Why Is Russia Writing Off Billions Of Cuba's Debt?
It's more about secret oil reserves than Cold War nostalgia.
HAVANA - No one was expecting groundbreaking developments from Dmitry Medvedev’s less-than-24-hour visit to Havana last week.
But on the evening of Feb. 21, Medvedev quietly joined Raul Castro and other representatives of the Cuban government at the Palace of the Revolution to sign a major debt-restructuring agreement. Medvedev also met with Fidel Castro, who remains at the center of Cuban politics.
The debt-restructuring plan relates to outstanding bills incurred by Cuba during the time of the Soviet Union, which Russia at least theoretically has the rights to collect on. There is no official sum given for the amount of debt involved: Russia says that the total debt amount owed by Cuba is more than $30 billion, but during negotiations between Russia and Cuba related to the debt in 2008, both sides generally were discussing between $20 billion and $22 billion. The official amount of foreign debt that Cuba has recognized – but not serviced since 1987 – is $11 billion.
Cuba holds the largest Soviet-era debts, and countries with smaller debts, such as Afghanistan and Iraq, have already restructured their debts with Russia.
But Cuba’s unrecognized debts to Russia have hindered Cuba’s international trade for several years. It has impeded Cuban efforts to restructure its debt with other countries and given it credit problems, worsening the effects of the U.S. trade embargo on Cuba.
The change in status for the lion’s share of Cuba’s international debt – if it is not accompanied by a stricter sanctions from the U.S. – will allow Cuba to re-enter the international lending market, although in a somewhat limited capacity. That gives economic liberalization a chance at spreading throughout Cuba.
The terms of the debt restructuring are still unknown, and both sides seem intent on keeping it a secret. But in other cases where Russia has agreed to restructure Soviet-era debt, the deal has involved writing off between 90% and 95% of the debt. So it is unlikely that Cuba will end up owing more than $3 billion.
There are several theories circulating among experts, however. One is that “opening” the relationship with Cuba is a type of insurance against changes in Venezuela. Another theory is that the interest in working with Cuba could be related to attempts to find oil off the Cuban coast.
Since 2008 there have been discussions about the possibility of a large offshore oil deposit near the northern coast of Cuba. Venezuelan company PdVSA, the Malaysian Petronas, Russian Zarubezhneft and the Spanish Repsol have explored the area and decided, in 2012, that there was no commercially usable oil. But in December Zarubezhneft started a second round of explorations in a deeper area. The second round of tests will wrap up in June, but the results could theoretically be available already.
If Zarubezhneft does find oil, it is entitled to sign an agreement with the Cuban state-owned oil company, Siret, to share exploitation of the deposits from now until 2034. Zarubezhneft did not comment on the issue. Local sources said there was no news on the second round of explorations. Regardless, Russia’s rush to complete the debt-restructuring process by Sept. 2013 could be related to the possibility of major oil reserves in Cuban coastal waters.
Regardless of the oil situation, Russia is trying to restore active trade with Cuba. The Federal Customs Service has already signed agreements with Cuba on information sharing and preferential tariffs. Cuba has also signed several contracts to purchase Russian airplanes. Hardly a return to the Cold War bustle between the two countries, but it was time to get back to business.