By Paolo Spadoni | Special to the Orlando Sentinel
During the past year, the Bush administration has exerted pressures and imposed fines on several foreign banks doing business with Cuba.
Specifically designed to prevent Havana from depositing U.S. dollars abroad to fulfill its trade obligations, U.S. enforcement actions are part of a broader attempt to further disrupt Cuba’s limited access to international financing and hasten the demise of Fidel Castro’s decades-long rule over the island.
Bush’s recent offensive against Cuba’s financial partners is not surprising. While U.S. economic sanctions have certainly created a more uncertain and riskier business environment, resulting in international lenders providing credits to the island at interest rates as high as 20 percent or more, the presence of foreign banks in Cuba has actually increased in the past few years.
According to the Bank for International Settlements (BIS), claims of foreign banks on Cuba, which refer to financial assets such as loans, debt securities and equities, rose more than 30 percent between 2000 and 2003. By September 2003, these claims totaled $1.97 billion, with European banks accounting for about 85 percent of all international credit to Cuba. French banks were the most important lenders to the island ($587 million, or about one-third of the total), followed by entities from Holland, Spain, Germany, and Italy.
Last May, the U.S. Federal Reserve imposed a fine of $100 million on USB, Switzerland’s largest bank, for allegedly making transactions in American dollars with Cuba in violation of U.S. sanctions. Additional fines were levied against the Italian group Banca Commerciale Italiana and the Spanish bank Santander for illegally transferring funds to the island. As the United States stepped up pressures on banking institutions to curtail their relations with the Castro government, one would expect a substantial reduction in the flow of international credit to Cuba.
However, the BIS latest report for the third quarter of 2004 highlights quite an interesting scenario that should raise some concerns among U.S. policymakers. By September 2004, claims of international banks on Cuba were $1.87 billion, only about 5 percent lower than in 2003. Likely as a result of the fine levied on the USB bank, credit flows from Swiss entities drastically fell from $69 million to virtually nothing in just a year. Financial institutions from France, Holland and Spain reduced their presence on the island as well, but the resulting drop in foreign credit was offset, to a great extent, by increasing loans from other countries. European banks still accounted for almost 83 percent of all international claims, mainly thanks to new credit lines provided by financial entities from Germany, Austria and Belgium. A notable growth of Japanese and Canadian banks’ activities also helped Cuba to secure additional financing.
Admittedly, it may still be too early to assess the full impact of U.S. policy on Cuba’s ability to obtain external financing for its main economic activities. Nevertheless, the latest banking statistics suggest that such an impact might have been minimal. And if we consider that the Castro government has recently strengthened financial and commercial cooperation with enterprises from Brazil, Kuwait, China, Venezuela and Iran, then we can safely argue that the overall exposure of foreign banks in Cuba has been virtually unaffected by U.S. pressures.
In 2003, Brazil’s National Development Bank (BNDES) pledged about $100 million on trade credits to boost Cuba’s imports of telecommunications and transportation equipment. The Kuwait Foundation for Economic Development also granted a $10 million credit for the modernization and rehabilitation of the aqueduct of Santiago de Cuba. In late 2004, Cuba signed major financial and investment agreements with China and Venezuela in areas including biotechnology, mining, oil, energy, telecommunications, agriculture, education and tourism. Finally, the Iran Development Bank has just granted Cuba a 20 million euros credit ($26 million) for manufacturing, water and energy projects.
What the aforementioned developments demonstrate is quite clear. Washington’s unilateral actions against foreign banks dealing with Cuba have little chance of working as long as other countries are willing to supply Havana’s authorities with desperately needed financial resources.
The reality is that foreign banks appear to be almost anywhere U.S. entities are absent, including Cuba. And the irony of all this, for the United States, is that the more Fidel Castro owes millions of dollars to foreign lenders, the less their governments will be eager to stimulate a political change that could jeopardize their economic interests in the communist island.
Paolo Spadoni is a Ph.D. candidate in the Department of Political Science at the University of Florida. He wrote this commentary for the Orlando Sentinel.