Cuba Defaulting On Paris Club Agreements, Seeking Again More Time; Trump Administration Message To Members: "Negotiate Like Donald Trump, Not Like EU"

The Paris, France-based Paris Club of Creditor Nations (Paris Club) members: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, the Netherlands, Norway, the Russian Federation, South Korea, Spain, Sweden, Switzerland, the United Kingdom and the United States.

The fourteen members of the Paris Club members who are parties to a 2015 agreement with the Republic of Cuba: Austria, Australia, Belgium, Canada, Denmark, Finland, France, Italy, Japan, Spain, Sweden, Switzerland, the Netherlands, and United Kingdom.

The countries owed by the Republic of Cuba have few palatable choices: 1) accept the offer by the Republic of Cuba 2) present a counteroffer seeking more than the offer by the Republic of Cuba or 3) Permit another default by the Republic of Cuba.

Regardless, governments and companies will never receive what they were initially owed by the Republic of Cuba- and with each delay, they receive less.

The Trump Administration, while unable to block revision of debt agreements by some Paris Club members, will advocate that members require the Republic of Cuba to maintain obligations or at minimum implement commercial, economic and political changes that further enhance the opportunity to earn foreign exchange.

The Trump Administration position to those countries owned money- Don’t permit the Republic of Cuba to continue to function as it does solely because governments continually subsidize every financial transaction with the country.  The Republic of Cuba should not be “permitted to continue to operate as it does simply to make an ideological point; the country must support itself.”  

The Trump Administration mantra to participating Paris Club members will be: Provide first a good deal for member governments and their respective taxpayers rather than a good deal for the Republic of Cuba and second “don’t negotiate like the European Union, negotiate like Donald Trump.”

To make sovereign debt and commercial debt payments, the Republic of Cuba depends upon 1) stable commodity prices for exports 2) stable commodity prices for imports (most importantly, agricultural commodities and oil) 3) increasing Direct Foreign Investment (DFI) 4) increasing tourism net profits 5) continuing short-term, medium-term and long-term government-to-government loans and grants and 6) continuing medium-term to long-term commercial financing for imports. 

Without changes to the commercial, economic and political structures within the Republic of Cuba, there is little elasticity between fulfilling obligations and default on obligations.

Cuba seeks delay in debt repayment to 2022: diplomats
by Katell ABIVEN
Agence-France Presse
20 May 2020

Cuba has asked the Paris Club of major creditors for a delay in repaying its debt until 2022, citing the impact of the coronavirus pandemic on its economy, diplomatic sources told AFP on Wednesday.

In a letter sent to 14 Paris Club countries to whom Cuba owes money including Britain, Canada, France and Japan, Deputy Prime Minister Ricardo Cabrisas proposed "a moratorium for 2019, 2020 and 2021 and a return to paying in 2022," a diplomatic source revealed. Two other diplomats subsequently confirmed the information. All sources spoke to AFP on condition of anonymity due to the sensitive nature of the matter.

Havana missed more than $30 million in reimbursements in 2019. In February, it committed to settling that debt by May, but the virus crisis has now put paid to those plans. According to one source, the letter stipulates that Cuba would reassess its economic situation in 2021 to see if it could resume repayments.

The agreement with the Paris Club is crucial for Cuba, which has been subjected to punishing US sanctions since 1962. After an easing of tensions under Barack Obama, sanctions have been ramped up under the administration of US President Donald Trump.

In 2015, Havana renegotiated its debt with 14 Paris Club countries, wiping out $8.5 billion from an $11 billion debt, with the repayments restructured gradually until 2033. Cuba, which has suffered from food and fuel shortages, also benefited from several other creditors writing off debt: $6 billion by China in 2011, $500 million by Mexico in 2013 and $35 billion by Russia in 2014.

Havana is increasingly reliant on the European Union, which has become its main investor with almost $3.5 billion in trade in 2018. However, lockdown measures enforced to combat the pandemic have badly affected Cuba's main sources of income, such as tourism and remittances sent from Cubans abroad.

Tourism brought in $3.3 billion in 2018 but there has not been a single new visitor since March 24, putting a third of privately run businesses, and the 200,000 people they employ, at risk. Tourist numbers had already dropped by 9.3 percent in 2019 due to new restrictions on American visitors. The year-on year fall reached 16.5 percent in January and February -- and that was before Cuba closed its borders.

- 'Humanitarian crisis' -

Remittances accounted for $3.5 billion in 2017, according to an estimate by economist Carlos Mesa-Lago. "If the economic damage in Florida (where many Cuban immigrants live) is significant, then (remittances) will fall and that will impact people's lives," said the Inter-American Dialogue think tank, warning of "a humanitarian crisis."

Another major source of income that has been hit is Cuba's export of health care workers, which brought in $6.3 billion in 2018. That has been cut by the return of 9,000 workers from countries with whom Cuba has strained diplomatic relations. "It's time to work on our reserves," said Economy Minister Alejandro Gil, because "we must save everything we can." The island nation, which imports 80 percent of goods, "reduced by 75 percent its first quarter imports" because of a lack of cash flow, said economist Omar Everleny Perez.

Cuba is desperate to avoid a default, like it suffered in 1986. It is hoping for clemency, given that the Group of 20 largest economies put in place a one-year freeze on debt repayments for the world's poorest countries, including 40 in Africa. The World Bank and International Monetary Fund have vowed to help vulnerable countries, but Cuba is a member of neither organization. The UN Economic Commission for Latin America and the Caribbean has said it expects Cuba's GDP to fall by 3.7 percent in 2020, but many experts predict a greater contraction.