VOXXI: Russia gives Cuba debt bailout

Russia Gives Cuba Debt Bailout
W. Alejandro Sanchez
VOXXI
December 13, 2013
Originally published: http://voxxi.com/2013/12/13/russia-gives-cuba-debt-bailout/

In a major development in Cuban foreign affairs (more meaningful than the recent feature story of a handshake between President Obama and President Castro), the Russian Federation has forgiven 90% of Cuba’s debt with Moscow. The agreement, which was announced this past Tuesday, December 10, means that the debt has been reduced from $32 billion to $3.2 billion.

Moscow-Havana Relation

Throughout the Cold War, the Cuban regime (then under the rule of the iconic Fidel Castro) was the Soviet Union’s closest ally in the Western Hemisphere, which translated into Moscow providing significant amounts of economic and military assistance to the Castro Regime.

Nevertheless, the dissolution of the USSR and its economic meltdown meant that Havana could no longer support the Cuban economy. Unsurprisingly, the Cuban economy collapsed and a harsh period of austerity followed. The 1990s are known in Cuba as the “lost decade.”

In recent years, Cuba’s economy has slowly improved while the Castro brothers, particularly Raul, have made timid attempts at liberalizing the economy, allowing for the growth of a middle class and the private ownership of businesses.

In 2007, this author published a comprehensive analysis in the academic journal Cuban Affairs, in which Cuban-Russian relations were discussed in the post-Cold War era. In the article, I argued that Russia’s relations with Cuba in modern times resembled a capitalist relationship more than an ideological one.

In other words, Russia will gladly provide Cuba with whatever goods and services it needs, so long as Havana has the finances to pay for them. The era of major financial assistance based on grounds of a common political ideology between the two countries is over.

Russian President Vladimir Putin spelled out as much in his July 2012 meeting with President Castro in Moscow.

Putin stated that “our relations have gone through various periods […] Today, they are becoming more pragmatic [...]” The lack of a common ideology notwithstanding, friendliness between the two governments does exist. Moreover, Russia wants to capitalize in the near future off the still Moscow-friendly (and Washington-indifferent) government in Havana.

This is perhaps best exemplified by the diplomatic meetings that Russian officials routinely make to the Caribbean island; take, for example, Putin’s visit to Cuba in 2001. This trip was memorable because the Russian leader closed Russia’s radar base in Lourdes, which had been a beacon of USSR espionage operations on the U.S. during the Cold War.

More recently, Prime Minister Dmitry Medvedev visited the island this past February, in which the debt deal was discussed.

Additionally, two Russian warships, the “Moskva” and the “Vice Admiral Kulakov,” docked in Havana’s port this past August as part of a mission to improve bilateral security ties.

As for trade initiatives, the Russian news agencyRussia Today praised bilateral ties, stating “Cuba remains a strong ally of Russia, with trade between the two countries at about $200 million last year.”

In other words, while Cuban-Russian relations over the past decade can at most be described as “modest,” as no major initiatives have been orchestrated (apart from the debt deal), Havana has not been fully forgotten by Moscow.

Future Expectations

The question now becomes: how should the Russian-Cuban agreement be interpreted? Cuba now has a decade to pay off the remaining three billion. Under the new debt deal, Cuba will have to pay $320 million annually for the next decade.

This amount is still quite significant for the Cuban economy. The country’s 2012 GDP was estimated at around $121 billion (according to the CIA Factbook), so this new debt is much more manageable.

To be fair, it should be noted that Cuba still owes billions in foreign debt to other nations and the Cuban government is trying to improve its international financial credibility by re-structuring its debt.

If Raul Castro does leave the Cuban presidency in 2018, thanks to these deals, he will leave the next generation of Cuban leaders a country in a better economic situation.

The Russian legislative will now have to vote on the deal, probably early in 2014. Given that President Putin seems to approve it, there is no reason to believe that Putin’s Duma will not follow suit.

With that said, it is necessary to wonder if this deal has additional elements that have not been made public. Offshore oil exploration is the first thing that comes to mind.

For years, several companies, including Russia’s Zarubezhneft, have been searching for oil in Cuba’s waters, but nothing has been found so far. It is widely regarded that if major quantities of oil are found, this could be a game changer for the Cuban economy and will make the company in charge of extraction very rich.

Russia’s pardoning of most of Cuba’s debt could be a sign of greater things to come and a more lasting Russian influence in the Caribbean state, apart from dollars and cents in debt.