Cuba and the international financial institutions: Has the time come?

HAVANA — In recent years, the issue of Cuba’s incorporation into international financial institutions has slipped into the debate over the island’s economic outlook. It is a topic that was considered taboo until very recently and acquired a particular relevance with two processes that are dovetailing at this time: the changes being made in the economic model by the government, and the start of the rapprochement (long postponed) between Cuba and the United States.

Although the talk is about international financial institutions (IFIs), it should be noted that in reality there are two different types of organizations whose functions are complementary, to a certain degree:

1. A) On one hand, there’s the International Monetary Fund (IMF), one of whose main functions is to look after the proper activities of the international monetary system and the transactions between countries, such as preventing or correcting the crises in the balance of payments of any of its members.
Because this area is closely related to the exchange policies, which in turn are related to monetary and fiscal policies, many times the IMF’s activities involve the design of a country’s economic policy, something that has caused some sensitivity in many governments and social and political groups that reject that direct interference in sovereign decisions.
2. B) On the other hand, there are institutions that function as development banks, such as the World Bank, the Inter-American Development Bank (IDB), and the Andean Development Bank (CAF). Their basic mission is to grant loans under favorable conditions for projects of high economic and social significance. Among them are social services and infrastructure, including aqueducts and highways.

As often happens, it is important to point out the evolution of the context to understand why this issue now becomes relevant. Among the identified restrictions that obstruct the success of the transformations in the island’s economy and its long-term development are the imbalances in the foreign sector (finance, trade, integration), which have several causes and dimensions.

One of them has to do with the access, under favorable conditions, to the international financial markets, that is, the ability to mobilize foreign savings to finance investment projects of various types on Cuban soil.

Among the recent successes of the Cuban government are the gradual normalization of the international payments and the successful renegotiation of much of Cuba’s foreign debt, an ongoing process with the Paris Club.

As a logical continuation of this process, we can state that Cuba’s full and functional integration into the international financial markets will not be complete until the country joins the IFIs — at least the most important ones. The first reason for this could be phrased in a negative form: Why not?

One early effect is of an eminently political nature, even of an image abroad. After all, a huge majority of the countries in the United Nations Organization (U.N.) are members of both the IMF and the WB. The list of members includes all countries in Latin America and certainly many states that are very critical of the institutions’ policies and others that don’t adhere to all the statutes. In today’s world, not to belong to these two institutions is to be an exception.

Cuba’s incorporation would help eliminate one of the many stigmas attached to the country, which have a high economic cost. In addition, it would add a new and important forum to disseminate Cuba’s viewpoints on specific issues and to share and join efforts with other states, thus magnifying the reach and effectiveness of Cuban diplomacy.

The role of the multilateral institutions in the development of countries is quite controversial, especially those in the Bretton Woods system. Nevertheless, Cuba’s participation would not necessarily imply its acceptance of the policies that on occasion they promote or the conceptions that justify such policies.

In fact, Cuba is a founding member of the multilateral trade system and has expressed itself repeatedly and openly against several of the principles that support the system. The benefits include not only the obtainment of credits or other financial support but also other collateral effects of great importance.

Today, Cuba’s access to foreign money, vital to a small developing economy, takes place under disadvantageous conditions. The cause is a combination of numerous reasons, including the separation from the main multilateral financial institutions, the nation’s credit history, the economic sanctions imposed by the United States, and many others.

The way the international financial architecture is structured, a scenario where Cuba becomes a full member could trigger a considerable reduction in the financial cost of foreign transactions, even in the presence of the U.S. blockade.

This has to do with the reduction in the high rates of interest that Cuban companies must pay to cover the high “country risk” and the unfavorable evaluations issued by the qualifying agencies. At present, this is not a minor difficulty.

The drainage of resources in this manner is burdensome for the conditions of the Cuban economy, which prevents the nation from devoting additional resources to productive, social and infrastructural investments. With some institutions, such as the Andean Development Bank (CAF), the initial step might be advisable and less risky.

Another benefit is the possibility of accessing valuable technical cooperation, given these institutions’ experience in most countries in the world, which translates into a valuable working relationship with Central Banks and ministries and state agencies. This type of collaboration could become a needful and useful reference for decision-making. Think of the nation’s trek to normalize its monetary-financial system.

As to access to fresh resources, it may be worthwhile mentioning three interesting aspects:

1. A) Maintaining a loan portfolio is not a condition for membership but a totally voluntary decision.
2. B) The conditions under which multilateral institutions grant credit are much appreciated by the borrowers because they have low interest rates and long repayment terms, including several years of grace. This allows the borrower to engage in projects of great impact without major financial stress.
3. C) Likewise, the amounts available are appreciable for a country like Cuba. For example, Latin American countries of similar size obtained loans of more than $1 billion a year from the WB, the IDB and the CAF in the past five years.

The process of normalization of relations with the United States paints a new reality. Although regulations remain that determine the States’ official position vis-à-vis a Cuban decision in that regard, it is very possible that the U.S. government will not try to obstruct Cuba’s admission to the IFIs, as various analysts recommend. Other impediments can be resolved if the political will exists.

On the other hand, the Cuban side has legitimate concerns as to the use of the information it must deliver to those institutions. It is known that many countries are not especially strict in their observance of those obligations, and the attitude of the United States must be varying significantly.

Cuba has an international political capital that would allow it to generate sufficient support to join those institutions gradually and find formulas to resolve (for example) the question of the initial share required.

Other questions should not become smoke curtains that cloud decisions that, like this one, can have a notably positive impact on the lives of millions of Cubans. Greater transparency in the compilation and publication of data on the Cuban economy has nothing to do with the IMF. It is a necessity and a right that we Cubans should demand.

The development of ties with the IFIs does not replace the policies necessary to ensure a vigorous performance in our export trade, which is the only sustainable way to prevent foreign funding from becoming an obstacle to the development of Cuba.

Although the stances of some of the IFIs in certain events may be criticized, their relations with the various governments should be seen as bidirectional. Little is said today about the deceitful way in which the Greek government in 2001 falsified the information required to adopt the euro and enter the eurozone — where, technically, it never belonged.

The role of national governments is essential to establish the balance and limits of foreign interference. In the case of Cuba, this step should be understood as part of a greater transformation. An improvement in the economic situation would create a domestic framework more propitious for the necessary changes that accompany the productive scenario on the island.

In the final analysis, it would be another example of the effective pragmatism to which the Cuban government has made us accustomed.

(*) Ricardo Torres is a researcher for the Center of Studies Into the Cuban Economy (CEEC).

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