ECONOMY-CUBA: Renegotiating Debt – with no Political Strings Attached

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Nov 14 2000 (IPS) - Cuba hopes to restructure its foreign debt with the Paris Club of creditor governments, multilaterally and “without political conditions,” according to local officials. But for the time being, bilateral negotiations continue.

In the past three years, this Caribbean island nation has reached agreements for rescheduling its short-term public debt with its main creditors, converting that debt into new medium- and long-range commitments.

The rescheduling process began in 1998 with countries that had demonstrated any degree of willingness to comprehend Cuba’s difficult economic situation and forge closer ties, said Finance Minister Francisco Soberón.

Havana was thus able to “break the vicious circle” that kept it from obtaining foreign credit under normal market conditions, he explained.

However, the minister cautioned that the results achieved so far did not mean Cuba was out of the woods financially.

Soberón pointed out that Cuba was able to renegotiate its debt with suppliers in Japan, and that in May, an agreement was reached on its medium- and long-term official debt to that country, which was restructured with even longer-term timeframes and generous grace periods.

“The terms agreed on facilitate compliance with commitments accumulated over nearly 14 years, with feasible timetables and conditions that will not affect the country’s economic and social plans, nor perpetuate its indebtedness,” the minister told the local state-monopolised press.

The bilateral renegotiations have enabled Cuba to initiate a process of recuperating market share. Some markets, like Japan and Germany, were virtually closed to this country, due to its lack of financial resources.

Spain — Cuba’s top trading partner — as well as Argentina and Italy are among the creditors with which Havana has reached agreements for rescheduling its debt.

“No country can undertake an industrial investment with a short-term loan,” said Cuban ambassador to France, Eumelio Caballero. “At least five years are needed in order to purchase, install and begin producing, to be able to pay off the investment.”

The diplomat said he was confident that Paris would follow suit and begin to renegotiate what Havana owes it — the only option for Cuba to acquire the goods and equipment it needs to upgrade its industries.

“Any future purchases by us depend on the financial and credit facilities we obtain,” Caballero underlined.

Cuban imports of foodstuffs, especially powdered milk and wheat, accounted for more than 80 percent of trade with France in 1999.

Although Cuba finished paying off its short-term public debt to Paris in March, France has not agreed to extending medium- and long-term credit, the ambassador added.

Caballero confirmed that “technical-level” meetings have been held with high-ranking officials from creditor countries since 1998. And although the meetings do not mark the start of official negotiations, they do demonstrate Cuba’s willingness to work out reasonable solutions, he said.

Soberón, meanwhile, said the government of Fidel Castro would continue “seeking multilateral solutions based on novel formulas, but without political conditions of any kind, and preserving the lines along which this country’s development strategies are planned.”

Official figures indicate that Cuba’s foreign debt stands at more than 11 billion dollars, without counting the debt contracted in the past with the now-defunct Soviet Union and other countries of the former east European socialist bloc.

Broken down by currency, 27 percent of Cuba’s debt is in German marks, 21.5 percent in Japanese yens, 17.5 percent in U.S. dollars, 8.5 percent in Swiss francs, 5.8 percent in Spanish pesetas and the rest in Canadian dollars, French francs and British pounds, according to the latest available official reports, dating to 1999.

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

Cuba refinanced its debt three times in the 1980s. But after its bid for a fourth restructuring fell flat, it suspended debt servicing payments in July 1986.

The economic crisis that hit in the wake of the collapse of the Soviet Union and the socialist bloc, which accounted for a full 85 percent of Cuba’s foreign trade, put this country’s finances in critical condition.

In 1997, Russia estimated the amount Cuba owed it at more than 27 billion dollars. Russia inherited the obligations of the Soviet Union, Cuba’s top trading partner throughout three decades of close economic and political relations.

However, academics here believe the actual amount is smaller, since it stood at 16 billion dollars in 1992, and they say it is hard to believe that it could have grown by 11 billion dollars since then.

Cuban authorities say the economy has been steadily recovering since the mid-1990s, and project that this year will close with four to five percent growth.

Soberón said the recovery permitted the Cuban banking system to grant 1.5 billion dollars in loans this year, mainly to the industrial sector, and that another 500 million could be extended before year-end.