CUBA LIBRE / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( RECOMMENDED READING )

Cuba libre?

By John Paul Rathbone and Marc Frank

Published: April 24 2011 17:54

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Though reforms have allowed small private enterprises such as the Havana stall above to flourish, curbs remain tight

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Rummaging round the Communist party’s central committee headquarters building in Havana, Raúl Castro finds an old lamp. Curious, he gives it a rub. A genie emerges and offers two wishes. “Only two?” asks Cuba’s president. “Yes,” replies the genie. “Times are tough. We’ve cut back.”

Mr Castro, a straight-talking former general, might be inclined to agree with the joke doing the rounds in one of the world’s last bastions of state communism more than 20 years since the end of Soviet subsidies holed his country’s economy below the waterline. Though today the lights are back on, there is water in the taps and far more food on the table, industrial and agricultural production have stagnated in recent years and the nation’s debt burden has grown.

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Mr Castro, however, is promising change. Half a century after the communist revolution, last week’s party conference adopted a package of economic reforms to move the country to a more market-oriented system over the next five years.

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In addition, he promised political reforms including an injection of fresh blood into a leadership dominated by the ageing revolutionary generation and the imposition of presidential term limits. “We are convinced that the main enemy we face and will continue to face is our own shortcomings,” Mr Castro said at the closing of the watershed congress.

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Many, both inside and outside the country, wonder whether he will be able to pull off such a profound shift in a country that has been a long-standing symbol of third world revolution – and potentially transform the tone of US relations with its southern neighbours, for which Cuba has long been a kind of Palestine.
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“This is the most exceptional ... [indication] of future paths that the revolution has shown since the 1960s,” says Hal Klepak, a Canadian military historian who has written extensively on Cuba. “We are truly at a historic moment, full of promise if things can be kept on track – and probably in many ways for Latin America, where the island’s influence remains significant.”
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Cuba’s bitter history with the US, including the trade embargo that has been in place since shortly after the 1959 revolution, and Washington’s fear of a mass exodus should the country implode, ensures the island remains a keystone feature of US foreign policy, one of the last unresolved problems of the cold war. The country no longer poses the profound foreign policy threat it did during the 1962 missile crisis. However, its alliance with Hugo Chávez, the socialist president of Venezuela – Havana provides intelligence and doctors in return for subsidised oil – means Cuba remains a thorn in America’s side.
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Furthermore, the recent release of many political prisoners is a reminder of the state repression that has dimmed Cuba’s regional appeal. Most Latin Americans now aspire to the bourgeois social democratic prosperity of Costa Rica, Chile or Brazil.
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In addition, this year’s overthrow of Middle Eastern gerontocracies has highlighted the gulf between Havana’s self-proclaimed progressiveness and the age of its leaders. Despite the promise of new blood, 12 of the 15-member political bureau elected at the congress were also in the previous one. Only three are younger than 60. The president himself is almost 80; Fidel Castro, his brother, almost 85. Between them, the Castros have overseen for more than 50 years an economy that even Fidel – progenitor of the slogan “socialism or death” – admits does not work.
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Since Fidel stepped down as president in 2006 for health reasons, Raúl, who assumed all his posts, has made it his priority to modernise the economy “to ensure the revolution’s very survival”. At last, after five years in power, his liberalising economic programme has been ratified.
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“There have been other congresses,” says Rafael Hernández, editor of Temas, a government-supported magazine at the forefront of internal debates about reform. “But this one endorsed for the first time a fundamental change in the political and economic model.”
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In keeping with the president’s at times corrosive criticism of state inefficiency, the mooted changes are by Cuban standards sweeping. The centrepiece is a structural adjustment so harsh it would make even advocates of the “shock therapy” meted out in the former Soviet bloc wince. In the next few years, even as unemployment benefits are slashed to just a few months’ duration, more than 1m workers will be taken off the state payroll and expected to find jobs as private farmers or in newly created small businesses.
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Increasing the numbers of those in private employment will reduce the hold of a state long seen by many Cubans as almost divine in its omnipresence. It employs about 85 per cent of the 5m-strong workforce.
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The measures would end state administration of companies in favour of regulation through taxation and other financial means. They would also open the door to more foreign investment, for example by developing special economic zones and allowing long-term leasing of property in the tourism sector.
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The reforming president admits this congress is likely to be the last he – or any other member of the “historic generation” – will oversee. Which reinforces the urgency of a question that has troubled 11 US presidents and more than 1m exiles: what will a post-Castro Cuba look like?
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Changes are already under way. East of Havana, the central highway passes through red-earthed provinces traditionally given over to sugar and cattle farming. In recent years, passers-by would have seen fields of spiny marabu, an invasive weed. Now, however, private farmers toil on once fallow state lands and sell their produce from roughly built roadside kiosks. This would have been forbidden a year ago but, ahead of the congress, the government leased vacant land to more than 140,000 small farmers.
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Separately, the state has issued about 200,000 self-employment licences since October. Makeshift businesses have sprouted on city blocks. Thoroughfares nationwide are now crowded with private vendors selling snacks, trinkets, manicures, handicrafts, mobile phone repair and, especially, pirated CDs and DVDs.
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Given that Fidel Castro introduced self-employment in 1994 as a “temporary concession to capitalism”, this represents a major change.
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For the pragmatic Raúl, former head of the armed forces, the shift is born of necessity but also of a desire to assert his differences from Fidel. Indeed, one common view holds that while the president acknowledges there would have been no revolution without Fidel, he also believes the former leader led his country down an economic dead end.
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“Raúl believes he can sort out the disaster,” says Carlos Alberto Montaner, an exiled Cuban writer. “It will be his great personal victory in the secret competition he has long had with his elder brother.”
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However, the only way to do this is through self-help, given that international credit is scarce; much of Cuba’s estimated $20bn foreign debt burden is in arrears; and China, a recent creditor, is pressing for repayment. “Without an increase in efficiency and productivity, it is impossible to raise salaries, increase exports ... and sustain the enormous social expenditures of our socialist system,” Mr Castro has said. This conclusion might be obvious elsewhere but has become widely accepted in Cuba only after a painful five-year process.
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Behind closed doors, the president has replaced Fidel’s men in government with his own friends from the military. Marino Murillo, the former economy minister, is now in charge of reforms. Luis Alberto Fernández, Raúl’s son-in-law and a colonel who manages the military’s expanding business interests, serves as the president’s leading economic adviser.
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Raúl appears to see as his model countries such as China that have transformed themselves into fast-growing economies. But “Raúlonomics”, as his policy approach is nicknamed, is stronger on diagnosis than prescription.
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The reforms are “too little, too limited and too late”, says Oscar Chepe, a dissident economist. More than 170 self-employed categories are allowed, including palm-tree trimmer and toy repairer. But the rubric remains that anything not allowed is forbidden. Nor are there any wholesale markets to buy the goods needed to run small businesses.
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Bank credit is available, in theory, but the financial system lacks liquidity.
Finally, there are taxes. Given that they are levied on gross revenues rather than profits, and only a portion of production costs are deductible, in some cases taxes will exceed earnings, points out Archibald Ritter, economics professor at Carleton University in Canada. All this will stifle the private sector, and its ability to absorb workers taken off the state payroll, which is why the president recently slowed the pace of the 500,000 job cuts meant to have been completed by March.
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Now the congress is over, the speed of reform may pick up. But with ration books being phased out and food prices rising, tensions will inevitably rise among Cubans already struggling to get by.
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So far, there are no signs of unrest. On a Saturday night in Santiago, a humid port known as the “cradle of the revolution”, thousands gather on the main avenue to dance and drink as they do every weekend. Even as jobless youths overthrow ageing autocrats in the Middle East, these Cubans appear to have little thought of protest. In Cuba, where 14 per cent of the population uses the internet (compared, for example, with about 21 per cent in Egypt), there is no Facebook generation.
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“No one is desperate,” says one reveller, when asked if the government-sponsored fiesta might become a protesta. “Those who govern are not greedy fools and know how to pacify the masses,” adds his companion.
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Older generations are less sure. “It isn’t easy,” says 40-year-old Maria Eugenia, who lost her bookkeeping job in January. “The future is dark, more uncertain.”
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That is as true for Havana’s new technocratic military elite as it is for the genie in the joke who granted the president only two wishes. “I’d like you to turn the Hotel Nacional into gold so I can sell it and pay off Cuba’s debts,” Raúl tells the genie. “Impossible – I am a genie, not a magician. You have one wish left.”
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“In that case,” says Raúl, “I’d like the Cuban system to become efficient and productive so we can emerge from the crisis.” The genie’s response is heavy with resignation: “Where was that hotel again?”
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In real life, Mr Castro has released a political genie by raising long-frustrated expectations of economic and political change. Now he must deliver – or struggle to return the spirit to its bottle.

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Copyright The Financial Times Limited 2011