Paris Club invites Cuba to resume debt talks

Paris Club invites Cuba to resume debt talks
ReutersBy Marc Frank | Reuters – Mon, Nov 7, 2011

HAVANA (Reuters) - Cuba's wealthiest creditors have decided to test
President Raul Castro's pledge to improve the island's financial
credibility by inviting his government to talks with the Paris Club
about settling billions of dollars of outstanding debt, according to
Western diplomats.

A letter recently sent to the Cuban central bank asked if the
Communist-run country would like to explore the resumption of
negotiations broken off a decade ago, the sources said.

"Cuba was discussed for the first time in many years at the Club's
meeting on October 9 and 10, and it was decided to see if they were
interested in talking," a European diplomat said.

"They have not formally replied, but have expressed some interest
through the central bank," he added.

The Paris Club reported that Cuba owed its members $30.5 billion (19.0
billion pounds) at the close of 2010, but more than $20 billion of the
debt was in old transferable Soviet rubles that Russia now claims but
Cuba does not recognise.

According to its annual report, the Paris Club is an informal group of
creditor governments composed of Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, the
United Kingdom and the United States.

Unlike the International Monetary Fund and World Bank, from which Cuba
is excluded under to the longstanding U.S. trade embargo, the Paris Club
does not issue multilateral loans.

Castro, who replaced his ailing brother Fidel as president in 2008, has
drastically reined in imports, cut state payrolls and subsidies while
insisting the government get its financial house in order.

Last week, Cuba's government gave Cubans the right to buy and sell their
homes for the first time since the early days of the 1959 revolution --
a long-awaited reform that creates a real estate market and promises to
put money in people's pockets.

The Communist Party and government this year approved a five-year
economic plan that calls for efforts to "enhance Cuba's credibility in
its international economic relations by strictly observing all the
commitments that have been entered into."

The plan also said the rescheduling of Cuba's foreign debts must be
expedited and that "flexible restructuring strategies for debt
repayment" must be put in place as soon as is practical.

OBSERVERS CAUTIOUS

The Bank for International Settlements reported banks in 43 countries
held $5.76 billion in Cuban deposits as of March of this year, compared
with $4.285 billion at the close of 2009 and $2.849 billion at the close
of 2008.

Cuba last reported its foreign debt in 2007 at $17.8 billion, but most
analysts agree it now exceeds $21 billion, or close to 50 percent of
gross domestic product and 30 percent more than annual foreign exchange
revenues.

The central bank reported more than half the debt was classified as
inactive, dating back to when the country defaulted in the late 1980s,
while the remainder was active debt piled up after the demise of the
Soviet Union, Cuba's former benefactor.

In recent years, China has become the country's largest creditor with
local experts estimating the amount owed at around $5 billion.

Cuba over the last year restructured its debt with China and has been
pursuing similar bilateral agreements with various other creditors,
diplomats said.

"Talks can only be a good thing," said Stuart Culverhouse, chief
economist of Frontier Market Investment Banking at the London-based
Exotix. "Although Cuba has pursued bilateral deals, there have been no
substantive negotiations with the Paris Club for ten years. So it would
signal some progress."

"But I'd be cautious in concluding that it means some sort of
rapprochement on the debt is imminent," he added.

Western diplomats appeared divided between those who expressed cautious
optimism that something would come out of the initiative and those who
were skeptical it would go anywhere.

Talks between the Paris Club and Cuba were indefinitely put on hold in
2001 after nearly two years of discussions. During the talks, the United
States agreed not to participate.

The negotiations had marked Cuba's first sitdown with creditors to
negotiate multilaterally since the late 1980s when it defaulted.

Along with restructuring terms, Cuba's 20-billion convertible ruble debt
to the former Soviet Union was considered another major obstacle to any
multilateral accord.

Though Cuba and Russia have since agreed to put the old debt aside and
work to rebuild their economic relations, it remains on the books.

"We proposed an accord similar to those with other middle-level
developing countries, but the Cubans wanted something special and
unheard of. We were miles apart," a European diplomat, who had followed
the negotiations closely, said at the time.

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