Cuba may revive Paris Club debt negotiations

Exclusive: Cuba may revive Paris Club debt negotiations

BY MARC FRANK

HAVANA Tue Apr 22, 2014 8:20am EDT



(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)



Source: Exclusive: Cuba may revive Paris Club debt negotiations |

Reuters -

http://www.reuters.com/article/2014/04/22/us-cuba-debt-idUSBREA3L0QD20140422