In what appears to be the first in more than six decades, the United States has authorized an American company to finance and invest in a private company in Cuba, an unprecedented decision that could open the door to American investments to help the Cubans on the island gain ground economically. independence from the state.
The U.S. embargo on Cuba, in place since 1960, prohibits most financial transactions involving Cuban nationals or entities unless they fall under an exception or are authorized by license. The people behind this recent initiative believe this is the first time the US government has authorized direct financing and investment in a private Cuban company.
The decision came last week, when the US Treasury Department authorized a company headed by John Kavulich, chairman of the Cuban-American Business and Economic Council, to invest and lend money to a small private company in the services in Cuba.
The amount to be provided to the Cuban company is less than $25,000, but the details of the transaction are “tangential”, Kavulich said. What matters, he added, is that “now others can seek to benefit from the precedent set by the license”.
“There is now a choice where there was none a few days ago,” he said.
The Biden administration’s move, however, would only make sense if the Cuban government allowed U.S. investment to reach Cuba’s emerging private sector, a notion Cuban authorities have rejected in the past. And investing in Cuba remains risky, as Cuban laws offer little protection for private property and businesses. The government frequently seized the assets of local and foreign investors, sometimes for political reasons.
It took the Biden administration 11 months to agree to Kavulich’s license application. The administration’s Cuba policy has remained virtually unchanged since the Trump era, and White House officials have suspended a promised review of Cuba policy to assess the fallout from widespread anti-government protests on the island in July.
Tensions between Washington and Havana rose after President Joe Biden imposed sanctions on several security agencies and officials in the ensuing crackdown, and Cuban authorities responded with unproven accusations that the protests were part of an operation financed by the United States.
But the current exodus of Cubans to the U.S. border prompted high-level talks with Cuba in Washington in late April, the first since Biden took office. The license from the Treasury came a few days later.
“To my knowledge, there is no precedent, and no direct equity investment in Cuba has been allowed since the Kennedy administration imposed a full trade embargo,” said Bob Muse, a lawyer based in Cuba. Washington, DC, who drafted the contingent investment agreement with the Cuban Small Business Owner and license application.
“It’s an important step,” Muse said.
The Treasury Department declined to comment.
In recent years, supporting the Cuban people and their emerging private sector has been an explicit goal of US policy. Cuban-Americans have long funded the small businesses of family and friends in Cuba through remittances. But before Kavulich got the license, there was no formal legal mechanism to do so. And with the closure of official remittance channels, Cuban entrepreneurs are struggling to obtain capital.
“Over the past three administrations, there has been a consensus that encouraging the growth of a Cuban private sector independent of government control should be a key part of U.S. policy toward Cuba,” said Ric Herrero. , executive director of the Cuba Study Group. , a Cuban-American organization that promotes engagement with Cuba. “Now that Cuban officials have finally taken long-delayed steps to legalize private sector businesses, we must seize the immediate opportunity to cultivate this sector and instill Western values in it. Otherwise, we leave it at the mercy of global investors beyond the reach of US regulators, who may not share the standards of Americans and Cuban Americans.
Kavulich declined to name the Cuban company involved because the response from Cuban authorities is uncertain, but he believes the license creates pressure on the Cuban government to “match” what the United States has already authorized.
As the COVID-19 pandemic has hit Cuba’s economy, several Cuban officials have given public assurances that the country welcomes foreign investment. But in the past, authorities have blocked proposals from American companies and Cuban-American exiles. While growing political unrest and poor economic prospects have forced authorities to ease restrictions on the private sector, many remain in place and distrust of anything American runs deep within the Cuban government.
Changes to Cuban laws and regulations last year granted small and medium-sized private businesses the legal status of limited liability companies, or LLCs, but the new legal framework is vague and gives the government wide latitude to further regulate the private sector.
The law on the private sector stipulates that newly created companies can apply for any “legal” funding, but does not specify what is eligible. The Cuban government views foreign investment as a separate matter from private sector legislation and generally processes foreign investment applications through the Ministry of Commerce and Foreign Investment.
Muse said he didn’t see why the Cuban government wouldn’t allow private sector investment. “The government itself has said that the private sector is part of its economy and for that, private companies need capital. Everyone benefits. »
Kavulich also hopes the Biden administration will take further steps to facilitate normal banking relations between the two countries.
But any easing of sanctions by the Biden administration is also likely to be pushed back by Cuban exiles and activists on the island, who believe the Cuban government’s continued crackdown on dissent and deteriorating human rights record. man on the island should be given more attention. isolation.
Saily Gonzalez, an entrepreneur in Cuba who had to close her bed and breakfast business due to opposition to the government, said U.S. investment would likely benefit private landlords with government ties, those able to thrive despite the limitations imposed on the private sector.
“The Cuban Communist Party, the ultimate authority, will never allow a local with no proven loyalty to the regime to have access to an injection of American capital,” she said on Twitter. “And the Biden-Harris administration should pay attention to this issue.”
Kavulich said he heard about the small private company in Cuba he is trying to help through Facebook and contacted him via email. He said the person was not a member of the government or the military and that other Americans wishing to invest in the island should also do their due diligence regarding the people and entities involved.
Other Cuban entrepreneurs believe that the possibility of seeking financing abroad could change their lives.
“For decades, the private sector in Cuba has been severely constrained by national policies and the US embargo,” said Camilo Condis, a Cuban entrepreneur who runs a small lighting business in Havana and hosts the El Enjambre podcast. on daily life in Cuba. “From now on, this type of license would open up opportunities for Cuban entrepreneurs. We will see if the Cuban government will allow foreign direct investment in the private sector or continue to limit its development.
“The ball is in the court of the Cuban government,” he said. “We’ll find out soon.”
This story was originally published May 16, 2022 3:01 p.m.