Sunday, December 15, 2013

Russia gives Cuba debt bailout

Russia gives Cuba debt bailout
Dec 13, 2013 By W. Alejandro Sanchez

In a major development in Cuban foreign affairs (more meaningful than
the recent feature story of a handshake between President Obama and
President Castro), the Russian Federation has forgiven 90% of Cuba's
debt with Moscow. The agreement, which was announced this past Tuesday,
December 10, means that the debt has been reduced from $32 billion to
$3.2 billion.

Moscow-Havana Relations
Throughout the Cold War, the Cuban regime (then under the rule of the
iconic Fidel Castro) was the Soviet Union's closest ally in the Western
Hemisphere, which translated into Moscow providing significant amounts
of economic and military assistance to the Castro Regime.
Nevertheless, the dissolution of the USSR and its economic meltdown
meant that Havana could no longer support the Cuban economy.
Unsurprisingly, the Cuban economy collapsed and a harsh period of
austerity followed. The 1990s are known in Cuba as the "lost decade."
In recent years, Cuba's economy has slowly improved while the Castro
brothers, particularly Raul, have made timid attempts at liberalizing
the economy, allowing for the growth of a middle class and the private
ownership of businesses.
In 2007, this author published a comprehensive analysis in the academic
journal Cuban Affairs, in which Cuban-Russian relations were discussed
in the post-Cold War era. In the article, I argued that Russia's
relations with Cuba in modern times resembled a capitalist relationship
more than an ideological one.
In other words, Russia will gladly provide Cuba with whatever goods and
services it needs, so long as Havana has the finances to pay for them.
The era of major financial assistance based on grounds of a common
political ideology between the two countries is over.
Russian President Vladimir Putin spelled out as much in his July 2012
meeting with President Castro in Moscow.
Putin stated that "our relations have gone through various periods […]
Today, they are becoming more pragmatic [...]" The lack of a common
ideology notwithstanding, friendliness between the two governments does
exist. Moreover, Russia wants to capitalize in the near future off the
still Moscow-friendly (and Washington-indifferent) government in Havana.
This is perhaps best exemplified by the diplomatic meetings that Russian
officials routinely make to the Caribbean island; take, for example,
Putin's visit to Cuba in 2001. This trip was memorable because the
Russian leader closed Russia's radar base in Lourdes, which had been a
beacon of USSR espionage operations on the U.S. during the Cold War.
More recently, Prime Minister Dmitry Medvedev visited the island this
past February, in which the debt deal was discussed.
Additionally, two Russian warships, the "Moskva" and the "Vice Admiral
Kulakov," docked in Havana's port this past August as part of a mission
to improve bilateral security ties.
As for trade initiatives, the Russian news agency Russia Today praised
bilateral ties, stating "Cuba remains a strong ally of Russia, with
trade between the two countries at about $200 million last year."
In other words, while Cuban-Russian relations over the past decade can
at most be described as "modest," as no major initiatives have been
orchestrated (apart from the debt deal), Havana has not been fully
forgotten by Moscow.

Future Expectations
The question now becomes: how should the Russian-Cuban agreement be
interpreted? Cuba now has a decade to pay off the remaining three
billion. Under the new debt deal, Cuba will have to pay $320 million
annually for the next decade.
This amount is still quite significant for the Cuban economy. The
country's 2012 GDP was estimated at around $121 billion (according to
the CIA Factbook), so this new debt is much more manageable.
To be fair, it should be noted that Cuba still owes billions in foreign
debt to other nations and the Cuban government is trying to improve its
international financial credibility by re-structuring its debt.
If Raul Castro does leave the Cuban presidency in 2018, thanks to these
deals, he will leave the next generation of Cuban leaders a country in a
better economic situation.
The Russian legislative will now have to vote on the deal, probably
early in 2014. Given that President Putin seems to approve it, there is
no reason to believe that Putin's Duma will not follow suit.
With that said, it is necessary to wonder if this deal has additional
elements that have not been made public. Offshore oil exploration is the
first thing that comes to mind.
For years, several companies, including Russia's Zarubezhneft, have been
searching for oil in Cuba's waters, but nothing has been found so far.
It is widely regarded that if major quantities of oil are found, this
could be a game changer for the Cuban economy and will make the company
in charge of extraction very rich.
Russia's pardoning of most of Cuba's debt could be a sign of greater
things to come and a more lasting Russian influence in the Caribbean
state, apart from dollars and cents in debt.

Source: "Russia gives Cuba debt bailout | Voxxi" -

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