* Cuba debt to China could be as high as $4 billion
* China has become Cuba creditor of last resort
* China has ‘suggested’ that Cuba modernize economy
HAVANA, Dec 23 (Reuters) - China restructured billions in Cuba debt over the last six months and agreed to provide new credit in a clear show of support for President Raul Castro’s efforts to reform the economy, Asian diplomats said this week.
The two Communist-run countries signed an agreement over the summer restructuring the government debt, and last weekend restructured the commercial debt, with principal in both cases not coming due until after 2015 and on easy terms, the diplomats said, without providing further details.
The figures have not been made public, but Cuba’s official and commercial debt to China could be as high as $4 billion, according to government insiders.
As part of this month’s accord, China will continue to provide trade cover and both parties agreed to use an already existing development credit to modernize the port of Santiago de Cuba, 800 miles (1287 km) east of Havana, the diplomats said.
Chinese authorities and companies have reportedly expressed “concern” about Havana’s investment inefficiencies, late payments and repeated requests to reschedule debt.
Chinese companies are often hesitant to do business with Cuba without government guarantees, while officials have repeatedly “suggested” Cuba modernize and offered their assistance, the diplomats said.
Trade between the two countries was $1.5 billion in 2009, down significantly from $2.2 billion the previous year.
But China reported trade through September of this year was $1.4 billion, an increase of 26.2 percent over the same period in 2009.
Cuba last reported its foreign debt at $17.8 billion in 2007. Most analysts agree it now exceeds $21 billion, or close to 50 per cent of gross domestic product and 30 per cent more than annual foreign exchange revenues.
Castro has reportedly established a blue-ribbon commission to figure out Cuba’s foreign debt troubles.
CREDITOR OF LAST RESORT
Many creditors have tired of Cuba’s rescheduling of debt that began in the 1980s and has continued periodically.
China, which has provided billions in loans in recent years has emerged as Cuba’s top creditor and second trading partner after Venezuela, is a relatively new member of that club.
Cuba has been undergoing a solvency crisis since late 2008 when hurricane damage, the international financial crisis and its inefficient state-dominated economy forced it to cut imports by 37 percent, freeze foreign currency bank accounts and default on debt payments to many creditors.
Cuba, which is the subject of a strict U.S. embargo and is excluded from most international lending organizations, has come to depend on China as a creditor of last resort.
Castro recently unveiled a sweeping plan to “modernize” the Cuban economy over the next five years, which includes granting state-run companies greater autonomy, decentralizing decision making and revenue flows, opening up to more foreign investment and allowing market forces to operate in some sectors.
More space is opening up for small farms and businesses, cooperatives and other “non-state” enterprises that will eventually employ 33 percent of the labor force, including more than a million state employees scheduled to lose their jobs through 2015.
Currently around 500,000 people, or 10 percent of the labor force, are in the non-state sector, mainly small farmers.
While planning and state-owned property will still predominate, gratuities and subsidies, with the exception of free health care, education, social security and low cost sports and culture will be reduced or eliminated in favor of targeted welfare.
A Cuban Communist Party congress, scheduled for April, will discuss and likely ratify the policies that are already starting to be implemented.
Editing by Jeff Franks and Jackie Frank
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