Cuba obtains its biggest debt restructuring

The Russian Duma ratified the agreement to write off 90 percent of Cuba’s enormous debt from the time of the Soviet Union.

Havana and Moscow took an important step toward economic and political rapprochement after the Duma ratified the writing off of 90 percent of Cuba's debt with Russia.

The Russian Duma finally ratified the almost complete cancellation of Cuba’s old debt with the Eurasian giant. The decision could not come at a more timely moment. The Lower House of the Russian Federation approved the agreement on Friday July 4, exactly a week before the visit by that country’s president, Vladimir Putin, to the largest of the Caribbean islands, the first stop of a tour of Latin America that will take him to a meeting of the BRICS Group on July 16.

The most recent steps expand the manoeuvres started by Havana and Moscow to recover or relaunch the trade ties that they once had as political allies.

The first report about the financial agreement circulated in December 2013 with the report of an agreement signed a bit before by both governments to condone 90 percent of a debt the island was dragging since the time of the Soviet Union. The foundations were sealed in October last year behind closed doors during a meeting in the Russian capital of the Intergovernmental Commission for economic, commercial, scientific and technical cooperation.

The news made public in December placed the old financial debts at a total of 32 billion dollars. But the current reports regarding the decision of the Russian legislative body calculate the debt at 35.2 billion dollars and the amount to be written off at around 32 billion.

Havana, therefore, will only have to pay 3.52 billion dollars, 10 percent, and will have 10 years to do so through equal half-yearly payments, according to the document approved by the Duma. The first payment will be made in October 2014 and the last would be in April 2024.

The almost total writing off of the debt with Russia is the largest money operation involving a series of similar manoeuvres by Cuba with creditors from several countries. The island has negotiated the restructuring of debts with other countries in recent years in an effort to organise its foreign finances. In 2010 it signed an agreement with China to readjust the payment of a debt of almost six billion dollars, and two years later it achieved the writing off of 80 percent of the debt with Japan (some 1.4 billion dollars). In November 2013 Mexico condoned 70 percent of Cuba’s debt of 500 million dollars contracted 15 years ago.

The financial agreement with Russia incorporates other opportunities and alternatives that expand the benefits for Cuba and confirm the extent of the understanding between the two countries. Moscow promises to reinvest those payments in the Caribbean nation, according to the announcement made by Foreign Minister Sergey Lavrov during his visit to Havana last April. The Russian foreign minister said that hi government had decided to invest a tenth of Cuba’s debt with the former Soviet Union in the Cuban economy.

After the disappearance of the USSR in 1991, the Russian Federation became the legal creditor of Cuba’s debt.

To carry out that financial operation, the Vneshekonombank (Bank of Foreign Economic Activity) opened a special account in the National Bank of Cuba, where it will enter Havana’s payments to Moscow to later finance the investment projects of Russian companies in this Caribbean country.  Oil and energy have also been placed among the business priorities of Russia and Cuba.

One of the objectives that has attracted the attention of Russia’s businesspeople is the Mariel Special Development Zone, considered by Raúl Castro’s government as the largest investment operation in recent decades.

The Russian-Cuban economic rapprochement has gained impetus in the last few years. The signing last May of important agreements between Cuba Petróleo (Cupet) and two large Russian oil corporations, Rosneft and Zarubezhneft, enhances bilateral ties in the sphere of energy, one of the principal central points of Cuba’s alliance with the former Soviet Union.
However, the bilateral exchange of goods is still the same, not increasing, at around 300 million dollars a year (292 million in 2011, according to the Statistical Yearbook of Cuba). That amount places Russia in 12th place among Cuba’s’ foreign partners, very far from the first places, Venezuela and China.

The signs of rapprochement go beyond the economic sphere and already have visible implications in the political arena. While Lavrov labelled the U.S. economic blockade on the Caribbean nation as “absolutely inadmissible,” the Cuban government reiterated its support for Moscow’s position in the face of the Ukraine crisis and its opposition to the attempt “of extending NATO to the Russian borders,” according to what was said then by Foreign Minister Bruno Rodríguez when he received his Russian counterpart.
Judging by the most recent bilateral manoeuvres, both governments have mutually and geopolitically reconsidered as convenient recovering the commercial and financial ties that once made them close allies. (2014)

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