Brazil Freezes Export Insurance to Cuba due to Default

Brazil made million-dollar investments through BNDES to modernize the port of Mariel and to build the Mariel Special Development Zone (ZEDM). (14ymedio)

14ymedio bigger14ymedio, Havana, 28 December 2018 — The Brazilian government froze providing credit insurance to new exports to Cuba due to default, after taking the same steps in connection with Mozambique and Venezuela, as published by the Brazilian newspaper Folha de São Paulo.

The National Bank of Social and Economic Development (BNDES, by its Spanish acronym) has financed nearly $880 million worth of exports from 33 Brazilian companies to Cuba since 1998. The balance due by Havana is $597 million.

The current dispute concerns the arrears incurred by the Island on a $17.4 million payment of its debt in installments past due in June, July and August.

Out of the $10 million which Cuba should have paid by the June deadline, it barely paid $4 million. To cover the remaining balance, the Treasury must spend an amount equal to $6 million within the next few days to repay BNDES, which is insured by the Export Guarantee Fund (FGE, by its Spanish acronym).

According to Folha de São Paulo, Brazil will spend nearly 387 million in 2019 to cover the defaults by Cuba, Venezuela and Mozambique, and there will still remain a shortage of funds to provide insurance to new export credit operations.

Therefore, Cofig (Committee on Financing and Export Guarantees) decided not to provide insurance for new operations until budgetary coverage is assured by the forecasts to cover an eventual default.

“Historically, the dynamics of budget forecasting does not contemplate a budget for new insurance operations,” stated the Treasury.

“When the budget available for the financial year is lower than the expenditures forecast for the period, new operations are not approved for safety reasons.”

The cancellation will affect medium and small-sized companies, as large-sized companies have a larger negotiating margin and contracts with more extended periods of time.


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