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U.S.-Cuba Relations

Why has the Cuban regime still not approved a U.S. investment in its 'private sector?'

Havana's alleged economic opening up could serve to circumvent the embargo. If so, why is it stalling after the offering of a first deal?

An elderly man in Havana in front of a closed cafeteria.
An elderly man in Havana in front of a closed cafeteria. DIARIO DE CUBA

The Cuban regime's purported opening up to the private sector, with the authorization of almost 6,000 micro, small and medium-sized enterprises (MSMEs), has been interpreted by many as a strategy to circumvent the conditions of the US embargo, in order to obtain investments. But, if this is so, why is it ignoring the offer of a first deal of that nature?

This week the U.S.-Cuba Economic and Trade Council complained about it, recalling that it has been almost seven months since the Biden Administration approved the first license authorizing direct investment and financing to a private company located on the island and owned by a Cuban citizen.

The complaint refers to an announcement last May, when John Kavulich, president of that consulting firm, reported that Washington had approved, for the first time in more than 60 years, an investment of ''up to $25,000'' in a private business in Cuba.

Although there were never any details about what company was the beneficiary, or how the agreement was processed (Kavulich only said that the private enterprise was in the services sector), to date Havana has not disclosed whether it has approved the investment or not.

"With each day of delay, the Government of the Republic of Cuba increases the level of skepticism on the part of individuals and corporate entities that its self-declared commitment to the resurgence of the private sector in the Republic of Cuba is really sustainable," the Economic Council warned.

"The process for MSMEs to receive direct investment and direct financing should be simple and easy, and should not require committee approval. As long as MSMEs self-certify that they comply with the standards issued by the Government of the Republic of Cuba, they should qualify, failing any evidence of non-compliance," he added.

The Cuban regime's silence is spawning doubt: does Havana want to do business with the US or not? Is it or is it not in need of fresh money in the midst of the worst crisis on the island in 30 years?

The May 10, 2022 license, granted by US Treasury Department's Office of Foreign Assets Control (OFAC) indicated that investment and dividend funds, as well as financing and interest payments should be transferred through financial institutions in third-party countries, given that the OFAC authorizes banks in the United States to have correspondent accounts at similar ones operated by Havana, but does not allow the regime to have accounts at financial institutions in the US.

The Cuban regime's silence

Last July, the Florida newspaper El Nuevo Herald reported that First American Bank, which handles, from Miami, the bank accounts of the Cuban embassy in Washington and the Cuban mission to the United Nations, is negotiating with the state-owned Banco Internacional de Comercio S.A. to open a correspondent account in Cuba.

Without making any reference to this, Minister of Foreign Trade and Investment Rodrigo Malmierca stated, a short time before, that the Cuban government was "in the process of defining aspects related to the participation of foreign capital in private businesses, where some experiences could soon begin."

Kavulich considered the banking agreement the "logical" next step for Washington, since investors and those who provide financing in the U.S. to small private Cuban companies "must have a direct, efficient and transparent means" to send funds to Cuba and receive their investment income, dividends and loan payments.

"It would make no sense for the Biden Administration to continue to require that funds moving from the U.S. to Cuba go through banks in third countries, where fees are charged for each transaction," he said.

Florida Governor Ron DeSantis reacted by ordering an agency of his government to warn private businessmen not to fall for the Cuban Government's "scam." He also warned the public against heeding the Cuban regime's August 2021 call for Americans to invest in Cuba, which it since has reiterated.

DeSantis stressed that the Cuban government has devised "a new scheme: asking U.S. residents for investments in the 'private sector,' but in Cuba citizens have no property rights and all enterprises are state-owned."

"Foreign investment makes no sense when there are no property rights for Cuban citizens and when the Cuban government will limit which ostensibly private companies will be able to receive foreign funds," he said in a statement.

Subsequent to that exchange, almost nothing has been said. The most eloquent comment in this regard was made by Cuban Prime Minister Manuel Marrero, while leading a government meeting on economic control, when he announced that "a regulation is being prepared to define the control mechanisms" for MSMEs.

According to the most recent data published by Havana, 5,643 private MSMEs have been approved to date, which includes 68 government-operated entities and 59 non-agricultural cooperatives. Fifty-two percent of the businesses approved are reconversions of pre-existing enterprises, and 48% are new enterprises.

As economist Rafaela Cruz told DIARIO DE CUBA, "the logical conclusion is that the permits -not rights- granted to the private sector, are a tactic to refloat" the centralized state business apparatus, "to which Castroism will revert as soon as the economic situation improves, destroying, in the meantime, those who profited off the opening up, as it did with the 'Plan Maceta' in the 90s and the anti-freelancer offensive begun in 2016, which concluded with the infamous Tarea Ordenamiento, or Ordering Task."

Cruz recalled Marrero's own words when he emphasized that "the socialist state enterprise is the fundamental actor, and the new actors are complementary" in the regime's economic conception.

To this could be added something pointed out by Cuban-American lawyer and former politician Joe Garcia, who, paradoxically, has been promoting the supposed economic opening of the Cuban regime in the US.

After his visit to Havana at the end of last October and his meeting with Miguel Díaz-Canel while attending the first business forum between US businesspeople and Cuban companies, organized on the island by the business consulting firm Focus Cuba, created by lawyers Phil Peters and Paul Johnson, he said: "There was a speech by the Vice-Minister of Economic Planning [Johanna Odriozola], which was quite impressive, explaining where they were, how the SMEs are constituted, and in what areas of the economy."

"And then there was a presentation by the Ministry of Foreign Affairs, who spent 35 minutes attacking the embargo, and then talking about SMEs to say, 'We're not going to allow these private companies to interfere with our state-owned companies or drive a wedge between the state and the Cuban people,' that kind of thing," he stressed.

"Here [in the United States] you certainly wouldn't give that speech when you invite people to make investments. But this is a difficult thing for a Communist regime to do," he acknowledged.

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