Latin Finance - April 2008 - 32

Caribbean cuba investment outlook False Dawn for Cuba by Larry Luxner or years, US multinationals ranging from Burger King to Boeing have gazed longingly at Cuba, waiting for Fidel Castro to quit or die so they could flood the island with their products and services. Banks, eager to finance trade and major infrastructure projects, see Cuba as a virgin market waiting to be exploited. But with the one-time Maximum Leader now writing essays from his sickbed and younger brother Raúl running Cuba, it looks like the waiting game will go on. “The critical factor here is what process the Cuban government will use to open up the economy,” says Carlos Saladrigas, vicechairman of Miami-based Premier American Bank and founder of the Cuba Study Group. “Rumors are abundant that significant economic reforms are about to be undertaken,” said Saladrigas, who fled the island in 1961. Cuba analyst Phil Peters of the Lexington Institute says a key sector to watch is ethanol, because even though Fidel rallied Uphill struggle: Cuba is still far from an investor paradise against biofuels, Cuba’s official position favors the development of sugarcanebased ethanol. “Raúl says he wants more foreign investment, but video players to consumers immediately, with air-conditioners he hasn’t said whether that means they’ll try to market Cuba and other appliances to be made freely available over the next harder or change the rules,” Peters says. “They could push two years. An agreement with Mexico to restructure $400 ministries like agriculture and sugar that have been traditionally million in Cuban debt and reopen credit lines with Havana after closed to foreign investment to liberalize.” a six-year hiatus were also heartening. But Cuba bulls should not Observers hoping for a sign that Raúl would enact far-reaching get their hopes up. economic or political reforms were disheartened by the elevation “There will be modest changes in agriculture and some social of 77-year-old hardliner José Ramón Machado Ventura to Raúl’s restrictions,” says a Havana-based foreign banker, warning old job as first vice-president. against over-optimism. “We have neither seen nor do we expect Even so, interest in Cuba has picked up. “We’ve been getting a any substantial change over the next 12 months,” said the lot of calls from potential investors looking to buy some paper, banker, who asked not to be identified. “Generally, the but because it’s very tightly held, it’s been difficult to secure,” expectations that are circulating outside of this island are way, says Stuart Culverhouse, chief economist at London-based Exotix, way ahead of anything that’s happening on this island.” which specializes in illiquid and distressed EM bonds, loans and About a dozen foreign banks operate in Cuba, including BNP equity. Paribas, BBVA, Santander, Bancomext, ING, Netherlands “We’re still in the early stages of the transition. As a result, prices Caribbean Bank and the National Bank of Canada. There used to have not really moved that much over the last few weeks,” be more, but several European banks pulled out under pressure Culverhouse adds. “Maybe holders of the paper are looking to see if from the US government. LF the price will get bid up a little more before they’re willing to sell.” Cuba-watchers were encouraged by a March decree For more on Cuba see www.latinfinance.com authorizing the unrestricted sale of computers, DVD players and F Fidel’s exit spurred a knee-jerk upswing in Cuban asset prices. But more of the same is expected by bankers, at least for another year. 32 LATINFINANCE April 2008

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Latin Finance - April 2008

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