February 18, 2020

CUBA: US election carries extra weight amid tightening pressures

BY Nicholas Watson

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( 3 mins)

The economy is in a precarious state. In a sign of the liquidity crunch, it has emerged that the government last year missed payment obligations on its Paris Club debt, which was restructured in 2015 on terms highly favorable to Cuba. In addition, shortages of fuel, cooking gas, hygiene products and other basic goods have become routine. Tightening US pressure – combined with longstanding economic imbalances and sclerotic local management of the economy – will make 2020 a highly challenging year. There is political unease with the situation, though the social control apparatus remains effective. Ultimately, the US election is the variable with the biggest bearing on Cuba’s future.

The cash crunch reflects the fact that major foreign currency revenue streams are all under pressure.

  • Professional service exports are down because of the end to Cuban-staffed medical programs in Brazil, Ecuador, and most recently Bolivia.
  • Remittances are likely to have dipped after new US restrictions on money transfers came into force last October.
  • Tourism arrivals dropped 9.3% from 2018 to 2019; specifically, US tourist arrivals dropped by 21.9% in the same period, mainly due to a ban on cruise ships and restrictions on commercial air travel that took effect last year.

In 2020, there is unlikely to be a let-up on any of these fronts. Money transfer and payments company Western Union announced this month that its transfer services to Cuba from countries other than the US could be suspended. In parallel, the US government has announced new restrictions on public charter flights between the US and Cuban destinations other than Havana to take effect in March. The US is also taking action on Title IV of the Helms-Burton Act (1996): earlier this month, Gabriel Escarrer, CEO of the Spanish hotel chain Melia, was barred from entering the US because of Melia’s interests in Cuba.

Enhanced enforcement of Title IV and delayed payments to suppliers caused by the cash shortage are likely to inhibit investment into the island. The Paris Club predicament does not help: the restructuring agreement involved foreign companies taking equity stakes in local development projects. These now face an uncertain future.

The government’s response capacity remains limited. Venezuela may be upping crude shipments to help with fuel shortages, but clearly the Nicolas Maduro regime is not a reliable partner given its own economic collapse and sanctions challenges. For all that President Miguel Diaz-Canel may claim, Russia is unable (and probably unwilling) to become the latest in a line of state benefactors for the island. Tinkering with currency reforms continues but the government is clearly reluctant to tackle the distortionary dual exchange rate system, especially since shortages and last year’s big wage hikes are almost certainly already feeding inflation.

Diaz-Canel is aware that the moment is politically delicate; leading dissidents have been blocked from leaving the country recently. However, in a sign of the challenge in controlling information flows, a recent outbreak of disorder in Santiago de Cuba, while not strictly political in origin, was disseminated quickly – and directly – via social media, unfiltered by state media. Ultimately, the government is highly attuned to the US election campaign, in the full knowledge that another four years of the current pressure campaign are highly likely if Donald Trump is re-elected.

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