Cuba Opens to Foreign Investors; U.S. Throws Block

For all its emphasis on private-sector solutions to the problems of Caribbean nations, the Reagan administration apparently feels that free-market measures can't be trusted in Cuba.

No sooner had the Cuban government announced generous new regulations concerning foreign investment on the island, when Washington responded by forbidding businesspeople and tourists to visit the country.

The new Cuban foreign investment law, passed in February, raised eyebrows in international business circles because of its lenient terms. Investors will now be allowed a 49% interest in joint ventures with Cuban state firms, and in some sectors this percentage could go even higher. The law promises companies a free rein in hiring, pricing, and management decisions, as well as full repatriation of after-tax profits and dividends. It limits taxes to 30% of a company's net profits, and states that in some cases the government may waive corporate taxes entirely.

"The incentives are, by any measure, attractive and are similar in many respects to those offered by developing countries keen on luring foreign investors," commented the staid Journal of Commerce.

Like many other developing countries, Cuba has seen its principal export commodity - sugar - fall off in price, and as a result, the country has a shortage of foreign exchange. Cuba's deficit in 1980 was $368 million, despite a $520 million surplus in trade with the West. In trade with Warsaw Pact countries, Cuba recorded a deficit of $890 million. The new investment breaks are thus an attempt to bring in even more cash from the West to even out the country's balance of payments.

But U.S. companies intrigued by Cuba's new deal for business will have little chance to take advantage of it. On the same day that articles about the foreign investment law appeared in the U.S. press, April 21, the Treasury Department announced its imposition of a near-total ban on currency transactions for travel to Cuba. Only government officials, journalists, and Americans with relatives there will now be permitted to change dollars into Cuban currency. From 1977 until this year, general business and tourist travelers to Cuba were allowed to change money.

The "vast majority" of those affected by the travel ban will be tourists, not businesspeople, according to a Treasury Department spokesperson. Nearly 40,000 Americans visited Cuba last year, and only last summer the Cuban government completed a $275 million program to improve and enlarge the country's hotel facilities, hoping for continued growth in, tourism from the United States, just 90 miles away.