The Multinational Monitor


C A P I T A L I Z I N G   O N   T O U R I S T S

Castro Relaxes Trade Barriers

by Josh Martin

HAVANA, Cuba-If the Cuban government has its way, Havana could once again become the chief port city in the Caribbean. It is a tantalizing vision that government officials believe can be realized through a determined effort to improve trade relations with other countries.

In the past five years-despite a tightening of the U.S.-led economic blockade-Cuba has succeeded in meeting part of that goal. It has established important trade links with Latin America, Western Europe, Canada and Japan. Although the country faces a serious debt crisis, foreign trade continues to grow, particularly with Latin American countries with which Cuba has recently re-established diplomatic relations.

The government is particularly eager to make barter arrangements, exchanging sugar, tobacco, rum and nickel for cars, computers and ships. It is also anxious to diversify its economy and begin exporting textiles, shoes and construction materials.

The government is said to be debating a number of domestic economic policy changes, to boost worker productivity and exports by reducing the amount of red tape. Cuban trade and industry officials have openly expressed their high regard for the Hungarian trade system, which permits significant private sector activity, including sophisticated accommodation for the income-producing projects of foreign multinationals.

In dire need of hard currency, the Cuban government officially opened the country up to foreign multinationals in 1982. Under that law, 49 percent foreign ownership in joint ventures with the Cuban government is permitted in selected industries-most notably tourism and export manufacturing. The government hopes that by easing trade restrictions foreign multinationals could beef up the country's lagging tourism industry and encourage economic diversification.

Although the new law has brought in few companies-by 1984 only 22 foreign companies were registered for business in Cuba-it represents a subtle shift in Cuba's attitude toward the West, particularly with regard to tourism, a market shunned for the past 25 years.

The first thing a visitor now notices, once passed customs at Cuba's Jose Marti Airport, is a hard currency Christian Dior boutique accepting Visa and Diners Club International credit cards. A few steps further, outside the small passenger waiting room, a billboard with a comic character greets visitors, recommending they call on Intur, the state-run tourist agency.

Tourists in Cuba-particularly from Canada and Western Europe-have created unusual opportunities for companies which cater to the capitalist elite. Three French fashion houses, Pierre Balmain, Pierre Cardin, and Christian Dior, each have a number of boutiques in Havana and other tourist centers, selling their clothes and accessories. Western transport companies are also active, including such air carriers as Air Canada, Air France, Iberia, KLM and Sabena.

Last year, almost 220,000 foreigners vacationed in Cuba, up from only 70,000 in 1980. Those are welcome numbers in Havana, where tourists bring in over $100 million a year in much needed hard currency. And even here the U.S. dollar is preferred.

It is an ironic symbol of Yankee power. Officially, the United States bars dollar transactions in Cuba, yet the dollar is a global currency Cuba can use to spend elsewhere for the goods needed for economic development.

In the past five years, perhaps as a result of increased tourist traffic, long-time Cuba observers have noted a distinct improvement in the quality and variety of imported consumer goods available in Havana. These include French cars, Japanese cameras, and Latin American food products.

Government officials are quick to point out that Cubans now enjoy one of the highest standards of living in the Third World. There is little unemployment-less than 5 percent, no starvation, and no begging on the streets.

The country enjoys the highest literacy rate-95.3 percent-and life expectancy-74 years-in Latin America. Income levels have risen. Rationing, necessary for 95 percent of all consumer goods in 1970, is now used for less than 25 percent of goods.

But for the average Cuban, shopping is still a matter of long lines and short supplies. Although food and drink appear plentiful, there are shortages of items like soap, toilet paper, pens, cotton shirts and underwear. Large display cases in department stores often hold only flower vases or other decorations.

At official exchange rates [US$1.25 = 1 peso]-the average Cuban earns $200 a month-many basic items are relatively expensive. A plain shirt costs $30 to $50, and canned goods are luxuries.

Since 1962 when Washington imposed an economic blockade of Cuba in response to the Cuban government's nationalization of several U.S. oil companies, American firms have been barred from all direct, and most indirect, trade relations with Cuba. Moreover, Cuba has no formal links with American banks, making conventional trade financing difficult if not impossible.

The U.S. blockade has been painful for the Cubans, limiting foreign trade and domestic economic growth. The National Bank of Cuba estimates that the blockade now costs the country $400 million each year, or about $10 billion since 1959. This represents a substantial economic loss in a country whose Gross Domestic Product last year was only $14.7 billion.

Although relations between the United States and Cuba improved during the 1970s and limited trade was reestablished, the Reagan administration has since taken a more hostile attitude toward the Castro government. In 1982, the Treasury Department announced tight restrictions on travel to Cuba, limiting travel by U.S. citizens to government officials and journalists.

U.S. companies attempting to skirt the economic embargo have been severely punished under the Reagan administration. To expand the embargo, the U.S. government has also pressured its allies to follow its lead in isolating Cuba. Cuba claims sales of nickel-the country's second largest export earner-have been jeopardized because the U.S. government has used its political clout to threaten potential importers. The U.S. government strictly enforces a ban on all imports that use even minimal amounts of Cuban nickel in steel or equipment.

Cuba's dependence on commodity exports has compounded the country's economic problems. In 1982 the price of sugar collapsed-falling from 40 cents per pound to eight cents. The drop, though cushioned by guaranteed prices from the Soviet Union, severely strained the Cuban economy which depends on sugar for 80 percent of its export earnings. Although prices have stabilized since 1982, an increase in the export of sugar from the European Economic Community and the emergence of alternative sweeteners has undermined chances that the price will rebound to its pre-1980 level.

The drop in sugar prices coupled with the fall in world oil prices-Cuba is allowed to re-export Soviet oil for hard currency-has forced the Cuban government to seek a radical rescheduling of short and medium term debt, and a temporary suspension of principal payments on the country's $10 billion foreign debt.

Although Cuba's debt problem is relatively small when compared to the $360 billion owed by the Latin American nations, Castro has emerged as the leading advocate of the Third World debtor nations. At one time calling for a "debtor's strike," Castro now urges the debtor nations to unite for a stronger bargaining position in negotiations with Western banks.

Unable to go to the World Bank or IMF for funds, Cuba has had to seek unconventional trade financing through the Paris Club, a shadow IMF group that facilitates arrangements between banks, other lenders and certain developing countries. Financial arrangements seldom involve dollar transactions-another by-product of the U.S. economic embargo.

Although the country has benefitted from generous lending arrangements provided by the Soviet Union and Eastern Europe, it has borrowed heavily from various Western banks, creating a serious hard-currency debt burden.

Despite debt servicing problems, Western companies are still doing business with Havana. Indeed the Cuban government sees trade as a tool that can help solve its liquidity problems. Many companies successfully operating in Cuba sell goods that will help the country expand its ability to export goods.

Cuban trade officials say the U.S. embargo has had unexpected and mixed results. Trade with Western Europe, Canada and Japan, as well as the Socialist bloc, has offset the loss of U.S. customers who once purchased 70 percent of Cuba's exports. And, as one sales manager for a Dutch-based ship builder observed, the United State's economic blockade "has helped in keeping out our competition-U.S. companies."

Jose Luis Rodriguez, subdirector of Cuba's World Economy Research Institute, one of the country's leading advisory bodies, would like to see an easing of the trade embargo. A move, he says, which could be mutually beneficial.

"There are reasons for us to buy from the U.S., if only because of low transportation costs," Rodriguez said. "That doesn't mean we should go back to the pre-1959 relationship. Trade links should be based on mutual respect and mutual benefits."

Ideally 20 percent of Cuba's external trade would be with "capitalist" countries, up from the current 15 percent, Rodriguez said.

This summer, efforts to stabilize Cuban-American relations suffered yet another set-back, amid recriminations from Washington and Havana, accusing each other of bad faith. The Reagan administration, citing the Cuban role in Angola and Central America, decided to resume and intensify its economic blockade. Negotiations to ease the trade embargo, relax travel restrictions, and reach an agreement on the broadcast rights of each nation into the other's territory, were again halted.

Cuba: Facts on File

Head of State: Dr. Fidel Castro Ruz Capital: Havana

Population: 10 million Life Expectancy: 74 years Infant Mortality: 19/1,000 Literacy: 95.3 percent

Major Imports: Machinery, transport equipment, fuels and foodstuffs

Major Suppliers: 66 percent Soviet Union, 16 percent Eastern Europe, 13 percent Non-communist countries and 3 percent Far East

Major Exports: Sugar, nickel, tobacco, foodstuffs and beverages

Major Markets: 70 percent Soviet Union, 12 percent Eastern Europe, 14 percent Non-communist countries and 4 percent Far East

Number of foreign multinationals registered in Cuba: 22

Per Capita Income: $2,182

Source: Latin America & Caribbean Review 1986, Seventh Edition

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