Caribbean & Central America - June 2015 (ISSN 1741-4458)

Some 15 years after the last talks failed, Cuba finally has reconciled its debt with the Paris Club, another key step in the island’s gradual economic rehabilitation and reintegration into the global financial economy.

The Communist Havana government led by President Raúl Castro and the Paris Club have settled on the value of Cuba’s pending debt to the group of 19 wealthy creditor nations (Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, The Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the US), diplomats have told international media. The two parties reportedly agreed that Cuba owes US$15bn, a figure that includes principal, service charges, interest and penalties, according to Reuters. Agreement on the amount will now allow the two sides to begin talks on a settlement deal, which likely could include significant debt forgiveness for Cuba.

The Cuban government stopped servicing its Paris Club debt in 1987, having renegotiated its debt payments for 1982-86 the previous year. The failure to meet its payments meant that the Paris Club officially considered Cuba to be in default. The last negotiations, back in 2000-2001, broke off without a result.

The Paris Club reported that Cuba owed its members US$35bn at the close of 2012, rising to US$37bn in late 2013. In late 2013, there were signs of tentative efforts again, with a Paris Club delegation reportedly travelling to Havana for exploratory talks. At the same time, Russia suddenly announced that it had reached a deal with Cuba to forgive some US$29bn of Cuba’s Soviet Era debts, of which about US$20bn was Paris Club debt. (Under the deal, Russia agreed to forgive US$20bn plus interest, while Cuba reportedly would pay US$3.2bn over 10 years in settlement of the remaining 10%). Observers suggested that the unilateral move by Russia rankled with other Paris Club members. In any case, in April 2014, Reuters reported that talks between Havana and the Paris Club were beginning again.

Bruno Bézard, the director general of the French government’s treasury, and ex officio chairman of the Paris Club, went to Havana in March to expedite the talks. Ahead of that trip he suggested that Cuba’s remaining debt with the Paris Club amounted to US$15-US$16bn (i.e. after the bilateral settlement deal with Russia). Of this, about one third is owed to France. As such, debt forgiveness may have been on the agenda when France’s President François Hollande visited Cuba in May.

Since 2011, Cuba has restructured its debt with Mexico, Russia, Japan (commercial creditors) and China (its accumulated debt with China is estimated at some US$6bn), getting big write-downs (in some cases of up to 90%) and reworking its payment schedules. Should the new Paris Club negotiations result in additional restructuring (and potentially further significant write-downs), this would further improve Cuba’s external balance - reportedly, it is now running a trade and current account surplus - and help its reintegration into international capital markets.

It would also go a long way towards clearing Cuba’s slate as it prepares for a tricky currency reform process that will require more financial and monetary transparency and confidence in its international reserves position. Cuba’s total foreign debt (active and passive), while not regularly reported by the central bank, is estimated at about US$26bn by external economists. Its international reserve position is not publicised, purportedly for national security reasons.

• De-listed

On 29 May the US State Department announced that Cuba officially had been removed from its list of countries that sponsor international terrorism, clearing another obstacle on the path to the formal restoration of diplomatic relations. Following a fourth round of high level talks, the US Assistant Secretary of State for Western Hemisphere Affairs, Roberta Jacobson, and her Cuban counterpart, Josefina Vidal (the director of North American affairs at the Cuban foreign ministry), signalled that while a deal was not quite there yet, final details could be ironed out by their respective delegates. (Jacobson shortly after was promoted to become the US ambassador to Mexico). US legislators opposed to the rapprochement vowed to block White House ambitions to appoint an ambassador to Cuba, which would be a hugely symbolic moment.