Cuba's wealthiest creditors have decided to test President Raul Castro's pledge to improve the island's financial credibility by inviting his government to talks with the Paris Club about settling billions of dollars of outstanding debt, according to Western diplomats.
A letter recently sent to the Cuban central bank asked if the Communist-run country would like to explore the resumption of negotiations broken off a decade ago, the sources said.
Cuba was discussed for the first time in many years at the Club's meeting on October 9 and 10, and it was decided to see if they were interested in talking, a European diplomat said.
They have not formally replied, but have expressed some interest through the central bank, he added.
The Paris Club reported that Cuba owed its members $30.5 billion (19.0 billion pounds) at the close of 2010, but more than $20 billion of the debt was in old transferable Soviet rubles that Russia now claims but Cuba does not recognise.
According to its annual report, the Paris Club is an informal group of creditor governments composed of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, the United Kingdom and the United States.
Unlike the International Monetary Fund and World Bank, from which Cuba is excluded under to the longstanding U.S. trade embargo, the Paris Club does not issue multilateral loans.
Castro, who replaced his ailing brother Fidel as president in 2008, has drastically reined in imports, cut state payrolls and subsidies while insisting the government get its financial house in order.
Last week, Cuba's government gave Cubans the right to buy and sell their homes for the first time since the early days of the 1959 revolution -- a long-awaited reform that creates a real estate market and promises to put money in people's pockets.
The Communist Party and government this year approved a five-year economic plan that calls for efforts to enhance Cuba's credibility in its international economic relations by strictly observing all the commitments that have been entered into.
The plan also said the rescheduling of Cuba's foreign debts must be expedited and that flexible restructuring strategies for debt repayment must be put in place as soon as is practical.
The Bank for International Settlements reported banks in 43 countries held $5.76 billion in Cuban deposits as of March of this year, compared with $4.285 billion at the close of 2009 and $2.849 billion at the close of 2008.
Cuba last reported its foreign debt in 2007 at $17.8 billion, but most analysts agree it now exceeds $21 billion, or close to 50 percent of gross domestic product and 30 percent more than annual foreign exchange revenues.
The central bank reported more than half the debt was classified as inactive, dating back to when the country defaulted in the late 1980s, while the remainder was active debt piled up after the demise of the Soviet Union, Cuba's former benefactor.
In recent years, China has become the country's largest creditor with local experts estimating the amount owed at around $5 billion.
Cuba over the last year restructured its debt with China and has been pursuing similar bilateral agreements with various other creditors, diplomats said.
Talks can only be a good thing, said Stuart Culverhouse, chief economist of Frontier Market Investment Banking at the London-based Exotix. Although Cuba has pursued bilateral deals, there have been no substantive negotiations with the Paris Club for ten years. So it would signal some progress.
But I'd be cautious in concluding that it means some sort of rapprochement on the debt is imminent, he added.
Western diplomats appeared divided between those who expressed cautious optimism that something would come out of the initiative and those who were skeptical it would go anywhere.
Talks between the Paris Club and Cuba were indefinitely put on hold in 2001 after nearly two years of discussions. During the talks, the United States agreed not to participate.
The negotiations had marked Cuba's first sitdown with creditors to negotiate multilaterally since the late 1980s when it defaulted.
Along with restructuring terms, Cuba's 20-billion convertible ruble debt to the former Soviet Union was considered another major obstacle to any multilateral accord.
Though Cuba and Russia have since agreed to put the old debt aside and work to rebuild their economic relations, it remains on the books.
We proposed an accord similar to those with other middle-level developing countries, but the Cubans wanted something special and unheard of. We were miles apart, a European diplomat, who had followed the negotiations closely, said at the time.