Machetera

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

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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.

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