An Economic Analysis of the Cuban Embargo

Washington Report on the Hemisphere, August 24, 2012 | Go to article overview

An Economic Analysis of the Cuban Embargo


Fifty-two years ago this October, following the nationalization of the property of U.S. citizens and corporations in Cuba, Washington enacted economic sanctions against the island nation, imposing El bloqueo, the longest embargo in modern history. This policy has not only been grossly ineffective, but has exacted a significant economic toll on both countries by restricting the movement of people, capital, and goods to and from Cuba. Over the years, these sanctions have evolved, as have the geo-political dynamics that formed the shaky reasoning behind the policy. Cuba's largest former benefactor, the USSR, has long since collapsed and its aging revolutionary leader, Fidel Castro, no longer holds formal power after handing leadership over to his brother in April 2011. Considering these seismic political changes, the embargo should be lifted to allow the unrestricted flow of trade that would bring an important level of economic growth to both the U.S. and Cuba.

Cuba's Economy, An Overview

As of 2010, the 11 million inhabitants of the island of Cuba have an average GDP per capita of $9,900 USD. Agriculture, industry, and services constituted 4, 20.8, and 75.2 percent of Cuba's economy, respectively. Aside from a strong health care services industry, the country has an unsophisticated commodity sector and lacks many of the value-added and technical products of other countries.

Observers debate the actual cost of the embargo on U.S. and Cuban economies. In 2009, several United States business organizations as well as the U.S. Chamber of Commerce signed a letter urging President Obama to remove the Cuban embargo. The letter stated that the embargo costs the U.S. $1.2 billion USD every year. According to the Cuba Policy Foundation (CPF), the total cost is actually much higher at $4.84 billion USD per year "in lost sales and exports." On the other hand, the Cuban government estimates the country loses about $685 million USD every year due to the embargo. According to an analysis from Johns Hopkins University, the misguided use of this antiquated economic weapon costs U.S. businesses over $30 billion USD in trade between 1959 and 1992. Cuba's Institute of Economic Research stated that Cuba lost an estimated amount of $28.6 billion USD during that same period. In either case, the embargo has led to millions of dollars in missed opportunities both sides and has forestalled economic development in Cuba.

Oil

Although it lacks access to some vital imports, Cuba still possesses other ways to bolster its economy. With current levels of production at 53,690 bbl/day (2010 est.) Cuba's oil industry has plenty of room to grow, especially since Havana imports two-thirds of its oil from Venezuela, costing Cuba over $3 billion USD a year. Cuba's oil industry has had many hard lessons over the past 20 years since the collapse of the USSR and the 2003 Venezuelan oil strike severely impacting the economy. Despite the fuel provided by sympathetic Venezuela, the diversification of oil imports is sorely needed.

Internal Reform

The problems in the Cuban oil industry and the wider economy stem from policies initiated under the communist leadership of the Castro regime and the terms of the United States' half-century embargo. Exclusion from the world's largest economy in the world imposed high costs and caused large distortions to the already weakened economy after the Castros took power. The embargo notwithstanding, Havana must initiate the advancement of Cuba's economy into its own hands by continuing the reforms begun in 1993 to remove tariffs, quotas, restrictions on civil liberties, as well as to institute solid property rights, encourage private investment, and allow citizens to pursue entrepreneurial activities.

Yet such reforms will not have a chance to succeed unless United States gives the Cubans an opportunity for growth and development. …

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