Commentary
10:54 am
Fri March 28, 2014

Castro Opens Cuba's Capitalist Door Another Notch – Should Washington Walk Through?

Cuban leader Raul Castro with leaders of the ruling communist party.
Cuban leader Raul Castro with leaders of the ruling communist party.
Credit Flickr

It may or not be a coincidence that Cuban leader Raúl Castro disclosed his new foreign investment law this week just as Venezuela was getting another big thumbs-down from the financial world.

Cuba’s threadbare communist economy depends on kindred benefactors like socialist Venezuela. But as that oil-rich country’s own economy continues to implode – the Fitch Ratings company downgraded Venezuelan credit to “Outlook Negative” on Tuesday – Castro has no choice but to open his island’s rusted doors more broadly to capital, capitalism and capitalists.

Hence the latest step in Raúl’s ever-halting journey to free-market reform, which his National Assembly is reportedly set to rubber-stamp this weekend. The package of measures expands opportunities for foreign investors – including Cubans living abroad, whom the Castro regime once derided as gusanos, or worms. It now lets them form ventures with certain private entrepreneurs instead of only state-run firms, and even lets them own 100 percent of Cuban businesses.

Much of the law does feel anticlimactic. Cuban expatriates, for example, have long been de facto investors in the small private enterprises the Cuban government allows, from taxi services to the in-house restaurants known as paladares, chiefly via the more than $2 billion in remittances they send to relatives in the country each year.

But what's significant in that regard, says Emilio Morales, a former director of CIMEX, one of Cuba’s largest state-owned conglomerates, is that now Castro may be establishing more formalized rules for Cuban ex-pat investment. “That could allow Cubans abroad to invest not just in their cousin’s little pizzeria business but in larger enterprises like furniture-making,” says Morales, now president of the Havana Consulting Group here in Miami and author of “Cuba: A Silent Transition to Capitalism?”

RELATED: A Soft - And Prosperous - Landing for Cubans Is In The U.S.'s Interest

That in turn begs what analysts like Morales call an equally important question: To what extent, if any, will the United States now loosen its own embargo restrictions against investment in Cuba?

The hardline, anti-Castro Cuban exile lobby that so often dictates U.S. Cuba policy will of course insist that any investment in Cuba simply aids the communist dictatorship. But if Castro really is giving yanqui capitalists the opportunity now to hook up with private Cuban businesses, does Washington really want to give the world the impression that it’s balking at aiding those entrepreneurs?

It could allow Cubans abroad to invest not just in their cousin's little pizzeria but in larger enterprises. -Emilio Morales

In a study he published last fall for the Brookings Institution – “Soft Landing in Cuba? Emerging Entrepreneurs and Middle Classes” – Richard Feinberg of the University of California-San Diego pointed out that any such U.S. response would require a means of certifying that U.S. investors are in fact doing business with independent and not state-owned enterprises.

That process, Feinberg also notes, would in turn require Castro’s consent – and he believes that the U.S., tit-for-tat, could call Castro’s bluff on that score as easily as he’s now trying to call Washington’s. Castro, Feinberg writes, “would have difficulty explaining to [Cubans] why [he] had refused to authorize a weakening of U.S. economic sanctions.”

Such a refusal would in essence help Castro’s critics prove that he and his older brother and predecessor, Fidel Castro, don’t want to see the embargo go away because it’s such a convenient political scapegoat for their decades of economic failure.

UNCERTAINTIES REMAIN

Until specific regulations for the new investment law are published, analysts say a number of uncertainties remain. Will private Cuban businesses now be able to directly import the capital goods they need and not have to rely on state-run intermediaries? Can they access wholesale markets, which currently only large state firms are allowed to do?

If both are now permitted, says Morales, “it would represent a political liberation for Cubans as well as an economic one.”

Morales feels the new law “is still weighed down by too much [communist] ideology.” But with Venezuela and its subsidized oil starting to fade as a lifeline for Cuba, “Castro has no alternative now but to keep making these moves.”

The last thing Castro and Cuba want is another “special period” – the harrowing decade of deprivation that followed the 1990s collapse of the dictatorship’s previous benefactor, the Soviet Union.

To avoid that, Castro has to keep opening the door. At the same time, if the U.S. really wants Cuba to make a successful post-Castro transition to capitalist democracy, it will have to let its democratic capitalists start walking through that door. 

Tim Padgett is WLRN's Americas editor. You can read more of his coverage here.