Despite restructuring some of these loans within the past 5 years, the time for Cuba to repay their debt is nigh, as a creditors group has begun to start the legal process to recover the debt.
The billions of dollars of loans were given to Cuba during the 70s and 80s by countries such as Mexico, Canada, Australia, France, Italy, Japan, and the former Soviet Union. Most of these loans went unpaid for nearly four decades, and some needed to be restructured or forgiven in order for the debts to fade, which only happened in the past 5 or so years. In November of 2013, Mexico wrote down about 70 percent of the nearly half a billion dollars owed by Cuba. In this same year, Russia simply forgave 90 percent of the nearly $32 billion that was lent to Cuba as financial support during the Cold War.
The creditors group is called the London Club. It is an informal group of international creditors who seek to resolve debts worldwide between creditor countries and debtors, usually developing countries.
Julian Adams, head of the ad hoc London Club Committee of investors who own defaulted Cuban debt, said that the creditors prefer a negotiated settlement rather than legal action. However, signalling the seriousness of their intent, the London Club has retained American attorney Lee Buchheit of the Clearly Gottlieb law firm, who had to obtain a special license from the US Treasury due to the ongoing US embargo against Cuba. Buchheit is a high-powered attorney who is known for international debt restructuring, such as the relatively recent restructuring in Greece.
The committee has put an offer on the table for Cuba early this year in an effort to resolve the decades-old issue, which ultimately continues to prevent Cuba’s re-emergence into international capital markets. At a time when Cuba is trying to power up its economy and infrastructure, the call to pay its debts could be a thorn in its side. But in the long term, going green will be more beneficial for Cuba, since it will be able to attract more large-scale foreign investment.
With the construction of the Mariel Special Economic Development Zone, it seems like Cuba’s goal is to attract that large-scale investment, although not everyone thinks so. Some analysts question whether or not Cuba wants foreign investment given the level of investment that occurred during the Obama presidency. During the Obama detente, hundreds of international companies went to Cuba looking for opportunities, but not many were achieved. Of the few that did, most were tourism deals that brought foreign cash trickling into Cuba’s struggling state-run economy.
Whatever the case, even US companies continue to try to invest in Cuba, as many see it as an untapped market waiting to be explored.