CUBA: SPAIN TO RENEW AID, BUT SLOW TO INCREASE

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000977

SIPDIS

SIPDIS

DEPT FOR WHA/CCA

E.O. 12958: DECL: 10/05/2017
TAGS: ECON PGOV PINR PREL CU
SUBJECT: CUBA: SPAIN TO RENEW AID, BUT SLOW TO INCREASE
TRADE

Classified By: COM: Michael E. Parmly: For reasons 1.4 b/d


1. (C) SUMMARY: Spanish Assistant Secretary of State for
Cooperation Leire Pajin signed an agreement on September 29
to implement the renewal of development assistance to the
island. Separately, the Joint Spanish-Cuban Business
Committee ended with both countries discussing the
possibility of renegotiating Cuba's bilateral debt with
Spain. The meetings reveal some novel yet cautious aspects
of Spain's strategy toward Cuba: Proceed slowly with regard
to the debt and on extending new export credits, but proceed
full speed ahead with development assistance. End Summary.

Development Aid
--------------


2. (C) Spanish Assistant Secretary of State for Cooperation
Leire Pajin signed on September 29, during the 8th Meeting of
the Spanish-Cuban Bilateral Committee on Cooperation, an
agreement to implement the renewal of development assistance
to the island. Minister of Foreign Investment and Economic
Cooperation (MINVEC) Marta Lomas Morales signed the agreement
on behalf of the GOC. According to the agreement, MINVEC's
European Division "directs, controls, formulates and executes
Cuban policy on development cooperation." The Spanish Agency
for International Cooperation (AECI),comparable to USAID, is
responsible for administering the new assistance programs.
The agreement can be found on AECI's website: www.aeci.es.


3. (U) This type of government assistance had been
interrupted since the 2003 GOC crackdown on dissidents.
Nonetheless, according to AECI's website, approximately 44
million euros of official development aid were sent to Cuba
during the 2004-2006 period, not from the Spanish central
government but from Spanish autonomous regions and other
localities within the country.


4. (U) The agreement creates a joint working group and
establishes regional and social priorities for Spain's new
development projects on the island for the next four years.
Besides development aid for Cuba, both countries agreed to
study other joint initiatives that could be formed on a
regional basis by partnering with other Caribbean nations.
Some of the areas envisioned are: environment; forest and
agricultural development; management, prevention and
mitigation of natural disasters. Haiti is mentioned as one
of the first recipients envisioned for programs emanating
from this initiative.


5. (U) The geographic regions prioritized in the agreement
are the provinces of Oriente: Granma, Guantanamo, Holguin,
Las Tunas and Santiago de Cuba. Also included are principal
urban zones, mainly the cities of Havana and Santiago, as
well as particularly vulnerable rural areas.


6. (U) The priorities of assistance by type, along with a
brief summary, are:

-- Management of productive sectors and infrastructure:
Strengthen management capacity of public services in areas
such as tourism, transportation, and agriculture industry.
Reinforce administration at the local level in areas such as
urban planning, water and waste management.

-- Social development: Support policies aimed at achieving
food security and rural development. Develop activities that
support education, health, basic housing, and access to
potable water.

-- Promote economic and entrepreneurial network: Support
micro and small enterprises, in particular, aiming to
diversify agriculture production and the food industry.
Training and technical assistance of planning and management
of tourism at the local level.

-- Environment: In accordance with AECI's sustainable
development plan in Latin America, Araucaria XXI.
Specifically for Cuba, education about the environment and
climate change, and the proper use and management of

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protected areas and natural reserves.

-- Cultural and scientific cooperation: Scholarships and
exchange programs at the undergraduate level and above meant
to support higher education and scientific research. More
cultural collaboration projects and a Spanish expression of
their intent to reopen their Cultural Center in Havana.
Training of personnel to manage culture in support of
development aims (commercialization of cultural products,
restoration of historic buildings, etc.).

-- Gender and development: Gender issues are to be promoted
throughout all assistance programs, in particular, the
establishment of gender equality policies and mechanisms.

Bilateral Trade
--------------


7. (U) The 15th Meeting of the Joint Spanish-Cuban Business
Committee ended on 28 September. Spain is Cuba's third
largest trading partner, after Venezuela and China, with
bilateral trade totaling about 769 million euros. According
to Juan Arenas, who headed the Spanish side of the 15th
Committee Meeting, Spanish sales to Cuba increased 20% from
2006 and are projected to increase a further 15% this year,
going from 629 million euros last year to possibly more than
700 million by the end of this year. Despite the
difficulties encountered in the process of doing business
with Cuba, Spanish investors are hungry for more.
Nevertheless, they have been unable to convince the Spanish
and Cuban governments to negotiate one large obstacle in
their way, Cuba's debt to Spain.

Bilateral Debt
--------------


8. (C) According to press, Cuba's commercial debt to Spain
is approximately USD 1.4 billion. More than a billion
dollars of that is Soviet era debt, which is subject to the
Paris Club negotiation mechanism. However, somewhere between
USD 300-400 million is post Soviet-era debt that is bilateral
and therefore could be renegotiated. According to Spanish
Commercial Attache Jose Luis Lancho, the GOC had signaled
late last year its disposition to "revisit the debt issue"
with Spain. During the meetings last week, Lancho said both
sides reached a consensus on the exact figures of the debt.
This consensus is a necessary -- yet only preliminary -- step
before negotiations to restructure the debt can take place.
Lancho confirmed that those kinds of negotiations have not
taken place, but admitted that they could happen in the
not-so-distant future.


9. (C) Comment: Lancho assured Econoff that the two
overlapping meetings were unrelated. Nonetheless, they
reveal some novel yet cautious aspects of Spain's strategy
toward Cuba: Proceed slowly with regard to the debt and on
extending new export credits, but proceed full speed ahead
with development assistance. It seems the development
assistance, at least on paper, would complement GOC
development efforts in priority areas where it feels most
vulnerable. While the programs will surely benefit many poor
Cubans, they would also -- by appeasing the neediest and most
vulnerable part of the population -- allow the regime to
argue that it is delivering on the promises made by Raul
Castro in his July 26th speech. Some of the provisions in
the agreement, such as the possibility of microfinancing
schemes to support micro and small businesses, are
particularly interesting in the current climate of
speculation about impending economic reform. Microcredits,
however, could be used just as easily to finance a small
state enterprise as a private or semi-private one. The
Spanish are hoping to promote development of the latter, but
it remains to be seen whether the GOC shares the same vision.

PARMLY