Cuba’s New Economy

Havana has a familiar feel by now. It’s my 12th visit since 1968. By 11 a.m. the temperature hits 95 degrees. I sweat like Sydney Greenstreet in “The Maltese Falcon.” Some Cubans cheerfully walk with their children. Although others fill the street corners with nothing to do, I see significant changes since my last reporting trip, in 2008.

A hardware store and a furniture store have popped up near the corner of 17th Street and M. They are no big deal by U.S. standards, but I remember when a friend had to spend months finding black market cement, iron and paint to remodel his house. Now all these items are for sale in stores, even if they cost a lot by Cuban standards.

Privately owned snack bars, restaurants and B&Bs have cropped up all around town. Starting Jan. 1, a change in government rules encouraged the creation of small businesses, in part by lowering the cost of business licenses.

Last year President Raul Castro announced the biggest economic reforms since the 1959 revolution. The retirement age was raised by five years (it’s now 65 for men and 60 for women). Cuba planned to lay off 500,000 state workers by March 2011 in an effort to reduce government spending. The expanding private sector was supposed to absorb the unemployed and stimulate the economy.

So far, however, only a few thousand have been laid off, out of a workforce of 5 million. About 80 percent of Cubans work for the state. To date, more than 113,000 people nationwide have taken out business licenses, and 100,000 plan to lease government land as small farmers.

On April 16 the Cuban Communist Party will begin its congress to decide which economic reforms to implement and how quickly. But ordinary Cubans, including rank-and-file communists, are raising objections to the layoffs and elimination of the ration card system.

From all indications, some reforms that were supposed to take months to implement will now take years. Cubans are cautiously optimistic about the changes, but they’re also scared.

Everyone I spoke with agrees the centralized Cuban economic model isn’t working. Economist Blanca Munster, who works at a government institute, tells me that 70 percent of the country’s food is already produced by private farmers and co-ops. She says the state farms, which the government promoted for years, are very inefficient.

“The state farm produces tomatoes and fruit, but there are no boxes to ship them and no trucks to take the produce to the city,” she says.

Under the new reforms, state companies will have to show a profit or face possible bankruptcy. Cuban authorities are finally admitting that free markets are a much more efficient means to operate small farms, restaurants, bicycle repair shops and similar enterprises.

But since the early 1960s, when Fidel Castro announced that Cuba would follow a Marxist model, Cubans have received subsidized food, utilities, housing, education and medical care. What will happen to these pillars of the revolution under the new reforms?

I drive out to Villa Panamericana to meet the Ford family once again. Villa Panamericana, on the eastern outskirts of Havana, was built to house athletes for the 1991 Pan American Games. The government later gave the apartments to ordinary Cubans.

I first met Angela Jimenez 20 years ago. As a black woman living in Havana before the 1959 revolution, she could find work only as a domestic servant. Her daughter, Ernestina Ford, received a free university education and became a professor.

Her granddaughter, Yoama Ford, could have left the country but chose to stay in Cuba. She works as a translator. Yoama welcomed me into the two-bedroom apartment that she shares with her husband, mother and father.

Combining all the family members’ incomes, plus a few dollars received from relatives living abroad, the Fords do OK economically. But prices for some essentials remain high. Yoama notes that high cost makes “it very difficult to buy beef in the market.”

Gasoline has hit almost $5 a gallon due to the Middle East crises. That would be expensive in the U.S., but in Cuba, where the average monthly salary is $18, it’s a catastrophe.

We walk down the street to a government-owned beer and pizza restaurant that charges affordable prices, something new for the neighborhood. Yoama Ford likes the competition between private and state-owned restaurants, which she thinks will improve both.

In general she’s optimistic about the economic reforms. “I’m trying to go with the flow, trying to see the good side of it — even if sometimes there are things that aren’t working.”

In another town outside Havana, a college professor named Marta tells me about the discussions taking place in her Communist Party chapter. She asks that her full name not be used. Marta says the discussions before the start of the party congress have focused on the layoffs.

“We worry about the middle-income people, the workers, people who don’t have options to find other jobs,” she says. “There is support for the changes because it’s the right thing, but people worry about not having a job.”

Manuel Yepe smiles when he hears Marta’s comment. He’s a former ambassador and former ranking Communist Party official.

“Everyone has a general view favorable to the changes,” he notes with a chuckle. “But when it comes to their personal situation, they would like it not to affect them directly.”Economist Munster says a lot of government workers don’t put in a full day’s work and wouldn’t be missed if laid off. “One-third of the workforce has nothing to do,” she tells me. But the process of deciding who stays and who goes will be difficult and could end up taking years.

Meanwhile, the government also confronts fears about the elimination of the libreta (ration card). In the early years of the revolution, the government opened up special stores to sell basic food such as rice, cooking oil and milk at very cheap prices.

More recently, particularly after the end of subsidies from the Soviet Union in 1990, the libreta provided many fewer items. Yet the food subsidies still cost the government $900 million per year.

The government plans to gradually remove items from the libreta, hoping the free market will provide more food at reasonable prices. For those who can’t afford free-market prices, the government will hand out cash subsidies. Thus the government hopes to save $600 million per year.

“Instead of subsidizing the goods,” says Yepe, “we should subsidize the people who are not able to get the goods properly.”

But these internal changes won’t be enough, according to Yepe. Cuba needs more foreign investment. Spain, Norway and China are already developing offshore oil fields. Spain invests heavily in Cuban tourism.

But the nearly 50-year-old U.S. embargo against Cuba still hurts. Cuba can’t lease oil drilling platforms that have any U.S. parts. Ships that come to Cuba can’t dock in the U.S. for the following six months.

The embargo, which is not supported by any other country in the world, mainly hurts ordinary Cubans. For example, Marta’s mentally ill sister can’t get the latest generation of U.S.-manufactured antidepressants.

The embargo hasn’t strangled the Cuban economy, but it does drive up costs. The domestic reforms are aimed at reducing government costs, while still providing a strong safety net. Yepe notes that the government will continue to control the major industries such as tourism, nickel mining, sugar and petroleum. Education and health care will remain free.

“It doesn’t mean we’re going to copy China or Vietnam,” he says. “We’re going to continue with our creation of socialism. We have done it in a very creative manner.”

Cubans are anxiously waiting to see if that creativity actually puts more food on the table.

Freelance foreign correspondent Reese Erlich is author of “Dateline Havana: The Real Story of U.S. Policy and the Future of Cuba.” His most recent book is “Conversations With Terrorists: Middle East Leaders on Politics, Violence and Empire.”