CUBA-U.S. RELATIONS: DIPLOMATIC MILESTONE, BUT NO PARADIGM SHIFT FOR NOW

EXECUTIVE SUMMARY

The resumption of diplomatic relations between the United States and Cuba marks a paradigm shift for U.S. foreign policy in Latin America, and a historic step in post-revolutionary Havana. As the longstanding foes dating to the Cold War begin a gradual rapprochement, expectations for the newly re-established relationship diverge. While the Obama administration’s diplomatic achievement will be lauded for years to come, enthusiasm at the Castros’ has remained tepid, and a major political and economic shift will take much longer to materialise. If Cuba is to regain the disproportionate influence it once possessed in the region, the island must embark on an ambitious political and economic project that would propel it once again as a promising and unique country at a time when domestic politics dominate the Latin American and U.S. agenda.

Introduction

In 1959, Fidel Castro’s revolutionary forces seized power in Cuba, successfully overthrowing the regime of Fulgencio Bastista and quickly imposing a dramatic shift in the country’s politics and economics. The Cuban Revolution has been a landmark event for the political left in Latin America and worldwide. Its ideals of a truly sovereign state with a communist system, independent from U.S. intervention have been hailed and chanted ever since by left-leaning movements. Echoes of the revolution’s motivations sparked similar upheavals in Latin American countries over the subsequent decades. However, these movements were ephemeral and left-leaning governments have risen and succumbed, while the Castros retain undisputed control of Cuba.

Fidel Castro was able to maintain control of the island due to various factors. During the Cold War, Soviet economic support of Cuba’s industries and products helped maintain the economy, easing pressure on the Castro regime caused by the U.S. trade embargo. Furthermore, the Soviet Union solved Castro’s greatest problem: U.S. intervention. The deterrence produced by the Soviet-Cuban alliance offered the island a high degree of manoeuvre in security matters, the pinnacle of which was the 1962 Cuban Missile Crisis, possibly the closest the world has ever been to a nuclear confrontation. Although the U.S. Central Intelligence Agency (CIA) has repeatedly attempted to infiltrate the politics of the island through unorthodox missions, the Cuban regime and its structures remain intact.

With the dissolution of the Soviet Union and the abrupt end of the Cold War, key aspects of the Cuban question remained unsolved in U.S. foreign policy, such as the continuity of the trade embargo and how to manage the fading security threat of Cuba in a post-Soviet world order. Somewhat surprisingly, U.S.-imposed sanctions and travel restrictions were toughened in the 1990s, mainly by the Cuba Democracy Act of 1992, and the Helms-Burton Act of 1996. The latter document stated that sanctions were imposed “for support of a transition government leading to a democratically elected government in Cuba” (Congress of the United States of America, 1996). The view during this period was that as Soviet support came to a halt, the Cuban economy would descend into chaos and with it, Havana’s political regime. Therefore, a stark stance towards the Castro government was fundamental, and harsh conditions were enforced. The U.S. explicitly encouraged other countries to “restrict their trade and credit relations with Cuba” (U.S. Department of Treasury, 1992). However, these measures failed to deliver the political regime change Washington expected. After 9/11, U.S. foreign policy focused intensely on interventions in Afghanistan and Iraq. Consequently, attention to Cuba faded considerably, and a frigid status quo set in.

Since Raúl Castro took office as President of Cuba in 2008, economic measures attempting to liberalise and stimulate key sectors of the economy have been announced, but the initial hype surrounding the new president has faded amid a slow pace of economic reform. Meanwhile, U.S. President Barack Obama’s election that same year was accompanied by promising changes. These included “easing family travel and remittance restrictions, expanding cultural and academic exchanges, and resuming talks on migration, drug trafficking and postal services” (Hirschfeld; Barker, 2015). However, the 2009 arrest of an American subcontractor brought initial talks between the two countries to a sudden halt, leading to a slow process of quid pro quo demands that culminated in 2015. However emblematic the re- establishment of diplomatic relations is, its short-term geopolitical effects will be limited. Decades of economic sanctions have left the Cuban economy chronically underdeveloped. The once diligent and stark leadership of Fidel Castro is lacking, and his political ideology practically buried. Once-powerful global and regional allies have disappeared, or face domestic turmoil. Havana’s once disproportionate influence in the region has diminished, and bilateral relations between the island and its major partners are more cordial and symbolic than buoyant and prosperous. The resumption of Cuba- U.S. relations should be regarded as an opportunity to re-integrate Havana into Latin America. However, the island’s current economic feebleness will hamper its ambitions to become a game-changer in the regional configuration vis-à-vis economic heavyweights like Brazil or Mexico. In order to do so, major economic and key political prospects need to materialise. Unless the Cuban regime acknowledges these realities, the island will continue to be an exotic and out-of-date refuge of glories past.

Rapprochement: The negotiations

After securing re-election in 2012, President Obama considered the feasibility of bringing about a fundamental change in the U.S.-Cuba relationship. The previous Democratic Presidential administrations of Jimmy Carter and Bill Clinton had failed to deliver any major shift. A rapprochement with Cuba would not only be a major foreign policy breakthrough for Obama, but also a game-changer in U.S. relations with Latin America and an outstanding diplomatic achievement. 

However, a renewal of talks faced major obstacles. In 2009, Alan Gross, a U.S. Agency for International Development (USAID) subcontractor was arrested for delivering communications equipment to Jewish communities in Havana. Cuban authorities stated that the arrest was carried out in order to protect the country’s sovereignty, and alleged that Gross was implementing a covert plan to destabilise the Cuban government. American officials quickly condemned the arrest and established his release as a prerequisite for any future exchange between Washington and Havana. Gross’s release was rejected by Cuban officials, who labelled it as a unilateral American demand. Instead, Havana brought a sensitive issue to the negotiating table: “the Cuban Five”.

In 2001, five Cubans were convicted in southern Florida for “infiltrating military installations and spying on the exile community” (Whitefield, 2014). These Cuban spies were elevated to hero status on the island, but as of 2014, three remained in jail. Interest in a prisoner swap soared on both sides, leading to a long negotiating process.

Secret talks between Cuban and American officials had been held in Ottawa since 2013. Vatican involvement helped prevent a collapse in the negotiations. Cardinal Jaime Ortega, Archbishop of Havana, raised the issue with Pope Francis. The Pope followed up by corresponding with Raúl Castro and Barack Obama, calling on them to “resolve humanitarian questions of common interest, including the situation of certain prisoners, in order to initiate a new phase in relations” (Hooper, 2015). A dramatic breakthrough occurred when Eric Holder, then U.S. attorney general, agreed to support the commutation of sentences of the three remaining members of the Cuban Five.

As Gross’s mental and physical health deteriorated, the prisoner swap became urgent. A deal was finally struck in December 2014, in which Roland Sarraff Trujillo, a former U.S. intelligence asset imprisoned in Havana for almost twenty years, was to be released in exchange for the three jailed members of the Cuban Five. Moreover, Alan Gross was to be released on humanitarian grounds since his arrest was still considered unjust by American officials.

The Vatican hosted American and Cuban delegations, where proposals to re-establish diplomatic ties were presented. On December 17, 2014, However, a renewal of talks faced major obstacles. In 2009, Alan Gross, a U.S. Agency for International Development (USAID) subcontractor was arrested for delivering communications equipment to Jewish communities in Havana. Cuban authorities stated that the arrest was carried out in order to protect the country’s sovereignty, and alleged that Gross was implementing a covert plan to destabilise the Cuban government. American officials quickly condemned the arrest and established his release as a prerequisite for any future exchange Cuba and the United States announced that they would restore relations, and on July 20, 2015, the two countries reopened their respective embassies in Washington and Havana.

The Deal

An ease on travel and trade restrictions was announced ahead of the formal restoration of ties, these will allow American nationals to visit Cuba without a government license and will allow American airline carriers to fly in and out of the country.

Additional measures to be enforced in the near future include; American travellers will be able to use credit and debit cards, insurance companies will be able to provide services in Cuba to American nationals, U.S. companies will be allowed to invest in certain Cuban businesses, and a partnership between a Florida-based bank and Cuba’s Banco Internacional de Comercio S.A. (BICSA) will allow financial transactions between the two countries.

However, the bulk of economic sanctions will remain in place, and there is widespread scepticism that the U.S. Congress will vote to lift the embargo in the short term. Republican and Democratic members of Congress have denounced calls to repeal sanctions, with Republicans claiming that the deal is “the latest foreign policy misstep” and “part of a long record of coddling dictators and tyrants that this administration has established” (Politico, 2015). Meanwhile, Cuba has maintained that cooperation will be fostered but “different conceptions over diverse topics and profound differences remain” (Granma, 2015).

U.S. Secretary of State John Kerry and Cuban Foreign Relations Minister Bruno Rodríguez announced the establishment of a bilateral commission to address the most pressing topics of the newly re-established relations, particularly those of international law, national sovereignty, democracy, and human rights.

Economic repercussions

The newly loosened sanctions will, in the best-case scenario, boost Cuba’s economy in the short term, albeit modestly. American companies, especially those in the tourism sector, will be eager to enter the untapped Cuban market although the still restrictive environment will limit their potential. American tourism to Cuba is set to rise by 17% in 2015 (The Economist, 2015) as a result of the deal. A wave of European and Latin American companies are keen to invest in Cuba since these entities enjoy fewer restrictions in doing business on the island than their American counterparts.

Ordinary Cubans will benefit from these changes. A greater number of Cubans working outside the large government sector, currently at 10% of the workforce, will increase their incomes through joining guest- hosting and other private tourism services. Foreign exchange is set to grow by around $500 million USD this year, representing 1% of Cuba’s GDP. Overall, the economy is set to grow 4% in 2015, up from 1.3% in 2014 (The Economist, 2015).

However, Cuban economic hurdles will remain. Food shortages are not rare, and it is unclear how Havana will cope with rising demand from tourists given the country’s limited supply of some basic staples. This likely will push prices of basic goods higher, decreasing purchasing power for most Cubans, and leading to higher inequality between public and private sector workers in an officially communist country. The government has taken steps to tackle this situation by increasing wages of certain state workers, but this has propelled the budget deficit to 6% of GDP (The Economist, 2015).

Going further?

The restoration of diplomatic ties slowly will shape both countries’ internal perceptions and political possibilities, although an initially wary approach is likely. The American public has enthusiastically supported the resumption of the Cuban relationship; with 73 per cent of Americans backing the diplomatic move, while 72 per cent favour lifting the economic embargo (Pew Research Center, 2015); the current U.S. political landscape hardly will allow for making bold moves. The Republican-dominated Congress most likely will veto a lift of economic sanctions unless the Cuban regime is willing to make significant concessions. However, an eventual reconfiguration of Congress in the 2016 elections could produce a policy shift.

Meanwhile, officials in Havana are trying meticulously to bring about much-needed economic reform without altering social and political stability, both paramount for the Communist Party’s survival. The Castro regime has made clear that the country is not willing to undergo a democratic transition in exchange for an eventual lift of the embargo. After all, Cuba has endured decades of varying degrees of economic hardship while maintaining the social and political status quo, the regime’s quintessential goal. The Cuban government has pledged to implement some key changes regarded as minor steps designed to ensure greater civil liberties, such as providing Internet services and a looser mobility policy. However, these will take place in a strictly controlled environment, with government dissidents closely watched.

The road ahead

It’s the economy

Since 2008, Raúl Castro’s gradual liberalisation agenda has increased interest of doing business in Cuba. However, a cumbersome bureaucracy remains a major obstacle. An example of this is Mariel, a port and free trade zone, which has received almost 300 enquiries from foreign investors, but only a dismal few have turned into actual investments (Rathbone, 2015). Unless Cuba takes bold steps to facilitate the entry of much needed foreign investment into the country, an unlikely prospect in the short term, initial enthusiasm for the island will fade gradually as uncertainty and hurdles plague the ease of doing business.

Furthermore, Cuba will need to take decisive measures to reconcile its two currencies, Cuban Pesos, and Convertible Pesos, without unleashing a sharp devaluation that could be catastrophic for heavily subsidised industries. So far, the Cuban government has been hesitant to act boldly, fearing a currency crisis could shatter the fragile economy.

In the longer term, an eventual lift of the U.S. embargo, which some analysts think is possible, will require both countries to settle disputed claims, such as American entitlements for nationalised assets worth up to $7 billion USD at the current exchange rate (Neyfakh, 2014). It is worth noting that despite the embargo, the U.S. is Cuba’s fifth largest trading partner, with American farming and agricultural products the most sought after in the Cuban market (The Economist, 2015).

Economic uncertainties will continue to loom over Havana even as it embraces more market-friendly policies. Unlike other centralised regimes worldwide, Cuba’s small population and internal market make it less attractive for risky investments. Although economic prospects for the next few years may look promising, the economic transformation that the country requires will be difficult to achieve, and will take long to materialise. This likely will continue to undermine Cuba’s influence in Latin America and abroad.

Political change?

Although scepticism has surrounded the newly re-established relationship, promising signs lie ahead. Raúl Castro has stated he will step down in 2018 (Cave, 2013). Further decentralising and liberal measures are expected when Cuba’s Communist Party meets in 2016 for its Seventh Congress. Castro’s eventual exit suggests that some form of electoral process will be organised to choose his successor. Some point to Vice-President Miguel Díaz-Canel as the most likely candidate, although prospects of major political reform in the event of a Díaz-Canel mandate are unclear given his long history of cooperation with the Castros.

Meanwhile, U.S. public opinion could help shape Washington’s Cuba policy. An overwhelming majority of Americans favour lifting an embargo that has been regarded as unsuccessful in pressuring the Castro government to embrace human rights and democracy. Moreover, a surprising 59% of Republicans now support scrapping the sanctions (Pew Research Center, 2015).

The symbiosis of these developments could serve as a catalyst for fundamental change in the two countries. With increased diplomatic exchanges, suspicion between Havana and Washington eventually will diminish and cooperation in priority topics may follow.

Divisive issues such as; the Guantanamo military base, and Cuba’s systematic repression certainly will hamper the process of forging a more integrated relationship in the short term. However, internal forces and changes eventually will dictate the direction each political regime is willing to take and to what extent it is willing to cede to its counterpart’s demands.

What it means for Latin America

Latin American governments have lauded the Cuban-American deal, from left-leaning Caracas to Mexico City the overall reception has been one of optimism and calls for mutual respect.

Despite Cuba’s geographical isolation and small size compared to most Latin American countries, the island has exerted disproportionate influence in the region. Cuban intervention and training of left- leaning guerrillas in the 1970s and 1980s influenced upheavals in Central America and even as far as Angola, leading to Havana’s inclusion in the U.S. State Department’s list of “State Sponsors of Terrorism” in 1982. As Soviet support disappeared, Cuba remained in relative isolation in Latin America until the emergence of leftist governments in Venezuela, Ecuador, Bolivia, and Nicaragua. All of these states regard Cuba with particular respect, and include its political achievements in their rhetoric. These alliances have benefitted the island in the form of economic aid and cheap oil.

However, the renewal of ties comes at a sensitive timing for Cuba’s greatest ally: Venezuela. Nicolás Maduro’s regime in Caracas is in the midst of major economic turmoil and political instability. Venezuela’s anti- imperialist rhetoric towards the United States will be met with increasing scepticism given Cuba’s restoration of ties with the U.S. Moreover, it is unclear how much longer the Venezuelan government can afford to subsidise oil bound for Cuba given its dire finances.

Cuba’s economic dependence on Venezuela has increased since Hugo Chávez took office in 1998. Trade with Venezuela represented almost 21% of Cuba’s GDP in 2012, while its oil imports make up 61 per cent of Cuba’s total oil supply. In return, Cuba provides healthcare workers, security advisors, and other qualified personnel to Caracas (Piccone; Trinkunas, 2014).

The Cuban-Venezuelan alliance remained buoyant during the Fidel Castro-Hugo Chavez period. However, the countries have implemented divergent economic and political policies, which suggest that the pinnacle of this alliance has been reached. While the Cuban government has taken gradual measures towards increased liberalisation, the Venezuelan economy has become increasingly statist. Economic prospects on both sides diverge- Venezuela’s economy is in a deep recession, and has the highest inflation rate in the world. By contrast, Cuba’s economy has accelerated, albeit modestly, and growth is expected in coming years. The divergent performance of the countries’ economies suggests that the viability of the alliance is at risk, especially given the major benefits afforded to Cuba while Venezuela struggles.

Increased diversification of Cuba’s economy through foreign direct investment from the United States and abroad will lessen its dependence on Caracas, and risks further isolating the Maduro government. Although Venezuela is not as economically dependent on Cuba as the island is on Caracas, Maduro’s political project of statist measures and perennial anti- American rhetoric can suffer from its greatest ideological ally’s move towards market friendly policies and an American rapprochement. However, the Cuban-American deal is unlikely to affect the agendas of other leftist governments in Latin America. Given the bleak economic environment in the region, economic heavyweights like Brazil are struggling with increased domestic pressures to reboot its economy, thereby limiting their involvement in the matter.

Latin American governments will continue to support the strengthening of Cuban-American relations, which is regarded as a victory for the region. However, the regional repercussions are limited to a symbolic and an ideological shift, rather than reflecting a change in power relations between Washington and Havana.

Nonetheless, Latin American governments may now push towards inclusion of Cuba in continental international institutions, such as the Organisation of American States, and the Inter-American Development Bank. The Cuban inclusion into these Washington-based organisations will confirm Latin America’s will to start a new era in continental relations as well as Cuba’s determination to end decades of diplomatic isolation.

CONCLUSIONS FOR POLICY

The restoration of ties is a historic moment for both countries. For decades, Cuba was the United States’ perpetual Latin American foe, while Havana has regarded Washington as a mighty and dangerous enemy that must be kept at bay.

While Cuba’s communist regime and political apparatus show no encouraging signs of altering significantly, American approval of increased trade and ties with the island is soaring. The restoration of ties is the latest diplomacy triumph for the Obama administration, but true normalisation of ties will require continuity and coherent policies.

Given Cuba’s small economy and its diminished role in regional foreign affairs, the geopolitical effects of the deal will be limited. The exception is Venezuela, where a Cuban-American rapprochement will undermine the credibility of Maduro’s anti- American rhetoric and risks further isolating Caracas. Economic and political integration are the most likely outcomes of the newly re-established ties, specifically in Washington-based continental organisations.

If proper policies are correctly implemented, Cuba has much to gain from increased interaction with the United States and an eventual scrapping of the embargo. The country enjoys a highly qualified working population, high levels of education, and arguably the best healthcare system in the region. These strengths place Cuba in an unusually advantageous position vis-à-vis most Latin American countries. As foreign economic interest increases amid a gradual economic transition, Cuba must ensure that its citizens enjoy the bulk of these economic gains. Therefore, the regime should undertake key reforms that gradually open the economy, and translate into economic growth. Domestic and international investment is imperative. While increased tax revenues from a growing economy will allow the Cuban regime to maintain its welfare programs, the government must also invest heavily in national industries to make them more competitive and productive and prevent them from collapsing on the eve of increased market openness. Although an overt capitalist transition in Cuba is unlikely, the regime must ensure that the blatant mistakes of market transitions elsewhere are averted. Human rights and political pluralism will remain a demand from Western governments, but the Cuban regime shows few signs of ceding. However, if the country’s economic development gathers momentum, a social reconfiguration will take place eventually. This will press the regime into allowing pluralism and increased rights as its economy becomes more competitive and its internal market more interconnected.

A true paradigm change will come only if Cuba is successful in implementing a shift from its centrally planned economy to a market-friendly, socialist system. Cuba’s ideological magnetism faded with the dissolution of the Soviet Union and only regained some impetus with the emergence of Chávez and other leftist Latin American figures. However, as Venezuela descends into an economic abyss, Cuba will regain its regional appeal only by implementing its principles successfully while giving up its economic and political isolation.

Profound challenges remain, such as a persistent reluctance, mainly from the Republican Party, to fully normalise ties unless Cuba commits to free and fair elections and to improving its dismal human rights record. Moreover, political uncertainty in Havana over Castro’s successor in 2018 will keep investors and policy makers wary.

Restoring diplomatic relations was a major leap forward, but a frail Cuban economy impedes the island from projecting power and sending shock waves in the region. If Cuba wants to regain the ideological prowess it once possessed it will have to reshape its internal structures successfully and to embark on a viable political and social project for other Latin American countries to admire.