LatinFinance - July/August 2016 - 25

'Not your everyday debtor'
While Latin American debt renegotiations
often shared similarities in the domestic
nationalist sentiments they invoke and the
risks they pose, Olivares-Caminal acknowledges the Cuban case has its own particularities, and that the Caribbean island, the last
one-party communist state in the Western

GUSTAVO ARNAVAT, FORMERLY IDB

"THE DEALS THEY ARE
CUTTING WITH
EUROPEANS AND
OTHERS ARE A
FURTHER HEDGE
AGAINST HAVING TO
RUSH INTO ANY DEALS
WITH THE US,
ESPECIALLY WHILE
THE US EMBARGO
CONTINUES IN PLACE"

Hemisphere, "should not be rationalized as
your everyday debtor".
Non-US foreign investors who have
tried their luck in the Cuban market since
Havana allowed a limited economic opening after the collapse of the Soviet Union in
1991 have discovered that politics, or more
specifically the Cuban priority of political
control, often trumps economic logic in
Cuba.
Many investors, tied with Cuban state
partners who control the workforce,
market access, and decision-making, have
complained about difficulties and delays in
getting paid. This was particularly notorious at the height of the 2008-2009 global
financial crisis, when Cuba for a time froze
payments and the accounts of foreign
investors, before eventually renegotiating

Source: Reuters

Questions over IFI membership
Debt experts say that if Cuba, whose revolutionary government left the International
Monetary Fund (IMF) in 1964, joins a major
international financial institution once
again it would help give a seal of approval
that could trigger more capital flows to the
island.
"These organizations provide muchneeded funding, on significantly better
financial terms than Cuba could obtain in
the capital markets, as well as technical
advice and expertise that will enable Cuba
to restructure its economy," says Arnavat.
The country is not expected to look to
the IMF and World Bank any time soon,
given the long-held ideological hostility of
Cuba's leaders to these institutions, and the
conditionalities that membership would
imply.
"The question is whether Cuba is willing
to subject itself to the conditions imposed
by these financial organizations, especially
those in which the US is a member and, as a
result, affected by the Helms-Burton legislation [part of the US embargo on Cuba]," says
Arnavat.
"The IDB presents a further complication, which is that its charter could be
interpreted to mean that Cuba must be an
active and participating member of the Organization of American States to qualify for
membership, something that the Cubans
have made clear to date they are unwilling
to do," he adds.
Arnavat and Olivares-Caminal believe it
is more likely Cuba could eventually sign up
to the Caracas-based CAF Latin American
development bank, which is owned by
Latin American and Caribbean countries.
"Because the US is not a member, and
there is no OAS membership requirement,
the CAF presents fewer restrictions," Arnavat says.
The Havana Consulting Group's Morales
believes Cuba needs support from the
multilateral lenders to be able to tackle the
huge infrastructure investments it requires
to modernize its economy and cope with
the tourism surge underway. "They have no
alternative," he says.

US-CUBA THAW: Cuba is improving its trade ties to the West while it works to normalize relations
with the US

payment schedules.
Olivares-Caminal is realistic, but believes
the recent developments, especially the
ongoing US-Cuba thaw and the shifting
international dynamics, create a favorable
environment for obtaining a settlement
with Cuba.
"I definitely think there is a window of
opportunity," he says.
He envisages a formal resolution could
be achieved in the next 12-18 months.
Moody's Reusche is more cautious, saying
the private creditors could face a "long
haul".
"If there is a will to do it, it can be done,"
Olivares-Caminal says. "Once you open the
floodgates, Cuba will be inundated with
money". LF
July/August 2016 - L ATINFINA NCE.COM 25
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