A Wikileak Worth Reading Very Carefully

Thursday, December 9, 2010
This cable is a must-read for three reasons:

1. Most of Cuba's trading partners believe that the Castro regime's so-called "reforms" are bogus.

2. Some believe that the regime could become insolvent by 2011 -- all believe in 2-3 years max.

3. Even China concurs.

Here are some excerpts:

SUBJECT: KEY TRADING PARTNERS SEE NO BIG ECONOMIC REFORMS IN 2010, AGREE CUBA'S FATE HINGES ON VENEZUELA

1. (C) SUMMARY: There is little prospect of economic reform in 2010 despite an economic crisis that is expected to get even worse for Cuba in the next few years, according to key commercial specialists, economic officers and Cuba-watchers in Havana. Promised structural reforms remain on hold while the Cuban government wrings its hands in indecision, fearful of the political consequences of these long-overdue changes. The one potentially significant reform implemented in 2009, the leasing of idle land, has not been effective. The Cuban government (GOC) could be forced to speed up reforms in the event of a significant reduction of assistance from an increasingly unstable Venezuela. Otherwise, the GOC will continue to prioritize military-led control and aim for a slow, measured pace of reform focused on agriculture and import substitution. The Cuban people have grown accustomed to tough times and will respond to future government belt tightening with similar endurance. END SUMMARY.

2. (SBU) Pol/Econ Counselor hosted a breakfast with commercial and economic counselors from six of Cuba's seven largest trading partners, including China, Spain, Canada,(the U.S.), Brazil and Italy, plus key creditors France and Japan. These countries also represent most of the foreign companies investing in Cuba, with the notable exception of Venezuelan state-owned enterprises.

DIPLOMATS ARE MOSTLY PESSIMISTIC
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3. (C) The global financial crisis and the inability to service foreign debt will make the dire situation in Cuba even worse in 2010, according to EU diplomats. Brazil was a bit more optimistic noting that Cuba can still withstand more economic hardship. All diplomats agreed that Cuba could survive this year without substantial policy changes, but the financial situation could become fatal within 2-3 years. Italy said GOC contacts had suggested Cuba would become insolvent as early as 2011.

STILL DEFAULTING ON TRADE PARTNERS
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5. (C) Payment problems continue for all countries. Despite once again restructuring all of its official debt in 2009, Japan has yet to see any payments. Even China admitted to having problems getting paid on time and complained about Cuban requests to extend credit terms from one to four years. When France and Canada responded with "welcome to the club", China suggested Canada help secure payment from a Cuban joint venture that includes Canadian firm Sherritt International which is now reportedly receiving its share of profits.

AN UNWELCOMING ENVIRONMENT FOR FOREIGN INVESTORS
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6. (C) Foreign investors have been treated poorly in Cuba and new investors will demand additional protections and guarantees, according to the French. The Chinese complained that the GOC's insistence on keeping majority control of all joint ventures makes no sense. "No matter whether a foreign business invests $10 million or $100 million, the GOC's investment will always add up to 51%," China's commercial counselor said in visible exasperation. He noted a joint venture to produce high-yield rice that produced a good first harvest but was not sustainable at the GOC-mandated prices. Brazilian investors are taking a longer term view on returns, however, noting some success in raising capital for the refurbishment of the port at Mariel.

MAJOR REFORMS ON HOLD
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7. (C) Despite the grave analysis, none of our contacts foresee meaningful economic reform in 2010. Immediate reform is neither necessary nor politically advisable since it has the potential of being too politically "destabilizing," said the Brazilian. Even reforms openly supported in the official press late last year (Ref A), such as the ending of the food ration system, are now on hold due to the initial negative public reaction. Any discussions around Chinese-style reforms, particularly regarding foreign investment, have been difficult and "a real headache" according to the Chinese. The French said the GOC will not act until its face is up against the wall and it runs out of options, which is not yet the case in spite of all the challenges. One cited example of the GOC's hesitancy is that all proposals for micro-credit programs coveted by the Ministry of Foreign Investment require the Council of State's approval. To date, only one small project by the Spanish has been approved with little success.

AS VENEZUELA GOES
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8. (C) The Spanish see future reforms determined by two factors: 1) foreign pressure that is outside of the regime's control; and 2) domestic pressure developed after a consensus is reached through internal discussions. All our colleagues agreed that Venezuela is the most important and "increasingly complicated" foreign variable. Without Venezuelan support, the GOC would have to enact significant reforms similar to those that enabled the regime to survive through the Special Period of the early 1990s (Ref B), according to the Spanish. The view from the French is that Venezuela "es en flames" and a source of serious concern for Cuba.