Short Report on Wilton Park Conference 689
CUBA:
FUTURE PROSPECTS AND
INTEGRATION INTO THE WESTERN HEMISPHERE
Friday 18 – Sunday 20 October 2002
WILTON PARK CONFERENCE CENTRE
Wiston House, Steyning, West Sussex BN44 3DZ, United Kingdom
Co-sponsored by the CUBA POLICY FOUNDATION
11 Dupont Circle, NW, Suite 900, Washington, DC 20036, United States
For conference participants, click here.
Wilton
Park Reports are brief summaries of the main points and conclusions of
conferences. The reports reflect
rapporteurs' personal interpretations of the proceedings; as such they do not
constitute any institutional policy of Wilton Park nor of those organisations
associated with the conference, and nor do they necessarily represent the views
of rapporteurs.
Introduction
1. Cuba
has changed significantly since 1989, not least, through economic reforms and
is expected to change further in the coming decade. In the context of
continuing global integration and liberalisation Cuba faces many economic and
political challenges in the coming years. Many admire Cuba’s domestic
achievements in the field of education and health, but some question the
sustainability of Cuba's socialist model of development and its ability to
continue to deliver social achievements on its current economic path. Domestic policies are likely to be
increasingly driven by external factors as Cuba continues to develop relations
with its neighbours and the wider world.
How these relationships will develop over the coming decade is
unpredictable, not least given so many variables, for example in relation to
the US (and the potential for the shifting of current policies relating to the
existing embargo), whether Cuba will be more integrated into the Caribbean
region, how Cuba will fare within the wider Americas once a Free Trade Area of
the Americas (FTAA) comes into existence and how relations with the European
Union (EU) will develop.
Economic Prospects
2. After
1989, when Cuba was faced with the ending of trade and economic assistance from
the former Soviet Union and other socialist bloc countries, and subsequently
entered what was called the “Special Period”, the country experienced a 35%
drop in GDP between 1989 and 1993 and 85% loss of its commercial trade. Annual GDP growth has risen by 4.1% since 1993 but some argue that
GDP growth is bound to increase faster after a period of sustained or steep
loss, and it is therefore not very meaningful to measure it against the GDP
growth of other Latin-American countries.
3. The
structural economic reforms undertaken by the Cuban government in recent years
include: the modernisation of the
telecom/banking sectors; the creation of duty-free zones; tax reforms; legalisation
of the dollar; restructuring of land ownership; the decentralization of foreign
trade and development of Joint Ventures for important export products and
limited self-employment opportunities (but not for professionals). Cuba
believes that these reforms, which have contributed to increased trade, are
part of a coherent socialist economic model which makes partial use of market
economy mechanisms. Some argue that the
reforms have been piecemeal; and more
needs to be done, to create a more diversified, entrepreneurial and
export-driven economy which continues to move away from a traditional
plantation/agricultural economy to one based on services, technology and
remittances, as experienced by most Caribbean economies.
4. There
is recognition in Cuba of the continued economic difficulties the country faces
and the need to find ways to overcome them.
Stress is made by the Cuban government of the current economic goals,
which include:
· Developing service industries (which generate more than 50% of Cuba’s income), especially the tourist industry as “the driving engine”– potentially increasing the number of rooms from current capacity of 38,000 to 175,000;
· Increasing nickel and cobalt production;
· Increasing substantially the extraction of crude oil and natural gas in order to reach the target of generating 90% of the country’s electricity through national resources by the end of 2002;
· Developing new bio-technology and medical products;
· Expanding telecommunications and developing Information Technologies;
· Increasing food production, working towards self-sufficiency;
· Restructuring the sugar industry – halving the number of mills while maintaining existing export levels, thus freeing up land to increase food production.
5. Challenges discussed include:
· How to encourage domestic business, not least given the lack of authorisation for the private sector or the creation of small enterprises. Many would argue that giving entrepreneurs more economic opportunities (including direct employment) could be extremely beneficial to the Cuban economy;
· How to diversify agricultural production both to increase food production and export; new products such as citrus, as developed in Brazil, could be an option;
· How to compete internationally, gaining market access; there is a need for additional changes to export structures;
· Increasing tourism, which would demand significant new investment in infrastructure and critical assessment of the environmental impact. There is concern about big consortia running integrated tourist structures and reducing local profits. One solution, as followed by Spain, is to allow greater private sector involvement in the tourist industry;
· The need to increase investment in infrastructure, including in housing;
· The need for further progress to modernise the tax code and control government expenditure through a transparent budgetary process;
· How to use Foreign Direct Investment (FDI) effectively, which Cuba recognises can assist structural reforms through new technology/management techniques etc. (as experienced for example in nickel and cobalt extraction);
· What to do with unviable state enterprises, with closure an option;
· Sustaining development of the energy sector to move towards self-sufficiency;
· How to increase high-tech exports, dependent on well-educated low-cost labour. Cuba could consider the development of call centres, for example, to capture the Hispanic market, or back-office operations;
· An aging population, unlike its Caribbean neighbours but shared with many Western countries;
· How to use annual remittances (amounting to an estimated $800m pa) more productively. A strong entrepreneurial group of Cuban diaspora would be willing to invest if given the opportunity;
· The long-term problem of the dual economy and growing dollarisation, as experienced by other Caribbean and Central American countries. The question for Cuba is how it can avoid full dollarisation in a process that is difficult to control.
6. Cuba is proud of its social achievements which are recognised globally including: the highest life expectancy in Latin America and the Caribbean; the lowest infant mortality rate; the highest number of doctors per head of population with advanced medical treatment available to all; education for all (including the highest number of teachers, every child reaching fifth grade and the introduction of computers into all primary schools). The key question for Cuba is how it can continue to pay for and maintain such achievements in the longer term. How can Cuba balance its desire to retain its planned economy when operating in a global economy which is increasingly market-driven?
7. Some question the sustainability of the current socialist model and its ability to deliver the desired public goods. They suggest that Cuba has not witnessed real economic growth, merely recovery, in recent years and that it cannot sustain any form of long-term growth without a significantly increased rate of investment. The question is where such investment could come from. Can the State provide such investment? Is Cuba attractive enough for FDI over a long-term period in comparison to other countries seeking investment? (Cuba is considered a high-risk location for investment due to the US embargo, the Helms-Burton Act and the limited domestic market.) Can the domestic private sector, including remittances perform this role? Since the latter two depend on external finance to support the socialist model; is this sustainable? And will the increasing involvement of foreign economic interests in Cuba create its own dynamic for change?
8. In addition to questions about sustainability it is recognised that a service economy depends on confidence. There is concern about possible shocks, for example of a global economic slowdown leading to a reduction in remittances, FDI, tourism, and a reduced demand for exports, or from hurricanes (for example Michelle in 2001 was the worst hurricane to hit Cuba for 50 years, affecting almost half of the country). One bad headline could knock confidence about Cuba significantly.
9. In order for Cuba to prosper there are calls for Cuba to create policies for a more market-driven economy similar to that which prevails elsewhere in the Americas. The Dominican Republic for example has:
· Eliminated controls on FDI;
· Eliminated foreign exchange rate controls;
· Sold or granted concessions to the private sector for government-owned enterprises, for example sugar mills;
· Eliminated subsidies on state enterprises;
· Increased the tax take (up to 16% of GNP) thus providing the basis for a more comprehensive social provision.
10. Some suggest lessons could be learnt from Eastern Europe, for example in relation to reducing state control of enterprises and enhancing private enterprise and that China could also provide a model encouraging, as it now does, increased private sector involvement in the economy. To avoid the “dark side of reform”, through increased opportunities for corruption and worsening income distribution, other state policies and regulations can be developed. It is recognised that any far-reaching reform takes time and will need the support of the international community.
11. The question may be whether Cuba can find a way between its socialist economic model and a more market-driven model which many outside Cuba call for. The role of the government is a crucial issue. To what extent should it involve itself in running the economy in order to provide social services. Or should it use future tax revenues on individual income to provide education, health and social security? How state-driven, centralised or interventionist should the government be? Some suggested Cuba should not overlook the fact that many other countries, including European Union member states, demand high social welfare for their citizens, and have found a “third way” to achieve this through a market economy. Philosophical differences over the role of the state in development created difficulties in achieving an understanding on the ways in which Cuba might change its relationships in the Western Hemisphere.
Political perspective
12. There is keen interest in whether Cuba is well placed to meet the real challenges all countries are facing and about the leadership transition to the next-generation after President Castro. The Cuban government would argue that the next-generation is already in place which will ensure the smooth continuity of the political system. There is a strong desire by many to see greater freedom of expression within Cuba, with calls for a plural democracy. (In the immediate future there are questions as to whether there will be discussion in the Cuban Assembly about the Varela Project, as expected under the Constitution). Calls for political transformation are not synonymous with "regime change". However, could there be a form of social democracy?
Wider relationships
13. Cuba’s foreign relations and trading links are expanding. In this sense the United States isolation policy has not worked. Cuba is keen to continue to diversify economic relations and not to "put all its eggs in one basket" again whilst recognising the costs involved in such a strategic decision. US policy towards Cuba continues to impact hugely on Cuba's relations with the outside world and in the policies of many other countries towards Cuba. Questions are asked, however, about whether it is still appropriate to single out Cuba in policy making? Is the geo-political reasoning from the Cold War days still relevant, not least since President Castro has outlasted 9 US Presidents? If human rights are a key issue what about other countries, some argue, where there are far fewer human rights for some, for instance women? Some would argue now that previous western policy towards Cuba has had a negative effect within Cuba, rather than resulting in a positive evolution of Cuba as many desire.
US Policy
14. As far as the US embargo is concerned, no one expects this to be swept away suddenly.1 US policy towards Cuba is, however, being increasingly debated in the US. For many it is now more a question of when, rather than whether, relations will thaw between the US and Cuba. The case for weakening or even lifting the embargo is becoming stronger as certain constituencies within the US become more vocal, for example the airline and tourist industry, business and farmers recognising the significant business opportunities that Cuba represents. US policy will, however, continue to be driven by US domestic, essentially electoral, politics. Florida remains a key factor in Republican government policy towards Cuba. Serious constraints exist in the US Congress which also impact on the likelihood of change. For example, amendments in favour of change, whilst widely supported, were not implemented recently because of the adjournment of Congress. (A Republican victory in the mid-term elections, which took place after the conference, including taking control of the Senate, could mean continued Administration resistance to change and may even result in some hardening of current attitudes given the strong views of certain senior figures in the US Administration). The mounting pressure for change within the US may, however, lead to the US President being at odds with public opinion in the coming years, and may result in the President needing to veto proposals for change by Congress.
15. The desire of many is for normalcy of US-Cuba relations, with the US treating Cuba as another Caribbean island rather than singling it out and seeing the US addressing Cuba through constructive dialogue in a similar manner to the European Union. President Carter’s visit to Cuba earlier this year, with its spirit of engagement and dialogue, is cited as a good model to follow in future. Some would recommend that US non-government organisations that continue to support Cuban non-government groups (religious or otherwise) avoid explicitly stating political aims and thus tainting the motives of such groups. People-to-people linkages between the two countries should be strengthened. Allowing US tourists to visit Cuba could have a significant impact (if estimates of 4 million per year become reality). At some stage a settlement about reparations for nationalised properties in Cuba will have to be dealt with head-on.
16. Cuba’s options in reaction to US policy may be limited. Cuba could continue purchases of food from targeted Congressional states. Cuba should also recognise that the release of political prisoners and evidence of more religious freedom plays well to US domestic politics. Cuba will need to be patient – it is unlikely to be another 40 years before the embargo is lifted however it may be longer than many in Cuba desire. There are risks in sending contradictory messages to the US for instance outreach to US farmers yet threatening to close the US Interest Section in Havana. Cuba should also be careful to avoid being provoked; there are some in the US who would still like to pursue a military option with regard to Cuba to seek “regime change”, and who could seek to precipitate a crisis. Irrespective of the different viewpoints within the US, the US would not want to see a disorderly breakdown in Cuba or a gradual deterioration of Cuba into a criminal territory as experienced by some Caribbean islands.
17. In relation to the Caribbean Cuba’s neighbouring islands believe Cuba should see itself as an integral part of the region, sharing much in geographical, historical and social terms. As the Caribbean as a region becomes increasingly integrated it should build more solid links with Cuba, despite fears of possible economic competition, for instance in attracting tourists. One measure, it is suggested, which the Caribbean could undertake would be to put more pressure on the US to change its policy, for instance on Cuba’s exclusion from the Free Trade Area of the Americas (FTAA). The Caribbean, with its traditions of plural democracy, is also encouraged to consider its approach to Cuba on this issue.
18. Cuba should consider further its role in the integrationist movement within the Caribbean (whilst not a member of the Caribbean Community (Caricom) Cuba is a member of the Association of Caribbean States (ACS). Through its Trade and Economic Partnerships with Caricom and a growing number of individual countries Cuba is encouraged to further economic cooperation with its Caribbean neighbours through trade, investment and technical cooperation such as in the field of tourism and banking. In addition practical cooperation could be stepped up further through improved people to people linkages in the field of culture, sport, health (Cuban doctors working in Caribbean communities) and education linkages (cooperation in human resource development through the exchange of students and teachers is already notable). Travel restrictions for Cubans may be a hindering factor in people-to-people linkages.
19. Cuba's relationship with its Caribbean neighbours may, in part, be determined by the Caribbean's own relationship with the EU. Cuba, as a member of the African, Caribbean and Pacific grouping (ACP), is not a signatory to the Cotonou agreement signed between EU and ACP countries in 2000. Whilst the Caribbean Economic Partnership Agreement (EPA) is being put in place under the Cotonou agreement (as the negotiating body with the EU), Cuba has a difficult choice about whether it will continue to remain a bystander. Cuba will need to consider carefully the impact of its inclusion or exclusion from the Caribbean EPA (led by CARICOM). Should Cuba join, it will also need to consider carefully the implications on the Cuban economy -- the need to deregulate prices for example and adapt its economy further in order to compete.
20. Negotiations between the Caribbean EPA and the EU will encourage the Caribbean to find regional consensus on such issues as tariffs. Difficult issues will also need to be addressed between the EU and the Caribbean EPA about future trade and development assistance including: preferential access to EU markets for Caribbean commodities; the need for transitional periods before full reciprocity can be given in relation to sensitive goods (especially agriculture); how the need for standards may in effect replace formal existing tariffs; the need for differentiated treatment within an EPA; how development aid and tools to overcome poverty will be developed. Even if Cuba does not join the Cotonou process and become part of the Caribbean EPA it is important for Cuba to stay close to Caricom as they negotiate within both the FTAA and the Cotonou process. There will need to be coherence in policies with the parallel processes.
21. The creation of a FTAA for 34 of the 35 countries in the Western Hemisphere, from which Cuba is excluded at the behest of the US, is a very ambitious attempt at regional integration encompassing 800 million people. It is however questionable whether the "democratic clause” and its interpretation would automatically disqualify Cuba from taking part. There are many uncertainties and unknown variables about the FTAA itself. Will it happen given that some Latin American countries such as Brazil, under its newly elected President, and Venezuela are now more hesitant about the concept (and these countries most favour Cuba's own involvement in the negotiation process)? Will the FTAA stick to its present timetable of concluding negotiations by early 2005 given that the most substantive and complex part of the negotiations has yet to start?
22. For Cuba, assuming the FTAA goes ahead without it, there may be either: no noticeable impact to Cuba itself; or, a negative impact damaging to Cuba's economy increasing Cuba's isolation, reducing the incentive of others in the region to trade with Cuba because of reduced tariff barriers elsewhere; or, conceivably, a positive impact for the Cuban economy, and possible envy by neighbours of Cuba's prescience. To mitigate any potential negative effects Cuba may need to work on alternative policies; an FTAA without Cuba may come into existence before the US embargo is phased out.
23 The European Union is keen to regularise its relationship with Cuba. The objective is to encourage a process of greater openness and thus improvement of the living standards of the Cuban people. The EU is motivated amongst other things by:
· opportunities for business with Cuba (the EU is Cuba’s major partner in trade and foreign direct investment, with Spain taking the lead on both accounts; among developed countries the EU accounts for about 60 percent of Cuba’s exports (with the Netherlands accounting for half), and for about 80 percent of Cuba’s imports). Opportunities will be enhanced with an enlarged EU;
· Cuba's role on the international stage as an important player in the north-south dialogue;
· Cuba's role in ensuring regional stability.
24. The EU’s Common Position (of 1996) is regarded by Cuba as political interference placing conditionality on the relationship. However to the EU it is not seen as discriminatory to Cuba, merely reflecting similar standards in the EU's relationships with other ACP or developing countries in relation to the respect for democratic principles, human rights and the rule of law. The Common Position, although a minimum common denominator of EU member states, may be a straitjacket and some believe that its introductory political references should be revisited.
25. The EU is committed to a policy of constructive engagement with Cuba rather than isolation. It can point to successes of its policy through its humanitarian assistance and assistance to modernise Cuba's economy (for instance through administrative reform, education in economic development, improvements to the taxation system) and would point to the moratorium on the death penalty as a demonstration that dialogue can have a positive effect. EU policy should start to consider how it will react to any removal of the US embargo.
26. On a practical level it is suggested that the European Commission could do more to assist European business within Cuba, for example encouraging Export Credit Agencies to be more positive. The expected opening of an EC office in Havana could be a valuable step in continuing to improve relations as the EU works to increase its open dialogue and practical co-operation with Cuba.
27. Cuba’s domestic economic policies could increasingly be shaped by external factors relating to free trade negotiations, for example the need to adapt its internal economy more rapidly in order to compete in any EU/Caribbean free trade area, rather than from any pressure from the US embargo or the European Union’s Common Position.
Engagement with Cuba
28. Engagement needs to be a two-way process between Cuba and its partners, it is argued, with both sharing ideas, understanding Cuban society and expertise through direct contact. Such practical engagement can be demonstrated by the example of an international non-government organisation, Save the Children, engaging Cuban people, initially through humanitarian assistance, and more recently in development co-operation (including social protection, environment projects, welfare). For Save the Children a physical presence in Cuba, dialogue with the State and partner institutions, active participation with the children involved in projects, enlarging their area of work geographically over time and recognising the value of sharing Cuba’s experiences of providing basic universal access to services with other countries are all hallmarks of their engagement.
29. For those interested in the well-being of Cuba there is therefore a call to speed up engagement rather than wait for some kind of substantial political/economic change. Many would echo the words of Pope John-Paul II as he left Cuba in 1998 expressing the hope “that the world opens up to Cuba and that Cuba opens up to the world”. The Catholic Church will continue to play an important role in Cuba, existing as the only institution present throughout Cuban history and geographically across Cuba. Church-to-church linkages can also play a part in engagement between Cuba and the wider world. Such a spirit of engagement and dialogue should be encouraged.
30. International cooperation on such issues as international drugs, organised crime or against terrorism, for example between the US and Cuba, or between the EU member states and Cuba can be a very practical vehicle through which countries can improve relations with Cuba. In the drugs field, Cuba is dealing with drugs through its counter-narcotics policies where others in the region are failing. Increased US and Cuban cooperation on a case-by-case operational basis can be extremely productive, where a clear mutual interest is identified and where both Cuba and the US behave pragmatically. Cooperation on such issues also provides the opportunity for a potential longer-term confidence building. It is hoped that areas of such cooperation could increase for example in relation to natural disasters, health epidemics, environment, meteorology etc.
Conclusions
31. The conference provided an opportunity to brainstorm about how the future might be in the context of a desire to see Cuba prosper. Ultimately Cuba will become increasingly integrated into the Western Hemisphere, economically, politically and culturally. The question will be which path is taken to achieve integration in a peaceful and effective way. Increasingly trade, foreign investment and engagement are likely to lead to the need for increased reform and development within Cuba.
Robin Hart
1 November
2002