Former Secretary of Commerce Carlos Gutierrez said Tuesday that now is the time for Cuba to start exploring membership in international financial institutions if it wants to attract investment capital, grow and develop its economy.
“The key assumption we’re making — at least that I’m making — is that Cuban wants to change its economic policy. Economic development requires capital. There really isn’t any alternative to that,” said Gutierrez, who served as secretary of commerce from 2005 to 2009 under George W. Bush.
And the most important thing potential investors in Cuba need to hear from Cuban policy makers, he said, is recognition of their need to have a return on capital. “For me, this is not about ideology; it’s about numbers,” said Gutierrez.
“If there is a problem with the idea of profit, then this will never work, and I think what businesses need to hear from the Cubans [is] that they understand that profit is an essential part of growing a business,” said Gutierrez. “I would also encourage Cuba to embrace, to allow private businesses to make a profit.”
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Gutierrez spoke in Washington at an event launching an Atlantic Council report on Cuba’s potential reintegration with the world economy and international financial institutions, including the World Bank and International Monetary Fund. The report looks to economic transitions in Viet Nam and Albania as possible models for Cuba.
Since 2008, Cuban has been methodically reforming its economy, allowing limited private enterprise because the state can no longer provide work for everyone, building its tourism industry and rewriting its foreign investment law to attract more foreign capital.
“To jumpstart Cuba’s economy, he [Cuban leader Raúl Castro] will need to accelerate the fiscal and monetary reforms started in 2008,” said the Atlantic Council report authored by Pavel Vidal, a Cuban economist, and Scott Brown, the IMF’s former mission chief for Albania. “International financial institutions.... hold the key to easing Cuba through a tough transition to a more stable economic model that will better the lives of its people.”
Vidal addressed the session via video from the University of Cali, where he is teaching. He said there is now a “unique opportunity” for international financial institutions to support and stimulate Cuba’s economic reforms.
Among the benefits to Cuba, he said, could be technical assistance on thorny problems, such as unifying Cuba’s dual currency system and reforming state enterprises.
“Cuba cannot continue with two currencies. The Cubans know this,” said Gutierrez, whose name has been mentioned as a possible U.S. ambassador to Cuba once the United States and Cuba renew diplomatic ties next week. “Reunification [of the currencies] will be painful. It will reduce foreign reserves in the short term and that will have to be made up through hard currency, investment capital and trade.”
“I can’t see anything but benefits for Cuba” if the government decides to become a member of the IMF or the IDB, Vidal said.
Cuba withdrew from the World Bank in 1960 and left the IMF in 1964. It was never a member of the Inter-American Development Bank. Officials with the Development Bank of Latin America (CAF) recently held a conference in Havana and are exploring opportunities for Cuba to join the bank.
Gutierrez, who is now chairman of the Albright Stonebridge Group, said Cuba can begin the process by starting a dialogue and building confidence with the international financial institutions.
But Cuba’s global economic reintegration is still hampered by the U.S. embargo against the island and the Helms Burton Act.
While the United States is tied by the Helms Burton Act, which not only requires the United States to oppose Cuban admission to such international institutions but to reduce funding if Cuba is admitted over U.S. objections, Gutierrez said the U.S. could still exercise its obligation to vote ‘no’ but allow other members to vote as they wish.
But in the meantime, Cuba faces serious short- and medium-term economic risks because support from its Venezuelan benefactor is drying up and it also has a rapidly aging population that comes with a huge fiscal cost at a time when Cuba is trying to enact economic reforms, said Rafael Romeu, a former IMF economist and now president and chief executive of DevTech Systems.
The Atlantic Council event came on the eve of the semi-annual meeting of Cuba’s parliament, the National Assembly, where the resurgence in the economy will be one of the major topics. Economy Minister Marino Murillo has already announced that the Cuban economy grew a little over 4 percent in the first half of the year.
Although the Cuban economy grew only 1.3 percent in 2014, the goal for annual growth this year is 5 percent. But to achieve growth of more than 5 percent, the government has estimated it will need more than $2.5 billion in investment.
The rapprochement between the United States and Cuba has already resulted in an increase in remittances and more U.S. travelers to the island. But Cuba still has to pay cash for the limited U.S. exports it is allowed to buy, which means the impact on trade won’t be significant, said Jose Ignacio López Perea, head of global commercial banking for BBVA.
The new relationship, he said, could have an impact of .5 to 1 percent on Cuban economic growth. While that isn’t huge, López said, it’s still noteworthy given Cuba’s recent sluggish economic performance.