Castro's Cuba feels the post-Soviet cold
By Marc Frank
Cuba must ease restrictions on small businesses and co-operatives to
revive an
economy suffocating under the impact of foreign exchange shortages,
according
to a study to be published soon by the UN Economic Commission on Latin
America.
The draft of the Eclac study, prepared in conjunction with Cuba's state-run
National Institute for Economic Research, says the country's isolation
from
international capital markets and inefficiencies linked to state management
- as
well as the continuing impact of US sanctions - are partly to blame
for the
island's problems.
After noting that growth slowed to 3 per cent in 2001 and 1.1 per cent
last
year, the report says "new economic policy actions are required to
stimulate
internal reactivisation forces and achieve more productive dynamism
with
macroeconomic stability."
In the early 1990s President Fidel Castro's government initiated a cautious
opening to foreign investment, legalised some family-run businesses
and the
dollar, turned to tourism and began a gradual decentralisation of the
command
economy after the gross domestic product declined 35 per cent.
However, Cuba's estimated 180,000 self-employed work under tight control
and in the face of constant pressure from the authorities.
Overall in spite of a steady recovery of economic growth, standards
of living
remain well below levels achieved before the collapse of the Soviet
Union and
infrastructure continues to crumble. Public transport is a particularly
serious
problem, with bus and train services running at less than a third of
the level of
1989.
The study echoes the conclusions of similar research published earlier
this year
by the Centre for Study of the Cuban Economy, a Havana University
think-tank, and suggests controls must be eased.
The earlier report, too, urged greater liberalisation, arguing that
the reforms
were "exhausted, and in need of new conditions (deregulation) to function."
However, all the indications are that the government intends to strengthen
state
domination of the economy, partly because rising nickel prices and
a rebound in
the tourism industry are easing immediate economic difficulties.
Juan Triana, director of the centre at Havana University, said the economy
had
demonstrated surprising resilience this year despite the foreign exchange
shortage.
"Even with a tense foreign exchange situation and the sugar harvest's
worse-than-expected results, the forecast growth of 1.5 per cent will
be met,
and perhaps a bit more. Next year we should see moderate recovery resume,"
he said.
Tourism - which accounts for about 42 per cent of economic output and
close
to 50 per cent of hard currency earnings - is recovering from the slump
that
followed the September 11 2001 terrorist attacks in the US. Tourist
numbers
have risen by 15 per cent so far this year. Nickel prices have doubled
over the
last 18 months to more than $10,000 per ton, boosting revenues from
an
industry that has tripled production over the last decade.
Business at Cuba's state-run dollar stores was up 15 per cent through
June and
should top $1.3bn (€1.1bn, £779m) this year, according to
an internal survey
of the country's thousands of retail outlets. The stores were established
in the
1990s to capture the family remittances, tips and bonuses that flowed
into the
population's hands after the US currency was made legal tender along
side of
the peso.
Mr Triana said high oil prices continued to drag down economic performance,
as Cuba still imports 50 per cent of its minimum fuel requirements
- although
that is down from close to 100 per cent a decade ago. Oil and gas production
are now the equivalent of between 80,000 and 90,000 barrels a day and
local
fuel powers 100 per cent of electricity generation.
An agreement with Venezuela to take 53,000 b/d on preferential terms
has
worked well this year, after being interrupted for six month of 2002
by coup
attempts and strikes in the South American country.
Under the deal, 20-25 per cent of payments are due over a 17-year period
as
long as oil prices remain above $24 per barrel.
Foreign exchange shortages make the economy extremely vulnerable, however.
Cuba is not a member of the IMF or any other multilaterals and began
defaulting on its now more than $11bn in foreign debt in 1986. As one
Havana-based diplomat noted: "They have no access to medium- and
long-term funding to ride out any sudden drop in foreign exchange earnings
or
natural disaster."