U.S. goods, people, cash pour into Cuba

By Marc Frank

HAVANA, July 24 (Reuters) - Despite being the target of the U.S. government's longest-running economic sanctions, Cuba is awash with U.S. goods, people, and cash -- the result of shifting policies and a changing world.

And if you are an American citizen or company that wants a piece of the action in the Cuban economy, there's no problem, as long as the investment is an indirect one.

Everywhere across this Caribbean island of 11 million people, evidence of U.S. influence abounds.

At the beach on a recent morning, a U.S.-manufactured Caterpillar beach cleaner rolled by tourists watching the sun rise. Truck cabs, made by U.S. firm International Harvester, pull adapted train cars around Havana's busy streets in lieu of buses.

Hewlett Packard is apparently the printer of choice for this increasingly computerized Caribbean island, and Microsoft products the preferred software.

Black-market satellite TV salesmen offer Direct TV, complete with HBO and Pay-Per-View at no extra cost, and brand new U.S.- manufactured satellite dishes and receivers that make it all work.

Visiting U.S. farmers and agriculture officials grumble that while they can't trade with Cuba, their beans and chickens are arriving from Mexico.

President George W. Bush announced recently he would seek to reverse this trend and make the embargo work -- but that's a promise many experts believe will be hard to keep.

"Globalization has made the embargo of little relevance," a western diplomat, who monitors the U.S. policy's impact closely, said. "Cuba can get basically anything it wants, U.S. products or substitutes."

SOVIET COLLAPSE PROVIDED CATALYST

Reeling from the fall of former benefactor, the Soviet Union, communist-run Cuba in the 1990s began promoting international tourism, welcomed Cuban Americans and their money, opened up to western trade and investment, and legalized the dollar.

The measures were aimed at garnering cash to import oil, food and other products, but due to the information revolution and internationalization of the world's economy, they also turned the U.S. embargo into a sieve.

There may be no McDonalds to greet you at Cuban airport, but other famous U.S. consumer brands like Marlboro, Winston, Coke, Pepsi are readily available.

"Globalization is making it very difficult to know and control the origin of many products," Cuban economist and university professor Omar Everleny said.

"For example, you can buy a product in Panama that was manufactured in the United States, and while we do not have commercial relations with the United States we have them with over 140 other countries," he added.

Tourists carry plastic, not cash, and Bush might be surprised to discover the U.S. MasterCard and Visa credit cards are accepted everywhere in Cuba, as long as they were issued outside the United States, for example by Mexican subsidiaries of U.S. banks.

Most Americans are prohibited by their government from visiting the Caribbean island, yet some 200,000 tasted the forbidden fruit last year, according to Cuban Foreign Minister Felipe Perez. That made the United States Cuba's third tourism provider, after Canada and Germany.

The U.S. Treasury Department reported more than 150,000 of the travelers were authorized to visit, of which approximately 120,000 were Cuban Americans visiting relatives.

Another 50,000 U.S. citizens presumably came without authorization from their government, arriving mainly from Mexico, the Bahamas, Jamaica and Canada.

FAMILY CASH BOOST

"Family remittances are important. At the national level, they are an $800 million annual boost in foreign exchange earnings," said Phil Peters, Vice President of the Washington D.C.-based think-tank Lexington Institute and a former State Department employee who has traveled extensively in Cuba.

"The situation is ironic. Cuban American pressure keeps the embargo in place, but the Cuban American community pumps about $70 million a month into the Cuban economy," he said.

Bush recently announced he would toughen enforcement of travel restrictions and try to limit the amount of remittances entering Cuba, but he appears to have no plans to eliminate them, perhaps out of fear of alienating the very Cuban Americans he seeks to please by getting tough with Castro.

But the new American administration's biggest challenge will be to cut Cuba out of the U.S.-led effort to more closely knit together the world's economies.

Bush appeared to shy away from doing just that recently when he announced he would continue the Clinton administration's policy of not fully enforcing the 1996 Helms-Burton Act.

Helms-Burton, which is largely aimed at sanctioning third party commercial relations with the island, is heatedly opposed by Washington's closest allies.

"U.S. companies have affiliations with and U.S. citizens have investments in Sol Melia, Unilever, Accor, Alcan, Fiat, Daimler Chrysler, and Nestle among many other companies, which have commercial activities within Cuba," said John Kavulich, President of the New York-based U.S.-Cuba Trade and Economic Council.

"Most of the largest US financial institutions and investment banks provide services for companies that have commercial activities within Cuba," he added.

Foreign companies and banks involved in over 400 joint ventures with Havana have invested more than $2 billion, and pledged a similar amount, while foreign financial institutions provide billions a year in financing and trade credits.

WHERE'S THE CASH FROM?

"There are many companies in Cuba that are based in the Bahamas, other Caribbean islands, Spain or Britain, and you really can't tell if these companies receive U.S. funds attracted by the high interest rates we pay," economist Everleny mused.

"Today, with billions of dollars moving around the world every second via computers, it is very difficult to know the real origin of financing," he added.

According to the "Economic Eye on Cuba," a weekly publication of Kavulich's organization, a U.S. investor should have no problem building a Cuba-related stock portfolio.

U.S. investors already hold approximately 10 percent of Spain-based Sol Melia shares. The travel company manages more than 20 hotels in Cuba and is a shareholder in four of them.

U.S. investors also hold approximately 23 percent of Alcan of Canada, which exports aluminum products to Cuba.

Over 10 percent of Switzerland-based Nestle is in American hands. The company operates a joint venture mineral water and soda-bottling venture in Cuba.

And California-based Robertson-Stephens Inc. has a 26 percent interest in Canada-based Leisure Canada, which plans to invest some $400 million in Cuba's tourism industry.

Kavulich, who has pioneered in researching U.S. indirect business connections with Cuba, said the U.S. commercial presence is legal, according to a 1994 opinion by the U.S. Treasury Department issued to his group.

While gaping holes have clearly appeared in the United States' four-decade-old effort to economically isolate Cuba, just about everyone agrees the embargo still hurts, though it will not topple the Castro government.

"It's not that the embargo has no impact. For example, Cuba still can't sell products to the United States, and a million American tourists do not visit each year because of travel restrictions," the western diplomat said.

Economist Everleny added the embargo increased shipping costs, interest rates, and the price of U.S. goods. "The embargo is something that affects Cubans daily," he said.

END

Marc Frank

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