ECONOMY-CUBA: Not Looking Good

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Sep 2 2002 (IPS) - Signs that the Cuban economy did not perform well in the first half of the year indicate that growth will not reach the three percent rate forecast for this year.

“I believe the balance was unfavourable or was not what had been expected, which is why the government has provided no official information on the subject,” said an economist who spoke to IPS on condition of anonymity.

The source said the signs that the economic crisis was once again taking a turn for the worse began to be seen last year, and that the problems were heightened by the impact of the Sep 11 terrorist attacks in New York and Washington on tourism and the flow of remittances sent home by Cubans abroad.

The situation was further compounded by the estimated 1.8 billion dollars in losses caused by Hurricane Michelle in November.

But despite the current difficulties, the situation cannot be compared to the 1993-1994 peak of the crisis that has plagued Cuba since the loss of its special relationship and preferential trade terms with the east European socialist bloc and Soviet Union, which collapsed in the early 1990s, the economist underlined.

Nevertheless, “the bulk of the productive, economic, and services activities are concentrated in the first half of the year, which indicates that there is little possibility that performance in the second half will be strong enough to achieve the three percent growth forecast for 2002,” he added.

He cited the low prices of sugar and nickel, two of Cuba’s key exports, as another factor keeping economic growth down.

The negative signals included a 14 percent average drop in activity in the tourism industry in the first five months of the year, as well as a slump in sales by the government stores that sell only in dollars, the ‘Tiendas Recaudadores de Divisa’ (TRDs).

The TRDs were created to draw in dollars after possession of that currency was legalised in 1993. Dollars mainly enter this socialist island nation through the tourism industry and as remittances sent home by Cubans living overseas.

“The rise of prices of clothing, footwear, home appliances and some food products, put into effect in June, was aimed at increasing the inflow of hard currency” to the state coffers, said the economist.

This year’s sugar harvest amounted to 3.6 million tons, similar to last year’s output, when earnings from sugar plunged by around 100 million dollars due to the tumble taken by international prices.

“But it also turned out to be one of the most costly harvests in years, mainly due to repeated interruptions of the activity of agriculture and factories, caused by problems with fuel supplies,” said the source.

Last April’s suspension of oil imports from Venezuela, which supplied one-third of Cuba’s energy needs through a special agreement, led to heavy restrictions on fuel and electricity consumption.

The bilateral accord signed in October 2000 stipulated that 80 percent of the Venezuelan oil was to be paid by Cuba at market price, within 90 days of delivery, while the remaining 20 percent would be payable within 15 years, with a two-year grace period, at two percent interest.

However, supplies from Venezuela were cut off in the second week of April, after a short-lived coup that removed President Hugo Chávez from power for two days. The shipments are to resume when Havana pays off what it owes or signs an agreement for paying its debts, perhaps this month.

The government of Fidel Castro concentrated most of the restrictions of energy and fuel supplies in the public sector, in an attempt to safeguard the population from problems like even more frequent power outages, in the hot summer months of July and August, when household energy consumption shoots up.

“In my office we have cut out the lunch break, in order to leave the office earlier in the day and thus save electricity,” said publicist Nelly García. She also pointed out that many companies have eliminated or reduced spending on advertising as they tightened their belts.

Analysts say the energy shortages could also hurt the 2002-2003 sugar harvest, which may weigh in at under 3.5 million tons.

The plummeting of international sugar prices to below six cents a pound led the government to the decision to restructure the industry, and to set a four million ton ceiling on output.

“We will not produce sugar according to how much sugar cane we have, but according to the price offered by the market,” explained Sugar Minister Ulises Rosales del Toro, who said the restructuring process should be completed by May 2004.

The economist consulted by IPS stressed that Cuba’s sugar is important as surety for debts and for obtaining credit. “For now, there is no other economic sector that can take its place,” he warned.

But Rosales del Toro gave his assurances that Cuba would live up to its financial and trade commitments. “That includes loans that have been granted to the country, and to the Sugar Ministry in particular,” he said.

According to sources from financial circles, Cuba has payment commitments of 1.2 billion dollars that fall due within a year, and another 294 million dollars that fall due in over two years, which has caused tension.

Cuba’s foreign debt totalled 10.9 billion dollars last year, and no agreement has yet been reached on restructuring that debt with the creditor countries grouped in the Paris Club.

In its talks with creditors, Havana “has reiterated the need to take into account the atypical conditions in which its economy has developed,” stated Cuba’s Central Bank in its annual report last year.

The U.S. economic blockade, in effect since the early 1960s, forces Havana to depend on short-term, high-interest loans, the report noted.