Experts on the Cuban economy have warned that South Korea’s state-owned credit insurer K-Sure has put itself at “serious risk” of non-payment by agreeing a deal with Cuban banks.

As GTR reported last week, K-Sure is to provide €60m in trade credit to the Cuban banks Banco Central do Cuba and the Banco Exterior de Cuba, in a view to double Korea’s US$70m in exports to the island nation.

While not the first country to reach such an agreement with Cuba, the fact that South Korea is a close ally of the US highlighted the willingness of the west to re-engage with Cuba. However, in the aftermath of the announcement, Cuba watchers have told GTR that the risk of default remains high.

“Many other nations already have trade agreements with Cuba, others may now follow. However, any nation that provides trade credits is taking a serious risk on non-payment. Raul Castro has said that Cuba needs to pay its debts, which is good rhetoric, but past history suggests the risk of non-payment is very real,” says Gary Maybarduk, former US Counsellor for Economic and Political Affairs in Havana.

The view is echoed by Ted Piccone, senior fellow, Latin America at the Brookings Institute, who tells GTR: “The South Korean trade credit line to Cuba is a small but significant signal that international investors see potential in Cuba’s economy and are incrementally stepping up engagement now that the United States is relaxing its onerous and extraterritorial sanctions regime. Cuba needs credit but it also needs to restore its credibility for paying back loans on time.”

It was announced this week that talks between Cuba and the US aimed at restoring diplomatic relations would reconvene on February 27. High on the agenda will be Cuba’s demands to be removed from the US “Terrorism list”, as well as the US’ desire to reopen its embassy in Havana and to ease travel restrictions on diplomatic staff in Cuba.

However, despite the positive progress in recent months, analysts are warning that it will be some time before bilateral trade relations are normalised.

“Normalisation of trade relations between the US and Cuba will take several years because Congress must lift the embargo and there is little likelihood it will move in that direction given the closed nature of the Cuban regime. Property claims will also have to be settled. In the meantime, countries in Europe and Asia and Latin America will continue to explore win-win opportunities in Cuba. A key factor will be if and when the US removes Cuba from the state sponsors of terrorism list,” Piccone says.

As we previously reported, none of America’s allies issued their own economic, trade or financial sanctions against Cuba, but trade virtually ground to a halt in the intervening half century – at least through official channels.

This is due to the fact that any trade settled in US dollars must be cleared in a clearing house on US soil, meaning that any international bank or country participating in the trade, would be in violation of US sanctions and subject to heavy settlement fees, as seen in the large financial penalties handed out to banks such as HSBC, BNP Paribas and Standard Chartered.