ECONOMY-CUBA: Government to Pay External Debts

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Jun 16 1999 (IPS) - Cuba says that will honour obligations to its creditors and pay off foreign debts, currently standing at a whopping 11.2 billion US dollars.

Vice president Carlos Lage, in a recent interview with a German newspaper, revealed that Cuba had “demonstrated its willingness to normalise its debts with various creditor countries.” The interview was re-printed in the Cuban financial weekly “Opciones.”

Cuba’s debt grew from 2.9 billion dollars in 1982 to 9.1 billion dollars in 1994. It jumped to 10.5 billion dollars in 1995 but fell back slightly to 10.4 billion in 1996 – the last year included in the latest edition of the Cuban Statistics Annual.

Official economic sources, however, said total foreign debt had reached 11.2 billion dollars at the end of 1998 – not including debts to the former Soviet Union and other former socialist-bloc countries.

Japan is the largest creditor, holding 21.4 percent of the debt total, followed by Spain (13 percent) and France (12.8 percent). Other important creditors include Britain, Argentina, Italy, Mexico, Switzerland and Germany.

In the 1980s, Cuba restructured its debt three times but a fourth request was denied and Havana suspended debt payments in July 1986.

The country has endured the worst economic crisis in 40 years during the 1990s and the government focussed its efforts on bilateral debt restructuring, since it lacked the conditions required for multilateral negotiations with the ‘Paris Club’ of creditor countries.

The Cuban government managed to reach an agreement with Mexico in 1993 and 1994 to reduce its obligations through a debt- investment exchange. But the project was frustrated shortly after it took effect in 1996 by Washington’s Helms-Burton Act which strengthened the US trade embargo against the island.

In March 1998, the government received a 20-year restructuring of debts incurred from 182 Japanese creditor companies – a total of 7.75 billion dollars. The debt was refinanced in two equal parts, but negotiations excluded pending payments to government and banking entities in Japan of 735 million dollars and 370 million dollars respectively.

In late 1998, vice-president Lages signed an agreement with the Italian government to refinance its short-term debt with that country, estimated at 70 million dollars.

Lage, considered the architect of Cuban economic reform, flew to Spain in February to negotiate a repayment package of one billion-dollars in debt.

At the time, Lage stated that his government intended to renegotiate its total foreign debt with the Paris Club in two ways: short-term and long-term.

Lage’s Spanish counterpart, Rodrigo Rato, placed conditions on incurring further debt for a potential increase in loans to buy food supplies and the opening a special line of credit to improve investment conditions for Spain in Cuba.

“Debt liquidation is a prerequisite for initiating a credit line with the Spanish government’s Development Aid Fund,” said Rato.

The government has been silent on its plans for repaying debts incurred the former Soviet Union and former socialist-bloc countries, which provided important financial resources during their 30 years of close ties with the island.

Sources at the Ministry of Foreign Investment and Co-operation estimated that Cuba received 5.9 billion pesos (the Cuban peso runs one-to-one with the US dollar at the official exchange rate) from the former Soviet Union for short and long-term investment and development programmes.

Cuba took in soft credits totalling 1.6 billion pesos from former socialist countries according to a report released early this year by the under-secretary for foreign investment, Raul Taladrid.

Lage indicated that it would be difficult to determine what currency would be used to repay its debts to the former German Democratic Republic (GDR) whose currency was taken out of circulation in 1990 after German reunification.

Havana proposed that Germany, which took on the GDR’s debt, could “link debt restructuring with new financing that would allow Cuba to obtain economic development resources.”

“It’s a vicious circle: to make payments on debts, we have to incur more debt,” Lage observed.