Margolis: New US sanctions on Cuba have a silver lining

Mac Margolis

Cuban socialism has survived exploding cigars, Keystone counter-revolutionaries and the collapse of the Soviet Union. So, however much pain the Trump administration means to exact upon the island economy through new sanctions, the imminent demise of the autocrats in Havana seems unlikely.

No doubt, the recent US-imposed measures, including a ban on cruises, restrictions on remittances and a green light for aggrieved former Cuban businesses to sue for reparations over seized property, will hurt. Tourism, Cuba’s second biggest source of foreign exchange, is expected to drop 8.5% this year, with international arrivals down 12% in the first quarter of 2019.

That’s a blow for a country already reeling from the crisis in Venezuela, which has provided cut-rate oil that would otherwise eat up even more foreign exchange. Yet if Havana takes the right cues, the US-enhanced crisis could spur a makeover that the island economy sorely needs.

The end of Soviet largesse in the early 1990s, which sent Cuban gross domestic tumbling by a third, led Fidel Castro to grant more autonomy to government enterprise, encourage self-employment and slash lavish state subsidies. But, once Cuba started to recover, that window of disruptive liberty during the so-called Special Period was closed.

Raul Castro carried on the tradition with a decade of reform that promoted decentralisation while retaining control of the economy. Now President Miguel Diaz-Canel has his own emergency to manage, and his first instincts were to look in the rear view with a call to “strengthen the socialist state enterprise, which is our biggest productive force”.

Cuba’s emerging private sector in tourism has shown vibrant growth. Foreign investment has gained a foothold, thanks in part to new regulations. Domestic oil production has tripled since 1989, slashing by half Cuba’s nearly total dependence on imported Venezuelan crude, reported economist Pavel Vidal.

Banking is on more solid footing, communications have improved and a steady flow of remittances irrigates the economy.

Two domestic measures Cuba could embrace are the restructuring of the bloated state sector and a monetary reform to get rid of the dual currency system – one dollar-pegged peso for Cubans, another overvalued peso for public sector business – which distorts prices and props up inefficient state companies.

Cuba has licensed tens of thousands of private business, including restaurants, stores and inns, and allowed foreign providers such as European hotel operators and Airbnb. But it virtually halted new licences last year. The number of authorised businesses fell to 584,477 in the first quarter, down 1.5% from last August.

Ride-hailing and Airbnb may not be what Cuba’s rebels had in mind when they claimed the Pearl of the Antilles for socialism. Given the chance, however, the island’s new enterprising disruptors offer a chance to save the revolution from itself.

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of ‘The Last New World: The Conquest of the Amazon Frontier’. © 2019, Bloomberg Opinion