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Easing embargo would boost Cuba's moribund economy

Havana (AFP) - Easing the 54-year-old US trade embargo would be breath of fresh air for communist Cuba's moribund economy, giving greater life to recent reforms by the island's communist regime.

The principal features of the economic sanctions imposed since 1960 will remain in place unless President Barack Obama persuades the US Congress to lift the embargo.

But a series of other measures that the US leader announced on Wednesday could boost economic exchanges as the two Cold War-era adversaries normalize relations.

Cuban economist Pavel Vidal, of the Universidad Javeriana in Cali, Colombia said these "will spur not only a jump in trade with the United States and a growing influx of tourists, but send a very positive signal to the international community about the island's economic future."

Thus for the first time in decades, American visitors will be able to use their credit cards while in Cuba and American entities will be able open accounts with Cuban financial institutions.

Every year, more than 90,000 US citizens travel to Cuba, despite restrictions on how much they can spend and on the Cuban products they can bring home.

That figure is likely to rise once the Obama administration eases restrictions in the coming weeks on the 12 categories of people currently allowed to travel to Cuba, such as US-based relatives of residents of the island.

The limit on money sent in remittances from the United States to Cuba also will go up -- from $500 to $2,000 a quarter. And those funds can be used to invest in private businesses.

"Favorable effects are foreseeable for the economy over the medium term, but also in the short run with the rise in tourists and investments. That will benefit big businesses and an emerging small business private sector," said Vidal.

Both have been struggling with chronic investment shortfalls, he said.

- 'Ideal scenario' for reforms -

In recent years, the communist regime has launched a series of reforms aimed at stimulating the growth of small businesses, which today employ half a million Cubans.

It has also given 140,000 farmers state land to use, in addition to the island's 100,000 small landowners.

For these small operators, Washington's decision to authorize the sale and export of certain "goods and services" to the Cuban private sector could be a real boon.

"For Cuba, it is an opportunity to relaunch the processes of economic reform, political liberalization and opening with greater vigor," said Arturo Lopez-Levy, a Cuban academic at New York University.

And, if US-Cuban relations continue to improve, with Washington dropping Havana from its list of state sponsors of terrorism, "the costs and risks of engaging in the Cuban economy will diminish enormously," said Vidal.

Cuba's port of Mariel is being upgraded with an eye to turning it into a hub for a new class of large cargo ships carrying goods to and from Asia through the Panama Canal.

Cuba hopes to attract foreign investment to an special economic development zone at the port, seen as indispensible for reigniting the stalled economy and an essential accompaniment to the economic reforms.

In June, Cuban authorities adopted a new law governing foreign investments as part of the strategy.

Easing the US embargo, Vidal said, would offer an "ideal scenario for the start of the new policy favoring foreign investment and for the Mariel special development zone, on which hopes for increasing Cuba's GDP are riding."

The United States currently is Cuba's ninth largest trading partner, thanks to trade in certain types of food and pharmaceutical products that have been allowed since 2001.

But US-Cuban trade has been in decline, falling from $962 million in 2008 to $401 million last year.

Restricted to non-Cuban shippers and subject to a ban on credit, trade had slowed sharply under the administration of George W. Bush, which barred dollar payments to Cuba and required advance payment for US products.

Obama is now promising to review those restrictions and to go so far as to give US banks permission to open offices in Cuba to facilitate payments.