Analysis: Cubazuela and the failed-state strategy

However the Trump administration’s gamble turns out in Venezuela, the result for Cuba is clear: Venezuelan economic support is nearing its end

Peters Washington View 2By Philip Peters

It would be unfair to say that the Trump administration’s strategy is to turn Venezuela into a failed state. That goal has been 99 percent achieved by Nicolás Maduro himself.

Rather, the strategy is to leverage the country’s near-the-brink predicament to push Maduro out of Caracas’ Miraflores palace once and for all.

The plan seems to be to starve Maduro of resources, pile tons of aid at  the Colombian border, and wait for Venezuelans and their military to  oust him. Or the interim Guaidó government could call for foreign forces to bring the aid in. With aid distributed and catastrophe averted, the process would be completed with a new election.

A lot could go wrong, especially if weeks pass, Maduro hangs on, and the military fails to flip. The now-impressive international coalition lined up against Maduro could fragment as governments lose their stomach for actions that make Venezuelans’ situation worse. For now, it is a bold roll of the dice that counts on massive public opposition to Maduro to force change, and quickly.

However the gamble turns out in Venezuela, the result for Cuba is clear: Venezuelan economic support is nearing its end.

Even if the Maduro government endures and does its best to evade sanctions, ultimately it cannot stem the loss of revenues to an economy  already devastated by Chavismo.

Worse for Cuba, there’s a one-two punch in store as the Trump administration moves closer to imposing new sanctions intended to make foreign investment more risky and financial transactions more difficult.

For President Trump, Cuba signifies political support in Florida. Just weeks before the 2016 election, he dropped his support for engagement with Cuba, where he had only recently explored hotel and resort opportunities. He alone believes that he got 82 percent of the Cuban American vote.

His Latin America advisors have a more strategic view. They see “Cubazuela” as a single issue and want to dislodge both governments from power. They embrace the original 1961 conception of the U.S. embargo: squeeze the Cuban economy, in the hope that deprivation will lead to revolt and political change. Today they perceive vulnerability, spurring them to a greater sense of urgency.

Whether this failed-state strategy can work in Cuba is another matter. Unlike Venezuela, Cuba’s government functions and delivers services, as does its economy – albeit far below its potential and far short of the  levels needed to generate sufficient jobs and income. Losing Venezuela will be a tough blow, but it will not compare to the loss of the Soviet  bloc, which provided subsidies at times equal to one fourth of Cuban gross domestic product, and provided nearly all the trade and investment relationships around which Cuba’s economy was organized.

What will Cuba do?

Havana’s external strategy is already under way in the search for new trade and investment partners, including some (Algeria, Russia) that can  supply energy. New U.S. sanctions will generate sympathy, and perhaps lending, from friendly governments.

The more intriguing question has to do with internal policies.

Raúl Castro promulgated and partially implemented a reform plan that had important results, most notably in growing a private sector that accounts today for nearly one-third of employment. But all signs are  that Party and bureaucratic opposition brought it to a standstill, with a tacit political consensus to concentrate on other matters — presidential succession, a new constitution — and return later to economic debates that proved divisive.

The luxury of postponement may no longer be affordable. With clouds  already on the horizon, Raúl Castro said in a January speech that regardless of a tightening U.S. embargo, Cuba’s economic task is to tap its “enormous internal reserves.”

What would that look like? Castro himself mentioned belt-tightening and new lines of exports. He called for more foreign investment, which implies winning the just-beneath-the-surface debate against Party elements who see it as a danger.

It could also mean finishing half-completed reforms.

The dual-currency system continues to distort prices and incentives throughout the economy.

Some areas of farm output, notably rice, are improving, and agriculture is more market-based than a decade ago. But production remains hobbled by a government that has only partially reduced its contracting, warehousing, and distribution apparatus.

And there is a legislative backlog. New laws are slated, and deeply needed, for private enterprises and private cooperatives. The concept of private business is accepted — but new laws, if done right, can give a solid legal status to enterprises that will allow them to grow, import,  and receive investment. For the government, the benefits will be more jobs, more tax revenues, and more young Cubans seeing their future in Cuba, not abroad.

The list is longer, but the tasks all relate to advice that Vietnam’s Communist Party chief Nguyen Phu Trong imparted during a visit seven years ago. Someone saw his advice as so important as to be covered in Granma, the Communist Party daily.

Vietnam’s doi moi reforms, he said, were politically difficult as some feared they “would move us away from socialism.” But they reduced poverty dramatically and “considerably improved people’s lives.” Cuba, he judged, was in the hardest ideological phase, needing to achieve a  “change in mentality…from the top to the base.”

New U.S. sanctions may be severe, and they will certainly be absurd coming from a president who dreams of North Korea’s prosperity “under the leadership of Kim Jong Un.” The only silver lining would be if they accelerate Cubans’ decisions about economic policies that depend on them alone.

Peters (@PhilPeters1) is president of the Cuba Research Center in Arlington, Va. and a principal in the FocusCuba business consultancy.

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