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    Paris Club invites Cuba to resume debt talks

    Paris Club invites Cuba to resume debt talks
    ReutersBy Marc Frank | Reuters – Mon, Nov 7, 2011

    HAVANA (Reuters) - Cuba's wealthiest creditors have decided to test
    President Raul Castro's pledge to improve the island's financial
    credibility by inviting his government to talks with the Paris Club
    about settling billions of dollars of outstanding debt, according to
    Western diplomats.

    A letter recently sent to the Cuban central bank asked if the
    Communist-run country would like to explore the resumption of
    negotiations broken off a decade ago, the sources said.

    "Cuba was discussed for the first time in many years at the Club's
    meeting on October 9 and 10, and it was decided to see if they were
    interested in talking," a European diplomat said.

    "They have not formally replied, but have expressed some interest
    through the central bank," he added.

    The Paris Club reported that Cuba owed its members $30.5 billion (19.0
    billion pounds) at the close of 2010, but more than $20 billion of the
    debt was in old transferable Soviet rubles that Russia now claims but
    Cuba does not recognise.

    According to its annual report, the Paris Club is an informal group of
    creditor governments composed of Australia, Austria, Belgium, Canada,
    Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
    Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, the
    United Kingdom and the United States.

    Unlike the International Monetary Fund and World Bank, from which Cuba
    is excluded under to the longstanding U.S. trade embargo, the Paris Club
    does not issue multilateral loans.

    Castro, who replaced his ailing brother Fidel as president in 2008, has
    drastically reined in imports, cut state payrolls and subsidies while
    insisting the government get its financial house in order.

    Last week, Cuba's government gave Cubans the right to buy and sell their
    homes for the first time since the early days of the 1959 revolution --
    a long-awaited reform that creates a real estate market and promises to
    put money in people's pockets.

    The Communist Party and government this year approved a five-year
    economic plan that calls for efforts to "enhance Cuba's credibility in
    its international economic relations by strictly observing all the
    commitments that have been entered into."

    The plan also said the rescheduling of Cuba's foreign debts must be
    expedited and that "flexible restructuring strategies for debt
    repayment" must be put in place as soon as is practical.


    The Bank for International Settlements reported banks in 43 countries
    held $5.76 billion in Cuban deposits as of March of this year, compared
    with $4.285 billion at the close of 2009 and $2.849 billion at the close
    of 2008.

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

    The central bank reported more than half the debt was classified as
    inactive, dating back to when the country defaulted in the late 1980s,
    while the remainder was active debt piled up after the demise of the
    Soviet Union, Cuba's former benefactor.

    In recent years, China has become the country's largest creditor with
    local experts estimating the amount owed at around $5 billion.

    Cuba over the last year restructured its debt with China and has been
    pursuing similar bilateral agreements with various other creditors,
    diplomats said.

    "Talks can only be a good thing," said Stuart Culverhouse, chief
    economist of Frontier Market Investment Banking at the London-based
    Exotix. "Although Cuba has pursued bilateral deals, there have been no
    substantive negotiations with the Paris Club for ten years. So it would
    signal some progress."

    "But I'd be cautious in concluding that it means some sort of
    rapprochement on the debt is imminent," he added.

    Western diplomats appeared divided between those who expressed cautious
    optimism that something would come out of the initiative and those who
    were skeptical it would go anywhere.

    Talks between the Paris Club and Cuba were indefinitely put on hold in
    2001 after nearly two years of discussions. During the talks, the United
    States agreed not to participate.

    The negotiations had marked Cuba's first sitdown with creditors to
    negotiate multilaterally since the late 1980s when it defaulted.

    Along with restructuring terms, Cuba's 20-billion convertible ruble debt
    to the former Soviet Union was considered another major obstacle to any
    multilateral accord.

    Though Cuba and Russia have since agreed to put the old debt aside and
    work to rebuild their economic relations, it remains on the books.

    "We proposed an accord similar to those with other middle-level
    developing countries, but the Cubans wanted something special and
    unheard of. We were miles apart," a European diplomat, who had followed
    the negotiations closely, said at the time.