Thursday 23 October 2008, San José, Costa
Rica
ECONOMY-CUBA
"Impossible to Escape
Impact" of Crisis –
Experts
By Patricia Grogg
HAVANA (IPS) -
After three years of
high growth, uncertainty
is hovering over the
Cuban economy once
again, although experts
are not yet ready to
predict exactly what
impact the current
global financial turmoil
will have on the island.
The global crisis
coincided with the worst
natural disaster to hit
this Caribbean island
nation in five decades,
caused by hurricanes
Gustav and Ike, which
produced an estimated
five billion dollars in
losses.
"It is practically
impossible to escape the
impact, although Cuba is
relatively protected,
and Latin America is
also in a better
position than it was a
few years ago," Esteban
Morales, a researcher at
the University of
Havana’s Centre for the
Study of the Hemisphere
and the United States (CEHSEU),
told IPS.
"A marked slowdown in
the growth of Cuba's
gross domestic product
(GDP) is likely,"
economist Pavel Vidal
wrote in an article for
the Economics Press
Service, a publication
of the IPS office in
Havana.
In January, the Centre
for the Study of the
Cuban Economy (CEEC)
forecast GDP growth of
5.1 percent for 2008,
based on the expansion
of investment and growth
in sectors like tourism
and professional
services. This figure,
however, already
reflected a slowdown
that began to be seen in
2007.
On Oct. 2, the Economic
Commission for Latin
America and the
Caribbean (ECLAC)
predicted that the
region would continue to
enjoy economic growth in
2008 at an estimated 4.6
to 4.7 percent. However,
the regional United
Nations agency adjusted
its forecast for 2009
downwards, to between
three and four percent,
because of the global
financial crisis.
The International
Monetary Fund (IMF) also
projected that the
region will grow at a
rate just above three
percent next year, due
to falling commodity
prices and a decrease in
the flow of expatriate
remittances from
developed countries,
among other factors.
The Caribbean region is
anxious about a possible
drop in tourism, given
that sector’s vital
importance to the
economies of small
island nations.
The prospect would also
dim the hopes of Cuban
authorities for
reinvigorating tourism,
which became the driving
force of the economy in
the 1990s.
In 2007, the flow of
tourists to Cuba, the
largest island in the
Caribbean with a
population of 11.2
million, fell for the
second consecutive year
by around three percent.
Deterioration of hotel
and other
infrastructure, and
stagnation in the
recreational options on
offer have caused Cuba
to lose ground with
respect to competitors
like the Dominican
Republic.
The current turbulence
could also limit access
to foreign credit, and
so have a negative
impact on investments,
as well as affecting
commodity exports to
developed countries
because of the effects
of the crisis on their
productive sectors.
Soaring food and fuel
prices drove up Cuba's
foreign debt by 14.3
percent in 2007.
Progressive worsening of
its financial situation
has prevented Havana
from honouring some of
its international
commitments, resulting
in a loss of
creditworthiness in the
eyes of creditors.
"The seriousness of an
economic crisis
originated by the
bursting of a financial
bubble depends on the
extent to which it
affects the real
economy," wrote Osvaldo
Martínez, the chairman
of the parliamentary
Commission on Economic
Affairs, in an article
in the governing
Communist Party’s
newspaper, Granma.
In Vidal's view, "nickel
exports and tourism will
initially be hit the
hardest" in Cuba,
although this "could be
offset by lower bills
for oil and imported
food."
In 2007, nickel overtook
tourism as the country’s
main source of foreign
exchange, bringing in
about 2.7 billion
dollars in revenue. Cuba
produces 75,000 tonnes
of nickel a year, and
has over one-third of
the world's proven
nickel and cobalt
reserves.
But the price of nickel
has plummeted in recent
months, to around 15,000
dollars per tonne, less
than one-third of the
price a year ago.
Similarly, oil prices
have plunged to 70
dollars a barrel, half
of their July level.
"Prospects for GDP
growth will depend
largely on maintaining
the expansion in exports
of professional
services, although these
may be limited by
restrictions on the
Venezuelan economy
caused by the fall in
the price of oil," Vidal
told IPS.
The professional
services in question are
those mainly provided by
a contingent of some
30,000 Cuban doctors
working in Venezuela,
who in 2007 produced an
income that represented
over 70 percent of the
island's GDP.
Meanwhile, productive
activities like mining,
agriculture and industry
have shrunk as a
proportion of total GDP.
This imbalance has led
economists like Juan
Triana, of CEEC, to warn
about a repetition in
Cuba of "past structural
distortions that once
were characteristic of
the economy, and
encouragement of
unilateral dependence on
a single sector," as he
wrote in an analysis for
the Economics Press
Service.
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