Credits in Sight: Cuba Reaches Historical Agreement with Paris Club

December 15, 2015 |

By CaféFuerte

Michel Sapin, French Minister of Finances.

Michel Sapin, French Minister of Finances.

HAVANA TIMES — Cuba will close 2015 with magnificent news for its ailing finances: this Saturday, Raul Castro’s government and the Paris Club reached an agreement on the island’s debt that will secure a US $ 4 billion relief in interests due and reduce Havana’s outstanding debt to US $ 2.6 billion, payable in the generous term of 18 years.

The agreement, announced in Paris, arrives after a long period of stagnation, and was catalyzed by the re-establishment of political exchange and economic cooperation between the island and European Union, and, especially, by the re-establishment of diplomatic ties with the United States.

The reduction of Cuba’s debt has been truly significant. In 2001, when talks with the Paris Club were suspended, Cuba’s total debt was estimated at US $35 billion, a figure which was later reduced to US $26 billion following direct agreements with a number of creditors. At one stage of the negotiations begun last March, the debt had been set at US $15 billion.

A New Stage within the Financial Community

The agreement was reached during a round of negotiations in Paris between December 10 and 12. The final steps were aimed at determining the payment term and amount payable by Cuba.

In fact, these concessions for Cuba are sustained by promises for the majority of creditors, who appear willing to relax their payment demands in exchange for advantages in terms of setting up businesses on the island.

“This agreement paves the road to a new stage in relations between Cuba and the international financial community,” French Minister of Finance and Public Accounts Michel Sapin announced in a communiqué.

The terms of the agreement could not be more favorable to Cuba’s strategy, aimed at inserting the island in the international financial system and securing generous credits for the mid-term to bolster its domestic economy.

Money won’t begin flowing into the island’s economy and banks right away, but this is a first step towards establishing the atmosphere of confidence that the Cuban government seeks to secure in its attempts to attract investors, following the promulgation of the Foreign Investment Law.

Money on the Horizon

Sapin announced that the French Development Agency will soon resume its activities, as President Francois Hollande promised during his visit to Havana last May.

Credit agencies that make up the Paris Club will also be able to resume their export credit activities immediately.

France is Cuba’s chief creditor. The Paris Club is made up of 15 of the world’s richest countries and also includes Australia, Austria, Belgium, Canada, Denmark, Finland, Italy, Japan, Holland, Spain, Sweden and the United Kingdom.

Sapin specified that France will cancel outstanding interests and will focus on the total sum owed, plus the original interests, calculated at around US $ 470 million. A total of US $ 240 million will be paid by Havana and the remaining US $ 230 million will be destined to bilateral development projects on the island.

The Cuban press divulged the news as an important step towards the normalization of financial relations between the two parties.

It remains to be seen whether the Cuban government will offer official information on the reserves kept at Cuba’s Central Bank. The island is expected to take that step as proof of transparency and reliability, indispensable to be granted international credits.

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  • Moses Patterson

    Since 1964 when Fidel Castro walked away from the IMF and billions of dollars in debt, the world’s lenders have been wary of lending to Cuba. With regards to that wariness, given Cuba’s low credit rating, nothing has changed. From the Castro perspective, the Paris Club decision to reschedule Cuban debt is relatively good news. But read between the lines. A portion of the forgiven debt has been substituted for future investment opportunities. In other words, future investors will be allowed to set up shop in Cuba for “free”. What this means is that the one and only thing that the Cuban people own is the land, natural resources, and Cuban labor and the Castros are trading it to wipe away Fidel’s arrogantly stupid mistake made 51 years ago. Simply put, some French bank, who likely bought the original debt for pennies on the dollar, will be able to extend credit to a French company to pay the initial fees and start-up costs for setting up a business in Cuba. Instead of these fees and reimbursement for these costs going to the Cuban people, the Cuban people will pay these costs to attract the French company. The French company pays the French bank however. The Cuban people get nothing. There are no free lunches, never.

    • larrybudwiser

      It’s always smoke and mirrors. I have had several discussions with investment bankers on doing business with and/or in Cuba. What I find interesting, those that have been to Cuba recently, have the least interest. Apparently when reality sets in, money abhors the risks. Cuba has little to offer in commerce short of nice beaches-but there are hundreds of miles of nice beaches in the Caribbean that don’t involve the risks. I don’t think Cubans actually understand that this halfway stuff is not going to be Cuba’s savior. It appears that while the US (under Obama) has attempted to give Cuba some leeway, Cuba hasn’t made any concessions towards the US-perhaps Raul doesn’t feel he has to. What I think Cuba doesn’t realize, that the upcoming presidential elections may end any future movements by the US and potentially, Obama’s executive orders, could be easily reversed by a new president. I would respectfully suggest to Raul and the Cuban people, the clock is ticking-combined with the socialist loses in Venezuela, a second Special Period may come.

      • Moses Patterson

        Now, nearly 58 years of living inside a self-made bubble has made the Castros deaf to your respectful suggestions. The recent changes made since 2008 when Raul formally took over his brother’s job were not made because of some internal passion for modernization but in response to an external force. Take for example the legalization of DVD players in 2006. Please read this last sentence again.Take for example the legalization of DVD players. Only in Cuba does something like that have to happen by the force applied from the widespread black market sales of DVDS on the island. The same market forces led to the legalization of cell phones in 2008. In both cases, the island was being flooded by DVD players and cell phones. The Castros had no choice but to lift the ban. The Castros, internally, feel no need to change. They see no need to respond to President Obama’s efforts to normalize relations. The only future changes they will make will be those changes they have been forced to make. Power concedes nothing without a demand. It never did and it never will…..Frederick Douglass (my avatar)

      • Griffin

        If a Republican is elected the next US President, thy will certainly go much harder on Raul than Obama has done, but I don’t see them undoing anything Obama has done so far.

        And if Raul offers Trump the chance to open a new hotel on the Malecon, then all bets are off. Nobody knows what that buffoon will do tomorrow, not even himself.

    • larrybudwiser

      Moses, I always enjoy your posts and always walk away with something to think about. Sometime I don’t always agree with you but your intelligence and passion is always present in your words. Thank you

      • Moses Patterson

        Thank you

    • Diallo Amir

      Who pay the Africans back for enslavement of their ancestors and the disenfranchisement of their descendants

      • Moses Patterson

        I’m not sure how your question is relevant to this thread. You may try another blog dealing with that subject specifically. Good luck.

  • Doug1943

    The next American President will be Hillary Clinton (I’m not happy about this, by

    the way.) She won’t reverse Obama’s changes. Even a Republican President won’t, because the blockade of Cuba (after 1991) was due solely to the spending power of the Cuban American National Committee via that peculiarly American form of corruption called ‘campaign contributions’. That spending power is going to be overmatched by American businessmen who are getting dollar signs in their eyes thinking about the Cuban market that could be. (Why do you think the governor of Texas — of Texas!!! — — was in Cuba last month? )

    So the blockade is going to end.

    Who will be unhappy about this? Not the ordinary Cubans in America, it would seem: http://www.miamiherald.com/news/local/community/miami-dade/article50333245.html

    And their change of heart could have something to do with this: http://www.miamiherald.com/news/local/community/miami-dade/article50773855.html#wgt=trending