Key political risks to watch in Cuba

Key political risks to watch in Cuba
By Jeff Franks
HAVANA | Wed Aug 3, 2011 12:22pm EDT

Aug 3 (Reuters) - Cuba is pressing ahead with economic reforms aimed at
loosening state control but struggling against old mind-sets that are
slowing the pace of change.

As expected, the National Assembly recently approved reforms that the
ruling Communist Party agreed to in April, but Cuban leaders said there
remains resistance to putting new programs into action.[ID:nN1E7701VN]

The changes are aimed at improving productivity and prosperity by
modestly liberalizing the island's Soviet-style economy. The goal,
President Raul Castro has said, is to assure the survival of Cuban
communism as Cuba faces a generational change in leadership.

ECONOMIC REFORMS

Castro wants to reduce the role and cost of government and is in the
process of slashing a million jobs from state payrolls. His original
plan to cut half a million of them by last March proved too ambitious
and the deadline for layoffs has been extended indefinitely.

The government will rely heavily on the private sector to pick up the
slack, with the expectation that a third of Cuba's work force of 5.2
million will be "non-state" by 2015, up from 15 percent in 2010.

As of July, officials said 325,000 people were working in the
self-employed sector, up from 150,000 in 2009.

Cuban media reported that in October many small service businesses run
by the state will be leased to employees to run essentially as private
businesses, in an extension of an experiment that began last year with
barber shops and beauty salons.

The details of some key reforms such as plans to liberalize the sale of
homes and cars, and give state-owned companies more autonomy have not
yet been disclosed.

Castro and Vice President Jose Ramon Machado Ventura both complained in
speeches the past week about obstacles to change.

"The mentality of doing nothing, of waiting for something to come down
from above, has to be definitively broken," Machado Ventura said.

Castro has put a heavy emphasis on agricultural reforms with the goal of
raising output and cutting dependence on budget-draining food imports.

The National Statistics Office said non-sugar agricultural production
was up 6.1 percent in the first half of 2011, compared to the same
period in 2010.

What to watch:

-- The final version of reforms.

-- The progress and impact of government layoffs.

-- The numbers and performance of the newly self employed.

-- Agricultural production.

FINANCIAL HEALTH

Cuba is slowly recovering from a liquidity crisis that led to a default
on payments and freezing of foreign business bank accounts. [ID:nN24211495]

It has said tax payments from the self-employed have boosted revenues,
and that its top hard currency earners -- nickel exports and tourism --
are improving in 2011. Tourist arrivals were up 10.6 percent to 1.54
million in the first half of the year. [ID:nN1E76SOPO]

According to the Bank for International Settlements, Cuba's deposits in
international banks rose from $2.6 billion at the end of 2008 to $5.3
billion last year. [ID:nN26262256]

Castro told the National Assembly that Cuba's economy was expected to
grow 2.9 percent this year, up from 2.1 percent in 2010.

Earlier, Cuba devalued the convertible peso by 8 percent to attract more
foreign exchange and increase exports. [ID:nN14131522]

It has said it will allow construction of golf course developments, with
the goal of attracting wealthier tourists, but the projects are still on
hold. [ID:nN04118234]

U.S. President Barack Obama has eased prohibitions on U.S. travel to
Cuba [ID:nN14205232]. That is expected to bring more American, who have
not been able to freely visit the island due to a trade embargo imposed
since 1962.

What to watch:

-- Progress on liquidity crisis.

-- Nickel production and prices.

OIL PLANS

A Chinese-built rig contracted by Spanish oil company Repsol YPF is
expected to arrive in Cuban waters soon and start drilling before the
end of 2011 to begin the first full-scale oil exploration in Cuba's part
of the Gulf of Mexico. [ID:nN05150067]

Federal lawmakers from Florida have introduced legislation trying to
stop the drilling, saying exploration there poses environmental dangers.
[ID:nN24203352] U.S. oil companies are forbidden by the trade embargo
from operating in Cuba.

Companies such as Malaysia's state-owned Petronas, with its Russian
partner Gazprom Neft, and a unit of India's ONGC will use the Repsol rig
to drill in their offshore Cuban leases.

Cuba depends on imports from its oil-rich ally Venezuela, but says it
may have 20 billion barrels of oil offshore. The U.S. Geological Survey
has estimated 5 billion barrels.

China has signed an agreement to play a major role in increasing Cuban
oil production both onshore and offshore, although details were not
disclosed. [ID:nN08140650] State-owned China National Petroleum Corp is
said to be considering leasing exploration blocks in Cuban waters.
[ID:nN1E76C1S6]

China also committed to negotiations of contracts for a $6 billion
expansion of Cuba's Cienfuegos refinery and a liquefied natural gas
project. [ID:nN22266891]

What to watch:

-- Repsol's exploratory well in Cuban waters.

-- Fate of U.S. legislation on Cuba drilling.

-- China's growing involvement in Cuban oil development.

U.S.-CUBA RELATIONS

U.S.-Cuba relations, which thawed briefly under Obama, have been frozen
by the imprisonment in Cuba of U.S. aid contractor Alan Gross.
[ID:nN24221723] He was sentenced in March to 15 years for providing
Internet to Cuban groups under a U.S. program promoting political change
in Cuba [ID:nN12265306] and is now awaiting a decision by Cuba's highest
court on his request to overturn the decision. [ID:nN1E76L161]]

Cuba has built relations with other countries, among them China, Brazil,
Russia and Spain. Its top trading partner is Venezuela, whose President
Hugo Chavez is close to Fidel Castro.

Chavez underwent cancer surgery in Cuba in June and returned in July for
chemotherapy, touching off speculation about his political future.
Chavez is expected to seek re-election next year.

What to watch:

-- Fate of Alan Gross.

-- Medical condition of Hugo Chavez. (Editing by Kieran Murray)

http://www.reuters.com/article/2011/08/03/cuba-risks-idUSRISKCU20110803