Nationalism high, but analysts see a country 'running out of gas'

By TRACEY EATON and RICARDO CHAVIRA / The Dallas Morning News

First in a series

HAVANA – In the last year, Cuba has been hit with three devastating and costly hurricanes, massive layoffs in the sugar industry, a drop in tourism and rising fuel
costs.

So what does the government do? It spends money. Builds schools. Buys computers. Opens clinics.

Some critics question the spree and warn that the island's economy could stall. Even before the recent economic setbacks, they say, the government owed billions of
dollars to creditors. And now, it's having trouble bringing in enough hard currency to pay its bills.

Now, some say, Cuba must adopt reforms or risk a bruising economic slide.

Cuba's economic model is "running out of gas," said a senior U.S. official who analyzes the country from Washington, D.C. "They will have to either tinker with it or
get a new model."

Not taking action, a Cuban economist said, could bring a return to the desperate days of 1993, when blackouts and shortages haunted the island. Leaders of the
nation of 11 million reject such dire talk.

"Not a chance," says Francisco Soberón, president of the Central Bank of Cuba. "I don't want to seem pretentious, but no country in the world is better prepared to
face this crisis than we are."

Indeed, Cuba has proved to be a remarkable survivor. It endured the loss of its chief sponsor, the former Soviet Union, in the early '90s. And it persists despite a
43-year-old economic war with the United States, the world's only superpower.

Still, few dispute that the Cuban government faces many daunting challenges. Among them: Maintaining the revolution's social gains. Boosting wages. Satisfying the
Cuban people, many of them hungry for change. And trying to ensure economic equality as free-market ideas and dollars seep into the system.

None of that will be easy, but Mr. Soberón and other Cubans say the past has shown that they are up to meeting adversity.

A monumental test came a decade ago when the former Soviet Union fell. That meant an end to nearly $6 billion per year in aid and subsidies. Cuba lost 85 percent of its foreign markets, more than 70 percent of its imports and more than half its fuel supplies.

Blackouts became so common that some people stopped noticing. What got their attention were the so-called "illuminations," when the lights finally came back on.

Food shortages

Food shortages triggered nutritional deficiencies that caused paralysis and blindness in about 45,000 Cubans, experts say.

Thousands of women turned to prostitution. Italy's Viaggiare magazine rated Cuba the world's top spot for sex tourism in 1995. "At least our prostitutes are educated," a Cuban radio commentator blurted on the air.

Many Cuba experts predicted the government's fall.

But Fidel Castro loyalists turned things around, developing the tourist industry, allowing limited private enterprise, opening the economy to foreign investment and
cleaning up much of the vice that had flourished.

"We're still here because we've never been a carbon copy of the Soviet Union," said a senior Cuban official over dinner at the majestic Hotel Nacional, overlooking
the Malecon, Havana's famed seaside highway. "We're not tropical Russians. We have our own way of doing things."

But last year brought new troubles. The Sept. 11 terrorist attacks on the United States led to a drop in Cuban tourism. A 16 percent increase in visitors had been
forecast for 2001. Instead, tourism – the country's No. 1 industry, grossing $1.7 billion last year – dropped by 1.3 percent.

In October 2001, Hurricane Michelle ripped across the island, destroying homes, utilities and crops.

It was the worst storm to hit in 40 years, pounding almost half the 775-mile-long island and causing an estimated $71.5 million in damage, according to Havana's
Center for Studies of the Cuban Economy.

And that wasn't the end of it. Falling sugar prices, rising costs and inefficiency forced the government to close nearly half its mills and lay off about 100,000 of
420,000 sugar workers. It was a sensible yet stunning move in a country where the traditional motto was "No sugar, no country."

The 2002 hurricane season rolled around and two more storms struck, first Isidore, then Lili, a one-two punch that damaged or destroyed 55,188 homes and tore
up crops. Authorities haven't yet totaled the economic losses, but analysts say they will easily climb into the tens of millions of dollars.

The past year's setbacks didn't take long to cause economic ripples. The Cuban government began raising prices at dollars-only stores. It stopped paying Venezuela
for oil. It defaulted on loans. And it printed five times more money in 2001 than in the previous three years combined, economists say.

The country hasn't been paying its debts, said James Cason, the top American diplomat in Havana.

It's an "international deadbeat" with a "Jurassic Park economy," he said. Analysts say the country owes an estimated $13 billion.

A State Department official said Cuba is desperate to end the U.S. ban on travel to the island because tourism is hurting and the country is "hard-pressed
economically."

The country had to scramble, he added, to find the money to buy food and agricultural products from American companies at a September trade show.

In the end, Cuba signed contracts for $80 million to $90 million in products at the show, the first of its kind in more than 40 years.

Mr. Soberón, the bank president, said his government has more than enough cash flow to make that kind of purchase.

The government has laid a foundation for growth and has made big gains over the last decade, he said, including a tripling of the number of hotel rooms, a fivefold
increase in oil production and a tripling of nickel production.

The Cuban government has also renovated the nation's schools, installed thousands of new phone lines and restored entire blocks of historic Old Havana.

In short, Cubans say, they are rebuilding.

"It's happening, no doubt," said Clinton Adlum, a University of Havana professor. "But it's a difficult process. There's no manual that says, 'Take Step 1, then Step 2
and 3.' "

In 2001, the Cuban economy grew for the eighth straight year, according to the country's Central Bank. The gross domestic product was $23 billion, a 3 percent
gain – ahead of the 0.5 percent average for 25 Latin America nations.

Cuban economists forecast growth of 1 percent for 2002, the lowest since recovery began nearly a decade ago. The United Nations expects that to outpace other
Latin American and Caribbean nations.

The socialist regime over the last few years has also outscored many of its neighbors in economic, health and educational performance, according to the United
Nations and the World Bank.

Last year, World Bank President James Wolfensohn told reporters that Cuba had "done a great job on education and health."

To Cuba, that was vindication, because the country does not accept aid or advice from the World Bank.

But some ordinary Cubans say the macro-economic numbers don't tell the whole story, especially on the island's eastern end, hit hard by the ragged economy.

Raquel Escobedo says the government ought to give Cubans more freedom to run their own businesses. To make money. To dream.

Ms. Escobedo belongs to a 20-member opposition group in the eastern city of Santiago de Cuba. She, her parents, son and brother live on the second floor of a
creaking, 92-year-old wooden home. She is the only one who has a job, but she says her bosses have lost confidence in her and don't give her any work because of
her dissident views. Because of a government pledge to protect workers, they don't fire her, either. So she goes to work every day and does nothing.

Her secretary's salary is only $5.69 per month. Castro loyalists say such figures are artificially low because they don't take into account all that the government
provides.

The government subsidizes the family's health and schooling, rent, phone and utilities. It also provides monthly food rations, including 5 pounds of rice, 5 pounds of
sugar, a small bag of grain, three-quarters of a cup of salt and a few ounces of cooking oil.

No matter, Ms. Escobedo said, she couldn't survive without money sent by her U.S. relatives.

"There's nothing in Cuba," she said, seeing only gloom on a sunny afternoon. "The future is black."

Many Cubans who don't get money from abroad are worse off.

"Here, if you don't have a good job or relatives in the United States, you are a nobody," said Julio Cesar, a 26-year-old resident of Santiago.

Julio Cesar, who asked that his last name not be used, said he lives off the underground economy, meeting tourists' every need.

"Want a woman? A room? Rum? Cigars? I can get all that," he said.

Contraband

Roberto Palacios, 46, a former Communist Party stalwart, makes and sells shoes to try to scrape by. But he said most of his income comes from a little side
business, acting as a broker for Cubans who want to trade their homes or apartments. The law bans selling real estate outright, but state-supervised trades are
allowed.

"Our economic problems aren't caused by the American blockade," he said. "The government is afraid of opening up wide to free enterprise.

"There's not enough food because farmers have to sell to the state at a set price. They have no incentive, and it's like that with everything. Let free private enterprise
loose and this country will experience an economic miracle."

Even some government supporters concede that they buy contraband, but they say these slips in revolutionary discipline haven't eroded support for the government.

"Things aren't so bad," former rebel René Camacho, 60, said over lunch at a private restaurant in Santiago. "We've been through worse moments and we'll get
through this."

Cubans all over the country echo his words at rallies decrying the world order. And they vow that their country will be socialist for eternity.

But the island is looking more and more capitalistic.

Stroll through Havana and you'll see car dealerships and Internet cafes, unheard of just a few years ago. Shopping centers are bustling. Schoolboys once content to
play with wooden pushcarts and baseballs made from rags now pester their parents to buy video games and name-brand tennis shoes.

Attitudes toward business are also changing. Company managers today stress profits and efficiency over Soviet-style quotas. University students pore over
American business and accounting texts, only rarely dipping into the writings of Karl Marx.

And Mr. Castro has been courting corporate America, cozying up to the same capitalists he once criticized.

No doubt, some Cubans say, change is coming to the island, like it or not.

But the journey between what the country is and what some want it to become is bringing some unwelcome, sometimes ugly side effects.

Sometimes it's as if Cuba hasn't decided whether to flirt with capitalism or carry on a full romance. And until it decides, some say, the country will be a land of
quirks, contradictions and rough edges.

Wages are topsy-turvy. Bellboys at four-star hotels earn more than brain surgeons, lawyers and engineers. Only foreigners can invest in Cuban businesses.

And only foreigners can enter many resorts. "Apartheid tourism," critics call it. A tourism official said honeymooning couples and top-performing workers are
routinely allowed to enjoy certain tourist facilities. Economic realities prevent Cubans from entering some hotels, he said. A night's lodging can easily cost $100, five
times a Cuban doctor's monthly salary.

Loyalty is no longer what it was. Many Cubans admit voicing support for the government one day, then stealing from it the next, pilfering everything from toilet paper
to chicken legs from the state-run businesses where they work. Government officials say tough economic conditions lead to theft in any country.

Strong foreign influence remains. For more than a century, Cubans fought and spilled blood to fend off foreigners, first the Spanish and then the Americans. But some
Cubans say they still don't feel free and believe that their economy would fall apart if not for foreign investors, tourists and Cuban-Americans who send $800 million
per year to relatives on the island.

Revolutionaries defend the country's economic policies, which have widened the gap between the haves and the have-nots.

Officials say they're trying to lessen the inequities. The government has made progress, said Leonel González, international-relations director for the
3.2-million-member Federation of Cuban Workers.

More than a million workers in mining, fishing, tourism, communications and other industries now receive dollar-equivalent incentives, raising their standard of living.

The government also sends big chunks of the profits from government-run retail stores to social welfare programs. It amounts to a tax on Cuban hotel workers and
others who have access to dollars, Mr. González said.

"Why create a privileged class?" he asked. "What's more important for Cuba, a scientist who invents a vaccine or a hotel doorman? Who contributes more to
society? The scientist."

Money, politics

Others say no one can deny that the Cuban economy has gone through significant change over the past decade.

"Some changes have been imposed by reality, but they are changes just the same," said Cuban economist Omar Everleny. "At one time, Fidel Castro said, 'Who
ever thought there would be foreign investment in Cuba again?' Now it reaches almost all areas of the economy– water, trash collection, soap, cars, equipment
repairs. The government has learned that foreign investment is not to be feared."

Catherine Moses, a former American diplomat based in Havana, said money and politics drive the Cuban government.

"To me, the Cuban state is pragmatic. They gauge what needs to be done and move with small steps to keep the situation under control and to preserve authority,"
said Ms. Moses, author of the book Real Life in Castro's Cuba.

"Can this approach last for 20 years? I don't think so. I believe change will come."

Staff writer Alfredo Corchado in Washington, D.C., contributed to this report.