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. Last Updated: 07/27/2016

Cubans Can't Break Habit Of Sweet Deal

A delegation of Cuban trade representatives recently spent three weeks in Moscow. The main topic of the negotiations was sugar. They came to complain about Russian businessmen.

It is necessary to give some brief historical information here. For more than 30 years, from the 1960s to the beginning of the 1990s, the Soviet Union had a special trade relationship with Cuba that probably has no equivalent on the world market. The Soviet Union provided Cuba with 13 million tons of oil each year, which it sold to the brotherly regime for significantly less than world prices. Cuba "economized" a part of this oil and resold it, making a yearly profit of about $300 million.

But this was not a lot of money for Cuba. In order to support the "island of freedom," as it was then called, the Soviet Union bought sugar from Cuba at so-called preferential prices. What this meant in practice was that the Soviet Union paid $1,400 per ton of sugar, or more than six times the world market cost. This brought in far more money than "economizing" Soviet oil for re-exportation.

In May 1990, a senior Soviet official wrote to the country's leadership that Cuba was losing $3.2 billion because of the drop in price paid for sugar from $1400 per ton to $600. Indeed, the real price of sugar was $200 to $250 per ton.

The letter went on to say that the problem of Soviet-Cuban economic relations carries political meaning and therefore cannot be put in "the framework of economic efficiency."

At the end of the '80s, the leading Cuban foreign trade ministers proposed a new plan for providing sugar to the Soviet Union. They suddenly explained that Cuba could not fulfill its obligations and proposed to take sugar from the French, pledging to return it within two years.

The Vneshekonombank of the Soviet Union acted as guarantor of this transaction. The Cubans never returned the sugar and owed Western creditors $425 million. Since they are not able to return this money, it fell to the Soviet Union to pay off the debt in full. There remains more than $500 million that Russia, as legal successor of the Soviet Union, still owes for the sugar deal to the Paris Club.

After 1991, it seemed the time of absurd trade relations with Cuba was behind Russia for good. Moreover, since 1994, the purchase of Cuban sugar has been entrusted to the commercial firms Menatep-Impeks and Alfa-Eko. An agreement between Cuba and Russia was reached that oil and sugar would be sold at world prices.

The Cuban foreign trade organizations and officials that dealt with the sale of sugar and purchase of oil during the '80s, however, apparently cannot forget old times. They are trying to raise the price of their sugar $40 higher than the world price.

When one of the companies, Alfa-Eko, tried to force the Cuban side to sell at world prices, the Cuban trade delegation came to Moscow. The obvious aim was to get rid of the "stubborn" Russian partner, which opposed subsidizing the Cuban economy at the Russian consumer's expense.

The Cubans, of course, are risking a great deal. On the other hand, if communists come to power, it is entirely possible that trade with Russia will no longer be based on economic efficiency, as was the case in the '60s, '70s and '80s.

Mikhail Berger is economics editor for Izvestia.