Trying to make the sums add up

Reform in Cuba

Trying to make the sums add up
Raúl Castro unveils his plan for an economy of powerful, more efficient
state companies and the legalisation of small businesses
Nov 11th 2010 | Havana

ON THE rare occasions when Cuba's political leaders want to signal a
change of direction, or even just reaffirm existing policies, they do so
by calling a congress of the ruling Communist Party. Traditionally,
these get-togethers were held every five years or so. But the most
recent one took place in 1997. Since then, economic problems, the
illness that led to Fidel Castro relinquishing the presidency in 2006,
and palpable indecision have led to the repeated postponement of what
would be the sixth congress. Many Cubans had assumed it would never happen.

Now, at last, Raúl Castro, who replaced his elder brother and was
formally named as president in 2008, has summoned the congress for late
April to "make fundamental decisions on how to modernise the Cuban
economic model". The announcement comes shortly after the government
revealed plans to lay off at least 500,000 state workers and encourage
more people to seek self-employment or form co-operatives. The congress
will approve new "guidelines for socio-economic policy" set out in a
32-page booklet released this week.

So are the Castro brothers, in the twilight of their lives, preparing to
lead Cuba towards a mixed economy, similar to that of China? Or are
these reforms just short-term, reversible measures, designed to mitigate
an acute shortage of cash? The government's recently published list of
178 now-permitted lines of self-employment makes disappointing reading
for those who hope for radical reform. If a communist bureaucrat was
asked to present to his superiors a document identifying areas of
private enterprise that posed no threat to the state, this would be it.

Cubans can now legally work for themselves as a clown, a button sewer or
a fancy-dress dancer (in the costume of a 1940s Cuban crooner, Beny
Moré, the list bizarrely specifies). Repairing furniture is allowed;
selling it is not. But the list also includes more conventional trades
such as building and plumbing. State media have stressed that
self-employment should from now on be considered an acceptable way of
life, and those that choose it will no longer be "stigmatised". Even so,
the guidelines insist that the self-employed will not be allowed to
"accumulate property".

One way of interpreting the changes is that rather than creating new
opportunities, they merely legalise what was already a widespread
informal economy of clandestine private enterprise. Cubans working for
themselves will now have to pay taxes, ranging from 25% to 50%. But
allowing widespread private businesses requires a host of other changes.

New wholesale outlets will be set up where supplies can be bought. The
self-employed will be able to hire staff beyond the family. That is a
big change: since the 1960s the use of the words "employee" and
"employer" has been strongly discouraged. No longer will wages be
capped. Individuals will be allowed to rent, buy and sell their homes.

Many Cubans remain sceptical. Plenty remember Cuba's first, limited
opening to private enterprise in the 1990s (following the fourth party
congress, in 1991), when people were allowed to let out rooms and run
their own restaurants. Briefly, such businesses thrived. But as soon as
government finances improved, as cheap Venezuelan oil partly replaced
vanished Soviet largesse, the authorities stopped issuing new licences
for self-employment and suffocated family businesses with draconian
taxes and endless bureaucracy.

"When they talk about 'reform' here, they never really mean it," says
Evelyn, a biology student in Havana. After half a century of life under
the Castros, many Cubans have convinced themselves that nothing will
ever change. They have become experts at making daily ends meet and not
pondering the future. They may be in for a shock.

Cubans' wages are low ($20-30 a month at the unofficial exchange rate)
and they have to augment the state ration book in expensive farmers'
markets. But the state always guaranteed them jobs, workplace perks,
free health care and education, and heavily subsidised housing and
transport. Now it is struggling to do so. On top of the long-standing
inefficiencies of central planning and the difficulties caused by the
American economic embargo have come other blows, including devastating
hurricanes in 2008 and fewer tourists because of the world recession.
The government has repeatedly defaulted on hard-currency payments.

Raúl Castro takes the view that Cuba can no longer afford the bloated
and paternalistic state he inherited from Fidel, and that the state's
payroll should be linked to productivity. Government economists
calculate that 1m workers, or one in four of those employed by the
state, are surplus to requirements. The first lay-offs have begun, with
several hundred redundancies in the ministry buildings which surround
Havana's Plaza de la Revolución.

Officially, unemployment is still only 1.7%. But wander through the
capital, and aside from many people hanging around doing nothing,
beggars are ever more common. There is a new plea from those asking
passing foreigners for money: "There is no work here." As well as
cutting spending on education and health, Mr Castro plans to phase out
the ration book, replacing it with targeted help.

The calling of the party congress marks the culmination of a four-year
debate among Cuba's leaders. Raúl Castro and his allies have clearly won
it, against the more doctrinaire officials promoted by Fidel Castro
after he abandoned the limited opening of the 1990s. Fidel Castro's
health has improved this year. But in his public appearances, and in
rambling essays read out on the evening news, he has stuck rigidly to
comments on world affairs, not domestic issues.

Raúl's victory has been reflected in a gradual shuffling of the
government line-up. Only three ministers appointed by Fidel remain in
office, and none holds economic jobs. Last to go was Yadira García Vera,
sacked as minister of basic industry in September after being publicly
accused of poor management.

Victory for the decentralisers

Raúl, who was previously defence minister, has brought in army officers
to do many jobs. The army is Cuba's most efficient institution and has
played a big role in the tourist industry since the 1990s. The armed
forces' holding company, called GAESA, has emerged as the dominant force
in the economy. It is run by Raúl's son-in-law, Colonel Luis Alberto
Rodríguez. A shadowy figure who speaks English with an impeccable
upper-class British accent (which he says he picked up from his KGB
tutors while a student in the Soviet Union), he boasts that his
organisation controls 40% of the Cuban economy.

That share looks set to grow. Colonel Héctor Oroza, formerly the number
two at GAESA, was recently put in charge of another state conglomerate,
CIMEX, replacing its civilian director. CIMEX is Cuba's biggest company,
turning over more than $1 billion; among other things, it processes
remittances from Cubans abroad and rents property to foreigners.

The new guidelines promise to intensify the decentralisation of the
economy that Raúl favours (and Fidel opposed), granting wide autonomy to
state companies. They will be expected to pay their own way—and
liquidated if they do not. They may be freer to set up joint ventures
with foreign companies, in new "special development zones" aimed at
boosting job creation.

Seemingly in preparation for this, many companies have been purged.
Managers at Habanos, a cigar-maker, have been interrogated over claims
that $60m is missing. In September Pedro Álvarez, the former boss of
Alimport, which handles food imports from the United States, was
arrested at his home and taken away in handcuffs. Several officials at
the ministry in charge of oil and nickel production are said to have
been jailed after being found guilty of taking, and offering, bribes.
"Raúl's men have always been suspicious of some of the civilians who run
Cuban businesses," says a businessman in Havana. "Now they seem to be
getting rid of them all."

The guidelines fail to join up all the dots of the new economic picture,
but together with other recent announcements they do sketch out Raúl's
vision for his country: powerful state companies run by trusted army
officers, an attempt to tax and regulate the black market by allowing
self-employment, and setting wages, prices and employment according to
results and productivity. Social provision will increasingly be the job
of local party officials. The ultimate aim is to boost exports and
reduce reliance on imports, and to unify Cuba's twin currencies of
worthless domestic pesos and stronger "convertible" ones.

The big unanswered question concerns the succession. The party congress
will be followed by a separate conference to discuss internal political
matters, at which clues may be offered. Hidden away in some quiet
streets of the capital are once-famous names tipped as future leaders.
They now live in obscurity. Roberto Robaina, a former foreign minister,
whiles away his time painting watercolours. Felipe Pérez Roque, another
former foreign minister, is said to work as an electrician. Carlos Lage,
de facto prime minister until last year, is believed to be practising
medicine again. Perhaps Colonel Rodríguez is the dauphin now. Or maybe
the Castros will make no succession arrangements.

Either way, whoever takes over will inherit a system in which, for the
first time, there is a small but real place for private enterprise. And
stopping small businesses from growing may prove harder than preventing
them from being set up at all.

The Americas

http://www.economist.com/node/17463421?story_id=17463421&fsrc=rss