Cuba Explains Its Foreign Investment Needs to Russia Based Bankers

May 10, 2014 |

By Progreso Weekly

Marino Murillo said “The national economy needs an annual [growth] rate of between 5 and 7 percent” of the Gross Domestic Product.

Marino Murillo told the visiting bankers, “The national economy needs an annual [growth] rate of between 5 and 7 percent” of the Gross Domestic Product.

HAVANA TIMES – Cuba will need as much as $2.5 billion in direct foreign investment to boost its economy, said Cuba’s top economist, Marino Murillo Jorge, Thursday (May 8) in Havana.

“The national economy needs an annual [growth] rate of between 5 and 7 percent” of the Gross Domestic Product, Murillo said. Instead, statistics show that in the past three years the growth rate has not risen above 3.2 percent. So far this year, it has been 2.2 percent, he said.

Murillo, vice president of the Council of Ministers, had stated his country’s needs in a public setting before, but this was a special event. He was addressing directors of the International Investment Bank (IIB) who were in Cuba to evaluate the nation’s ability to utilize their money, in the form of loans, and that of the countries they represent, in the form of direct investment.

The Moscow based International Investment Bank.

The Moscow based International Investment Bank.

The Moscow-based IIB describes itself as “a multilateral institution for development, which assists in social and economic development, growth of people’s well-being, and economic cooperation of the member-states.”

“The main directions of its activities are the support of the small and medium-sized business as well as participation in financing socially significant infrastructure projects,” the bank’s website says.

According to its mission statement, “the Bank grants loans primarily through the leading national financial institutions with the participation of the state, development banks, export and import banks and agencies; or it lends in partnership with other international institutions for development.”

Cuba’s appeal to the IIB for support comes two months after Havana issued a new Law on Foreign Investment, which will take effect on June 28.

Nikolai N. Kosov

Nikolai N. Kosov

The IIB was created in 1970 by the Council for Mutual Economic Assistance, an economic bloc founded in 1949 by the former Soviet Union and its allies. The bank’s current member states are Russia, Mongolia, Bulgaria, the Slovak Republic, the Czech Republic, Romania, Vietnam, and Cuba.

It is the only multilateral financial organization to which Cuba, a member since 1974, can turn for credit. Until this year, Cuba had not participated in IIB activities for almost 10 years, said Nikolai N. Kosov, chairman of the board.

The IIB is “a sure source” of investment and credit, Kosov said, which is why its directors are interested in every detail of the Cuban economic reform.

Murillo explained to the visitors the ongoing process of updating the Cuban economy — it is already in its second stage, he told them — and said that the government has decided to abolish the dual currency system and establish the national peso (CUP) as the only unit of currency.

He also told them that numerous economic sectors are open to foreign investment but that foreign economic participation will not affect the socialist nature of the government. Social ownership of the means of production will not be eliminated, he said.

Murillo said that Cuba is not contemplating a “structural change,” only a “modernization” of the management of the nation’s resources.

People on the Havana malecon seawall.  Photo: Juan Suárez

People on the Havana malecon seawall. Photo: Juan Suárez

“The idea is to attain a prosperous and sustainable socialist model,” he said, “to present to the world a strategy of growth and, above all, development.” That development requires “a considerable rate of accumulation — from 20 to 25 percent — which indicates the need to access foreign capital,” he explained.

The economic reforms “have been carefully studied and well thought out,” he said, and the Cuban leadership knows when to apply them.

Other presentations were made by Neysa Delgado, Cuba’s delegate to the IIB and vice president of the Foreign Bank of Cuba, and Deborah Rivas, an official at the Ministry of Foreign Trade and Investment.

As the session ended, the president of the Central Bank of Cuba, Ernesto Medina Villaveirán, expressed to Kosov and Mongolian economist Demchigzhav Molmzamts a special recognition “for their systematic work in support of Cuba,” specifically in the renegotiation of Cuba’s debt to the IIB.

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  • Moses Patterson

    Sucking up to the Russians at this point in Cuba’s search for foreign capital smacks of desperation. All things considered, $2.5 billion is a small amount of money to Chinese, Vietnamese and Brazilian investors. Given Russia’s near junk bond credit rating and the record low level of ruble in value, an appeal to their former nursemaid Russia seems to imply a lack of interest by better-capitalized investors elsewhere. What is the Cuban sales pitch? High productivity…no. Political stability…not really when you consider Raul is retiring in 4 years and no serious Cuba watcher believes Diaz Canel is the leader for the future. Even Cuba’s hallmark educational and health achievements are mitigated by the Castros fear of Cuban self-actualization and self-improvement. The Castros see a free society as a threat to their dictatorship. Cuba has been rated among the worst countries in the world in economic freedom. Begging for Russian help probably means the Chinese, Vietnamese and Brazilians know how bad things really are in Cuba and don’t want any more risk than they
    already have.

    • Pedro Campos

      Mr. Patterson. Very interesting your comments. I think it actually may be trying an act of desperation at the coldness with which the foreign investment law has been received. For example, the U.S. response was to keep Cuba on the terrorist list. Another example, the Cuban government has just published the price list they will charge for the paperwork procedures related to Cubans abroad. Instead of making things easier, they seem to want to convert the Foreign Ministry into a big business.

      • Griffin

        The decision to keep Cuba on the list of state sponsors of terrorism has nothing to do with the foreign investment law. If Cuba wants to get off that list, they need to change their foreign policy. Instead, Cuba is building stronger relations with well known state sponsors of terrorism, such as Syria & Iran, trading in weapons with North Korea, contrary to a UN ban, and allowing the terrorist organization Hezbollah to open an office in Cuba. What possible non-terrorism interest could there be in welcoming Hezbollah to Cuba?

        By the way: the new foreign investment law is not as attractive as the Cuban government pretends it is. As long as the directors of foreign companies are arrested and tossed into Cuban jails, the Castro regime will have a hard time convincing foreign corporations to invest in Cuba.

      • Moses Patterson

        Pedro, the US is indifferent to Cuba’s “new” foreign investment law. It is widely believed that it will not trigger a real change in the minds of potential investors. The Castros underestimate the investor community and falsely believe that they can turn on an “Open for Business” sign and the money will flow in. Far more fundamental reform is required. Hiring/firing autonomy and majority ownership are two major reforms lacking in the new law. Also, the capacity to contract directly with producers instead of a state bureaucracy would enhance Cuba’s attractiveness. lacking these reforms as well as assurances for long term stability cast a dark cloud on Cuba’s investment horizon. There is no correlation between Cuba’s continued deserved place on the US State Sponsors of Terrorism list and the enactment of this foreign investment law.

  • tresis

    cuba is the only country where slavery is part of the economic system and the state still the workers salary

  • Pedro Campos

    Not with a billion dollars a year will the Cuban government achieve the economic development of the country, simply because of the unproductive and parasitic character of its bureaucratic superstate and its model of neo-Stalinist state monopoly capitalism, they call socialist. When we will be devising independent economic development for the wellbeing of the people and the workers?

  • Griffin

    The IIB is decidedly a low-end bank. Their credit rating is BBB- and their Short-term Issuer DefaultRating is F#, meaning “Insurers are viewed as having an adequate capacity to meet their near-term obligations.”, which is one step up from “Insurers are viewed as having a weak capacity to meet their near-term obligations”.

    Given the situation in Russia today in which world reaction to Russian aggression toward Ukraine has lead to a crises of confidence in the Russian stock market and financial sectors, the chances that Cuba will see any money from this bank is slim to none.

  • CUBAQUS

    All foreign bankers and economists have one basic problem: the eonomic data emanating from the Cuban regime is universally considered not trustworthy.Foreign economist, respected dissident economist like the recently deceased Oscar Chepe and even Raul Castro himself in his “the revolution can not lie” speech have said so.
    Furthermore: Cuba uses a “non-standard” method of calculation that falsifies both the real value of PIB and its growth rate. Even so Cuba has consistently missed its growth targets. 5 to 7% growth is a pipe dream. Getting 2 billion in foreign investments a year as well.

  • Pedro Campos

    Thank you all for your comments posted. Anyway what I wanted expess is that if the US had been interested in lifting the blockade and responded positively to the foreign investment law probably it would have hesitated to include Cuba on the terrorist list.

    • Griffin

      The new Cuban foreign investment law is not seen as any sort of concession by the Castro regime toward respecting the human rights of the Cuban people, nor even a liberalization of the Cuban economy.

      The new investment laws codify the economic and legal advantages of the elite circles connected to the regime. The Cuban people remain excluded from and forbidden to engage in economic freedom. The cheap labour of the Cuban worker is being sold to those foreign corporations willing to conspire with the Castro regime in it’s ongoing exploitation of the Cuban people.

      Meanwhile, Cuba’s questionable diplomatic and covert trade relations with state sponsors of terrorism, such as Syria, Iran & Hezbollah continue to grow.