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CUBA STANDARD – Cuba’s reformers — already busy with currency unification, simultaneously encouraging and limiting private-sector growth, turning around dysfunctional state companies, and selling the Mariel export processing zone to investors, among many other tasks — may also have to cope with tightening cash flow in 2014.

As economic reforms have yet to produce any tangible results as far as revenues go — just two years from the 2016 deadline set by the lineamientos of reform in 2011 — officials predict continued sluggish GDP growth in 2014. Following a disappointing 2.7-percent increase in 2013 — 0.9 percent less than predicted — the economy is expected to grow at a dismal 2.2 percent in 2014, Economy and Planning Minister Adel Yzquierdo told the National Assembly at its year-end session.

With prices of Cuban export commodities such as nickel and sugar expected to continue their decline, tourism stagnating, expenses for food imports destined to rise yet again, and many state companies likely to require continued subsidies, the government will have to extend its austerity policy in order to keep the country’s recent debt-service record clean.

“In 2014, international prices could trigger a shock of terms of exchange,” says Pavel Vidal, a former Central Bank economist who now teaches at Universidad Javeriana in Colombia. “In such a scenario, and given that the reform doesn’t show robust results in revenue generation, a new adjustment in imports and a heightening of hard-currency restrictions should not be dismissed.”

As the overall deficit for 2014 is expected to reach 3.9 billion Cuban pesos, or 4.7 percent of GDP (the government doesn’t reveal what part is in hard currency), the Central Bank is floating domestic bonds among Cuban banks and cranking up the money printing machines.

Raúl Castro announced in 2009 that meeting Cuba’s foreign debt obligations was a top priority. Even so, some foreign players in Cuba are concerned, fearing that Cuba is just one cutback decision in Caracas — or a hurricane — away from the next default.

“Cuba is entering into a very tough period with severe liquidity issues, and [there is] a real risk of what happens if Venezuelan support is cut further,” said one foreign businessman in Havana who spoke on background. The country “has been successful in renegotiating various sovereign debt deals, with Russia, China, Japan, France, Netherlands and others,” he added. “But I don’t see how this translates into new money, which is not part of a bilateral political deal.”

Under Nicolas Maduro — Hugo Chávez’ besieged successor — Venezuela has continued to provide Cuba with half its oil needs at subsidized prices, and apparently maintains a high level of Cuban medical service purchases. However, Venezuelan-Cuban mega projects, such as offshore oil drilling, a new refinery at Matanzas, and a ferronickel plant in Moa, have been put on ice.

To be sure, other foreign observers in Havana are less pessimistic, believing that Maduro will continue Venezuela’s commitment to Cuba, and that it will be able to do so as long as the oil price remains above $90 a barrel. Also, Cuba has been quite successful recently in diversifying its medical service exports, thanks to agreements with Brazil, Ecuador and Arab countries.

Finally, even though their effect is difficult to predict, the reforms do have an upside.

Currency reform and devaluation will open a window of opportunity for Cuban state companies to boost exports, says Vidal. Whether many state companies will be in a position to take advantage is another question, as their dysfunction continues. Even new ones such as Azcuba and BioFarmaCuba are already generating defaults, as deputies in the National Assembly learned recently.

What’s more, tax revenues may be rising, as small, privately-owned businesses begin to gain traction. Tax collections have grown marginally in 2013, but there are now 440,000 cuentapropistas, 45,000 more than at the end of last year, and some of them are gaining stable footing. Also, the government has granted licenses to 270 non-agricultural cooperatives.

The Mariel Special Development Zone is another wild card. No manufacturer has publicly committed to opening shop at Mariel, but Cuban officials are optimistic, talking about some 300 companies that have expressed interest.

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