Cuba’s Thwarted Thaw Thickening
Cuban asset prices sank as the Trump administration announced partial reversal of bilateral travel and commercial openings and harshly criticized authoritarian human rights practices overlooked in other regions. The tougher line fulfills a presidential campaign pledge to Miami’s exile community cheering the changes, while business lobbies like the US Chamber of Commerce were upset that global competitors would have easier access, as their countries long ago approved individual tourism and joint ventures under military control that will now be banned after the Treasury Department issues guidelines. Airlines had reduced or severed routes before the decision, as visitor infrastructure from internet availability to hotel occupancy frustrated demand with renewed diplomatic relations two years ago. However big cruise lines with expansion plans through end-decade may preserve their strategy as they cater to groups with accommodations in place, but disappointments also mounted with the lack of credit card acceptance, dual exchange rate, and poor organized visit experience for foreigners. Starwood was the only US operator to offer a resort as an alternative to state-run hotels, as the Brookings Institute projection of $10 billion in hospitality earnings by 2030, twice current imports, appeared remote without underlying tax and administrative shifts as well promoting more private sector investment. Nearby Haiti, with the hemisphere’s lowest per capita income, has been considered a more promising destination, and new President Moise will encourage agricultural and industry hubs with reliable electricity supply around northern beach locations in his economic strategy under an IMF staff-monitored program.
In the Dominican Republic in contrast tourism revenue was up 10 percent last year to over $6.5 billion, almost one-tenth of output, with 2017 set to deliver another record. European visitors now account for one-quarter of the total, with North Americans still dominant at two-thirds. Remittances in turn, mainly from the US, swelled near 15 percent as Q1 economic growth continued at a 5 percent clip as the regional leader. A primary budget surplus has helped halve the deficit to 2 percent of GDP, and the current account gap is the same with higher gold exports and slashed oil imports, with the difference covered by mining and hotel FDI. Costa Rica is close with 4 percent growth heading into the 2018 election season, with inflation within the 3 percent target range. Fiscal reform has stumbled on political opposition with public debt hitting 60 percent of GDP, with the external portion rising faster on international bond issuance. The 10 percent trade deficit likewise persists, and the central bank has warned capital goods demand may not translate quickly into productive capacity. El Salvador is caught in a low growth twin deficit trap with a $600 million global bond in February used to repay local Treasury bills, as pension fund obligations have not been met amid government infighting. Panama alone has maintained its investment grade as Chinese diplomatic recognition was shifted from Taiwan to Beijing in advance of its president’s White House trip. With expansion Canal toll earnings jumped 20 percent in the first quarter, and re-exports through the Colon Free zone have also picked up to support 5 percent growth. A fiscal responsibility law has enabled sovereign wealth fund transfer, and the Panama papers tax evasion saga has faded although reputation isolation lingers.