Investing in Cuba's Future

Investing in Cuba's Future
10 DEC 14, 2015 3:04 PM EST
By Editorial Board

Don't break out your Montecristos just yet, but the U.S. and Cuba just
started talks on compensation claims for expropriated property and
damages. It's a promising moment for both sides -- and more is at stake
than the sums directly involved.

Restoring economic ties between the U.S. and Cuba can speed an economic
transformation that will benefit not just the old antagonists but the
wider Caribbean region as well. That prize should urge the parties to
show some ambition and flexibility. This negotiation is far from being a
zero-sum game.

For much of the 19th and 20th centuries, Cuba was not only the
Caribbean's most populous country but also its biggest exporter -- a
magnet for migrants and U.S. investment. By the time Fidel Castro came
to power in 1959, the value of U.S. business enterprises in Cuba
outstripped U.S. investment in any other Latin American country except
Venezuela, and included marquee firms such as IBM, Firestone, and what
became Exxon Mobil.

The expropriation of those investments and Castro's declarations of
solidarity with the Soviet Union prompted U.S. President Dwight
Eisenhower to impose an embargo in October 1960, and then to break off
ties in January 1961. Ever since, the U.S. has demanded compensation.

In 1996, Congress made lifting the embargo contingent on Cuba's
"demonstrable progress" in returning seized assets or providing fair
compensation. The U.S. Foreign Claims Settlement Commission puts the
number of claims by U.S. citizens or companies at nearly 6,000, with a
value of $1.9 billion, not counting interest. Add the commission's
preferred 6 percent a year and the total rises to $8 billion. The Cuban
government owes another $2 billion to plaintiffs who sued for damages in
U.S. courts.

Cuban officials argue that compensation should go the other way. They
say they are owed $121 billion in economic damages from the embargo,
plus personal-injury damages for "acts of terrorism."

None of these numbers are worth taking seriously. The U.S. figures rely
heavily on guesswork, Cuba's on magical thinking. There's ample room to
negotiate. Ten companies account for half the value of the U.S. claims,
and some might happily accept stakes in new investments on the island in
exchange; Cuba could easily afford the $229 million cost of the 5,014
claims made by individual U.S. citizens.

Rather than going over each claim with a green eyeshade, the parties
should aim for a "grand bargain" like the one suggested by a recent
Brookings Institution report. This would fold a realistically modest
financial settlement into a larger bundle of agreements to lift
sanctions, promote trade and investment, offer development assistance,
and bind Cuba to undertake faster and deeper economic reforms.

Caribbean nations are quailing over the potential impact of Cuba's
re-integration on tourism and other industries, but these concerns are
misconceived. As Cuba achieves its economic potential, it will be a more
valuable customer for the exports of its neighbors. U.S. investment
applied to Cuba's relatively developed industrial base and highly
educated population would spur growth and deliver a boost to the entire
region.

After a half-century of division, the region's broken economy can be
made whole once again. This would be in everybody's interests, and
squabbles over accounting shouldn't be allowed to prevent it.

To contact the senior editor responsible for Bloomberg View's
editorials: David Shipley at davidshipley@bloomberg.net.

Source: Investing in Cuba's Future - Bloomberg View -
http://www.bloombergview.com/articles/2015-12-14/investing-in-cuba-s-future