Lots of diplomacy, not many dollars

ON Dec 17th 2014 Barack Obama and Raúl Castro surprised the world by announcing that the United States and Cuba had agreed to restore diplomatic relations. The fruits of a historic year for the United States and Cuba

ON DECEMBER 17th 2014 Barack Obama and Raúl Castro surprised the world by announcing that the United States and Cuba had agreed to restore diplomatic relations, frozen since 1961. In Havana the news was greeted with euphoria—some residents unfurled the Stars and Stripes alongside the Cuban flag, and church bells rang out. Across the Florida Strait, the excitement was almost as great: businesses of many descriptions announced breathless plans to penetrate a long-forbidden market.

A year on, the excitement is tempered by realism. On the diplomatic front, progress has been significant. After the reopening of embassies, talks have begun on substantive issues, ranging from law-enforcement co-operation to human rights, organised under the aegis of a new Cuba-United States steering committee.

On December 8th officials from both countries met to open discussions about the vexed issue of compensation claims. After the revolution Fidel Castro grabbed homes, mines and mills from American citizens and companies. The Justice Department’s Foreign Claims Settlement Commission has accepted nearly 6,000 claims worth a total of $1.9 billion (excluding interest). For its part, Cuba claims that it has suffered damage of no less than $833.75 billion from the American embargo and past CIA attacks.

Negotiations will be “lengthy”, warns Alex Lee, the State Department official who handles them. They are also urgent if normalisation is to proceed. For example, officials hope that scheduled flights between the two countries will start in 2016. But Cubana, the state airline, will have to find a code-share partner—if its own planes fly to American airports they face seizure until claims are settled.

A string of American business delegations has visited Havana, but merely to explore (and eat lobster, as one manager recounts). Two things prevent business deals. The first is the embargo, which only Congress can lift. The administration has tinkered at the edges, especially on travel. Provided they belong to one of 12 categories, Americans no longer have to seek permission from the Treasury Department before travelling. They should soon be able to use American debit and credit cards on the island. But ordinary tourists are still not free to travel; nor may businesses invest in, or trade freely with, the island.

The second brake is the Cuban government. The Obama administration issued an order allowing exports of building materials, car parts and farm machinery to Cuba’s incipient private sector. Only around 100 import trades have been made. They have to go through Cuba’s state import body. “I hoped that within a year there’d be a dozen export agents in Miami, but we haven’t really seen that,” says an American official. Instead, Cuban entrepreneurs continue to rely on what one calls “the Samsonite market”—carrying supplies home in their luggage. While in theory Mr Castro’s government wants both foreign investment and a private sector, in practice it is often wary of both.

Making the most of the diplomatic opening will take political will on both sides. Nobody expects the United States to lift the embargo before its election in 2016. But few expect a Republican president to roll back the new policy. Polls show bipartisan support for it; many Cuban-Americans approve. However, lifting the embargo will require lobbying by business—and encouragement from Havana. “Facts on the ground in Cuba will do more to change [American] policy than anything else,” says Jeff Flake, a Republican senator who favours lifting it.

Several things are conspiring for change on the island. One is the weakening grip on power of Venezuela’s hard-left government: the withdrawal of its subsidised oil could cut 8% from Cuba’s GDP over four years, reckons Pavel Vidal, an economist. Then there is Cuba’s continued brain drain. Fears that the United States will abolish a provision that allows legal entry to any Cuban who reaches its soil has prompted a mini-stampede. In the year to September almost 45,000 Cubans arrived, nearly double the previous year’s figure. Several thousand have been stuck on Costa Rica’s border with Nicaragua for weeks, in a faint echo of Europe’s migrant crisis. Last month scores staged a rare public demonstration in Havana against the decision by Ecuador—the favoured transit point—to require a visa.

In 2018 Raúl Castro plans to step down. His likely successor, Miguel Díaz-Canel, lacking the revolutionary aura of the Castros, will face pressure to improve living standards. The obvious way of doing that is by accelerating the pace of economic reform. The diplomatic thaw is almost certainly a prologue to bigger changes.

The Economist |

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