Senator pushes credit for Cuba

but who will pay back?

----------------- 

arkansasonline

Cuba would be able to use credit to buy U.S. agricultural products such as rice and chicken under legislation introduced Wednesday by U.S. Sens. John Boozman, R-Ark., and Heidi Heitkamp, D-N.D.

U.S. rules require Alimport, the state-owned firm that controls Cuba's agricultural imports, to pay cash for its purchases. The legislation offered by Boozman and Heitkamp would allow private banks and companies to offer credit terms for agricultural exports to Cuba.

Boozman said that even though Arkansas farmers would benefit by being able to export to Cuba, they must first deal with commercial barriers that resulted from federal laws restricting trade and financing, as well as tourism and other commercial activities, with the island nation.

"Cuba represents a remarkable opportunity for American farmers, and it's also an opportunity for Cubans to gain access to safe, affordable and high quality agriculture products from the United States," Boozman said in a release about the legislation.

Heitkamp said U.S. growers should be allowed to enter the Cuban market and compete on an equal footing with producers from other countries.

"The biggest obstacle in that effort involves private companies and banks not being able to provide credit to export agricultural commodities to Cuba where these crops are in high demand," Heitkamp said.

The legislation, titled the Agricultural Export Expansion Act, comes one day after a hearing before the Senate Agriculture, Nutrition and Forestry Committee on how easing the trade embargo would help U.S. farmers and ranchers.

More >>

Cuentapropistas y cooperativitas cubanos muestran poco interés hacia los créditos gubernamentales

Emilio Ichikawa 
Igor Guilarte & Heriberto Rosabal

(B)-A tres años de la puesta en vigor del Decreto Ley 289, que incluye el financiamiento a trabajadores por cuenta propia y cooperativas no agropecuarias, las solicitudes y los montos otorgados son mínimos, en comparación con la magnitud de ambas actividades. Desconocimiento, dudas y recelos, de parte de los potenciales beneficiarios; inexperiencia e insuficiente acometividad, del lado del sistema bancario, figuran entre las causas del poco crédito que aún reciben estos créditos. (Continuar leyendo En Bohemia >>)

MasterCard to Lift Transaction Block on U.S. Cards in Cuba - Bloomberg

Bloomberg

MasterCard Inc. (MA) said it will lift a block on U.S. bank-card transactions in Cuba after receiving guidance from the Treasury Department’s Office of Foreign Assets Control.

The change takes effect March 1, according to a bulletin the Purchase, New York-based company sent to banks and other customers and obtained by Bloomberg News. Seth Eisen, a MasterCard spokesman, confirmed the bulletin’s contents.

President Barack Obama announced last month that the U.S. would relax restrictions on trade and travel with Cuba, which would include allowing Americans to use their credit cards in the country. MasterCard and Visa Inc. cards issued by banks outside the U.S. are already accepted in the Caribbean nation.

North Korea will continue to be blocked by MasterCard for transactions involving U.S. bank cards, while Iran, Syria and Sudan will be blocked for cards issued anywhere in the world, the company said.

Larger rival Visa Inc. (V) didn’t immediately respond to a request for comment.

The Treasury Department this month revised regulations tied to U.S. sanctions on Cuba, which included allowing U.S. financial firms to open accounts at Cuban banks to handle transactions, according to a Jan. 15 statement. U.S. companies also are authorized to enroll merchants and process credit- and debit-card transactions for travel-related and other expenses, the department said.

‘Deep’ Divisions

MasterCard’s announcement follows two days of talks between U.S. and Cuban officials over restoring diplomatic ties, migration policies and human rights in Havana. While both sides praised the negotiations, U.S. Assistant Secretary of State Roberta Jacobson said “deep” divisions remain over human rights policy.

Restoring diplomatic ties doesn’t mean the U.S. embargo on the island would end. While Obama eased some travel and trade restrictions after his Dec. 17 announcement, lifting the embargo would require congressional approval.

U.S.-Cuba negotiations will resume again as early as next month in Washington, according to two officials who asked not to be identified because they aren’t authorized to discuss the talks publicly.

China desconfía de Venezuela y pide como garantía el control de la Corp. Venezolana de Guayana

infobae

www.aporrea.org

El presidente venezolano, Nicolás Maduro, viajó esta semana a China con el objetivo de lograr que el país asiático le preste dinero para poder afrontar un año especialmente difícil en materia económica.

Se reunió con una quincena de ejecutivos empresariales chinos, con el presidente del Banco de China y con el mandatario de aquel país, Xi Jinping.

La visita, que irá seguida de viajes a naciones de la Organización de Países Exportadores de Petróleo (OPEP), es "una gira muy importante para enfrentar los nuevos proyectos en las circunstancias que tiene nuestra patria de merma de los ingresos producto de la caída estrepitosa de los precios del petróleo", según dijo el propio Maduro al explicar su viaje.

Sin embargo, no todo es positivo para el bolivariano. Concretamente, Pekín pidió tener el control de las empresas de la Corporación Venezolana de Guayana (CVG) para aceptar su producción como aval del préstamo que el presidente Maduro fue a solicitar, según una fuente vinculada a las negociaciones citada por El Nuevo Herald de Miami.

De acuerdo a lo que publica El Nacional, la producción de aluminio, hierro y oro de la CVG estuvo entre las garantías que Caracas ofreció a Pekín, pero las múltiples denuncias de corrupción llevaron al país asiático a manifestar que solo aceptaría si las compañías quedaban bajo su control.

Por su parte, la dirigente opositora María Corina Machado le envió una misiva al presidente chino para "advertirle" que Venezuela "no tiene garantías" para pagar la deuda. Además, puso en duda que el chavismo utilice los recursos del financiamiento chino "de manera responsable".

EFE

La carta de Machado a Xi Jinping

Excelentísimo Señor Xi Jinping, presidente de la República Popular China

Luego de saludarle cordialmente, me dirijo a usted, en nombre de los ciudadanos venezolanos que hoy nos preparamos para la reconstrucción de nuestro país, con el propósito de advertir al pueblo de la República Popular China sobre la intención de un nuevo endeudamiento masivo que, de manera irresponsable, pretende contraer el gobierno del Sr. Nicolás Maduro.

Venezuela atraviesa una crisis económica y social sin precedentes. Se manifiesta en una grave escasez de productos de primera necesidad, el aumento desenfrenado de la inflación y la destrucción del sector productivo. La superación de esta crisis requiere de una estrategia inclusiva de reconstrucción económica e institucional y de un plan financiero integral y viable que no se sustente sólo en nuevos préstamos a la Nación. Además, requiere de un amplio plan de restructuración económica.

La solicitud de financiamiento no garantiza que los recursos se utilicen de una manera responsable

La solicitud de financiamiento hecha recientemente por el Sr. Maduro ante la República Popular China, no garantiza que los recursos se utilicen de una manera responsable que permita la recuperación de nuestra economía y el desarrollo de la capacidad de repago necesaria. La crisis política-social venezolana y la caída de los precios del petróleo les restan el soporte que requeriría la solicitud de un nuevo endeudamiento de enormes dimensiones.

El régimen que hoy encabeza el Sr. Maduro no sólo ha dilapidado más de un trillón de dólares, en ingresos petroleros, durante los últimos 10 años. También, ha acabado con las reservas internacionales, multiplicado la deuda externa e hipotecado el futuro de las nuevas generaciones de venezolanos al garantizar como colateral de los préstamos la futura producción petrolera del país, a pesar de haber gozado de la mayor bonanza petrolera de nuestra historia. Adicionalmente, el nuevo empréstito podría estar fuera de toda norma constitucional venezolana.

Desde 2007, Venezuela ha recibido préstamos por cerca de 50.000 millones de dólares

Me permito señalar que Venezuela, en su relación con la República Popular China, desde el año 2007 ha recibido préstamos por cerca de 50.000 millones de dólares americanos, para inversión en proyectos en el área social que hoy no están concluidos y sobre los cuales es imposible lograr que la administración de Maduro rinda cuentas. La corrupción y la ineficiencia de esta administración es absoluta y el Gobierno que usted preside tiene evidencia de ello.

Los venezolanos hoy reconocemos la necesidad de obtener financiamiento y desarrollar flujos comerciales e inversión robustos y estables con todas las naciones del mundo. Puedo afirmar con responsabilidad que al lograr la transición hacia la democracia, el nuevo gobierno de Venezuela honrará los compromisos asumidos con la República Popular de China en términos que sean beneficiosos y justos para ambas naciones.

Reiterando a Usted nuestra estima y consideración, me suscribo atentamente.

María Corina Machado
Diputada a la Asamblea Nacional
República Bolivariana de Venezuela

Arabia Saudita otorga crédito a Cuba para mejorar redes hidráulicas

Prensa Latina

La Habana, 10 dic (PL) El Fondo Saudita para el Desarrollo otorgó hoy a Cuba un crédito blando por 40 millones de dólares para apoyar la rehabilitación del sistema de acueducto y alcantarillado en la ciudad de Camagüey. El ministro cubano del Comercio Exterior y la Inversión Extranjera, Rodrigo Malmierca, y el vicepresidente y director ejecutivo del Fondo Saudita, Yousef Ibrahim Al-Bassam, firmaron el acuerdo por medio del cual se oficializó este préstamo, el tercero de su tipo concertado entre ambas partes. Se trata de un proyecto dirigido a mejorar la infraestructura de recursos hidráulicos en Camagüey, capital de la provincia homónima ubicada en el centro-este del país, para lo cual los recursos serán utilizados de manera eficiente en beneficio del pueblo cubano, apuntó Malmierca. De acuerdo con el titular, este mecanismo representa un nuevo paso en las relaciones bilaterales y los esfuerzos de colaboración entre Cuba y Arabia Saudita, que continuarán progresando en el futuro. Por su parte, el director ejecutivo del Fondo manifestó su satisfacción por la firma del nuevo acuerdo que contribuirá al financiamiento de proyectos importantes para el desarrollo de la nación antillana. Remarcó que por tercera vez se rubrica un instrumento de esta naturaleza, lo que refleja el carácter especial de los nexos existentes entre los dos países. Al mismo tiempo, Al-Bassam felicitó al pueblo cubano por los avances y progresos alcanzados desde su última visita y expresó el interés en ampliar las colaboraciones tanto a nivel gubernamental como por parte del sector privado. Sobre las oportunidades de inversión extranjera que se han abierto en la isla a partir de la nueva ley sobre la materia y la presentación de la cartera de negocios de Cuba, el representante saudita dijo que su nación quiere responder a las prioridades del Estado cubano. Estamos abiertos a la cooperación y la colaboración en cualquier sector, fundamentalmente la industria, turismo, agricultura y comercio, las posibilidades son promisorias, agregó. Antes del crédito blando concedido este miércoles, Arabia Saudita había otorgado financiamiento para la recuperación de redes hidráulicas en La Habana y para la adquisición de equipos médicos.

Ex-Fed chief Bernanke denied loan to refinance his home

Fox News

www.bullfax.com

ben bernanke, yearbook

Former Federal Reserve Chairman Ben Bernanke revealed last week that he was turned down when he tried to refinance his home loan.

According to Bloomberg News, Bernanke, in speaking at a conference in Chicago Thursday, told the crowd, “I recently tried to refinance my mortgage and I was unsuccessful in doing so.”

“I recently tried to refinance my mortgage and I was unsuccessful . . ."- Ben Bernanke

The audience reportedly laughed, and Bernanke responded: “I’m not making that up.”

“I think it’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” he said.

Bernanke also told the conference of the National Investment Center for Seniors Housing and Care that the first-time homebuyer market is “not what it should be.”

Bernanke was paid $199,750 annually as head of the central bank and reportedly earned $250,000 in March for his first public speaking engagement since stepping down in January.

He also reportedly received $1 million in a deal to write his memoirs.

Venezuela pide crédito de 2 billones para industria petrolera

Cuba may revive Paris Club debt negotiations

chicagotribune.com

HAVANA (Reuters) - Cuba and the Paris Club of wealthy creditor nations are working to resume talks over billions of dollars of official debt in a new sign the communist government is interested in rejoining the global economy.

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.

Previous negotiations broke off in 2000 and obstacles remain to reviving serious talks, said the diplomats, who spoke on condition of anonymity because they were not authorized to speak publicly.

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)

Rusia le revisa a Cuba en que ha gastado el credito otorgado

los rusos no creen en cuentos de generales y estan revisando el destino del dinero otorgado a cuba en creditos.
------------------- 
EFE

La Habana, 18 abr (EFE).- La Contraloría General de Cuba y la Cámara de Cuentas de Rusia revisaron hoy en La Habana el cumplimiento de un convenio de financiación a la isla caribeña para el suministro de equipamiento para la construcción, la agricultura, los ferrocarriles y otras áreas, informaron medios locales.
El primer vicepresidente cubano, Miguel Díaz-Canel, consideró que esa actividad de auditoría y control es "una experiencia interesante y dice mucho del camino que van tomando las relaciones entre Cuba y Rusia", según un reporte de la estatal Agencia de Información Nacional.
Durante el proceso de fiscalización fueron auditadas cuatro empresas cubanas, encargadas de la importación de la técnica y equipos rusos, mientras que la parte rusa hizo lo propio con las empresas proveedoras.
La contralora general de la isla, Gladys Bejarano, y la vicepresidenta de la Cámara de Cuentas de Rusia, Vera Chistova, suscribieron un informe con los resultados de la actividad de control paralelo sobre un crédito estatal ruso otorgado a Cuba en 2009, del que no precisaron el monto.
Bejerano dijo que se constató el cumplimiento de la legalidad y la materialización del acuerdo en todos sus volúmenes, aunque también se hicieron recomendaciones para alcanzar mayor eficiencia.
Asimismo, indicó "la transparencia" con que han actuado las partes, que renovaron ahora el compromiso de reforzar el control estatal en su relación, tal y como lo establece un convenio bilateral suscrito en Moscú el pasado año.
"Ello elevará el nivel de responsabilidad de personas y entidades involucradas", indicó la funcionaria cubana.
Por su parte, Chistova anunció que los órganos de fiscalización de ambos países acordaron realizar un ejercicio de contraloría al acuerdo a través del cual Cuba está comprando a Rusia aviones comerciales.

Cuba's External Debt Problem: Daunting Yet Surmountable

ascecuba

By Luis R. Luis

Cuba has been in default of the bulk of its external financial obligations for over 50 years without negotiations towards a comprehensive restructuring.  Even the facts of the case are difficult to ascertain.  According to the most current official Cuban information published by Oficina Nacional de Estadisticas, the external debt stood at $12.3 billion at the end of 2009.  But according to the Club of  Paris of 19 major creditor governments (including Russia and Brazil but excluding China) the claims on Cuba by this group alone at the end of 2011 were $30.5 billion.[i]  Adding claims by private and other official creditors yields total external obligations of $43.1 billion. However, this number does not include capitalized interest due private and some official creditors.  In addition, the estimate does not include debt to Venezuela arising from the bilateral agreement between the two countries through which Cuba receives crude oil and derivates.  There is no precise information on this potential debt, although in recent years reported Cuban exports of health and other services to Venezuela exceed the value of its oil imports.

CUBA: EXTERNAL DEBT BY CREDITOR - US$BILLIONS
	actual	projected
	end 2011	end 2014
BIS banks	1.7	1.2
Paris Club/a	30.5	10.4
Other Official Debt/b	2.0	2.6
Suppliers/c	4.6	5.0
Defaulted Bonds and loans/d	4.3	4.3
Total	43.1	23.5
debt ratios  (on 2011 GDP and trade data)
Debt as % of GDP	62.5	34.0
Debt as % of Exports + Tourism	504	275
Debt as % of Convertible Exports + Tourism	839	458
Debt as % of Exports of Goods and Services	262	143
Sources: BIS, Quarterly Review ( June 2012 and September 2013), Paris Club (Annual Reports
2011 and 2012), Oficina Nacional de Estadisticas, Exotix and author's  estimates.
a/ official debt to major creditors except Brazil, China and Venezuela
b/ Brazil, China and other official debt not in Paris Club estimated from project data
c/ estimate based on data from ONE for end 2009
d/ defaulted bonds and commercial loans carried at face value
and includes $1.25 billion from London Club

The table shows external claims on Cuba.  The bulk of this data is reported by creditors, either official or private, or estimated from project finance figures.  Only the debt to suppliers is derived from the Cuban government.  A sizable part of the discrepancy with Cuban statistics stems from the long-standing rejection by Cuba of principal and interest owed to the former Soviet Union and claimed by Russia.  Nonetheless the Club of Paris this year revised upwards by $4.6 billion its claims to $35.1 billion as of the end of 2012, of which some 40% are new claims by Russia of principal and past due interest.[ii] Subsequently Russia announced a preliminary agreement for the writing off and refinancing of $32 billion of Soviet era debt.[iii] The actual agreement was signed in October 2013 and reportedly will write-off 90% of the debt with $3.2 billion to be repaid over 10 years.[iv]  Some of this will be offset by new credits from Russia for the leasing of airplanes and purchases of other equipment.  Implementation is expected to take place by the end of 2014 as the Russian Duma needs to grant approval.

There have been other important recent debt negotiations.  In 2012 an agreement was completed to write-off a substantial amount of Japanese commercial debt and rescheduling the reminder for 30 years.  It is not known if this agreement involved official debt, while there has been no confirmation from the Paris Club.  In September 2013 Mexico announced a restructuring of official claims on Cuba.[v]  Mexico is writing off 70% of a $487 million debt owed BANCOMEXT, the Mexican foreign trade bank.  The table incorporates these restructuring agreements into a forecast for the debt at the end of 2014.

Lacking comprehensive negotiations Cuba is making progress on restructuring important components of its foreign obligations.  On a practical level these agreements can open the door to some bilateral trade and project finance, though they are insufficient to propel Cuba towards access to international financial markets.  For this, restoration of relations with international financial institutions, crucially the IMF and World Bank, are needed followed by agrements with the Paris Club and later, a settlement with bondholders and other long-ago defaulted private creditors. These agreement are required for Cuba to achieve a comprehensive restructuring of its debt and gain market perception of creditworthiness.

How burdensome is Cuba’s external debt?  To help answer this question I have calculated debt ratios shown on the table. These ratios relate the debt to the capacity to service it.  Complementary ratios showing the burden of debt servicing are not calculated as there is scant public data regarding Cuba’s principal repayment schedules, interest rates and bond and loan covenants directing the treatment of past due interest and principal.

The ratio of debt to GDP at the end of 2001 was 62.5%, nearly matching the 61.2% average  of transition economies in Eastern Europe and the Middle East.[vi]  This ratio is surely understated by the accounting of Cuban national accounts at a notional value of CUP 1 =  US$1.  A more realistic exchange rate means a substantially higher value for this indicator.  Following the restructuring operations with Russia and Mexico, the debt to GDP ratio will be lowered to around 34% by end 2014.  For the sake of argument, assuming the Cuban peso is overvalued by 40%, the ratio would be 57%.

A problem, however, is that the Cuban economy is relatively closed to international trade and nearly completely closed to international financial and capital markets.  So that even if the debt is not very large relative to the size of the economy, it would still require a great effort to achieve the capacity to service the debt without great stress on its external accounts, and on consumption and investment.

Looking at the debt in an alternative way,  the ratio of projected 2014 debt to exports of goods and services at 143% would place Cuba among a number of countries with investment grade credit ratings.  Nonetheless, a majority of current account receipts are part of barter trade with Venezuela and other countries such as Brazil, China and Russia which provide a small amount of free cash flow.  Another measure, the ratio of debt to convertible exports and tourism receipts which are paid in cash, places the ratio at over 450%, an unsustainable level that implies a high probability of default.

These numbers depict a situation where debt levels even after some restructuring are still daunting, and where the solution lies in opening up the economy to trade and investment as well as a decisive push to engage in a wider set of external financial negotiations.  These will require a contribution by Cuba to make partial restitution payments on defaulted obligations.  All of this will be arduous as political considerations in Cuba and abroad stand in the way of progress. 

---

[i] Club of Paris, Annual Report, 2011.

[ii] Ibid, Annual Report, 2012.

[iii] Pravda, February 22, 2013

[iv]  “Deal on Forgiving $32 billion Cuban Debt to USSR Signed”, The Moscow Times, 11 December 2013, Issue 5274.

[v] “Mexico Says it will waive most of $487 million debt owed to Cuba”, Reuters, November 1, 2013.

[vi] Luis, L. R., “Cuba: External Debt and Finance in the Context of Limited Reforms,” Association for the Study of the Cuban Economy, Annual Proceedings, 2013, forthcoming.

Cuba's External Debt Problem: Daunting Yet Surmountable

ascecuba

By Luis R. Luis

Cuba has been in default of the bulk of its external financial obligations for over 50 years without negotiations towards a comprehensive restructuring.  Even the facts of the case are difficult to ascertain.  According to the most current official Cuban information published by Oficina Nacional de Estadisticas, the external debt stood at $12.3 billion at the end of 2009.  But according to the Club of  Paris of 19 major creditor governments (including Russia and Brazil but excluding China) the claims on Cuba by this group alone at the end of 2011 were $30.5 billion.[i]  Adding claims by private and other official creditors yields total external obligations of $43.1 billion. However, this number does not include capitalized interest due private and some official creditors.  In addition, the estimate does not include debt to Venezuela arising from the bilateral agreement between the two countries through which Cuba receives crude oil and derivates.  There is no precise information on this potential debt, although in recent years reported Cuban exports of health and other services to Venezuela exceed the value of its oil imports.

CUBA: EXTERNAL DEBT BY CREDITOR - US$BILLIONS
	actual	projected
	end 2011	end 2014
BIS banks	1.7	1.2
Paris Club/a	30.5	10.4
Other Official Debt/b	2.0	2.6
Suppliers/c	4.6	5.0
Defaulted Bonds and loans/d	4.3	4.3
Total	43.1	23.5
debt ratios  (on 2011 GDP and trade data)
Debt as % of GDP	62.5	34.0
Debt as % of Exports + Tourism	504	275
Debt as % of Convertible Exports + Tourism	839	458
Debt as % of Exports of Goods and Services	262	143
Sources: BIS, Quarterly Review ( June 2012 and September 2013), Paris Club (Annual Reports
2011 and 2012), Oficina Nacional de Estadisticas, Exotix and author's  estimates.
a/ official debt to major creditors except Brazil, China and Venezuela
b/ Brazil, China and other official debt not in Paris Club estimated from project data
c/ estimate based on data from ONE for end 2009
d/ defaulted bonds and commercial loans carried at face value
and includes $1.25 billion from London Club

The table shows external claims on Cuba.  The bulk of this data is reported by creditors, either official or private, or estimated from project finance figures.  Only the debt to suppliers is derived from the Cuban government.  A sizable part of the discrepancy with Cuban statistics stems from the long-standing rejection by Cuba of principal and interest owed to the former Soviet Union and claimed by Russia.  Nonetheless the Club of Paris this year revised upwards by $4.6 billion its claims to $35.1 billion as of the end of 2012, of which some 40% are new claims by Russia of principal and past due interest.[ii] Subsequently Russia announced a preliminary agreement for the writing off and refinancing of $32 billion of Soviet era debt.[iii] The actual agreement was signed in October 2013 and reportedly will write-off 90% of the debt with $3.2 billion to be repaid over 10 years.[iv]  Some of this will be offset by new credits from Russia for the leasing of airplanes and purchases of other equipment.  Implementation is expected to take place by the end of 2014 as the Russian Duma needs to grant approval.

There have been other important recent debt negotiations.  In 2012 an agreement was completed to write-off a substantial amount of Japanese commercial debt and rescheduling the reminder for 30 years.  It is not known if this agreement involved official debt, while there has been no confirmation from the Paris Club.  In September 2013 Mexico announced a restructuring of official claims on Cuba.[v]  Mexico is writing off 70% of a $487 million debt owed BANCOMEXT, the Mexican foreign trade bank.  The table incorporates these restructuring agreements into a forecast for the debt at the end of 2014.

Lacking comprehensive negotiations Cuba is making progress on restructuring important components of its foreign obligations.  On a practical level these agreements can open the door to some bilateral trade and project finance, though they are insufficient to propel Cuba towards access to international financial markets.  For this, restoration of relations with international financial institutions, crucially the IMF and World Bank, are needed followed by agrements with the Paris Club and later, a settlement with bondholders and other long-ago defaulted private creditors. These agreement are required for Cuba to achieve a comprehensive restructuring of its debt and gain market perception of creditworthiness.

How burdensome is Cuba’s external debt?  To help answer this question I have calculated debt ratios shown on the table. These ratios relate the debt to the capacity to service it.  Complementary ratios showing the burden of debt servicing are not calculated as there is scant public data regarding Cuba’s principal repayment schedules, interest rates and bond and loan covenants directing the treatment of past due interest and principal.

The ratio of debt to GDP at the end of 2001 was 62.5%, nearly matching the 61.2% average  of transition economies in Eastern Europe and the Middle East.[vi]  This ratio is surely understated by the accounting of Cuban national accounts at a notional value of CUP 1 =  US$1.  A more realistic exchange rate means a substantially higher value for this indicator.  Following the restructuring operations with Russia and Mexico, the debt to GDP ratio will be lowered to around 34% by end 2014.  For the sake of argument, assuming the Cuban peso is overvalued by 40%, the ratio would be 57%.

A problem, however, is that the Cuban economy is relatively closed to international trade and nearly completely closed to international financial and capital markets.  So that even if the debt is not very large relative to the size of the economy, it would still require a great effort to achieve the capacity to service the debt without great stress on its external accounts, and on consumption and investment.

Looking at the debt in an alternative way,  the ratio of projected 2014 debt to exports of goods and services at 143% would place Cuba among a number of countries with investment grade credit ratings.  Nonetheless, a majority of current account receipts are part of barter trade with Venezuela and other countries such as Brazil, China and Russia which provide a small amount of free cash flow.  Another measure, the ratio of debt to convertible exports and tourism receipts which are paid in cash, places the ratio at over 450%, an unsustainable level that implies a high probability of default.

These numbers depict a situation where debt levels even after some restructuring are still daunting, and where the solution lies in opening up the economy to trade and investment as well as a decisive push to engage in a wider set of external financial negotiations.  These will require a contribution by Cuba to make partial restitution payments on defaulted obligations.  All of this will be arduous as political considerations in Cuba and abroad stand in the way of progress. 

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[i] Club of Paris, Annual Report, 2011.

[ii] Ibid, Annual Report, 2012.

[iii] Pravda, February 22, 2013

[iv]  “Deal on Forgiving $32 billion Cuban Debt to USSR Signed”, The Moscow Times, 11 December 2013, Issue 5274.

[v] “Mexico Says it will waive most of $487 million debt owed to Cuba”, Reuters, November 1, 2013.

[vi] Luis, L. R., “Cuba: External Debt and Finance in the Context of Limited Reforms,” Association for the Study of the Cuban Economy, Annual Proceedings, 2013, forthcoming.