SUPPORT FOR
DEMOCRATIC TRANSITION
IN CUBA
"Only oppression should fear the full exercise of
freedom." --Josi Marti
[Text in English] | [Texto en
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In March 1996 Congress passed and President Clinton signed the Cuban
Liberty and Democratic Solidarity Act. Title II of that Act required the
President to submit to Congress and communicate to the Cuban people a
report addressing the likely role that the United States and the
international community would play in assisting Cuba during its future
transition to democracy. That report, drafted by USAID, with input from
numerous other United States government agencies, was released by the
White House on January 28, 1997, the birthday of the Cuban national hero
Jose Marti.
CONTENTS
I. The Context for a Cuban Transition .....................1
A. The Global Trend to Democracy and Free Markets ......1
B. Cuba Awaiting Transition ............................2
C. The United States and International Community
Response to a Transition in Cuba ..................3
D. Favorable Prospects for Cuba Following Transition ...5
II. Consolidating a Political Transition in Cuba ...........7
A. Human Rights in a Democratic Society ................7
B. Efficient, Democratic and Accountable Government .....8
C. Rule of Law ........................................10
III. Achieving Economic Transition and Recovery ............12
A. Common Elements of Economic Transition .............12
B. Private Enterprise and Independent Labor ...........12
C. Legal and Institutional Framework
for a Market Economy .............................13
D. Managing the Economic Transition
for Growth and Equity ............................15
E. Developing the Human Resources for
a Successful Democracy and Market Economy ........16
F. Rebuilding Infrastructure ..........................16
G. Integration into the Global Economy ................17
IV. Conclusion ............................................17
ANNEX -- Resource Flows to Support Cuba's Transition
and Economic Recovery ...........................18
I. The Context for a Cuban Transition
A. The Global Trend to Democracy and Free Markets
During the past decade over two dozen former communist
countries have joined the global trend to democracy and free
markets. The specific events which triggered these changes
varied from country to country, but the numerous transitions have
much in common. The lessons learned and experience gained by the
United States and the international community in assisting these
transition countries develop democratic institutions and market
economies can serve the Cuban people well when the opportunity
for transition presents itself in Cuba.
The experience of Central and Eastern Europe and the former
Soviet Union indicates that the contrast between the personal
freedoms and living conditions in democratic societies and the
conditions in their own countries became increasingly apparent to
the people, despite regime attempts to control information.
Independent groups, calling on their governments to respect basic
human rights, such as the freedoms of speech, association and
assembly, gained popular support. Eventually, the bankrupt
political systems dissolved in the face of disillusionment and
demoralization within the regime, popular demands for fundamental
change, and external international pressures for democratization.
At this point, transitional governments came to power, not
yet perhaps themselves fully democratic, but clearly committed to
undertake sweeping reforms needed to establish functioning
democratic systems. They pledged to respect human rights and
undertake free elections. They freed political prisoners and
took action to reform or eliminate instruments of state
repression, provided greater independence to the judiciary, and
removed restrictions on civil society, the media and independent
economic activity and private property. And they removed travel
restrictions and other barriers that had isolated their people
from the outside world.
While citizens themselves provided the impetus for change,
external assistance has played an important role in facilitating
many of these transitions. Foreign governments and international
organizations and lending institutions have supplied critically
important resources, training, and technical assistance necessary
to overcome the legacy of the past. They have contributed
assistance to help improve social conditions, build new
political, economic, and judicial institutions, develop new laws,
strengthen civil society and private enterprise, and support the
economic liberalization and stabilization policies that spur new
growth.
B. Cuba Awaiting Transition
Cuba remains the only country in the Western Hemisphere not
committed to democracy and a market economy and the only country
in the former Soviet bloc not even in transition to democracy.
The disintegration of the Soviet Union has exposed the degree to
which Cuba’s economic model was unsustainable without the
artificial "life supports" of massive Soviet subsidies. The
Cuban economy has contracted to a level roughly one third to one
half below its level in 1989, with little prospect of rebuilding
the country's capital base absent fundamental reforms. Even
before the loss of Soviet subsidies, Cuba was progressively and
predictably losing ground economically relative to other
countries in Latin America. Among the most prosperous countries
in Latin America in the 1950s, Cuba now has a per capita GNP
about one third that of Chile and about one sixth that of
Argentina.
Health and nutrition conditions have deteriorated notably in
Cuba. Hospitals and schools remain open, but lack supplies.
Since well before the current "special period," chronically low
levels of investment produced a severe housing shortage and
serious deterioration of Cuba's infrastructure. Ever increasing
numbers of Cubans are driven to black marketeering and other
illicit activities to survive in a dysfunctional economy. To
alleviate food shortages, the regime was forced to reestablish
farmers markets. But overall agricultural productivity remains
extremely low. Central government control of the sector remains
the norm, with little progress realized in converting state farms
to self-managing cooperatives and with significant portions of
the agricultural sector operated by the military. Small openings
to allow self-employment have been accompanied by restrictions
that hamper success and limit the creation of new jobs. While
the regime continues to deny the general population the benefits
of a market economy, it seeks to build an enclave foreign
investment sector and a tourism industry based on preferential
treatment for foreigners.
Cubans continue to be denied basic human rights. They
cannot form alternative political parties to the Communist Party,
elect representatives of their own choosing, form free
associations such as independent trade unions, or freely express
themselves, and they are denied recourse to an independent
judiciary that could protect their rights. Since 1991, the
United Nations has voted annually to assign a Special Rapporteur
on human rights in Cuba, but the Castro regime has refused to
cooperate. Since 1990, the International Committee of the Red
Cross has been denied the limited access they previously had to
the prisons in Cuba where thousands of political prisoners,
housed along with common criminals, suffer abuse and deplorable
conditions.
Disenchantment with the current regime's marxist ideology,
economic mismanagement and abuse of human rights is widespread,
but the regime's only response has been further repression of
human rights activists and intolerance of reformist views within
the government and affiliated institutions. The Castro regime
has rejected international advice and support for political and
economic reform. Efforts by the Spanish government to provide
technical assistance to the Cubans on economic reform stalled in
the face of the regime's intransigence. The European Union's
negotiations with Cuba on a cooperation agreement also floundered
when the regime refused to consider political reform. Hopes for
a political opening were dealt a severe blow by further
repression of independent groups in Cuba, such as those
comprising the Concilio Cuban, and by the hardline call for
ideological purity by the Central Committee of the Communist
Party in March 1996. Absolute political control remains the
paramount objective of the regime.
Repression is not the only tool the regime uses to maintain
the dictatorship and forestall a democratic transition. It also
attempts to manipulate information on conditions internally and
developments abroad to engender popular fears regarding the
future prospects of Cuba without Castro. The choice for the
Cuban people is not between the present and the past, as the
regime would have the people believe, but between the present
repression and economic malaise and a future of freedom and
opportunity for all Cubans.
Based on the experience of the last decade, one can predict
that, when given the opportunity to choose, the Cuban people,
like the people of every other nation of the Western Hemisphere,
and of every other former member of the Soviet bloc, will choose
democracy and a market-based economy. The purpose of this report
is not to predict the specific timing or circumstances of
democratic change in Cuba, but to help to dispel misperceptions
regarding the future challenges and opportunities that Cuba will
face once the transition process begins.
C. The United States and International Community Response to
a Cuban Transition
The Cuban Liberty and Democratic Solidarity Act reconfirms
the United States policy "that the self-determination of the
Cuban people is a sovereign and national right of the citizens of
Cuba which must be exercised free of interference by the
government of any other country." Thus, while a peaceful
transition and an expeditious economic recovery in Cuba will
serve the interests of both the American and Cuban people, the
timing, nature and course of the Cuban transition must be
determined by the Cuban people themselves.
Once Cuba has a transition government -- that is, a
government committed to the establishment of a fully democratic,
pluralistic society -- the United States will be prepared to
begin normalizing relations and provide assistance to support
Cuba's transition. Economic sanctions will be suspended and
negotiations will be initiated to promote bilateral trade
relations. To normalize relations fully with a democratic
government in Cuba, the United States is also prepared to enter
into negotiations to either return the Naval Base at Guantanamo
to Cuba or to renegotiate the present agreement under mutually
agreeable terms.
To ensure that assistance necessary to facilitate a
democratic transition and economic recovery is provided
expeditiously and effectively following the establishment of a
transition government, the United States will support the
creation of a donor coordination mechanism under the leadership
of an appropriate international organization. This mechanism
will allow the Cuban government to ensure that its priorities and
policies are clearly understood by the international community,
and facilitate the task of matching Cuban assistance needs to the
comparative advantages of each assistance provider.
In shaping its policies and assistance requests, the
transition government in Cuba is likely to have aspirations and
needs similar to those of other transition countries. While each
country is unique, there are common challenges faced by all
countries in transition from communism to democracy and market
economies. Thus, while the Cubans themselves will need to
determine their specific assistance needs, it is likely that a
Cuban government embarked upon a democratic transition will seek
assistance similar to that which has been provided to other
transition countries.
This would include assistance --
* to meet critical humanitarian and other import needs
early in the transition essential to relieving social
hardship and initiating the reactivation of the economy;
* to help the Cuban people and the transition government in
the process of building essential democratic institutions,
both in the government and in civil society; and
* to help establish the policy, institutional, and legal
reforms necessary to stimulate the domestic private sector,
meet the long-term social needs of the population, attract
foreign investment, meet conditions for lending from
international financial institutions and otherwise lay the
basis for economic recovery.
Over the medium to long term, the private sector should
supply much of the capital resources and know-how needed for a
sustained economic recovery following Cuba's transition, thus
eventually obviating the need for further foreign assistance.
D. The Favorable Prospects for Cuba Following Transition
Cuba has excellent prospects for achieving sustained
economic growth following a transition. First of all, it can
benefit from the accumulated transition experiences of other
Western Hemisphere and former Soviet bloc countries. The lessons
learned from the Soviet bloc transitions have been presented in
the World Bank's recently released World Development Report 1996,
From Plan to Market. One of the principal observations in the
report was the direct correlation between outward looking,
liberal economic policies, and new growth and prosperity. The
report noted that the transition countries studied typically
returned to growth after three years of sustained liberalization.
As Cuba has already undergone the shock from the collapse
of COMECON trade, the adjustment period for Cuba following
commencement of sustained economic liberalization is likely to be
shorter than that experienced by other former Soviet bloc
countries. Also, the smaller size of the heavy industry sector
in the Cuban economy relative to most of the former Soviet bloc
countries should reduce the amount of additional economic
dislocation due to adjustment problems common to this sector.
Cuba's proximity to the United States market and its location in
the heart of a rapidly growing trading region can provide an
impetus to growth. The importance of this factor has been amply
demonstrated by the former COMECON countries of Central Europe
whose growth has been stimulated by rapidly expanding trade and
investment with the European Union.
Cuba has a number of other advantages that many of the
former Soviet bloc countries lacked. It is a relatively well-integrated society with a single language. Although there are
racial tensions in Cuba, they are not comparable to the serious
ethnic divisions that have plagued a number of transition
countries. Cuba has a relatively educated, flexible, and mobile
workforce that can be readily absorbed into new economic
activities, and the Cuban people demonstrate a strong
entrepreneurial spirit. Cuba will also be able to draw upon the
support of a large overseas Cuban community with extensive
business and technical expertise, market connections, investment
capital and a commitment to help their families and fellow Cubans
on the island. Finally, a Cuba in transition can count on the
strong bilateral and multilateral support from the United States
due to the clear U.S. national interest in having a stable,
prosperous and democratic neighbor.
As the World Bank president states in the introduction to
the report From Plan to Market, economic transition essentially
"is about how to unleash the enormous talents and energies of
their populations, and how to help them achieve their countries'
vision for a future of opportunity and well being for all their
citizens." With an estimated 40% of the Cuban labor force
unemployed or underemployed; with much of industry running at
only 20% of its former capacity; with agriculture reflecting the
poor productivity typical of highly state-controlled economies;
and with individual rights, initiative and creativity repressed;
it is not difficult to recognize the tremendous under-utilization
of Cuba's natural and human resources.
Most Cubans long for greater personal freedom and recognize
that a market economy would dramatically improve the overall
economic prospects of the country. Nonetheless, some Cubans have
reservations about a transition in Cuba, fostered by the regime's
negative depictions of other transitions and by its claims that
transition or democratic governments in Cuba would not be
concerned with issues of national sovereignty, justice, equity,
reconciliation and social welfare. Yet supporters and opponents
of the present regime should both agree that these are broadly
held values in the Cuban population, and thus they can be
expected to be guiding principles of transition and democratic
governments.
Personal concerns regarding a transition may vary. The
pensioner may be concerned about further erosion of his pension.
For him, a transition means a healthier economy in which the
productively employed generate sufficient resources to provide
improved living standards for the entire population, including
pensioners. The worker, having seen real reductions in his wages
or the disappearance of his job, can expect that a transition
will increase job opportunities and that independent trade unions
and effective labor laws will protect his interests and allow him
to share the benefits of a growing market economy. Should he
become unemployed for a period during the transition, he can
expect that reasonable unemployment benefits and services will be
available to him. The small farmer or homeowner who has acquired
rights to previously confiscated property will expect a
transition government to give due consideration to his acquired
rights as it pursues resolution of legitimate property claims.
Citizens will expect their transition and democratic governments
to revitalize health and education services, improving quality
while ensuring basic coverage for the population. Government
officials and career military personnel should expect that a
transition government committed to national reconciliation will
prevent acts of retribution against those who do not seek to
undermine a democratic transition. Finally, Cubans should expect
that all citizens in a democratic Cuba will enjoy equal rights,
and that no Cuban citizen will be denied privileges granted to
foreigners.
As the transition and democratic governments seek to
fullfill these expectations, the necessary international support
will be available to help them do so.
II. Consolidating a Political Transition in Cuba
A. Human Rights in a Democratic Society
In the late 1940's, Cuba joined other nations in signing the
United Nations Universal Declaration of Human Rights, yet the
Castro dictatorship ranks among the world's most systematic
violators of human rights. The active and diverse civil society
that once existed in Cuba has largely been eliminated or placed
under state control. The present regime regularly imprisons,
harasses, and drives into exile Cubans who express unacceptable
views or create or join independent organizations.
A transition government in Cuba is likely to welcome
cooperation from the international community, particularly the
United Nations or the Organization of American States, to help it
ensure that human rights are respected in Cuba during its
transition. Assistance could be provided to monitor human rights
conditions, establish a human rights ombudsman function in Cuba,
develop an effective public defender service, promote prison
reform and meet the special needs of released political
prisoners.
Democratic countries have hundreds, or even thousands, of
diverse nongovernmental organizations (NGOs) and interest groups
of varying size, strength, membership, and specialization that
regularly influence political and social agendas, provide social
services, and affect daily life in many ways. In transitional
societies NGOs can play a critical role. They can fill social
needs not met by government, provide forums for citizens to
develop solutions to common problems, and draw public attention
to waste, corruption, and abuse of power in the government. NGOs
may also provide a means to peacefully channel and resolve
individual and group differences in society, thus reducing the
potential for disputes to result in violence.
Recognizing the important role of civil society in transition
countries, external donors have directed considerable portions of
their assistance to and through indigenous independent NGOs in
transition countries, often using NGOs from their home countries
as intermediaries. When Cuba begins its transition, the panorama
of Cuban NGOs likely to attract external support will include
formerly repressed independent NGOs, NGOs formerly controlled by
the government, and newly created NGOs. Examples include labor
unions, professional and business associations, cooperatives,
community organizations, social service organizations, women's
groups, environmental organizations, human rights organizations,
and private think tanks.
An independent media plays a crucial role in a flourishing
democracy and market economy. In addition to providing timely and
objective information to citizens, it serves as an independent
source of information to the government concerning public opinion
and the realities in the country. International NGOs can help a
Cuban transition government invigorate the independent media by
providing assistance to train independent journalists in
objective, responsible reporting methods. Technical and financial
assistance can also be provided to help establish private
independent radio and print media enterprises.
Critical to the development of democracy in any transition
country is the formation of a strong multiparty system that will
allow citizens of diverse views to effectively express themselves
politically, influence the government and its policies, and
peacefully reconcile diverse popular interests and agendas. Even
after restrictions to the formation of political parties are
eliminated by a transition government, the legacy of decades of
totalitarianism can impede the development of a strong competitive
multiparty system in which compromise, consensus building,
coalition building and democratic principles are the norm. To
help overcome the common problems of inexperience and political
culture in transition countries, donors typically provide
assistance through national and international NGOs to strengthen
democratic political parties. Training and technical assistance
may be provided to party leaders and activists to develop
organizational, fund-raising, communications and coalition
building capabilities.
B. Efficient, Democratic and Accountable Government
Transition governments face numerous governance challenges,
however they come to power. They need to maintain peace and
public order, without resorting to the authoritarian methods of
the past. They are also challenged to increase the openness,
transparency and responsiveness of the public sector. Moreover,
they are faced with the concurrent tasks of satisfying the basic
needs of the populace, beginning the process of national
reconciliation, and defining and initiating a program of political
and economic reform.
During the early phase of transition, the international
community can ease the transition government's task of meeting
basic needs by providing humanitarian assistance distributed
through existing official channels and through NGOs. Cooperating
countries and international institutions should also offer long-term advisors who can help coordinate the provision of technical
assistance to support the government's political and economic
reform agenda. Frequently, the impetus for reform is uneven
between different parts of a transition government, and this
factor can significantly shape the allocation of assistance.
While donors will generally attempt to respond to a transition
government's stated priorities, they will avoid committing
significant resources to a particular institution in which the
internal commitment to reform is lacking, regardless of the
objective importance of the institution and its programs.
Transition governments also face the longer term challenge
of reforming public management. Assistance is likely to be
provided to strengthen financial management, control and
accountability systems, develop depoliticized merit-based
personnel systems, and improve tax administration. A Cuba in
transition may also follow the example of other transition
countries by devolving real power and responsibility to local
governments. The international community can assist by providing
the central government technical advice on decentralization and
by providing training, technical assistance and resources to
local officials. Effective municipal governments can provide
much of the momentum for economic transition, as has been
demonstrated by the role they have played in the privatization
process in many transition countries.
Although the Cuban armed forces constitute one of the most
important pillars of the present regime in Cuba, they could
potentially play a positive role in Cuba's transition. The
militaries in other former communist countries have acquiesced or
actually assisted in democratic transitions. These militaries
have found that their core professional interests need not be
threatened by the advent of democracy and the withdrawal of the
military from non-military functions, such as internal security
and economic activities.
A professional military that is sized to Cuba's needs,
supportive of a civilian democratic government, and respectful of
human rights can expect to participate in the Inter-American
Defense Board, be welcomed to participate in international peace
keeping efforts and benefit from an array of military-to-military
cooperation arrangements, including with the United States.
Establishing the conditions for free and fair elections and
passing power to a democratically elected government is a major
goal of transition regimes. This entails ensuring freedom of
speech, press and association, allowing political parties the
opportunity to adequately organize and campaign, preparing
election laws, ensuring accurate voter registries, developing the
necessary administrative structures, training election officials
and poll watchers, and educating the public on the election
process and encouraging their active participation.
International assistance has been provided to transition
countries in all aspects of preparing for and undertaking
elections, including the acquisition of necessary equipment and
materials. The Organization of American States, or other
institutions, can also provide the additional assurance of
international election observers. In this hemisphere, major
international efforts have supported elections in countries such
as Chile, Nicaragua, El Salvador and Haiti.
Newly established democratic legislatures in transition
countries often need assistance to effectively perform an
independent legislative role that differs significantly from the
rubber-stamp role performed by legislatures in communist
countries. Donors can provide technical assistance to help
legislatures develop rules of order and procedure, committee
structures, and communications mechanisms with the executive
branch and the public. Exchange visits can be arranged for new
legislators to experience the operation of legislatures in other
countries, and technical assistance, informational materials and
computer systems can be provided to help with legislative
research and drafting.
C. Rule of Law
One of the more complex and lengthy tasks facing transition
countries is establishing the rule of law. In a country governed
by law, the basic instrument that shapes society, the economy and
the government is the constitution. The transition countries of
central and eastern europe developed their new constitutions
drawing heavily on their precommunist legal traditions. Cubans
may decide to retain aspects of their present constitution,
incorporate aspects of the 1940 constitution, and look to models
elsewhere in the hemisphere and beyond for yet other provisions.
If the Cuban authorities wish to examine the advantages and
disadvantages of different constitutional models and provisions,
the international community can assist in this process by
providing the advice of constitutional experts.
Generally, establishing the rule of law also requires reform
of the criminal and civil procedures and codes; the development
of law enforcement institutions that are capable of enforcing the
law while respecting guaranteed individual rights; a judiciary
that has the skill and independence to interpret and apply the
law impartially; a legal profession that can effectively advise
and represent individuals; public defenders who can defend
vigorously and independently those who do not have access to
private counsel; and respect for the rule of law by the citizenry
and public officials.
The experience from other transition countries demonstrates
the potential consequences of inadequate attention to developing
an effective rule of law following the dismantling of the old
authoritarian control structures. Crime and corruption can
increase significantly and the development of a market economy
can be seriously impaired. Based on this experience, the
transition government in Cuba, as well as donors, are likely to
give an early and sustained priority to developing and
strengthening the rule of law.
The international community can provide advisory and
institutional assistance in constitutional and legal reform to
help the Cuban government incorporate the most appropriate
elements from other legal systems into Cuba's own system. In
establishing the rule of law, assistance for civic education and
strengthening civil society can provide important complements to
assistance aimed at the development of legal institutions.
Assistance to law enforcement agencies can begin once
potential cooperating institutions have confidence that such
agencies are committed to enforcing the law while respecting
individual rights. A priority for a transition government is
likely to be the development of a law enforcement capacity to
deal with the potential threats of organized crime, fraud and
corruption. Such assistance can be provided by law enforcement
agencies from other concerned countries. As the volume of law
enforcement cooperation increases, exchanges of information
between Cuban and United States law enforcement agencies can be
facilitated by the negotiation of a Mutual Legal Assistance
Treaty similar to agreements that the United States has signed
with other countries, such as Canada, Mexico, Jamaica, Argentina
and Spain.
A democratic Cuba with a market economy will require
considerably more judges than the country has at present, and
they will need the skills and knowledge to effectively and fairly
adjudicate cases in accordance with new laws and procedures. A
major long-term effort will be required to retrain existing
judges and train new ones. Effective administration of justice
will also require training of other judicial personnel and the
establishment of efficient administrative procedures and systems.
Donor assistance can be helpful in all of these areas. In
addition, a transition in Cuba is likely to require short-term
measures to expeditiously deal with disputes such as property
claims. The international community can provide technical
assistance to help develop such mechanisms and institutional
support for their implementation.See footnote 1
III. Achieving Economic Transition and Recovery
A. Common Elements of Economic Transition
Although transition countries have each had their different
challenges and somewhat different near-term objectives, their
experiences have borne out some common lessons:
* Liberalizing the economies by opening trade and market
opportunities creates growth. This means allowing competitive
market prices to prevail in the economy and permitting the
formation and operation of new enterprises.
* Growth typically comes through expansion of the private sector
and reform and significant privatization of state enterprises.
* A policy of liberalization needs to be accompanied by a policy
of economic stabilization, entailing fiscal and monetary
discipline, and both policies should be consistently applied.
* Social safety nets can and should be restructured to protect
citizens during the transition to a market economy and beyond.
* Property rights should be clearly established and protected,
and appropriate financial, legal and regulatory systems need to
be developed.
* An educational system designed to serve a command economy will
require reform if it is to provide the appropriate mix of skills
for a new market economy.
* Integration into the global economy, including full
participation in international financial institutions and trade
organizations, is a key ingredient to successful economic
transition and recovery.
Technical and financial assistance from cooperating countries and
international financial institutions can play a critical role in
helping Cuba meet these challenges during its transition.
B. Private Enterprise and Independent Labor
The evidence from transition economies around the world
clearly demonstrates that small businesses, especially in trade,
services, and retailing thrive once restrictions are removed.
This sector can provide most of the growth and job creation
during the early years of a transition. Despite the many
restrictions on private enterprise in Cuba, particularly the
restriction against employing non-family members, the relative
success of the self-employed provides a clear indication of the
potential growth that Cuba can expect from this sector. Under
present Cuban law, a foreign firm can employ Cubans through the
state, but a private Cuban is prohibited from creating a job for
another Cuban, regardless of how beneficial such an employment
relationship would be to both parties. The Cuban entrepreneur is
denied the opportunity to become more successful and potential
employees are denied the opportunity to share that success.
From early in the transition, the international community
can help the government of Cuba create jobs and resurrect
economic activity by financing programs that will provide
technical assistance, training and credit to support the growth
of small enterprises. A broad range of international NGOs are
likely to become active in Cuba to help enterprising Cubans start
and expand their own businesses.
Removing state controls and stimulating private initiative
in the agricultural sector will also provide significant growth
during the early transition years in Cuba. Farmers in Cuba, as
elsewhere, have clearly shown the beneficial productivity effects
of market incentives and individual ownership of land.
International assistance can be particularly helpful in
establishing the mechanisms to expeditiously title and register
new private plots and develop land markets. For groups of
farmers who prefer to operate as production cooperatives, donors
can provide assistance to help them increase productivity and
take full advantage of a market economy. External assistance may
also be provided to help farmers establish and operate
independent credit and/or service cooperatives. In addition,
assistance may be provided to help privatize remaining state
farms, agro-processing facilities and export marketing functions,
and to stimulate the development of other private support
services, such as the leasing of equipment and the provision of
agricultural inputs.
C. Legal and Institutional Framework for a Market Economy
To encourage the domestic and foreign private investment
necessary for economic recovery and long-term growth, Cuba, like
other transition countries, will seek to develop a legal and
institutional framework that will provide a supportive, fair,
transparent, and predictable business climate. Individual
property and other economic rights need to be defined and made
secure, while protecting public interests.
To secure property rights for all citizens, Cuba may seek
assistance to establish a reliable property titling and registry
system. Like many other transition countries, Cuba will also
face the task of resolving the legacy of property confiscations
in order to build the confidence of citizens and foreign
investors alike that property rights will be protected in Cuba in
the future. By promptly initiating a process to clearly identify
who are the recognized owners of property, and by acknowledging
the intent to provide some form of compensation to legitimate
claimants who will not have their property returned, Cuba can
minimize the scope and period of ownership uncertainty that can
impede property exchanges and investment.
It will be up to the transition government to determine the
circumstances under which it is advantageous to restore
properties to former owners versus providing compensation.
Common considerations include equity concerns for those who have
acquired competing rights to property, the length of time
required to clarify ownership under both approaches, and the
government's interest in seeing productive property put to
economic use. The transition government will have the challenge
of balancing these concerns in order to avoid dislocation or
hardship for ordinary citizens while laying the foundations for
economic growth.
The experiences of various countries of Central and Eastern
Europe may be useful to Cuban officials in determining the best
approach to claims resolution. While claims espoused by foreign
governments, such as the United States, may be readily resolved
through bilateral negotiation, the larger number of claims that
would be subject to individual resolution under Cuban law
presents a greater challenge. International assistance can be
provided to help develop solutions that are politically,
administratively and financially viable. The utilization of
transferable privatization vouchers as a form of compensation is
one example of creative solutions that have been used elsewhere.
In addition to securing property rights, transition
governments establish other new laws to promote and regulate
economic activity in a market economy, and generally protect the
public interest. Technical, training and financial assistance
will be available to help Cuba develop suitable laws and
enforcement institutions relating to collateral, contracts,
companies, bankruptcy, securities, land, condominiums, foreign
investment, prevention of monopolies, labor codes, consumer
protection and environmental regulations.
In order to efficiently mobilize and allocate investment
capital and support private sector led growth, transition
countries have had to undertake significant reform of their
financial sectors. Reform of the financial sector has equity as
well as efficiency implications. Instead of having credit
allocations determined administratively or politically, credit
should be broadly available to those borrowers who can
productively use it and repay their loans.
International assistance can be provided, particularly by
the international financial institutions, to restructure the
state banking system with the prospect of partial or complete
privatization; to develop the laws, regulations and supervisory
capacity for a financial system that includes private banks; and
to train bankers to adequately assess commercial risk on loans to
private borrowers and state enterprises alike. Technical
assistance can also be provided to help develop the legal and
institutional framework for the operation of other financial
markets, such as securities markets, venture capital operations,
insurance and pension funds, and home mortgage lending. Private
capital and expertise will play an increasingly important role in
the development of the financial sector as the transition
proceeds.
D. Managing the Economic Transition for Growth and Equity
The more successful transition governments have established
coherent policies to liberalize and stabilize their economies in
order to stimulate economic growth. Cuba has undertaken a number
of stabilization measures to cope with the shock of the loss of
Soviet subsidies and COMECON trade, but its liberalization
measures have been far too limited to stimulate significant
growth. External technical assistance will be available to help
a transition government formulate and carry out stabilization and
adjustment policies that will promote growth while protecting
vulnerable groups. In addition, capital resources, primarily
from the international financial institutions, will be available
to help cover financial gaps during the stabilization and
adjustment process. With a sound policy framework, private
capital flows will play an increasingly important role in
financing the stabilization, adjustment and recovery of the Cuban
economy.
Cuba can expect assistance similar to that provided to other
transition countries to reform and privatize state enterprises.
Donors can help the Cuban government design and implement
privatization processes that are transparent and encourage broad
participation. Privatization programs that provide partial or
full ownership to workers can be designed where such solutions
are appropriate to meet the government's social and economic
objectives. Expertise can also be provided to help the
government negotiate the most favorable terms on large scale
privatizations.
Assistance in tax administration can be provided to help the
Cuban government develop a tax system to obtain adequate revenues
through broad compliance and enforcement of reasonable tax rates
on consumers and the emerging private sector. On the expenditure
side of the budget, assistance can be provided to help improve
the efficiency of key government services. For example,
comparisons of the cost of the Cuban health system with the costs
of the health systems in countries in the region with comparable
health indicators reveal that Cubans could have the same or
improved health results at considerably less cost. A transition
government in Cuba may also obtain donor assistance to help
establish the long-term viability of the government's pension and
disability system, and ensure that unemployment and social
assistance programs provide effective protection to vulnerable
groups during the economic transition and beyond.
In the early part of Cuba's transition, humanitarian
assistance can help address immediate social needs and cushion
the impact of adjustment measures. Assistance will also be
offered to help minimize unemployment created from layoffs from
state enterprises, the central government and the military. This
would include retraining, job placement services, the financing
of labor-intensive public works projects, and programs and
policies aimed to spur job creation in the private sector.
E. Developing the Human Resources for a Successful
Democracy and Market Economy
While politically constrained, Cuba's educational system has
provided both broad access to basic education and extensive
higher education in the fields of study considered important by
the regime. The challenge to Cuban authorities following a
transition will be to preserve the positive aspects of Cuba's
education system while adapting it to meet the educational needs
characteristic of a democracy and a market economy. Donors can
provide assistance to the Cuban government in developing or
revising academic programs in areas such as market economics,
finance, accounting, business management, law, sociology and
history. Assistance may also be provided to train teachers in
methodologies that encourage critical thinking and creativity.
As private educational institutions spring up to meet particular
needs not met by the public educational system, assistance may
also be provided to help develop accreditation and oversight
procedures. Donors also will be prepared to assist with other
educational reforms, such as decentralization and alternative
financing schemes for higher education.
F. Rebuilding Infrastructure
Years of low investment combined with neglect of maintenance
in recent years have led to serious deterioration in Cuba's
infrastructure. Significant investment will be needed in water
and sanitation, power, telecommunications and transportation
systems. Initially, the international community can help improve
service by providing resources to finance inputs, spare parts and
repairs. Technical assistance can also be provided to the Cuban
government to develop an infrastructure investment plan that
would identify emergency requirements and long term needs. Over
the medium term, the Cuban government will probably seek donor
assistance to finance feasibility studies; improve the operation
and financial viability of public utilities; undertake the
privatization of utilities and encourage competition in services;
and develop regulatory mechanisms for natural monopolies. While
some financing for major capital investments may be available
from the international financial institutions and bilateral
sources, over time the bulk of external financing for
improvements in Cuba's infrastructure is likely to come from
private sources.
G. Integration into the Global Economy
A transition in Cuba will set in motion the process for
Cuba's reintegration into the regional and international
organizations that can provide important financial resources for
economic restructuring. Restoration of membership in the
International Monetary Fund (IMF) should be an early priority,
both to gain access to IMF credits and as a necessary step toward
renegotiation of Cuba's external debts. Renegotiation of the
external debt will result in renewed credits from official and
private sources. Readmission to the Organization of American
States will allow Cuba to become a member of the Interamerican
Development Bank (IDB). IDB and World Bank membership will allow
Cuba access to structural adjustment loans. The United States
will support early membership in these organizations and will
offer bilateral assistance to help Cuba meet conditions for
membership and loans.
Cuba's economic recovery during transition will be
significantly aided by the increased opportunities for trade
resulting from marketization of the economy and the lifting of
the United States embargo. Cuba can also expect United States
support for Cuba's inclusion in international trade agreements,
and bilateral assistance to help Cuba overcome internal
constraints to trade. Helping Cuba establish an attractive
investment climate should also be an objective of the overall
assistance program. Investment accords with the U.S. Overseas
Private Investment Corporation (OPIC) and the World Bank's
Multilateral Investment Guarantee Agency would allow foreign
investors to obtain from these organizations political risk
insurance and financing for their Cuban investments and provide
the Cuban government access to investment advisory services.
IV. Conclusion
Well conceived and implemented political and economic
transition programs that lead to democracy and market based
economies are mutually supportive. A democratic government, a
free press, an active civil society, and the rule of law, will
all help ensure that a market economy emerges in Cuba that will
benefit all Cubans. Similarly, economic policies that lead to
growth and broad dispersion of property ownership, while
protecting vulnerable groups, will help guarantee political
stability and the consolidation of democracy.
Cuba has the human and natural resources to become a free
and prosperous nation. When it undertakes a transition to
democracy, Cubans from all walks of life, from San Antonio to
Maisí, can count on the United States and the international
community to help them forge a peaceful future, free from
repression and economic misery. Cuba will then take its rightful
place in the democratic community of nations, befitting its long
history of struggle for freedom.
ANNEX
RESOURCE FLOWS TO SUPPORT
CUBA'S TRANSITION AND ECONOMIC RECOVERY
I. Bilateral and Multilateral Flows and Private Assistance
A transitional government in Cuba committed to undertake
fundamental political and economic reforms and ready to work
cooperatively with external donors can expect substantial amounts
of support from the United States, other governments, the
European Union, agencies of the United Nations, the World Bank,
the Interamerican Development Bank (IDB), and the International
Monetary Fund (IMF), as well as from private sources, such as
private voluntary organizations.
Prior to the advent of the current regime, Cuba was a member
of both the IMF and the World Bank. Following a political
transition, it should be a relatively straightforward process for
Cuba to rejoin these two institutions. Cuba was never a member
of the IDB. Consequently, the question of Cuba's voting share in
the IDB would have to be resolved and Cuba would have to first
rejoin the Organization of American States. These should not be
serious obstacles. The amount of lending from the multilateral
development banks would depend on a number of factors, including
Cuba's possible eligibility for concessional financing under the
International Development Association (IDA) of the World Bank,
and the Fund for Special Operations (FSO) or the Intermediate
Financing Facility (IFF) of the IDB.
Grant and other concessional assistance will be most
significant in the early years of the transition. Due to
proximity and national interest, the United States can be
expected to be the predominant bilateral provider of such
assistance, as was the case in other nearby countries that have
undergone significant political change, such as Panama, Nicaragua
and Haiti. While some concessional and non-concessional official
credits and credit guarantees from various countries should start
to become available early in the transition, Cuba will need to
enter a funding agreement with the IMF and renegotiate its
outstanding official debt before it can fully take advantage of
this type of financing.
At this time, no country or international institution is in
a position to make a specific funding commitment to support
Cuba's transition. Nonetheless, it is reasonable to project
that, during a six year period following the establishment of a
transition government, Cuba would receive from $4 billion to $8
billion in private assistance and loans, grants and guarantees
from the international financial institutions, multilateral
organizations, and individual countries. After this period, the
economic transition should be well advanced, and private and
commercial flows into Cuba ought to be sufficient to make the
economy self-sustaining without significant further external
official assistance.
II. Remittances and Foreign Direct Investment
With the removal of restrictions on remittances by the Cuban
community in the United States, it is likely that there will be a
surge in remittances starting early in the transition. These
resource flows will provide both a positive stimulus to the
economy and an important source of financing for small scale
private investment. Projections based on remittance flows from
other immigrant communities in the United States suggest that
remittances to Cuba following a transition could exceed a billion
dollars per annum.
While the Cuban Government has released varying figures on
the total amount of foreign direct investment in Cuba, the amount
of investment actually realized appears to be significantly lower
than official declarations. With a democratic transition and
market economy, dramatic increases in foreign investment can be
expected to provide much of the capital needed for Cuba's
economic recovery. It has been estimated that a three country
composite of comparable Latin American countries (Costa Rica,
Dominican Republic, and Jamaica) received $267 million in foreign
direct investment in an ordinary year. Given the investment
opportunities that a reformed Cuba would offer, it is likely that
foreign investment in Cuba would be substantially greater than
this total.
III. Conclusion
The amount of available financing, official and private, for
Cuba's transition appears to be quite large, certainly larger
than what was available on a per capita basis to any of the
countries of the former Soviet Union. Assuming a will on the
part of the transition government to carry out reforms
expeditiously, ample funding to facilitate that process should be
available.
Footnote: 1 Additional detail on possible types of assistance to help
a transition government in Cuba resolve claims to confiscated
property is contained in a report to Congress submitted in
compliance with section 207 of the Cuban Liberty and Democratic
Solidarity Act of 1996.
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