Brookings: Experts - Richard Feinberg

What Roles for Foreign Direct Investment in the New Cuban Economy?

Mon, 10 Dec 2012 09:00:00 -0500

Event Information

December 10, 2012
9:00 AM - 10:30 AM EST

Stein Room
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC

Today’s ailing Cuban economy is marked by high labor costs, low wages and small inflows of foreign investment. In 2011, under President Raúl Castro’s leadership, the government started instituting reforms to open the economy. Positive developments in international tourism, nickel and cobalt mining, and high value-added agriculture serve as foundations for future growth. But progress made to date has yet to take full advantage of the plethora of competing sources of capital offered by today’s more diversified global economy. In order to remain competitive and preserve quality social services, Cuba could learn from its own experiences with joint ventures and free trade zones, and from the experiences of other developing countries, to harness foreign capital as a vital tool of national development. Will President Barack Obama, in his second term, take advantage of Cuba’s economic opening to forge a new path for relations with Havana?

On December 10, the Latin America Initiative at Brookings hosted the launch of a new study, “The New Cuban Economy: What Roles for Foreign Investment?” by Brookings Nonresident Fellow Richard Feinberg, professor of International Political Economy at the University of California San Diego. The report explores the role of foreign capital in the future of the Cuban economy, including recommendations for Cuba, the United States, and international financial institutions. Feinberg was joined by Diego Ruiz, vice president of Global Public Policy and Government Affairs for PepsiCo, Inc., and Christopher Sabatini, senior director of policy at the Americas Society and Council of the Americas. Senior Fellow Ted Piccone, deputy director of Foreign Policy at Brookings, provided introductory remarks and moderated the discussion.

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What Roles for Foreign Direct Investment in the New Cuban Economy?

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The New Cuban Economy: What Roles for Foreign Investment?

Richard Feinberg — Sun, 09 Dec 2012 00:00:00 -0500

The Cuban revolution defined itself in large measure in terms of what it was not: not a dependency of the United States; not a dominion governed by global corporations; not a liberal, market-driven economy. As the guerrilla army made its triumphal entry into Havana and the infant revolution shifted leftward, a hallmark of its anti-imperialist ethos became the loudly proclaimed nationalizations of the U.S.-based firms that had controlled many key sectors of the Cuban economy, including hotels and gambling casinos, public utilities, oil refineries, and the rich sugar mills. In the strategic conflict with the United States, the “historic enemy,” the revolution consolidated its power through the excision of the U.S. economic presence.

For revolutionary Cuba, foreign investment has been about more than dollars and cents. It’s about cultural identity and national sovereignty. It’s also about a model of socialist planning, a hybrid of Marxist-Leninism and Fidelismo, which has jealously guarded its domination over all aspects of the economy. During its five decades of rule, the regime’s political and social goals always dominated economic policy; security of the revolution trumped productivity.

Fidel Castro’s brand of anti-capitalism included a strong dose of anti-globalization. For many years, El Comandante en Jefe hosted a large international conference on globalization where he would lecture thousands of delegates with his denunciations of the many evils of multinational firms that spread brutal exploitation and dehumanizing inequality around the world.

Not surprisingly, Cuba has received remarkably small inflows of foreign investment, even taking into account the size of its economy. In the 21st century, the globe is awash in transborder investments by corporations, large and small. Many developing countries, other than those damaged by severe civil conflicts, receive shares that significantly bolster their growth prospects. The expansion of foreign direct investment (FDI) into developing countries is one of the great stories of recent decades, rising from $14 billion in 1985 to $617 billion in 2010.1 While FDI2 cannot substitute for domestic savings and investment, it can add significantly to domestic efforts and significantly speed growth.

Today’s ailing Cuban economy, whose 11.2 million people yield the modest GNP reported officially at $64 billion3 (and possibly much less at realistic exchange rates), badly need additional external cooperation—notwithstanding heavily-subsidized oil imports from Venezuela. As with any economy, domestic choices made at home and by Cubans will largely determine the country’s fate. Yet, as Cubans have been well aware since the arrival of Christopher Columbus, the encroaching international economy matters greatly; it can be a source of not only harsh punishments but also great benefits. In the Brookings Institution monograph Reaching Out: Cuba’s New Economy and the International Response, I explored the modest contributions already being made by certain bilateral and regional cooperation agencies and the larger potential benefits awaiting Cuba if it joins the core global and regional financial institutions— namely the International Monetary Fund, the World Bank, the Inter-American Development Bank, and the Andean Development Corporation. This sequel explores the contributions that private foreign investments have been making, and could make on a much greater scale, to propel Cuba onto a more prosperous and sustainable growth path.

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Richard Feinberg

Image Source: © Enrique de la Osa / Reuters

The Road to Hemispheric Cooperation: Beyond the Cartagena Summit of the Americas

Tue, 17 Jul 2012 09:00:00 -0400

Event Information

July 17, 2012
9:00 AM - 11:00 AM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Latin America and the Caribbean have made substantial progress in advancing democratic freedoms and enhancing economic opportunities. However, hemispheric cooperation and integration remain key challenges. During last April’s Summit of the Americas in Cartagena, leaders reached consensus on social inclusion and other difficult challenges facing the region but disagreements on other topics, such as Cuba and drug policy, dominated the agenda. Can the region’s governments rise above the current stalemate and move forward on pressing issues such as economic innovation and integration, public security, education reform, and energy and climate change?

On July 17, the Latin America Initiative at Brookings hosted a discussion and offered recommendations for a roadmap to greater inter-American cooperation on these and related issues. Drawing on a set of papers commissioned by Brookings, authors Inés Bustillo, Kevin Casas-Zamora and Ted Piccone assessed issues of economic development, public security, and democracy and human rights. Their presentations were followed by commentary by John Feeley, principal deputy assistant secretary for Western Hemisphere Affairs at the U.S. Department of State, and Brookings Nonresident Senior Fellow Richard Feinberg. Senior Fellow Ernesto Talvi, director of the Latin America Initiative, provided introductory remarks.

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The Summits of the Americas and the Inter-American System

Mon, 16 Jul 2012 17:18:00 -0400

Aparicio-Otero’s rich essay raises the key questions about summitry and the inter-American system. Let me comment briefly on three important issues: summit organization; the increasingly successful incorporation of civil society and the private sector; and the deeply divisive issue of Cuban participation.

Publication: The Road to Hemispheric Cooperation: Beyond the Cartagena Summit of the Americas

Balancing Preservation and Transformation in Cuba: A Conversation with Eusebio Leal

Fri, 18 May 2012 10:00:00 -0400

Event Information

May 18, 2012
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

Cuba is undergoing a gradual economic and social transformation that potentially carries great importance for the island nation, as well as for its relationships with the United States and the rest of Latin America and the Caribbean. Part of this transformation includes the physical redevelopment of Old Havana, spearheaded by Dr. Eusebio Leal, the city’s chief historian and a leading public figure in Cuba. Dr. Leal has led the government’s efforts to remake Havana as a prime destination for travelers from around the world—more than 2.7 million paid a visit to Cuba last year alone—while at the same time preserving the city’s cultural, urban and architectural heritage.

On May 18, the Latin America Initiative and the Metropolitan Infrastructure Initiative at Brookings hosted Dr. Leal for a discussion on progress to restore Old Havana, establish a self-sustainable financing system to preserve Cuba’s historical sites, and promote tourism. Brookings Nonresident Senior Fellow Richard Feinberg and Robert Puentes, senior fellow and director of the Metropolitan Infrastructure Initiative, provided commentary on the opportunities and challenges of urban redevelopment in today’s Cuba and its effects on the wider Cuban economy. Brookings Vice President and Director of Foreign Policy Martin Indyk provided introductory comments and Senior Fellow and Deputy Director of Foreign Policy Ted Piccone moderated the discussion.

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Balancing Preservation and Transformation in Cuba: A Conversation with Eusebio Leal

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Martin S. Indyk

Eusebio Leal

Director
Old Havana Restoration Program and Historical Center

The Cartagena Summit: Positive Voices amidst Rancor

Richard Feinberg — Fri, 20 Apr 2012 11:33:00 -0400

While the headlines from the recently concluded sixth Summit of the Americas in Cartagena, Colombia focused on the deeply divisive issues of Cuba, the Falklands/Malvinas islands, and counter-narcotics strategies, the gathering nevertheless registered some notable progress toward building a genuine community of democratic nations.

Summits these days are not solely meetings among heads of state. In the western hemisphere and elsewhere, they convene representatives from civil society, social movements, and the private sector. The Summit of the Americas specifically has come to resemble an annual association meeting, gathering a wide range of players interested in inter-American relations. Summits are efficient opportunities for personal networking and information gathering, for job-hunting and deal-making, and for advancing policy agendas.

The leaders’ meetings are the centerpiece of summitry, but the Summits of the Americas have become multi-ring circles of specialized conferences. One such circle, the Civil Society Forum, has evolved over the years from being heavily attended by Canadian and U.S.-based non-governmental organizations (NGOs) to being dominated by NGO leaders and society movements from Latin American and Caribbean.

At the catastrophic 2005 summit in Mar del Plata, Argentina, many civil society organization banded together to stage a noisy counter-summit in the streets. That year, left-leaning presidents Evo Morales of Bolivia and Hugo Chavez of Venezuela vacated their seats at the official table to express their solidarity with the protestors. To avoid a repetition of this divisiveness, Colombian president and Summit host, Juan Manuel Santos, traveled to Bolivia to persuade Morales not to repeat the antics of Mar del Plata; rather, he invited him into the main tent and offered him the honor of closing speaker at the official Civil Society Forum. To provide him with a friendly audience, a private plane flew 83 of his indigenous and other grassroots supporters to Cartagena with their brightly-colored traditional garb and visible black hats standing out amidst the crowd. They alternately chewed coca leaves and cheered their leader.

To bolster the prestige of the Civil Society Forum, Colombia’s capable foreign minister, Maria Angela Holguin, chaired key sessions and Santos delivered a full-length speech. At the closing session, civil society representatives presented their recommendations to foreign ministers and the ministers of Brazil and Argentina, among others, offered lengthy responses. To the thrill of the crowd, Hillary Clinton delivered remarks just prior to Morales’ closer. Overall, the tone of the Civil Society Forum was constructive and respectful, and the recommendations presented to foreign ministers avoided heated rhetoric in preference to very specific proposals. Presentations by representatives of another parallel conference of hemispheric youth were remarkable in their maturity and specificity.

At Cartagena, attendance by U.S.-based NGOs was spotty. Some U.S. NGOs question whether such forums have much impact on leaders’ deliberations, and choose to engage in consultations that are offered by the Organization of American States (OAS) in the months leading up to the summit. Others doubt the efficacy of summits altogether and prefer to focus their energies directly on their own government’s programs. They may want to reconsider their attendance at future gatherings.

Corporate executives have attended previous summits under various umbrellas, but it took the duet of two powerful Colombians – President Santos and the head of the Inter-American Development Bank, Luis Alberto Moreno – to orchestrate the first-ever “CEO Summit of the Americas.” To attract corporate big-wigs, the Santos-Moreno team called upon their many friends in foreign ministries and presidencies to participate in the CEO Summit, which directly preceded the leaders’ meeting. Most impressive was a panel of presidents, where Barack Obama traded barbs with Brazilian president Dilma Rousseff. Santos comfortably sat between the two contenders for hemispheric leadership, declaring himself the reasonable centrist sandwiched between the two regional powers. To add luster, NBC’s Christopher Matthews moderated the presidential panel.

The 700 corporate executives attending the CEO Summit sat mesmerized while Colombian pop star Shakira urged them to join with her in support of early childhood development programs. (More than one executive commented on her poise and intelligence and speculated as to whether she might one day become president of Colombia.) The CEO Summit was capped by an energetic performance by another iconic Colombian performer, singer Carlos Vives, who literally had conference participants dancing in the aisles.

At both the Civil Society Forum and CEO Summit, speakers expressed growing confidence in the Americas, in the prospects for sustained growth and rising living standards, and for ever-greater connectivity among citizens within nations and across borders, even as the full inclusion of various minorities remains an enduring challenge. Chris Matthews summed up the buoyant mood, referring to “the unusual optimism, the positive zeitgeist” of the CEO Summit, in contrast to the gloomy mood in Europe and other regions in the world suffering from economic recessions or political turmoil.

The Civil Society Forum and CEO Summit also contrasted with the contentious atmosphere at the central leaders’ meeting. In preparatory sessions, the region’s diplomats had agreed upon a rich agenda of initiatives covering economic integration, citizen security, disaster relief, and poverty reduction. But some countries decided to poison the deliberations by purposefully injecting divisive issues that diverted the attention of leaders and the media from more constructive tasks.

It was a shame that the diplomats of some countries did not follow the more positive examples of civil society and corporate leaders also present at Cartagena, who saw the Summit not as an opportunity to score points against their rivals but rather as a moment to build bridges and seek common ground.

Authors

Richard Feinberg

Image Source: © Ricardo Moraes / Reuters

Reaching Out: Cuba’s New Economy and the International Response

Fri, 18 Nov 2011 09:00:00 -0500

Event Information

November 18, 2011
9:00 AM - 10:30 AM EST

Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036

Since the collapse of the Soviet Union, a resilient Cuba has dramatically diversified its international economic relations with states like Spain and Canada and now with emerging market powers like China, Brazil, and Venezuela. Despite increasing ties to the international community, Cuba remains absent from the core international financial institutions such as the IMF and World Bank.

On November 18, the Latin America Initiative at Brookings hosted the release of a new study by Brookings Nonresident Senior Fellow Richard Feinberg titled, “Reaching Out: Cuba’s New Economy and the International Response.” The report explores recent Cuban economic reforms and offers recommendations for how the international development community, including the United States, should respond. Following his remarks, Carlos Alzugaray Treto, professor of international affairs at the University of Havana, and Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, provided commentary. Senior Fellow Ted Piccone, deputy director of Foreign Policy at Brookings, provided introductory remarks and moderated the discussion.

After the program, panelists took audience questions.

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Reaching Out: Cuba’s New Economy and the International Response

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20111118_cuba_economy

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Gary Hufbauer

Senior Fellow
Peterson Institute for International Economic

Carlos Alzugaray Treto

Professor
University of Havana

Reaching Out: Cuba’s New Economy and the International Response

Richard Feinberg — Thu, 17 Nov 2011 15:53:00 -0500

INTRODUCTION

Five decades after Fidel Castro’s “26th of July Movement” marched victoriously into Havana on New Year’s Day, 1959, the United States and Cuba, separated by less than 100 miles of choppy waters, remain deeply distrustful neighbors entangled in a web of hostilities. Heated U.S. policy debates over how best to respond to the Cuban Revolution—through legislation in the Congress or executive orders issued by the Executive Branch—implicitly assume that there are only two players in contention: Washington and Havana. Yet, this conceit takes us very far from the realities of Cuba today.

Since the collapse of its former patron, the Soviet Union, a resilient Cuba has dramatically diversified its international economic relations. Initially, Cuba reached out to Europe, Canada, and a widening array of friendly states in Latin America. Over the last decade, Cuba has reached out to forge economic partnerships with major emerging market economies—notably China, Brazil, and Venezuela. Spanish firms manage many of the expanding hotel chains in Cuba that cater to 2.5 million international tourists each year. A Canadian company jointly owns mining operations that ship high-priced nickel to Canada and China. In the next few years, China is poised to spend billions of dollars building a large petrochemical complex at Cienfuegos. A Brazilian firm will modernize the Mariel Port so that it can accommodate very large container ships transiting the newly widened Panama Canal. Petroleum companies from ten or more countries have lined up to explore for deepsea oil in Cuban waters in the Gulf of Mexico.

Despite these advances, the Cuban economy remains in the doldrums (as described in Section 1). The main constraint slowing the Cuban economy is not U.S. sanctions (even as they have hit hard). Rather, it is Cuba’s own outdated economic model, inherited from the Soviet Union, of central planning. Cuba’s many commercial partners would like to invest more in Cuba and would prefer to purchase more Cuban exports to correct the imbalances in their bilateral trade accounts, but are frustrated by Cuba’s scant economic offerings.

Section 2 of this policy paper tells the story of Cuba’s outreach to the dynamic emerging market economies, as seen from the perspective of Cuba and also through the eyes of its Chinese, Brazilian, Venezuelan and Mexican partners—examining their motivations as well as their anxieties and frustrations. How does Cuba fit into their international economic and geo-political strategies, and what are the domestic political drivers behind their friendships with Havana? Canadian interests are also explored, as Ottawa has sharply differentiated its Cuba policy from those of its close North American ally.

While comprehensive U.S. sanctions attempt to undermine the Cuban economy, European countries have been sending development assistance, albeit in modest amounts. European aid targets its resources to empower municipalities, private farmers and cooperatives—to strengthen social forces less dominated by Havana’s powerful bureaucracies. Section 3 describes these European and Canadian cooperation programs as well as the creative initiatives of the non-governmental organization Oxfam, and draws lessons—pointing out potential pitfalls as well as opportunities—for future international development programs operating in the difficult Cuban context.

One hundred and eighty-seven nations are members of the International Monetary Fund (IMF) and World Bank—virtually equivalent to the universal membership of the United Nations. Cuba’s absence from these leading international financial institutions (IFIs) stands out as a stark anomaly. As Section 4 of this paper reveals, Cuban authorities are no longer opposed to engaging with the IFIs. As institutions that pride themselves on their universality, the IFIs ought to reach out to assist Cuba as it strives, however gradually and haltingly, to reform its economic structures. With their deep experience in countries seeking to improve the efficiency and competitiveness of their economies, and to transit to more decentralized modes of economic decision making, the IFIs are natural partners for Cuba today.

This paper recommends a step-by-step approach, beginning with modest confidence-building measures, for bridging the gap between the IFIs and Cuba. It also addresses legal and political constraints on U.S. policy, including restrictive Congressional mandates, and suggests practical strategies for overcoming them. Information gaps in the public debate are corrected; in fact, there are viable mechanisms for gradual rapprochement.

Many Cubans remain suspicious of the IMF and World Bank, viewing them as agents of “capitalist imperialism.” Yet, the IFIs have worked successfully in promoting poverty alleviation and economic growth in two of Cuba’s closest allies, Vietnam and Nicaragua. To ally Cuban anxieties, Section 5 explores the IFI’s new terms of engagement, designed to be more sensitive to the national institutions and policy priorities of borrowing countries. The IFIs today partner successfully with many countries whose stated goals are growth with equity, efficiency with dignity—the very goals embraced by Cuban authorities.

This study (Section 1) opens with a discussion of the accomplishments and shortcomings of the ailing Cuban economy: the paradox of the Cuban revolution is that while it endowed its citizens with abundant human capital it has sadly left them without the tools or incentives to fully employ their acquired talents. The Cuban economy is characterized by sagging industrial and agricultural production, insufficient savings and investment rates, poor export performance and chronic deficits in merchandise trade, and repeated suspensions of service on external debts. The scarcity of consumer necessities, over-crowded housing, and the indifferent quality of services make daily life in Cuba especially challenging, and ambitious Cuban youth are frustrated at the lack of attractive opportunities for productive and well-paid employment.

The Cuban government recognizes these deficiencies and in April 2011 promulgated reform “guidelines” with 311 initiatives aimed at addressing these and other structural flaws. The guidelines are replete with internal contradictions and continue to render homage to central planning; but the pro-reform fractions were strong enough to insert language which, if acted upon, would transform Cuban political culture and social ethics. As this study suggests, in our interdependent world, external agents—such as national economic cooperation agencies and the IFIs—can legitimately transfer ideas and resources that increase the authority of reformers in their internal struggles against the entrenched forces of inertia and resistance. Notwithstanding its centralized leadership, Cuba, like the United States, is hardly a unitary actor.

This policy contribution seeks to reframe the debate, to break it loose from the narrow U.S.-Cuban bilateral optic, to instead appreciate the opportunities offered by Cuba’s pro-reform impulses, to grasp the breadth of Cuba’s international economic relations, to examine more closely the economic cooperation programs of our allies on the island, and to reconsider U.S. interests in allowing the international financial institutions to perform their proper mission of promoting economic progress in Cuba. Section 6 summarizes key findings and policy recommendations for the international development community, the IFIs, and for the Cuban and U.S. governments.

This paper flows from the traditional notion that it is in the interests of the United States, and the international development community within which the U.S. has long played a leadership role, to promote progressive economic reforms, however gradual and partial, in countries opening to international trade and investment and seeking to enhance market mechanisms and empower a domestic private sector. While there is no automatic, linear relationship between market-oriented economic reform and political liberalization, political theory and recent history suggest that one trend tends to reinforce the other, especially in the Western Hemisphere and in the long run. Moreover, in the absence of direct leverage over a nation’s political institutions, promoting economic reform may be the most realistic option for advancing political pluralism. In Cuba today, the opportunity is in economic policy, legitimized by the regime and openly and widely debated by the Cuban public; whereas the government’s powerful security apparatus maintains its tight control over political activity and insists on the hegemony of the Cuban Communist Party.

Some in the United States have long supported severe sanctions intended to starve the Cuban regime of resources and thereby precipitate a political breakdown. Yet, within the national security bureaucracy of the U.S. Executive Branch, notwithstanding occasional presidential rhetoric, there is a strong preference for gradual, peaceful evolution in Cuba. A sudden breakdown, it is feared, would entail substantial risks for U.S. interests, including an immigration crisis right off of our shores, and in the worst case, irresistible pressures for intervention to quell a bloody civil war and halt a mass exodus of refugees.

Furthermore, prolonged efforts to impoverish an economy run counter to long-standing U.S. foreign assistance policies and our fundamental humanitarianism, that favor attention to the basic human needs of the poor majorities in developing countries. The exemptions to the sanctions against Cuba that have been carved out over the years, for example allowing for the sale of some foods and medicines, and more recently, the liberalization of family travel and remittances, speak to these American traditions.

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Richard Feinberg

Cuba's New Emerging Market Strategy: Has the United States Made Itself Irrelevant?

Thu, 04 Aug 2011 12:30:00 -0400

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August 4, 2011
12:30 PM - 2:00 PM EDT

Moynihan Board Room
The Woodrow Wilson International Center for Scholars

Washington, DC

Over the last decade, Cuba has diversified its economic relations, building trade and investment ties with China, Brazil, Russia and Venezuela while also maintaining relations with Canada, Mexico and Europe.

On August 4, the Latin America Initiative at Brookings joined the Latin America Program at the Woodrow Wilson International Center for Scholars for a discussion with Richard Feinberg on the diversification of Cuba's international economic relations over the last decade.

The discussion focused on several key components of Cuba's international economic relations, including diplomatic and economic motivations behind each new economic partnerships. Feinberg also spoke on Cuba's south-south strategy and what it means for U.S. policies toward Cuba today and in the future.

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