DEVELOPMENT BULLETIN-CUBA: Brilliant Coup Behind Paris Club’s Back

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Mar 28 1998 (IPS) - The rescheduling of Cuba’s hefty commercial debt with Japan’s private sector could boost trade between the two countries, at a standstill since the mid-1980s, and provide Japan with an important market in the Caribbean.

In the context of an economic crisis that has already dragged on for eight long years, one of the worst headaches of the government of Fidel Castro isa more than 10 billion dollar foreign debt blocking its access to long-term credit.

The rescheduling came 20 years after Cuban entities contracted a 100 billion yen (775 million dollar) debt with Japanese suppliers. Experts consider the agreement reached with Japan the Cuban economy’s most brilliant coup this year.

Carried out in virtual secrecy, the rescheduling confirmed Cuba’s strategy of seeking bilateral agreements rather than engaging in multilateral negotiations with the Paris Club.

The accord divided the debt with Japan’s private sector into two equal parts.

In the first five years, Cuba will only pay the interest on the first 50 billion yens. In the sixth year, Japanese creditors will begin to be paid back both the interests and the principal. The first phase is to last 15 years, including the five-year grace period on the principal. The interest and principal corresponding to the second half of the debt is to be paid off in 10 years, starting in 2008.

Although the Japan-Cuba Economic Conference and the Ministry of Foreign Relations in Tokyo underlined that the agreement was strictly a business deal, it will give a boost to Cuba’s aim to reintegrate itself more effectively into the international market.

The agreement involves 182 Japanese supplier companies, which analysts say will open the doors of Asia, one of the world’s leading regional markets, to Cuba.

After having headed the international campaign for “non- payment of the foreign debt,” Cuba’s new willingness to pay up will allow it access to commercial loans from Japan and, possibly, the rest of Asia.

Besides the agreement on the debt, Cuban and Japanese authorities expressed their interest last week in studying new forms of developing closer economic, commercial and financial ties between the two countries, including joint ventures.

Both countries see closer economic ties as a way to bolster Cuba’s economic recovery, and improve conditions for it to meet its obligations.

Speaking to the press in Tokyo, the president of the Central Bank of Cuba, Francisco Soberon, said the rescheduling of the commercial debt with Japan eliminated a major obstacle in relations between the two countries, which had been frozen since the mid-1980s.

Japanese exports and loans to Cuba, and Cuban exports of sugar and nickel to Japan, peaked in the 1970s.

Analysts say the Asian financial crisis may have favoured the accord between Havana and Tokyo. Interested in sidestepping the financial turmoil sweeping Asia since last year, Japanese firms are keen on finding new markets.

For Cuba, the restructuring of the debt represents an opportunity to gain access to low-cost imports from Asia.

But Soberon told reporters in Tokyo that his government was willing to dialogue on the basis of viable, reasonable and realistic foundations, which did not compromise its economic independence, while insisting that the Cuban government did not yet perceive the adequate conditions for a multilateral rescheduling oits foreign debt.

He added that in order to begin once again to service its debt, suspended in 1987, Cuba’s creditor countries should accept a multilateral agreement with which the Cuban government could realistically comply.

Soberon ruled out the possibility of rescheduling, for now, the government and banking sector debts with Japan, estimated at 735 million and 370 million dollars, respectively.

In 1994, Cuba had reached an accord to reduce its debt with Mexico, through a deal in which it swapped debt for investment in telecommunications and the production of construction material.

But the flexibility of the agreement signed with Japan’s private sector and the magnitude of the restructured debt could set an even greater precedent in the search for future solutions.

This decade the debt Cuba contracted with foreign suppliers – generally short-term and high interest – soared, the only source of loans left Cuba after it declared a unilateral moratorium on servicing its foreign debt, which totalled 10.46 billion dollars by the end of 1996, according to the latest Central Bank report.

The debt to suppliers had risen to 1.2 billion dollars by that time, 65 percent of which corresponded to Japan’s private sector.

Japan tops the list of Cuba’s creditor countries, accounting for 15.7 percent of its debt, and the yen is in third place in the list of currencies, with 19.1 percent.

Local experts say the agreement with Japan could influence Cuba’s current talks with the Paris Club, which according to the government are limited to sharing economic information.

But they also caution against overestimating the impact of the agreement, pointing out that Cuba’s economic situation remains extremely weak, after a 34.8 percent fall in gross domestic product.

But if trade and financial ties with Asia grow as expected in the wake of the agreement with Japan’s private sector, the Cuban economy could receive a timely flow of fresh air.

Even a small increase in the flow of Asian capital into Cuba could give a boost to the sectors in the United States calling for the nearly four-decades-old economic embargo to be lifted. The US business sector, in particular, could start to worry about its Asian rival encroaching on what it considers its natural market, even though it has long been prohibited from doing business with Cuba.