The Heritage Foundation

Backgrounder #768 on Latin America

May 14, 1990

May 14, 1990 | Backgrounder on Latin America

Preparing for a Post-Castro Cuba


(Archived document, may contain errors)

768 May 14,1990 PREPARING FORA POST-CASTRO CUBA INTRODUCIION Fidel Castro surely is nearing his last days as the self-described maximum leader of Cuba. As dictator of the sole remaining communist dictatorship in the Western Hemisphere, he faces unprecedented domestic and international pressures that could topple him before George Bush finishes his first tern as President. Internationally isolated, Castro is quarreling with his financial benefactor, Soviet leader Mikhail Gorbachev, and he is unde r fire from the United Nations for human rights abuses. He also is presiding over a collaps ing economy and is plagued with rising internal unrest.

The question, therefore is not whether Castro will fall but when he will. As such, the United States must be gin preparing now for Castros departure First, Washington should tighten U.S. restrictions on trade with Cuba to ex pedite Castros demise and encourage Americas Western allies to further iso late him. Second, and more important, the U.S. should craft a st rategy to help revive a free and prosperous Cuba once he is gone.

Bankrupt Police State. Castros popular image as-a romantic revolutionary leader has been replaced by growing international recognition of Cuba as an economically and morally bankrupt police state. Cubas long-standing trade partners in Eastern Europe are rejecting barter deals with Havana in favor of cash trade with the West. Castros political sunrival depends on the $6 billion in annual military assistance and economic subsidies from the cas h -starved Soviet leadership, which has abandoned former German dictator Erich Honecker and other communist allies in Europe. This aid to Cuba increasing ly is becoming a casualty of MOSCOWS internal economic crisis and of rising resentment among Soviet leg islators toward foreign aid.

The case for continuing Washingtons policy of economic pressure against Castro is overwhelming. U.S. economic and political isolation of Cuba is gain- a ing momentum as many Eastern European and suchThird World nationsas Morocc o and Panama are rejecting Castros pleas for diplomatic and finan cial support. Castro continues to assault U.S.interests abroad and deny human rights and economic progress at home. At a time when the Soviet offi cials openly question Moscows economic aid to a repressive Cuban regime Washington should not replace Moscow as Castros economic lifeline on the foundation of consistently applied principles and objectives. First Washington should follow a seven-point program to hasten Castros political demise. Th e U.S. should 1) Increase U.S. economic pressure against Castro. U.S. restrictions on tourism and trade with Cuba limit Castros support for revolutionary move ments by undermining Cubas economic vitality and hasten Cubas transition to democratic capitalism . Washington should increase economic pressure on Havana by closing loopholes in the U.S. trade embargo against Cuba 2) Establish clear incentives for Moscow to cut aid to Cuba. Washington should deny Soviet access to U.S. technology, securities markets, a n d trade credit programs unless Moscow cuts its military and economic aid to Havana in a verifiable way 3) Seek Western cooperation in isolating Cuba economically. Washington should encourage Canada, Britain, Japan, and other industrial consumers of Cuban s ugar, seafood, and other goods. to-find,alternative, suppliers in Central America and the Caribbean like Barbados, the Dominican Republic, and Jamaica 4) Encourage Western nations to press for political reform in Cuba. Bush should ask the Western allies t o focus international attention on human rights abuses in Cuba and to call for a referendum in Cuba on the legitimacy of Castros rule 5) Challenge Castros political influence in Latin America. Bush repeated ly should call on Latin leadersto denounce human r ights abuses in Cuba and to reject Havanas bid to join the Organization of American States 6) Set specific conditions for normalization of U.S.-Cuba relations. These conditions should include: the establishment of democratic institutions in Cuba,-removal o f restrictions on emigration, reduction of the Cuban armed forces, and a halt to Castros export of revolution 7) Offer a clear economic and political alternative to Castros Socialist Paradise. The Bush Administration should use Radio Marti and TV Marti st a tions operated by the U.S. Information Agency which broadcast news and entertainment programs to Cuba to inform the Cuban people about the potential benefits of U.S. economic aid and cooperation with a democratic market-oriented Cuba. mp~~cie h~lp ,f~~ili ~ ~t~~b~~~i~i racy should rest 2 Planning for a Free Cuba Once U.S. conditions for nor malization are met by a post Castro government, Washington should move quickly to help revi ment in a post-Castro Cuba, Bush should 1) Help private commercial and Cuban-A m erican groups prepare programs to promote market oriented development in Cuba Bush should order U.S. Com merce Department and U.S. Agen cy for International Development studies of Cubas needs and estab lish a Cuban Development Coun cil to organize U.S. fi n ancial and business support for economic development initiatives in a free Cuba 2) Develop an emergency relief program for a free Cuba Washington should prepare a U.S emergency aid plan that will give Cuba the hard currency to pur chase such critical impo r ts as food farm machinery, and oil, assist private voluntary relief programs and cover the transition costs to a free market in a post-Castro Cuba 3) Press for Cuban debt relief Washington should encourage Western government creditors to elr WitCdm-theirp o rtion of Cubas $6.8 billion debt 4) Lifc U.S. economic sanctions against Cuba 5) Begin negotiating a U.S Cuba free trade agreement to stimulate economic growth in both countries dize CubaXo promote bdem.ocrq dze d~~e]o i 3 6) Help train Cubans in business and market economics by creating and subsidizing academic exchange and business internship programs 7) Establish criteria to measure Cubas progress toward a free market economy Examples: cutting taxes, deregulating the private sector, and estab lishing fo r eign investment and private property rights THE ECONOMIC ,DECI,,EOF,~C;~;STRO~ S~CUBA i:;kk5:2 Faced with a withering communist bloc and increasing political isolation from the international community, Fidel Castro vowed on March 16,1990 that his rigid br a nd of communism is our policy [and] there can be no other way Cubas economy is paying a heavy price for Castros rigidity. No country in Latin America can match the extensive and rapid economic decline suffered by Cuba during Castros reign. Before Castro t o ok power in 1959, Cuba ranked third in per capita income among Latin American nations, behind only Argentina and Venezuela. Today after 30 years of socialism and more than 45 billion in Soviet economic aid, Cubas per capita infome of less than 1,500 ranks in the bottom half of nations in Latin America Cuba: Bangladesh of the Caribbean revolution that brought Castro to power.*Castro?s campaign;begun in-1986 to stop Gorbachev-like reforms and to rectify errors and negative [capitalist tendencies has accelera ted Cubas economic decline. Cubas export earnings have dropped 17 percent since 19

86. Cuba had a $1.2 billion budget deficit in 1988, nearly twice that of the year before, and roughly twice the U.S. deficit as a share of GNP. Cubas per capita income has d eclined 4 percent since 1986, and economic production, excluding sugar, fell by 2.4 percent last year.

Cubas hard currency reserves, or cash on hand, dipped to a mere $78 million Havana is now suffering its worst economic nightmare since the 1959 1 Castro Says Cuba Will Stay the Course, Washington Post, March 17,1990, p.21 2 Robert A. Packenham, Capitalist vs. Socialist Dependency: the Case of Cuba, Journal of Intemmencan Studies and World Aflairs, Spring 1986, p 76. See also, Wharton Econometric Forecasting Associates, Cuban Economy Project, Volume I: Construction of Cuban Economic Activity and Trade Index e s, Philadelphia November 1983, p. 1 4 .c e last year roughly one-sixth of the cash reserves in famine-prone Bangladesh, and only one-eighth of Cubas cash reserves in 1947.3 Inefficient Production. Cuba has little industrial base, while agricultural produc tion is limited to sugar, tobacco, and citrus crops In fact, Cubas economy is more reliant on sugar production than at any time in this century.

Sugar .production ac- counted-for 80percent.oP Cubas exports between 1920 and 1959:By 1986 sugar represented 82 per cent of total Cuban ex ports. Sugar exports are Cubas only significant source of hard currency earnings and represent its only means for servicing its $6.8 billion debt to Western lenders such as Japan and Sweden.

Castros sugar plantations remain ine fficient and un productive. Cubas sugar harvest in 1960, Castros first full year in power was 5.95 million metric tons. By 1987 it had z-s;o&&el Srli.a*2$ubsidies to Cuba Cenls per pound 50 40 Cenls per pound 50 40 I 1959 1966 1970 I975 I980 1915 1906 198 4 0- World Sugar Prlce -b Sovlol PrIce lorlla~o InloCbarl Sources: Jose L. Rodriguez, Las relaciones economicas Juba-URSS, 1960-1985 Revista del CIEM, No. 17 (1986 5. International Monetary.Fund,.International Financial Statistics, 1988 reached cent. By to n s in 1 7.2 million tons, an average annual growth rate of less than 1 per contrast, Brazils annual sugar harvest grew from 2.8 million metric 958 to more than 8.5 million metric tons in 1987 What is worse, Cuba must produce roughly 12 million metric tons o f sugar nearly twice the total 1989 harvest -to cover outstanding sugar contracts with international sugar brokers, East bloc countries, mainland China, and Japan 3 U.S. Central Intelligence Agency, The Cuban Economy A Statistical Review, ALA 89-10009 (Ap ril 1989 Comite Estatal de Estadistiw, Anuario estadistico.de Cuba (Havana: 1982,1986 National Bank of Cuba Informe EconomicoTrimestral (Havana: March 1989); U.S. Department of Commerce, U.S. Relations with Cuba: A Statistical Survey, HF 30

75. U49 (August 1975 TIte Economist: Foreign Reptt, Castros coming crisis, December 21,1989; Dr. Jose Luis Rodriguez, Sluggish Production, Cubu Business (London December 1989 4 U.S. Central Intelligence Agency, The Cuban Economy:A StufisficuZReview, ALA 89-10009 (Ap;i 1 989 pp 7-9; US. Department of Commerce, U.S. Relations with Cuba: A Statistical Survey, HF 30

75. U49 (August 1975 r d 5 Cubas tourist industry is also in deep trouble. Three decades ago, Cuba welcomed nearly 400,000 foreign visitors annually; only half this number visited Cuba in 19

88. Cuba earned a meager $120 million from tourist trade last year. By contrast, Jamaicas tourist trade earned 553 million last year.

Only one big-city tourist hotel has been built in Cuba since Castro came to power.

America . Cubas 6.8 billion debt to Western lenders is 150 times greater than her 1959 debt total of $45.5 million.The Soviet government journal Iz vestiu reported on March 1 that Cubas debt to the U.S.S.R. had reached $24 billion. Cubas total foreign debt is $30 . 8 billionand its per capita foreign debt of nearly $3,000 is nearly three times that of Mexico. Havanas refusal to honor its debt obligations to Western government lenders since July.1986 has severely restricted loans to Cuba. The National Bank of Cuba in 1988 reported an overall absence of credits, particularly medium-term credits.

Cubas economy cannot function without continued Soviet and East European economic and technical assistance. Aid from the Council for Mutual Economic Assistance (COMECON the Sov iet-led .trading bloc of ten communist countries, includes subsidized purchases of Cuban sugar, nick el and tobacco products, and exports to Cuba of oil and manufactured goods and economic development grants. Moscow alone has provided over 45 bil lion in economic assistance and 14 billion in military aid to Cuba since 1960 This is roughly one-third of Cubas grossnational .product over .that period.

Moscow gave an estimated 6 billion in economic and military assistance to Cuba last year. Nearly ten thousand Soviet and East European bureaucrats in Havana help manage the Cuban economy in accordance with the Soviet Unions five-year economic plan. Cuba-U.S.S.R. trade represents 75 percent and Eastern Europe-Cuba accounts for 12 percent, of Cubas total trade tur n over Castro vs. Perestroika Castro has bitterly attacked Gorbachevs political and economic reforms.

Not only has Castro condemnedperestroika as contrary to the principles of Marxism-Leninism, since last August he has banned the-distribution of Mas 5 I De .~eapitfl~~ba:h~t~ehigh~st d~~it~?debt~~~f nation in Latin 7 d 5 US. Department of Commerce, US. Relations with Cuba, pp. 32-33; Europa World Factbook, 1989 Cuba: Statistical Survey (N.Y Europa Publications Ltd., 1989) p 806, Cubas Economic Woes, ChriSria n Science Monifor April 4,1989, p.1 6 Economist: Foreign Report, op. cit. p. 2; US. Congress, Joint Economic Committee Report, East-West Trade: The Prospects to 1985, 97th Congress, 2nd Session, 1% pp. 107-110 7 US. CIA, The Cuban Economy, pp.23-28, Carmel o Mesa-Lago, The Economy of Cuba: aTwo Decade Appraisal (Albuquerque, New Mexico: University of New Mexico Press, 1981) p. 86 and U.S. Defense Intelligence Agency data 6cow News, the self proclaimed flagship of reform in the U.S.S.R claim ing that it is mo r e subversive than information from Western news sources game. Political pressure is mounting inside the Soviet Union to cut the costly sub sidy programs to Castro Ex amples: Andrei Kortunov, a member of the U.S.S.R. In stitute of the U.S.A. and Canada, la s t December 10 is sued a scathing critique of Soviet military and economic aid to Cuba, calling it a waste of money. Three days later 8 htrosis4playing a;risky x5 Soviet Aid To Cuba 1 O! I 1980 1981 I989 l9M I984 1985 1986 1987 1981 uar~~oaa Iotocnort Sour c es: US. Defense Intelligence Agency, The Cuban Economy A Statistical Review ALA 89-10009 (April 1989). Carmelo Mesa-Lago, The Economy OfSmialist Cuba, Albuquerque, New Mexico: University of New Mexico Press, 1981 Sergei Gvrov, Deputy Chief of the Foreign M inistrys International Affairs Department, announced that Moscows foreign aid program was under review. Then on March 7, Moscow Nms published a strident condemnation of Castros Brezhnev-style communism, and on April 8, pravda cited Castros hostility to gZ u snost and perestroika as justification for a Soviet revision in aid priorities toward Cuba Kremlin Cutback. Castro already is feeling the effect of Moscows waning interest in Cuba.The Soviet Union and Cuba are currently negotiating an economic assistance plan which is likely to reduce substantially Moscows cur rent $4.5 billion annual economic aid program for Cuba. A Soviet delegation headed by Leonid Abalkin, Vice President of the Soviet Council of Ministers arrived in Havana on April

17. He informed Cas tro that a new economic cooperation accord will not be for five years-as before, but probably for two years. Abalkin also said that Soviet sugar subsidies (roughly four times the market price for sugar since 1986) must be reduced to levels closer to the c u r rent world price of $280 per ton. If this happens, Havanas earnings from its only significant cash crop will plummet and Cuba will be forced to cut pur chases of critical imports such as- food, machinery, and spare parts. Internal pressures against Cast ros rule will grow.

Moscows desperate cash shortage and economic restructuring programs also have reduced Moscows interest in subsidized trade with Havana. As a result, last November the U.S.S.R. signed its first long-term sugar import con 8 Cuba BansTwo L iberal Soviet Publications, Washington Post, August 5,1989, p.11; and FBIS-Soviet Union, 89-237, December 15,1989, p. 39 7 tract with a non-Cuban supplier, the Queensland Sugar Board of Australia and contracts for purchases of sugar from Brazil and Thaila n d are also being negotiated.The Soviet Union meanwhile failed to deliver promised wheat and grain shipments to Cuba in the first two months of this year. Now that in dependent Soviet enterprises have the right to trade directly on foreign markets, they ar e more likely to seek c h trade and reject barter arrange F- me~!!BJr.eferrca!?y *C.~h~P?Q A cLII Soviet oil shipments to Cuba also are declining in volume and increasing in cost. Cubas hard currency earnings from the resale of oil imported from the U.S.S. R. dropped from $621 million (or roughly 40 percent of Cubas total hard currency earnings) in 1985 to zero in 19

89. According to data published last year by the Central Bank of Cuba, Moscow cut its shipment of subsidized oil to Cuba by $200 million in 19

89. Given that Soviet oil production fell by 350,000 barrels per day last year and is expected this year to drop another 500,000 per day, Cuba is likely to experience even more painful reductions in subsidized Soviet oil shipments to Havana.

Eastern Euro pe vs. Cuba Economic liberalization in Eastern Europe will damage the Cuban economy. New reform-minded governments in Eastern Europe need hard currency to purchase consumer goods, pay interest on foreign debts, and finance their transition toward free mar k et economies. They therefore need cash payments for their exports, not the barter trade deals with cash-starved Cuba. The new Soviet and East European emphasis on cash trade will under cut Cubas export market and cause shortages of food and industrial goo ds in Havana. economy by purchasing Cuban sugar at prices roughly three times the market rate of 8 cents per pound in 19

88. Emerging democracies in Eastern Europe could save roughly $400 million this year by purchasing sugar from cheaper more reliable producers in Barbados, the Dominican Republic, and Jamaica.

Reform-minded East European enterprises are already changing the way they do business with Cuba. Hungarys leading bus manufacturer, Ikarus boosted prices for bus spare parts by 20 percent in Septemb er -1989, making them unaffordable for Havana. As a result, parts shortages have disabled most of Havana3 mass transit-system. Further, Poland and East-Germany failed to honor agreements with Moscow this year to transport Cuban citrus goods to the Soviet Union.These emerging democracies are pressing Mos cow to pay in scarce hard currency for the use of their freight vessels.

Moreover, while COMECON countries in Eastern Europe allow their curren cies to fall to their market value to make their exports more competitive Moscow had required East bloc nations to help prop up the Cuban 9 John Attfield, Will It Harm Cuba? Cuba Business (London) December 1989, p. 5-7 8 Cuba refuses to do so. Cubas over-valued peso thus makes Cuban exports more expensive and less a t tractive to East European and Western consumers Recent political trends in Eastern Europe are certain to accelerate Cubas economic decline. President Vaclav Have1 of Czechoslovakia pledged to U.S congressional leaders in February to remove the Cuban diplo m atic mission from the Czech embassy in Washington and-phase-out aid to Cuba as soon as Walesa last November concerning the impact on Cuba of changes in the East bloc the Cuban exiles in Miami] should start packing their bags for Havana.lo Tzeich*dectiWe c o mpleted in Julj;~S~i~P~lis~~~lid-~ty leader Lech CASTROS INTERNATIONAL AND DOMESTIC ISOLATION Isolated increasingly from the Soviet bloc, Castro has attempted to mend political fences with the international community. He said in February that he welcomes any efforts by Latin American nations to readmit Cuba to the Organization of American States. He invited Pope John Paul II last January to visit Havana in December 1991.

Despite these efforts, Castro is dismissed by Latin leaders as a fading Stalinist reli c. During a news interview last October, for instance Costa Rican President Oscar Arias called Castro a Caribbean Kim 11-Sung [the com munist dictator of North Korea Arias even suggested that Gorbachev cut off oil shipment and subsidies to Castro 1 a Cast r os international allies on the left are vanishing rapidly as well.The es tablishment of democracy in Nicaragua forced the departure in April of Cuban military and intelligence personnel from that country. This effectively has eliminated Castros access to t he airfields, harbors, and guerrilla supply routes on the Central American mainland. The ouster of former Panamanian strongman General Manuel Noriega will mean. that Cuban fishing fleets operating from Panamanian ports no longer will be able to smuggle ar m s to Marxist terrorists in El Salvador.The Cuban dictator also relied on commer cial front companies in Panama to obtain illegally U.S. advanced technology and other goods worth $100 million each year. With Noriega gone, this, too will stop QI 10 Comments by Lech Walesa during a visit to Poland in November 1989 by a delegation from the Cuban American National Foundation. See also, Alfred Padula, Is Cuba Next? Ties ofrhehericas, November 28 1989, p.1 11 President Arias Comments on Castros Isolation, Hamburg DPA, December 29,1989; in FBIS-LAT-90-001, January 2,1990 p. 3 9 Calling for a Plebiscite. The glare of international publicity on Castros bru tal dictatorship has further isolated Cuba. More than 100 Latin American and European intellectuals, including P o lands Lech Walesa and Peruvian novelist Mario Vargas Llosa, issued a petition last Januaury 1 calling on Castro to hold a plebiscite on the legitimacy of his rule.Then, the United Na tions Human Rights Commission (UNHRC) voted this March 6 to condemn Cuba and to continue U.N. investigations of Cubas human rights abuses.

Joining in this vote of condemnation were Hungary and Bulgaria, while Poland andJzechoslovakia, non-voting UNHRC members, co-sponsored the resolution Internal Dissent tb-e..Cstso.rGhioDC fo!&g%sbg an&imi⩔inCbEQ%-

ghts advocates in Castro sits on a powder keg of popular resentment. Romanias spontaneous public rejection and overthrow of dictator Nicolae Ceausescu last year may be a preview of what could happen in Cuba. According to the U.S . Coast Guard, the number of Cuban boat people sailing to Miami on rafts and small boats rose from 27 in 1986 to 391 in 19

89. Roughly fifteen organized dissident groups have formed in Cuba since September 1?

88. Among the most influential are the Cuban Committee for Human Rights and the Cuban Commission for Human Rights and National Reconciliation. Castro has responded to unrest in Cuba by increasing repression while appealing to popular nationalism and devotion to romantic revolutionary ideals The Cuba n Communist Party launched a campaigmon February: 17 to revitalize the 80,000 Committees for the Defense of the Revolution, or neighborhood spy organizations. It also vowed to perfect the political and institutional sys tem of the nation. Castro has impris o ned over thirty leaders of human rights groups since September 1988 Long Knives in Havana. Bureaucratic elites in the Cuban Armed Forces and Interior Ministries, or secret police, are the key to Castros political sur vival.The Cuban Armed Forces, headed b y Fidels hard-line brother Raul Castro, controls nearly 500,000 regular and reserve troops and 1.2 million civilians in so-called Territorial Troop militias, or political-military organiza tions, which work to foster loyalty to the Communist Party and its p olicies The secret police apparatus has roughly 85,000 employees 6ecomEnvalS-toAii~~eeint successorYRau1 Castro. Fidel staged widely publicized trials in July 1989 which led to the execution of four high-level Castro fears that reformist factions within t h e army or secret police could 12 More than 100 U.S. Congressmen have urged Bush to award the Presidential Medal of Freedom to ArmandoValladares U.S. Ambassador to the UNHRC and a former political prisoner in Castros prisons, for his efforts to foster inte r national condemnation of Castros human rights abuses 10military officials, including Cubas most highly decorated Army hero, Major General Arnaldo Ochoa Sanchez. The charges: drug trafficking, corruption and betraying the revolution. Ochoa, however, surely was not eliminated because of alleged drug trafficking. According to U.S. Customs and Drug En forcement Agency officials, drug shipments continue at a steady pace through Cuba, despite Castros alleged drug crackdown. Rather, as Raul Castro C de~o~~~ra~~d ue.n~~critici.s.~,Qf i Qdgg b

&.b brothers viewed the popular general as a threat to Rauls succession THE EFFECTS OF U.S. SANCTIONS AGAINST CASTROS CUBA According to Castro, the July 1963 U.S. trade embargo, which prohibits vir tually all financial and tra de transactions with Cuba has-caused.,mountains of difficulties and obstacles for Cubas economy.14 U.S. sanctions have deprived Castro of an estimated 750 million worth of annual imports from the U.S.The denial of U.S; agriculturaktechnology and equipment forces Cuba to rely on less advanced; low-quality supplies from COMECON nations. By trading with countries almost exclusively outside the Western Hemisphere, Cuba must cover the costs of transporting sugar and other goods to the U.S.S.R. and Eastern Europ e rather than to the U.S.

These freight costs already have prompted East bloc countries to reduce trade with Cuba Draconian Peace. Cubas limited access. to-U.S: marketsand flagging. 3 trade ties with East bloc countries have accelerated Cubas economic decl ine and caused Castro to cut public spending. He warned Cubans in a March 6 speech that the government may soon impose an austerity plan, termed a special time of peace, that will eliminate social spending programs, impose draconian limits on bread, cloth i ng, corn, meat, and milk, and move un employed Havana laborers to work in the countryside ment, U.S. sanctions have curtailed Castros ability to finance mischief abroad. Moscow has spent more than $60 billion since 1963 to sustain its beleaguered military outpost in the Caribbean. Yet, Cuba has never been By limiting Cubas hard currency export earnings and economic develop 13 Fidel also attempted to bolster Rauls position as Defense Minister by selecting Army General Abelardo Colmme Ibarra (a Raulista who s erved as a commander in Rads Second Front unit in 1958-59) to replace Interior Ministry chief Jorge Abrantes Fernandez. 14 Cited in, Jorge L. Mas Canosa, Towards a New US.-Cuba Policy, Cuban American National Foundation monograph series No. 24, p.21.The s u ccess of U.S. sanctions in limiting Castros freedom of action contrasts sharply with brief U.S. efforts to promote economic and political cooperation with Cuba. Washaon imposed a partial trade embargo against Cuba in October 1960 ujlw Castro: stopped cash payments to U.S. oil suppliers in November 1959, began importing oil from Soviet suppliersand nationalized U.S. oil companies in August 1W.

Castro responded to increased U.S. trade with Cuba in 1975 by placing Cuban combat troops in Angola.

President Carters easing of U.S. trade restrictions was followed by Cuban military involvement in Ethiopia and the 1980 Marie1 boatlift 11 I I more poorly equipped to finance terrorism and export revolution. Without in creased aid from cash-starved Moscow , Castro cannot maintain his commit ments supporting Marxist allies in Angola and El Salvador To ease his economic isolation, and thus enable him to export revo1ution;Chtro .has recruited new trade partners. Beijing signed a commercial agreement with Havan a last Decem ber. It will increase bilateral trade to nearly 500 million this year.

Castro also is pursuing deals that will expand trade with Albania and North Korea. Several Western nations -most notably Argentina Canada, France, Britain Cubas Hard Curren cy Debt 4 t /I i974 197s 1976 1977 1978 1979 1980 1984 198s 1987 1989 Sources: Foreign Report, The Economist (London December 21,1989; The Eumpa World Ye&ook, 1989, Vol. I New York Europa Publications Ltd) p. 805 Japan, Spain, and West Germany have booste d trade with Havana. Cuban exports to the Western industrial nations increased by 20 percent to $581 mil lion in 1988 and increased by more than.$200*million in the.first quarter of 19

89. Japan is Cubas largest democratic trade partner. Cuba-Japan trade t otalled more than $250 million last year. Japan swaps machinery, rubber manufactures, transport equipment, steel, and other goods for Cuban sugar and seafood. Japan also is Cubas leading creditor. Cubazwes roughly $1 bil lion to Japanese government and co m mercial creditors ACCELERATING CASTROS DEPARTURE Havanas economic crisis and growing political isolation offer Washington the rare opportunity to oust this hemispheres last Soviet client.To achieve this, George Bush should launch a seven-point program tha t would I 1) Increase U.S. economic pressure on Havana Economic failure has been the chief catalyst of democratic reform throughout the Soviet bloc. Cuba is particularly vulnerable to U.S. economic pressure because the Soviet Union and East European countr i es have already signaled a cutback in subsidized trade with Havana. Washington could in crease the pressure by closing a loophole created qn August 21,1975, which 15 Roger Robinson, Forging an Economic Security Policy toward Cuba, address to the Seventh A nnual Congress of the Cuban American Foundation, June 12,1989, p. 3 I 12 undermines the 1963 U.S. trade embargo against Cuba. It allows foreign sub sidiaries of U.S. businesses to obtain licenses for trade with Havana. The U.S.

Treasury has granted more th an 1,236 licenses since 1982 allowing U.S. com panies to trade with Cuba (only 43 applications were denied). Last year, Cuba received goods worth more than 300 million, more than one-quarter of Western exports to Cuba, from U.S companies based in Argentin a , Britain S a.nd,..and,other.~es~.em.-natio S~~~ade~~~b~goes against North Korea, Vietnam, and Cambodia make no such exceptions for U.S. foreign sub sidiaries. Bush should vigorously support legislation that would reimpose the 1963 U.S. embargo and thus p r ohibit U.S. firms and their subsidiaries abroad from trading with Cuba 2) Establish incentives for Moscow to cut aid to Cuba Economic concessions to the Soviet Union should be linked to significant I and fully verifiable reductions in Moscows military and economic aid to Cuba. Unless this aid is cut, the U.S. should Oppose granting credits to the U.S.S.R. through the U.S. Export-Im port Bank, which provides credit guarantees, direct loans,and loan in surance to countries purchasing goods from the U.S Oppos e Soviet membership in the Overseas Private Investment Cor poration, a US. agency that provides credit guarantees to U.S. busi nesses investing abroad Prevent Moscow from raising money by -issuing bonds in U.SI securities markets Require, as one condition o f U.S. membership in the newly-formed European Bank for Reconstruction and Development (EBRD), that the Soviets cut substantially their aid to Cuba 3) Foster Western cooperation, in isolating Cuba economically As Cuba enters a more competitive trade relat i onship with.former com munist regimes in Eastern Europe, Havanas economic and political security will depend increasingly on Western trade. Nations outside the Soviet bloc most notably Canada, Japan, and West Germany, have..bolstered. Castros cash-starved regime by increasing their annual imports from Cuba by $500 million since 1986 Washington should encourage Canada, Colombia, Japan, Mexico, Pek and other Western consumers of Cuban sugar and seafood to shift their im ports of these goods from Cuba to Barb a dos, the Dominican Republic, Costa Rica, and other democracies in Central America and the Caribbean. This could be done by having these countries join the U.S. in an economic security agreement limiting trade with Castro.The International Energy Agency Ag r eement, signed by the U.S. and Western European countries in May 1983 to limit Western European reliance on Soviet natural gas, could serve as a model for this agreement. Just as U.S. negotiators persuaded Western allies to diversiij their sources of natu r al gas and limit purchases from the U.S.S.R. i 13 to roughly one-fourth of their total natural gas consumption, the Bush Ad ministration should press Canada, Britain, Japan, and other countries to halt trade credit and other short-term loans to Castros Cu ba and to limit their purchase of Cuban sugar.

Washington should also demonstrate that Western allies will pay a price if they undermine-US. efforts to isolate Castro.by.trading with Havana.The amount of sugar that nations can export to the U.S. Several re cipients of U.S sugar quotas, such as Canada, Mexico, and Peru, also buy sugar from Cuba that may be resold to the U.S. U.S. trade officials should inform these nations that their quotas will be reduced by the amount of their annual sugar imports from Hav ana U;S~r~de~Rep~e~~n~ati l f r99

199 1 that set the 4) Encourage Western nations to press for political reform in Cuba Bush should encourage Western governments to make improvements in economic and diplomatic ties to Cuba dependent on Cuba holding an inte rna tionally supervised plebiscite, modeled after the 1989 referendum on General August0 Pinochets rule in Chile. Bush, too, should continue to focus international attention on Cubas human rights abuses. Washington should refuse to participate in next yea r s Huma Rights conference in Mos cow unless the agenda includes discussion not only of Castros harassment of human rights monitoring groups and individuals in Cuba, but also of the need for a national plebiscite on the political legitimacy of his regime 5) Challenge Castros political influence in Latin America Bush should strongly urge member nations of the Organization of I I rr.p I American States to reaffirm a resolution, signed at Punta del Este, Uruguay on January 31,1962, which bars Cuba from the OAS f or exporting revolution and adopting a Marxist-Leninist government which is incompatible with the inter-American system. Before entering the OAS Castro should be required to close terrorist training camps in Cuba; dismantle AmericasDepartment in telligenc e operations, which directs intelligence. operations against the U.S and Central .American democracies; and halt military aid to the FMLN ter rorists in El Salvador 6) Establish conditions for normalization of U.S.-Cuba relations As-communist--Cubals.econo m ic.decline_proceeds,.Havana will tryto .ex tract economic benefits from the West. This should be resisted. At the post Malta Summit press conference last December 3, Bush ruled-out ariy discus sion of normalized relations with Havana until. we see a free C uba, self determination and [Cuban] people deciding what they want. U.S. economic assistance and diplomatic cooperation should be withheld unless the Cuban government Establishes a multi-party democracy, freedom of assembly, and a politi cally independent judicial system 14 Reduces military forces in Cuba to parity with neighboring Caribbean Frees political prisoners and grants amnesty to individuals charged with Disbands Committees in Defense of the Revolution I which spy on and Removes all restrictions o n Cuban emigration Withdraws military forces from Angola and Ethiopia and stops arming Ceases its role in assisting drug shipments to the U.S Allows information from abroad, not just Western cash and technology 7) Offer a clear economic and political alter native to Castros Socialist Paradise.

Armed with a balanced view of Western institutions and the potential benefits of renewed economic ties to the U.S the Cuban people represent the most potent threat to Castros surviva1.W Marti and Radio Marti are es sen tial for informing Cubans of the benefits of democracy and market oriented reforms and for outlining the U.S. alternative to Cubas dependency on the Soviet Union. Funding for Radio.Marti and Marti th erefore should be continued.16 The Bush Administration s hould use Radio Marti and TV Marti to inform the Cuban people of the U.S. plans for Havana once Castro is gone.This mes sage should stress not only that Castros revolution is reversible, but that Washington is eager to restore traditional ties of economic and diplomatic cooperation with a free Cuba. Promises of U.S. aid to a post-Castro Cuba should include assurances of Havanas access to such vital raw materials as oil and such emergency assistance asfood and medical supp1ies;The Cuban people should be tol d that Washington will respect a free Cubas right to forge its own foreign policy and alliances. And Washington should promise protection from Soviet reprisals or subversion, much as.U:!X military and economic aid to El Salvador bolsters President Alfred0 C ristianis nations political crimes against the state 3e~orize=th Eopula~.n L..;Y.A. 2,..T35 FMLN terrorists in El Salvador; to flow freely into Cuba democrat.ic- government REBUILDING POST-CASTRO CUBA To ensure that the U.S. is ready for Castros departure , planning should begin now. Washingtons assistance plan for the reconstruction of a free Cuba 16 Although the Castro regime has jammed TV Marti since it began a %day trial broadcast on March 27, the TV program carried clearly in the city of Holguine, east of Havana, and other areas outside the capital 15 should promote private investment and economic opportunity; it should not be a U.S. government bailout. Once Castro is gone, Washington should pur sue a seven-point policy to promote a free market economy, demilitarization and democracy. It should 1) Help private commercial and Cuban-American groups prepare Bush should order the U.S. Agency for International Development and the Department of Commerce to begin studies of Cuba's agricultural, financial and ot her development needs, and of opportunities for American businesses to develop trade relations.

Bush should help the Miami-based Cuban-American community, with its population of roughly one million, to apply their substantial financial resour- ces, commerc ial expertise and political influence in Washington to promote the rapid reconstruction of Cuba. Cuban exile leaders U.S. economists and members of the Free Cuba Commission formed,by Florida Governor Bob Martinez are already developing plans to exploit op p ortunities for economic development in a free Cuba To assist them, Bush should form a Cuban Development Council, comprised of Cuban-American and other U.S. invest ment bankers and business leaders who would advise a post-Castro govern- ment on how to make the transition toward a free market.This panel would allow Cuban Americans and Cuban officials to get better acquainted iwith the American financial and investment community and thereby facilitate U.S foreign investment and joint ventures in Cuba programs for-market-oriented development-in a post-Castro Cuba Xi r A a s.i 2 s.:kt Aw 2-.u x5 2 2) Create an emergency relief program for Cuba Once Castro falls, rapid delivery of emergency aid to Havana will be neces sary to avoid political and economic instabil i ty. Cuba's cash reserves, now below 100 million, cannot buy the chemicals, farm machinery and fertilizers industrial machinery, spare parts, oil, and other goods necessary to keep Cuba's economy running. U.S.'emergency aid t0.Cub.a also should help cover t he transition costs to a free market. Such costs include replacement of the in flated currency (pesos) issued by the Castro government with a new, stable currency backed by hard currency reserves and unemployment compensation for displaced government bure aucrats.

U.S.-supplied funds intended for the purchase of foreign oil should be ear Soviet suppliers. This would reduce Cuba's dependence on Moscow and help the new government forge political and economic ties in the Western Hemi- marki5d-fiFIXtiiikiiefiGn ~ilj%GdEr~such-zisVenezuela~and Mexico; not 17 Florida Governor Bob Martinez appointed a Free Cuba Commission last February to study the potential effects of Castro's ouster on state trade, tourism, and immigration. A program developed by Arthur Laffer V i ctor Canto and Milton Freidman which was commissioned by Jorge Mas Canosa, chairman of the Cuban American National Foundation, reportedly includes recommendations to establish a flat tax rate of 10 percent and eliminate the Cuban Central Bank 16 sphere. F ood, clothing and medical supplies are also high priorities. Pentagon and U.S. National Guard personnel could transport non-perishable foods and supplies donated by private individuals and groups.

Bush also should create a Cuban Relief Council (CRC).This w ould be an umbrella group consisting of private voluntary organizations (PVOs registered with the-US. Agency for International- Development to plan, mor dinate;-and*ruwernergency relief ahd t&hiical-a%ista&e projects for Cuba.

Members could include such p rivate relief organizations as American Schools and Hospitals Abroad, Catholic Relief Senrices, and the Internation al Executive Service Corps. The Cuban Relief Council could solicit non-U.S government funding for PVOs and coordinate efforts within the Mi ami-based Cuban exile community to provide emergency food, clothing, and medical and technical assistance to post-Castro Cuba A model for this is the European Relief Council, directed by Herbert Hoover in 19

20. A Cuban Relief Council employing 5,000 relie f workers would cost AID roughly $70 mi 11 ion A large portion of emergency U.S. aid should be devoted to revitalizing Cubas agricultural sector. Only 60 percent of Cubas sugar output is mechani cally harvested, and nearly 30 percent of the land available for harvest remains idle. An emergency fund will be needed to purchase new farm machinery, fertilizers, herbicides, and sugar refining equipment. To assist in this effort, roughly $33 million in Cuban government funds frozen in U.S banks since 1963 by the U.S. government should be released as soon as a new post-Castro government is established 3) Press for Cuban debt relief.

Cubas per capita foreign debt of almost $3,000 is three times that of Mexicos. Washington should urge Soviet and Western government creditors to negotiate an arrangement with the new Cuban regime that would cancel or write down the Cuban foreign debt and w ould promote debt-equity swaps by commercial lenders. Debt-equity swaps allow foreign investors to take over or buy a countrys debt at a discount rate; after which the investor exchanges the debt for equity in state-run enterprises. U.S. businesses could e ncourage development of a private sector in Cuba by trading their share of the roughly 1.8 billion worth of U.S.-owned assets confiscated by the Castro government for an equity stake in a newly created Cuban Development Fund. This Fund woIIld bmtateLowned - electricity, food-processing,-and other-industrial enterprises at a discount and sell them to workers in these enterprises or other domestic investors accepting pesos, which are over-abundant, as partial payment for the enterprises 4) Lift U.S. economic s anctions against Cuba when conditions for nor malization have been met.

Once the Cuban government establishes a multi-party democracy, begins free market reforms, and stops exporting revolution, Washington should lift the 1963 U.S. trade embargo. It also s hould designate Cuba as a beneficiary of the U.S. Caribbean Basin 1nitiative.This would suspend or liberalize 17 I American import restrictions on goods imported from that region. Finally Washington should remove restrictions, imposed in 1982, on American busi ness in and tourist travel to Cuba.

Washington best can help Cubans help themselves by opening the U.S market to Cuban goods. Once Cuba is free, the Bush Administration strongly should.urge- the Congress to reduce 4J.S.-tariffs and non-tariff restric tions on imported= textilesc1o t hing:leatliei~o8dg *and slioes.fJ;S?sugar quotas for Cuba should be increased to give Havana greater access to the U.S. market.

Cubas sugar quota should be restored to pre-Castro 1evels.The 1960 U.S sugar quota allowance f or Cuban exports (3.2 million metric tons) accounted for roughly 35 percent of the U.S. sugar market 5) Establish a framework for U.S.-Cuba free trade negotiations Washington should build on progress toward a U.S.-Mexico Free Trade Area agreement by begin n ing negotiations with the new Cuban government to eliminate barriers to trade and investment in agriculture, telecommunica tions, textiles, and the tourist industry. Negotiations should also focus on protecting foreign investment, intellectual property, a n d technology rights in both countries. The U.S.-Mexico trade negotiations begun in November 1987 could serve as a model for trade talks with Havana and help lay the founda tion for a North American Common Market. Removal of all tariff and many non-tariff b arriers between the U.S. and Cuba would create new jobs, in crease consumer purchasing power, and channel resources to productive enterprises in both countries. U.S. trade ties arecrucial to economic develop ment in Cuba. Before the 1959 revolution, the U . S. provided 70 percent of Cuban imports and bought 67 percent of the island countrys exports. U.S. ex ports to a post-Castro Cuba would likely exceed $500 million in the first year. 18 6) Help train Cubans in business and market economics The U.S. should a ssist American universities, management training busi nesses, and Miami-based Cuban American enterprises to bring Cuban entrepreneurs, students and faculty to the U.S. for instruction in business and management in the U.S. and send American business schoo l faculty members to teach both entry-level and advanced courses in business management. and free market economics in Cuba Washingtoii-Sh3uld-cTeate-and help subsidize a-U.S.--Cuba entrepreneur training program to recruit promising individuals from.Cuba to work in Cuban-American and other U.S. businesses as trainees and interns.

Graduates of this one-year training program could be hired as managers of Havana-based subsidiaries of Cuban-American businesses or as partners in U.S.-Cuban joint ventures. This pr ogram would introduce Cubans to the enor 18 Oppomnities for US.-Cuban Tmde, Johns Hopkins School of Advanced International Studies, Baltimore June 1988, p. 14 18mous pool of business talent in the Cuban-American community while foster ing mutually benefic ial trade ties between U.S. and Cuban businesses.

Bush should propose that Congress fund a U.S.-Cuban advisory committee to give technical advice to newly-formed commercial enterprises in Cuba. It would be made up of representatives from the new Cuban gove rnment and Cuban American businessmen and bankers;.it could be managed by the U.S.

Agency~fo;rlntemationalDevelopmen~This teaWv6uldinvestigate how to promote local banking and capital markets through deregulation and economic reforms in Cuba. Credit will be crucial for creating small busi nesses involved in fishing, food processing, and textile manufacturing in.

Cuba 7) Establish free market criteria for long-term U.S..aid to.Cuba U.S. assistance to a free Cuba could provide a framework for more efficient and productive U.S. aid programs throughout Latin America. Washington should measure the success of U.S. aid to Cuba by setting specific market oriented objectives. Such criteria include cutting taxes, deregulating Cubas private sector, lifting restricti o ns on foreign investment, guaranteeing security of private property and contract, and selling state-owned enterprises. U.S AID officials should press for Cuban land reform that would put individual farmers and businessmen, not state agencies, in control o f agricultural production and distribution. Washington should urge Havana to adopt an Agricultural Land Act which would issue land titles to private owners and per mit victims of Castros land confiscationprograms topurchasestate-owned farmland at a discoun t .This Act should also eliminate price controls and promote privatization of state monopolies that produce, transport, or market agricultural goods CONCLUSION For nearly three decades, American economic and political sanctions have limited Castros freedom o f action and forced the-Soviet Union to pay a sub stantial price for using Cuba to promote its imperial ambitions.These policies are paying off. Castros economy is in a tailspin. Castro is internationally iso lated from friend and foe alike. And he is beg inning to face political opposi tion at home.

Washington has nosing to gain by normalizing tfade md diplo-matic rela tions with Castros Cuba and thus easing the pressure on Castro to introduce democratic, free market reforms. U.S. normalization of relation s with Cuba would signal Washingtons acceptance of Cubas military adventures and en courage Latin American leaders to seek accommodation with the Castro regime. Castro is not developing a more moderate political system but rather a more ruthless police st ate that will continue to support international ter rorists and narcotics traffickers.

Instead of making concessions to Castro, this hemispheres last commuist dictator, Washington should tighten U.S. restrictions on trade with Cuba and i i 19 encourage its Western allies to isolate the Castro regime economically and diplomatically As Cuba enters a more competitive trade relationship with emerging democracies in the Soviet bloc, Castros political survival will re quire increased trade and economic assistanc e from the U.S. and other Western nations. Washington should not resume full diplomatic and economic relations with Havana until the Cuban people break free from rule. Bush can accelerate Castros demise by using Radio Marti and TV Marti to define clearly t h e U.S. assistance plan for Castros successors Promoting Economic Opportunity. Once. Fidel Castro and brother Raul Castro are removed from power, Washington should offer an economic aid program to reduce Cubas dependence on trade with Moscow and to promote private investment and economic opportunity.,Bush shouldassist efforts by Miami-based Cuban-Americans with commercial expertise and financial resources to rebuild a free Cuba.

Castros political fall not only may remove the most potent threat to security i n the Western Hemisphere, butalso may enable a new, free Cuba to become the anchor for a stable and prosperous Latin America. If Bush takes action now, his first term could include the first anniversary of a democratic post-Castro Cuba. aMes?i.(?n-.and si ngle-party Thomas E. Cox Policy Analyst 20

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