Monday, December 21, 2009

Cuba Cash Crunch Eases as Communist Isle Pays Mexico Exporte

Cuba Cash Crunch Eases as Communist Isle Pays Mexico Exporters
By Jens Erik Gould

Dec. 21 (Bloomberg) -- Cuba resumed payments to Mexican exporters after
holding back on foreign currency transfers for months, signaling that a
cash crunch in the communist island's $49 billion economy may be easing.

President Raul Castro's government stopped paying some construction and
electronics companies for imports this year after $10 billion in
hurricane damage and the global recession stunted growth, Rogelio
Granguillhome, head of economic relations at Mexico's Foreign Ministry,
said in an interview. Cuba restarted transfers to Mexican exporters last
month after halting payments about eight months ago, he said.

The resumption of payments may mean that a liquidity crisis has touched
bottom, said Jonathan Benjamin-Alvarado, a Latin American studies
professor at the University of Nebraska-Omaha. The cash crunch led the
government to cut local budgets and urge Cubans to reduce their energy use.

"They may have turned a corner," Benjamin-Alvarado, who travels to Cuba
and has written about the country's energy needs, said in a phone
interview. "This means they probably have sufficient cash flow to meet
their debt obligations."

The Cuban government has expressed its willingness to honor the
country's obligations, said a Cuban official who declined to be
identified because he's not authorized to speak about the subject.
Cuba's Foreign Ministry did not a return phone call or e-mail sent by
Bloomberg News.

Trade Embargo

Cuba's economy may shrink 1 percent this year and grow 2.1 percent in
2010, down from a previous estimate of 3.5 percent, as the need to meet
overdue payments to foreign exporters limits government stimulus
efforts, the Economist Intelligence Unit said in a Dec. 10 report. The
economy will expand 4.1 percent in 2011, the EIU forecast.

A revival in the island's economy would represent another turnaround for
Castro and his brother, Fidel, who have ruled the country since taking
power in a 1959 revolution. The two have survived a U.S. trade embargo
put in place by President John F. Kennedy, the breakup of the Soviet
Union and the biggest global slowdown since the Great Depression. Raul
formally succeeded his brother as president last year.

Cuba's economy and the government's cash flow were strained during the
past two years by lower prices for exports such as nickel and damage
from three hurricanes in 2008. The island nation has the world's
fourth-biggest reserves of nickel, a metal used in rechargeable
batteries and steel, according to the U.S. Geological Survey.

Former Economy Minister Jose Luis Rodriguez said in an undated speech
posted on the ministry's Web site that 2008 was "without a doubt, one of
the most difficult" since the U.S. trade embargo against the island
began almost fifty years ago. Rodriguez was ousted in a Cabinet shake-up
in March.

Slower Growth

The government in July reduced its forecast for economic growth this
year for the second time to 1.7 percent. Officials had originally
predicted growth of 6 percent.

The resumption of payments "gives us an idea that the issue is being
resolved and that it will be definitively resolved in the coming
months," Granguillhome said Dec. 15 in Mexico City, without specifying
the amount of delayed payments or the companies affected by the change.

Mexico's efforts to seek payments for its exporters is part of President
Felipe Calderon's plan to boost trade with Cuba and to improve relations
that were strained under former Mexican President Vicente Fox,
Granguillhome said. Foreign Minister Patricia Espinosa visited Havana
earlier this month and said Calderon may meet Raul Castro in Cuba next year.

Rising Exports

Latin America's second-biggest economy exported $310 million to Cuba in
2008, up from $190 million in 2007, and was the island's 11th largest
trade partner, according to Mexico's foreign ministry and Cuba's
National Statistics Office.

"The most important thing is to strengthen economic relations," said
Granguillhome, who was part of the delegation to Havana. "This is part
of a broader policy to strengthen political dialogue between the two

Still, recent payments to Mexican companies may not mean that the
country is settling debts across the board, said Daniel Erikson, a Latin
America analyst at the Inter-American Dialogue in Washington. Instead,
the island may only be paying companies from select countries with which
it wants to improve diplomatic relations, he said.

"I think you need more data points before you can call this a trend,"
Erikson said.

To contact the reporter on this story: Jens Erik Gould in Mexico City at
Last Updated: December 21, 2009 13:49 EST

Cuba Cash Crunch Eases as Communist Isle Pays Mexico Exporters - (21 December 2009)

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