Don’t expect rapid change

Don't expect rapid change
BY JERRY HAAR HAARJ@FIU.EDU
01/06/2015 6:37 PM 01/06/2015 6:37 PM

Curb your enthusiasm. That's my advice, inspired by the HBO series of
the same name, for wishful thinkers across the globe who have manifested
unbridled euphoria ever since President Obama announced the
normalization of diplomatic ties with Cuba.

It is just a matter of time now before the embargo will be lifted in its
entirety, they conjecture. Not likely.

Within hours of the president's announcement, Raúl Castro asserted that
the country will continue to adhere to its socialist economic model and
political system. The other slap in the face to President Obama came
just before the new year when Cuba arrested and detained activists who
planned to take up a microphone and individually share their thoughts
and concerns about Cuba's future.

Recognizably, embargoes make a strong moral statement, but economically
they do not work. They are porous. Only blockades work.

However, the notion that normalizing diplomatic relations with an
authoritarian nation and removing trade and travel embargoes will hasten
the fall of Castro's communist regime and lead to a democratic
government is naive and fallacious.

The expectation that economic liberalization leads to political
liberalization is unfounded historically. Only the opposite is true.
Authoritarian regimes such as China, Vietnam, Iran, Venezuela and
Zimbabwe are all far more capitalistic than Cuba was during its most
"liberal" economic period (2011-2013); the prospects of democracy coming
to those five countries anytime soon are nil.

Be that as it may, it is gratifying to see that U.S.-Cuban relations are
being elevated to a higher priority. Therefore it is worth considering
the implications of both the normalization accord and the eventual
removal of the embargo in the three key areas of the agreement —
remittances, travel and trade form the centerpiece.

Remittances and financial services: Under the new agreement, remittance
levels 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 injection of capital into the Cuban
economy would be huge. The Cuban government would win big, also, since
it charges a "processing fee" of 10 percent on all remittances. U.S.
financial institutions will be permitted to open accounts at Cuban
financial institutions to expedite authorized transactions, and U.S.
credit and debit cards will be permitted by travelers to Cuba. It
remains to be seen how large an impact this change will have and the
time required for implementation. With post-embargo travel permitted for
all, the positive effects would be significant.

Tourism: New rules still prohibit U.S. citizens from traveling to Cuba,
except for those who fall within the 12 existing categories; however,
those permitted to do so will no longer need to seek formal approval
from Treasury's Office of Foreign Assets Control. Moreover, the new
agreement authorizes correspondent banking relationships between U.S.
and Cuban financial institutions along with the use of credit and debit
cards for U.S. travelers. Were the embargo to be lifted, the
International Monetary Fund 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 United States and Cuba do have a trade relationship; however,
it is restricted primarily to agricultural commodities and products,
medicines and healthcare products. Under the new accord, 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. However, under the new agreement and in a post-embargo
environment, who is going to finance trade with Cuba and under what
terms? Without U.S government guarantees for trade financing and
insurance, neither banks nor companies will not extend credit.

Only Congress can nullify the Helms-Burton Act's embargo provisions; and
that will require restitution for confiscated property, a Castro-less
government and a peaceful transition to representative democracy as
fundamental requirements.

That will not occur anytime soon. In the meantime, we should curb our
enthusiasm.

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.

Source: Don't expect rapid change | The Miami Herald -
http://www.miamiherald.com/opinion/op-ed/article5517480.html