The December 2014 initiative by U.S. President Barack Obama to re-open diplomatic relations with the government of Cuba has unlocked a number of doors. Travel between the United States and Cuba has been eased, embassies have been re-opened, and discussions are taking place on a number of common interests. Just this week, the two countries agreed to resume commercial air traffic, and Obama announced he will visit the country in March.
While recent announcements are hopeful, other doors remain guarded or are only slightly ajar. Some steps, including notably the ending of the embargo against most trade between the U.S. and Cuba, remain prohibited by the Helms-Burton Act of 1996. Other prohibitions are ambiguous. One such is the possibility of a renewal of Cuban membership in the International Monetary Fund. And, as I outline in a report released this month, despite any weaknesses of the IMF in practice, the continuing exclusion of any country undermines the global public good that the institution is intended to provide — to promote economic prosperity and provide a meeting place for countries with diverse and conflicting national interests.
So, what will it take for Cuba to rejoin? First, a little history.
Cuba had an active delegation at the 1944 Bretton Woods conference at which the IMF was founded. It was involved in much of the preliminary planning, as early as 1941, and it worked together (but unsuccessfully) with other Latin American countries to try to establish a monetary role for silver alongside that of gold. More successfully, Cuba worked to establish greater voting rights for small states and to secure a special status for Latin American states on the IMF Executive Board.
Cuba joined the IMF (and the World Bank) at the outset in 1946, becoming one of the institution’s 40 original members. For the next 12 years, it played a positive role in the Fund. In 1954, it became just the 10th country to accept the full obligations of the Fund’s Article VIII, eschewing the use of exchange restrictions on international trade. It made routine borrowings from the Fund in 1956, which it repaid the following year.
Then the trouble began.
In 1958, the government of President Fulgencio Batista borrowed a small amount from the IMF: US $12.5 million, equivalent to 25 percent of Cuba’s quota. The terms of the arrangement called for Cuba to repay the loan within six months, but by then the government was close to collapsing. After forces under Fidel Castro overthrew the regime in January 1959, the new government repeatedly requested to postpone repayment. When the balance due was still outstanding (and interest charges were still piling up) in 1963, the IMF’s rules required the Managing Director to take action leading to a prohibition on the further use of Fund resources. That process dragged on for several months until Cuba withdrew from membership in 1964. Nonetheless, over the next five years, the Castro government gradually repaid the full amount due, including all interest charges.
After the U.S. imposed a trade embargo in 1960, Cuba became heavily dependent on the Soviet Union for trade and financial support. That dependency became a more serious problem when the Soviet Union was dissolved in 1991. The end of reliable support threw the Cuban economy into a severe recession that abated only after the government relaxed some restrictions on private enterprise. In an effort to try to strengthen economic relations with a broader range of countries, the Castro government then began putting out feelers toward the IMF.
In 1993, Cuba invited an IMF official, Executive Director Jacques de Groote, to visit Havana for secret meetings with Castro and other senior officials. De Groote, who had good relations and contacts with a number of Communist countries, offered advice on a personal basis and provided documents and other information about how the Fund operated and what it could offer. That led to a number of further contacts at a lower level and eventually to a request for technical assistance from the IMF. The Fund, bowing to opposition from the U.S., declined the request. There the matter has rested.
It is difficult to know whether the Castro government was interested in rejoining the IMF in the 1990s. What is clear is that any effort in that direction would have been futile. The reasons, though, are a little complex. Approval of an application for membership requires only a simple majority of votes cast by the IMF Board of Governors. Opposition by the U.S., which holds approximately 17 percent of the vote, would not be decisive. In the case of an application from Cuba, most other countries would probably be receptive, but many would be reluctant to vote in favour in the face of strong opposition from the U.S. In past cases, notably when Poland applied to rejoin in 1981, U.S. opposition induced the Managing Director to decline to bring the matter before the Board, and no vote was ever taken until the U.S. dropped its objections.
Cuba might still decide not to apply. Joining the IMF would give it access to information, advice and hard-currency loans but it would also require the government to divulge data on its own economy. At some point, though, it will be ready. The issue will then hinge on the position taken by the U.S. Administration. The Helms-Burton Act requires the Treasury Secretary to “instruct the United States executive director…to use the voice and vote of the United States to oppose the admission of Cuba as a member…until the President submits a determination…that a democratically elected government in Cuba is in power.” The Act restricts the U.S. vote, but it does not necessarily prevent the rest of the membership from approving the request. The U.S. does not have a veto.
The Obama Administration is on record as favouring the reintegration of Cuba into the world economy. It can further that objective by letting it be known diplomatically that while it may have to vote against Cuban membership at this time, it does not object if others vote in favour.
An earlier version of this article was published with Project Syndicate.