A Look at Cuba Before Normalization Takes Hold

HAVANA, CUBA: In light of the historic thaw in US Cuban relations announced on December 17^th, three items stand out from a four-day visit to Havana:  1/ Cuba’s economy is a disaster in desperate need of reform. 2/ The communist party retains its tight grip and political change is a long way off. 3/It is likely to be months before normalized bi-lateral relations produce real change.

The Economy

 Havana is a ruin, a surreal time warp, exemplified by ancient cars and trucks from before the 1959 revolution. For 50 years there’s been no imports of cars for private use.  Houses and apartment buildings are run down with their occupants not having cash for needed repairs. 

Amazingly, most Cubans subsist on salaries of $20 per month.  Those with more are communist bureaucrats, workers in tourism with access to hard currency, and those receiving remittances from abroad.

Cuba’s economy is dead in the water with barely any advance in gdp. The country is nearly bankrupt with no access to credit. There are frequent power outages. Unemployment is kept low because jobs are provided in a bloated and inefficient public sector where four out of five Cubans work. Inflation is suppressed. There are chronic shortages. Basic foodstuffs are rationed. Ninety percent of Cubans don’t own a car.

Despite the negatives, reforms unveiled in 2011 by President Raul Castro have allowed a small but growing private sector to take hold. The reforms permit Cubans to buy and sell their apartments, 84% of which are privately owned. But while an incipient real estate market exists, it is stymied by an absence of mortgage credit.

Similarly, Cubans can buy and sell their privately owned vehicles. But contrary to expectations liberalization has boosted car prices. Unbelievably, the asking price on the refurbished 1956 Chevrolet pictured below is well over $100,000. Classic cars can’t be exported, meaning that US-based collectors won’t be able to import these treasures anytime soon.

Restored 1956 Chevrolet on Havana’s Prado

Cuba’s economy is further distorted by there being two currencies, both of which circulate. The government says unifying the exchange rate is a priority but that is unlikely to occur until Cuba obtains access to hard currency. Look for early moves for Havana to rejoin the International Monetary Fund.

A Closed Political System

Cuba remains a one-party communist state with little prospect of liberalization. The media is tightly controlled and state-owned newspapers are mostly propaganda. English language newspapers from abroad are banned.

This past week Cuba released more of the 53 political prisoners it promised to liberate as part of the December accord between presidents Obama and Castro. Thirty-six are now free, a move the White House calls “a tangible sign that Cuba is keeping its word.”

As part of the 2011 reforms Cubans can have cell phones, stay in hotels previously reserved for tourists, use the internet, and travel abroad. But because most people don’t have disposable income, the new freedoms mainly help the better off.

Contrary to what many outsiders want to believe, Fidel, his brother Raul and the revolution remain popular, although independent surveys don’t exist. Cubans are proud of their country’s achievements in education and health care, which is free to all.

Change from Normalization May be Slow

 Every Cuban of the two-dozen or so I spoke with favors normalization. Some were deeply emotional, saying they can’t wait for Americans to arrive in significant numbers. The lives of ordinary people are bound to improve with the lifting of the embargo.

But while Cubans and Americans are eager for visits, important restrictions remain. Despite President Obama’s announcement, it is still not possible to use US-issued credit cards in Cuba. Likewise getting email on dial up internet servers can be difficult.  I was unable to access my Google and Yahoo email accounts, getting instead a prompt saying, “access is denied in the country you’re in.” There is disagreement whether these measures can be lifted by executive order or must await congressional action.

Bob Corker, the new chairman of the Senate Foreign Relations Committee, said last week that the embargo has been ineffective, a clear sign that he may favor its repeal. Both the Chamber of Commerce and leading agricultural organizations favor normalization. Congressional hearings are already planned and a top state department official is visiting Havana this month to advance the normalization process.

A Cuban businessman, who declines being identified, told me that Cuba urgently requires reform.  “We’ve created a system,” he said, “that we can’t control.”  The only way for us to have any prospect of economic improvement, he continued, is to open up and build a market economy.

Last May Washington’s Peterson Institute for International Economics released a study on the Cuban economy.  In it researcher Gary Hufbauer concluded “that once the tectonic plates shift” there will clear benefits for both Cuba and the United States.  The tectonic plates have shifted and from my perspective Hufbauer is spot on.#

Barry D. Wood writes often about economic transitions. He last visited Cuba 11 years ago. This piece appeared first on market watch.com.