ECONOMY-CUBA: External Factors Limit Island’s Growth

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Dec 27 2000 (IPS) - External pressures weighed heavily this year on the Cuban economy and are likely to continue through 2001, though the government hopes to maintain growth at approximately five percent.

Cuba’s gross domestic product (GDP) grew 5.5 percent in 2000, the tenth year of an economic crisis that began when Europe’s socialist bloc disappeared, taking with it a system of preferential trade treatment for the island.

Despite this year’s economic expansion, officials from the Fidel Castro government acknowledge that “there are still important material limitations for the population” of more than 11 million inhabitants.

The growth achieved this year, surpassing the predicted 4.0 to 4.5 percent, is 85 percent of the expansion achieved in 1989, the year prior to the crisis. From that year to 1993, the island’s GDP plummeted 32 percent.

In the government’s report on economic results for 2000 and the forecast for 2001, José Luis Rodríguez, minister of economy and planning, affirmed that Cuba’s sugar production rose 7.3 percent to reach 4.59 million tons.

The non-sugar industries, meanwhile, saw growth of nearly five percent, with positive results especially in the nickel sector, with outputs of 72,000 tons, and steel, with 344,000 tons, including 10,000 tons in stainless steel.

Sugar and nickel are among Cuba’s top sources of income, though tourism continues to be the most dynamic sector, with an average annual growth rate of 18.6 percent over the last five years.

Related services this year provided 62 percent of the export income, with greater efficiency, Rodríguez emphasised, though he did not provide estimates on total income generated from tourism.

The minister pointed out, among other predictions for 2001, that nickel production would surpass 75,000 tons (growth of 5.5 percent) and that sugar output would decrease to 3.7 million tons.

The upcoming sugar harvest will be reduced due to “the lack of sugar cane, largely because of drought,” though it is expected to bring in higher profits, given the moderate recovery of international prices, according to official calculations.

Low sugar prices on the world market meant a 100-million-dollar decline in national income from that sector, based on government data released at mid-year.

The combination of low prices for the island’s leading export products and the sharp rises in petroleum prices, which forced added expenditures of 500 million dollars, fed financial tensions that hit the Cuban economy hard.

The island’s production of petroleum and natural gas has risen progressively over the last few years, reaching 3.3 million tons this year, but has yet to cover the country’s energy needs.

These circumstances weigh on Cuba’s resources available for imports. Food, for example, represents 15 to 20 percent of the nation’s foreign purchases.

“The external financial situation as 2000 reaches its end is very tense, and will continue to be the limiting factor for a more accelerated economic recovery in the coming year,” Rodríguez pointed out.

Forecasts for external trade in 2001 assume continued high prices for fuel, as well as lower prices for nickel exports and only a slight improvement in sugar prices.

The island will have to make up for its negative trade balance with foreign credits, which generally come with high interest rates.

Driven by this difficult situation, government officials will make new efforts to renegotiate Cuba’s foreign debt with the Paris Club, currently reaching 11.1 billion dollars – on which service has been suspended since 1986.

Envoys from the Ministry of Finance and the Central Bank of Cuba initiated contacts with a special group of the financial forum made up of the top creditor nations, and which does not include the former members of the now-defunct socialist bloc of Eastern Europe and the Soviet Union, reported European diplomats.

Apparently, that first phase led to some progress, but any concrete results are still a long way off, they cautioned.

Economists point out, meanwhile, that the moratorium on payments has seriously hurt Cuba’s access to foreign capital and has forced the country to seek high-cost, short-term financing.

Nevertheless, authorities have recently obtained some middle- and long-term loans and the renegotiation of short-term trade debts.

In that arena, Cuban officials say the most significant achievement has been with Japan, which opened new lines of credit to finance the island’s exports.