HAVANA, 31 Oct. (Reuters) Wealthy nations grouped together in the Paris Club of creditors have waived Cuba’s annual payment for restructured debt but plan to impose a penalty on the island, according to five Western diplomats with knowledge of the situation. This year marks the first time Cuba has missed the entire payment due by Oct. 31 since the restructuring agreement was signed in 2015, though it fell short of full payment last year as well.
The accord, signed in tandem with the U.S. detente under former President Barack Obama, is seen as a historic effort by all parties to begin to bring Cuba back into the international financial system and has survived efforts by the administration of President Donald Trump to torpedo it.
Cuba had asked earlier this year for a two-year moratorium and the waiving of penalties for overdue payments due to the coronavirus pandemic.
The Caribbean nation’s tourism sector was closed most of the year, export earnings declined, and fierce new U.S. sanctions are making matters worse for an economy already notorious for inefficiencies and currently suffering shortages of food, medicine and other basic goods.
The United Nations forecasts growth will decline 8% this year after averaging a 1% increase since 2016.
“We are united in our belief that the agreement should be saved and think the Cubans agree. That is why we waived payment, but not the penalties,” one diplomat said. Like others, he requested anonymity as he was not authorized to discuss the matter publicly.
Paris Club negotiations with Cuba will cover unpaid maturities and penalties, as well as the scheme of future payments, the sources said.
A spokeswoman for the Paris Club said it did not comment on such matters. The Cuban government did not respond to a request for comment.
A number of the diplomats said they were encouraged by Cuba’s recent announcement that it would devalue the peso and take other measures aimed at increasing exports and cutting imports which they saw as crucial to regaining solvency.
“Creditors, from the Paris Club to Russia and China, will be very encouraged by devaluation and other measures,” said a Western banker who follows Cuba closely and also requested anonymity.
Another of the diplomats with knowledge of the Paris Club situation, said – in reference to the governments’ chief debt negotiator Recardo Cabrisas – “Mr. Cabrisas needs to come talk to us.”
Cabrisas was in Russia a few months ago where restructured Soviet-era debt, new debt and economic plans were discussed and where he said Cuba was having problems meeting those obligations as well.
The 2015 Paris Club agreement, seen by Reuters, forgave $8.5 billion of $11.1 billion, representing debt Cuba defaulted on in 1986, plus charges. Repayment of the remaining debt in annual instalments was backloaded through 2033 and some of that money was allocated to funds for investments in Cuba.
Under the agreement, interest was forgiven through 2020, and after that is just 1.5% of the total debt still due.
The agreement states if Cuba does not meet an annual payment schedule in full within three months of the Oct. 31 deadline, it will be charged 9% late interest for that portion in arrears.
Cuba owed an estimated $85 million this year.
Cuba last reported foreign debt of $18.2 billion in 2016, and experts believe it has risen significantly since then. The country is not a member of the International Monetary Fund or the World Bank.
“Faced with the pandemic, almost all governments are taking their debt levels to record highs, and Cuba is no exception,” said Pavel Vidal, a former Cuban central bank economist who teaches at Colombia’s Universidad Javeriana Cali.
“The fiscal deficit has grown and so have the trade imbalances. Although there is no data to know the magnitudes.”
The Cuba group of the 19-member Paris Club comprises Australia, Austria, Belgium, Canada, Denmark, Finland, France, Britain, Italy, Japan, the Netherlands, Spain, Sweden and Switzerland.