Sat | Dec 10, 2016

COMMENTARY: Cuba - A giant awakens

Published:Friday | January 9, 2015 | 12:00 AM
AP In this December 17 photo, tourists relax at the Hotel National, overlooking Morro Castle in Havana, Cuba. After a half-century of Cold War acrimony, the United States and Cuba are moving to restore diplomatic relations.

In the midst of the emerging market upheaval at the end of 2014, a quirky headline appeared on our screens.

After 50 years of embargo and forced isolation, the United States was normalising relations with Cuba.

Few people took notice, or even cared. Volatility was destroying portfolios and sending yearend bonuses up in smoke. The only reason the event registered on most trading desks was because it triggered a massive rally in Venezuelan bond prices.

For weeks, Venezuelan bonds had been in free fall, thanks to the Saudi-induced massacre of the oil markets, and most traders were short. However, the announcement fuelled expectations that Cuba would soften its militancy against the US and remove its support for Venezuelan President Nicol·s Maduro, leading to a reversal in the country's macroeconomic management. As a result, Venezuelan bond prices flew.

Nevertheless, the end of Cuba's isolation is a watershed moment. It is the equivalent of the tearing down of the Berlin Wall for Latin America. It heralds the arrival of a sleeping giant to the marketplace. And, it marks a major shift in the geopolitical arrangement of the Western Hemisphere.

Cuba is the largest country in the Caribbean, by population and land mass. With almost 12 million inhabitants, it dwarfs most of Central America.

Five decades of communism left it with the fourth-highest literacy rate in Latin America. It is ranked 11th in the world in doctors per capita. Five decades of Communism also left it with almost no infrastructure. Transportation networks are relics from the mid-1950s, as is the country's electricity and communications grid.

Despite its shortcomings, Cuba's GDP is still a respectable US$70 billion. Moreover, its geographic location is enviable. Its deep-water ports sit at the centre of the Caribbean basin, and a short distance from the entrance to the Panama Canal, making it the perfect trans-shipment hub for much of the Western Hemisphere.

The combination of a skilled workforce, depressed wages, vast natural resources and strategic location will convert Cuba into a magnet for foreign investment. Hundreds of fund managers, industrialists and entrepreneurs will soon deplane to look for new investment opportunities.

At the same time, thousands of exiled Cubans and lawyers will be trying to lay claim to the properties and assets that were seized by the state. The result will be a mÍlÈe of privatisations, IPOs and lawsuits.

Unbeknown to the common eye, there is a major geopolitical manoeuvre behind the announcement. The Vatican may be crowing about its role in bringing the disparate parties together, but the timing of the event was no coincidence. For the Cubans, it occurred at the very moment they were going to be cut off from the Venezuelan life-support system.

Fifteen years ago, Cuba was on the verge of collapse. The fall of the Soviet Union had severed its major source of assistance. The ongoing US sanctions kept them corralled. However, the ascendancy of Venezuelan President Hugo Ch·vez provided them with a lifeline that not only allowed them to survive, but to thrive.

Unfortunately, things went wrong over the past year. The plunge in oil prices, years of macroeconomic mismanagement and the death of Ch·vez forced Caracas to begin trimming its international support programmes, such as PetroCaribe.

Instead of waiting until they were left in the lurch, Havana decided to act pre-emptively.

The timing for Washington was also impeccable. Wanting to signal to the world that the deteriorating relationship with Russia was not a revival of the Cold War, it decided to make amends with its ideological arch-nemesis - Cuba.

More importantly, the US needs to cement its hegemonic grip over the Western Hemisphere as the international system segues towards a multipolar arrangement. By bringing Cuba into the fold, the US has no major ideological rival in the region.

This is the first move in reversing years of encroachment by the Chinese, and to a lesser extent Russians, in a region that Washington considers to be its sole domain. It clearly marks a pivot towards the Americas.

With its huge population and treasure trove of natural resources, Washington can now consolidate the region under its yoke. The reincorporation of Cuba is a mortal blow for the leftist movements that were sprouting throughout Latin America.

Some of the more radical countries, such as Bolivia, Paraguay and Ecuador, trimmed their ties with Havana several years ago. Yet, Cuba still provided the intellectual fountain that nurtured the political left in Chile, Argentina, Brazil and Venezuela.

However, it has been forced to put its own economic reality ahead of its ideological dialectic. As a result, we are at a transformative moment in Latin American history and development.

Too bad, few people took notice.

• Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC. wmolano@bcpsecurities.com