Progress made in Paris Club debt negotiations

Progress made in Paris Club debt negotiations
Event

Cuba and the Paris Club have agreed that the Cuban government owes some
US$15bn, stemming from its 1986 default. The figure includes principal,
interest and penalties.

Analysis

Cuba's agreement with the informal group of 19 creditor nations that
make up the Paris Club stopped short of an official plan to renegotiate
the debt. But merely settling on a figure marks another step forward in
the island's integration into the world economy following an
unprecedented warming of diplomatic relations with the US since December.

In recent years Cuba has negotiated deals with several countries to
reduce its debt while extending payment terms. A deal in 2013 settling a
US$25bn debt owed to the former Soviet Union helped to pave the way for
the agreement with the Paris Club. The Cuban government has also struck
a similar deal with Japanese and German creditors.

The two sides have yet to agree to the share of the debt that will be
written off, but the deal with the former Soviet Union (where the
majority was written off) suggests that Cuba will only repay a fraction
of the US$15bn figure agreed. However, one obstacle to a final agreement
will be the issue of data transparency. Cuba publishes no data on
international reserves, which it regards as a state secret, and hardly
any data on the balance of payments. The Paris Club is likely to request
access to this data, on the basis that it needs to be confident about
Cuba's repayment capacity before coming to a final agreement.

We currently estimate Cuba's external debt at US$25bn, of which we had
estimated total arrears (defined by the Cuban government as "immobilised
debt") at US$6.5bn. The agreement with the Paris Club will therefore
have the immediate impact of raising external debt; however, on the
assumption that both sides reach a restructuring agreement, external
debt will then fall sharply.

Impact on the forecast

Negotiations with the Paris Club are proceeding more quickly than we
anticipated, and we now believe that a final settlement will be reached
within the next 18 months (potentially this year, depending on how talks
proceed over the thorny issue of data transparency). This will remove a
major obstacle to Cuban access to international finance. We will be
revising our forecasts to factor in larger inflows of external finance
from 2017. In the long term, this is likely to result in firmer rates of
GDP growth.

Source: Progress made in Paris Club debt negotiations -
http://country.eiu.com/article.aspx?articleid=1253242309&Country=Cuba&topic=Economy&subtopic=Forecast&subsubtopic=External+sector&u=1&pid=1843233368&oid=1843233368&uid=1