Cuba Nears Deal With Paris Club on Debt Forgiveness

Cuba Nears Deal With Paris Club on Debt Forgiveness
Reuters
December 07, 2015 9:15 PM

HAVANA—
Cuba is near a deal with 15 rich creditor nations of the Paris Club to
restructure $16 billion in debt stemming from a 1986 default, with
creditors expected to forgive most of the amount owed, diplomats close
to the talks said.

The parties will meet in Paris later this week and, after two years of
informal discussions, are close to a multilateral deal, the diplomats said.

"Cuba has agreed to pay the principal of around $5 billion owed since
its 1986 default in exchange for forgiving $11 billion in service
charges, interest and penalties," said one diplomat from a major
creditor nation. "Negotiations are now more about how much time they
need to pay it and how much of the money will be reinvested in Cuba."

Cuba has secured investment agreements from creditors in previous debt
negotiations and is seeking similar commitments from the Paris Club
nations, the diplomats said.

The Paris Club is an informal group of creditor governments from
Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain,
Sweden, Switzerland and the United States.

It has a 15-member working group on Cuba that excludes those countries -
the United States among them - that do not hold the debt under negotiation.

Most of the creditors are willing to show flexibility due to their
increased interest in doing business in Cuba following the Communist-run
island's detente with the United States and continuing domestic reforms.

U.S. President Barack Obama and Cuban President Raul Castro announced a
year ago their governments would work toward a normalization of
relations after decades of confrontation, although a U.S. trade embargo
of Cuba remains in place.

Castro, who replaced his ailing brother Fidel as president in 2008, has
made restoring Cuba's international financial credibility a priority. He
has reined in imports and cut state payrolls and subsidies while
insisting the near-bankrupt government get its financial house in order.

Cuba has had a trade and current account surplus since 2011 and has
improved its payments record to creditors and suppliers.

In the past four years, Cuba has restructured its debt with Japanese
commercial creditors, Mexico and Russia, each time obtaining reductions
of 70 percent to 90 percent in what was owed and extended payment plans
it could meet in exchange for greater investment opportunities on the
island.

Cuba also has restructured its debt with China, estimated by local
economists at more than $6 billion.

"Our companies want this out of the way so they can obtain financing for
investments," one European diplomat said. "They want to get here before
the Americans lift the embargo."

Cuba is not a member of the World Bank nor any other multilateral
lending institution.

"A comprehensive deal would go a long way toward normalizing Cuba's
international financial relations and gaining access to official trade
credits," 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.

"However, a deal with the Paris Club will not get Cuba a good
international credit rating. That can only come from more robust export
earnings and a healthier sustainable balance of payments," Feinberg said.

Cuba does not comment on debt negotiations.

The government last reported its "active" foreign debt, accumulated
after it defaulted in 1986, at $12.5 billion in 2012. It no longer
reports its "passive" debt from before the default, the principal of
which local economists estimate at $8 billion.

The Economist Intelligence Unit estimated Cuba's total foreign debt as
$26 billion at the end of last year.

This week's formal negotiations with the Paris Club creditors are the
first since negotiations failed in 2001.

Source: Cuba Nears Deal With Paris Club on Debt Forgiveness -
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