• By Marc Frank

REUTERS

10:47 a.m. August 27, 2008

HAVANA – Cuban creditors and suppliers said this week they were worried the import-dependent nation faced a new cash crunch after it notified at least two foreign governments that it could not meet debt payments.

Western diplomats, speaking on condition of anonymity for themselves and the countries involved, said the governments were notified that official debts needed to be renegotiated and Cuba did not have the funds to fully meet August payments to them or their companies.

Communist-run Cuba started restructuring many of its official and commercial debts five years ago and since then its payments performance had markedly improved. President Raul Castro, who took over from his ailing brother Fidel Castro earlier this year, has however warned that high food and fuel costs mean Cubans may need to tighten their belts.

“This is really bad news,” said a western businessman with years of experience in Cuba.

“Everyone is nervous,” he added. “But obviously Cuba is in far better condition than the last payments crisis in 2002.”

Cuba's foreign exchange earnings have more than doubled to around $10 billion since earlier in the decade, due mainly to the sale of medical and other services to oil-rich ally Venezuela, nickel prices and revenues from pharmaceutical projects abroad.

Nippon Export and Investment Insurance (NEXI) stopped accepting new applications for trade insurance for business with Cuba as of Aug. 5 after Cuba failed to pay exporters and notified Japan that high fuel and food prices meant Havana needed to restructure its official debt.

Cuba was hit hard by soaring prices for food and fuel, its main imports, during the first six months of this year and by a sharp decline in the price of its main export, nickel.

The international credit crunch and U.S. pressure on banks not to deal with Cuba may also be causing problems, diplomats said.

Cuba last reported its foreign debt as just over $15 billion in 2006, of which $7.794 billion was active and being serviced and $7.592 billion was debt it defaulted on before 1991.

Cuba does not include debt to the former Soviet Union in its figures.

SIGNS OF TROUBLE

President Castro warned in a series of speeches in July that Cuba was not immune to the “international economic crisis,” and said plans to increase Cuban salaries likely would be slowed and a strong economic recovery might weaken.

Vice President Carlos Lage announced in June that “some of the main investment projects have been reduced and further reductions will be necessary,” providing no further details.

Lage said the country spent $1.47 billion last year to import 3.423 million tons of food. The same amount of food this year at current prices will cost $2.554 billion, a billion dollars more, he said.

“The 158,000 barrels of oil per day that we consumed last year cost $8.7 million per day and this year costs 32 percent more, or $11.6 million per day,” he added.

Canadian oil firm Pebercan Inc., which produces oil in Cuba, said in late June it had not received debt payments totaling $37 million in April and May from state-owned Cuba Petroleos due to “the difficult economic situation” and rising food and raw material costs.

Cuban sources reported the government was ordering state companies and government offices to restrict fuel consumption and take other belt tightening measures.

It was impossible to determine the extent of the financial problems as Cuba's reserves are a state secret and no debt figures were available for 2007.

It was also unclear if Cuba had approached its major allies and short and medium term creditors, China and Venezuela, or European banks and suppliers who provide trade credits.

Cuba is not a member of the International Monetary Fund or any other multilateral lending organization. The country has a Moody's rating of Caa1, or speculative and poor.

The most recent debt figures were contained in the National Statistics Office's 2006 statistical abstract: www.one.cu/aec2006/anuariopdf2006/ca...

(Editing by Jeff Franks and Michael Christie)