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Cuban economy feels heat of world downturn

Posted on Sunday, 08.09.09
Cuban economy feels heat of world downturn
Cuba's economy was already in grave condition before the worldwide
recession struck. Now, the government is imposing even harsher
of electricity and food.
By JUAN O. TAMAYO
jtamayo@MiamiHerald.com

Fernando used to have a cushy job in Havana as a teller in a government
bank office with air-conditioning, a nice computer and a bank-provided
lunch.

Not anymore.

Amid Cuba's deepest economic crisis in nearly two decades, his office
has shut off the AC and his computer constantly crashes because of the
heat, exasperating him and his customers. His lunch, Fernando said, has
“shrunk to a snack.''

Driving the bulk of the crisis has been the world recession, which
slashed demand and prices for Cuba's few exports, like nickel, and
choked off new credits to a government already deeply in debt. Add the
island's internal woes, and Raúl Castro's recent description of the
problems as “a matter of national security'' seems like no exaggeration.

After Castro replaced brother Fidel, “most Cubans hoped for some
improvements in the medium term. But now everyone is preparing for worse
and worse,'' said one Miamian who recently returned from a visit and
asked for anonymity to protect her relatives there.

Castro has adopted Draconian measures to survive the storm in the short
term.

To cut electricity consumption by 12 percent — Cuba imports half its
oil needs — the government has shut down many factories and ordered
state office buildings, theaters and other facilities to shut off their
ACs. Inspectors also are cracking down on Cubans who steal electricity
through hookups with $23 fines — about five weeks' worth of the
average salary.

“Banks are built to keep out robbers, not to let in a breeze,'' said
Fernando, who asked that his surname not be published because of fear of
government reprisals. “Without [air conditioning] . . . my office is
two stops past hell.''

Some hospitals also are shutting down their emergency rooms for two
hours a day, and elective surgeries are being postponed until
electricity services become more dependable, said Elaine Scheye, a
Chicago consultant who has studied Cuba's health system.

LESS FOOD

Portions for many rationed foodstuffs have been cut — red and
chickpeas from 30 to 20 ounces a month, salt by half to about four
ounces per month — while food deliveries to factory, office and
cafeterias have been trimmed, according to official announcements.

Harsh police crackdowns on the food black market — apparently an
attempt to ensure that more items reach the legal outlets — have driven
up prices yet left many of the legitimate sales points with shelves
oddly bare, Havana residents say.

Even foreign businesses are suffering, with the government tightly
controlling withdrawals from their accounts. Castro also replaced his
entire economic Cabinet in March, and just last week the legislature
created a comptroller's office to attack official corruption.

Yet many analysts in and out of Cuba argue that those belt-tightening
moves are far from what's needed to address the crisis.

“Mercurochrome and Band-Aids for deep wounds with heavy bleeding,''
Miami activist Juan Antonio Blanco wrote in his blog, Cambio de Epoca
(Epochal Change). Even the official Granma newspaper called the
situation “grave.''

EARLIER TROUBLE

Cuba was already in deep trouble by the fall of 2008, after four
hurricanes caused $10 billion in damage — equivalent to a whopping 10
percent of its gross domestic product (GDP) for 2007. Imports for 2008
spiked 41 percent to $14.2 billion from the previous year while exports
remained flat at $3.7 billion, meaning the island's already huge trade
deficit mushroomed by 65 percent.

Food imports alone rose from $1.5 billion in 2007 to $2.2 billion last
year as the government tried to replace hurricane-damaged harvests,
according to official Cuban figures.

And then the world economy plunged into recession, drying up lending
markets. Foreign commercial lending to Cuba fell by $1 billion in 2008,
according to the Bank for International Settlements, a crippling blow to
a government that for the past decade had been taking on ever larger
debts to pay for imports and older debts — “financing by arrears,'' as
one economist put it.

Russian auditors reported last month that Cuba had failed on three dates
to make payments due on a $355 million loan signed in 2006. And some 80
Cuban government enterprises postponed payments to foreign creditors
this year, according to Carmelo Mesa Lago, a of Pittsburgh
expert on the Cuban economy.

GRIM OUTLOOK

With remittances and tourism expected to be flat this year and the price
of nickel — 41 percent of Cuban exports — at about 25 percent of its
2008 levels, the outlook for 2009 remains grim. Over the past month
Havana cut its predictions of 2009 GDP growth from 6 percent to 2.5
percent and then 1.7 percent — though some Cuba economists are
privately predicting a .5 percent drop.

“The country is again facing a situation as adverse'' as the early
1990s, the U.N.'s Economic Commission for Latin America wrote earlier
this year. Cuba's economy shrank by 35 percent after the Soviet Union
collapsed and cut off its $4 billion-$6 billion annual subsidies to Havana.

LONGER-TERM REFORMS

Since Raúl Castro officially assumed power in early 2008, he has also
been putting in place several longer-term reforms that he hopes will
give Cuba a more productive, streamlined and less centralized economy.

In his government's most ambitious effort, it has loaned 1.7 million
acres of fallow state lands to 82,000 Cubans, hoping to increase food
production and slash costly imports. It also shifted Acopio, the
notoriously inefficient agency that gathers and distributes farmers'
products, from the Agriculture to the Domestic Commerce Ministry.

The government also has increased some salaries as incentives to
productivity, allowed Cubans to hold more than one job at a time and let
retirees to return to work. Castro last week predicted cuts in
government spending on health and education, and said imports would be
cut back this year.

Havana also has hinted that it is studying opening the doors wider to
foreign investors and abandoning the costly food rationing system. One
leading Havana economic analyst, Ariel Terrero, even suggested recently
that the government put more of the economy “in the hands of
producers'' — for example, allowing state grocery or clothing shop
workers to run their own enterprises.

`RATIONAL SOCIALISM'

Despite early speculation that the reputedly pragmatic Castro would move
Cuba toward a Chinese-like “market socialism system,'' his reforms have
remained relatively moderate.

Brother Fidel remains a powerful opponent of more profound changes even
three years after he was last seen in public, analysts say, and Raúl
Castro must know that opening Cuba to more market forces could fuel a
potentially destabilizing increase in the island's social and economic
inequalities.

In a keynote speech to the legislature last month, he prescribed a move
toward a kind of “rational socialism'' that will preserve Cuba's
political system while cutting back the bureaucracy, state subsidies and
waste, and increasing productivity and efficiency.

“It's a matter of defining, with the broadest popular part
icipation,
the socialist society to which we aspire and can build, given Cuba's
current and future conditions — the economic model that will rule the
life of the nation in benefit of our people,'' Castro said.

Lest anyone get the wrong impression, Castro added a caution.

“I was not elected president to restore capitalism in Cuba or surrender
the revolution,'' he said. “I was elected to defend, maintain and
continue perfecting socialism, not to destroy it.''

Cuban economy feels heat of world downturn – Cuba – MiamiHerald.com (8
August 2009)
http://www.miamiherald.com/news/americas/cuba/v-fullstory/story/1176636.html

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