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Moody : s: Easing of US restrictions is credit positive for Cuba

01/25/2015 | 07:12am US/Eastern

The measures the US government recently announced scaling back its decades-old economic embargo are positive for Cuba's credit quality, says Moody's Investors Service in a new report.

Moody's rates Cuba Caa2 with a stable outlook.

The looser restrictions should give the Cuban economy a lift that more than offsets the negative impact of potentially less assistance from Venezuela, its key ally, which is going through severe economic stress because of lower oil prices.

"The shift in US policy toward Cuba will have a positive effect on economic activity over the next 1-2 years, breathing new life into Cuba's economy, as it will likely more than offset the potential decrease in Venezuelan financial assistance," says , Jaime Reusche, a Moody's Vice Present -- Senior Analyst in the report "Cuba: US Eases Travel And Other Restrictions, A Credit Positive."

Official statistics show the Cuban economy expanding 2.7% in 2013, following 3.0% growth in 2012. Moody's estimates that growth slowed markedly to 0.8% in 2014 due to a decline in terms of trade, economic and political instability in Venezuela, and also due to much slower reforms momentum in Cuba.

Loosening restrictions on US visitors should help the growth of Cuba's burgeoning tourist industry, which in the Caribbean already lags only the Dominican Republic in share of stay-over visitors and the year-over-year growth in visitors, according to the Caribbean Tourism Organization. However, Cuba's tourist infrastructure tends to cater to more budget-conscious tourists, and Moody's says growth in US visitors will be slow and require significant investment to nurture.

"Nevertheless, given its already strong position and attractive pricing, depending on how fast and in what direction the Cuban tourism sector develops, the country could become a growing competitor to established higher-end destinations such as the Dominican Republic (B1 stable), the region's largest tourism market," says Moody's Reusche.

Under the new framework, which came into force January 16, US citizens and permanent residents are now allowed to travel to Cuba for any of a dozen specific reasons without having to first obtain a specific license from the US government and travelers are permitted to bring back up to

$400 in total goods. General tourist travel, however, is still prohibited.

Among additional changes were an increase in the limit of remittances to family members in Cuba, which Moody's forecasts could double over the next 2-3 years from an estimated $3.5 billion in 2013, allowing US financial institutions to open correspondent accounts in Cuban banks, and permitting the use of US credit and debit cards in Cuba.

(c) 2015 EMBIN (Emerging Markets Business Information News) Provided by SyndiGate Media Inc. (

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