5 ways Cuba-US agreement will make waves

The historic opening between the two countries could have an impact on travel and business in the long-term, though changes are likely to happen gradually.

The Explainer

US President Barack Obama and Cuban President Raul Castro made history this week in announcing a plan to restore diplomatic ties for the first time in more than half a century. “We will end an outdated approach that for decades has failed to advance our interests, and instead we will begin to normalize relations between our two countries,” President Obama said Dec. 17. But what will these changes look like for both Cubans and US citizens?

What makes this historic?

In 1961, the United States cut off diplomatic ties with Cuba and announced an economic embargo that restricted travel and trade. The blockade has outlasted the cold war, a nuclear crisis, and mass Cuban emigration. For the past 50-plus years, relations between the Communist Castro government and the US have largely been hostile, marked particularly in the early years by invasion attempts and assassination plots, and refugee crises.

For now, the economic embargo still stands, but this week’s change is a “crucial first step,” says Daniel Sachs, Cuba analyst for Control Risks. “Without this, [the US and Cuba] can’t move on to discussing the embargo.”

The US will also review Cuba's listing on the State Sponsors of Terrorism index, which could pave the way for easing other economic or political sanctions. 

This week's announcement, which came after 18 months of secret talks, is life-changing for those residing in Cuba, says Rafael Hernandez, editor of the Cuban quarterly cultural affairs magazine Temas. 

Mr. Hernandez, who is in his late 60s and spoke by phone from Havana, says he's in the minority of Cubans who can recall life in the country before the embargo and cutting of ties.

“People were hugging and congratulating each other after [President Castro’s] announcement,” Mr. Hernandez says. “For us, it is wonderful that finally a US president has been able to understand that any kind of relations between these two countries must not be under the auspices of war and confrontation, but dialogue and diplomacy.”

Whom does this affect the most?

A prisoner swap saw the release of US aid worker Alan Gross after five years in Cuban jail for espionage. The three remaining members of the "Cuban-five," convicted of spying in Miami in 2001, were also freed. Cuba has agreed to release an additional 53 political prisoners.

“This has been a bothersome pebble in the shoe of US-Latin American relations for some time now,” said Peter Schechter, director of the Adrienne Arsht Latin America Center at the Atlantic Council. “And for all intents and purposes, that pebble is gone.”

Those with family members in the US are also likely to feel a change, analysts say. “The tangible concessions are the prisoner exchange and the easing of some sanctions, like increasing limits on remittances,” says Mr. Sachs.

More broadly, Hernandez in Havana argues that a weight has been lifted for many Cubans. “This isn’t about the government. This isn’t about the political system. This is about us, [regular] Cubans,” he says. “The perception that the US is no longer a threat, that foreign policy is not aimed to undermine the economic, social, and political system, but to try and influence those changes in diplomatic ways – it makes a lot of difference for us.” 

Did any outside factors play a role?

Yes. Both Castro and Obama thanked Pope Francis and the Canadian government for their roles in the breakthrough. Canada hosted seven meetings in Ottawa and Toronto over the past year and a half, and the Vatican hosted secret talks between Cuba and the US in October. 

“The deal reached between Havana and Washington has to be seen in the context of a long process,” a senior Vatican insider told The Christian Science Monitor. “Pope Francis really made it happen, but the Holy See has always had relations with Cuba; not always great relations – Castro was not exactly friendly to the church – but we always kept the lines open.”

Venezuela played a part as well, analysts say, though indirectly. For more than a decade, it has propped up Cuba’s struggling economy with oil and money in exchange for Cuban doctors and the provision of security intelligence. But Venezuela is facing its own problems, with inflation of more than 60 percent and a currency that has lost more than 30 percent of its value. 

Cuban leaders were already familiar with the pain of losing a benefactor: After the collapse of the Soviet Union in the early 1990s, Cuba went through what was known as the "special period." The economy crashed and food shortages were common. 

Christopher Sabatini, policy director for the Americas Society in New York, says that it’s difficult to overstate the importance Venezuela's troubles have had on the recent Cuba-US announcement.

Does this mean US tourists can head to Cuba?

Havana’s historic architecture, classic cars, nearby beaches, and unique propaganda plastered along buildings and highways loom large in the minds of many an American tourist. Travel restrictions for US citizens remain, but the policy changes will relax them. Lifting all travel restrictions will require congressional approval.

US citizens are not allowed to travel to Cuba and spend money without a license from the US government. Specific rules will be announced in coming weeks, but it appears that general licenses covering 12 categories – including visiting family, conducting official business, or participating in humanitarian work – will be expanded.

Last year some 170,000 US citizens traveled to the Caribbean island legally. Many others go under the radar, frequently flying through Canada or Mexico.

Will the business and investment climate improve?

In the short run, not a lot. “There's a deeply entrenched bureaucracy, rampant state corruption, and legal and contractual uncertainty,” says Sachs. If a foreign company that isn’t held back by the US embargo invests now, its project is a joint venture with the Cuban government.

The Cuban economy is expected to grow only about 1.3 percent this year, with similar results in 2015.

The government's willingness to open up has to do with its desire for "long-term survival of the regime," says Sachs.

There is however, expected to be increased interest in investment – businesses looking to learn more about tourism, telecommunications, and automobile industries, perhaps preparing for any future signs of economic opening in Cuba. 

The changes announced this week will authorize expanded trade in a small number of goods and services, such as exports of building materials or services like business training to help boost the fledgling private sector in Cuba. An estimated 450,000 small-business owners on the island have started private businesses since Cuba began easing restrictions on ownership over the past several years.