Cuba: Teetering on the brink of the crisis

By
Ariel Terrero                                                                     Read Spanish Version  

Some
clung to the euros; others, to the signs. The 11th Cigar Festival
ended Feb. 27 with an auction of Cohiba, Romeo y Julieta, Partagás,
Montecristo, Trinidad and H. Upman cigars, fine humidors, historical
photographs, allegorical paintings, and wines that contributed
981,000 euros (almost US$1.25 million) to the Cuban Treasury. The
participants in the bid, held in Havana, paid scant attention (at
least that day) to the tremors caused by the world’s economic crisis.

The
amount of the collection, which was stored away for the benefit of
the Cuban public-health system, served as an oracle, as a
psychological balsam after the 3-percent drop in sales suffered by
Habanos S.A., a joint venture, in 2008. It was "a very difficult
year for business," conceded the firm, which is still hoping to
maintain in 2009 a level of income close to the $390 million it made
last year, despite the punishment inflicted by the recession to the
demand in Europe and other destinations of the famous tobacco grown
on the island.

Like
a good-luck comet, the success of the auction is encouraging,
although it didn’t provide sufficient light to counter the clouds
spread by the global crisis over the Cuban economy, which is closely
tied to the export business.

Among
the worst-damaged sectors, the nickel industry has seen its revenues
drop precipitously. After enjoying a rise in prices to an average of
$37,000 per ton in 2007, it opened this year with quotes below
$10,000 per ton. And the figures could drop even more, judging by the
deep drops in the world’s production of steel and other industries
that consume nickel. In terms of attracting hard currency, that
mineral has lost the Cuban throne it gained two years ago, displacing
tourism. Worse yet, one of the three nickel-producing plants, in Moa
and Nicaro, runs the risk of shutting down because of its inability
to sustain its expenses.

The
leisure industry is doing better, however. After the commercial and
financial losses it suffered in the two previous years, it reordered
its commercial activities and investments in hotel services in 2008
and saw growths of 9.3 percent in the number of visitors (to
2,344,000) and 13.5 percent in its gross income. Thanks to tourism,
the country earned US$2.538 billion last year.

As
2009 begins, travel agency operators, tour operators and hotel chains
are confident, but only moderately so. There’s a pebble in the shoe.
Last year, the number of Europeans who crossed the Atlantic to spend
their vacations in Cuba dropped. Among the main countries of origin,
only Canada grew (by 23.9 percent) and made up for the others by
contributing almost one third of all the visitors.

On
the contrary, reductions were seen in travel from England (-6.8
percent), Italy (-6.1 percent), Spain (-9 percent), Germany (-2
percent) and France (-1.7 percent), the island’s most important
markets, in that order, after Canada. Clearly, in the Old Continent,
the recession inhibits spending, something that has predictable
consequences on the importation of goods and services.

In
the United States, the demand also rolls downhill and destabilizes
the rest of the world’s economy. But the effects in Cuba are
indirect, held back by the well-known rules of the commercial,
financial and economic blockade imposed on the island by Washington.
In plain words, the U.S. recession could undermine the nearly $1
billion in remittances the island receives every year, which benefit
a considerable portion of its hard-currency retail business.

Among
so many signs of uncertainty, the drop in international prices has a
pleasant implication for the Cubans, who are net importers of rice,
soybeans, wheat, corn, powdered milk and other foodstuffs acquired
principally from U.S. farmers. The current depreciation in those
products inverts the critical situation experienced in 2008, when,
due to a rise in prices, the importation of foodstuffs rose by $840
million to about $2.4 billion in comestibles.

As
in the rest of the world, the Cuban economy is teetering on a high
wire stretched over a global crisis whose bottom no one can clearly
see. But the government is not watching this with its arms folded.
Led by Raúl Castro, it has begun — often, without publicity — an
intense effort to shore up old options and open new commercial and
economic opportunities. For example, to avoid the blow that threatens
tourism, Cuba began the exploration and expansion of markets that
originate vacationers and had success in eastern Europe and Latin
America in 2008.

Havana
also is speeding up its commercial links with other countries, with
the evident intention of diversifying the gamut of offerings and
foreign partners. In an effort to build up regional integration, nine
Latin American presidents have visited Cuba since 2008, seven of them
at the start of this year. Add to this the arrival on the island of
three African leaders and the presidents of China and Russia, not to
mention Raúl’s trips to Russia, Angola and Algeria.

The
bilateral accords of cooperation and exchange signed with those
countries have opened strategic options in the current juncture, both
in the importation of equipment and technology and the exportation of
pharmaceutical and biotechnological products and medical services. In
the past several years, such exports have become important elements
of Cuba’s foreign trade.

While
encouraging tourism and exports, the government has begun a series of
structural changes to foster the production of foodstuffs and
improving the trade in comestibles. It is also reorienting
investments toward basic production sectors, some of which had been
slightly ignored recently. With a stated purpose of substituting
importations and stimulating savings, the government is investing in
energy, transportation, industry, agriculture and hydraulics
infrastructure.

The
economy’s centralized planning, which proved effective in the dark
years that followed the collapse of European socialism, now allows
Cuba to utilize its scant financial resources in areas that could be
fundamental to resist the impact of a global recession.

But
Raúl’s discourse does not seem focused on investments and structural
adjustments or their predicted benefits, despite the priority given
to them. He has put his finger on one of the traditional flaws of
socialist economy: the inveterate tendency to uncontrolled
expenditure. In his few public appearances, Fidel’s brother has
insisted "on an idea I have expressed before: nobody — neither
an individual nor a country — can afford to indefinitely spend more
than he receives from the sale of his products or services."

Along
those lines, the government has established more severe rules for the
budgeted and business economy, which it moves forward in one of its
most difficult missions: to reorganize the systems of labor and the
wage methodologies.

The
world financial crisis, which began practically in unison with the
crossing of three severe hurricanes through the Cuban archipelago,
has put the government’s plans against the wall. A readjustment could
be Cuba’s best protection against the world’s economic disaster.

Ariel
Terrero, a Cuban journalist, is news editor for the centenary Cuban
magazine Bohemia. This is the first of his contributions to Progreso
Semanal/Weekly.