Storm damage may speed Cuba reforms: economists

Storm damage may speed Cuba reforms: economists
By Marc Frank
REUTERS

11:31 a.m. September 16, 2008

HAVANA – Hurricanes Ike and Gustav largely spared Cuba's main economic
engines while wreaking widespread damage to the island. But the
communist government may have to speed up reforms to avoid public
frustration during what is likely to be a slow recovery, local
economists said.

The storms in the last three weeks caused a minimum $5 billion in
losses, the government reported. They left 200,000 people homeless,
destroyed buildings and crops and made a shambles of the communications
and electricity grids.

"The $5 billion represents around 10.5 percent of GDP (gross domestic
product)," state-run television's top economic commentator, Ariel
Terrero, said on Tuesday.

"Last year the economy grew 7.5 percent, which means that in just 10
days this country lost more than everything it added to the economy last
year," he said.

The serious damage inflicted on sugar, tobacco, citrus and coffee might
have been a death blow when they were the base for the Cuban economy in
the 1990s, but the importance of those sectors has diminished as new
economic foundations have been built.

These days, 74 percent of GDP and foreign exchange earnings come from
services such as tourism and the sending of medical personnel to
Venezuela and other countries.

Nickel and pharmaceuticals have replaced old stalwarts such as sugar and
cigars as the island's top exports.

Of the new economic pillars, only nickel mining and processing took a
direct hit, which came when Hurricane Ike made landfall in Holguin province.

Nickel production has resumed and will gradually get back to full
capacity the government said.

Tourism, drugs and services are centered mainly in Matanzas and in and
around Havana, neither of which took head-on blows from Ike and Gustav.

The country's oil industry, which produces half the fuel consumed in
Cuba and is located in the same area, also escaped unscathed.

Still, the bad news from the storms outweighs the good and may prod the
government to launch economic reforms many have expected since Raul
Castro formally replaced his ailing brother, Fidel Castro, as president
in February, economists said.

EARLY CHANGES

Raul Castro came into office riding a recovery boosted by investment
from socialist ally Venezuela and promising to improve people's
"material and spiritual lives."

He instituted several early reforms, such as freeing up the sale of
computers and cell phones, but the promise of change was swiftly
replaced by austerity measures as the rising costs of fuel and food
imports depleted foreign reserves.

Now, with many people living in roofless homes and already stressed from
two decades of hard times, Raul Castro may no longer have the luxury of
time to implement change.

"This is a before and after situation that will impact everyone and
policy," a Cuban economist said, like others asking that his name not be
used.

"The people's expectations raised by Raul are dashed and now he must
quickly react and produce concrete results."

Since taking office Raul Castro has decentralized agriculture and
granted local producers a bit more autonomy and land. He lifted wage
caps in hopes of improving efficiency in an economy 90 percent dominated
by the state.

"Plans to strengthen the economy suffered a serious setback (from the
storms), but the situation may force the government to open up further
to individual initiative and foreign investment," another Cuban
economist said.

"The storms left a solid base for recovery but the government must cut
through bureaucratic delays and signal that it understands the need to
act quickly before peoplearket: Toyota

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