Investing in Cuba's Future

Havana in the days of the hegemon.

Photo by Hutton Archive/Getty Images

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.

QuickTake U.S.-Cuba Reboot

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.