by Joy Gordon, published on LaMonde Diplomatique, October 7, 2024
Cuba has faced many economic crises, but the current one is different. It is far worse than even that of the early 1990s, when Cuba lost all trade with the Soviet bloc, and at the same time the US imposed severe new economic measures against the island nation. In the early 1990s, Cuba’s infrastructure was in fairly good condition. The state’s response was agile: the government agencies managing food security and health care directed extra resources to children, the elderly and the sick. Within five years, the country’s entire economy was restructured, with new trading partners throughout Latin America and Europe, and foreign investment in tourism, mining and other key areas.
Even so, the economy never fully recovered. Thirty years later, the current crisis is as severe as the ‘special period’ of the 1990s, but it is taking place in the context of a weariness that is bone-deep. This weariness comes from walking up five or seven or ten flights of stairs in the pitch dark because there is yet another power outage, and neither the lights nor the elevator are functioning. It comes from standing in lines for hours on end in the hopes of buying a piece of chicken. Cuban infrastructure itself is also, in a sense, exhausted, for many reasons — corrosion of equipment that is being used decades past its life expectancy, made worse by the lack of capital for maintenance and repair parts. The economy as a whole is experiencing decline in almost every regard, throughout the country, affecting everything from food security to higher education. The government refers to the ‘war economy’, reflecting the urgency and the precarity of the situation. This situation has come about for several reasons, but the US sanctions against Cuba have either triggered or worsened every aspect of the crisis.
There are two main factors that drive overcompliance with US sanctions: the ambiguity of the regulations, and the severity of the penalties
It is well known that US sanctions against Cuba in fact affect not only US nationals, but also trade between Cuba and nationals of third countries. Known as ‘extraterritoriality’, this practice has been condemned annually by the UN General Assembly since 1992 as a violation of international law, and for many years the votes of the international community have been almost unanimous, with only the US and Israel dissenting. Yet now there is an additional layer of difficulty as well: overcompliance. Overcompliance in regard to US sanctions occurs when private actors not only abide by US regulations, but go well beyond them, foregoing even legal trade with sanctioned countries to avoid any risk of US penalties.
There are two main factors that drive overcompliance with US sanctions: the ambiguity of the regulations, and the severity of the penalties. The US Treasury Department’s Office of Foreign Assets Control (OFAC) requires banks and other private actors not only to abide by the explicit language of the regulations regarding their own acts, but also to exercise ‘due diligence’ in regard to what their customers or trade partners might do. OFAC requires that banks, for example, should ‘know your customer’ (KYC), and in some cases should ‘know your customer’s customer’ (KYCC) — exponentially increasing the bank’s exposure for sanctions violations, even those that are committed by others. Further, the banks must exercise this due diligence in accordance with a standard that is not clearly defined.
The second factor concerns the severity of the penalties. While US banks, of course, may be subject to penalties by US banking regulators, foreign banks may face significant penalties as well. Ten years ago, BNP Paribas paid some $9 billion for sanctions violations (1); additionally, it was temporarily suspended from the US Federal Reserve. For international banks that do business in US dollars, to be denied access to the US financial system is sometimes referred to as ‘the death penalty’. In the face of unclear regulatory requirements, and the risk of catastrophic penalties, it is unsurprising that banks and other private actors simply withdraw altogether from countries perceived as high-risk.
In regard to this ‘de-risking’, some have suggested that ‘the ambiguity of executive orders or of OFAC guidance is a form of economic and political manipulation by US regulators, deliberately used to encourage overcompliance to the detriment of sanctioned countries’. Regardless of intent, that is certainly the outcome. Alena Douhan, the United Nations Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights, reported that ‘many banks around the world recently suspended operations involving Cuba due to United States sanctions, “including legitimate transfers for purchases of food, medicines and goods for the population”; refused to carry out transactions to support broader distribution of COVID-19 vaccines; and ended relationships with Cuban diplomatic missions around the world due to the fear of reprisals by the United States Government. Moreover, “Cubans living abroad are prevented from opening bank accounts, using certain credit cards or carrying out transactions normally, just because they are Cuban nationals.”’ (2) While OFAC has provided some humanitarian exemptions, those do not at all address the magnitude of the humanitarian needs, and in any case do nothing to address the problem of overcompliance (3).
The Torricelli Act of 1992 prohibits foreign ships from docking at a US port within six months of docking in Cuba
The sanctions have long targeted each of Cuba’s major sources of revenue, including the export of goods, remittances sent from family members abroad, tourism and the export of professional services. The Torricelli Act of 1992 prohibits foreign ships from docking at a US port within six months of docking in Cuba. Since ships going between Cuba and, say, Europe would ordinarily also stop in the US to deliver or take on goods, this makes it difficult and expensive for Cuba, as an island nation, to import or export goods. The Helms-Burton Act prohibits any company in the world from selling goods in the US that contain even trace amounts of Cuban materials, undermining the market for Cuba’s leading exports, sugar and nickel. In addition, there are measures that are not designated as sanctions, but serve to intimidate and drive away trade partners and financial institutions. The designation of Cuba as a ‘state sponsor of terrorism’ is one of the most significant of these. The Obama Administration removed Cuba from the list in 2015, but President Trump re-designated Cuba in 2021, just days before leaving office. The Biden Administration has left that designation in place.
Remittances sent by family members abroad are a major source of income to the country. They are a lifeline for an estimated 60% of Cubans who depend upon remittances to supplement their meagre peso salaries (4). They are also a significant part of the economy; in 2019, Cubans received an estimated $2 billion in remittances (5). US administrations have placed various restrictions on how much money Cuban-Americans can send to their families, and how frequently. One of the most damaging measures was imposed by the Trump Administration: in late 2020, when the US blacklisted Financiera Cimex S.A. (FINCIMEX), the Cuban financial hub that processed remittances from abroad. As a result, companies such as Western Union were forced to terminate their money transfer services. Remittances collapsed, affecting the availability of capital within the economy as a whole, and worsening the hardship of tens of thousands of Cuban families.
At the same time, in the face of the Covid pandemic, Cuba closed its borders, shutting down tourism, which is one of the main drivers of the economy. The result was the loss of an estimated $3 billion in revenues annually. However efforts to restart tourism have not yet shown much success. According to the Cuban government, hotel occupancy in 2023 was only 25% (6). The recovery of the tourism industry has been hampered in many regards by US sanctions. The Helms-Burton Act authorises US citizens to sue foreign companies, such as Spanish hotel chains, for doing business in Cuba, under certain circumstances. Hotel chains that have made major investments in Cuba, such as Spain’s Melia International Hotels and Iberostar, have been sued in US courts. This statute has been broadly denounced by the UN General Assembly as a violation of international law. Nonetheless, this litigation is costly and burdensome, and has certainly put off many potential investors in Cuba’s tourism industry.
In addition, the Trump Administration created a blacklist specifically targeting Cuban tourism, the Cuba Prohibited Accommodations List Initial Publication (7). It imposes penalties on those subject to US jurisdiction — a category that extends well beyond US citizens — who stay at any of the hotels listed. The list is massive, including over a hundred hotels in Havana alone. This affects hundreds of thousands of Americans who travel legally to Cuba, including Cuban-Americans visiting their families, as well as American researchers, church groups and others; as well as foreign nationals deemed to be within US jurisdiction.
Another measure, also imposed by the Trump Administration, effectively targeted European tourism. The US has a visa waiver program allowing nationals from a number of countries, including most of Europe, to enter the US using ESTA (Electronic System of Travel), without having to apply for a visa. As of January 2021, when the Trump Administration placed Cuba back on the list of State Sponsors of Terrorism, anyone who travels to Cuba is not eligible to use ESTA. Instead, to enter the US they must obtain a visa (8), which may take weeks or months. This significantly affected Cuban tourism from 40 or so countries, including France, Spain, Germany, Italy, Sweden and Ireland. It also affected Cuban business transactions with companies from the ESTA countries, since an executive from, say, a Spanish hotel chain who traveled to Cuba to discuss a business arrangement would then be unable to enter the US, for either business or personal reasons, under the visa waiver program. Unsurprisingly, the number of travellers from Cuba’s major European markets — France, the UK and Spain — has declined precipitously (9). Directly or indirectly, the sanctions have worsened food insecurity, impoverishment and hardship.
In the current crisis, Cuba’s GDP has fallen; one estimate shows a decline of one-third of Cuba’s GDP from 2021 to 2022 (10). Inflation is high, with even government figures showing inflation over the last three years as averaging 50% annually (11). In 2023, the average state salary was 4,648 Cuban pesos per month, or $38.70 at the official exchange rate (12). This will pay for all the basic goods that are subsidised under the ration system known as the libreta. In the past, the libreta provided, say, five eggs per person, per month, for twelve pesos; and one pound of chicken per person, per month, for twenty pesos. Now, in some areas, there is little more than rice — seven pounds of rice per person per month, for ten pesos per pound. So under the ration system, whatever is available is affordable; but there is very little that is available. The new private sector markets are well stocked, but the prices are astronomically higher: half a pound of coffee is 1300 pesos, and a bottle of cooking oil is 1000. Chicken is 300 pesos per pound, and eggs are about 80 pesos each. The average monthly salary of 4600 pesos would barely pay for more than a few days of food.
Now, in some areas, there is little more than rice — seven pounds of rice per person per month, for ten pesos per pound
The food crisis is due in part to the collapse of Cuba’s livestock and agriculture. In May, the Cuban government reported that in the last five years, rice production had fallen by 90%. Coffee production fell by over 50%, and cooking oil production fell by 80% (13). Cuba’s production of poultry has declined so much that the country now imports eggs from Colombia (14). The shortage of flour is so severe that the government can no longer provide enough bread to meet the libreta, in part because many of the flour mills are not operating. Many of the manufacturing problems, in turn, are due to lack of fuel and the inability to obtain equipment and repair parts. The decline in livestock, poultry and agriculture is likewise due in large part to the lack of seed, fertiliser, pesticides, vaccines and equipment. The lack of capital is a factor in all of these, and the sanctions have done much to compromise Cuba’s major sources of revenue.
The sanctions also affect Cuba’s food security in other ways as well. The US government allows US producers to sell food to Cuba, and Cuba purchases substantial amounts of foodstuffs from the US. At the same time, however, the sanctions severely compromise Cuba’s access to food in other contexts. This is attributable in part to overcompliance, in which private actors decline to provide goods or services not because these are explicitly prohibited by US sanctions laws, but because they are concerned about their exposure even for those acts that may be quite legal. Cuba imports 80% of its food; but in the face of US measures targeting shipping companies, the World Food Programme reports that Cuba has difficulty finding ships that are willing to enter Cuba’s ports, even though there are in principle humanitarian exemptions that would permit food sales. Similarly, according to the Economic Commission for Latin America and the Caribbean, the designation of Cuba as a ‘state sponsor of terrorism’ has ‘led several banks to suspend their operations in the country, including transfers for the payment of purchases of food, medicines, spare parts and goods for the population’ (15).
But the source of the hardship is not just the economic crisis. There is equally a crisis in the functioning of Cuba’s infrastructure, which is profoundly disruptive to people’s lives. The residential power outages have become worse. In June, it was reported that Cuba was experiencing a loss of 1,000 megawatts of power, which was about 50% of the demand (16). In late August, when six power plants shut down, Union Electrica (UNE), the state power provider, announced that there were power outages of 14 hours or more per day across much of Cuba (17). When I was in Havana earlier this year, even when there were no blackouts, the streets were almost completely dark at night, because the state had turned off most of the city’s streetlights in response to the energy crisis (18). The lack of electricity, in turn, triggers a cascade of other problems. In May, for example, the Cuban agency that manages water resources reported that, as a result of power shortages, some 700,000 people were without water (19).
The situation is the same for the rest of Cuba’s infrastructure. The state telecommunication agency, ETECSA, reported that 85% of its network is ‘technically obsolete’, but any upgrades are hampered by the shortage of foreign currency (20). In April, Minister of Transportation Eduardo Rodríguez reported that Cuba’s bus system was transporting less than half the number of passengers compared to five years ago. Buses are paralysed due to the lack of parts, or insufficient fuel. Half of the public bus routes do not operate with any reliability (21).
It is not surprising that emigration has increased dramatically. In 2022 and 2023, nearly 425,000 Cubans emigrated to the US, and another 36,000 submitted asylum petitions (22) (that does not include those who emigrated to Brazil, Spain and elsewhere). Those emigrating are often the ones with the resources and credentials to gain entry into other countries and build a new life there. As a result, there has been a massive brain drain, as teachers and health care professionals leave the country (23).
What is important to understand is that all of these trends — the collapse of infrastructure, the emigration of the most educated and capable professionals, the loss of national stocks of cattle and poultry, the decline of the country’s industrial capacity, the enduring harm to many Cubans from lack of adequate food and medical care — cannot easily be reversed, or may simply be altogether irreversible. It is also important to understand that while the statutes and regulations that constitute the US sanctions regime against Cuba are profoundly damaging, the overcompliance of private actors, given how the sanctions are designed and implemented, greatly magnifies the scope and the damage of these measures. The overcompliance has one further feature as well: the US government can disclaim responsibility; these are, after all, merely the business decisions of private actors.
In April 1960, the US deputy assistant secretary of state for inter-American affairs, Lestor Mallory, wrote a memorandum entitled ‘The Decline and Fall of Castro’. He noted that the majority of Cubans supported Fidel Castro; there was no effective political opposition; and there was little chance that a military intervention would succeed. ‘It follows,’ Mallory wrote, ‘that every possible means should be undertaken promptly to weaken the economic life of Cuba.’ He suggested taking actions ‘to bring about hunger, desperation and overthrow of government’ (24).
The idea of using economic sanctions to force regime change has been a mainstay of US foreign policy for decades. It is a strategy that has been invoked repeatedly, glibly, and with little regard for the kind of suffering that this actually entails.
Cuba is facing a moment that is extraordinarily precarious. While numerous factors that have led to this — ranging from the pandemic to natural disasters to economic policies that did not succeed — US sanctions have, at every juncture, triggered or worsened every aspect of the current crisis. In the wake of the protests of last March calling for ‘corriente y comida’, as well as the demonstrations in the summer of 2021, it is increasingly common to hear people ask if Cuba is on the verge of imploding, or if the state will survive. As food insecurity worsens and the infrastructure fails with increasing frequency, it is hard to know what will happen. What we do know is that, to the extent that the US objective is to use sanctions to bring about the overthrow of the Cuban government, this is what that looks like: days and nights marked by poverty, indignity, darkness and exhaustion.
*Featured Image: cc. Guille Álvarez