Rethinking embargo politics: oppurtunities and challenges for the Cuban economy in the post-17D-era

  • Abstract On December 17th 2014, US President Obama and Cuban President Raúl Castro simultaneously announced re-establishment of diplomatic ties after more than 54 years of Cold War hostility. Highlighting its symbolic meaning for Cuba and the United States, state-published Cuban magazine “Temas” was the first to name this historic event ‘17D’. With respect to the emerging changes after 17D, it is the aim of this Bachelor thesis to compile and analyse different expert opinions in a comprehensive manner on recent economic developments in Cuba from December 2014 until July 2015. Thereby, relevant political and economic dimensions are identified, so that the reader raises awareness for the diversity of embargo policies, develops an understanding of Cuba’s economic opportunities and challenges and lastly recognizes the advantages of free trade. The latter is based on David Ricardo’s theory about comparative advantage, in which he explained that free trade between countries is favourable: It leads to specialisation, reduces opportunity costs and increases welfare. By implication, the underlying assumption is that the absence of free trade leads to economic deterioration as well as it raises costs for goods and services. Furthermore, Heckscher and Ohlin add the relevance of specialising on different types of resources according to their abundance when trading with another country. Explanation is provided why countries favour trading with other countries, which are similar and closer rather than the opposite at times of global trade. Cuba’s articipation in regional trade agreements, such as the World Trade Organization (WTO) and the Bolivarian Alternative for the Americas (ALBA), are chosen as examples to underline the former. Embargoes are defined as a foreign policy instrument imposed by governments or international organisations, either unilateral or multilateral that aims to influence another state’s behaviour or policy without military intervention. This being said, under the light of the persistent US embargo imposed on Cuba, the former is formally excluded from international free trade, international organisations (such as the IMF) and is faced with restricted access to foreign markets. Thereby, the embargo (also called ‘blockade’ from the Cuban point of view) represents a core bilateral issue for the Cuban economy as it affects a country or an economy negatively and puts the former at disadvantage with regard to trade and welfare. The author conducted seven expert interviews with former Ambassador Bernd Wulffen, Frank Seifert (advocate and President of Deutsch-Kubanische Juristenvereinigung e.V. in Hamburg, Germany), Felipe Hernández Penton (Universidad de Sancti Spíritus, Cuba), Frank Quesada Espinosa (Universidad de Sancti Spíritus, Cuba), Manfred Nitsch (Freie Universität Berlin, Germany), Bert Hoffmann (GIGA Institute Berlin, Germany), and Jan Hansen (WIWEX GmbH/ Humboldt University Berlin, Germany). The findings are analysed by means of Mayring’s qualitative content analysis and arranged under two major headlines, namely diplomatic and political aspects, as well as an overview about Cuba’s domestic situation after 17D is provided: As for diplomatic and political aspects, the emergence of the embargo at times of the Cold War era IV and an underlying assumption of ‘war logic’ is compared with Obama’s current Cuba policy and observed ambivalent motivating factors on both sides. From a political point of view, the recent reopening of embassies in each other’s capitals, visits from international business delegations, Cuba’s participation at the OAS in Panamá, increasingly unstable trade relations with Cuba’s major trade partner Venezuela, increased lobbyism as well as support from US citizens to further ease the embargo shape this part of the discussion. Opening the embassies is seen as a first step that must happen in order to lift the embargo. The interview partners point out two main issues for the Cuban socialist system after 17D: Firstly, an internal motivation to maintain Communism, and secondly dealing with an emerging pressure on domestic politics. From a rather cynical point of view, Raúl Castro is in a good strategic position with respect to the US foreign policy against Cuba. Either Castro uses the embargo as an excuse to blame the USA for Cuba’s poor economic performance or he deflects criticism from ’home grown’ problems onto the US. No doubt, Cuba is following its own path ideologically, but in order to do so ‘successfully’, structural economic reforms are badly needed in order to develop and progress. Regarding Cuba’s domestic situation after 17D, increased hope for changes in the embargo policy is identified. Yet, Raúl Castro is stressing his intention to stick to socialism, but also reform the economy further. For example, a correlation between the dual currency system, half a million Cubans working as cuentapropistas (i.e. working on one’s own account) and increasing social inequality resulting thereof is assumed. Further, structural problems, such as low productivity, the emergence of a brain drain amongst well-educated Cubans, lacking infrastructure, missing Internet connections, relatively few foreign investment, bureaucratic obstacles, possible restitution claims from seized US companies and other properties are identified as the major issues stressed by the interviewees. Keeping in mind that Cuba’s economic development is mainly state-run, future challenges for integration into international trade is first of all a challenge for the Cuban state rather than for the economy itself. As a net importer, Cuba is not producing much for the domestic market. In order to overcome this deficit, future economic sectors are suggested, mainly in the primary and the tertiary sector: At short sight, focussing on tourism or tourism-related services appears as a profitable source for foreign exchange revenue (in CUC), given the risen numbers of tourists over the past years. Moreover, Cuba’s ‘untouched market’, with a bit more than 11 million inhabitants and many alleged business opportunities appears interesting for investors, but one should not forget that the economic size is rather classified as a small island economy with a lot of protectionist measures. However, another access to the market could be intensified collaboration between academia, such as the project between Universidad de la Habana and the Humboldt University, because Cuba is known for having a ‘good’ education system when compared to other Caribbean islands and Latin America. Referring to the Ricardian law of comparative advantage, it seems reasonable to suggest that Cuba has a comparative advantage in tourism and tourism-related services. Although the centrally planned economy is lacking a lot of essential infrastructure, hotel capacity and equipment, this ‘museum feeling’ seems to be V Cuba’s unique selling proposition, compared to other countries in that hemisphere. Eventually, following Heckscher-Ohlin’s theorem, it is recommended to efficiently allocate ‘aboundant resources’ like Cuba’s well-educated workforce in order to increase welfare and trade. In order to overcome the ‘embargo problem’ of not being able to pay for imports or to secure credit, the author recommends that Cuba should emphasize its intention to become a member of the IMF as soon as the legal framework allows. In order to overcome the trade balance deficit, an adoption of policies that enhances productivity and encourages capital flows based on foreign investment is suggested. Regarding the author’s motivation to write about the Cuban economy, she initially visited Havana in August 2014 and is going to return in September 2015, where she is going to participate at the international summer school for Economics and Management (ISSEM) at Universidad de la Habana,Cuba. By further networking with Cuba experts, the author is aware of the fact that a possible discrepancy between reality in Cuba and personal opinions from the interviewees exists. To a big extent, Cuba’s future depends on a desired lifting of the embargo and in how far surrounding countries may support the country’s economic recovery. As German Foreign Minister Steinmeier remarked during his first visit in Havanna in July 2015: “Opening the door between Cuba and the world” can only be realised if the US embargo is lifted at last. In conclusion, Cubans hope for economic development and policy change has never been so high as seen after 17D, which has an enormous symbolic meaning, not only for Cuba, but also for the USA and the international community. However, one can see that the two countries are still at the beginning of a long process.

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Metadaten
Author:Elena Kühnapfel
URN:urn:nbn:de:kobv:b721-opus4-6709
Document Type:Bachelor Thesis
Language:English
Date of first Publication:2016/05/31
Publishing Institution:Hochschulbibliothek HWR Berlin
Granting Institution:Hochschule für Wirtschaft und Recht Berlin
Release Date:2016/05/31
Page Number:113
Institutes:FB I - Wirtschaftswissenschaften