Soviet rubles, Cuba’s debt, the Paris Club and simple math

Marc Frank, writing for Reuters, reports today that the Paris Club is looking to re-open negotiations with Cuba regarding its foreign debt, and mentions Cuba’s outstanding debt to Russia of 20 billion Soviet rubles as a stumbling block.

In 2001, when the Economist wrote about Cuba’s Soviet ruble debt, it pegged the value of that 20 billion debt at $690 million USD, while pointing out that in 1991, 20 billion rubles equaled $11.8 billion.  If you check the Russian ruble -> USD conversion rate today, you’ll find that a 20 billion Russian ruble debt is currently worth $662 million.  What will it be worth next year?  What was it worth in 1997?

According to this GWU hosted website, a TV set cost 1,200,000 rubles in Russia in 1997.  Simple math tells us that if this is true, in 1997, Cuba’s entire 20 billion Soviet ruble debt could have been satisfied with some 16,666 TV sets.  But then in 1998, with three zeros knocked off the new rubles, a new TV set cost only 1,200 rubles.  So Cuba, if it had paid in TV sets in 1998, would have needed to supply 16,666,666 of them to get free.

My point, and I imagine the point of Cuba’s central bankers is this: how and when do you decide what a vanished currency is really worth?  It’s not meant as a diversionary negotiating tactic – it’s a real question.  Some stories, including the previously mentioned Economist article suggest that “Cuban officials…say the country they borrowed from no longer exists, and that any debt should be offset against damage to the island’s economy caused by Russia’s failure to honour Soviet export contracts to Cuba.”

Perhaps.  It seems like a valid point.  But I’m guessing the real obstacle is the Soviet ruble valuation.  Frank writes that fully two thirds of the debt the Paris Club wants to discuss is wrapped up in the Soviet ruble question, a debt “that Russia now claims but Cuba does not recognise.”  But who does recognize a Soviet ruble?  An Argentinean austral? A Confederate dollar?

This highlights another, more serious problem with Frank’s story.

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.

Note how we’ve now moved from 20 billion unquantifiable Soviet rubles, to $20 billion DOLLARS in a mere keystroke.  To my knowledge, no-one has ever suggested that the 20 billion Soviet rubles should be pegged 1:1 to the US dollar.

7 responses to “Soviet rubles, Cuba’s debt, the Paris Club and simple math

  1. Hi Machetera,

    I think part of the complexity here is that the Paris Club only deals with government to government debts, while the Economist figures likely include all debt, include that of private actors, that were denominated in roubles.

  2. One thing is clear to me from your post.

    That now Cuba, with its likely find of significant reserves of oil, has a big bulls eye painted on it for those capitalist nations and banks that are absolutely bankrupt since the Crash of 2008 and the coming collapse of the Eurozone.

    They want Cuba’s money, just like Qadaffi had 200 BILLION “seized” back in February.

  3. Cuba has a valid claim for breech of contract. It really should wipe out the debt. The Soviet Union no longer exists. That debt is thus a fiction.

  4. marc frank is a former member of the communist party usa who is now a tool. the ruble is as worthless now as is the russian government and is owed nothing.

  5. kalida jelnandes

    Cuba has a long history of not paying debts, that is why cuba is in a very hard and difficult political and economic situation…. the government has a long history of not honoring what it borrows, creditors stay away from the island and the government finds itself now isolated from the rest of the world politically and economically….. and this is only another version of the same tactic, not recognizing a country in order to avoid payments…. doesn’t it look like a child’s strategy to win a game??? we need in the island a serious government that is constantly scrutinized by the people they govern, not the group of crooks that have taken the island hostage for 50 years and do not want to leave power….

    • Ah, that silly child’s strategy of not recognizing the Soviet Union again. Because everybody knows the Soviet Union is still a real country, right?

  6. THE MOST IMPORTANT THING TO TAKE AWAY FROM THIS POST is that Cuba’s debt should be forgiven.

    That is paramount.

    However, if I owe Tina Tortuga one hundred dollars and she dies and leaves her estate to her daughter, there is no set of laws in the world that asserts that this debt is eliminated.

    It passes on to her successor in interest, her daughter.

    Similarly, when the Soviet Union was broken up and forked over to the Russian Mafia and the oligarchs, successor in interest provisions were included in the laws that governed the dissolution which generally recognized Russia as the primary successor in interest.

    THAT SAID, these debts should be forgiven.

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