Roundup: Raul Castro in China, Food Duty Returns, and Cuban BIS Bank Deposits Plummet
Raul Castro, who rarely travels abroad, is in China and Vietnam this week. In China, he's been welcomed by President Hu Jintao and Prime Minister Wen Jiabao. He'll also be meeting with the vice-president and vice-premier, next in line for the top Chinese posts, signalling that this is a long-haul relationship.
This is Castro’s first visit to China since becoming president. One Chinese scholar predicted that the leaders would sign agreements that will help speed up Cuban economic reforms: "Reforms need investment. Since Cuba faces difficulty in drawing investment from the West, closer China-Cuba economic ties constitute strong support for its reforms and development," he said. The two countries have signed 8 accords, including no-interest loan funds from China to Cuba.
While the visit has so far clearly been a friendly one, it’s not clear there’s a whole lot more in the way of Chinese investment. Perhaps more important is the opportunity for Raul Castro to observe the development there (compared with his two other visits over the last twenty years, before he became president of Cuba) and consider how and which similar policies to adapt in Cuba. Omar Everleny of the University of Havana’s Center for the Study of the Cuban economy encourages taking a look at and lessons from the significant investments undertaken by Hong Kong Chinese in mainland China, as Cuba has a large diaspora that is more and more willing – and welcome – to come home.
And yet, the Cuban government faces tough decisions about how to harness that interest from its own diaspora without driving it off. A foodstuffs duty has just been reinstated (it was suspended on products brought to the island after several hurricanes in 2008 decimated Cuban food stores) that could have a chilling effect on one of the most bustling investment links between the Cuban diaspora and the island: the private restaurant business. In the absence of that duty, Cuban Americans began bringing in foodstuffs not only to family members in need, but also to fledgling businesses. Often, “mules” could get part or all of their ticket to the island paid. The island’s growing number of paladars will get hard hit by the reinstated duty; time will tell if it will cause some to fold or if the market will somehow manage to readjust.
And speaking of readjustments, a nearly 25% drop in Cuban asset deposits in Bank for International Settlements (BIS) institutions suggests the Cuban government just made a big one. After building up its deposits over the last few years, in the last quarter of 2011, Cuba either moved or spent more than $1.5 billion dollars it had in Western/BIS banks. Either it paid down debts, bought gold (maybe they got the idea from Hugo Chavez?) or, perhaps Cuba moved a big chunk of cash to non-BIS institutions. The latter seems the likeliest, given that U.S. enforcement of financial sanctions against Cuba has only tightened under the Obama administration, and in an uncertain global economy, spreading risk,epecially among more of your friends than your foes, could certainly make sense.