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Castro and the Oil Curse

Petroleum discoveries won’t fix Cuba’s underlying economic problems — or its relationship with the United States. (Read this article in Spanish here.)

by
Jaime Daremblum

Bio

January 26, 2012 - 12:20 am

Last week, a Financial Times dispatch from Havana raised the possibility that major oil discoveries in offshore Cuban waters could lead to significant economic changes on the island and also transform its official relationship with the United States. I’m not so sure.

Raúl Castro and his cronies are no doubt thrilled at the prospect of finding massive petroleum reserves in their portion of the Gulf of Mexico. Foreign investment is pouring in to support large-scale drilling projects, and companies from around the world are eagerly courting the Communist government. How much oil might be Cuba be sitting on? Estimates range from 4.6 billion barrels to 20 billion barrels. “Even the most conservative estimate would make Cuba a net oil exporter,” the BBC notes. “A large find would provide untold riches.”

If Cuba became a substantial oil producer, the Castro regime would surely see a flood of new revenue, which would (1) help it achieve greater financial stability and (2) provide a boost to the chronically dysfunctional Cuban economy. Oil might eventually become the most critical lifeline for a government that currently depends on massive energy subsidies from Venezuela.

But we should not expect oil money to accelerate the speed of Cuban economic reform. The opposite is much more likely.

Indeed, Cuba is exactly the type of country that we would expect to suffer from the notorious “oil curse.” Across the Middle East, Central Asia, and Africa, oil wealth has enabled thuggish autocrats to reject serious economic reforms, fortify their political control, and effectively bribe their citizens with generous social programs. (Norway is one of the few oil-rich nations to have avoided the curse, for reasons explained by NPR correspondent Alex Blumberg in this September 2011 piece.) Cuba already has a totalitarian government that dominates the economy, squashes dissent, and locks up human-rights activists. An oil windfall would merely make it easier for the regime to maintain its iron grip on political control and delay the introduction of free-market reforms.

The Cuban people don’t need an influx of oil money that will enrich Communist Party apparatchiks and help the dictatorship consolidate power during a transitional period. They need economic freedom. Yet rather than embrace genuine, far-reaching liberalization, Raúl Castro has been introducing timid economic changes while ramping up political repression. Cubans enjoy only slightly more economic liberty today than they did when Raúl initiated his vaunted reforms in 2008.

Just look at the new Heritage Foundation/Wall Street Journal Index of Economic Freedom: Overall, Cuba ranks 177th out of 179 countries or territories, and its total score is 52 percent below the world average, not to mention 67 percent below the average for “free” economies. No economy scores lower than Cuba in the categories of “investment freedom” and “property rights,” and the only country that scores lower in “business freedom,” “financial freedom,” and “labor freedom” is North Korea. (We should also note that, among oil-producing countries, Russia ranks 144th overall, Angola ranks 160th, Uzbekistan ranks 164th, Iran ranks 171st, and Venezuela ranks 174th.)

If foreign investment were all you needed to jumpstart sweeping economic reform, Cuba would look much more like China. Over the past two decades, it has received ample investment — and tourism — from Europe, Asia, and elsewhere in Latin America. But this has done very little (if anything) to promote liberalization. In fact, it has propped up the Castro regime during tough economic times and thereby reduced the government’s incentive to reform.

In the 2012 Index of Economic Freedom, China’s score is 45 percent higher than Cuba’s. That’s not because of foreign investment. It’s because the Chinese government long ago made a conscious decision to allow more economic freedom. While China is still a dictatorial country that practices a perverted form of state-run capitalism, it is much freer, economically, than Cuba.

So far, Raúl Castro’s economic reforms have mostly amounted to firing state workers, expanding the number of legally permissible self-employment activities, and letting Cubans sell their used vehicles and homes (despite the fact that all homes are technically government property). Writing in the British Guardian last April, Yale historian Carlos Eire put the Castro reforms in perspective: “What the government-controlled Cuban press won’t say, and what most foreign correspondents on Cuban soil don’t dare say,” he wrote, “is that these so-called reforms are illusory, and a desperate, ridiculous attempt to camouflage repression and maintain the current status quo.”

The government has certainly stepped up its harassment of opposition figures and peaceful demonstrators. Witness the tragic death last week of imprisoned Cuban dissident Wilman Villar Mendoza, whose hunger strike ended tragically on January 19. “The responsibility for Wilman Villar Mendoza’s death in custody lies squarely with the Cuban authorities, who summarily judged and jailed him for exercising his right to freedom of expression,” said Amnesty International official Javier Zúñiga. “Villar Mendoza’s case shows how the Cuban government punishes dissent,” declared José Miguel Vivanco of Human Rights Watch. “Arbitrary arrests, sham trials, inhumane imprisonment, and harassment of dissidents’ families — these are the tactics used to silence critics.”

Villar Mendoza’s widow is active with the Ladies in White, a group of women related to jailed Cuban dissidents. The leader of that group, Berta Soler, spoke out strongly after his death. “The government killed him,” she said. “It’s one more murder in the Cuban government’s account.”

As long as Havana is jailing and brutalizing men like Wilman Villar Mendoza, it will be very difficult for U.S.-Cuban relations to experience a significant improvement, regardless of how much oil Cuba finds in the Gulf of Mexico. Remember: When the Obama administration relaxed U.S. sanctions against Cuba, the Castro regime responded by arresting USAID contractor Alan Gross, who was subsequently sentenced to 15 years in a Cuban prison. If Havana truly wanted better relations with Washington, it would have released Gross a long time ago.

Cuba will change — for real — when its government decides to embrace political and economic freedom. Until then, oil revenue will merely entrench one of the world’s most repressive dictatorships.

Read this article in Spanish here.

Jaime Daremblum, who served as Costa Rica’s ambassador to the United States from 1998 to 2004, is director of the Center for Latin American Studies at the Hudson Institute.
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