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Castro's largesse troubles
economists
By Marc Frank in Havana.
Financial Times,
UK, May 3 2005.
Cuban President Fidel Castro recently sent
a team of economists on a secret mission
as part of his campaign to put a brake on
growing poverty and social stratification
in what was once one of the world's most
egalitarian societies.
Their orders? To report back the minimum
monthly income needed to survive in Cuba's
state-dominated economy, where healthcare
and education are free and a basic food
ration, utilities and services are subsidised.
According to a well-placed source, their
verdict was 300 pesos - five times the minimum
55 pesos pension and three times the 100
pesos (£2.50, $4.80, €3.70) monthly
minimum wage.
Shortly after receiving their report, Mr
Castro announced increases to the minimum
monthly pension - to 150 pesos - and the
minimum wage - to 225 pesos - to take effect
this month.
The peso is currently worth a bit less
than $0.05 at government money exchanges.
"The two measures will benefit 3,602,344
people receiving the lowest income, for
which the revolution will dedicate 2,255,683,370
more pesos to the annual budget," said
the official trade union weekly, Trabajadores,
adding that the nation's average monthly
wage would therefore increase to 312 pesos
from 282 pesos.
Some Cuban economists are not as enthusiastic.
"There is no similar increase in domestic
production to justify increasing demand.
It is inflationary," a Cuban economist
said.
While the Caribbean island's service sector
is doing relatively well, what was its most
important industry and employer, sugar,
has virtually collapsed. The worst drought
in a century is eating into agricultural
output and recentralisation of the economy
is slowing some activities.
According to the UN Economic Commission
on Latin America, the gross domestic product
increased 10 per cent from 2001 to the end
of 2004, reaching 33.8bn pesos.
The budget deficit went from 3.3 per cent
of GDP in 2002 to 4.3 per cent last year.
Recent government figures seen by the FT
show pesos in circulation and in bank accounts
increased 25 per cent during the same period,
topping 14.5bn pesos last year.
Mr Castro, 77 and in power for 46 years,
believes closer ties with China and a strat-egic
alliance with oil-rich Venezuela provide
firm ground to repair and move forward his
tattered socialist project.
He has a new tool for his desire to level
the social playing field at the same time:
control over monetary policy.
Cuba's reserves increased by $1.5bn last
year, in large part due to cash taken in
when the dollar, which had circulated side
by side with the peso, was replaced with
the locally printed equivalent, the convertible
peso. Cubans rushed to exchange horded greenbacks
before a 10 per cent surcharge, slapped
on the US currency for good measure, went
into effect.
Mr Castro last month used his newfound
power over foreign exchange to revalue the
convertible peso 8 per cent against all
other currencies, making the country that
much more ex-pensive for visitors and Cubans
holding foreign exchange.
"If you can't produce, take from the
rich and use some of the money to import
for all instead," a foreign banker
said in describing how Mr Castro hoped to
avoid inflation and strengthen the peso
even as he increased the budget deficit
and printed more money.
Mr Castro also announced recently that
Cuba's chronic power problems are all but
solved and the state will sell at cost in
pesos hundreds of thousands of imported
Chinese electric burners, rice steamers
and other appliances.
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