ECONOMY-CUBA: No End to Crisis This Year, Say Experts

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Mar 17 2000 (IPS) - The Cuban people will not see any relief this year from the severe economic crisis that has radically altered the nation’s way of life since the early 1990s, agree experts.

A study by University of Havana economist Armando Nova predicts that limited cash flow and difficult credit conditions – both of which slow economic development – will continue throughout 2000.

“Recovery of the standard of living achieved in the 1980s is a distant reality” as long as macro-economic growth does not include the recovery of individual consumption levels, says Nova.

The island’s economic crisis began in the early 1990s when Cuba saw its largest foreign market disappear with the disintegration of the former Soviet Union and the entire European socialist bloc.

Falling international sugar and nickel prices, rising petroleum prices and slowed growth in tourism all contribute to deepening the economic effects of the US-imposed trade embargo on Cuba.

Nova’s study, “The Cuban Economy in the 1990s,” puts the Cuban gross domestic product (GDP) growth predicted for 2000 at 3.5 to 4.6 percent, far behind the 6.2 increase recorded in 1999.

But some internal productive potentials have yet to be exploited, according to Nova, which could be tapped into if economic reforms intended to change the relations of production are continued and expanded.

The Cuban government gave the green light in 1993 to a reform package that began by targeting internal finances, including opening the way for self-employment and extending to the productive arena.

Economic studies at the time suggested the benefits of opening the market for small private companies, based on the state’s inefficiency in fulfilling some services and the need to create a space for small producers.

But in 1997 academic circles began to sound the alarm about the government’s tendency to freeze some measures that originally had been considered essential concessions for overcoming the country’s economic crisis.

While the Cuban public rarely hears about reforms, the people suffer the effects of high-priced food, increased rates for some basic services, electrical energy shortages, and deficiencies in urban transportation.

Sources cited by the Nova study affirm that the Cuban currency flow dropped from 24.7 billion pesos (equal to the dollar at the official exchange rate) in 1990 to 18.1 billion in 1999, based on 1981 prices.

The most difficult moment of the decade was in 1993, when currency on the market totalled just 14.6 billion pesos.

“Private consumption in 1993 fell 35 percent compared to 1990, grew at a constant rate since 1994, but is still far from reaching its 1989 level of 8.6 billion pesos,” says the study.

The consumer price index, which fell by 11.5 percent in 1995, grew 1.9 percent in 1997 and 2.9 percent in 1998.

At the same time, the mean salary grew from 180 to 223 pesos, and last year the currency exchange houses opened by the government maintained dollar sales at 20 to 21 Cuban pesos, giving more than 60 percent of the island’s population access to the dollar.

“The GDP’s four percent average annual growth from 1994 to 1999” demonstrates the ability of government authorities “to manage the crisis” but at the same time underscores their inability to escape from it, Nova states.

The government’s limited power is reflected in the ups and downs of the GDP over the last decade. In 1996 the economy grew 7.8 percent over the previous year, but expanded just 2.5 percent in 1997, then fell 1.2 percent in 1998, and finally turned around to climb 6.2 percent in 1999.

Cuban economic experts are divided between those who classify the 1990s as the “lost decade” and those who see it as an economic crisis but with transformations and attempts at development.

In the sugar industry alone, assuming an average price of 10 cents on the dollar per pound, Cuba lost 4.5 billion dollars when it limited its sugar production by 21 million tonnes over the last decade, Nova points out.

By late 1999, Cuba had not yet recovered the agricultural production levels recorded in 1989 for tomatoes, peppers, onions, rice, citrus fruits, bananas and other tropical fruits, according to official data.

Tourism replaced sugar as Cuba’s principal source of income as it brought in 2.14 billion dollars in 1999, but still lacked efficiency as the country had to invest 70 cents for every tourist dollar earned.

The nickel, cement, tobacco, wheat flour, detergent, electrical energy, and gas sectors reported recovery, as did petroleum production, but an important number of the island’s economic sectors remain below 1989’s production levels.

Some studies indicate that last year’s current account deficit continued the same line it had followed since 1993. Cuban export earnings totalled 1.45 billion dollars while imports topped 4.33 billion.

By the end of last year, Cuba had entered into 374 foreign capital parterships in 32 sectors of the economy, with a total of 300 million dollars in direct foreign investment coming in during the course of the year.

Nova calculates that Cuba’s foreign debt may have reached 12 billion dollars in 1999, while the total overseas income from various sources was just over one billion dollars.