Keeping the Balance: Cuban Path to Development
By admin March 25, 2016

Tags: ,

Cuba Obama Castro


On March 21, US President Barack Obama landed in Havana as his first trip to Cuba following the historic thaw in the US-Cuban relations last year. This unprecedentedvisit takes place approximately ninety years after Calvin Coolidge’s presidential trip to the small island. With references to the end of the Cold War, numerous American delegations–between 800 and 1,200 personnel–visited Havana to seal one of the Obama administration’s long-standing legacies.


However the potential opening to global markets can be both promising and worrisome.


Cuba’s economy has gradually shifted and changed after the approval of several landmark economic reforms in April 2011. The reforms granted autonomy to state businesses, moving 5 million workers to non-state sectors and, therefore, opened space for market forces decentralizing some economic decision-making. However, with a greater exposure to international financial system, the path ahead remains uncertain.


If the Government of Cuba plans to initiate new development programs – no matter how ambitious those plans might be – the government would need greater access to external investments, or Foreign Direct Investment (FDI). Naturally external investments would pressure the government to modernize its financial system. Despite the initial hype over the thaw, Cuba and other actors will face significant challenges to accommodate one another.


For Cuba, the basic economic challenges following the country’s entrance into the global market, will be the socio-political issues that have to be addressed. To have a better understanding of those challenges, just consider the linkages between economics and politics: three quarter of Cuba’s workforce is employed by the state and the average salary is USD$25 per month. To sustain the standard income levels, ordinary Cubans rely on the remittances they receive from their diaspora abroad.


In an alternative model, finance can replace this dependency on remittances and other informal sources of income. However, the only source of finance that is available to Cuban entrepreneurs is microfinance, which is state-owned, expensive, and inefficiently used. More significantly, Cubans will need time to acquire and gain experience with loan, financing and global credit rating systems. This knowledge gap will become more exposed once the country opens its doors to international investment and financial structure. It is widely argued that the US government as well as private and philanthropic sectors can help Cuba to fill in this information and knowledge gap.


However, once we consider the political and social forces in the island, the once optimistic economic vision becomes a bit more complicated. Welcoming external investment and financial actors inevitably means adding new players to the stage. Opening the country’s doors to financing and information would logically empower the very individuals who are ruled by the current government.


What lies ahead for Cuba is certainly a time of excitement as well as a time of uncertainty. The international community is responsible to facilitate the integration of Cuban society and economy in the international system by educating and modernizing Cuban financial and economic system. The island is filled with potential opportunities for small and medium businesses. However, this excitement should be complemented by providing minimum standards of economic and political stability in the island.


For more information:

The next step for developing Cuba? Microfinance.

Obama lands in Cuba as first US president to visit in nearly a century

Cuba approves landmark economic reforms

Barack Obama: ‘Change is going to happen in Cuba’


Thanks for sharing !

Comments are disabled.