Cuba prints pesos to prime slowing 2002 economy

Reuters, 12.24.02, 12:50 PM ET  By Marc Frank

HAVANA, Dec 24 (Reuters) - Communist Cuba's recovery from a 1990s economic crisis slowed in 2002 and domestic finances deteriorated, as Havana printed pesos to lessen the impact of a foreign exchange shortage on the import-dependent island. A 5 percent decline in tourism, low sugar prices, hurricanes, shrinking foreign investment and credit and the U.S. trade embargo left the country short of cash to import oil and other products, Economy Minister Jose Luis Rodriguez said in a customary year-end report to the National Assembly. The government pumped more than 2 billion pesos into the economy, keeping the gross national product barely in the black while widening the budget deficit, according to the report, read by Rodriguez to a legislative session Saturday devoted to the economy. He said the gross domestic product grew 1.1 percent in 2002 and forecast a 1.5 percent GDP increase in 2003, though the country's highest ranking economic officials warned at the session of rising oil prices could dash those plans. President Fidel Castro, in a message relayed to the assembly by Central Bank chief Francisco Soberon, warned that the strike in Venezuela and possible war in Iraq threatened to plunge the Caribbean island into a grave energy crisis. "One can no longer speak of high oil prices. Now you can start talking about exorbitant and unreachable prices," Soberon told the assembly, adding Cuba last week failed to purchase oil on the spot market as it was outbid by other buyers. Cuba currently imports around 65 percent of its minimum fuel needs, and more than half of that comes from Venezuela with soft financing. Vice President Carlos Lage, Castro's point-man for economic development, told legislators: "Oil prices could go up more ... forcing emergency, though temporary measures," Lage added the measures would guarantee the minimal functioning of the country and essentials such as food and health care. WIDENING BUDGET DEFICIT, PRESSURE ON CURRENCY The National Assembly adopted a 2003 budget with a deficit of 3.4 percent of GDP, breaching its own limit on deficits of more than 3 percent. The deficit was just over 3 percent in 2002, according to reports delivered at Saturday's meeting, compared with 2.5 percent in 2001. Increased currency in circulation combined with little growth to put pressure on the peso. The local currency held steady at 26 to the dollar because of a freeze on the exchange rate, government sources said, after a 22 percent devaluation in 2001. The government maintains a one peso to one dollar rate for its economic accounts. In 2002, there were 13.550 billion pesos in circulation -- 45.2 percent of GDP, compared with 11.356 billion in 2001, or 42 percent of GDP, Rodriguez said. The GDP increased by around 300 million pesos in 2002. At the National Assembly, Rodriguez and other officials focused on peso-funded efforts to upgrade free social services and recover from storm damage. "The year 2002 has been one of little growth and high development," Osvaldo Martinez, president of the Cuban parliament's economic commission, boasted. Martinez said social services had improved and unemployment declined from 4.1 percent to 3.3 percent despite the halving of the huge sugar industry, as more than 200,000 workers and unemployed youth were paid to go to school. LONG RECOVERY FROM SOVIET COLLAPSE Western diplomats said Cuba defaulted on hundreds of million of dollars in short-term and medium-term credits this year, leaving the country few options to find foreign financing. The collapse of former-benefactor the Soviet Union plunged the Caribbean's largest island into a crisis from which it has yet to fully recover. The GDP declined 35 percent during the 1989 through 1994 period, recovering since then at a 4 percent annual rate. Growth slowed from more than 6 percent in 2000 to 3 percent in 2001 and 1.1 percent this year. Budget deficits soared to 35 percent of GDP, and the peso fell from 5 to 150 to the dollar during the depths of the 1990s crisis. The peso and dollar circulate freely in Cuba. Havana adopted a series of austerity measures in 1994. The budget deficit declined to 2.4 percent of GDP by 2000, pesos in circulation fell from 15 billion to less than 10 billion, and the local currency strengthened to 22 pesos to the dollar, while most wages were frozen. Copyright 2002, Reuters News Service