ignacio López Perea, head of global commercial banking at Spain’s BBVA.

Jason Marczak, the center’s deputy director, offered opening remarks. He said IMF and World Bank officials were invited to the event but demurred, indicating the “radioactive” nature of the topic at hand.

Among the report’s 10 specific recommendations: Cuba should carefully analyze all potential paths toward membership in international financial institutions (IFIs), and Washington needs to give Cuba breathing room by not enforcing the legal mechanisms that call for U.S. opposition to multilateral loans to the island.

“Cuba withdrew from the World Bank in 1960, and from the IMF in 1964. It was never a member of the Inter-American Development Bank because the IDB started in 1959 — the year of the revolution — so Cuba doesn’t really know the benefits of investment capital,” said Gutiérrez.

“Cuba wants to change,” he added. “I’ve been traveling to China now for about 20 years, sometimes as often as five or six times a year. More than 300 million Chinese have been lifted from poverty. It’s a great example of economic transition. Albania is another one.”

Under the Helms-Burton Act of 1996, which codifies the U.S. embargo into law and can only be lifted by Congress — regardless of President Obama’s decision to restore diplomatic ties — Washington must oppose Cuba’s entry into all these institutions.

“But one thing is to oppose, and the other is to encourage everyone else to oppose,” Gutiérrez pointed out. “If the U.S. government wants to be part of the solution, the United States can comply with Helms-Burton and vote no, and then allow others to vote as they wish, as opposed to putting on pressure. It’s up to U.S. policymakers to help Cuba, but I’d be surprised if this is not part of the talks. If it isn’t, it should be.”

However, this isn’t just about the Helms-Burton Act.

“For one thing, Cuba can’t continue with two currencies. That will not make sense in an economy open to foreign investors,” said the former commerce secretary and Coca-Cola executive. “Unifying two very distinct currencies won’t be easy. It will reduce foreign reserves in the short term and will be a tough transition. And you can’t do it overnight.”

Even more importantly, he said, is that the Cuban government allows private entrepreneurs to turn a profit — whether it’s a restaurant or a home-repair store.

“For me, the most important requirement is a recognition that you need to have a return on capital,” said the former commerce secretary and Coca-Cola official. “Cuban policymakers need to fully understand that — and if they do understand it, then they need to put it in place. If you’re going to access these institutions and access capital, you have to believe that capital must have a return. For me, this is not ideology, it’s about numbers. If you’re putting in money and not getting out money, you’re not going to be successful.”

BBVA’s López said there’s been “lots of business interest” here — especially in tourism — toward Cuba since Obama’s announcement last December that bilateral relations would be restored.

López said that 92,000 U.S. residents visited Cuba in 2013, spending a total of $100 million, according to official data.

“This year, it will grow sharply, following the easing of travel restrictions. The impact on the hotel sector is significant, especially in the premium sector,” he said. “There will also be an increase of U.S. exports to Cuba, but the limitation of Cuba having to pay cash in advance means it won’t be significant.

“Additionally, we see the expectation of a future improvement in relations and a potential lifting of the embargo, even if it takes time, could have an immediate positive impact in some sectors such as real estate,” he said, estimating that impact at 0.5 to 1.0 percent of Cuba’s GDP.

The IMF’s Brown, whose first assignment for the bank was helping formerly Marxist Albania, called the European spring “a challenge like no other.”

“Nobody really knew at that point how to help these centrally planned economies. It was messy,” he said. “In Russia, it was very messy. In Poland, Romania and Bulgaria, it sorted itself out, and in Albania, it was initially very successful until people poured their money into Ponzi schemes and black holes.”

Brown added: “In the end, the benefit that Cuba gets out of reintegration with the global economy will depend on Cuba’s own willingness to go that full voyage toward a vibrant market-oriented economy — and the desire for a better life for its people.”

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