Voice

Baby Steps, Amigos

Why the economic ramifications of the U.S.-Cuba diplomatic deal are smaller than meets the eye.

CUBA-ECONOMY-CURRENCY-UNIFICATION
A Cuban shows Cuban Pesos CUP (Left hand) and Convertible Pesos CUC (Right hand), on October 22, 2013 in Havana. Raul Castro's government announced today the beginning of the unification of Cuban Pesos (CUP) and Convertible Pesos (CUC) that were in use in Cuba for 19 years. AFP PHOTO/Yamil LAGE (Photo credit should read YAMIL LAGE/AFP/Getty Images)

President Barack Obama wants to normalize relations with Cuba. He’s made no secret of this fact since he carried Florida in the 2008 election, even announcing his intentions to meet with Raúl Castro to Cuban-Americans while campaigning in Miami. But while the restoration of diplomatic relations is a big deal, the new measures announced by the White House today won’t exactly transform the economic relationship between the United States and its island neighbor.

Not all of the details have been sorted out, and some Republicans are already lining up to block the president’s moves. But the White House has outlined the basic principles of the economic rapprochement negotiated in secret over the past year and a half. So far, there’s not much to crow about for either side.

The big changes — allowing anyone to travel to Cuba as a tourist, and permitting any American company to do business with Cuba — will have to wait. For now, the most important policy shift for the Cuban economy is probably on remittances. The amount Americans are allowed to send to Cuba will quadruple, to $2,000 per quarter, and senders will no longer require any special licenses. With Cuba’s gross domestic product per capita at about $6,000, this could mean a huge improvement in living standards for Cubans lucky enough to have generous friends and family in the United States.

For Americans, the most important change may have to do with third-country transactions. Subsidiaries and branches of American companies abroad will be able to serve Cuban individuals outside of Cuba. In other words, overseas branches of American banks will be able to open accounts for Cuban expatriates, and foreign subsidiaries of American manufacturers and construction companies will be able to supply Cuban entrepreneurs. Some products, including materials for building homes and telecommunication services, will even be authorized for sale in Cuba itself, with looser regulation of banking transactions easing the way.

Washington also seems to expect more people to take advantage of the many special categories of travel permitted to Cuba. For the first time, it will also allow visitors to Cuba to use credit and debit cards issued in the United States. Most likely, these changes will result only in small upticks in tourism, at least in absolute terms. But they will give businesses a chance to lay the groundwork for greater economic activity in the future.

When that future will arrive is anybody’s guess. Obama can’t end the Cuban embargo on his own; he needs Congress for that. If the Republican leadership in Congress manages to block some of these initial moves, then the prospects of the embargo ending during Obama’s term will be dim at best. Democrats might be more amenable if they can regain control of Congress, but that’s a big if. The only certainty is that the embargo’s political importance will wane as the repercussions of the Cuban revolution fade into history.

AFP

Daniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business. Twitter: @altmandaniel