China restructures Cuban debt, backs reform

* Cuba debt to China could be as high as $4 billion

* China has become Cuba creditor of last resort

* China has ‘suggested’ that Cuba modernize economy

By Marc Frank

HAVANA, Dec 23 (BestGrowthStock) – China restructured billions in
Cuba debt over the last six months and agreed to provide new
credit in a clear show of support for President Raul Castro’s
efforts to reform the economy, Asian diplomats said this week.

The two Communist-run countries signed an agreement over
the summer restructuring the government debt, and last weekend
restructured the commercial debt, with principal in both cases
not coming due until after 2015 and on easy terms, the
diplomats said, without providing further details.

The figures have not been made public, but Cuba’s official
and commercial debt to China could be as high as $4 billion,
according to government insiders.

As part of this month’s accord, China will continue to
provide trade cover and both parties agreed to use an already
existing development credit to modernize the port of Santiago
de Cuba, 800 miles (1287 km) east of Havana, the diplomats
said.

Chinese authorities and companies have reportedly expressed
“concern” about Havana’s investment inefficiencies, late
payments and repeated requests to reschedule debt.

Chinese companies are often hesitant to do business with
Cuba without government guarantees, while officials have
repeatedly “suggested” Cuba modernize and offered their
assistance, the diplomats said.

Trade between the two countries was $1.5 billion in 2009,
down significantly from $2.2 billion the previous year.

But China reported trade through September of this year was
$1.4 billion, an increase of 26.2 percent over the same period
in 2009.

Cuba last reported its foreign debt at $17.8 billion in
2007. Most analysts agree it now exceeds $21 billion, or close
to 50 per cent of gross domestic product and 30 per cent more
than annual foreign exchange revenues.

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

CREDITOR OF LAST RESORT

Many creditors have tired of Cuba’s rescheduling of debt
that began in the 1980s and has continued periodically.

China, which has provided billions in loans in recent years
has emerged as Cuba’s top creditor and second trading partner
after Venezuela, is a relatively new member of that club.

Cuba has been undergoing a solvency crisis since late 2008
when hurricane damage, the international financial crisis and
its inefficient state-dominated economy forced it to cut
imports by 37 percent, freeze foreign currency (Read more about trading foreign currency. bank accounts
and default on debt payments to many creditors.

Cuba, which is the subject of a strict U.S. embargo and is
excluded from most international lending organizations, has
come to depend on China as a creditor of last resort.

Castro recently unveiled a sweeping plan to “modernize” the
Cuban economy over the next five years, which includes granting
state-run companies greater autonomy, decentralizing decision
making and revenue flows, opening up to more foreign investment
and allowing market forces to operate in some sectors.

More space is opening up for small farms and businesses,
cooperatives and other “non-state” enterprises that will
eventually employ 33 percent of the labor force, including more
than a million state employees scheduled to lose their jobs
through 2015.

Currently around 500,000 people, or 10 percent of the labor
force, are in the non-state sector, mainly small farmers.

While planning and state-owned property will still
predominate, gratuities and subsidies, with the exception of
free health care, education, social security and low cost
sports and culture will be reduced or eliminated in favor of
targeted welfare.

A Cuban Communist Party congress, scheduled for April, will
discuss and likely ratify the policies that are already
starting to be implemented.

(Editing by Jeff Franks and Jackie Frank)

China restructures Cuban debt, backs reform