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The $7 billion+ Problem Clouding Cuba’s Economic Future

The government of Cuba has a lot of problems. Staying in power is one of them and one way they do that is by hoarding money and property. So it is no surprise that one of Cuba’s most vexing challenges is how it will deal with property rights. You see in Cuba, there is no such thing as private property. The all-knowing state, supported by an archaic legal system, controls the means of production. Not allowing citizens or foreign companies to own private property has been a staple of the system since the very beginning.

When the Cuban regime took control of Cuba in 1959, it decided to kick out Americans but before the Communist did that they banned private property. During that process, the government also confiscated real property, businesses, even livestock, and refused to pay debts owed for services and goods rendered by Americans and American companies to the prior government. It was one of the primary reasons economic sanctions were imposed on Cuba because Cuba refused to compensate owners for their losses.

If you do not include Cuba’s mounting debt that it has accumulated since the 1960s, Cuba owes American citizens and corporations a whopping $7 billion. The figure is probably much higher. Known as certified claims, this issue has clouded Cuba’s economic transition. Why would a foreign investor put money in Cuba when, among other things, Cuba fails to pay its debt or take property without compensation?

Cuba has tried to work around this problem and failed. In fact, there are people in this town who have tried to lobby the United States on behalf of the Cuban government on this issue. I have yet to find Foreign Agent Registration Act registrations for these lawyers and lobbyists so they are likely breaking numerous federal laws. But more on that for a future post. The good news is that the U.S. has refused to budge on these quixotic designs to make these claims go away.

I raise all this because I read an article in The Cuban Triangle blog that a former State Department official, Michael Parmly, has penned an article arguing that the United States should return the Guantanamo Naval Base to the Cuban regime.  That Parmly made the comment is somewhat perplexing. I may not agree with some of of policy views, but he is a smart fellow and I’m not sure why he thinks this is a good idea. It contradicts U.S. law as well as U.S. policy. And, why now?

Assuming this were legal, what would we gain from it? Absolutely nothing. As stated in the Helms-Burton law, the U.S. supposed to foster a policy that protects “United States nationals against confiscatory takings and the wrongful trafficking in property confiscated by the Castro regime.” Handing over the base would reward Cuba’s intransigence on this point, not advance U.S. goals with regards to Cuba.

The regime does not recognize private property rights of its own people, why would it bother to honor its obligations to foreigners?  Returning the base without dealing with the claims issue, and many other equities at play, would very bad signal to foreign investors at the expense of U.S. claim holders and the Cuban people. The U.S. has the most to lose in this transaction, political and economic leverage. Cuba knows what it has to do to secure a return of the base. It is not interested.

And for those who believe that Cuba’s recent economic reforms merit generous U.S. overtures such as handing over the base, think again (I’m not sure this is what Parmly argues this in his paper, however, it is a point advanced by the pro-Cuba engagement lobby in this town). Anti-U.S. policy advocates like to argue that Cuba has adopted Vietnam’s economic model for a transition from a Marxist command and control economy to one that is more capitalistic. This will never happen in Cuba.

For starters, Cuba lacks the manufacturing capacity to support such a bold economic transition; however, Cuba is not interested in becoming a free-market economy. Quite the opposite. But my point is that the U.S. should not reward Cuba for economic reforms, even if they were working. Easing economic sanctions is predicated on a clear legal road-map. Cuba is so far off track right now that not even a political GPS could put them back on the correct normalization journey. Handing over the base right now makes no sense. If we ever do it, it should be an item of discussion with a future government of Cuba. One that is democratically elected.

If your interested in recent news coverage on the property and claims issue, be sure to read CNBC Lisa Caruso-Cabrera‘s reports on the property issue. She filed them in Cuba and are a good overview of the problem as well as the challenges that lay ahead.

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