The U.S. embargo against Cuba, extended to third-country investors in Cuba by the 1996 Helms-Burton Act, has strong support from the large majority of Cuban Americans. The three Cuban American members of Congress and the influential Cuban-American National Foundation play a critical role in support of Helms-Burton and other measures to tighten the embargo.
Yet Cuban Americans are undermining the embargo by sending increasingly large amounts of U.S. currency to friends and relatives in Cuba. This money, an estimated $800 million in 1996, has done far more to offset the embargo's effects than the legislation sponsored by Jesse Helms (R-N.C.) and Rep. Dan Burton (R-Ind.) has done to discourage third-party investors. Moreover, the remittances are almost all in violation of U.S. Treasury licensing requirements.
The impulse driving the remittances, of course, is humanitarian -- to alleviate the serious economic deprivation of relatives and other fellow Cubans. Few people sending money have much sympathy for the Castro government. But from an economic point of view, the motivations of the people sending the money are irrelevant. The large dollar flow relieves, in a major way, the financial squeeze on the Cuban economy from the U.S. embargo and makes it easier for the Castro government to manage the country despite the failures of the centrally planned economy: If Cuban Americans pay for much of the food and other basic needs of the people, this frees up $800 million for the Castro government to use for other priorities.
The volume of dollars flowing into Cuba is captured for the first time in a forthcoming report by the U.N.'s Economic Commission on Latin America and the Caribbean (ECLAC). There was a sharp increase in remittances during 1995 and 1996 -- the same years the Helms-Burton legislation was working its way through Congress.
This trend illustrates the inherent problems with economic sanctions as a policy instrument to force political change on authoritarian governments. The people in the targeted countries can suffer severe deprivation, the poorest people the most, while the undemocratic governments, squeezed by the sanctions, tend to tighten political control and become even more repressive.
Cuba certainly follows this pattern. With the abrupt cutoff of aid from the dying Soviet Union in 1990, the Cuban government lost $6 billion in annual subsidies that fostered reasonably good living conditions up to that point. Since then, the Cuban people have been suffering from lack of food, medicine and just about everything else, and the Helms-Burton tightening of the embargo increased the suffering a little bit more.
This pervasive change for the worse in economic circumstances within Cuba triggered the surge in dollar remittances by Cuban Americans back into Cuba. Castro facilitated matters greatly in 1993, when he legalized the use of the dollar and opened dollar-only stores. According to information in the ECLAC report, I estimate that such remittances increased from less than $100 million in 1990 to about $300 million in 1993, $600 million in 1995, and $800 million in 1996.
The enormity of the $800 million, and its impact in undermining the U.S. embargo, becomes apparent when you consider other sources of dollars flowing into Cuba. Cuban tourist receipts in 1996 were $1.4 billion, sugar exports $1 billion, and all other exports less than $1 billion. The much-touted flow of dollars brought in by foreign investment was lower still -- probably no more than $200 million. (The exact amounts are kept secret.)
These figures, however, are gross dollar receipts. They do not reflect the fact that Cuban hotels import most of their food and other goods, while the sugar industry has to import fertilizer, oil to run refineries, and machinery and parts to service them. All of these are paid for in hard currency that is sent out of the country. What matters more is the net (as opposed to the gross) amount of dollars flowing into Cuba. The net dollar inflow for Cuban tourism is as low as 30 percent of the gross, or only $400 million in 1996, while that for sugar exports is about 50 percent, or $500 million of net inflow. By contrast, every dollar of the remittances stays in the country. Thus, in 1996, the $800 million in remittances almost equaled the net dollar inflow from tourism and sugar combined.
This fundamental contradiction between what Cuban Americans say and do about the U.S. embargo needs more open discussion. The extraterritorial application of the Helms-Burton Act is causing great problems for the U.S. trading partners, particularly within the World Trade Organization. If the Cuban American constituency that presses for strict implementation of the act is at the same time undermining the impact of the embargo through its own apparently illegal large dollar remittances, the entire embargo policy is self-defeating.
H. Preeg holds the William M. Scholl Chair in International Business at the Center for Strategic and International Studies in Washington. A version of this article first appeared in the Journal of Commerce.
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