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Unearthing Castro's Old Debts

Written By Briton Ryle

Posted December 22, 2014

It’s something that happens only once in a generation, at the cusp between generations, when the older cynical group passes and the newer optimistic group begins. As an older generation rolls over into a newer one, U.S.-Cuba relations may finally be rolling over as well after 55 years of distrust and resentment.

It was in 1959 when Cuban rebel leader Fidel Castro overthrew Cuba’s U.S.-friendly government which ultimately lead to a pro-Soviet communist government – backed by Soviet subsidies, technology and equipment, both industrial and military.

But seizures did not stop with political institutions, as commercial institutions were seized as well, including several operations, factories, plants, hotels and other properties owned by foreign companies, most of which were American.

The seizures marked the beginning of legal contentions that are still very much alive today these 55 years later, making many marvel at how deeply rooted they have become:

“It has long been one of the great anomalies of American foreign policy,” reflected The Economist last week. “The United States normalised relations with Communist China and even with Vietnam, with which it fought a bitter war costing more than 50,000 American lives. But ties with Cuba, which long ago ceased to pose any threat to America, remained frozen in the Cold War. Maintaining the economic embargo against the communist island first imposed in 1961 was about revanchism,” the paper concluded. Revanchism is defined as revenge using harsh political policy.

But long-held resentments fade away when the generation that harbors them fades away itself. We may now have finally reached that transition point between generations, which may finally mean a transition between policies:

“We will end an outdated approach that for decades has failed to advance our interests, and instead we will begin to normalize relations between our two countries,” U.S. President Obama announced in a televised message to Americans last week. “Neither the American nor Cuban people are well served by a rigid policy that’s rooted in events that took place before most of us were born.”

But while the transgressions of the past fade away with the generation that remembers them, they may not fade away so easily for the corporations that suffered them. Generations come and go, but corporations can last much longer, and their memories do not fade as easily.

Memories Fade, But Ledgers Do Not

Some steps in normalizing relations between Cuba and the U.S. can be taken immediately, as Obama has promised to use his executive authority to loosen the travel ban between the two nations, raise remittance limits which would allow Americans to send more money to Cuban nationals and small businesses, lifting the ban on exports of certain U.S. products to Cuba including building materials, farm equipment and telecommunications gear, as well as permitting Americans to use their U.S. credit and debit cards when visiting in Cuba.

But there is one lingering issue in particular that will require the two nations to come to an agreement on which some doubt can be achieved:

“Now that the U.S. has moved to normalize relations with Cuba, the countries will have to deal with decades-old claims from companies… whose property was taken after Fidel Castro took power in 1959,” the Wall Street Journal identifies the stumbling block.

While many of the companies whose properties were confiscated back then are not around in their same shape or form, much of the losses written-off of company ledgers back then are still on the books of current companies who inherited them through mergers and acquisitions.

For instance, the Cuban Electric Company, which supplied more than 90% of all the electricity consumed by Cuba at the time, was nationalized by the Castro government in 1960, losing all of its operations including a utility plant valued at more than $200 million at the time.

Later, in 1969, U.S.-based timber company Boise Cascade became a majority owner of Cuban Electric Company’s stock. 34 years later in 2003, Boise Cascade bought-out the stationary supplies retailer OfficeMax, which in 2013 merged with Office Depot.

So where is that $200 million loss which Cuban Electric Company incurred in 1960? It’s currently sitting on Office Depot’s books. There are probably accountants at Office Depot who are only just now realizing how a change in U.S.-Cuba relations could be affecting them – based on events that occurred, as Obama already mentioned, “before most of [them] were born”.

Other losses incurred during Castro’s nationalization of U.S. owned properties and businesses include factories, oil refineries, hotels, restaurants, department stores, and banking centers. In 1964, the U.S. government began the pain-staking process of collecting claims made by U.S. corporations against the Cuban government for confiscated assets. The endeavor took 6 years to complete, and reached a sum of $1.8 billion worth of claims. How much are those claims worth today?

“In total, U.S. companies and citizens have filed claims now valued at more than $7 billion,” answers the Wall Street Journal. Much of these losses are currently sitting on the books of some very powerful Fortune 500 companies, including Coca-Cola, Exxon Mobil, Starwood Hotels & Resorts, and Colgate-Palmolive, which you can bet are ready, willing and able to put up a strong fight for their fair share of reparations.

It is most unlikely that a nation as desperate as Cuba is at the moment would not negotiate some kind of settlement on such claims. The increased GDP from stronger ties with the U.S. would be well worth the structured repayment of $7 billion in reparations for a nation that already generates $72 billion in annual GDP (as per CIA Factbook 2012 estimates).

Some Still Insist on Looking Backward

Yet it appears that many of that older cynical generation have not faded away just yet, and they are intending to block any attempts at approving such changes to the two countries’ relations:

“Congress controls some of the most significant restrictions on travel, tourism and trade between the two countries,” informs WSJ, “and lawmakers from both parties have made clear they plan to complicate Mr. Obama’s efforts by refusing to fund certain proposals or confirm his nominees to fill diplomatic posts.”

What makes matters even more complicated is that any changes in economic dealings with Cuba encroaches on other U.S. laws and acts that require several changes in political status to be changed first:

“Some of the original restrictions that make up the Cuban embargo were authorized by U.S. presidents starting half a century ago, relying on the Trading with the Enemy Act of 1917,” WSJ explains.

Thus, Cuba would have to be reclassified as a friendly relation first, before any economic embargos, bans or restrictions could be altered. This is why President Obama is also proposing “reviewing Cuba’s designation as a state sponsor of terrorism,” as he addressed in last week’s speech.

“Mr. Obama’s plan to remove Cuba from the U.S. list of state sponsors of terrorism would help lift some of the restrictions,” the WSJ explained, allowing the State, Treasury and Commerce departments to “re-establish relations, open a U.S. Embassy, ease some trade limits and expand travel opportunities”.

But the road to that end will be a long one, especially when a number of U.S. senators have already vowed to block any such changes to U.S.-Cuban relations – from among both political parties. “The White House’s legislative strategy on Cuba has been organized around preventing congressional efforts to block Mr. Obama’s proposals,” WSJ reveals.

Yet there are many from both sides of the political isle who welcome Obama’s new outlook on Cuban relations.

“There are a lot of Republican interests who have long been for making these changes because they agree with us on the foreign-policy perspective or there’s a large market that has been unavailable to American goods,” WSJ quotes an administration official.

What we have then, is a varied outlook among U.S. politicians toward U.S.-Cuban relations, some focussed on the economic benefits to both nations, some centered on the benefits to family relations among separated families, some focussed on humanitarian benefits to Cuban locals.

Yet the most interesting distinction of all is what we see among those who oppose Obama’s call for new relations between the two nations. This opposition is not based on political allegiance, since it is composed of members from both parties. And it certainly is not based on economic concerns, since there would be only benefits to both economies.

What, then, could such opposition be based upon? There is only one thing remaining that would prevent people from coming together – a lingering, deep-rooted resentment and distrust which extends back decades.

Every reconciliation faces that same obstacle: the refusal of people to look forward, not backward; to forgive and forget, not relive and remember.

But for the younger generation that does not remember the past and is optimistic about the future, there is still this one saving grace… that old resentments pass away with the older generation that harbors them; as that generation fades away, its resentments fade away with them.

This day belong to the new generation, optimistic, forward-looking, and eager to rebuild. And the benefits that come with it will be all theirs.

Joseph Cafariello