Cuba got into trouble after four hurricanes caused $10 billion in damage. Imports for 2008 spiked 41 percent from the previous year while exports remained flat. Now, the world crisis has slashed demand and prices for Cuba's few exports, like nickel, and choked off new credits to a government already in debt. "> Cuba got into trouble after four hurricanes caused $10 billion in damage. Imports for 2008 spiked 41 percent from the previous year while exports remained flat. Now, the world crisis has slashed demand and prices for Cuba's few exports, like nickel, and choked off new credits to a government already in debt. ">

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Fernando used to have a cushy job in Havana as a teller in a government bank office with air-conditioning, a nice computer and a bank-provided lunch.

Not anymore.

Amid Cuba's deepest economic crisis in nearly two decades, his office has shut off the AC and his computer constantly crashes because of the heat, exasperating him and his customers. His lunch, Fernando said, has "shrunk to a snack."

Driving the bulk of the crisis has been the world recession, which slashed demand and prices for Cuba's few exports, like nickel, and choked off new credits to a government already deeply in debt. Add the island's internal woes, and Raúl Castro's recent description of the problems as "a matter of national security" seems like no exaggeration.

After Castro replaced brother Fidel, "most Cubans hoped for some improvements in the medium term. But now everyone is preparing for worse and worse," said one Miamian who recently returned from a visit and asked for anonymity to protect her relatives there.

Castro has adopted Draconian measures to survive the storm in the short term.

To cut electricity consumption by 12 percent -- Cuba imports half its oil needs -- the government has shut down many factories and ordered state office buildings, theaters and other facilities to shut off their ACs. Inspectors also are cracking down on Cubans who steal electricity through illegal hookups with $23 fines -- about five weeks' worth of the average salary.

"Banks are built to keep out robbers, not to let in a breeze," said Fernando, who asked that his surname not be published because of fear of government reprisals. "Without [air conditioning] . . . my office is two bus stops past hell."

Some hospitals also are shutting down their emergency rooms for two hours a day, and elective surgeries are being postponed until electricity services become more dependable, said Elaine Scheye, a Chicago consultant who has studied Cuba's health system.


Portions for many rationed foodstuffs have been cut -- red beans and chickpeas from 30 to 20 ounces a month, salt by half to about four ounces per month -- while food deliveries to factory, office and school cafeterias have been trimmed, according to official announcements.

Harsh police crackdowns on the food black market -- apparently an attempt to ensure that more items reach the legal outlets -- have driven up prices yet left many of the legitimate sales points with shelves oddly bare, Havana residents say.

Even foreign businesses are suffering, with the government tightly controlling withdrawals from their accounts. Castro also replaced his entire economic Cabinet in March, and just last week the legislature created a comptroller's office to attack official corruption.

Yet many analysts in and out of Cuba argue that those belt-tightening moves are far from what's needed to address the crisis.

"Mercurochrome and Band-Aids for deep wounds with heavy bleeding," Miami activist Juan Antonio Blanco wrote in his blog, Cambio de Epoca (Epochal Change). Even the official Granma newspaper called the situation "grave."


Cuba was already in deep trouble by the fall of 2008, after four hurricanes caused $10 billion in damage -- equivalent to a whopping 10 percent of its gross domestic product (GDP) for 2007. Imports for 2008 spiked 41 percent to $14.2 billion from the previous year while exports remained flat at $3.7 billion, meaning the island's already huge trade deficit mushroomed by 65 percent.

Food imports alone rose from $1.5 billion in 2007 to $2.2 billion last year as the government tried to replace hurricane-damaged harvests, according to official Cuban figures.

And then the world economy plunged into recession, drying up lending markets. Foreign commercial lending to Cuba fell by $1 billion in 2008, according to the Bank for International Settlements, a crippling blow to a government that for the past decade had been taking on ever larger debts to pay for imports and older debts -- "financing by arrears," as one economist put it.

Russian auditors reported last month that Cuba had failed on three dates to make payments due on a $355 million loan signed in 2006. And some 80 Cuban government enterprises postponed payments to foreign creditors this year, according to Carmelo Mesa Lago, a University of Pittsburgh expert on the Cuban economy.


With remittances and tourism expected to be flat this year and the price of nickel -- 41 percent of Cuban exports -- at about 25 percent of its 2008 levels, the outlook for 2009 remains grim. Over the past month Havana cut its predictions of 2009 GDP growth from 6 percent to 2.5 percent and then 1.7 percent -- though some Cuba economists are privately predicting a .5 percent drop.

"The country is again facing a situation as adverse" as the early 1990s, the U.N.'s Economic Commission for Latin America wrote earlier this year. Cuba's economy shrank by 35 percent after the Soviet Union collapsed and cut off its $4 billion-$6 billion annual subsidies to Havana.


Since Raúl Castro officially assumed power in early 2008, he has also been putting in place several longer-term reforms that he hopes will give Cuba a more productive, streamlined and less centralized economy.

In his government's most ambitious effort, it has loaned 1.7 million acres of fallow state lands to 82,000 Cubans, hoping to increase food production and slash costly imports. It also shifted Acopio, the notoriously inefficient agency that gathers and distributes farmers' products, from the Agriculture to the Domestic Commerce Ministry.

The government also has increased some salaries as incentives to productivity, allowed Cubans to hold more than one job at a time and let retirees to return to work. Castro last week predicted cuts in government spending on health and education, and said imports would be cut back this year.

Havana also has hinted that it is studying opening the doors wider to foreign investors and abandoning the costly food rationing system. One leading Havana economic analyst, Ariel Terrero, even suggested recently that the government put more of the economy "in the hands of producers" -- for example, allowing state grocery or clothing shop workers to run their own enterprises.


Despite early speculation that the reputedly pragmatic Castro would move Cuba toward a Chinese-like "market socialism system," his reforms have remained relatively moderate.

Brother Fidel remains a powerful opponent of more profound changes even three years after he was last seen in public, analysts say, and Raúl Castro must know that opening Cuba to more market forces could fuel a potentially destabilizing increase in the island's social and economic inequalities.

In a keynote speech to the legislature last month, he prescribed a move toward a kind of "rational socialism" that will preserve Cuba's political system while cutting back the bureaucracy, state subsidies and waste, and increasing productivity and efficiency.

"It's a matter of defining, with the broadest popular participation, the socialist society to which we aspire and can build, given Cuba's current and future conditions -- the economic model that will rule the life of the nation in benefit of our people," Castro said.

Lest anyone get the wrong impression, Castro added a caution.

"I was not elected president to restore capitalism in Cuba or surrender the revolution," he said. "I was elected to defend, maintain and continue perfecting socialism, not to destroy it."

Source: Miami Herald

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