The convertible peso, or 'chavito,' notes, one of two official currencies in Cuba, are shown in this arranged photograph taken in Havana, Cuba in Jan. 2013. The other type of currency cannot be converted to other global currencies and is worth much less. Andrey Rudakov/Bloomberg/Getty
Russia and Cuba have quietly signed an agreement to write off 90 percent of Cuba's $32 billion debt to the defunct Soviet Union, a deal that ends a 20-year dispute and opens the way for more investment and trade, Russian and European diplomats told Reuters news agency.
The nations announced an agreement to settle the debt squabble earlier this year and finalized the deal in Moscow in October. It would have Cuba pay $3.2 billion over 10 years in exchange for Russia forgiving the rest of the $32 billion debt, the diplomats said.
It must still be approved by the Duma, Russia's lower house of parliament.
Negotiations on the form in which Cuba will pay the remaining debt continue, the diplomats said, as even $320 million per year represents a large sum for the cash-strapped country, which has labored under a U.S. economic embargo for decades.
Cuba's total export earnings are around $18 billion, a figure that includes tourism, medical and educational services.
Neither Cuba nor Russia has made any official comment on the debt agreement. Cuban officials were not immediately available for comment.
Cuba defaulted on its debt in the late 1980s but recently has been trying to restructure the old debts to improve its international credibility.
Other lenders react
Russian Prime Minister Dmitry Medvedev, during a visit to Cuba in February, signed a general agreement to work out a formula and settle the old debt by next year. The decision rankled other countries grouped in the Paris Club of creditor nations because it broke ranks with the collective approach of the organization.
The Paris Club is an informal group of creditor governments including Canada, France, Germany, Japan Russia, the United Kingdom and the United States as well as a number of smaller European nations.
The Paris Club reported that Cuba owed its members $35 billion at the close of 2012, now estimated at around $37 billion, which would leave the island owing $5 billion to $6 billion of non-Soviet debt to the club's members.
The organization has a Cuba working group, which does not include the U.S.
Russia pledged to work with Cuba towards reaching an agreement with the Paris Club as part of the October settlement, one Russian diplomat said.
"The Paris Club should be grateful as it removes a huge amount of money from the table and makes an eventual agreement more likely," he said.
While some Paris Club members clearly preferred a united front, one European diplomat said Russia's help in settling Paris Club debt could prove important and that a reduced debt would indeed be more easily negotiable.
Since the Medvedev visit, the Paris Club has put out feelers to the Cubans and a few months ago two representatives traveled to the Caribbean island to meet with the central bank, the first such visit in over a decade.
Unlike the International Monetary Fund and World Bank, from which Cuba is excluded under the longstanding U.S. trade embargo, the Paris Club does not issue multilateral loans.
The agreement with Russia is a part of a recent trend of Cuba restructuring its outstanding debt obligations.
Three years ago Cuba restructured its active government and commercial debt with China, estimated at around $6 billion. Last year Cuba settled a dispute with Japanese commercial creditors dating back to the 1980s worth about $1.4 billion.
Mexico also recently forgave 70 percent of the $478 million debt Cuba accumulated in the late 1990s.
Raul Castro, who replaced his ailing brother Fidel as president in 2008, has drastically reined in imports and cut state payrolls and subsidies while insisting the near-bankrupt government get its financial house in order.
In 2011, the Communist Party approved a five-year economic plan that called for efforts to "enhance Cuba's credibility in its international economic relations by strictly observing all the commitments that have been entered into," before and after the default.
The plan also called for expediting the rescheduling of Cuba's foreign debts and implementing "flexible restructuring strategies for debt repayment" as soon as it is practical.