By Matt Spetalnick and Daniel Trotta
WASHINGTON/HAVANA (Reuters) - President Barack Obama told Congress on Tuesday he intends to remove Cuba from a U.S. list of state sponsors of terrorism, clearing the main obstacle to restoring diplomatic relations and reopening embassies shut for more than half a century.
Obama and Cuban President Raul Castro sat down at a Western Hemisphere summit in Panama on Saturday for the first meeting of its kind between U.S. and Cuban leaders in nearly 60 years.
Cuba's communist government had said normal relations between the two former Cold War foes would be impossible as long as it remained on the U.S. blacklist. Obama ordered a review of Cuba's status after he and Castro announced a diplomatic breakthrough on Dec. 17.
Cuba was placed on the list in 1982 when it was aiding rebel movements in Africa and Latin America, but Havana long ago ceased supporting foreign insurgencies. Presence on the list, however, has continued to limit its access to international banking and overseas financial markets.
Foreign investors in Cuba said delisting the country would prove positive for the Caribbean island's economy. Banks could legally do business with Cuba while it was on the list but the regulations proved onerous, leading 20 banks to stop doing business with the Cuban government or Cuban interests in third countries over the past 18 months, Cuba said.
"The Cuban government recognizes the fair decision made by the president of the United States to eliminate Cuba from a list that it never should have been included on," Josefina Vidal, the Cuban foreign ministry's chief of U.S. affairs, said in a statement.
U.S. Secretary of State John Kerry said in a statement welcoming Obama's decision that "circumstances have changed since 1982," when Cuba was listed "because of its efforts to promote armed revolution by forces in Latin America."
In his report to Congress, Obama certified that "the government of Cuba has not provided any support for international terrorism during the preceding six-month period," and "has provided assurances that it will not support acts of international terrorism in the future."
Congress has 45 days to consider Obama's decision before it takes effect, but lawmakers cannot stop it unless both chambers approve a joint resolution, a move that is highly unlikely.
Many of Obama's fellow Democrats hailed his decision and some experts said it was long overdue.
But U.S. Senator Marco Rubio, a Cuban-American lawmaker from south Florida and newly announced Republican presidential candidate, denounced it as a "terrible" decision, saying Cuba was helping North Korea evade sanctions and harboring fugitives from American justice.
The fugitives include Joanne Chesimard, wanted in the slaying of a New Jersey state trooper in the early 1970s.
Republican U.S. Representative Mario Diaz-Balart, another Cuban-American lawmaker from Florida, accused Obama of "capitulating to dictators."
BANKS CAUTIOUS
Obama could have announced his intention to lift the terrorism designation and move forward on restoring diplomatic relations at last weekend's summit.
But U.S. officials privately said they saw the issue as leverage in broader normalization negotiations.
Cuba's removal from the list will ease certain economic sanctions on the island, but the broader U.S. embargo on Cuba will remain in place because only Congress can end it. Iran, Sudan and Syria remain on the list.
Some experts said U.S. banks would remain cautious for now. "Banks are certainly watching for further developments, but the (U.S.) government has a lot more steps to take until the industry can take action," said Rob Rowe, vice president of the American Bankers Association.
The two countries have made headway toward an agreement on embassies. A U.S. official expressed optimism but added, "We're still not quite there yet." Among the unresolved issues is a U.S. demand for freedom of movement for its diplomats.
Cuba's human rights record still draws criticism from Washington, and Havana has shown little if any sign of political opening in the one-party system.
"We will continue to have differences with the Cuban government," the White House said.
Geoff Thale of the Washington Office on Latin America, a private group that promotes democracy in the hemisphere, said: "Taking Cuba off the list of terrorist states is a sensible, and long-overdue step."
Cuba was added to the list at the height of the Cold War when it was aiding leftist insurgencies such as the FARC rebels in Colombia. The most recent State Department report in 2013 also accused Havana of providing safe haven to the armed Basque separatist group ETA, which is now inactive and last year pledged to disarm.
Cuba is now hosting peace talks between the Colombian government and the FARC.
(This version of the story corrects 17th paragraph to show that the reference was to steps needed by the U.S. government, not by the Cuban government)