Testifying before the Senate Foreign Relations Committee, Secretary of State Marco Rubio on Jan. 28 disavowed any Trump administration plans to topple the Cuban government. But he added, “I think we would like to see the regime there change.”
Rubio, the son of Cuban immigrants, has long advocated the overthrow of Havana’s communist regime. And in the wake of the Trump administration’s avowed success in Venezuela, the White House is ramping up the pressure on Cuba.
The day after Rubio testified, President Donald Trump issued an executive order “to impose tariffs on goods from countries that sell or otherwise provide oil to Cuba.” With no more than a 20-day stockpile of oil, if such duties would go into effect, the Cuban economy could sputter to a halt. “Cuba will be failing pretty soon,” Trump predicted last week.
On Thursday, Cuban President Miguel Díaz-Canel responded, “Cuba is willing to hold dialogue with the United States — a dialogue on any issue . . . with no preconditions . . . respecting our sovereignty, independence, self-determination.”
But the administration should be careful what it wishes for. If they break it, they own it. And while the downfall of the Cuban regime has long been Washington’s goal, if Cuba’s economic and political transition is botched, the Trump White House will only have itself to blame.
The Swiss Embassy in Havana reports that “the Cuban economy is currently experiencing what is probably the deepest crisis in its history marked by a combination of a host of both external and internal factors.”
Cuba faces high external debt, a shortage of raw materials, a shrinking population, falling productivity and rapid currency devaluation. And Trump administration sanctions have made a bad situation worse, contributing to the country’s decline, dampening its outlook.
To climb out of its economic hole, Havana must transition to a more market-oriented economy. But this will require tackling fundamental challenges.
The first is inflation. Government subsidies inherent in a state-run economy mask price rises by making up the difference between what consumers pay and what the price of a good or service would be if the value were determined by supply and demand. Curtailing subsidies will unavoidably fuel inflation.
To stimulate production to meet demand and contain inflation, existing price controls must end. But this will further accelerate price rises. The trick will be to stabilize those prices once they have initially adjusted so that the inflation rate doesn’t spiral out of control. No easy task.
Then Cuba will need new capital from abroad.
Reinstating Cuban membership in the IMF and World Bank, so that it can borrow, will be an urgent priority. But that is just the first step. It took international financial institutions 18 months to approve loans to Latvia after it broke off from the Soviet Union. The Cuban economy will implode if that borrowing timetable is not accelerated.
Private foreign investment will also be critical.
The Swiss government has identified six sectors of the economy that might entice foreign investors: “agrifood (including tobacco and what is left of sugar production), energy, biotechnology and pharmaceuticals, information and communications technologies; and services (mainly tourism and medical services).”
Any investor in Cuba will want greater access to the U.S. market. There is much the Trump administration could do. Affording Cuba most-favored-nation trading status would lower or eliminate prohibitive U.S. import duties. Cuba could also be admitted to the Caribbean Basin Initiative, qualifying it for duty-free market access for some products.
But foreign investment will first require sorting out claims by foreign investors whose industrial plants, commercial buildings and farmlands were seized by the Castro regime more than half a century ago. Cubans who lost residential property after they fled to the United States, and their American descendants, will also want their property back.
In the 1990s, after German reunification, such restitution claims delayed the privatization of property in Eastern Germany for years, holding up much-needed foreign investment. Cuba could ill afford this. Moreover, full restitution could mean Americans would control much of Cuba’s electricity-generating capacity, its telephone system, most of its mining industry and some of its best land, providing dry tinder to rekindle Cuban nationalism.
Finally, the greatest threat to the success of Cuba’s economic transformation could be the social and political unrest that could accompany the transition.
Curbing government spending while welcoming foreign investment risks exacerbating existing racial and class differences in Cuban society. Most of the Cuban-American community that would be returning to and investing in Cuba is white and middle class, while more than half the island population is black and poor. Ignoring these socioeconomic differences would be a prescription for trouble.
To manage what will inevitably be a difficult Cuban transition, the Trump administration needs partners drawn from Cuba’s small cadre of human rights advocates and economic reformers. It should partner with European nations that have remained close to Cuba over the years and know the landscape.
At all costs it cannot turn the transition over to right-wing Cuban-Americans intent on recapturing control of the economy or local strongmen willing to cut Trump’s business allies sweetheart deals.
The stakes are high. If the Trump administration, in its zeal to rid the hemisphere of communist Cuba, ignores Havana’s economic problems and political challenges, Rubio’s desired regime change could ultimately guarantee that a troubled Cuba will haunt Washington for years to come.
Bruce Stokes is a visiting senior fellow at the German Marshall Fund