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Posted January 14, 2005 by Cubana in Business In Cuba

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By Marc Frank
Published in the Financial Times: January 14 2005 02:00

After 46 years in power, Fidel Castro, Cuba’s president, 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 past year, after Jose Luis Rodriguez, 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 Mr Rodriguez, Cuba’s 2.6 per cent annual growth in 2003 was actually 3.8 per cent when taking into account Cuba’s free healthcare and education.

This year Mr Rodriguez simply declared that growth was up 5 per cent, based on the adjusted method.

Economy ministry sources said that with the conventional GDP formula, growth was actually 2.8 per cent to 3 per cent.

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, due to shrinking credit and investment, a hostile US 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 organisation.

The new growth measurement formula could further hurt Cuba’s credibility and increase suspicion 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 $11bn. The latest detailed trade and production statistics date to 2002. Results from a much-publicised 2002 census have never been released. Budget information is provided only in pesos, although an important percentage of domestic spending is in hard currency.

According to local economists, since recovery began in 1994 economic growth has averaged 3.7 per cent 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, and agriculture has suffered huge damage. But drought is only part of the problem: 30 per cent of pumped water is lost between reservoir and consumer. The National Institute of Hydraulic Resources reported $400m was needed to upgrade Havana’s century-old waterworks, as well as $1.2bn for the rest of Cuba.

Many Cubans were puzzled by news of 5 per cent growth. The state employs 90 per cent of workers and monopolises retail activity. In Cuba’s dual monetary system, government exchanges offer 27 pesos to the US dollar, while 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 labour, if not months or years.

A government report seen by the FT said peso prices increased by 3 per cent, but gave no overall figure. The government raised prices at its dollar shops an average 15.4 per cent in May. Also last May, the US made it more difficult for Cuban-Americans to visit Cuba and supplement family incomes.

“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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