The Obama administration-elect, is talking up the possibility of cozying up to the Cuban government, and dropping sanctions:
WASHINGTON (Reuters) – Five decades after Fidel Castro toppled a U.S.-backed dictator to take power in Cuba, the Cold War rivalry with Washington could be thawing as President-elect Barack Obama looks to ease sanctions against the communist-run island.
Obama has made clear he favors relaxing restrictions on family travel and cash remittances by Cuban Americans to Cuba, which this week marks the 50th anniversary of Castro’s revolution.
Obama could also reverse other steps taken by outgoing President George W. Bush to tighten sanctions on Cuba, such as the prepayment of food imports from the United States, and he is expected to restore migration talks broken off by Bush.
If prepayment of food stops being a requirement, that means that goods will be sold to Cuba on credit.
The administration-elect is not the only one pushing for this easement of sanctions…
In a letter to Obama this month, a coalition of business, agriculture and trade groups called USA*Engage said it was time for a new Cuba policy and proposed lifting all sanctions and allowing American tourists to travel to Cuba.
The coalition –which includes the American Farm Bureau Federation, the Grocery Manufacturers Association and the National Retail Federation — called for an immediate exemption for the sale of farm machinery and heavy equipment to Cuba.
“We support the complete removal of all trade and travel restrictions on Cuba,” it said. “The United States could engage in bilateral discussions with the Cuban government.”
It further proposed that Obama license direct banking services with Cuba, a major obstacle of the embargo that pushes up the cost of doing business with Cuba.
What’s the hullabaloo about anyway?
Is there really an American economic “blockade” of Cuba?
What is it that these Federations, Associations, and business coalitions want anyway?
Why are they so eager to sell their goods and services to a bankrupt nation?
Dunn and Bradstreet rate Cuba as one of the riskiest economies in the world: only Angola, Congo, Sierra Leone, Zimbabwe and Iraq are worse.
There are widespread reports of payment problems with Japan, Spain, France, Britain, South Africa, Argentina, Chile, Mexico, Venezuela and others. Citing chronic delinquencies and mounting short-term debts, Moody’s lowered Cuba’s credit rating to Caa1 – “speculative grade, very poor” – in late 2002. For example, Cuba defaulted in October 2002 on a $750 million refinancing agreement with Japan’s private sector after having signed a debt restructuring accord with Tokyo in 1998. Japan, Cuba’s single-largest creditor, had expected to see the first payments in 2003 on part of the $1.7 billion owed to Japan by the Castro regime.
– Cuba suspended all payments in October 2002 on $380 million owed to Bancomext, the Mexican Government’s export financing bank.
– Cuba’s petroleum debt with Venezuela’s State Oil Company, PDVSA, rose to $266 million by May 2003. The Castro regime has fallen behind on payments to PDVSA repeatedly since Fidel Castro and Hugo Chavez signed a trade agreement in October 2002. PDVSA supplies approximately 35% of the island’s oil under generous financing terms that amount to a 25% price subsidy over 5 years.
– In 2002, Cuba fell into arrears on $100 million in short-term credit lines from Panamanian banks and trading companies based in the isthmus’s Colon Free Zone.
– In May 2003, Madrid acknowledged in response to a Spanish parliament inquiry that Cuba is Spain’s top foreign debtor government, presently in default on an estimated $816 million.
– France’s export financing agency, COFACE, suspended Cuba’s $175 million credit line after Havana fell more than a year behind on annual loans for the purchase of French agricultural products and capital goods in 2001.
– The Italian Government withdrew a proposed $40 million aid package in early July 2003 in response to Castro’s crackdown on internal dissent. The Cuban Government had already accumulated a short-term debt of $73 million with Italy.
FOREIGN DEBT SNAPSHOT
(All amounts are converted to U.S. dollars.)
EUROPE: $10.9 billion. Paris Club creditors (Source: Banco Central de Cuba.) In 1986, Cuba suspended payments of the debt. Despite on-going negotiations, Cuba has yet to service its debt to the Club since issuing a moratorium in 1987.
Eastern Europe: $2.2 billion.
Russia: Estimated at roughly $20 billion.
Canada: $73 million (Excludes short and medium-term commercial debts to Canadian suppliers.)
Japan: $1.7 billion (Japan is Cuba’s principal creditor, excluding the former Soviet Union.)
China: $400 million.
Argentina: $1.58 billion. (Cuba’s second largest creditor behind Japan.)
Mexico: $380 million.
Chile: $20 million.
Venezuela: $266 million. (Mostly in unpaid petroleum purchases, even under highly favorable terms.)
South Africa: $85 million
A few things can be determined from the information above, the most immediately visible one being that Cuba hasn’t stuck the US with one single dollar worth of bad debt in the fifty years that the supposed “blockade” has been in place. The second noticeable fact being that there is no “blockade” in the true sense of the word, but rather a refusal by the US to do extend credit to the Cuban government.
In that sense, the “blockade” has been a resounding success.
Yet the question of why so many US businesses are lobbying in favor of changing this enormously successful policy, so that they can risk not getting paid for their sales to the Cuban government remains unanswered.
Enter the U.S. Export-Import Bank:
The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States federal government. It was established in 1934 by an executive order, and made an independent agency in the Executive branch by Congress in 1945, for the purposes of financing and insuring foreign purchases of United States goods for customers unable or unwilling to accept credit risk. The mission of the Bank is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers. The Bank is chartered as a government corporation by the Congress of the United States; it was last chartered for a five year term in 2006. Its Charter spells out the Bank’s authorities and limitations. Among them is the principle that Ex-Im Bank does not compete with private sector lenders, but rather provides financing for transactions that would otherwise not take place because commercial lenders are either unable or unwilling to accept the political or commercial risks inherent in the deal.
To further clarify the role of the Ex-Im Bank, please examine the text below:
Export Credit Insurance from Export-Import Bank of the United States provides insurance policies to U.S. companies and banks to mitigate risks of non-collection from foreign buyers and borrowers. Risks covered include default due to commercial reasons, such as buyer insolvency and cash-flow problems, as well as political risks such as war, civil unrest and currency flow restrictions.
Export Credit Insurance policies can be issued to companies directly exporting, or to banks lending to foreign buyers.
So, in lifting the trade sanctions, US companies get to move their products into Cuba, a known non-payer of her foreign debt, and collect payment from the US taxpayers via the Ex-Im Bank’s Export Credit Insurance program!
In lifting trade sanctions against Cuba, the Administration-elect expands their “spread the wealth” policy to an international level, by giving Cuba access to a credit line guaranteed by the American taxpayer.
The water just got a little warmer folks.