A Paris Club delegation quietly traveled to Havana late last year to meet with Cuban bank officials, who were prepared with various proposals and appeared eager to strike a deal, according to Western diplomats.
They said Cuba must first show creditors its books, which so far it has refused to do. Cuba considers its level of foreign reserves a state secret and publishes scant data on its current account and foreign debt, which it last revealed for 2010.
Still, the diplomats have taken Cuba's readiness to talk as an indication it may be willing to play by the rules of international finance.
Although it is still a long way off, any deal with the Paris Club would significantly reduce Cuba's debt, improve its reputation in financial markets and allow it to issue new debt.
In the latest of President Raul Castro's market-oriented reforms, Cuba recently approved a foreign investment law that it hopes will bring in billions of dollars.
It has also embarked on a monetary reform that would eliminate its two-currency system, another hindrance to foreign investment, and it is about to begin talks with the European Union on forming a new bilateral relationship.
"The positive is that Cuba has more or less been restructuring and meeting its debt obligations for the last three years. The negative is that they think that is enough and do not understand that we must know their financial capacity to live up to whatever agreement we might come to," one diplomat said.
In the past three years, Cuba has restructured its debt with China, Japanese commercial creditors, Mexico and Russia, each time obtaining substantial reductions in what it owed in exchange for payment plans it can meet.
The Paris Club is an informal group of 19 creditor nations: Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the United States.
The club has a special working group on Cuba that excludes the United States and it may be willing to waive the usual prerequisite of an International Monetary Fund agreement and be creative in looking for solutions, the diplomats said.
DEBT SWAPS CONSIDERED
During last year's meeting in Havana, Cuba expressed an interest in having a percentage of the debt forgiven, paying another percentage over 10 years, and swapping the remainder for an equity stake in Cuban state enterprises, the diplomats said.
"If you look at new foreign investment incentives put into place this year, some sort of debt swap appears more possible," one said.
The Cuban government last reported its "active" foreign debt, accumulated after it declared a default in the late 1980s, as $13.6 billion in 2010. The government no longer reports its "passive" debt from before the default, which economists estimate at $8 billion.
By the Paris Club's accounting, Cuba owed its members $35.5 billion at the close of 2012, but more than $20 billion of the debt was in old transferable Soviet rubles, 90 percent of which Russia forgave in 2013.
Cuba considers the Paris Club figures inflated, meaning one point of the talks would be to settle on how much is owed.
The Paris Club figure excludes late interest and service charges, nor does it consider debt to private creditors and countries such as China, Brazil and Venezuela.
For Cuba to agree to any deal it would need a significant percentage of its debt forgiven, said Richard Feinberg, a non-resident senior fellow of the Washington-based Brookings Institution and the author of several studies on Cuba's need to join the international financial community.
"In addition, there's the tough issue of non-transparency. For the Paris Club creditors to have some confidence in repayment capacity, they would need to know more about Cuba's present and projected balance of payments, including current reserves," Feinberg said.
"Normally, all of these issues are sorted out by the IMF, which facilitates the whole deal with a package of liquidity. Of course Cuba is not a member and I don't see any other candidate willing or able to act as an IMF proxy," Feinberg said.
Castro, who replaced his ailing brother Fidel in 2008, has drastically reined in imports and cut state payrolls and subsidies while insisting the government improve its finances.
In 2011, the Communist Party approved a five-year economic plan to enhance Cuba's international credibility by strictly observing its commitments, expediting the rescheduling of Cuba's foreign debts and implementing "flexible restructuring strategies" for debt repayment.
(Reporting by Marc Frank; Editing by Daniel Trotta and Kieran Murray)