The surprise moves come as President Barack Obama is turning his attention to legacy issues, and Raul Castro is trying to boost his nation's economic fortunes in the face of stalled reforms and falling oil prices that have hit his allies hard.
"After today, everything changes," said Carlos Alzugaray, a former Cuban diplomat who lives on the island and has close relations with the Castro government.
"This promises to be the biggest shift in our relations in 50 years," said Ted Henken, an analyst and author of "Entrepreneurial Cuba," which examines the economic and social changes Castro has instituted since taking over from his more famous brother in 2006.
Those changes have allowed Cubans to buy and sell property, purchase a car, travel abroad without permission, open their own businesses and hire employees. But the reforms have fizzled recently due to Cubans' lack of cash.
Meanwhile, the dramatic slide in global oil prices has cratered the economy of Cuba's main benefactor, Venezuela, which supplies the island with about $3 billion a year in heavily subsidized oil. Another key ally, Russia, also is in economic turmoil.Cuba's moribund economy grew by just 1.4 percent this year, according to the government's own estimates, and many private businesses that opened to fanfare in the last couple of years have closed. A recent foreign investment law so far has failed to attract much capital.
"If you look around the world, (Cuba is) in urgent need of economic resources, hard currency. Russia's under sanctions of course, Iran's under sanctions, the Chinese are pretty hard-headed businesspeople," said Paul Webster Hare, a former British ambassador to Havana. "So if they want to quickly turn on the tap of new hard currency, America is top of the list."
Cubans already receive about $2 billion in remittances from the United States each year, a number that is likely to go up due to the easing of economic restrictions, said Julia Sweig, an analyst at the Council on Foreign Relations. An increase in Americans traveling to the island, and new allowances that will let them bring Cuba's famous rum and cigars back with them, will also be a welcome jolt.
Another reason for Cuba's openness could be more personal.
Raul is 83, Fidel, 88, and both men are acutely aware they will not be around much longer to oversee the revolution they led in 1959. President Castro has said he aims to step down in 2018 and wants to leave the country well on a path to reform — on his terms.
Alzugaray, the former Cuban diplomat, said Castro could face opposition from hardliners, but that he has the political clout to deal with any dissent, something his successor might not.
"This is Raul Castro we're talking about, the historic second in command of the revolution, and that will be of influence with even the most hard line sectors," he said.
For Obama, the timing also is propitious. The announcement, which was immediately criticized by powerful Cuban-American lawmakers on both sides of the aisle, came the day after Congress adjourned, and before Republicans take control of both houses in January.
It also comes after investigations by The Associated Press revealed embarrassing covert programs by USAID, including an effort to set up a clandestine "Cuban Twitter" service, and another to co-opt Cuban hip-hop artists. The New York Times has also published a series of influential editorials calling for a change in Cuba policy. The head of USAID announced Wednesday that he is stepping down.
Analysts say ongoing negotiations could lead to a face-to-face meeting between Obama and Castro at the Summit of the Americas in Panama in April, which Cuba has been invited to for the first time.Since the Democrats' midterm election shellacking in November, Obama has been on a mission to demonstrate that he is not a lame duck, using his executive powers to make sweeping policy changes on immigration and the environment, and announcing a climate change deal with China.
Still, obstacles remain to normal relations (full diplomatic ties were cut in 1961). Washington still prohibits American tourism to Cuba, and the Obama Administration cannot end the trade embargo without Congressional approval — something unlikely to happen while a Castro remains in control in Havana. Any final agreement likely will need to address compensation for Cuban exiles who lost property when they fled their homeland decades ago.
For his part, Castro has made clear that his country remains committed to the Communist ideals of the revolution, meaning a multi-party political democracy, free press and full-blown capitalism are not in the cards anytime soon.
And while commercial ties may be strengthened, Obama will not be cutting any ribbons on a McDonald's or Starbucks in Cuba in the near future.
"He is creating the momentum that ultimately will lead to opening a Marriott," said Sweig. "But we're not opening a Marriott tomorrow."
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