See my comments in bold
By Marc Frank | Reuters
Cuba is offering foreign businesses 2 percent annual interest over five years as part of a plan to repay hundreds of millions of dollars in bank accounts frozen by the cash-strapped government, diplomatic and business sources said this week.
The government is hoping the interest payments will encourage companies to keep doing business with import-dependent Cuba while the country gradually unblocks the frozen accounts. The aim is to do this without depleting communist-led Cuba’s financial reserves. Cuba loves to renegotiate financial arrangements
The offer from the state-run banks consists of monthly payments over five years at 2 percent interest, with the proviso that payments can be missed without penalty when money is not available. “payments can be missed without penalty when money is not available.” Need I say more?
“Some people are taking the deal. At least the funds go from a nonperforming asset at no interest to a performing certificate of deposit,” one western commercial officer said.
“The alternative seems to be nothing. It’s an offer you can’t refuse,” he told Reuters. Right. 1. They probably have no choice. 2. At least it’s a promise to pay… a lame promise to pay.
Cuban banks first informed depositors in November 2008 that they had no foreign exchange to back up the convertible peso, or CUC, in which many were doing business.
At the time many traders sold their wares in exchange for CUCs, which banks honored at an exchange rate of $1.08 per unit, handing over cash or transferring funds out of the country.
But the banks told them that devastation from three 2008 hurricanes, wild price swings for imports and the country’s main export, nickel, and the international financial crisis so depleted Cuba of cash that “temporary” holds had to be placed on their accounts. But the real reasons are…? So now the hurricane damage has been repaired, nickel prices are up again and the international financial crisis is over?
At one point, in February 2009, hundreds of suppliers, joint ventures and other companies had an estimated $1 billion frozen in Cuba’s banks. SUCKERS!
In August 2009, the government released part of the blocked money so companies would continue selling to the country.
Suppliers since then have sought payments either offshore or with letters of credit stamped “CL,” instructing banks to clear the funds.
Upon receiving Cuba’s payment plan offer, some companies have asked for some of the blocked funds up front, and others for a higher interest rate, sources said.
But attempts to bargain over the offer are met with a shrug, a “we will get back to you” and an explanation that it is not up to the banks, said the sources, all of whom wished to remain anonymous for fear of retaliation by the government. That is just funny… and of course sad.
“The message is that the suppliers have had a good business with high margins over the years, and might have them again if they stick it out,” a European commercial attache said.
The government has provided no information about the number and amounts of the frozen accounts, but President Raul Castro said in a December speech, “The amount of blocked funds has been reduced by more than a third.” I’d love to see the accounting books to prove that statement.
“We ratify our firm willingness to honor to the last penny our debts, in relation to the possibilities of the economy,” he told the Cuban National Assembly. Is he lying to himself, to the suppliers, the Cuban people, the world or all of the above?
The offer does not extend to joint venture partners and foreign companies administering hotels and banks. They also have had money difficulties with the Cuban government, but are said to be working out their own arrangements to recover funds. Don’t worry suppliers, you are not the only ones getting screwed in Cuba.
Cuban officials told the National Assembly in December the country’s economic crisis had stabilized, but government spending would be limited in 2010. Limited? I think government spending in Cuba has been “limited” since January 1, 1959.