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Cuba creditors hopeful as storm season nears end

Published Nov 24, 2010 09:44AM ET
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* Creditors hoping Cuba has unused cash reserve for storms

* Cuba said gradually opening up frozen bank accounts

* Still dragging feet on foreign debt payments, dividends

By Marc Frank

HAVANA, Nov 24 (Reuters) - With hurricane season almost over and Cuba having passed its second year in a row without a major storm, creditors are hoping the communist country will be in better financial shape to pay its bills.

Diplomatic and business sources said this week the Cuban government may have a cash reserve that it set aside in case of hurricanes and could now use at least part of it to cut debt or reopen frozen bank accounts.

"We had been building up reserves since 2009. Hurricanes could have cost us billions this year," a local economist said.

This year, despite an unusually active Atlantic hurricane season, Cuba was struck only glancing blows by three storms that did little damage.

The Atlantic hurricane season officially runs June through November, and there are no late season storms in sight.

"President Raul Castro is a military man. I'm sure he has been putting aside what he can and expecting the worst," a Western diplomat said.

"So perhaps now they are breathing a little easier and will pay some of our companies what they owe them. At least the situation will not get worse," the diplomat said.

Cuba's economy was battered when two devastating hurricanes struck in 2008, causing what the government said was $10 billion in damage, and then the global financial crisis hit the island hard.

Those events combined with poor planning and inefficiency within the Cuban system left the country without enough cash to pay its bills and few places to turn for help.

Cuba is under a strict U.S. trade embargo and excluded from most international lending organizations that could help in a pinch, while many creditors have tired of its repeated rescheduling of debt.


Many debts to governments and business were restructured or went unpaid, foreign company bank accounts frozen, dividends owed joint venture partners postponed and imports drastically reduced beginning in 2009.

Western diplomats and businessmen said Cuba was gradually unblocking the funds, but at the same time still dragging its feet on foreign debt payments and dividends owed its foreign partners operating in the country.

Cuba last reported its foreign debt at $17.8 billion in 2007. Most analysts agree it is now well over $20 billion -- or close to 50 percent of the gross domestic product and some 25 percent more than annual export revenues.

Castro has pounded away at the need for Cuba to get its economic house in order and pay its bills since taking over from his brother Fidel Castro in 2008.

The country's growing debt service payments are a key reason for Castro's push to overhaul Cuba's Soviet-Style economy, according to government insiders.

The reforms, to be discussed at a Communist Party congress in April, include drastic budget cuts and layoffs and ending most state subsidies.

They would also grant state-run companies more autonomy and give an opening to small private businesses and foreign investment, cooperatives and other "non-state" forms of running enterprises.

"Work with the maximum rigor to increase the country's credibility in international economic relations through strictly fulfilling contracted obligations," a discussion document for the congress states, while emphasizing the need to increase exports and cut imports.

Castro has reportedly established a blue-ribbon commission to figure out Cuba's foreign debt troubles.

"Short, medium and long term debt should be reprogrammed as quickly as possible," and this time around "new payment schedules met," the congress document states.

For that, more than one diplomat said, the country should start by returning to the negotiating table with the Paris Club of creditor nations. Negotiations broken off in 2001. (Editing by Jeff Franks and Mohammad Zargham)

Cuba creditors hopeful as storm season nears end

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