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Panel explores future trade with a free market Cuba... ...stressing political change as first need on the island.. ...with infrastructure most likely to attract global aid... ...while others see prosperity only if Cuba is re-united By MICHAEL HAYESPresident Clinton late last month signed into law a bill to allow food and medicine sales from this country to Cuba. There was no indication, however, of an easing of the overall trade embargo, which continues to have widespread support in Miami — a Florida International University poll in October showed that 62% of local Cuban-Americans strongly favor maintaining the embargo. That stance also was publicly supported by both presidential candidates during the recent campaign. Current and future opportunities for Miami's business community to have a commercial role on the island do exist, though. Miami Today held a roundtable on Thursday to explore just what the situation is today, what may lie ahead for Miami-Cuba links, and what's being done — or should be done — here to prepare for that new situation. The event, co-sponsored by The Codina Group, was held before an invited audience in the new Conference Center of the Americas at The Biltmore Hotel, Coral Gables. Panelists were: Pedro Freyre, an attorney with the firm of Akerman Senterfitt & Eidson in Miami, chairman of the Free Cuba Committee of the Greater Miami Chamber of Commerce, chairman of FACE (Facts About Cuban Exiles) and a board member for the Florida Council for the Humanities, to which he was appointed by Gov. Jeb Bush. Manuel Lasaga, president and co-founder of Strategic Information Analysis Inc. in Miami, formerly founder of International Management Assistance Corp. and head of the global economics department of Southeast Bank, a board member for the Cuban Banking Study Group and the Governor of Florida's Council of Economic Advisors. Joe Garcia, executive director of the non-partisan, non-profit Cuban American National Foundation and former chairman of Florida's Public Service Commission, executive director of the Cuban Exodus Relief Fund and assistant director of the Salvadoran American Foundation and chairman of the National Association of Regulatory Utility Commissioners. Carlos Saladrigas, CEO of ADP TotalSource, a major professional employer services organization, who chaired the Mesa Redonda, a group of prominent Hispanic business and community leaders, that led to formation of the Miami-Dade Alliance for Ethical Government, of which he is chairman. He was recently named by Gov. Jeb Bush as a director of Enterprise Florida. John S. Kavulich II, president of the US-Cuba Trade and Economic Council, a non-profit group based in New York. <02B>Q: Mr. Freyre, is the chamber's Free Cuba Committee which you head producing a report on possible Miami-Cuba links? A: Yes, we're in the process of producing it. The issue of free trade with Cuba seems to be the topic of the future and always will be, and we continue to wait. The Free Cuba Committee of the Greater Miami Chamber of Commerce was founded in the heady days of 1989. At that time people were getting their champagne bottles chilled and our luggage ready to move immediately. There were contingency plans made all over Miami, not only in terms of commerce with Cuba but also crowd control and having a massive party at the Orange Bowl to celebrate the downfall of the Castro regime. Well, here we are 11 years later, and we're still talking, and in certain ways still speculating, about the same topic. Sooner or later things will change. The chamber produced the first report in 1991 called "Trade Impact of a Free Cuba." We refreshed it in 1994. Time has gone by, and we felt it appropriate to have another go at it. A couple of things are going to be quite different about this report. No. 1, there's now a lot more data available from more reliable sources as to the true state of the Cuban economy. No. 2, we hope it will be the first true focus and serious study that has been done locally by the chamber on a Cuba that's a post-Soviet era Cuba, with all the contradictions, paradoxes and problems that has entailed for the Cuban government, its political system and the economy. In terms of what we're going to be looking at, you can't look at Cuba without looking at sugar. There's an old Cuban saying that without sugar there is no country. Apparently the country is slowing waning away, because the sugar production has been waning away for many years now. Yet tourism now seems to be on the rise and seems to be the main focus of effort of the government. So we're going to take a long, hard look at that. Nickel is a narrow niche market. Some other interesting industries would be winter fruits and vegetables, the fishing industry, which in its heyday in the '70s and '80s was a mainstay of Cuba's economy, and then some other, innovative things such as light industry maquiladora operations, and maybe even some dot-com operations should the state of Cuba's communications ever get to a worldwide competitive level. All those things will be looked at in the context of the study. The study doesn't purport to be a crystal ball, You could have any range of scenarios, from a bang to a whimper, transition to revolution. Rather, we want to focus on more factual issues. But there are some things that are fairly evident about Cuba in terms of its economic prospects as a trading partner. One gets the feeling that the Cuban government is sort of playing Monopoly — they seem to be playing with the board and moving the little houses around. On the one hand there's a speech inviting foreign investment, then the rules of the game get changed capriciously and often. Above everything else the one thing about Cuba that stands out is that there simply is no rule of law. Under the Cuban Constitution the judicial system reports to the Popular Power Assembly, which in turn reports to the executive — and in Cuba, that's an individual, not a power. With that system, the odds for an investor are rather long, so investment in Cuba tends to be short-term, high return, taking advantage of the abusive labor conditions so a quick return can be made, because the rules of the game continue to be terribly unstable. The Economist about two years ago had Cuba ranked something in the order of 155th in terms of desirability of the 160-odd countries in the world. That's indicative of what kind of a market it's going to be. We'll continue to watch and wait — all things come to he who waits, if he works like hell while he waits! One thing that can be said about Miami is that we're very focused on Cuba, almost obsessive you might say. But there's a lot of very knowledgeable folks. <02B>Q: Does the measure allowing food and medicine shipments to Cuba strengthen or weaken the trade embargo, in your view? A: This law is a typical product of the US legislative process. One party wanted a giraffe, the other a camel — and we got an elephant with the head of a horse. I don't think anybody's terribly happy with the law. The people who want to weaken the embargo were not terribly happy that the travel restrictions were now solidified in the legislation. And the people who favor the embargo were not terribly happy that this is the first actual step back from the harsh measures of the embargo. The net result of the law, I think, is yet to be seen. My sense is it's going to be a little bit more of that paradoxical situation where we have the embargo in place yet there's a substantial portion of the Cuban community that have family in Cuba and continues to send aid, medicines and so forth. <02B>Q: Dr. Lasaga, what do you see as the economic factors affecting preparations for doing business with the Cuba of the future? A: I think that it all boils down to the starting point of how we're able to do business in Cuba that will eventually depend first of all on the political changes that take place. Once they do take place, then we can talk about a transition. Every single country that's been through a change from a socialist-communist government to a democratic, market-oriented economy has been different. The best rule is that there is no rule as far as what to expect except that it's going to be particularly difficult for Cuba, which is not prepared for any transition. There are some so-called reforms in the past few years which I don't consider reform but rather measures by the government. They do reflect the fact that there are elements within the government that would like to see some changes. But Fidel Castro simply will not allow them to take place. An example is that Cuba passed a law which allows self-employment, but you cannot open a corporation and hire other individuals. If only one individual can work, that defeats the purpose — it's like giving somebody a new automobile and saying you can use it, the only problem is that it doesn't have an engine. So that really is a measure that doesn't prepare the economy for the change. At the same time, the government now is decentralizing government enterprises. Supposedly that gives greater incentive to management to become more efficient. In theory it does. But the state owns every entity in the government, therefore the decisions are made at the highest level of the state. No matter how decentralized you are, no matter how many incentives you have in place, you still are controlled by the dictates of the state. Another example in the scenario I've looked at as part of the Cuban Banking Study Group is the banking sector. In 1997, they announced financial reforms. Quite frankly, what it consists of is a game of musical chairs of financial shells. Basically, they created a central bank that has no real autonomy — it does in law, but there is no legal capacity to apply that law in terms of its ability to regulate the fiscal and monetary side of the economy. The banking system basically has one client, which is still the state. If you look at what little information is published on the banks, it states loans to the public sector and enterprises — and "enterprises" is another euphemism for the word "state." So none of the structures in place now can really serve. They will have to be completely revamped and the banking system will have to be started pretty much from scratch, although there is some basic infrastructure. One of the biggest challenges should we see a transition in the Cuban economy and one that will allow us to do business there, is that we're going to have to see what's going to happen during that transition to inflation in the economy and to the exchange rate. I've heard comments about dollarization of the Cuban economy or whether Cuba should have a peso. There are many dogmatic arguments on both sides. The decisions are going to be made by the Cuban government. I don't think there's going to be any real unanimity about any of these regimes, except that things are going to be a mixture of market-type reforms and of government still playing a role in the economy. Whether it's dollarized... I think that's probably unlikely because it wouldn't have the conditions even during a transition. In the US-Cuba Business Council we've just made a rough analysis of initial five-year financing requirements during a transition. We could easily come up to a number of $12 billion during that five-year period. What's going to provide the kickoff to the rebuilding of the economy is going to be financing from the World Bank, the IMF, the IDB, the US Export-Import Bank — all the other bilateral credit agencies of the world. That could well represent 40% to 50% of the total financial requirements, with most of it occurring during the first three years. Of course, this is not free money — for instance the World Bank and IMF are going to have strings attached to that money. Basically what that will mean is that Cuba will have to get its act together during the transition, according to the market-oriented reforms that these institutions support. What does that mean as far as opportunities? I think a lot of these credits will be earmarked for infrastructure improvement — a lot of roads, airports, transportation. A lot of the $1 billion, $500 million loans will be in that area. There will be good opportunities in terms of the initial reconstruction for businesses in Miami. Privatization will be another area. But basically what will be privatized will be the franchise value of the businesses in terms of the fixed assets. There will be nothing that really has value except very strategic industries — tourism, the mining area. Privatization will be a key. Depending on how much risk somebody wants to take, I think there will be some opportunities to make some investments initially. In terms of new areas for the economy, we'll certainly see Cuba very much in the context of a Caribbean-based economy, which means that it has advantages in the areas of light manufacturing, assembly industry, agri-industry. Those are areas that already have been analyzed. The question is will people be willing to take the risk of putting money down when they will be dealing in a situation, even during a transition, with a government with which we'll never know what direction it's going to go. It could be changing directions every six months. So it's going to be fairly difficult. Nevertheless, I think if you really do your homework and take chances, there will be opportunities for doing business with Cuba. It's going to be long-range opportunity. The best we can do is not get our expectations up too high. <02B>Q: Do you have any indication of any transition being prepared in Cuba? A: If you look at the economy and what's happening, the government has made some attempts — for instance cooperatives in the agricultural sector are allowed to operate. In that case, I think it does give incentives for individuals that they can sell surplus products. But the problem I have with these schemes is that basically at this point they only have one client. They can only buy inputs from one client — and that's the state — with some marginal escape valve where they can do business in somewhat freer markets. Some steps have been taken but when you look at the experience of all the countries that have been through a similar transition — in Eastern Europe, Nicaragua, the Soviet Union and its republics — you'll find that the changes have varied considerably, with some countries experiencing extreme difficulties. A lot of that had to do with the political transition. The countries that haven't had a clear consensus about what needs to be done politically haven't been able to get support for the reforms and have had substantial problems during their transition. So when we look at the economic changes and those opportunities, I think we can't forget that it's going to be the political transition that will be the toughest one to deal with. <02B>Q: What effect is there from the fact that the dollar is now allowed to circulate more widely in Cuba? A: This is a way in which individuals who have recourse to dollars from abroad, for example by family remittances, are able to use those dollars. It helps in terms of the extreme social difficulties that the population in Cuba is having. From a general political point of view, I don't think dollarization is looked upon as viable. The government recently said it wanted to allow the euro to become the official currency. They were probably thinking that the Europeans were going to print a lot of euros and ship them to Cuba so they could become euro-ized! It doesn't work that way. The only way you can dollarize an economy, as Ecuador is now finding out, is to generate substantial surpluses in international trade, to exchange that surplus and inject it as circulation. Cuba has to generate value enough to get those dollars into people's pockets. It has to be earned — and that's extremely difficult. <02B>Q: Mr. Garcia, what is the role that the Cuban American National Foundation is playing and how do you see events developing? a."
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