CUBAN GDP PROJECTIONS FALL; NO STIMULUS PACKAGE IN

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000308

SIPDIS

DEPT FOR WHA/CCA

E.O. 12958: DECL: 05/26/2019
TAGS: ECON PREL PGOV EFIN CU
SUBJECT: CUBAN GDP PROJECTIONS FALL; NO STIMULUS PACKAGE IN
SIGHT

REF: HAVANA 33

Classified By: COM Jonathan Farrar for reasons 1.4 (b) and (d)

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SUMMARY
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1. (C) The Government of Cuba (GOC) has lowered 2009 GDP
growth projections from 6 percent to no greater than 2.5
percent. Removing the GOC's historic optimism and unusual
accounting methods, it is likely Cuba will experience zero or
negative growth this year. A fall in the demand for and
price of exports is partially to blame. GOC officials also
finally admit that Cuba is not immune to the international
decline in tourism. Not surprisingly, the GOC has offered
the Cuban people nothing more than a promise of tougher times
ahead without any reason to hope, other than the fact that
they have lived through worse times before. Rather than
offering a domestic stimulus, the GOC announced a new
austerity program to start in June. Cuban households should
start to feel the pinch from Cuba's macroeconomic problems
this summer. We will examine in septel how these reports,
serious liquidity issues, and looming financial problems in
Venezuela factor into speculation that Cuba may be headed
towards another special period. End Summary

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GDP GROWTH PROJECTIONS FALLING
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2. (SBU) In December, former Economy and Planning Minister
Jose Luis Rodriguez estimated 2009 GDP growth of 6 percent.
At the same time he reported 2008 GDP growth of 4.3 percent,
barely half of the government's original prediction of 8
percent. In 2007, the GOC reported GDP growth of 7.3
percent, again much less than its 10 percent prediction.
With this history of overestimating GDP growth in mind, it
was no surprise when new Economy and Planning Minister Marino
Alberto MURILLO Jorge reported in the official press on May
24 that 2009 GDP growth is now expected to reach "2.4 or 2.5
percent" due "the instability in the world economy". One
week earlier, the University of Havana's Center for the Study
of the Cuban Economy (CEEC) projected GDP growth between
negative 0.5 percent and positive 2.5 percent. Historically,
CEEC's projections have been closer, if not still a bit
higher, than the final GDP growth figures reported in
previous years by the Office of National Statistics.


3. (SBU) GOC explanations for lower GDP growth are similar
to those offered at the end of 2008 (hurricanes and the U.S.
embargo),with an increasing emphasis on the role of the
world financial crisis. According to Murillo, the global
contraction has reduced Cuba's potential earnings from
tourism and exports. Although the GOC reported a slight
increase in tourist arrivals in the first quarter of 2009
(the height of tourism season),it expects tourism revenue
for the entire year to fall by some USD 300 million. The GOC
has reported both a reduced demand for key Cuban exports
(tobacco, rum, and nickel) and lower international prices.
Prices for Nickel, which represents Cuba's largest source of
export earnings by far, have suffered most dramatically.
According to Canadian firm Sherritt International's first
quarterly report, the average price of nickel so far in 2009
is 43 percent lower than the average price for all of 2008,
which was already down 44 percent from the historic 2007
average. Mines operated by Sherritt produce more than half
of Cuba's nickel. Between tourism and nickel alone, the GOC
could experience more than USD 1 billion in lost revenue
compared to 2008, a huge hit in a country starving for
foreign currency (septel).


4. (SBU) In addition to the effect of the real economy on
GDP growth in Cuba, figures are also influenced by
statistical manipulation. The GOC calculates GDP using a
unique "social" method that does not conform with
internationally accepted standards (reftel). From 2003 to
2007, the GOC's unorthodox methodology resulted in reported
GDP growth rates of an average of 2.36 percent higher than if
Cuba had used internationally accepted standards. Taking

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into account the GOC's traditionally optimistic predictions
and the extra bump provided by using the "social" method,
Cuba will be hard pressed to show positive GDP growth in

2009. In fact, it is likely Cuba experienced negative growth
during the last quarter of 2008, in large part due to the
effect of three major hurricanes on agricultural production
and imports.

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NO GOVERNMENT STIMULUS IN SIGHT
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5. (SBU) Unlike most of the rest of the world, Cuba has no
plans to introduce a government stimulus package to spur
domestic production. Instead, GOC officials predictably urge
Cubans to work harder, save more (primarily energy),waste
less, and stop stealing from the office. The Communist Party
newspaper Granma repeated Fidel Castro's traditional
insistence that "the most immediate revenues in hard currency
that our country can get are through savings." The GOC
appears to be preparing Cubans for a tough year ahead with
official press reports of potential blackouts, reduced
imports, and limited transportation services. Granma has
promised that expenditures will be cut and Economy Minister
Murillo emphasized that there will be restrictions on
consumption.


6. (SBU) On May 26, an unpublished government directive
circulating among government offices and state companies
announced a new austerity program aimed at reducing energy
use starting in June. Details have not been released, but
the program will likely mandate disconnecting air
conditioners, turning off lights, cutting subsidies for
government vehicles, and shortening working hours. These
reports have sparked the international press and everyday
Cubans to wonder if Cuba is heading toward another Special
Period (septel).

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COMMENTS
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7. (C) A tightly controlled economy and U.S. sanctions had
protected Cuba from the initial phase of the world economic
slowdown, in particular regarding the banking sector.
However, a heavy dependence on imports for every sector of
society (domestic consumption/subsistence, tourism inputs,
infrastructure investment, and energy) and a serious decline
in foreign currency income from tourism and commodity exports
have finally caught up with the country's finances. Up until
now, Cubans have been mildly affected, in the same way that
they did not experience much benefit from years of high GDP
growth rates. However, everyday Cubans should expect recent
GOC warnings and the announced energy austerity program to
extend the reach of Cuba's macroeconomic problems to their
households just in time for the start of hurricane season on
June 1.
FARRAR