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Cuba: the Looming Crisis

July 21, 2016 | Print Print | 0  360  5 387

By Fernando Ravsberg

Photo: Raquel Perez Diaz

Photo: Raquel Perez Diaz

HAVANA TIMES – Since Raul Castro announced at a session of the National Assembly that there will be economic problems, speculation hasn’t stopped about a new crisis like the one experienced in the 90s. However, the situation today is very different from that Cuba.

The country will participate in a forced savings plan, but the economy is stronger: there are more business partners, new economic sectors and more foreign exchange earnings. Nonetheless there will be hardships for both the general population and entrepreneurs.

The Cuban economy contracts as a result of low oil prices, a paradox in a country that imports crude. The problem is that Venezuela reduced shipments [under highly favorable terms] by 20% in the first half of this year.

Shortages in Cuban stores are a direct effect of reducing imports.

Shortages in Cuban stores are a direct effect of reducing imports.  Photo: Raquel Perez Diaz

The effects of the energy crisis are already being felt in the country.  Economic growth [in the first semester of 2016] slowed to 1%, half what was planned. This was due to a drop in imports – some US $2.5 billion less according to Marino Murillo, the architect of reforms.

In addition, Murillo announced that the government will suspend 17% of the investments planned for this year and not make use of the loans granted to Cuba by banks, governments and private lenders. This data is more than enough to indicate a strong contraction.

A plan is already in motion to save 30% of fuel, with cuts at state enterprises. The least productive end their work day at noon, and the air conditioning of businesses, banks and institutions must be turned off for several hours a day.

President Raul Castro said that the population would not be affected. However, the fact is that neighborhoods are already seeing sporadic power cuts, although very distant from the 90s, when there were blackouts of more than 8 hours daily.

A tough year for Cuba

Reducing fuel to companies in Cuba will raise the cost of private transportation because of reduced stocks on the black market, where prices have doubled.

Reducing fuel to companies in Cuba will raise the cost of private transportation because of reduced stocks on the black market, where prices have doubled.  Photo: Raquel Perez Diaz

The year 2016 is turning out to be a rough one. Cuban government finances suffer from the acquisition of oil at market prices, while they must pay their debt with the Paris Club and other international creditors.  If they don’t meet their obligations, interest will once again skyrocket.

Cuban negotiators managed to eliminate most of the old interest but with a commitment to pay the agreed-upon amount on time. Compliance will allow Cuba to access soft loans, which could involve more than a 30% savings on imports.

Those who might fail to collect their debts this year and certainly in the first half of 2017 are some of Cuba’s current providers, mostly small intermediary companies from Europe, Canada and Latin America.

Raul Castro announced in the mid-year parliament session: “there have been some delays in current payments to suppliers. In this regard, I wish (…) to ratify the commitment of the government to pay the outstanding debts.”

Reducing imports, the debts with suppliers and fuel savings will affect the lives of ordinary people. Power outages have already begun, there will be fewer products in food stores, fewer construction materials and transport will be more expensive.

Although the government has set caps on prices charged by private transportation, these will seek ways to raise fares. Most of the fuel used comes from the black market, where the cost of a liter of diesel has doubled.

Cuba partnered with foreign companies and currently draws 50 thousand barrels of heavy oil used in its power plants, adapted to the type of crude. Photo: Raquel Perez Diaz

Cuba partnered with foreign companies and currently draws 50 thousand barrels of heavy oil used in its power plants, adapted to the type of crude. Photo: Raquel Perez Diaz

The differences with yesterday’s Cuba

President Raul Castro said the country would not return to the crisis of the 90s, “We do not deny that hardships may occur, even greater than at present, but we are prepared and better able to reverse them than before.”

Certainly the present situation is different. Cuba today has a diversified trade, while at the outset of the 90s exchanges had been almost exclusively with the Soviets, from which the island also received 100% of its fuel at subsidized prices.

Currently 50 thousand barrels of Cuban oil is produced per day, and this is used at power plants. Venezuela continues to send about 80,000 barrels of oil, some oil is also imported from other countries, prices are low and there are more sources of renewable energy.

During the past 25 years, a thriving tourism industry – non existent in the 90s – has developed.  It will bring in about 4 million visitors from around the world in 2016, a figure that will skyrocket if and when the US removes the ban on tourism to Cuba for US citizens.

Family remittances have tripled, reaching an amount close to US $2.5 billion a year. The cigar industry has gained market space and prestige in the world already reaching peak production. And the manufacture of cigarettes for export expands.

Even though renewable energy sources produce only a small fraction of the country’s energy, they didn’t exist in the 90s. Photo: Raquel Perez Diaz

Even though renewable energy sources produce only a small fraction of the country’s energy, they didn’t exist in the 90s.

But the “crown jewel” of the Cuban economy is the sale of professional services, with around US $8 billion in revenue. This comes mainly from the contracts with Venezuela, and Brazil’s “More Doctors” program.

In addition, the island has thousands of health workers, teachers, engineers, architects and coaches in Africa, which provide hundreds of millions of dollars more. In some cases they work in Cuban laboratories located in different countries of the region.

Undoubtedly, the most profitable economic investment made by the Cuban Revolution was in education, training more than a million university graduates. The paradox is that it was not intended as a source of income.

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