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Cuba’s Feeble International Liquidity

Cuba’s international liquidity at the end of 2014 remained precarious as shown by statistics from the Bank for International Settlements.  The 45% alleged cutback since September 2014 of oil shipments from Venezuela estimated by Barclays Bank would add considerable pressure to the balance of payments, but this action is unconfirmed by independent sources and officials in Cuba or Venezuela.[1]  Such a large cut would be surprising in view of the solid political links between the Castro and Maduro regimes. What is more likely is a modest reduction in oil shipments or a renegotiation of terms with some impact on Cuba’s external accounts and liquidity.  Meanwhile the new measures announced by President Obama on December 2014 relaxing some restrictions on the flow of remittances and visits by US citizens are likely leading to a modest raise in foreign exchange revenues though data is not yet available to gauge the possible impact so far in 2015.  Previous estimates by the author indicate an increase of about $400 million in gross revenues during the first year after the new measures are put into effect.[2]

A positive element for Cuba is increased trade finance from China as suggested by a 7.0% annual average rise of imports from that country in the five years to 2013.[3]  China’s exports to the island reached $1.4 billion in 2013 (fob) according to official Chinese statistics, a yearly rise of 17%.[4]  An increase of 10% to 15% is estimated for 2014.  As data from China’s banks is not included in BIS statistics the above possibly underestimate Cuba’s available net international liquidity by 5% to 10%.

Chart 1


  Source: Bank for International Settlements, Quarterly Reports.

Chart 1 shows Cuba’s 2008-2014 net assets in banks that report to the BIS.  Net assets at the end of 2014 were $1330 million.[5]  BIS data is a proxy for Cuba’s net international reserves which are not published by the central bank.  Even considering liquid assets deposited in China and in Venezuela which do not report to the BIS, net liquidity may reach around $1.5 billion.  Gross BIS assets were $2.5 billion at end 2014.  Nonetheless even in this case gross liquidity would be equivalent to two months of yearly merchandise imports and net liquidity barely one month.

The consequence of this strained liquidity in the last two years is the difficulty to purchase imports of essential consumer, intermediate and capital goods needed to satisfy the demands of the population as well as an inability to service some of Cuba’s long-standing debt obligations.  Official and bank credit from China, Brazil and Russia modestly ease the constraint. There is not yet official Cuban trade data for 2014 and it would be interesting to see the extent to which imports from those three countries and a few others in Latin America and Asia make up for difficulties in financing imports from North America and Europe.

Chart 2


Sources: Statistics Canada; Außenhandel, Statistiches Bundesamt; Bureau of the Census, US Department of Commerce and Oficina Nacional de Estadisticas.

Data from the US, Canada and Germany, representing a solid sample of trade with advanced market economies, show a contraction of imports in 2014.  Some of this can  be attributed to deviation of trade towards sources with better terms of payment.  Decline in farm prices is also a factor in the case of the US.  But the 36% fall in US exports to Cuba during 2012-2014 reflects difficult liquidity conditions.  A similar argument can be made for the 19% contraction of German exports to the island in 2014.  It is worth noting that US data for the first two months of 2015 show a reduction of 49.9% of shipments to Cuba in comparison with the similar 2014 period.  One would expect that this should begin to turn around with improved banking relationships and a broader range of US products allowed to be shipped to Cuba.  Nonetheless until Cuba’s external accounts show decisive improvement driven by hard currency tourism, merchandise exports and direct investments tight constrains on imports will remain.

[1]Antonio Maria Delgado, “Venezuela slashes oil shipments to Cuba, Caribbean in half”, Miami Herald, March 26, 2015.

[2] Luis R. Luis, “Economic Impact of the New Cuba Measures”, ASCEBLOG, December 24, 2014.

[3] Oficina Nacional de Estadisticas de Cuba.

[4] National Bureau of Statistics of China, Statistical Database.  Cuban official data (cif) shows an increase of 24.0%.

[5] BIS data comprises international bank data from 44 countries and offshore locations including all OECD member states plus Hong Kong, Cayman Islands and other offshore centers but exclude China, Russia and most of Latin America except Brazil, Chile and Mexico.

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