ECONOMY-CUBA: The Outlook Is Still Grim

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Jun 22 2004 (IPS) - A sugar harvest of less than three million tons, soaring oil prices, persistent drought and a tightening of the four-decade U.S. embargo paint an especially grim outlook for the Cuban economy.

The combination of factors is compounding this Caribbean island nation’s financial problems and delaying recovery from the crisis that broke out at the start of the 1990s, with the collapse of the Soviet Union and east European specialist bloc.

This year, sugar production surpassed last year’s lowly 2.2 million tons by just 324,000 tons, 74,000 less than were hoped for.

The weak 2003 harvest led to a reduction of revenues by at least 100 million dollars, due to lost exports.

But this year’s output of Cuba’s leading export product did not improve as much as authorities had hoped. ”We have not yet gotten the needed response,” admitted Vice-President Carlos Lage.

Economists say this year’s sugar harvest (December 2003 to early June 2004) was carried out amidst enormous difficulties, including broken equipment, a dearth of spare parts, a lack of fuel to carry out the mechanised harvest, and break-downs in the transportation systems used to take the sugar cane to the mills, all of which led to frequent interruptions of the productive process.

”This harvest received greater support and was given higher priority than the 2002-2003 harvest, but despite that, the support was insufficient due to the Cuban economy’s real economic and financial limitations,” said an economist who specialises in the sugar industry.

The harvest was the second carried out since the industry was restructured and streamlined, and the number of sugar mills was reduced from 156 to 71 to make the industry more efficient and stabilise output at a volume of no more than four million tons a year.

The aim of the overhaul of the industry was to bring sugar production in line with the low prices on the international market.

But analysts say international prices could rally to eight cents a pound by early 2005, due to lower yields in sugar producing countries in the European Union, as well as nations like India, Thailand and Brazil.

During this year’s harvest, the sugar industry covered its own electricity needs using energy generated by biomass produced from sugar cane residue – an important development for Cuba, which is seeking to diversify its sources of energy.

Cuba has been hit hard by the soaring price of oil, which reached 43 dollars a barrel in May – although it has come down from that high in the past few weeks – driven up by the Middle East crisis, the war in Iraq and the steady rise in global demand for oil.

Although nearly 100 percent of Cuba’s thermal power plants run on nationally produced crude oil, the upward trend in oil prices is a source of worry nonetheless.

Noting that the price of some kinds of crude oil had risen to more than 42 dollars a barrel, Cuban economist Ramón Pichs Madruga wrote in an article published by the government-monopolised press that ”There is continuing strong pressure on prices, in a context of growing volatility and uncertainty.”

Oil and food are this socialist Caribbean island nation’s biggest imports.

Cuba produces some 80,000 barrels a day of gas and oil, with which it meets half of the country’s needs, estimated at around 160,000 barrels a day.

Roughly one-third of national consumption is covered by imports from Venezuela – 53,000 barrels a day – and the rest is purchased on the international market.

Up to the early 1990s, the sugar industry was Cuba’s main source of foreign exchange revenues. But it has been surpassed by tourism, the fastest-growing branch of the economy, which this year reached the goal of two million foreign visitors.

In 2003, tourism generated 2.1 billion dollars in net revenues, beating traditional export products like tobacco and nickel, as well as sugar.

But tourism, as well as family remittances from abroad, estimated at one billion dollars a year by some sources, could be affected by Washington’s new measures to stiffen the four-decade embargo against Cuba.

Official Cuban sources say the U.S. government is pressuring foreign banks to block cash deposits by Cuba, alleging that some of the money may be ill-gotten.

Due to the embargo, a large part of the expatriate remittances, and spending by foreign visitors in Cuba, are in the form of cash, which Havana uses to purchase food and medicine.

There are other problems as well, including a prolonged drought affecting mainly the eastern part of the island, which has caused huge material losses, and heralds difficult summer months (July and August) due to frequent blackouts.

Energy industry authorities say the country has enough fuel, and blames the power outages of the past few weeks – made especially difficult in a hot tropical climate where a fan is an item of basic necessity – on breakdowns and maintenance work in thermal power plants.

Due to the energy shortages, power company officials have stepped up their calls for energy savings in residential areas and a rescheduling of activities by industry to time periods of lower demand.