Cuba frets over import costs even as economy grows

Cuba frets over import costs even as economy grows
Tue Jul 8, 2008 11:57am EDT
By Marc Frank

HAVANA (Reuters) - New Cuban President Raul Castro's promise to improve
daily life is running up against soaring fuel and food prices for the
import-dependent country and belt tightening is in order, the official
media said on Tuesday.

"Adjustments and restrictions are inevitable" warned Radio Rebelde,
leading off its national morning newscast with coverage of a
parliamentary hearing on the economy.

Raul Castro took over from his ailing older brother Fidel Castro in
February promising to "improve the material and spiritual life" of
Cubans after more than 15 years of hardships that followed the demise of
the Soviet Union.

He has lifted some restrictions on consumer goods and services such as
mobile telephones and computers, increased prices for agricultural
products, lifted caps on wages and granted more autonomy to food
producers, but the soaring prices for imported food and fuel have begun
to undercut his efforts.

No information was available on what adjustments and restrictions were
under consideration except that they involved social spending and retail
prices. The government subsidizes consumer food and fuel costs.

Economy and Planning Minister Jose Luis Rodriguez told the hearing on
Monday the economy was performing relatively well, with industrial
production up 6.2 percent over the first half of 2007, agriculture 7.5
percent, and tourism 14.5 percent, among other key sectors.

At the same time he said wages continued to rise more than productivity
in an economy more than 90 percent controlled by the state.

Rodriguez warned there was no escape from soaring prices given the
country imports 50 percent of its fuel and more than 50 percent of its
basic food stuffs.

"The substantial increase in the prices of fuel and food on the
international market so far this year and projections for the remainder
will inevitably force adjustments and restrictions on the economy and
plans for next year," the Communist party daily Granma quoted Rodriguez
as stating.

BUSINESS BELT-TIGHTENING

There also may be some belt-tightening on the business side.

Canadian oil firm Pebercan, which produces oil in Cuba, said in late
June it had not received debt payments totaling $37 million in April and
May from state-owned Cuba Petroleos due to "the difficult economic
situation" and rising food and raw material costs.

Vice President Carlos Lage announced in June that "some of the main
investment projects have been reduced and further reductions will be
necessary," providing no further details.

"The country spent $1.47 billion last year to import 3.423 million
tonnes of food and to import the same amount this year at current prices
will cost $2.554 billion, a billion dollars more," Lage said.

"The 158,000 barrels of oil per day that we consumed last year cost $8.7
million per day and this year costs 32 percent more, or $11.6 million
per day," he said.

Domestic gasoline and food prices have remained relatively unchanged in
Cuba this year due to state-control of the economy and prices, forcing
the government to spend more on subsidies.

At the same time recent prices for its most important export, nickel,
have fallen from the highs of a few years ago.

The Caribbean island has gradually emerged in recent years from an
economic crisis in the 1990s that followed the demise of
former-benefactor the Soviet Union.

An integration agreement with oil-rich Venezuela, soft credits from
China and high nickel prices have produced significant growth and
investment, eliminating blackouts, improving public transportation, the
availability of consumer goods and increasing investment in social
services and housing.

At the hearing on Monday various ministers made clear that the
adjustments might slow, but would not end the recovery.

(Editing by Jackie Frank)

http://www.reuters.com/article/marketsNews/idUSN0827720320080708?sp=true