For over 50 years, US policy toward Cuba has had the single aim of isolating Cuba from the outside world and forcing the collapse of the island nation’s economy in hopes of bringing about regime change. Other than a small, vocal group in Miami and Washington, the rest of the world now acknowledges the obvious truth that US policy has been a categorical failure. It is less often recognized, however, that US policy may actually have made change on the island less likely. An amendment last week proposed by Florida Rep. Mario Diaz-Balart, a longtime defender of the status quo in US policy toward Cuba, is the most recent evidence of this fact.

Last week, Rep. Diaz-Balart introduced an amendment to the FY2012 appropriations bill, which, if signed into law, would roll back the positive steps taken by President Obama to allow Cuban-Americans to travel and send money to their families in Cuba. “The changes [implemented by the Obama Administration] have been the largest source of revenue of [Castro’s] dictatorship,” stated Rep. Diaz-Balart. Rep. Diaz-Balart’s statement to the Miami Herald reflects a profound disconnect with the realities on the ground inside Cuba as well as human disconnect regarding the impact of these policies on Cuban families both on the island and in the diaspora.

According to recent reports, over 350,000 Cuban Americans traveled to the island in 2010, most of whom are constituents of Rep. Diaz-Balart. Estimates suggest that remittances and goods sent to Cuba in 2010 by Cuban Americans under the regulations implemented by President Obama (which allowed unlimited family travel and remittances) totaled approximately one billion US dollars. Putting aside for a moment the moral and ethical arguments (as well as the Universal Declaration of Human Rights) in favor of allowing family members to visit and support each other, there are very good arguments as to how these activities can help ordinary Cubans take greater control of their lives through economic empowerment.

At the time President Obama announced these new regulations in April 2009, Cuba’s new president, Raul Castro, had begun a national dialogue about the need for “structural changes” to Cuba’s economic model in response to the severe crisis created by the government’s failed socialist model. Since then, Cuba has undergone its most profound economic reforms in 50 years including authorizing over 150 categories of self-employment. In the months since the announcement, Cuba reports it has issued over 200,000 licenses to entrepreneurs. While these new entrepreneurs face a number of obstacles created by Cuba’s bureaucracy including high taxes, the lack of wholesale markets, limitations on the authorized categories of self-employment and many others, Cuba’s cities are now blossoming with private businesses including restaurants, bed and breakfasts and all kinds of new and used consumer goods kiosks. Given the severe lack of capital and credit in Cuba, most of these businesses depend on family remittances and travel by family members to stock shelves, acquire the necessary equipment and capitalize themselves.

Rep. Diaz-Balart’s amendment comes at a time when Cuba’s civil society is uniquely positioned for the first time in 50 years to reduce its dependence on the Cuban government and to empower itself through entrepreneurship. Microfinance institutions work tirelessly to raise capital and deploy national networks to offer credit to entrepreneurs throughout Latin America, and in Africa, India, China and nearly every country of the world. While the Cuba Study Group has long championed the concept of microfinance in Cuba (a concept we introduced in a 2006 white paper), we recognize that the power of family remittances and travel are a powerful, direct and cost-effective way to spark entrepreneurship in Cuba in the short term. The small businesses that have been born out of these family links hold the promise of a better future for many Cubans. While we acknowledge that remittances and small business growth alone cannot resolve Cuba’s many economic and political problems, it is clear that they represent hope for thousands of Cuban families.

In order to encourage the promising transformation now underway, US policymakers must acknowledge not just the failures of maintaining the status quo in US policy toward Cuba, but also the important role that economic empowerment can play in fundamentally transforming Cuba’s civil society. Travel by Cuban Americans to visit and assist family has contributed to empowering Cuba’s civil society and has enabled ordinary Cubans to create independent businesses. Congress would do well to look beyond Cuba to the worldwide experience of microfinance, for example, for answers on how to bring about real change on the island.

Image credit: US Federal Government

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Cuba & Remittances: Can the ‘Money in the Mail’ Drive Reform?

The Center for Financial Inclusion (CFI), in conjunction with the Cuba Study Group, in January sponsored the “Cuba Small Business Summit.”

Participants in the event, which was hosted by the Council of the Americas in New York, examined questions that included: “Could remittances from the US play a key role in providing finance to Cuban new start-up enterprises, in the absence of private or public banks in a position to lend?”

The Miami Herald this week published an op-ed by Sergio Bendixen and Donald Terry that fleshes out the answer to that question.

Bendixen is a founding partner of Bendixen and Amandi International; Terry is former general manager at the InterAmerican Development Bank and current lecturer at Boston University Law School and consultant with the World Bank in Africa. Terry is also a member of CFI’s advisory and faculty councils.

Highlights of the piece, “Remittances and Cuba,” include:

“A commitment from the Cuban government to allow all remittances to enter the Cuban economy freely, unburdened by taxes or other cumbersome regulations, could result in remittances reaching $2 billion to Cuba in the coming years.”

“Limited research has shown that more than a third of Cuban recipients would like to invest a portion of their remittances in some form of business enterprise. Remittances to Cuba are already providing important support to the incipient growth of the micro and small enterprise sector, the most likely source of employment for a growing number of Cubans.”

“Next month’s Cuban Communist Party Congress provides a historic opportunity for the Castro government to acknowledge the new US remittance policy, and match it with a gesture of its own, to the benefit of the Cuban remittance recipients.”

Image credit: US Federal Government

With up to one million state workers moving off the government payroll in the next year,  President Raúl Castro and the Cuban leadership seem committed to strengthening the microenterprise and small business sector—with self-employment now the certain future of so many Cuban workers.  Could remittances from the United States play a key role in providing finance to these new start-up enterprises, in the absence of private or public banks in a position to lend?

On January 19th, the Center for Financial Inclusion, in conjunction with the Cuba Study Group sponsored the “Cuba Small Business Summit,” which was hosted by the Council of the Americas, at its headquarters in New York. The summit focused on the outlook for profound change in the employment picture in Cuba in the wake of a new commitment to economic reform announced in September 2010 by the Cuban government.  One question was on everyone’s mind. Were the newly enacted economic reforms beginning to make a difference in the lives of ordinary Cubans?

The answer from the panel of experts, many of whom had recently visited Cuba, was a confident, if anecdotal, yes. Most compelling was the consensus finding that the government was doing everything it could to expedite the issuing of business licenses to the growing number of people wanting to establish micro-businesses—up to 75,000 since October. Whatever the number, more and more entrepreneurs are seen hawking their wares and services in the streets, and unlike in the past, the state media is no longer excoriating them for being “ingrates” and “pilferers,” but speaking of them with respect, if not reverence. This represents a sea change in the official view and the sixth Communist Party Congress in April will focus on the need for economic change and may go even further in endorsing the growth of private enterprise. (Already, the government has lowered remittance transaction costs.)

Fortuitously, on the eve of the summit, President Barack Obama used his executive authority to open the way for a vast expansion of remittances to the island—even now approaching more than $2 billion a year in hard currency and another $2 billion in merchandise remittances.  Residents of the United States will for the first time be permitted to remit to nonrelatives up to $500 per quarter, per recipient—with no limit on the number of possible recipients. At least in theory, remitted money could serve as a source of working capital for legions of new micro- and small businesses. Remittances could answer in the short term one of the greatest challenges of creating a microenterprise and small business sector from scratch in Cuba—the lack of financial capital. Merchandise remittances might also provide access to some key goods at near wholesale prices—the lack of wholesale markets being identified as a huge obstacle to business creation on the island.

And remittances will certainly increase in importance for the newly self-employed by cushioning the transition from cradle-to-grave social welfare (however meager) provided by the Cuban state, to a scary new world where the safety net is full of holes.

It is important to emphasize that most of the remittances flow to white Cubans on the island from their white relatives in the States.  Meanwhile, few members of the very large (possibly majority) Afro-Cuban population receive remittances, so this important group may have the most to lose if the economic reforms and privatization are successful. (For example, those not working for the state lose free childcare.) Race and class issues have clearly deepened over the last 15 years.

There are a number of obvious objections to an unorthodox remittance-fueled route to financing microenterprises that do not have easy answers:

1.    Remittances would come in the form of grants, not loans, and would therefore not wean Cubans from the habit of dependency.

2.    In other countries it has proved difficult to mobilize remitted money for productive purposes, as it is most often used for immediate consumption.

3.    The likelihood of unacceptably high and growing income inequality between the haves and the have-nots, who do not benefit from remittances, is not a small one and could spark understandable resistance to needed reform from low-income people, especially if there are racial issues underlying the differences. The solution might be the creation of a dedicated pool of remittance money by the Cuban Diaspora and others, targeting vulnerable populations.

Surely, the preferred alternative would be the rapid emergence of a well-regulated banking sector providing quality credit and savings products customized to the Cuban market. But this is unlikely to happen anytime soon, and it will certainly not happen overnight. In the meantime, $2 billion plus in remittances may be an indispensable driver of a new private sector in Cuba, however imperfect.