Wayne S. Smith compares Fidel Castro’s Cuba to Francisco Franco’s Spain to argue that engagement, rather than isolation, is the best way to promote Cuba’s peaceful transition to democracy and a market economy (‘Cuba’s Long Reform,’ March/April 1996). The analogy is clever but wrong. Since the termination of Soviet aid to Cuba, the U.S. embargo on the island has been the key, often-ignored element pushing Castro toward economic and political reform. Lifting the embargo, as Smith suggests, would ease the pressure on Castro and allow him to avoid difficult choices, tighten his grip on power, and halt liberalization.

Franco was, and Castro is, a Spanish-speaking dictator, but the similarities end there. Castro wields virtually absolute political power on the island, and today’s Cuba has no private business sector of any significance. In contrast, Franco never obliterated the distinction between public and private life, permitting Spanish interest groups limited autonomy. Cuba is also far more militarized than was Spain under Franco.

These differences have implications for U.S. policy toward Cuba. In Spain, nongovernmental groups could benefit from the country’s commerce with other nations. Trade increased the wealth and clout of the private commercial sector, facilitated contacts with democratic societies, and strengthened civil society against the state. In contrast, Castro has pursued only limited economic reform, and his regime, rather than the Cuban people, would be the big winner from looser U.S. restrictions. Cuba’s economy discriminates against its own citizens, who are forbidden to invest. Foreign capital is allowed in only a few sectors of the economy, and private investment in agriculture is unknown. The more relevant analogy for U.S. Cuba policy is Vietnam; Washington relaxed its sanctions against that communist dictatorship only after its economic reform had advanced considerably.

THE FUTURE ISN’T SWEET

Smith implies that the U.S. embargo is irrelevant to continued Cuban economic reform. He correctly attributes liberalization to the dissolution of the Soviet empire and Cuba’s resulting need for foreign investment. He seems to believe, however, that the $5 billion in foreign investment that has supposedly entered Cuba over the past few years (according to the U.S.-Cuba Trade and Economic Council, only one-tenth of the promised investment has so far materialized) represents a trend that will continue to gain momentum, even if the embargo remains in place.

Smith glosses over two important links between the embargo and much of the foreign interest in Cuba. First, the embargo enables foreigners to invest in a market in which they do not have to compete against U.S. companies. Since Cuba is desperate for hard currency and the embargo sharply reduces the number of interested investors, they can secure extremely favorable terms. Second, and more important, most foreign companies that invest in Cuba have done so with the expectation that the U.S. embargo will be lifted after the upcoming presidential election, particularly if President Clinton wins a second term, causing the value of their investments to increase substantially.

The incident in February in which Cuban fighter planes downed two unarmed civilian aircraft from the exile group Brothers to the Rescue will alter these calculations. In the wake of this politically charged episode, President Clinton agreed to sign the so-called Helms-Burton Act, which gives Congress the power to lift the embargo, previously subject only to the president’s decision. The act substantially reduces the probability that the restrictions on trade with Cuba will be eased in the near future, regardless of who triumphs in November. Absent additional economic reforms, the flow of foreign capital into Cuba will slow considerably. Smith wrote his article before these events occurred, but his failure to recognize the connection between the U.S. embargo and the rush of foreign companies to Cuba will soon become apparent.

Smith accepts the assertions of Cuban government officials that the country’s economy has bottomed out; he reports that 1995 saw the economy grow over 2.5 percent and that the rate is expected to double in 1996. But the Cuban economy has probably not reached its nadir. The statistics Smith cites reflect the extraordinarily high prices commodity exports fetched in 1995. Projections for 1996 for sugar and nickel, Cuba’s largest exports, are less sanguine. The extraordinary growth in tourism is also misleading. Last year 800,000 tourists visited Cuba, and the country took in an impressive $1 billion. Smith does not mention, however, that the government used a large share of this money to finance imports needed to sustain the tourism industry. Large-scale corruption in the sector further reduced Cuba’s overall profits to a mere $250 million for 1995.

Cuba’s future rides on sugar, still the country’s most important export, and the continued decline in sugar production does not bode well for the economy. The 1994-95 harvest, which totaled 3.3 million tons, was the smallest in 50 years. Cuba borrowed about $150 million from foreign banks to finance the current harvest. Analysts believe this year’s harvest must exceed 4.2 million tons if Cuba is to repay these loans. But Cuba’s sugar mills, agricultural machinery, and transport vehicles are deteriorating, and it lacks the hard currency needed to purchase fuel and fertilizer. A yield that large is far from assured. Since much of the sugar harvest is reserved for barter for Russian oil, a smaller crop means that Cuba will have little surplus to export. Continuing problems in the sugar industry, therefore, also call into question Smith’s conclusion that ‘Cuba’s energy crisis appears to be on the way to a solution.’

BLESSINGS OF THE EMBARGO

Smith’s vision of a peaceful Cuban transition to democracy and a market economy, of Castro enacting increasingly deep economic reforms that would in turn oblige him to open the political system, may not be a fantasy. But he is wrong to view the embargo as an obstacle to that end. Castro, who has repeatedly made clear his contempt for capitalism, began economic reform only after the Soviet Union’s collapse deprived the island of the estimated $3 billion to $6 billion in aid and subsidies it had received annually for several decades. Cuba had been particularly dependent on heavily subsidized Soviet energy, and Castro needed hard currency to buy oil at market prices. The embargo prevented him from taking the easy way out -- luring tourists and foreign investment from Cuba’s natural market and best source of foreign capital, the United States. His only alternative was to entice capital from less interested and more distant sources. The economic reforms of the past three years were the only available solution to his problem.

Despite Smith’s claims, the reforms have not given individual Cubans much access to capital and property and are, therefore, still reversible. Castro’s goal, after all, is to accumulate as much hard currency as possible without relinquishing his control over the Cuban people. The recent tightening of the embargo all but ensures that deeper economic reforms will be forthcoming during the next few years -- not because Fidel Castro has embraced Adam Smith but because he has no other choice. Had the Brothers to the Rescue incident not occurred, the embargo might very well have been lifted after the U.S. presidential contest, and Cuba’s access to significant amounts of hard currency would then have offset the loss of Soviet aid, allowing Castro to open the country’s economic system in ways that would preserve the political status quo.

Finally, Smith raises the possibility that Castro will attempt to force the United States’ hand on the embargo by repeating his 1994 strategy of threatening America with a refugee crisis. As long as Castro continues to control Cuba, however, the United States will be susceptible to his periodic decisions to divert attention from Cuba’s internal problems by opening the emigration spigot. The best solution is democracy and an open economy in Cuba. And the best way to achieve those ends is to keep the embargo strong.

Susan Kaufman Purcell is Vice President of the Americas Society and coauthor of Latin America: U.S. Policy After the Cold War.

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