After the US-Cuba Agreement

The decision to re-establish diplomatic relations and open up greater options for financial and commercial exchange between the United States and Cuba, announced by both countries last Dec. 17, will hardly have immediate repercussions in Costa Rica. Nevertheless, if the process manages to proceed normally, if it is accompanied by economic reforms, if it produces an adequate legal framework on the island, and if it gains sufficient credibility among potential investors, then it may affect us in the medium and long-term.

The impact will be greater if the United States Congress decides to eliminate what remains of the embargo and completely normalize economic relations, including tourist travel, and if — hopefully in the near future — a democratic regime is established. The latter would reconcile the country with political and economic freedoms, and as a result would enhance growth and turn Cuba into a full player in the hemisphere.

Despite the fact that the immediate effect will be almost nonexistent and that the future is not clearly outlined, our country should not simply ignore what happens on the island. In addition to closely following the development of events on all fronts and contributing as much as possible to a greater opening of Cuba’s economic market, we must start to prepare for an eventual big bang in the Cuban tourist industry and for its more organic and sustainable opening to foreign investment, in both tourism and other areas, especially labor-intensive ones, which today in Cuba are abundant and cheap although poorly performed.

For now, there is no indication that the reforms are immediate. In the economic sector, for example, those changes must go through eliminating the duality of the exchange rate (one convertible and another not), allowing the repatriation of profits, granting legal security to investors, allowing Cubans to develop their own businesses apart from minor services, creating a real banking system and developing mechanisms for the settlement of disputes. These are basic conditions from a strictly economic point of view, but politically risky for a government that has stubbornly opted for centralism and control. To what extent and at what pace they will be produced is one of the big questions on which the possibility of attracting investment will largely depend.

If we assume that there will be reasonable progress, we can predict that the first challenge for Costa Rica will be the opening of Cuba’s tourist market to the United States, including the participation of U.S. businesses. This could create the immediate effect of redirecting demand. If the progress is substantial and the reforms are consolidated, eventually the island could compete in attracting foreign investment in some manufacturing and services industries, as well as compete with schemes of free zones and port logistics.

Faced with a panorama that is still uncertain, it is best to prepare for a possibly significant impact. In any case, this preparation involves improving our competitiveness in a general sense and giving greater dynamism to initiatives that, in all circumstances, are essential for our development. For example, we must increase the added values and reduce the costs of our tourist industry; make considerable progress in the improvement and expansion of the transportation infrastructure and communication networks; expedite customs services; facilitate business procedures; offer a more relevant education; correct the enormous dysfunctions in the management of administration and the regimes of public employment; and develop a modern, comprehensive energy policy that maximizes efficiency.

What we need, therefore, is not a policy toward Cuba to face potential competition, but to improve our competitiveness in general, something that will give us plenty of solid tools to address circumstantial challenges.

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