Cuba, Bubble?

“Financial sanctions are weapons of mass destruction” said John Kavulich, president of the U.S. - Cuba Trade and Economic Council. What a sanction can really do? The U.S. relationship with Cuba has always been distrustful and antagonistic. The United states has sanctioned Cuba longer than it has any other country, all started in 1959 after the Cuban Revolution, two years later in 1961 when Cuba aligns with the Soviet Union as a consequence the United States would impose an embargo which would have the real repercussions until 1991 after the fall of the Soviet Bloc. The purpose of the text is to analyze how the United States sanctions and Cuba alliance to the Soviet Union would lead to a bubble in Cuba, how the country overcomes the present situation. 


.S. - Cuba Trade and Economic Council. What a sanction can really do? The U.S. relationship with Cuba has always been distrustful and antagonistic. The United states has sanctioned Cuba longer than it has any other country, all started in 1959 after the Cuban Revolution, two years later in 1961 when Cuba aligns with the Soviet Union as a consequence the United States would impose an embargo which would have the real repercussions until 1991 after the fall of the Soviet Bloc. The purpose of the text is to analyze how the United States sanctions and Cuba alliance to the Soviet Union would lead to a bubble in Cuba, how the country overcomes the present situation. 
History 

In 1961 Cuba aligned with the Soviet bloc which put the United States on alert, in that moment Cuba was a zone of influence for the country. The United States, in the face of the communist regime of Cuba allied to the Soviet Union, was forced to respond against its enemy in the context of the cold war. Using the Organization of American States1 (OAS) as a key point to weaken Cuba and pressure the OAS allies (Universidad del Norte, n.d.). 

The United States pursued the path of exclusion from the union of nations by invoking a vote for the exclusion of Cuba from the OAS, in which the support of all countries was expected, by 1962 Cuba is expelled from the OAS but receives economic aid and military assistance from the USSR and because of the economic blockade by the United States another failure and this favors feeding the regime and the union. 

The economic alliance with the USSR ensures revenue, consolidation of the regime, but the economic blockade brought with its consequences that affected it, 50, 60 and 70s. The boycott also prevented other countries from negotiating with Cuba and what remained was socialism, Council for Mutual Economic Assistance 2 (COMECON). 

In 1991 the Soviet revolution falls and a crisis is coming in Cuba because sugar was no longer bought at preferential prices, tourism is put a lot to raise its economy, certain individual businesses are allowed, now you can manage the pain when before you don’t and the generalizing of poverty, except for those of the party are the ones with the best way of life. 

1Using the Organization of American States (OAS) is the oldest regional organization in the world, with 35 independent states of the Americas. Has as an objective an order where there is peace and justice, to foster solidarity, to make greater collaboration thus protecting sovereignty, territorial integrity, and independence, thus having as its main pillars’ human rights, democracy, development, and health 2 Comecon was an economic agreement amongst communist nations loyal to the Soviet Union during the Cold War. Comecon stands for Council for Mutual Economic Assistance. The Soviet Union created Comecon as a response to the U.S. Marshall Plan for European recovery after WWII. 

Embargo 

The United states imposes different types of embargoes (commercial, economic, and financial) during the next years:

 - 1958: First embargo on the sale of arms

 - 1960: Embargo on exports to Cuba (except food and medicine)

 - 1962: Embargo extended including almost all exports (not include food and humanitarian supplies) 

This led to several changes for Cuba considering that between the years 1954 and 1959 Cuba and U.S. trade was in really high levels. 65% of Cuba's total exports were sent to the United States while imports from the U.S. totaled to 74% percent of Cuba's international purchases. After the formal implementation of the embargo and the passage of Proclamation 3355, there was a 95% decrease in Cuba's sugar quota, which canceled roughly 700,000 tons of the 3,119,655 tons previously allotted to the United States (Rose, 2003). The Cuban government frequently blames the US "blockade" for the economic problems of Cuba. 

Soviet influence in Cuba crisis 

In 1989, with the collapse of the Soviet bloc, Cuba witnessed its most devastating economic crises. Cuba's GDP plummeted 34% and trade with the nations apart of the Council of Mutual Economic Assistance (CMEA) declined by 56%. Between 1989 and 1992 the termination of traditional trade partnerships with the Soviet bloc caused the total value of Cuba's exports to fall by 61% and imports to drop by approximately 72%. This period is known as the Special Period. Supporters of the embargo and many international economists believed that the dissolution of the Soviet Union and the resultant economic crisis would lead to the downfall of Fidel Castro's government. Cuba's government however instituted a campaign of macroeconomic adjustment and liberalization which helped significant economic recovery (Rose, 2003). 

Special Period 

The dissolution of the Soviet Union implied also the end of COMECON and U.S. increasing the embargoes, which led to an economic depression, as a result the oil imports dropped, making vehicle fuel huge expensive, impacting in electricity prices, industrial outputs. The nation couldn't import synthetic fertilizers resulting in the fall in agricultural yield and Cuba imported half of its food creating necessities in domestic food as a result there was extreme reductions of rationed foods at state-subsidized prices. 

The country lost approximately 80% of its imports, 80% of its exports and its Gross Domestic Product dropped by 34%. Food and medicine imports stopped or severely slowed. The largest immediate impact was the loss of nearly all of the petroleum imports from the USSR; [3] Cuba's oil imports dropped to 10% of pre-1990 amounts (Ted, 2008). 

The period radically transformed Cuban society and the economy, as it necessitated the introduction of organic agriculture, decreased use of automobiles, and overhauled industry, health, and diet countrywide. People were forced to live without many goods and services that were available since the beginning of the 20th century. 

How do we know there is a bubble?

As we can see on the graphic (World Bank national accounts data, and OECD National Accounts data files.)  you can notice a big decrease in the GDP of Cuba in 1991 starting to increase until 1994, this is where our bubble is.

Also, all the prices of the subjects become higher than they should be, because all the problems they had with imports, the things that you could buy in the “black market” would have a higher value than it actually was making it an intrinsic value.

Tourism, new solution 

Fidel Castro decided to bet on tourism as the industry on which to rely for the economic development of Cuba, especially from Europe since the U.S. had the sanction. As a result, people started moving to this industry, but problems didn’t end since the population still lived in bad conditions from infrastructure and new technology. But during his 2008 presidential campaign, Barack Obama said isolating Cuba had failed to advance U.S. interests and that it was time to pursue diplomacy with the Castro regime. Several weeks after taking office, he eased restrictions on remittances and travel, allowing Cuban Americans to send unlimited money to Cuba and permitting U.S. citizens to visit Cuba for religious and educational purposes (Nasaw, 2009). 

In 2014 Obama sought to rebuild those ties, when he and Cuban President Raul Castro simultaneously announced plans to restore diplomatic relations broken in 1961. Nowadays Cuba increases the GDP of the country and the living conditions are better, but Cuba still looks like it's in the 50´s.

 What 's Next? 

However, President Donald J. Trump’s administration reversed course, imposing a new sanction part of the “Troika of Tyranny”3 . Trump criticizes the Obama administration’s and wants to curtail trade and tourism. At the same time, he criticized the Cuban government for its poor human rights record and Communist-dominated politics. 

This means another crisis is coming for further sanctions. The reality is that Cuban products are already widely available in Europe and other parts of the world. If and when the United States becomes a more active trading partner with Cuba, it is likely that the same European multinational corporations that distribute Cuban products to the rest of the world will control the distribution of those products in the U.S. as well.

In conclusion, The Cuban crisis from 1991 was a bubble because of the increase in prices and the decreasing of the GDP. It was a result of the sanctions imposed by the United States specially but also due to the collapse of the Soviet Union through the ending with the support of imports. The solution came after a bet on the tourism industry and the support of the Obama's 3 Troika of tyranny is a description of the nations of Cuba, Nicaragua and Venezuela used by United States National Security Advisor John R. Bolton in outlining United States foreign policy towards those nations. administration. Also, the possibility of another bubble because of Trump’s administration is not a fact if Europe keeps trading. 

Sources Alpert John. (2017). Cuba and the Cameraman. 12/05/2020. Netflix. Sitio web: https://www.netflix.com/title/80126449 

Caraway Rose. (2003). Post-embargo Cuba: Economic Implications and the Future of Socialism. 12/07/2020. The University of Texas at Austin. Sitio web: http://lanic.utexas.edu/project/etext/llilas/ilassa/2004/caraway.pdf 

Council on Foreign Relations. (2020). U.S. - Cuba Relations. 13/05/2020. Foreign Affairs. Sitio web: https://www.cfr.org/backgrounder/us-cuba-relations

Henken Ted. (2008). Cuba: A Global Studies Handbook. 11/05/2020. ABC.CLIO. Sitio web: https://books.google.cz/books?id=Mv7anQoCbzgC&lpg=PT467&ots=v_i5kpr7cw&d q=%22Per%C3%ADodo+especial%22+%221990%22+- wikipedia&pg=PT467&redir_esc=y#v=onepage&q=%22Per%C3%ADodo%20especi al%22%20%221990%22%20-wikipedia&f=false Mcwhinney James. (2020). The Impact Of Ending The U.S. Embargo On Cuba. 13/05/2020. Investopedia. Sitio web: https://www.investopedia.com/articles/investing/022415/impact-ending-us-embargocuba.asp 

MOEA. (n.d.). OEA. 07/05/2020, de Universidad del Norte Sitio web: https://www.uninorte.edu.co/web/moea/sobre-la-oea/- /asset_publisher/An3k/bookmark/id/2731667 

Nasaw Daniel. (2009). Obama eases restrictions to Cuba. 13/05/2020. The Guardian. Sitio web: https://www.theguardian.com/world/2009/apr/13/barack-obama-cuba-policy-change 

S. Falk Pamela. (1996). Eyes on Cuba: U.S. Business and the Embargo. 12/05/2020. Foreign Affairs. Sitio web: https://www.foreignaffairs.com/articles/cuba/1996-03-01/eyescuba-us-business-and-embargo






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