Cuba adjusts plans amid price hikes, weather fears

 

Tue Apr 26, 2011 12:00pm EDT

* Government adjusting 2011 economic plans

 * Imports to cost $800 million more than expected

 * Business partners and residents fret

By Marc Frank

 

HAVANA, April 26 (Reuters) - Rising food and fuel prices and fears that an active hurricane season looms have Cuba tightening its belt, according to government leaders and local economists.

 "Just a few months into 2011 and according to the most recent data, imports this year will cost an additional $800 million for the same amount of goods we planned to purchase, forcing us to adjust the plan approved in December," President Raul Castro told a Communist Party Congress last week.

 The country imports between 60 percent and 70 percent of the food it consumes and 50 percent of its fuel.

 High fuel prices also increase prices of most other products the island purchases abroad, and the cost of transporting them.

 Rainfall has been less than 10 percent of the average over much of the country this year, which could force more food imports.

 Hurricanes on average hit the Caribbean island every other year, but the last major storm was in 2008, so the country is fearing the worst this season.

 All this has creditors and foreign business partners raising their eyebrows as they remember 2008, when high international food and fuel prices, hurricanes and the international financial meltdown left debts and dividends unpaid and their local bank accounts frozen.

 The government was forced to slash imports 37 percent in 2009 and kept them at a similar level last year, which eased the 2008 financial crisis, but slowed growth to less than 2 percent.

 Local economists said Castro had improved management of the state-dominated economy and built up reserves since 2008, making the prospects of a liquidity crisis less likely.

 According to the Bank for International Settlements, Cuba had $5.3 billion in deposits at international banks at the close of 2010, compared with $2.6 billion at the end of 2008.

 Credit was tight, with outstanding bank loans to the country at $1.7 billion, down $200 million over the same period.

VENEZUELA LENDS A HAND

 The economists said the amount socialist ally Venezuela pays for some 40,000 healthcare and other professionals working in the South American country is pegged to oil prices, which helps offset rising prices.

 Oil-rich Venezuela is Cuba's only petroleum supplier.

But there are no such deals for food.

 Igor Montero, president of Alimport, the state-run food import monopoly, told local media earlier in the month that imports of bulk foods such as wheat, corn, soy, powdered milk and cooking oil would cost the country 25 percent more than planned this year, or $308 million.

 "Our price for a pound of chicken has gone from $0.33 in February to $0.51 for delivery in June, up 52 percent," said a U.S. businessman who sells poultry to the country under an amendment to the trade embargo that allows agricultural sales for cash. He spoke on condition of anonymity.

 In the end, this means Cubans, who have already seen gas and food prices go up this year, must brace for more.

"This will increase external financial tensions and it will be necessary to apply new adjustments, which in the end, will impact negatively the population," said a Cuban economist, asking that his name not be used.