Are the 1950s coming back? The U.S. and Russia appear to be vying for influence on Cuba again, one with a handshake and the other with money.
The White House says Barack Obama's handshake with Cuban counterpart Raul Castro at Nelson Mandela's funeral was not planned and carried no political meaning. Be that as it may, analysts speculated about its implications, and Senator John McCain went so far as to compare it to World War II-era British Prime Minister Neville Chamberlain shaking hands with Hitler. Bearing out the theory that the leader of the free world greeting a dictator is great publicity for the latter, Granma, the Cuban Communist Party's newspaper, ran a photo of the handshake and pointed out that it was a historic first.
Accidents like this don't just happen. Many remembered Obama's remarks at a Florida fundraiser in November, where he suggested revising the 53-year-old U.S. embargo against Cuba. For many Cubans, Obama's attitude, and the handshake, spells hope that the two countries will cease hostilities, ease travel restrictions and start trading.
By contrast, Granma had nothing to say about another momentous event: the debt deal Cuba clinched with Russia less than a week before the famous handshake. It was, on paper, the biggest debt write-off in Russian history. President Vladimir Putin's government agreed to reduce Cuba's debt to $3.2 billion from $32 billion, payable in equal installments over the next 10 years.
Only $1 billion of Cuba's debt to Russia was actually denominated in dollars. The rest was in two dead currencies: 10.3 billion Soviet rubles and 10.3 billion so-called transfer rubles, a payment vehicle used by the Communist bloc before it fell apart in the late 1980s. Putting a value on these amounts is difficult: By the arbitrary benchmarks used in Soviet times, Cuba's debt would amount to almost half a trillion dollars.
Such absurd numbers give an idea of how deeply the Soviet Union was involved in maintaining Communist Cuba's livelihood in the face of a hostile U.S. Until 1988, 85 percent of Cuba's two-way trade was with the Soviet Union. Soviet dissidents used to decry the exchange of Russian oil for Cuban cane sugar and the green, flavorless oranges that filled Soviet groceries.
With the Soviet Union's collapse, Cuba's economy took a huge hit. Trade with Russia went from $9 billion in 1990 to $506 million in 1994. Cuba has been struggling to restructure its foreign debt, to Russia and other countries, ever since. The $32 billion valuation of what Castro's regime owed Russia is just as meaningless as $500 billion would be. Cuba borrowed in a different world, and the Soviet Union never really expected to get the money back.
Still, the debt relief is a major breakthrough. The mountain of Soviet-era debt is gone, and Russia is promising help with restructuring Cuba's $6 billion in obligations to the Paris club of creditor nations. For a country that earns hard-currency revenue of only about $18 billion a year, much of it from tourism, this is a big deal.
Putin's interest in maintaining relations with Cuba illustrates the island nation's outsized place in the Russian psyche. "It is a matter of geopolitical reputation," explained Mikhail Belyat, a Latin America expert at Moscow State University of the Humanities, in an interview with TV Rain. "We used to be there when the Soviet Union still existed, we were the second pole, a counterbalance."
Putin believes in geopolitics, and pictures of Obama's handshake with Castro will convince him that the debt write-off was a timely move. Russia has to "come back" to Cuba before the U.S. does or risk forever losing its tenuous foothold in the tropics.
The write-off will not mean much, however, if the U.S. lifts the embargo. Its proximity and huge trade potential will outweigh any benefits of rebuilding the old friendship with Russia. Putin's Soviet dreams of Cuba can be shattered with just a handshake. That may explain the Granma editors' news judgment.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. Follow him on Twitter.)