U.S.-Cuba Relations: a new beginning or much ado about nothing?

Posted on by

By Jerry Haar

Former Federal Reserve chairman Alan Greenspan, in a 1996 televised speech, referred to the continued overvaluation of stocks as “irrational exuberance” — an apt expression today in the wake of President Barack Obama’s Dec. 17th announcement of a policy to normalize relations with Cuba.

It is wishful thinking to believe that the renewal of diplomatic relations with Cuba will lead to removal of the U.S. trade embargo with that nation. Only Congress can suspend the Helms-Burton Act — a law that requires a transition to democracy in Cuba, restitution of confiscated property of U.S. citizens and the absence from power of both Castro brothers.

Nevertheless, it is important to highlight the implications of the U.S.-Cuba normalization accord and the eventual removal of the trade embargo in several key areas:

  • Remittances and financial services. Under the new agreement, the limit on remittances from Cuban-Americans to family in Cuba will be raised from $500 to $2,000 per quarter, and remittance forwarders will no longer require a specific license. Remittance levels are currently $2 billion, so the potential injection of four times as much capital into the Cuban economy would be huge. The Cuban government also would win big, because it charges a “processing fee” of 10 percent on all remittances. With their Venezuelan ATM “temporarily out or order” and neither Russia nor China able to whip out their checkbooks, Raúl Castro needs hard currency desperately.
  • Tourism. New rules still prohibit U.S. citizens from traveling to Cuba, except for those who fall within 12 currently existing categories; however, those permitted to do so, will no longer need to seek formal approval from Treasury’s Office of Foreign Assets Control. Were the embargo to be lifted, the IMF predicts both winners and losers in Caribbean tourism. “Curiosity tourism” to Cuba would surge, with prices rising and Cuban infrastructure, at capacity already, unable to accommodate the large influx. U.S. travel to Cuba would probably be a “one-off” — that is, not a repeat destination like the Dominican Republic where price, quality and service are far superior to Cuba’s.
  • Trade. The U.S. and Cuba do have a trade relationship; however, it is restricted primarily to agricultural commodities and products, medicines and health care products. However, U.S. commodity exports to Cuba have declined by nearly 57 percent during the last six years. Under the Obama plan, U.S. firms would be permitted to export building supplies, inputs for small farmers, and products that Cuban entrepreneurs could use to establish small businesses. Removal of the embargo in its entirety could create huge opportunities for telecom equipment and a wide range of industrial exports from the U.S. and selected Cuban imports (e.g., rum, cigars).

One big caveat, however: Who is going to finance trade with Cuba and under what terms? Without U.S government guarantees (the Export-Import Bank or Small Business Administration) for trade financing and insurance, neither banks nor companies will extend credit to a nation that is notorious for failing to make good on its loans. And one should not forget that all import, wholesale and retail operations must go through Cuban state companies, all controlled by the military, that will earn a windfall of revenue in both tariffs and mark-ups on goods for final sale.

  • Access and affordability of goods. Cubans can buy a wide range of imported goods — providing they are available and affordable (doubtful on both counts). Samsung products (South Korea), Toshiba laptops (Japan), Adidas athletic shoes (Germany), Diesel jeans (Italy) as well as gray market goods coming from third countries can be purchased. But at what price? The average annual income in Cuba is $240. It is seven times greater in the Dominican Republic, nearly five times more in Haiti, and 15 times more in Jamaica. So even without the embargo, how attractive is the Cuban consumer market — a market where the monthly wage is equal to one Cohiba cigar?
  • Property. Compensation for confiscated property is a requirement of the Helms-Burton Act for removing the embargo. The 6,000 claims, valued today at $7 billion, were filed by individuals (80 percent of the claims) and companies such as Coca-Cola, Exxon, Starwood and Colgate-Palmolive. The Cuban government does not have the financial capacity to meet these claims, so how will they by settled? (Laughingly, Cuba claims the U.S. owes it $100 billion for harm caused by the embargo.)

While Dostoyevky reminds us that to live without hope is to cease to live, hope must be grounded in realism. One-sided deals do not work. The next steps are up to the Cuban government — further and faster economic reform and initiatives toward political liberalization. As José Martí, Cuba’s national hero, exclaimed: “It is a sin not to do what one is capable of doing.”

Jerry Haar is a professor of business at Florida International University and a non-resident senior research fellow at the McDonough School of Business, Georgetown University. His email is jerry.haar@fiu.edu.

47 thoughts on “U.S.-Cuba Relations: a new beginning or much ado about nothing?”

  5. Aw, this was a really nice post. In idea I would like to put in writing like this moreover – taking time and actual effort to make a very good article… but what can I say… I procrastinate alot and not at all seem to get one thing done.

  14. Thanks for your marvelous posting! I genuinely enjoyed reading it, you are a great author.I will make certain to bookmark your blog and will come back very soon. I want to encourage yourself to continue your great writing, have a nice evening!

  15. Wow! This could be one particular of the most helpful blogs We have ever arrive across on this subject. Actually Excellent. I am also an expert in this topic so I can understand your effort.

  19. I know this if off topic but I’m looking into starting my
    own blog and was curious what all is needed to get set up?
    I’m assuming having a blog like yours would cost a pretty penny?
    I’m not very internet smart so I’m not 100% certain. Any tips or advice would be
    greatly appreciated. Appreciate it

  26. First off I want to say superb blog! I had a quick question which I’d like to ask if you do not mind. I was interested to know how you center yourself and clear your head prior to writing. I have had a difficult time clearing my thoughts in getting my ideas out. I truly do take pleasure in writing however it just seems like the first 10 to 15 minutes tend to be wasted simply just trying to figure out how to begin. Any suggestions or hints? Thanks!

  28. Hello there! This is kind of off topic but I need some advice from an established
    blog. Is it very difficult to set up your own blog?
    I’m not very techincal but I can figure things out
    pretty fast. I’m thinking about setting up my own but I’m not sure where to start.
    Do you have any ideas or suggestions? Appreciate
    it

  30. I would like to use the chance of saying thanks to you for your
    professional guidance I have constantly enjoyed checking out your site.
    We are looking forward to the particular commencement of
    my university research and the complete preparing would never
    have been complete without coming to your website. If I can be of any help to others, I’d personally be glad to help by what I have learned
    from here.

  33. Hey, I think your blog might be having browser compatibility issues.
    When I look at your blog in Safari, it looks fine but when opening in Internet Explorer, it has
    some overlapping. I just wanted to give you a quick heads up!
    Other then that, awesome blog!

  35. I do not know if it’s just me or if everyone else experiencing issues with your site. It seems like some of the written text on your posts are running off the screen. Can someone else please comment and let me know if this is happening to them as well? This could be a issue with my internet browser because I’ve had this happen previously. Kudos

Leave a Reply