How will financial ties with Cuba change now that it's off the terrorism list?

PBS NewsHour 

Read >>

EE.UU. multa al banco alemán Commerzbank por transacciones con Cuba, Irán y Sudán

www.efe.com

blogs.wsj.com

El banco alemán Commerzbank acordó pagar 1.710 millones de dólares al Gobierno estadounidense por violación de las sanciones sobre transacciones con Cuba, Irán o Sudán y operaciones de lavado de dinero, informaron hoy la Reserva Federal (Fed) y el Tesoro.
De acuerdo al comunicado del Tesoro, Commerzbank, el segundo banco de Alemania, llevó a cabo durante años operaciones financieras desde EE.UU. en las que omitía o borraban las referencias a instituciones financieras de Sudán o Irán, prohibidas por Washington.

Vivan los Yumas! Entusiasmo x aumento de las remesas

AmericaTeVeCanal41

Cuba: Contraloría evalúa de mal a empresas avileñas - Oficial

de acuerdo con el reporte de juventudrebelde

---------------------------

Luis Raúl Vázquez Muñoz
11 de Enero del 2015 10:02:36 CDT

CIEGO DE ÁVILA.— Entidades pertenecientes a programas de la economía, los servicios y la producción de alimentos en Ciego de Ávila, incluida una del sector cooperativo no agropecuario, recibieron calificación de deficiente al concluir la IX Comprobación Nacional al Control Interno.

Durante la reunión resumen se conoció que las empresas evaluadas de mal son la cooperativa no agropecuaria Instituto de Belleza La Elegancia, la Empresa Municipal de Comercio Minorista Ciego de Ávila —en especial con el programa de venta de materiales de la construcción a la población— y los combinados lácteos de Ciego de Ávila y Morón.

Estas entidades y sus estructuras productivas, con alta incidencia en las opiniones de la población y que contribuyen al resultado de mal para la provincia, significan el 75 por ciento de las empresas auditadas por los 136 especialistas participantes en esta comprobación, entre ellos 13 estudiantes y un profesor de la Universidad Mayor General Máximo Gómez Báez.

El presidente de la Asamblea Provincial del Poder Popular, Raúl Pérez Carmenate, expresó que el resultado no invita a la satisfacción, a pesar de que un grupo importante de las 17 empresas auditadas en la comprobación recibieron una calificación favorable, además de no detectarse presuntos hechos delictivos o de corrupción en ninguna de las auditorías.

«No podemos sentirnos complacidos cuando los problemas detectados se reiteran y no se corresponden con los resultados de la provincia en 2014;y más cuando tienen que ver con dificultades en el orden subjetivo, de organización interna, de no llevar cabalmente una evaluación de los riesgos ni una contabilidad rigurosa», enfatizó Pérez Carmenate.

De forma general, las dificultades encontradas apuntan a una deficiente preparación del personal en el control interno de los recursos; mala previsión en los momentos de conformar los planes de producción y pobre gestión empresarial para darles salida a artículos de lenta rotación, lo cual deriva en pérdidas financieras o producciones con altos precios y baja calidad en su oferta a la población, sobre todo en lo referido a la venta de materiales de la construcción a la ciudadanía.

Jesús Martín Casanova, representante de la Contralora General de la República, expresó que, más allá del resultado general, se tiene la percepción de que Ciego de Ávila puede lograr resultados favorables y que, entre las acciones más importantes, se encuentran tocar los problemas con las manos y evaluar los aspectos subjetivos, fuente principal de un parte importante de los problemas detectados.

------------------------

a estas alturas seguimos igualito que 8 anos atras cuando ocurrio la sucesion de la bestia al pragmatico administrador, que organizo un ejercito copiando el esquema del ejercito bolo aplicable a una potencia mundial nuclear con la mayor superficie a cubrir y con el rubloducto de armas, asesores, ropas y hasta alimentos.
entonces en esas condiciones van a hacer la unificacion monetaria y redimensionar la empresa estatal socialista como base del socialismo prospero y sustentable.
estos son temas demasiado vulgares para la entelequia akademica que siempre anda en los grandes temas universales o en el ultimo chisme, responderan que no es posible resolver el problema contable de las empresas por el sistema de propiedad. pero el asunto es mucho mas complejo. muchos factores contribuyeron a ganarme mis "galones" en cuba, pero ante todo fue resolver los problemas contables y financieros a donde quiera que me mandaron. un poquito de conocimientos, algo de autoridad, mucha integridad personal que te lleva a rechazar un auto en la puerta de tu casa cuando andas en bicicleta durante los anos mas duros del periodo especial; pero ante todo, un trabajo descomunal hasta que se implanten los procedimientos adecuados en cada lugar y rincon de la entidad. empresas constructoras, de equipos especializados, transporte, talleres automotrices e incluso "shoppings" para trabajadores.
un ejemplo de los procedimientos inadecuados:
el ministerio de finanzas que regula los procedimientos contables establece el registro de los gastos por elementos directos e indirectos: materias primas y materiales, salarios, combustibles, depreciacion, otros gastos, etc. entonces llegas a una empresa constructora donde se ejecutan 120 obras simultaneamente y nadie sabe cual es el costo y el gasto de la obra. lo mismo con un camion, o un equipo de izaje, o una reparacion de un vehiculo. en este caso la direccion de finanzas del micons y el viceministro de economia seguian la rima del ministerio de finanzas y por consiguiente nadie sabia nada y no solo se hacia imposible dirigir con un minimo de racionio economico una obra, sino que era la fuente del desvio de recursos y la corrupcion. era tener la boveda del banco abierto al publico: sirvase ud mismo. ilustro: cuando una rastra con 2 mil bolsas de cemento salia de la fabrica de mariel con destino a una obra, la fabrica da por "vendida" los 2 mil sacos, mientras la constructora registra directo al costo y al gasto similar cantidad [ahi una de las causas de la cadena de impagos que tampoco logran resolver, porque el ministro y el partido mandan a seguir enviando cemento se pague o no].
si las obras se rigen por un proyecto ejecutivo que contiene el proyecto tecnico con sus modulos de consumo por actividades que se concreta en el presupuesto, entonces lo que se trataba era de registrar en 3 columnitas por un lado el presupuesto para la actividad y en la otra lo recibido en obra menos el inventario y la 3ra para la desviacion. y eso es el costo. me podian robar un par de saquitos de cemento, pero cualquier desviacion del 5% o mas, provocaba que le cayera al jefe de la obra la maldicion del ultimo templario. no resultaba complicado entonces todos los meses en el consejo de direccion de la empresa y en el de las brigadas constructoras tener el latigo por el mango.
y no se piense que yo fui el unico "atravesado", conoci mucha gente seria que a su manera hacian lo mismo.
entonces que? construimos el socialismo prospero y sustentable o le chupamos el pene a los taxpayers yumas, quienes seran en ultima instancia quienes respalden los negocios de los entusiastas bisneros yanquis en cuba. 

Ecuador creará su propia moneda virtual

El gobierno de Rafael Correa anunció que lanzará la primera divisa digital en el mundo respaldada por un Banco Central. Mientras tanto, los analistas especulan con una eventual devaluación o desdolarización de la economía. ¿Será posible?  

Ecuador está en camino a convertirse en el primer país del mundo en crear su propia moneda electrónica emitida y distribuida por su Banco Central. La medida impulsada por su presidente, Rafael Correa, sin dudas es una de las más audaces e innovadoras que su país ha vivido en términos de administración financiera y política monetaria.

Esta moneda, que todavía no tiene nombre, circulará a través de las redes de celulares a partir de diciembre y en forma paralela con el dólar, la única divisa oficial del país actualmente. Su uso será voluntario, y estará respaldada por activos líquidos del Banco Central ecuatoriano.

Con una paridad de 1-1 ante el dólar, la cantidad de dinero que se emita dependerá de la demanda del mercado. Y aunque en un comienzo sólo podría ser utilizado a través del celular, se prevé que se extienda al resto de las plataformas tecnológicas en un futuro.

“En lugar de tener un sistema de pagos basado en especies físicas (billetes o monedas) que requieren de costos logísticos, aprovechamos la infraestructura existente y reducimos los costos de transacción”, explicó Gustavo Solórzano, subgerente del Banco Central, a la agencia AP.

El dinero digital será controlado por el Estado, por lo que no comparte las mismas características de una “criptomoneda” como el Bitcoin, que fue prohibido para dar lugar a este nuevo lanzamiento.

Y si bien hasta el momento no se sabe demasiado sobre su funcionamiento, algunos analistas sospechan que la moneda podría crear las condiciones para una eventual devaluación o desdolarización de la economía.

Aunque, por su parte, el gobierno de Correa insiste en que la idea es que ambas monedas circulen en paralelo, sin deshacerse del dólar como divisa circulante.

¿Puede la nueva moneda virtual reemplazar al dólar?

Una de las ventajas que podría traer este lanzamiento, según un artículo de BBC News, es el inicio de un camino hacia el fin de la dolarización en Ecuador, lo que provocaría que Quito tuviese plena soberanía en el manejo de su política monetaria.

Así, el Gobierno podría transitar este largo camino empezando por incrementar el circulante de la e-moneda para devaluar la capacidad de compra de los tenedores de dólares.

“Insisten en que no buscan deshacerse del dólar porque están tratando de mantener la confianza en la situación actual y lo último que querrían hacer antes de lanzar esta divisa digital es menoscabar la confianza de la gente en el sistema financiero actual”, dijo Garrik Hileman, historiador económico de la London School of Economics y experto en Bitcoin, al sitio de noticias.

Según Hileman, para facilitar una hipotética transición hacia la nueva moneda, el gobierno podría empezar a ofrecer ventajas a la hora de pagar impuestos y otros incentivos para que la gente cambie de manera natural.

En el sentido opuesto, Jean Paul Lam, economista de la Universidad de Waterloo (Canadá) dijo que “si fuera alguien con muchos ahorros en Ecuador que viera esto como una forma de reemplazar el dólar, mi respuesta sería sacar el dinero del país. Puede ser la intención del gobierno, pero no parece factible”.

Por lo pronto, habrá que esperar hasta diciembre, momento en que la moneda entre en circulación, y ver cómo evoluciona su manejo y utilización.

China Appears Ready to Dump Its U.S. Treasury Bonds

breitbart

By Chriss W. Street

Although investors hang on every comment by Federal Reserve Chairwoman Janet Yellen to get insight on the direction of interest rates and what it means for the economy and asset prices, the real power to determine U.S. interest rates may be in the hands of China, according to Lombard Street Research. Facing an overvalued currency that is hurting corporate profits and slowing growth, China appears ready to dump its $1.3 trillion in U.S. Treasury bonds to drive U.S. interest rates up and strengthen the dollar.

The secret to China’s spectacular growth beginning in the early 1990s was devaluing its currency to the U.S. dollar from 2.8 Chinese yuan to 8.7 yuan. The devaluation cut the cost of Chinese labor by 68% and launched the cheap labor manufacturing boom. Exports as a percent of GDP grew from about 13% in 1994 to 39% of GDP in 2007.

With the export boom causing huge labor demand, approximately 200 million rural Chinese moved to cities from to 2000 to 2007. During the period, China’s Shanghai Stock Index vaulted 330%, while the U.S. S&P Index was only up 11%.

However, since 2006, the Federal Reserve and both the Bush and Obama administrations have pursued weak-dollar policies by pushing interest rates down. This caused the exchange rate of the dollar to weaken and the yuan to strengthen from 8.3 yuan to 6 yuan to the dollar. The +28% currency increase hammered Chinese competitiveness, and exports fell from 39% to 26% of GDP of the Chinese economy.

China tried to slow the fall of the dollar by increasing its holdings in U.S. Treasury bonds from $400 billion in 2007 to $1.33 trillion at the end of 2013. Despite spending almost a trillion dollars on U.S. Treasury purchases, the weak-dollar policy caused the Shanghai Index to fall by 38%. During the same period the U.S. S&P Index rose 199%.

As the overvalued yuan caused China export competitiveness to evaporate, China has tried to “rebalance its economy” to avoid massive unemployment by shifting to service industries. However, “an expensive currency in a world of weak demand makes it impossible for China to rebalance its economy without a collapse,” according to Lombard.

China’s $1.3 trillion of U.S. Treasury bonds sounds like 7% of the $17.7 trillion U.S. federal debt outstanding, but a third of the debt was supposedly “purchased” by the U.S. government to back Social Security and other purposes. Of the net U.S. public debt outstanding, China owns about one in every seven dollars of U.S. Treasury Bonds.

“For a long time the threat that Beijing might sell US Treasuries rang hollow, but no longer,” according to Lombard. “Growth trouble across the Pacific may have a much bigger impact on US yields in 2015 and 2016 than the expected pace of US central bank tightening” from the Federal Reserve, they argue.

The People’s Bank of China in November of 2013 announced it was ending its purchase of U.S. Treasury bonds. When China sold $48 billion in Treasuries in January, the yuan weakened by 5% to 6.3 yuan to the dollar. China has recently been intervening in the foreign exchange market to prevent the yuan from strengthening.

Although the International Monetary Fund estimates that the yuan is still 5-10% undervalued, Lombard believes that China’s currency is 15-25% overvalued to the U.S. dollar. The easiest way for China to solve the overvaluation problem would be to “liberalize capital flows” by removing restrictions that limit Chinese investments to bank savings accounts and real estate. But, according to Lombard, “if Beijing opened the flood gates, asset diversification would cause huge outflows that would swamp inflows.” Such action could trigger a Chinese banking crisis.

A smooth sale of its U.S. Treasury bond portfolio by China would push up U.S. 10-year Treasury bond yields by up to ½% and U.S. interest rates by about 1%. The People’s Bank of China could intervene in the currency markets to smooth the yuan’s decline. This action “would slow but not derail the US recovery.”

However, yuan devaluation and higher U.S. rates would be a lethal combination for the Eurozone competitiveness. Most European countries have modestly improved their trade positions with China thanks to softer consumer spending, which has capped imports. A much weaker yuan and higher U.S. interest rates would devastate peripheral European economies that compete with China for lower value-added manufacturing.

The weakening of the U.S. dollar that began in 2007 may have precipitated the 2008 global financial crisis. China would prefer to not start another international currency crisis. However, desperate to weaken the yuan to restart growth and support employment, China, Lombard Street Research believes, will soon start dumping U.S. Treasury bonds.

Cuba: More Banks Under Scrutiny for Sanctions Violations

capitolhillcubans

From AFP:

After BNP, U.S. may hit other banks for sanctions-busting

After French giant BNP Paribas, other big European banks like Credit Agricole, Deutsche Bank and UniCredit may be in the cross-hairs of U.S. authorities for sanctions-busting.

U.S. authorities on Monday slammed BNP, France‘s largest bank, with a record $8.9 billion in penalties for violating U.S. economic sanctions against Iran, Sudan and other countries and pleaded guilty to criminal charges.

The blow raised speculation that some of its rivals in Europe would be punished, but less severely.

The United States has focused its investigations on dollar operations of a handful of European banks with countries blacklisted by the U.S.: Iran, Sudan, Cuba, Syria and North Korea.

The probes, begun in 2009, are looking at the alleged transfer of billions of dollars to the accounts of blacklisted entities, which benefited from a U.S. legal loophole that closed in 2008.

The investigations are being led by several U.S. authorities: the Justice and Treasury departments, the Federal Reserve and New York state’s Department of Financial Services.

French bank Societe Generale recently opened an internal investigation and said it was holding talks with the Office of Foreign Assets Control, the Treasury‘s agency that enforces U.S. economic sanctions.

French rival Credit Agricole is investigating dollar transactions, especially by Credit Agricole CIB, its corporate and investment banking arm.

Both banks say they are cooperating with U.S. authorities.

Germany’s largest bank, Deutsche Bank, is suspected of having business transactions with entities in Sudan, Iran and Syria, according to people close to the situation.

On Wednesday, the bank told AFP it was providing information requested by U.S. regulatory authorities.

“While we cannot with any degree of certainty predict the effect these matters will have on us, they have the potential to result in the imposition of significant financial penalties or have other adverse consequences for us,” Deutsche Bank spokesman Michael Golden said in an email.

Credit Suisse analysts have estimated the German bank is facing a $3.3 billion U.S. fine.

The second-largest German bank, Commerzbank, revealed in 2010 that its Iran-linked dollar transactions were under investigation by the United States.

It has not estimated the size of a potential penalty.

U.S. authorities also are investigating the German subsidiary of Italy‘s largest bank, UniCredit, for transactions with Iran. UniCredit has set aside more than a billion euros ($1.4 billion) for legal costs.

In addition, the U.S. has probes under way on manipulation of interbank interest rates, tax evasion and foreign-exchange market rigging.

British bank Barclays and Switzerland’s UBS and Credit Suisse have already been severely punished as part of U.S. efforts in these areas, and other decisions are in the pipeline.

The European banks‘ large provisions for U.S. investigations come as European regulators, including the European Central Bank, insist they maintain sufficient capital buffers to weather a financial crisis.

The banks are expected to set aside $39 billion in litigation costs this year after taking $37 billion so far, Credit Suisse analysts said in research note, adding the banks would still be able “to absorb other costs.”

Special report: Shadow banking

The Economist

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)

Money talks: The impact of sanctions on Russia

The Economist

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.

Bernanke and beyond

Hippocrits! U.S. Senators Introduce Bill to Expand Magnitsky Law Beyond Russia

Mary Greeley

China and Japan Increase Holdings of U.S. Debt to Record High levels

breitbart

By Robert Wilde 

China, the largest foreign buyer of U.S. Treasury debt, increased its holdings by $12.2 billion in November. This represents almost a 1% increase in its total debt holdings to $1.32 trillion, a record level.

The second largest foreign holder of treasury debt is Japan, which increased its holdings by 1% to $1.19 trillion, also a record. Overall, foreign holdings of U.S. treasury bonds increased by 1.1% in November to 5.72 trillion. Some are unsure about the consequences of China and Japan owning such a large amount of U.S. treasuries. However, this huge investment in America ties both countries' fortunes with the success of the U.S. economy.

According to Forbes contributor Kenneth Rapoza, foreign investors owning debt is not a threat to the United States. Rapoza points out that of the $16 trillion in outstanding U.S. debt, most of it is held by large banks here in America: Goldman Sachs, JP Morgan, Citibank, and Bank of America. China holds about 7.5% of U.S. debt. “One of the reasons why China has so much Treasury holdings is because of trade. Companies put money in short term Treasury notes and bills to settle trade payments,” Rapoza asserts.

Forbes also noted that the Pentagon did an assessment on the risks posed by China’s ownership of U.S. treasuries in July and came to the same conclusion: “Attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States.”