September 16, 2008 / 6:38 PM / 11 years ago

Storm damage may speed Cuba reforms: economists

HAVANA (Reuters) - Hurricanes Ike and Gustav largely spared Cuba’s main economic engines while wreaking widespread damage to the island. But the communist government may have to speed up reforms to avoid public frustration during what is likely to be a slow recovery, local economists said.

A man walks past a building damaged by Hurricanes Gustav and Ike in Havana September 12, 2008. REUTERS/Enrique De La Osa

The storms in the last three weeks caused a minimum $5 billion in losses, the government reported. They left 200,000 people homeless, destroyed buildings and crops and made a shambles of the communications and electricity grids.

“The $5 billion represents around 10.5 percent of GDP (gross domestic product),” state-run television’s top economic commentator, Ariel Terrero, said on Tuesday.

“Last year the economy grew 7.5 percent, which means that in just 10 days this country lost more than everything it added to the economy last year,” he said.

The serious damage inflicted on sugar, tobacco, citrus and coffee might have been a death blow when they were the base for the Cuban economy in the 1990s, but the importance of those sectors has diminished as new economic foundations have been built.

These days, 74 percent of GDP and foreign exchange earnings come from services such as tourism and the sending of medical personnel to Venezuela and other countries.

Nickel and pharmaceuticals have replaced old stalwarts such as sugar and cigars as the island’s top exports.

Of the new economic pillars, only nickel mining and processing took a direct hit, which came when Hurricane Ike made landfall in Holguin province.

Nickel production has resumed and will gradually get back to full capacity the government said.

Tourism, drugs and services are centered mainly in Matanzas and in and around Havana, neither of which took head-on blows from Ike and Gustav.

The country’s oil industry, which produces half the fuel consumed in Cuba and is located in the same area, also escaped unscathed.

Still, the bad news from the storms outweighs the good and may prod the government to launch economic reforms many have expected since Raul Castro formally replaced his ailing brother, Fidel Castro, as president in February, economists said.

EARLY CHANGES

Raul Castro came into office riding a recovery boosted by investment from socialist ally Venezuela and promising to improve people’s “material and spiritual lives.”

He instituted several early reforms, such as freeing up the sale of computers and cell phones, but the promise of change was swiftly replaced by austerity measures as the rising costs of fuel and food imports depleted foreign reserves.

Now, with many people living in roofless homes and already stressed from two decades of hard times, Raul Castro may no longer have the luxury of time to implement change.

“This is a before and after situation that will impact everyone and policy,” a Cuban economist said, like others asking that his name not be used.

“The people’s expectations raised by Raul are dashed and now he must quickly react and produce concrete results.”

Since taking office Raul Castro has decentralized agriculture and granted local producers a bit more autonomy and land. He lifted wage caps in hopes of improving efficiency in an economy 90 percent dominated by the state.

“Plans to strengthen the economy suffered a serious setback (from the storms), but the situation may force the government to open up further to individual initiative and foreign investment,” another Cuban economist said.

“The storms left a solid base for recovery but the government must cut through bureaucratic delays and signal that it understands the need to act quickly before people lose patience,” she said.

Editing by Jeff Franks and Michael Christie

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