12/09/13 - Reuters - Exclusive: Russia signs deal to forgive $29 billion of Cuba's Soviet era debt - diplomats
By Marc Frank
HAVANA Mon Dec 9, 2013 3:55pm EST
Russian Prime Minister Dmitry Medvedev gives an interview to federal TV
channels at the Ostankino TV Center in Moscow December 6, 2013.
Credit: Reuters/Alexander Astafyev/RIA Novosti/Pool
HAVANA (Reuters) - Russia and Cuba have quietly signed an agreement to
write off 90 percent of Cuba's $32 billion debt to the defunct Soviet
Union, a deal that ends a 20-year squabble and opens the way for more
investment and trade, Russian and European diplomats said.
The two sides announced an agreement to settle the debt dispute earlier
this year and finalized the deal in Moscow in October. It would have Cuba
pay $3.2 billion over 10 years in exchange for Russia forgiving the rest of
a $32 billion debt - $20 billion plus service and interest, the diplomats
It must still be approved by the Duma, Russia's lower house of parliament.
Negotiations on the form in which Cuba will pay the remaining debt are
ongoing, the diplomats said, as even $320 million per year represents a
large sum for the cash-strapped country, which has labored under a U.S.
economic embargo for decades.
Cuba's total export earnings are around $18 billion, including tourism and
medical and educational services.
Neither Cuba nor Russia has made any official comment on the debt
agreement. Cuban officials were not immediately available for comment.
Cuba defaulted on its debt in the late 1980s but recently has been trying
to restructure the old debts to improve its international credibility.
Russian Prime Minister Dmitry Medvedev, during a visit to Cuba in February,
signed a general agreement to work out a formula and settle the old debt by
next year. The decision rankled other countries grouped in the Paris Club
of creditor nations because it broke ranks with the collective approach of
PARIS CLUB CONTACTS
The Paris Club is an informal group of creditor governments including
Canada, France, Germany, Japan, Russia, the United Kingdom and the United
States as well as a number of smaller European nations.
The Paris Club reported that Cuba owed its members $35 billion at the close
of 2012, now estimated at around $37 billion, which would leave the island
owing $5 billion to $6 billion of non-Soviet debt to the club's members.
The organization has a Cuba working group, which does not include the
Russia pledged to work with Cuba towards reaching an agreement with the
Paris Club as part of the October settlement, one Russian diplomat said.
"The Paris Club should be grateful as it removes a huge amount of money
from the table and makes an eventual agreement more likely," he said.
While some Paris Club members clearly preferred a united front, one
European diplomat said Russia's help in settling Paris Club debt could
prove important and that a reduced debt would indeed be more easily
Since the Medvedev visit, the Paris Club has put out feelers to the Cubans
and a few months ago two representatives traveled to the Caribbean island
to meet with the central bank, the first such visit in over a decade.
Unlike the International Monetary Fund and World Bank, from which Cuba is
excluded under the longstanding U.S. trade embargo, the Paris Club does not
issue multilateral loans.
Cuba releases very little information about its foreign debt.
Last month the government 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
and estimated at around $8 billion.
The Communist-run island has never included debt to the Soviet Union in its
figures, claiming the amount was in overvalued convertible rubles and that
the country sustained massive damage from broken contracts when its former
Cuba has post-1980s default debt of hundreds of millions of dollars to
"The final deal recognizes some of the Soviet debt, and that's politically
important for Russia. It also opens the way for more credit which is
important for Cuba," a Russian diplomat said, like others requesting
SEARCH FOR CREDIBILITY
Three years ago Cuba restructured its active government and commercial debt
with China, estimated at around $6 billion. Last year Cuba settled a
dispute with Japanese commercial creditors dating back to the 1980s.
Under the Japanese agreement, 80 percent of the 130 billion yen debt (about
$1.4 billion) was forgiven, with the remainder to be paid over 20 years.
Mexico recently forgave 70 percent of a $478 million debt Cuba accumulated
in the late 1990s, in exchange for the remaining $146 million being paid
over 10 years.
"The agreements with China, Japan, Mexico and Russia ease some outside
financial restrictions on the Cuban economy and should facilitate trade
ties with these countries," said Pavel Vidal, a former Cuban Central Bank
economist now teaching at Colombia's Javeriana University.
"The austerity measures adopted by the government in 2009, and these
accords to lower the foreign debt, help stabilize the island's finances at
a very important moment when a significant monetary reform over three years
(devaluation and elimination of the dual currency system) has begun," he
Raul Castro, who replaced his ailing brother Fidel as president in 2008,
has drastically reined in imports and cut state payrolls and subsidies
while insisting the near-bankrupt government get its financial house in
In 2011, the Communist Party approved a five-year economic plan that called
for efforts to "enhance Cuba's credibility in its international economic
relations by strictly observing all the commitments that have been entered
into," before and after the default.
The plan also called for expediting the rescheduling of Cuba's foreign
debts and implementing "flexible restructuring strategies for debt
repayment" as soon as it is practical.
(Editing by David Adams and Jim Loney)
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