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Cuba to flirt with economic reforms

Cubans get ration cards from the government. Each family gets a basic ration of staples such as rice, beans and sugar. Other items have to be bought at foreign currency stores.


Cubans get ration cards from the government. Each family gets a basic ration of staples such as rice, beans and sugar. Other items have to be bought at foreign currency stores.

HAVANA — For 28 years, Jose Luis Gomez was a state health worker earning less than $20 a month.

That changed 15 years ago when he leaped at the chance to become self-employed. Cuba's economy was in crisis, and in a rare concession to capitalism Fidel Castro announced the creation of small business licenses. Gomez and thousands of others rushed to sign up.

"It changed my life completely,'' said Gomez, 60, sitting in the shade of a tree next to the wooden handicrafts stall that has made him a rich man — at least by Cuban standards.

Cuba's flirtations in the mid 1990s with market-style reforms were emergency measures designed to meet the crisis brought on by the collapse of the Soviet Union, its main trading partner.

Today its economy is on the verge of another round of economic liberalization, analysts say, similar in many ways to the measures of the 1990s.

"I don't have any doubt there will be economic changes. The question is how profound they will be,'' said Carmelo Mesa-Lago, a Cuban-American expert on the Cuban economy at the University of Pittsburgh.

Cuba's new president, Raul Castro, 76, is expected to introduce the first reforms in the coming weeks, from new micro-business licenses to redistribution of idle state land to small farmers. Despite surrounding himself with old guard hard-liners, Castro used his inaugural speech last month to reiterate a commitment to improving the standard of living of Cuba's 11-million citizens.

Attention to such practical matters is why many Cubans find themselves reassessing the younger Castro, once considered little more than a ruthless enforcer for his brother.

"Raul has shown he is different,'' said Rafael Diaz, a state taxi driver. "He calls things the way they are and wants to make them better.''

Even so, Castro says he needs time to come up with the right policies. "A mistake brought about by improvisation, superficiality or haste could have substantial negative consequences,'' he said in his speech, a seeming reference to the political and economic chaos in the former Soviet Union a decade ago.

Cuban officials continue to reject the Chinese or Vietnam model of broad economic liberalization under one-party rule.

"Its socialism will undoubtedly alter — but not in the manner of a China or Vietnam. Cuba will continue to go its own way,'' according to Ignacio Ramonet, co-author of Fidel Castro's recent official biography, My Life. "The new regime will initiate changes at the economic level, but there will be no Cuban perestroika — no opening up of politics, no multiparty elections.''

Raul Castro seems to accept the reality that banning private business activity only forces it underground, generating large sums of untaxed income.

Cuba's current dual currency system means that Cubans are paid state salaries in the weak national peso, while a much stronger so-called "convertible peso" circulates in the tourist sector. This has created absurd inequalities; those with access to the tourist economy — taxi drivers, hotel maids, restaurant and bar workers — make 10 to 20 times the income of university professors, doctors and civil servants.

Domestic production of basic goods has also fallen so low that the state is unable to provide many essential items in the national peso, adding to the misery of those who depend on state salaries. Cubans complain that their peso salaries, worth barely $20 a month, cover only a fraction of their daily needs. Real wages have fallen 76 percent since 1989 and Cubans today find themselves spending 75 percent of their income just on food, economists say.

Subsidized state rations offer little these days besides bread rolls in the morning, a pound of chicken, and a few pounds of rice, beans and sugar a month. Other essential items such as cooking oil, detergent, milk, soap, toilet paper, not to mention more luxury household items, have to be bought in foreign currency stores at unattainable prices.

"I don't care what the currency is called as long as I can buy food for my family with it,'' said Javier Reyes, a night watchman who earns a state salary of 240 pesos, roughly $10. To make ends meet, Reyes operates a small black market business on the side (he asked to conceal its nature to avoid reprisals) that earns more than 10 times his official salary.

By distributing state land to private farmers, and loosening government control on the sale and distribution of their produce, the government hopes to stimulate increased agricultural production. The impact this could have is clear already at a dozen open air markets across the city where stalls brim with fresh daily produce. Prices, though, remain out of reach for many Cubans.

Fresh pork was selling for 40 pesos ($1.75) a pound. "I can't afford it, all I can do is look and dream,'' said Odalys Garcia, 36, a state storekeeper who earns 250 pesos a month.

"If they give real autonomy to major cooperatives, and allow people to sell not only to the state but to the private markets, there will be a phenomenal transformation in the agricultural sector,'' Mesa-Lago said.

Small business licenses could have the same effect in urban areas. "Past policies have wasted a remarkably rich resource by suppressing entrepreneurship,'' said Archibald Ritter, an expert on the Cuban economy at Ottawa's Carleton University. "If Raul Castro wants a low-cost solution all he has to do is liberalize licenses for people to operate their own micro-businesses.''

Only 134,000 licenses for private businesses exist today, operating under heavy restrictions such as no advertising or hiring of labor. Ritter estimates that at least 200,000 Cubans run illegal businesses, often bribing government inspectors and police.

When Gomez, the handicraft seller, switched to the private sector, he tried his hand at running a family restaurant out of his home. After four years he became frustrated by state restrictions, which allowed a maximum of 12 seats. With two friends he turned to sculpting wooden handicrafts. His stall does a steady trade in polished mahogany wood carvings with tourists from Canada, Argentina and Europe.

"The difference between working for the state and the self-employment sector is like night and day,'' he said, calculating he makes about 25 times his old state salary. He built a new house with air-conditioning and owns two cars, including a 1952 Ford.

When his wife won a visa lottery to immigrate to the United States, he opted to stay. "This is my country and I'm doing fine here,'' he said. "With what I earn I have enough to live, to eat and to drink. I don't ask for any more.''

David Adams can be reached at

Food scarce, fuel plentiful

Cuba's economy has "de-industrialized" over the last 20 years since the collapse of communist trading partners in eastern Europe, says Carmelo Mesa-Lago, an economist at the University of Pittsburgh. Production of some basic goods remains below 1989 levels. But in several sectors, the economy has recorded robust growth.


Sugar 85 percent

Milk 66 percent

Cement 52 percent


Nickel 62 percent

Oil 300 percent

Gas 3,460 percent

Cuba to flirt with economic reforms 03/07/08 [Last modified: Friday, March 7, 2008 11:09pm]
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