Barbara Kotschwar

Economic Normalization with
Cuba: A Roadmap for US
Barbara Kotschwar
Research Fellow
January 29, 2015
Ending a Half Century of Separation: USA
More travel: 12 categories of authorized travel now require
only a general license.
Travelers may import up to $400 per person, including $100
of cigars and rum.
More remittances: raised from $500 to $2,000 per quarter.
More finance: US citizens can now use US credit and debit
cards, and US financial firms can open accounts at Cuban
banks and enroll merchants.
No need for additional permission from OFAC (but no
tourism travel yet!)
Business training and support to farmers.
E.g., MasterCard will start allowing its cards starting March
1, 2015.
More sales of telecom-related goods and services.
Ending a Half Century of Separation: Cuba
Raul Castro: sin prisa pero sin pausa
201 private sector activities allowed by the Cuban
Travel ban lifted.
New foreign direct investment (FDI) law: wish list
of 246 projects.
Dual currency system: Government is preparing
conditions for unification.
Cuba’s Economic Challenge
Approximate value
$71 billion
Per capita GDP
$6,288 ($250 if measured in CUPs)
Exchange rate*
25CUP = 1CUC = $1US
Exports of goods
$6.0 billion
Imports of goods
$13.7 billion
Estimated external debt
Estimates range from $17 to $35
billion, excluding claims
Estimated assistance from Venezuela About $10 billion per year
Sources: ECLAC, WTO, Central Bank of Cuba, and Paris Club.
Are Cuba’s economic reforms, even with greater US engagement,
enough to address its serious economic challenges?
The winds of change may blow slowly
Helms Burton remains in force
More US companies can now sell to Cuba but the ban
on financing remains in place.
The new regulations were published quickly. What
about implementation on the Cuban side?
The US will now allow sales of telecom equipment and
services to Cuba. Will Cuba allow this?
Will additional barriers be placed on private
Cuban government monopoly retained on imports and
exports – no mechanism yet for private actors to trade.
Cuban state maintains control of employment – most
self-employment activities are low-tech and low-skill.
Next Steps
In our book we set out three likely scenarios:
Gradualist Normalization
China and Vietnam
Step by step reforms
Significant overlap between political and economic normalization
Big Bang with Monopoly Capitalism
Russia and Ukraine
Capitalism quickly replaces state ownership
Monopolies/oligopolies capture economy
Big Bang with Market Capitalism
Poland and Baltic states
Easiest for US-Cuba relations
But, least likely
What should US negotiators do to avoid scenario 2? How can they move
now to pave the way for greater competition in the Cuban economy (and
better chances for US companies)?
• As we will see in the next presentation, US
officials should begin reciprocal economic
negotiations now. Doing so can help Cuba’s
nascent entrepreneurial class.
• Not doing so could cause two unfortunate
Cuba’s economic normalization will proceed at a
slower pace, accompanied by greater favoritism to
vested interests and greater corruption of public
US firms and citizens will be pushed to the back of
the line for commercial opportunities in Cuba.