CU investment
August 28, 2001

Miami Herald - Miami - Although the U.S. trade embargo against Cuba has made foreign investment on the island problematic, it has not stifled the flow of foreign capital to the communist nation, according to a study prepared by a University of Florida researcher. Nor has the embargo or the Helms-Burton law, which made it even tighter, precluded companies already on the island from expanding enterprises, nor deterred a significant amount of new investments. The effectiveness of the controversial law has been debated for years. But now that North Carolina Sen. Jesse Helms -- the man behind the legislation -- has announced plans to retire, an assessment prepared for experts on the Cuban economy suggests the impact has been negligible. Supporters of the embargo disagree. The legislation ``has met with some success, but missed its main targets,'' according to the report prepared by Paolo Spadoni of the Center for Latin American Studies at the University of Florida. ``The law has been moderately effective in dissuading some foreign companies from entering the Cuban market, but it largely failed to force foreign firms already operating in the island to withdraw from their investment,'' the report states. ``It also failed to hinder the process of economic recovery of the [Fidel] Castro regime and detain the flow of foreign capital delivered to the island.'' The report, presented at the 11th annual meeting of the Association for the Study of the Cuban Economy, was highly regarded by economists from around the nation, despite disagreement over the impact foreign investment is having on the Cuban economy. Helms, who announced that he would not seek re-election when his term expires in 2003, is co-author of the 1996 law that tightened the U.S. embargo on Cuba, which was imposed in 1960. Among other things, the Helms-Burton law penalizes foreign companies that invest in or use properties in Cuba confiscated without compensation following the 1959 Cuban revolution. Proponents of the legislation said the report was flawed because it ``assumes at face value the trustworthiness of the figures given by the dictatorship,'' said Rep. Lincoln Díaz-Balart, a Miami Republican and Helms ally who has fought to keep the embargo in place. When the Cuban Liberty and Democratic Solidarity Act, commonly referred to as Helms-Burton law, was enacted, it was criticized for its ``extraterritorial'' character. It was particularly offensive to European allies, whose companies now make up the biggest portion of investors in Cuba. The law was touted as a detriment to Cuba's efforts in attracting foreign investment. Instead, foreign companies -- with help from the Cuban government -- have found ways to get around its penalizing provisions, the report states. Potential investors spend considerable time and money verifying that projects do not involve confiscated properties. Cuba also has set up ``fiduciary mechanisms'' for financing. And a number of foreign banks have developed circuitous routes using ``off-the-shelf'' companies to disguise their financial assistance to firms with outstanding U.S. claims. ``Cuba probably lost some deals because of the law but, overall, the picture seems positive for the Cuban government,'' said Spadoni, the paper's author.  Helms-Burton was enacted just as Cuba had begun opening the island to foreign capital as a way to boost the economy, which had plummeted following the collapse of the former Soviet Union. In addition to allowing joint ventures, Cuba adopted other measures such as farmers markets, self-employment enterprises and the legalization of U.S. dollars. The joint ventures have become the area of concentration for the Cuban government, but foreign direct investment in Cuba remains small. Between 1991 and 1999, it represented only 7 percent of the gross fixed capital formation (capital created for the production of goods and services), the study states. Still, the number of joint enterprises appears to be growing at a steady rate and has spread to different sectors, including mining, light industry, food, telecommunications, construction, real estate and services. By the end of 2000, there were 392 international economic associations active in Cuba, most of them joint ventures, the report states. Critics said the number of joint ventures in Cuba is so minimal, the impact of foreign investment on the Cuban economy is hardly worth debating.  Those who believe economic growth in Cuba is evident said the island is in a class of its own and its economic success ought not be measured against that of other countries. ``We're dealing with a country that's only been open to foreign investment for six years. Foreign investment in Cuba has set a business and economic path that is irreversible and brand-new and going to do nothing but grow." Though a comprehensive analysis of foreign investment in Cuba is difficult because detailed information is not readily available, the most recent data from the Cuban central bank indicates that foreign direct investment has increased substantially, from $178.2 million in 1999 to $399.9 million for the year 2000, according to the report. While growth seems apparent, even if minimal, Cuban officials still vehemently oppose the law because they say it represents an attempt by the U.S. government to govern beyond its borders. Cuba has alleged that the law has resulted in a loss of more than $200 million, either because companies have pulled out of deals or projects have required a lot more capital to carry out. However, Cuban officials also are quick to point out that foreign investment is on the rise. ``Cuba probably could have done better without Helms-Burton but at the end, one must admit they are recovering,'' Spadoni said. ``Slowly, but they are recovering.''  Economists agree the Helms-Burton law is not the financial fire wall the U.S. Congress intended. ``It's bothersome, but it doesn't impede,'' said Evaldo Cabarrouy, a professor of economics and finance at the University of Puerto Rico in Rio Piedras. ``There are [business] people who see opportunity there. It looks like they're getting a return on their investments. Otherwise, they would have left.''