Posted on Thu, Jun. 06, 2002 Editorialsstory:PUB_DESC
Cuba's economy falters again; no relief seen for island residents
Cuba's economy has taken another dive as international market prices for sugar and nickel continue to tumble, fewer tourists are visiting the island and the amount of money sent by Cuban Americans to relatives has decreased.

The economic setbacks come as Cuba finds itself facing a crude-oil shortage since Venezuela stopped shipments in April and bad credit increasingly has forced the government to use cash or rely on short-term, high-interest loans to pay for imported goods, which include $90 million worth of mostly food products purchased from the United States.

As a result, the government this week raised prices on consumer goods and hopes to lure more European visitors by accepting the euro at resort hubs such as Varadero to pay for meals, hotel rooms and souvenirs.

The impact for Cubans on the island: no relief in sight from economic hardships that have now stretched for more than a decade.

''The prospects are bleak,'' said Evaldo A. Cabarrouy, an economist at the University of Puerto Rico in Rio Piedras. ``There is a pattern of instability, a see-saw type of economic growth.

''For the common Cuban, it means more of the same,'' he said. ``Things continue to be tight. Life is hard. There will continue to be scarcity.''

Cuba has been struggling to overcome its economic crisis since the early 1990s, following the loss of subsidies from the former Soviet Union.

Between 1989 and 1994, there was a sharp decline in living standards for Cuban citizens, including an energy crisis that led to electrical blackouts known as apagones, a reduction in transportation services and industry shutdowns. There also was a reduction in domestic food production and in food imports, which led to food shortages.


''Citizens responded to the decline in the standard of living by pursuing self-employment activities, most of which were illegal at the time, resorting to illegal or black market activities and exchanges and finding means to acquire U.S. dollars that were vital for survival,'' according to a research paper, Cuba's Economic Performance and the Challenges Ahead, by Archibald R.M. Ritter, a professor of economics and international affairs at Carleton University in Ottawa.

The illegal activity subsided when the government allowed Cubans to legally possess dollars in 1993 and established retail stores the following year that initially were only for foreign customers and later expanded to include Cubans.

But even as the economy began to make modest gains in the mid-1990s, Cuba has been hit with a series of setbacks that has prevented the economy from a full recovery, including last year's devastating Hurricane Michelle, an international economic slowdown and a drop in tourism following the Sept. 11 terrorist attacks.

In coming months, the unemployment rate -- officially 5.8 percent, made worse by underemployment -- could rise if the government moves forward with a plan to shut down more than a third of its sugar processing facilities because of chronically poor crop harvests caused by a variety of ills. This would further hamper efforts to get past the so-called período especial, a term used by the government to refer to the economic crisis.

Cubans continue to scramble for dollars because Cuban pesos, which have a current exchange rate of 26 to $1, no longer cover living expenses.

The average monthly income for Cuba's estimated 4.5 million workers ranges between $9 and $17.

The government has said that about 30 percent of its 11 million citizens have direct access to U.S. currency but up to twice as many depend on dollars for subsistence.

When rumors of price increases began to circulate last week, Cubans with dollars flocked to stores that sell everything from packaged food to electronic equipment to buy consumer products.

But confusion settled in as the new pricing system, the first hike in the price of basic necessities in more than a decade, took effect this week.

The costs of items -- from food products to clothing -- are expected to increase up to 30 percent. Among some of the changes released by the government: domestic cigarettes will increase to 34 cents from 26 cents per pack; imported cigarettes up to $2.50 from $1.50 per pack; and the cost of beer will rise from 85 cents to $1. Other products such as mayonnaise, crackers and hair dye already have increased by 5 to 10 cents.

''The dollar store price increases are clearly designed to rapidly gain additional dollar revenues,'' said John Kavulich, head of the U.S.-Cuba Trade and Economic Council, a New York group that monitors the island's economy. ``It's unlikely, though, that the revenue stream is likely to be sustainable.''

Meanwhile, many are bracing for an increase in the price of gasoline, which could disrupt an already unreliable public transportation system. Regular gasoline, now at $2.85 a gallon, would rise to $3.99 under the government's proposed increase.

In an article recently published in the Communist Party daily Granma, the government stated that the suspension of petroleum shipments has ''caused grave damage to our country,'' and that Cuba would have to turn to its petroleum reserves to maintain ``a stable supply for the economy and the population.''

Cuba consumes about 160,000 barrels of oil per day, a third of which is imported.

Cuba also imports about $600 million annually in food and food products, a figure that for the first time in four decades now includes purchases from the United States.

The total market value of U.S. agricultural products tapped for purchase by Cuba since November is about $90 million, with approximately 60 percent of deliveries already in or on their way to the island, according to the U.S.-Cuba Trade and Economic Council.

In addition, Cuba intends to purchase an additional $48 million worth of agricultural goods from U.S. companies this year, making the United States among the five largest suppliers of food products to Cuba in 2002.

U.S. law requires the sales to be on a cash-only basis and, though there is no way to monitor the transactions, companies appear to be receiving payments.

''Companies wouldn't be reporting sales if they weren't sales,'' said Kavulich. ``The question is where is Cuba getting the money?''


Tourism, the island's most important source of hard currency, also has been hurt.

Cuba's Ministry of Tourism recently reported a 14 percent drop in visitors during the first quarter, compared to the same period last year. In an effort to raise that figure, tourists can now use euros in lieu of dollars in Varadero. More than half of the estimated 1.7 million tourists that visited Cuba in 2001 were from Europe, according to official figures.

Remittances, the second most reliable source of hard currency, also have declined by about 25 percent since the fourth quarter of 2001, according to government figures.

According to Ritter, the Canadian economist, Cuba is in a ''pre-transition'' phase, similar to the situations in Hungary and Poland prior to their departure from central planning and one-party rule in the late 1980s. And no major changes will likely occur until Fidel Castro is no longer in power.

This report was supplemented with material from Herald wire services.