Cuba Sanctions Serve U.S. Interests

Thursday, February 27, 2014
By Jorge Benitez in U.S. News & World Report:

Lining a Dictator's Pockets

No good would come of lifting the embargo on Cuba.

Based on a new poll it commissioned on U.S. relations with Cuba, the Atlantic Council issued a report recently calling for a “policy shift” that would end the U.S. embargo on the Castro regime. But when asked to respond to the statement that “after more than 50 years of no U.S. relations with Cuba the Castro regime remains in power,” 51 percent of those polled want to keep the current policy in place.

Nevertheless, the key issue is not whether the embargo is popular. Rather, the main question is, would dropping the embargo better serve the interests of the United States? The answer to this question remains a strong "no," because ending the embargo would be bad business, strengthen an oppressive government and abandon American values.

The U.S. should not normalize trade with the Castro regime for the plain and simple reasons that his ventures lose money and his government is an international “deadbeat.” Any economic partnerships with authoritarian regimes are morally suspect, but making deals with the Castro government is pouring billions of dollars down the drain. In 1986, Cuba defaulted on its multibillion dollar debt to the Paris Club of nations. That debt is now estimated to be around $37 billion and the Castro government refuses to pay it. A couple of months ago, Russia had to write off 90 percent of Cuba's $32 billion debt. That’s almost $29 billion dollars that Castro will never pay back to Moscow. In November, Mexico wrote off $340 million of Cuba’s debt to its development bank, Bancomext. It is no wonder that, according to Moody’s, Cuba’s credit rating is Caaa1, which means worse than highly speculative and a “substantial risk” to investors.

It makes no business sense to drop the embargo for the sake of trading with a government that reneged on so many loans its credit rating is now at the subprime or “junk bond” level. Yet, loans are what would be necessary to “normalize” relations with Cuba. The embargo allows for U.S. food and humanitarian supplies to be sold to Cuba. In fact, the U.S. is currently the fifth largest exporter to Cuba. The big difference is that, according to the embargo, the Castro government must pay for all U.S. imports with cash, no credit allowed.

This brings us to the most overlooked and dangerous factor in trading with Cuba. Most of the Cuban economy is owned by the Castro government and all foreign trade is channeled through agencies that support the regime. For example, all foreign companies must pay wages in hard currency (dollars or euros) to the Cuban government, and from those wages the state pays in local currency (Cuban pesos) a small percentage to the individual employees. As a report by the Brooking Foundation described it: “If the firm pays the employment agency $500 a month and the employment agency pays the workers 500 pesos, over 90 percent of the wage payment disappears in the currency conversion; the effective compensation is instantly deflated to $21 per month.” Brookings said this may be “the world’s heaviest labor tax.” Or as one Cuban worker disclosed: “In Cuba, it’s a great myth that we live off the state. In fact, it’s the state that lives off of us.”

This is why decades of trade between Cuba and market economies in Europe, Canada and Latin America have only lined the pockets of the Castro government and not produced any of the promised political or economic benefits for the people of Cuba. This is what “normalized” relations with Cuba looks like. If the U.S. dropped the embargo, our companies would join those from around the world that pay dearly to the Castro regime as it exploits the Cuban people. It is this corrupt system, not the embargo, which deprives the people of Cuba of the benefits of trade and the skill of their labor. As the U.S. argued in the United Nations, “the Cuban Government’s own policy was the largest obstacle to the country’s own development, concentrating political and economic decisions in the hands of the few and stifling economic growth.”

Ending the embargo on the Castro regime would be a blow not only to American wallets, but also to American values. The American people want “free trade with free people,” not manipulated trade that strengthens an authoritarian government’s oppression of its people. The Castro regime is on its last few breaths and the Cuban Spring will soon come to millions who will remember that for decades the U.S. chose solidarity with the Cuban people instead of business partnerships with the dictator in Havana.