Cuba offers payback plan for frozen bank accounts
Tue Mar 2, 2010 12:13pm EST
By Marc Frank
HAVANA, March 2 (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.
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.
"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.
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.
At one point, in February 2009, hundreds of suppliers, joint ventures
and other companies had an estimated $1 billion frozen in Cuba's banks.
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.
"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."
"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
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.
Cuban officials told the National Assembly in December the country's
economic crisis had stabilized, but government spending would be limited
in 2010. (Editing by Jeff Franks and Andrew Hay)
Cuba offers payback plan for frozen bank accounts | Reuters (2 March 2010)