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ECONOMY-CUBA: Keeping the Wolf from the Door

Patricia Grogg

HAVANA, Apr 14 2009 (IPS) - The global recession poses new economic threats to Cuba, hitting its principal exports and reducing its chances of obtaining external financing, although officials seem confident that the situation will remain within manageable limits.

Experts consulted by IPS predicted that starting this month or next, the number of tourists visiting this Caribbean island nation will begin to diminish. The leisure industry is an important source of hard currency in Cuba and brought in more than 2.5 billion dollars last year. Remittances from abroad are also expected to shrink.

They pointed out that the global crisis has also restricted credit available from international lenders, or driven up its cost, and that Cuba is not exempt from this effect, which is already causing a decline in imports of raw materials for its industries.

The fall in the price of nickel, Cuba’s main export product, meant that last year the country’s income from the metal was 250 million dollars less than expected. And sales of Cuba’s exclusive cigars dropped by three percent due to the recession, the decline in tourism and the intensification of anti-smoking campaigns.

Officials are tight-lipped about the subject, but it has been reported that the administration of President Raúl Castro is taking measures to mitigate the impact, including a six percent cut in the 2009 budgets for expenditure and subsidies of most Cuban institutions, that had already been approved.

Inevitably, the cuts will affect the resources available for social programmes and development. However, some analysts say the nature of the centralised, state-run Cuban economy will give the government manoeuvring room and allow it to use resources intelligently, by contrast with economies where funds are widely dispersed.

“The fact that Cuba has a different kind of economic structure gives it the opportunity to use its limited resources with more precision. This is very important at a time of crisis when no one knows what is going to happen,” said Ariel Terrero, a leading commentator on economic issues for state television, in an interview on the website “Kaos en la Red”.

So far, the Economic Commission for Latin America and the Caribbean (ECLAC) has not included Cuba among the countries of the region predicted to suffer negative growth this year because of the crisis.

According to ECLAC executive secretary Alicia Bárcena, the most affected countries will be Mexico, where GDP is projected to shrink by two percent, Brazil, with a decrease of one percent, and Costa Rica and Paraguay, with a fall of 0.5 percent each.

At a recent international meeting in Bogotá, Colombia, Bárcena added that the GDP of Panama, Peru, Cuba and Bolivia were expected to grow at a rate of three percent or more in 2009, while Ecuador and Chile would have zero growth.

The ECLAC official said the crisis could provide an opportunity to rethink the role of the state, which could take an active part in protecting the most vulnerable sectors of society and in promoting productive forces that are more knowledge-based.

In recent weeks, authorities in Cuba have reiterated their warnings about the critical situation of the global economy, and urged people to prepare themselves to face the consequences. But they said the impact will not be as bad as the 1990s, when the country’s main foreign partners, the Soviet Union and the East European socialist bloc, collapsed.

First Vice President José Ramón Machado told activists in the governing Cuban Communist Party (PCC) in the eastern province of Granma that bolstering farm production is essential to overcoming the crisis, in order to replace imports and raise exports.

One of the island’s economic Achilles’ heels is the high cost of food imports. In 2008 the country spent some 2.5 billion dollars on food purchases abroad, 907 million dollars more than in 2007. The difference was basically due to soaring food prices on the international market.

In late December, President Castro described a scenario of uncertainty and austerity for the year ahead due to the global financial crisis and the destruction wrought by three hurricanes in 2008, which caused nearly 10 billion dollars in losses, according to official estimates.

Given the broader international context, researchers predict that in the short term the lifting of restrictions on remittances and travel to Cuba by Cuban-Americans is likely to have, at best, a moderately positive effect on the economy.

On Monday, U.S. President Barack Obama lifted all restrictions on Cuban-Americans to visit their homeland and send money to family members.

The elimination of travel restrictions for U.S. citizens would have a greater effect, but tourism sector officials are unwilling to comment on that possibility, at least in public. With a hotel capacity of over 46,000 rooms, Cuba hosted 2.35 million tourists in 2008.