Apr 9, 2015 | 09:10 GMT

7 mins read

U.S. Investment in Cuba Will Reinforce the Military

U.S. Investment in Cuba Will Reinforce the Military

Though Cuba is on the edge of a political transition, the Revolutionary Armed Forces (FAR) will play a major role in post-Castro Cuba. The United States and Cuba have made diplomatic strides toward reconciliation, and recent economic changes have enabled American businesses to increase their investment in the island. The tourism sector in particular will experience a boost in revenues, and state-owned companies run by the military will also benefit. First Vice President Miguel Mario Diaz-Canel Bermudez, a civilian, is formally set to take over the presidency in 2018. However, as U.S. investment in the country increases, the military's integration into the economy will ensure that it maintains its power.

Following the diplomatic thaw between Cuba and the United States, U.S. President Barack Obama loosened economic restrictions on Havana, increasing the amount of money that could potentially flow to the island. Americans currently send $2 billion to Cuba in the form of remittances each year, but new changes will allow individuals to send up to $2,000 per quarter to family members in Cuba, up from $500 per quarter. American banks are also now allowed to process credit card transactions from Cuba, a move that enables Americans who travel to the island to use their credit and debit cards. Furthermore, on March 24 the U.S. Office of Foreign Assets Control made changes to the Cuban Assets Control Regulations, which restrict Cuban business and travel to the island. The changes removed dozens of Cuban companies connected to tourism and shipping from the sanctions list. Obama's actions have strengthened the U.S.'s negotiating position by demonstrating the economic impact that is possible, even without a formal lifting of the U.S. embargo.

While the White House has taken steps to take pressure off Cuba, the actual embargo is likely to remain in place for some time. Also, opposition to an outright repeal of the 1996 Cuban Liberty and Democratic Solidarity Act, more commonly known as Helms-Burton, runs high in the U.S. Congress. The law requires Cuba to transition to a free and fair democracy, conditions Havana is unlikely to meet. Nevertheless, further economic and diplomatic measures such as re-establishing embassies are possible in the near future. Before June, the U.S. State Department will complete a review that could result in Cuba's removal from the list of state sponsors of terror — one of Havana's demands for restoring diplomatic relations. In fact, U.S. Under Secretary of Commerce for International Trade Stefan Selig and U.S. Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson recently commented that the decision could come before then. Even without a complete lifting of the embargo, U.S. executive actions have the potential to dramatically increase the amount of money in the Cuban economy over the coming years, money that would invariably increase the economic power of the Cuban FAR.

The Military and the Economy

First Vice President Diaz-Canel would take over for President Raul Castro if he were unable to complete his term in office, and Diaz-Canel is expected to succeed Castro as president when he steps down in 2018. Diaz-Canel is a civilian and one of the first major leaders of the Cuban Communist Party to rise through the organization after the revolution. Fidel Castro wore his dual roles as a civilian and military leader interchangeably, and as the long-standing general and defense minister, Raul Castro has relied on his brother and his relationship with the military for legitimacy. The imminent succession, therefore, will not only mark the beginning of the first non-Castro in power since the 1959 takeover, but also the first transfer of formal leadership to a clearly civilian head of state. Nevertheless, the military will retain a role in the governing institutions of the country. Nine of the Politburo's 14 members are uniformed military, as are five of the seven Council of Ministers members. The FAR is the most developed national institution, and it has generally been well-respected for its military competence and historically sound relationship with the population. Much of the direct economic power of the state lies with the armed forces, and the military will be an integral part of post-Castro Cuba.

The FAR has had a role in the Cuban economy since the 1960s, primarily in providing labor to agriculture and rural development projects through organizations such as the Youth Labor Army and the Territorial Troop Militia. In the 1980s, military manufacturing grew and the Castro regime established the Enterprise Improvement System to manage military factories and other businesses. Losing economic support from its Soviet patron in the early 1990s severely hurt the Cuban economy, and GDP fell by more than 10 percent annually between 1991 and 1993. The economic crisis of this period led the Castro government to increase the military's role in managing the economy.

The growth of military economic control created new, potentially lucrative positions for the officers involved. The Cuban Import-Export Corporation (CIMEX), a $1 billion commercial conglomerate under the control of Col. Hector Oroza Busutin, is responsible for processing remittances, an area that is expected to grow from U.S. changes in economic regulations. But the most profitable of the military's tourism companies is Gaviota S.A., led by Gen. Luis Perez Rospide. Through Gaviota S.A. and other companies such as Cubanacan, Aerogaviota, and Habaneros, the military operates businesses such as hotels, tour companies, retail stores and even an airline. Tourism eclipsed the sugar industry as the largest sector of the economy in the late 1990s, and the potential influx of new American travelers to the island will only increase military profits. As of 2013, the tourism sector represented 10 percent of Cuba's GDP. Tourism is the leading source of foreign exchange and is important in ensuring imports of food and consumer goods to the island, both of which are vital to maintaining social stability. 

Under Raul Castro, Cuba has introduced limited reforms in the labor sector and has opened the country to some foreign investment. Cuba has allowed for a non-state economic sector by permitting the growth of small businesses and economic cooperatives in addition to letting individuals register as entrepreneurs among 178 approved jobs. Entrepreneurship, tourism and joint ventures with foreign enterprises represent the future of the Cuban economy, and the military has outright control — or a at least a high degree of control — over much of the latter two areas. The military has also successfully partnered with foreign companies. Facing tough competition and following years of decline, Cuba shut down the Ministry of Sugar in 2011 and replaced it with Azcuba, a state-owned company run by the military. Azcuba partnered with Brazilian company Odebrecht in 2012 to manage the 5th of September sugar mill in Cienfuegos. Odebrecht made further inroads in Cuba with the $1 billion Mariel port project.

In addition to allowing the institution to support itself financially, making the military a central part of the economy enabled limited economic reform while maintaining centralized control over the economy. Giving the military lucrative revenue streams allowed the Castro brothers to secure their authority over economic activity, even while implementing more capitalist economic practices. The leadership positions of these companies are highly coveted, and the leaders tend to be Raulistas (followers of Raul Castro) who have been rewarded for their loyalty. For example, after revolution-era Gen. Julio Casas Regueiro passed away in 2011, Raul Castro's son-in-law, Gen. Luis Alberto Rodriguez Lopez-Callejas, succeeded him as executive director of the military holding corporation Enterprise Administration Group, which oversees all of the military's state-run companies. Lopez-Callejas has also been put in charge of the Mariel port project.

The military's integration into Cuba's political realm and economy ensures that it will be a key player in a post-Castro regime. As the U.S.-Cuba diplomatic and economic relationship evolves, the likely increase in money flowing into the military-dominated economy in Cuba will expand the military's influence as its profits increase. The military and the Cuban Communist Party will have an ongoing presence in the government, and though economic integration with the United States is slowly developing, the regime will endure for some time after the Castros disappear from the scene.

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