Thursday, October 19, 2017

The Affair of the Sonic Weapons Attack: Collateral Effects and Costs on Cuban Efforts to Rejoin the International Financial Community

(Pix © Larry Catá Backer 2017 Vatican Museum Episodes of the Passion Tournai 14th cent)

If the Affair of the Sonic Weapons Attack  has a defining element, it is the way in which it may substantially affect Cuba's efforts to rejoin the global economic and finance communities it turned its back on in the early 1960s. That will be a costly bill to pay for the Cuban inability to maintain sufficient control within its Republic to quickly investigate and find culpable parties in the Sonic Weapons Attack Affair. Marc Frank, in current reporting ("Cash-strapped Cuba makes debt payment to major western creditors: diplomats") notes the strains that are already evident in Cuba's efforts to retain some semblance of stability in its financial relations with the Paris Club.  And then there are the Vulture Funds waiting in the wings and holding billions in unpaid sovereign debt. 

At this point it might make good sense for the Cubans to discover the culprit (and from th emost cynical perspective any plausible culprit will do) in order to assuage the Americans and reduce the pressure on Cuban economic foreign policy objectives. But it is unlikely that the Cuban state will contemplate that action. First there is the matter of honor.  Then there is the calculus that nothing will appease the Americans (not implausible) and that the Americans may overplay their hand in this instance. Moreover the Cuban state apparatus is fractured among those who view this as an opportunity to derail engagement with the Americans and those who view that engagement as useful to economic policy. In any case, the debt burden will quickly prove unbearable for an Island Republic in desperate need of hard currency and struggling with natural and demographic disasters. For the Cuban Communist Party it is the moment of truth--can it keep to its ancient (and now to some extent reactionary) Stalinist orthodoxy, or must it make a choice between American (or Latin American) conventional governance (with its dangers for a small Latin American state), or might it finally consider the path opened by the evolution of Marxist Leninist state organization provide by China?  Were I in Cuba now I might urge its leaders to start carefully reading the documents produced in the 19th Chinese Communist Party Congress.  In this new era, those states that prefer fidelity to Marxist Leninist normative objectives and Leninist state organization would do well to consider the need to change with the times. 

In the meantime, the burdens of the Paris Club agreement int he face of mounting pressure to continue to borrow to maintain political stability moves Cuba closer to desperate times.  And the Americans, of course, may well use the opportunity to continue to promote regime change.  That cocktail can only make matters worse for the Cuban people.  IN the meantime, it is the cascading effects of the Sonic Weapons Attack Affair  that is complicating the calculus of officials in Havana.  And that complication is much more perilous for the Cubans than for the Americans.  The U.S: is used to episodic periods of intense focus on Cuba and then long periods of neglect--Cuba is a marginal element in the American calculus of power, unless it irritates domestic politics or threatens geopolitical strategies. But the Cubans understand this, and since the disappearance of their last patron in the late 1980s, they have deliberately sought to leverage the American weak spot precisely by irritating the Americans in ways that might prove useful to Cuban internal economic needs and external political strategies.  It is unclear if the rules of the game are changing.  The Sonic Weapons Attack Affair will clarify that in time. And the answer may lie with the Paris Club, rather than with Havana, or the Russians, or the Chinese. And it is Cuba's sovereign debt rather than its ideological journey that may well play a much larger role in charting  its future.

These interlinked issues become more potent as the U.S. uses it social media power to broaden its attack on the Cuban tourist sector:  Josh Lederman, "US tourist fears he was hit in Cuba, years before diplomats," The Washington Post 19 Oct. 2017 ("With no answers about the weapon, culprit or motive, the U.S. and Cuba have been unable to prevent the attacks from becoming a runaway crisis. As the United States warns its citizens to stay away from Cuba, there are signs that spring breakers, adventure-seekers and retirees already are reconsidering trips to the island. After years of cautious progress, U.S.-Cuban relations are now at risk of collapsing entirely.").

Marc Frank's reporting follows.

Marc Frank
19 October 2017

HAVANA (Reuters) - Cuba paid the second installment on a renegotiated $2.6 billion in debt to 14 wealthy creditor nations this week, diplomats from a number of the countries said, as some creditors prepare to swap debt for an equity stake in local development projects.

The diplomats, who spoke on condition of anonymity, said the payment showed the importance Cuba attaches to an agreement it reached in 2015 with the Paris Club group of major creditor nations.

An economic crisis in ally Venezuela, a drop in export earnings and damage from Hurricane Irma have all taken a recent toll on the Communist-run island, which is short on cash and has no access to most multilateral lending institutions.

The Paris Club agreement forgave $8.5 billion of $11.1 billion in official debt Cuba had defaulted on through 1986, plus charges. Repayment of the remaining debt was back-loaded through 2033, with around $40 million paid last year and nearly $60 million due by Oct. 31.

The accord was seen as a breakthrough, with Cuba agreeing for the first time to give rich capitalist countries equity in development projects, in areas like manufacturing and agriculture, in exchange for a portion of their debt holdings.

It was also seen as a step toward Cuba rejoining the international financial community, as the Obama administration moved to re-establish U.S. diplomatic and some commercial ties with the island.

The Paris Club deal also came as the European Union agreed to drop sanctions on development assistance to Cuba.

European diplomats have said they will keep trying to increase their countries’ presence on the island, despite rising tensions with the United States under President Donald Trump.

“If Trump wants to hold back U.S. companies from Cuba it simply gives us more time to establish ourselves here,” one European ambassador said in a recent interview.


Australia, Austria, Belgium, Canada, Denmark, Finland, France, Great Britain, Italy, Japan, the Netherlands, Spain, Sweden and Switzerland have all renegotiated their old debt with Cuba bilaterally since 2015, and in some cases current debt.

Many of the restructuring agreements include the establishment of so-called countervalue funds, under which a percentage of debt is discounted in exchange for the potential profits stemming from participation by a creditor country’s firms in local joint development projects.

The countervalue funds have an estimated combined value of around $750 million of the $2.6 billion owed. Japan, Spain, France and Italy - Cuba’s largest Paris Club creditors - are furthest along in negotiating swaps.

For example, a $46 million French project to develop cattle ranching and dairy products in central Camaguey province is ready to sign, according to France’s ambassador to Cuba, Jean-Marie Bruno.

“The project will benefit 105 cattle cooperatives with 11,000 members and their families, two industries and various service companies,” he said.

The agreement involves the French Development Bank and other public agencies and will include a number of French firms. Cuba will invest $6 million, discounting the sum from debt still owed to France.

Spain, meanwhile, has a project ready to manufacture cardboard and another aluminum structures for construction capable of resisting earthquakes and hurricanes, both involving Spanish companies, according to a source with knowledge of the negotiations.

Cuba does not publish up-to-date information on its foreign debt, citing a need to keep sensitive economic information from Washington, which it has long accused of trying to disrupt its financial and trade relations under a comprehensive U.S. sanctions regime.

But it has been late with some recent payments to foreign suppliers and joint venture partners, according to diplomats, even as it accumulates new debt.

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