Cuba’s $7 billion elephant in the room

Cuba's $7 billion elephant in the room
by Tim Rogers
Omar Bustamante / FUSION
August 14, 2015 2:20 PM

The stars and stripes are once again fluttering brightly in front of the
U.S. embassy in Havana. But in the darker recesses of the building, the
chore of mapping a route towards a full normalization of relations is
just getting started.

Obstructing the path forward is the monstrous 55-year-old U.S. trade
embargo. Though presidents Obama and Castro have made great strides to
reestablish diplomatic relations over the past 10 months, taking things
to the next level means dealing with the elephant in the room: a nearly
$7 billion pile of unresolved U.S. property claims.

This is where things get tricky. The Cuban government's expropriation of
U.S. properties in the 1960s was the original raison d'être for the
embargo, whose function was later expanded to include loftier
considerations for democracy and human rights. Some of those
stipulations, laid out vengefully in the 1996 Helms-Burton Act, probably
won't happen anytime in the coming hours — especially the U.S.'
insistence that both Castro brothers step aside to allow an imagined
electoral democracy to flourish on the island.

But the real rub is going to be settling the 7,028 certified U.S.
property claims. And at a 6% annual interest rate — one that has already
tripled the original tabulated claim of $1.8 billion — the sooner that
debt gets settled the better.

"This has to be addressed — it's U.S. law and it's a real issue," says
Cuba expert Ted Henken, president ex officio of the Association for the
Study of the Cuban Economy.

Henken thinks it behooves both countries to treat the matter with a
touch of urgency. He says Obama, who's "swinging for the rafters" in his
final year in office, has the political capital to negotiate an
acceptable compensation deal with the Cuban government, which also wants
the matter resolved because an island full of disputed property titles
is a lousy way to attract foreign investment.

In the topsy-turvy world of business mergers and acquisitions, the
leading U.S. claimant could soon be Staples Inc, after the office supply
chain finalizes its purchase of rival Office Depot, which, oddly enough,
currently holds the original certified claim by the Cuban Electric
Company. That claims alone, originally valued at $323 million, could now
be worth more than $1 billion after 45 years of interest.

Rounding out the top 10 list of U.S. claimants are mostly former
telecom, sugar, mining and oil corporations, many of whose names have
been forgotten in history. The only easily recognizable claimants left
in the top 10 are Exxon and Texaco.

Henken says the trick to settling those claims will be finding a price
point that satisfies everyone without strangling Cuba's fragile economy
in the process. Henken thinks a deal where Cuba pays $.10 on the dollar
would be as good as the U.S. claimants — corporations and individuals
alike— could realistically hope for.

"The Cuban government wants to deal with this too, but the devil's in
the details," Henken told Fusion.

Cuba also has a series of counterclaims against the U.S. government. The
island nation already tried — unsuccessfully— to sue the U.S. in Cuban
court for damages caused by the embargo, which started in 1960. Cuba
estimates its total economic losses from the embargo are now north of $1
trillion, according to its most recent annual report to the UN last year.

Cuba also has a property claim of its own. President Raul Castro said
just last month that a full normalization of relations with the U.S.
won't be possible until the U.S. hands over the U.S. navy base at
Guantanamo Bay.

While both governments will bring their list of demands to the
negotiating table, the U.S. has shown it's not willing to simply forget
about past claims just because they're 50 years old. And Cuba's
cash-strapped condition probably won't prevent Uncle Sam from trying to
squeeze blood from a turnip. Just ask Nicaragua.

Earlier this month, the U.S. finally closed the books on its "Section
527" property claims office in Managua, after pulling $1.3 billion in
indemnifications out of the post-war Central American economy to
compensate thousands of U.S. and Nicaraguan citizens whose properties
were confiscated by sticky-finger Sandinista officials in the 1980s. The
"Section 527" program, which spanned two decades and four Nicaraguan
governments, successfully collected compensation for more than 28,000
property claims "through various means, including returning the
property, exchanging property, and indemnification with government
bonds," according to the embassy's Economics Counselor Gary Clements.

Nicaragua, the second poorest economy in the hemisphere, will continue
making payment on those bonds for the next 14 years.

"The lessons learned in Nicaragua could be applied in Cuba," former
Nicaraguan attorney general Alberto Novoa Cuba told me. But, he added,
Nicaragua 1993 and Cuba 2015 are two very different countries.
"Nicaragua had a broken economy and the country was deeply polarized, so
it was not in the same conditions as Cuba today," he said.

Cuba's monolithic government is in a much stronger position to negotiate
with the U.S., Novoa said. Plus, Cuba is less afraid to walk away from
the table if the terms become too tilted in the U.S.' favor.

Is there a win-win?
The challenge for the U.S. is to resolve the property claims in a way
that's win-win, without making life worse for ordinary Cubans, says
Patrick Borchers, who served as the principal investigator on a 2007
USAID-funded study on U.S. property claims against the Cuban government.
But that's going to require some creative thinking, considering Cuba has
only $.02 on the dollar in hard currency to resolve the U.S. property
claims, Borchers says.

If handled smartly, resolving the property claims could help Cuba
kickstart its economy by creating a positive climate for investment and
job creation, the lawyer says. But if it's handled punitively, the whole
thing will blow up in everyone's face and force Cuba to pull the plug.

"I hope that whoever handles this has the foresight to see that the
worst possible outcome would be if life got worse for ordinary Cubans
because that would give all the of the Castro apologists the right to
say, 'I told you so: Uncle Sam had it in for you all along'," Borchers said.

The day of reckoning will eventually come, he said, but it remains
anyone's guess when it will happen and what it will look like.

"The issue can't be ignored forever — that's not a realistic
possibility," the Cuba expert says. "The question is how fast is this
going to go? I'll be shocked if it's dealt with in less than two years,
but I'll be equally shocked if it's not dealt with in the next 10 or 20
years."

Source: Cuba's $7 billion elephant in the room | Fusion -
http://fusion.net/story/183057/cubas-7-billion-elephant-in-the-room/