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Posted January 18, 2005 by publisher in Business In Cuba

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By Marc Frank | Financial Times

The government rejects the standard formula for GDP and says 2004 growth was 5%. Many citizens don’t buy it.

After 46 years in power, Cuban President Fidel Castro is known to play only by his own rules. Even so, his recent move to disregard the standard formula for gross domestic product — the world’s standard measurement of an economy’s growth — has confounded both economists and ordinary Cubans.

The move to declare GDP a capitalist instrument has been brewing for the last year, after Jose Luis Rodriguez Garcia, the economy and planning minister, called GDP a tool designed to measure growth in market economies and useless as far as Cuba was concerned.

He reiterated the point in his year-end economic report to the National Assembly. “Health and education are included if they come with a price, but not if they are provided free,” he said. According to Rodriguez, Cuba’s 2.6% annual growth in 2003 was actually 3.8% when taking into account Cuba’s free healthcare and education.

Last month, Rodriguez simply declared that growth was up 5% in 2004, based on the adjusted method.

Economy Ministry sources said that with the conventional GDP formula, growth was actually 2.8% to 3%.

Experts have found Cuba’s economy increasingly difficult to decipher. Since 2001, a drop in tourism and five hurricanes slowed Cuba’s recovery from a 1990s post-Soviet economic crisis.

The government acknowledges a worsening foreign exchange shortage because of shrinking credit and investment, a hostile U.S. administration, high oil and shipping costs, hurricanes and drought. Cuba is dependent on fuel and food imports. Its current account has operated in the red since the 1991 collapse of the Soviet Union, its chief benefactor. The country, considered one of the world’s worst credit risks, is not a member of any international lending organization.

The new growth measurement formula could further hurt Cuba’s credibility and increase suspicion that the economy is not doing well.

“GDP percentages are meant to compare performance, so if you start using other formulas and don’t give the calculations, you make the comparison impossible,” a European diplomat said, “which means they most likely have something awful to hide.”

Cuba’s reserves have always been a well-guarded secret. The Central Bank has provided no foreign debt or current-account information since 2001, when debt stood at $11 billion. The latest detailed trade and production statistics date to 2002. Results from a 2002 census have never been released.

According to local economists, since recovery began in 1994, growth has averaged 3.7% and less in recent years, not nearly enough to upgrade deteriorating infrastructure.

Cuba today is in the grip of its worst drought in 63 years. Hundreds of thousands of people rely on water trucks to survive. But drought is only part of the problem: 30% of pumped water is lost between reservoir and consumer. The National Institute of Hydraulic Resources reported that $400 million was needed to upgrade Havana’s century-old waterworks, as well as $1.2 billion for the rest of Cuba.

Many Cubans were puzzled by news of 5% growth. The state employs 90% of workers and monopolizes retail activity. In Cuba’s dual monetary system, government exchanges offer 27 pesos to the U.S. dollar, and the convertible peso trades on par with the dollar.

The average monthly income is 345 pesos. Cooking oil, extra milk, juice, pasta, soap and detergents all cost up to a week’s wages, and such “luxury” goods as decent clothes and household appliances require weeks of labor, if not months or years.

A government report said peso prices increased by 3% but gave no overall figure. The government raised prices at its dollar shops an average of 15.4% in May.

“The reports at the National Assembly were very optimistic because this year was very hard,” a transportation worker in central Camaguey province said. “For months I have had no running water at home, and for a number of months the blackouts would not let us live in peace. Government prices keep going up, but my government wage remains the same.”

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