The key to renormalising US-Cuba relations

CHICAGO  —  The Summit of the Americas, now taking place in Los Angeles, is shining a spotlight on how much has changed since US President Joe Biden was last in the White House. Since January 2017, Venezuela has become a failed state, and migration from Central America has fueled political polarisation in the United States. Brazil elected a tropical version of Donald Trump as president, and Mexico elected a left-wing populist.

But one thing has not changed: Cuba remains a one-party state and a thorn in the side of US foreign policy and democracy-promotion in the region. Accordingly, the Biden administration decided to leave it off the summit’s invitation list (along with Venezuela and Nicaragua).

Nonetheless, the administration also recently announced that it will reverse the Trump-era sanctions on Cuba. In doing so, Biden has begun to shift America’s Cuba policy back toward the approach taken by his former boss, US president Barack Obama. In 2015-16, Obama re-established diplomatic relations with Cuba, conducted an official state visit to Havana, and loosened some of the restrictions on American travel and business dealings with the island. The idea was that such “positive engagement” would help foster economic and political change in Cuba and in the region more broadly.

But the Obama administration’s efforts had stalled even before Trump took office and tore up all of his predecessor’s commitments. The US sought compensation for Americans whose property had been confiscated during the Cuban Revolution, a sore spot for Cuba that remains today. If the Biden administration can resolve the issue, it will have turned a page across the region.

When Fidel Castro overthrew Fulgencio Batista in 1959, Cuba was mired in poverty and kleptocracy. Batista had lined his pockets while most Cubans toiled on sugar and tobacco plantations owned by wealthy elites, or as service workers in the island’s coastal resorts. Part of Castro’s initial popular appeal lay in the radicalism of his approach to closing the enormous gap between haves and have-nots: his government simply confiscated property from the rich and redistributed the spoils to the poor.

But many US citizens and businesses got caught in this dragnet of expropriation and nationalisation. Hoteliers, landowners, sugar companies, and railway owners suddenly discovered that their Cuban assets had been seized, and that they would do well to flee with their lives.

Since then, Americans have filed some 6,000 certified property claims, totaling $2 billion, against the Cuban government through the US Foreign Claims Settlement Commission. Moreover, the US Department of Justice has received thousands of additional claims, and there are also thousands of Cubans who had their property confiscated before fleeing to the US and gaining American citizenship.

By convincing the Cuban government to hold talks on this issue in December 2015, the Obama administration achieved a major breakthrough. Never before had Cuba even recognised the compensation claims as legitimate or worthy of discussion. But Cuba came with its own demand: namely, that the US should compensate Cuba for the enormous economic costs of the decades-long trade embargo that it had imposed on the island. Cuba estimated that its losses ranged from $100 billion to $850 billion.

Compensation claims for seized property are not abnormal in international relations. In 1968, a military government in Peru seized the US-owned International Petroleum Company after it had been at the center of a domestic scandal that resulted in a coup. The company sought $120 million, but its claim was not resolved until Peru had compensated other US companies for assets lost during nationalisation, allowing the US government to step in and reroute some of the funds in its direction.

The same Peruvian government then expropriated large landowners en masse, just as Castro had done in Cuba. More than 15,000 landowners lost property totalling roughly ten million hectares. The government promised compensation in the form of government bonds, but these lost value amid runaway inflation a decade later, and the government never honoured them. To this day, a group of landowners is still trying to receive compensation, and a US-based hedge fund, Gramercy Funds Management, has tried to sue the Peruvian government for $1.6 billion after purchasing thousands of the bonds on the cheap from former landowners.

Past experience suggests that a lasting US-Cuba détente must be oriented toward the future. Fortunately, complicated claims and counterclaims can actually serve as a foundation for a broader negotiated agreement to normalise relations between the two countries.

One proposal is for Cuba to compensate small claimants financially and larger claimants with business development rights. This could be part of a package to modernise and open the Cuban economy, with the US lifting sanctions and punitive regulations and welcoming the island back to critical international financial institutions. In the process, such measures would more than unwind the trade embargo.

But any resolution also should be tied to greater recognition and security of property rights within Cuba, following the steps Mexico took prior to signing the North American Free Trade Agreement in 1992. When Castro’s regime transferred confiscated private property to the poor, it nonetheless withheld property rights from those recipients, who had neither land titles nor full transferability rights.

Such restrictions are common under authoritarian governments that redistribute property. In addition to undermining investment and growth, they ultimately generate dependency on government programs, which in turn are used to ensure political fealty. This was Mexico’s model of political economy from its revolution in the 1910s until the early 1990s.

The Cuban government has already taken initial steps toward shrinking the state sector and loosening regulations on property use. Recognising expropriated foreign claimants’ rights should go hand in hand with recognising the property rights of those who received the seized assets. Rural farmers, for example, should receive titles to their land along with the associated rights. Such an arrangement could bring a new dawn not only for US-Cuba relations and Americans whose property was seized, but also for Cuban citizens, who could in turn drive a new era of development on the island.

Michael Albertus is associate professor of Political Science at the University of Chicago. Copyright: Project Syndicate, 2022. www.project-syndicate.org