Cuba’s debt deal: Easy terms, but severe penalties if late again
HAVANA : Paris Club creditor nations have forgiven $8.5 billion of Cuba’s $11.1 billion debt and restructured payments on the remainder with easy terms but the deal imposes severe penalties if Cuba falls behind again, according to a copy of the accord seen by Reuters.
The French government announced the outlines of the accord on Saturday. The document seen by Reuters offers previously unreported details. The Cuba Group, made up 14 of the 19 wealthy nations of the Paris Club, said the agreement was an important step in the Communist-run island’s efforts to rejoin the international financial community and could lead to more Western credits and investment. The deal covers official debt defaulted on through 1986, plus interest, service charges and penalties.
It calculates Cuba’s total debt to Paris Club members at $11.1 billion, which is less than previously reported $15 billion largely because of the strong appreciation of the dollar against other currencies. All the loans were denominated in euros and other currencies. Interest is forgiven through 2020, and after that is just 1.5 percent of the total debt still due.
Repayment is structured over 18 years and annual payments gradually increase from 1.6 percent of the $2.6 billion owed, total, or about $40 million, in 2016 to 8.9 percent in 2033.
However, if Cuba does not meet the payment schedule by Oct. 31 each year, it will be charged 9 percent interest until payment, plus late interest for that portion in arrears.
“This is an astoundingly generous deal, a fabulous agreement for Cuba,” said a foreign banker with years of experience in Cuba. “They would have to be crazy to screw it up.”
Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, France, Italy, Japan, the Netherlands, Spain, Sweden and Switzerland agreed Cuba should be granted “exceptional debt relief,” the document states, given the large amount owed, the US trade embargo of Cuba, and the country’s “willingness to improve its financial situation.” President Raul Castro, who replaced his ailing brother Fidel Castro as president in 2008 and has undertaken some reforms to the largely state-run economy, has made restoring Cuba’s international financial credibility a priority.
Cuba must report to the group every year on its economic situation and efforts to reform the economy.
The creditor nations have been under pressure from companies in their countries to settle the old debt and free up financing for investment on the Caribbean island.
“The detente with the United States has created opportunities that US companies still can’t capitalize on, and some of our companies want to get here first,” one diplomat said.
US President Barack Obama embarked on a new Cuba policy a year ago to normalize relations with Cuba after more than half a century of isolation, but the Republican-controlled Congress has so far resisted his calls to lift the embargo. The creditors can negotiate debt swaps on a bilateral basis for up to 30 percent of the debt they are owed, or $20 million in development assistance, whichever is higher, the agreement states.
A clause permits the signatory parties to negotiate “as soon as possible” similar debt not included in the accord.