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### Viewing cable 09HAVANA490, CUBA'S ECONOMY - WHERE TWO PLUS TWO EQUALS THREE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09HAVANA490 | 2009-08-10 18:06 | 2011-02-04 21:09 | CONFIDENTIAL | US Interests Section Havana

`

    VZCZCXRO8975
    RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHNG
    RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
    DE RUEHUB #0490/01 2221845
    ZNY CCCCC ZZH
    R 101845Z AUG 09
    FM USINT HAVANA
    TO RUEHC/SECSTATE WASHDC 4659
    INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
    RUEHBS/USEU BRUSSELS
    RUCOWCV/CCGDSEVEN MIAMI FL
    RUEAIIA/CIA WASHINGTON DC
    RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
    RUCOGCA/COMNAVBASE GUANTANAMO BAY CU
    RHMFISS/HQ USSOUTHCOM MIAMI FL
    RHMFISS/JOINT STAFF WASHINGTON DC
    RHEFDIA/DIA WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

` `

    C O N F I D E N T I A L SECTION 01 OF 03 HAVANA 000490

    SIPDIS

    DEPT FOR WHA/CCA

    E.O. 12958: DECL: 08/09/2019
    TAGS: ECON PREL PGOV PINR CU
    SUBJECT: CUBA'S ECONOMY - WHERE TWO PLUS TWO EQUALS THREE

    REF: A. HAVANA 477
    ¶B. HAVANA 322
    ¶C. HAVANA 208
    ¶D. HAVANA 33
    ¶E. HAVANA 78 AND PREVIOUS

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

    -------
    Summary
    -------

    ¶1. (C) Amidst a flurry of activity starting with Raul
    Castro's July 26 speech and ending with the August 1 National
    Assembly, Raul and his ministers painted a desperate picture
    of the Cuban economy. The Government of Cuba (GOC) lowered
    its GDP growth projection for the second time in three months
    and Raul promised to cut expenditures to bring them in line
    with expected revenue. The GOC approved measures to address
    the "tense financial situation," without offering any
    details, and predicted an equally difficult 2010.
    Expectations for any meaningful reform have been delayed
    along with the Sixth Party Congress (Ref A). Instead, we can
    expect the GOC to continue to offer only marginal steps
    (forward and backward) including Raul's latest suggestions to
    improve the productivity of Cuban land by farming with oxen
    instead of tractors and sending young communists out to plant
    trees. Meanwhile, it remains too early to tell if or when
    earlier reforms, such as the leasing of idle farm land, may
    impact Cuba's bottom line. End Summary

    ------------------------
    I,m No Economist, but...
    ------------------------

    ¶2. (SBU) Vice President and Minister of Economy and Planning
    Marino Murillo Jorge reported on July 30 to the Central
    Committee of the Cuban Communist Party (PCC) a GDP growth
    forecast of 1.7 percent, down from 2.5 percent reported in
    April/May (Ref C) and 6 percent forecast in December (Ref D).
    (Note: The calculation of GDP in Cuba is not comparable
    with other countries, but GDP movements within a Cuban
    context are noteworthy. End Note.) The economy grew by 0.8
    percent in the first half of 2009, which means the GOC
    expects the economy to grow faster in the second half of 2009
    (in order to average 1.7 percent overall) probably due to an
    improved trade deficit led by slightly higher prices for
    nickel and an across the board reduction in imports. Reuters
    reported on July 21 that Cuba had lowered its forecast for
    imports by 22 percent and exports by 13 percent. The new
    estimated trade (in goods) deficit of around USD 8 billion is
    USD 3 billion less than Cuba's record 2008 negative balance,
    but remains unsustainable. Tourism, a significant source of
    foreign income, is up in terms of the number of visitors but
    down in terms of revenue. Tourists are buying cheaper
    packages and spending less time and money in Cuba. According
    to Raul, Cuba is also affected by a weaker U.S. dollar.
    Economy Minister Murillo added that Cuba's economic
    conditions in 2010 promise to be equally difficult.

    ¶3. (C) Raul also acknowledged Cuba's liquidity issues (Ref
    B) and committed to repay all of its debts. We understand
    from some diplomatic contacts that most foreign businesses
    started receiving token payments on long overdue debts in
    July. Credit lines with foreign banks, including BNP Paribas
    and Societe Generale, are being renegotiated. In a public
    effort to save every penny, Cuba continues with an austerity
    energy plan introduced in June. The electricity and fuel
    restrictions even affect businesses that capture foreign
    currency like shopping markets and restaurants. One paladar
    owner told us that they could lose their operating license if
    they use more than their quota of electricity even though the
    paladar pays for the high electricity rates in Cuban
    Convertible Currency, rather than the subsidized rates paid
    in local national currency by state entities and residences.

    ¶4. (C) To his credit, Raul's speeches did not solely blame
    all of Cuba's present economic and financial woes on the U.S.
    embargo, the world financial crisis, or the 2008 hurricanes.
    More than ever before, Raul emphasized the responsibility of

    HAVANA 00000490 002 OF 003

    Cubans and, more surprisingly, the responsibility of the
    Cuban system. Specifically, he said, "I'm no economist, nor
    has it been my responsibility during the years of the
    revolution to focus on the details of developing the economy,
    but I believe in the idea that, as I said in the last session
    of the Parliament, no one, no person or country, can spend
    more money than they earn. Two plus two always equals four,
    never five. Today...in the conditions of our imperfect
    socialism, because of our own shortcomings, two plus two
    often produces three." Since his first speech as interim
    president in July 2007, Raul has surprised Cubans by candidly
    highlighting many of the symptoms of the failed economic
    system in Cuba (lack of housing, water, electricity, and
    food; high levels of inefficiency, bureaucracy, and
    corruption) and some of the causes (lack of incentives to
    work, two currencies, and an aging population). What he has
    failed to identify (or admit) are the root causes endemic to
    a system where the government tries to control every aspect
    of the economy, and of life in general.

    ----------------------------------------
    Raul's Latest Solutions: Oxen and Trees
    ----------------------------------------

    ¶5. (SBU) The GOC has not publicly detailed its plans to
    resolve its liquidity and deficit issues, other than to
    vaguely mention guidelines adopted by the Central Committee
    on July 29 to balance Cuba's twin deficits. According to
    Raul, changing Cuba's economic system is not an option (Ref
    A). Unlike in previous July 26 and National Assembly
    speeches, Raul offered no new initiatives. Instead, he
    focused on the status of previous initiatives: leasing idle
    land (see below), a new Comptroller General (Ref A), the
    energy austerity plan, and urging retired teachers back to
    work. Meanwhile, Raul failed to mention the status of one of
    his most promising proposals - pay for performance - which
    has passed several public deadlines without taking full
    effect.

    ¶6. (SBU) Rather than proposals, Raul spent a lot of time in
    both speeches on one of his most common themes - extolling
    Cubans, especially young Cubans, to return to the land and
    make it fruitful. "The land is there, the Cubans are here,
    let us see if we work or not, if we make the earth yield or
    not..." Raul said in his July 26 speech. In both speeches,
    he referenced the use of oxen to till the land and transport
    goods. He praised a new "suburban agriculture" program
    starting in Camaguey and to be rolled out to other
    municipalities using animal traction. "In this project, let
    us forget about tractors and fuel, even if we had them in
    sufficient quantities..." Where the land is useless for food
    production, Raul urged young and old to plant trees, "which
    represent a major wealth too." The GOC has identified
    increasing agricultural production in order to substitute
    imports as a matter of national security.

    ¶7. (C) In that regard, Raul also reported on the status of
    the initiative launched in September 2008 to lease idle land
    (Ref D). Raul said that 82,000 applications for 690,000
    hectares (1.7 million acres) of land have been approved and
    distributed. One-third of that amount (225,000 hectares or
    550,000 acres) has been sowed, which represents about 6
    percent of all state and non-state (cooperatives and some
    private) idle land in Cuba. Success stories in the press
    mainly highlight retired Cubans who have taken on 10-15 acres
    each. The new farmers usually lament the low prices paid by
    the state and a lack of interest in farming by Cuban youth,
    but otherwise claim to be proud that they can do something to
    provide for their country and family. It is unlikely this
    initiative will affect overall Cuban agricultural production
    in 2009, which reportedly fell by 9.3 percent through June.
    Once all 690,000 hectares (or more) are productive, then we
    may start to see a positive impact throughout the country.
    While agriculture production itself represents less than 5
    percent of GDP, any increase in the domestic production of
    agricultural products that can replace costly imports will
    help ease Cuba's financial problems.

    -------
    Comment

    HAVANA 00000490 003 OF 003

    -------

    ¶8. (C) The week following the National Assembly, First Vice
    President Machado Ventura traveled around the country
    visiting agriculture cooperatives, refineries, and
    laboratories. With no new initiative to tout, Machado's
    primary message simply repeated the GOC's mantra for
    perfecting the socialist system through hard work, savings,
    and efficiency. With a bleak outlook for 2010 and no Party
    Congress to look forward to, these words have become
    meaningless slogans to any Cubans who are still listening.
    FARRAR

`