Posted April 08, 2005 by Cubana in Cuba Business.
By Marc Frank in Havana
Published: April 7 2005 in the Financial Times
Cuba’s new alliances with resource-hungry China and oil-rich Venezuela and growing state control of the economy are finally allowing it to pull out of the gruelling crisis caused by the collapse of the Soviet Union in the 1990s.
That, at least, is the message that an increasingly optimistic President Fidel Castro has taken to delivering in weekly television broadcasts.
And according to Francisco Soberon, the president of the central bank, the improved prospects are based on sound economics and the decision last month to revalue the peso was fully justified.
“The most important sectors of the economy, with the exception of sugar, are doing well and we all know the dollar is not,” Mr Soberon told the FT. He said tourism was up 7 per cent last year, high prices for nickel, Cuba’s top export, appeared solid, and 40 years of investment in human capital, such as medical personnel, were bringing in significant revenues. Venezuela supplies cheap oil in exchange for medical and other services in a deal that could be worth as much as $750m (€584m, £513m) a year. China recently agreed to plough $500m into the nickel industry and Canada’s Sherritt International $250m.
“The balance of payments current account was positive in 2004, for the first time since 1993,” Mr Soberon said, crediting in part better control of resources. But he did not give figures.
According to separate government sources, the surplus was $176m compared with the deficits of $277m in 2002 and $132m in 2003.
Cuba, with a long line of creditors waiting to be paid some $13bn, and behind on many short-term loans, has not published current account information since 2001, though some information is provided to the UN Economic Commission for Latin America.
Mr Soberon said the revaluation of the peso was part of a well thought-out strategy. The traditional peso in which Cubans receive their wages was revalued by 7 per cent, bringing its value to 25 to the dollar. The convertible peso, a parallel local currency that is pegged one to one against the dollar (which was removed from legal circulation five months ago), will be revalued by 8 per cent on Saturday.
Mr Soberon said Cuba had begun to change course in July 2003 when the government started reversing 1990s market-oriented reforms by recentralising foreign exchange operations and forcing state-run companies to use the convertible peso. “I am optimistic our currencies will continue to gradually gain strength,” said Mr Soberon. Many foreign observers and even some Cuban economists argue that constant changes in monetary and regulatory policy are depressing productivity at a time when the sugar and other agricultural sectors are reeling under the worst drought in a century.
Responding to business complaints that recentralisation has created new bureaucratic hurdles and slowed economic activity, Mr Soberon said the problems would be sorted out. “I would obviously be an irrational person not to expect problems [when] such a big change in economic policy is put into practice and that delays and irregularities would annoy companies.”
The peso revaluation is also designed to reduce inequalities associated with the legalisation of the dollar a decade ago. Cubans are paid an average 260 pesos a month plus subsidised food and services. But they must use state-run hard currency stores for some essentials, such as cleaning supplies and cooking oil, which are priced in convertible pesos. About 60 per cent of the 11m inhabitants have some access to hard currency but the rest must exchange some of their earnings to convertible pesos.
Mr Soberon said that “an adjustment in purchasing power” was under way, reinforcing Mr Castro’s message. Cubans are told repeatedly that power blackouts will soon be a bad memory, with Mr Castro promising to distribute millions of Chinese electric stoves to replace old ones based on kerosene and wood.
In addition, Cubans are promised improvements in public transport, running at less than 30 per cent of the 1989 level, medical services, wages and pensions.
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