James M. Boughton is a senior fellow at the Centre for International Governance Innovation. He worked at the International Monetary Fund for much of his career, including as IMF historian from 1992 to 2012.
U.S. President Barack Obama's visit to Havana this week was the latest in a series of steps intended to normalize relations between Cuba and the United States. At stake is the foundation this relationship could build toward advancing Cuba's role in the global economy.
Most other countries already have diplomatic and economic relationships with Cuba. The recently reopened U.S. embassy in Havana is one of 108 embassies there, far more than in any other country in the Caribbean or Central America. And on the international stage, Cuba is a member of the United Nations and many of its agencies, the World Trade Organization, and many other intergovernmental organizations. Yet it remains excluded from the multilateral financial institutions that could help it thrive economically. To become a full participant in today's globally interconnected economy, Cuba needs to become a member of the International Monetary Fund, the World Bank, the Inter-American Development Bank (IADB) and other regional bodies.
Membership in the IADB requires only a majority vote by current members of the Organization of American States. Cuba is a founding member of the OAS and, although still suspended from participating in it, is eligible to apply to the IADB. Membership in the World Bank requires a majority vote and membership in the IMF. Thus, the key to full participation is for Cuba to apply and win membership in the IMF. What would that take?
Cuba would not be a newcomer to the IMF. It participated quite actively in the 1944 Bretton Woods conference at which the IMF and World Bank were founded, and it joined both institutions at the outset in 1946. After 12 years, however, political instability in Cuba caused the relationship to sour.
In 1958, the government of president Fulgencio Batista was on the verge of collapse. It borrowed a small amount from the IMF, to be repaid within six months. Forces led by Fidel Castro overthrew the regime in January, 1959, and the new government asked the IMF to postpone repayment. The fund agreed on several occasions, but eventually it demanded that the loan be repaid. Cuba refused, citing the difficulties imposed by the fact that the United States had imposed sanctions and had frozen much of the government's overseas assets. In 1964, Cuba withdrew from IMF membership. The Castro government then demonstrated good faith by repaying the full amount due, including all accumulated interest charges, over the next five years.
For about 30 years, the U.S. trade embargo rendered Cuba dependent on the Soviet Union for trade and financial support. After the dissolution of the Soviet Union in 1991, Cuba lost that lifeline and suffered a severe recession. The Castro government responded by relaxing its restrictions on private enterprise, and it then very tentatively approached the IMF with an eye toward widening Cuba's range of international economic relationships.
In 1993, Cuba invited an IMF official to visit Havana on a personal basis for secret meetings with Mr. Castro and other senior officials. That visit led to other informal contacts. Eventually, Cuba requested technical assistance from the IMF. The fund, knowing that the U.S. authorities would object, declined the request. Cuba's initiative failed and has not been repeated.
If the Castro government had tried to join the IMF or other multilateral financial institutions in the 1990s, or at any time before Mr. Castro stepped down in 2008, the attempt would have been futile. U.S. opposition would have been strong, but that by itself would not have been decisive. Approval of an application for membership requires only a simple majority of votes cast by the IMF board of governors, where the United States holds about 17 per cent of the voting power. Nonetheless, history shows that Washington has little difficulty rounding up allies whenever it opposes a measure strongly enough. A notable example came when Poland tried to rejoin the IMF in 1981. Faced with implacable opposition from Ronald Reagan's administration, IMF management decided not to raise the question with the executive board. No vote or even formal discussion of the application was held until the U.S. government reversed course and signalled support.
Cuba's successor government, led by Raul Castro, has publicly maintained a neutral view toward IMF membership. It presumably does not want to appear eager while the chances for success are uncertain. The advantages of joining, however, are pretty clear. Cuba would get access to wide-ranging policy advice, technical assistance, and loans on favourable terms. The only real downside would be the same one that kept the Soviet Union from ever joining: It would have to divulge data on the state of its own economy. At some point, probably soon, Cuba will be ready.
When Cuba asks to join the IMF, success will depend entirely on the position taken by the U.S. administration. The 1996 Helms-Burton Act requires the secretary of the treasury 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." Unless Congress repeals or amends the law, the United States has to vote against Cuba's membership. But U.S. law cannot prevent approval by the countries that hold the other 83 per cent of the vote, even though, if it chose to do so, Washington would likely be able to drum up enough support from those nations to reject a Cuban bid, the same way it did with Poland in 1981. But there is another choice.
If Mr. Obama's administration wants to help Cuba reintegrate into the global economy and enjoy the fruits of international trade and commerce, it can let its allies know diplomatically that it will not object if they support and vote in favour of Cuban membership. The U.S. vote and voice might be constrained, but that constraint should not prevent Cuba from rejoining the world.