The Times (London)
March 1, 2008

Island outcast on the brink as its people clamour for a better life

After 50 years, Raul Castro is in charge and he is facing the huge task of modernisation

Suzy Jagger and Tom Catan

On the last day of 1958, Cubans, exhausted by the repression of the Fulgencio Batista regime, welcomed in a new hope, a new beginning, in the form of Fidel Castro, his brother Raúl and Che Guevara. They hoped that the trio would generate wealth, stability and freedom.

They did not get it. Fifty years on, the grandchildren of the Cuban Revolution are awaiting another beginning. Last weekend, Raúl Castro, the newly appointed President of Cuba, hinted at the unthinkable. In his first speech to the National Assembly, he hinted that he may draw an end to rationing and introduce reform into the farming sector – reform that he introduced in the 1990s to stop Cubans from starving, a move that was rescinded by his elder brother.

He also reiterated his admiration of the Chinese model of economic reform – a model that has allowed foreign companies to take minority stakes in state-owned businesses. His comments sparked speculation that Raúl may emerge as the leader that the nonsocialist world has been waiting for. His speech triggered a debate over whether he may be minded to open Cuba to wider foreign investment.

Mauricio Font, of the City University of New York, said: “The Cuban economy has no choice. Raúl has acknowledged this. Cuba has exhausted its savings, and investments have to come from somewhere. They are no longer able to generate sufficient savings on their own. They have to look to outside.”

It is not only Raúl’s words that have given Cubans cause for hope. He has already taken steps to decentralise the production and distribution of milk within an economy that is 97 per cent controlled by the military and perceived as the most centralised socialist state in the world.

Although Cuban experts broadly agree that economic reform will not happen overnight, many of them believe that Raúl will head for a short-list that includes the end of rationing, agricultural reform, incentives for remittance payments (expatriates sending money home) and, most critically, opening the door to foreign investment.

Cuba already has a few foreign partners - Venezuela, China, Canada, Spain and Brazil – which invest in oil and tourism across the island, but for the country to expand, Raúl will have to coax more funding from its existing commercial allies and broaden the pool of investors.

One of the world’s leading experts on Cuba, Jorge Castañeda, the former Foreign Minister of Mexico, said: “Since what they have now doesn’t work, they have to do something. But what the Chinese do isn’t recessarily an option for Cuba. China is very big and has conducted its reforms over a long period.

“Raúl has to widen the pool of countries allowed to invest in Cuba. He must extract funding from Europe and beyond, not just from Mexico, Brazil and Spain. Part of the problem is that Raúl would like to implement the economic reforms of China without the political reforms.”

Raúl needs no reminding of the perils of depending on too few trading and investment partners. Until the collapse of the Soviet Union, the Kremlin was Cuba’s biggest customer, buying 85 per cent of the island’s exports, principally sugar, in return for cheap oil. In the 1990s, as glasnost foreshadowed the disintegration of the Soviet empire, Cuba’s foreign market disappeared and Cubans starved.

Although Venezuela and China took the place of the Soviet Union – Cuba pays for Venezuelan oil with doctors – and Canada and Spain were allowed to build hotel resorts along the Cuban coastlines, the foreign investment was too limited to offset Havana’s sliding economy, principally oil, tourism and farming. After 2002 the Castro regime stopped using United Nations measures to calculate GDP, so economists stopped using Cuban numbers.

Critically, Raúl has already said that he will try to remove restrictions that stifle growth and noted that it was time to revalue the Cuban peso. Havana operates a debilitating dual-currency system whereby Government salaries are paid in the almost worthless peso while the administration restricts the distribution of the convertible peso, which can be exchanged for foreign currency. The system led to government workers being far worse off than those who earn the convertible currency, barely able to subsist even with their monthly ration books.

After Raúl’s speech last weekend, the University of Miami convened a talk to mull over his succession. Most of the speakers gave warning that although change was inevitable, it would not happen overnight, as Raúl struggled to appease hardliners, the leader of whom is his brother. At the conference, Jaime Suchlicki, the director of the Institute for Cuban and Cuban-American Studies at the University of Miami said: “What I expect is that he [Raúl] will open up the rural areas for more privatisation in the agricultural [sector], he may open up to some foreign investment, particularly in offshore petroleum [drilling] and, in limited ways, in the tourist industry. But we don’t see at this point any move towards a market economy and certainly no move towards major political changes.”

So is Cuba on the brink of significant economic change? “Cuba is unpredictable,” Professor Castañeda said. “Normally, you would expect incremental change, along with a honeymoon period. But it could start tomorrow morning. Cuba is so closed, we have no way of knowing what the Cuban people are really thinking. So who knows?”

Life and times

Revolution, 1959-89 Fidel Castro becomes President in 1959, with his brother Raúl as deputy. In 1960, all business is nationalised with no compensation. In 1972, Cuba becomes a full member of Soviet-based Council for Mutual Economic Assistance

Collapse, 1989-93 Cuba’s economy collapses as the Soviet Union – accounting for 85 per cent of Cuba’s exports - disintegrates. Moscow stops buying sugar. Cubans starve

“The special period”, 1993-96 Raúl Castro starts programme of modest privatisation in farming. Lets farmers profit from selling produce, after paying tax to Havana. Raúl allows Spanish and Canadian tourist companies to develop hotels and resorts. Cubans start modest enterprises, such as selling fast food on streets. By 1996, GDP estimated to have grown by 8 per cent

Retrenchment and Decline, 1996 to present Raúl’s reforms stagnate. In 2003, Fidel reverses them. Fidel recentralises decision-making, abolishes dollar as legal tender and cuts small private sector. Regime becomes more repressive. Economy slows, but Venezuelan oil and Chinese money help prop it up