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Posted December 15, 2005 by Cubana in Business In Cuba

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By Marc Frank in Havana

Published: December 14 2005

Cuba has scrapped the standard method used to measure economic activity and replaced it with its own formula that substantially boosts the value of its economy and performance, while making a statistical comparison with other countries practically impossible.
President Fidel Castro, who has announced that the economy is growing at more than 9 per cent, insists the standard method was designed for capitalist societies and Cuba’s “socially sustainable GDP” formula better measures progress in his socialist land where no value is assigned to readily available social services and wages are low due to subsidised utilities and some basic products.

“The new GDP calculation takes into account rates which recognise a profitability for service quality [education, public health, culture, sports and radio and television] and reflects better the added value created,” a recent central bank report to creditors seen by the FT states.

The bank said wages used in cost calculations did not reflect “true purchasing power” because they did not take into account subsidised services and products provided by the state.

The government argues that the average $15 (12.7, 8.55) a month wage is augmented by free social services, very low rent, subsidised utilities and medicines and a minimum ration.

Last year Havana first reported growth based exclusively on its formula as 5 per cent, while the UN Economic Commission on Latin America and the Caribbean (Eclac) said the GDP was up 3 per cent and estimated 5 per cent growth this year based on the traditional formula.

Eclac officials have held at least two rounds of talks with the economy ministry seeking clarification on GDP and expressing concern that the UN body will no longer be able to include Cuba in regional tables and comparative analysis, according to a person close to the discussion.

“Cuba’s new GDP now includes the value of free services like health and education, so it’s a hypothetical measure of what Cuba’s output would be if it were in a market system,” says Cuba expert Phil Peters of the Washington-based Lexington Institute, a conservative think-tank.

“That’s a useful number to have, but it can’t be confused with GDP measurements in other economies,” he said.

Cuba’s just-released annual statistical abstract covering 2004 adjusts previously reported GDP figures upwards by more than 15 per cent based on the new formula.

Output in 2000 at current prices is reported as 32.7bn pesos ($1.55bn, 1.31m, 880m) instead of 28bn pesos in previous abstracts. The GDP figure for 2001 is 33.8bn pesos and for 2002 it changed to 36bn pesos, compared with 29.6bn pesos and 30.7bn pesos reported earlier.

Keeping up with Cuba’s GDP has never been easy. Until 1989 Havana used the old communist bloc method to measure growth, then in 1990 it adopted the traditional formula.

In 2001 the country changed its GDP series based on 1981 prices to 1997 prices, resulting in a substantial increase.

The issue is not if the Cuban economy is doing better - most experts agree it is - but by how much, as it moves out of the devastating crisis following the Soviet Union’s demise.

“This year’s 9 per cent figure is irrelevant because no one has any idea how they got it,” said a European diplomat. “The best one can do is see what is happening on the ground, and there is some improvement, but it sure doesn’t look like China to me.”

Soft credits from China, new revenues from the export of medical and other services, mainly to Venezuela which also provides generous financing for oil imports, have allowed Cuba to increase imports from $5.5bn in 2004 to more than $7bn this year, while maintaining a small current account surplus, according to various officials.

The government has invested some $600m in power generation, $200m in waterworks, more than $200m in mainly freight transport, $300m in Chinese consumer products and $1.5bn in food imports, among other items, says Mr Castro. He promises there will be even faster growth in 2006.

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