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Building the new Cuban economy

Building the new Cuban economy
12/13/2014 7:00 AM 12/13/2014 12:00 PM

Just a couple years ago, tourists who wanted to sample one of Cuba’s
paladares were on their own. A bus from state tour operator Havantur
wouldn’t think of stopping to allow visitors to dine on roast pork or
grilled red snapper at one of these small private restaurants.

No more. Now, government tourism companies are doing business with them,
booking reservations for tour groups at both paladares and casa
particulares — private bed-and-breakfasts. “A few of our casas have been
block-booked by Havanatur and Transtur,” said Matthew Sellar, who runs
Scotland-based CubaCasa, an online booking site for private accommodations.

Call such co-existence the inevitable advance of market forces as the
hemisphere’s only communist nation reforms its creaking state-owned,
centrally planned economy.

But entering the fifth year of a process that ultimately led to the
economic reforms, the changes are still very much a work in progress
with daunting challenges ahead.

The reforms are not nearly as fast or as profound as many — inside and
outside the country — would hope. Cuban leader Raúl Castro has often
said the process will continue “sin prisa pero sin pausa” (without haste
but without pause).

Since the economic guidelines — or lineamientos — were approved, Cuba
has allowed limited self-employment and worker-owned cooperatives,
revamped its foreign investment law and agriculture system, allowed the
private sale of homes and cars, changed rules so Cubans can more freely
travel abroad and begun to phase out the ration book.

“The biggest change is that the government and the party have now
accepted the idea of a larger private sector,” said Phil Peters,
president of the Cuban Research Center and a regular traveler to Cuba.
“You see it in every town in Cuba — and it’s being discussed around
every family table in Cuba. It’s a huge ideological shift, and it’s not
something you would have seen under Fidel Castro.”

But when Spanish Foreign Minister Jose Manuel Garcia-Margallo visited
Cuba in November, he urged the government to pick up the pace. “Spain
would like to see a more rapid pace to the economic reforms that give
more space for private initiative and foreign investment,” he said.

The changes extend beyond the purely economic.

In 2013, Cuba removed the bureaucratic barriers that made it so hard for
Cubans to take foreign trips and also allowed its people to stay abroad
for up to two years without losing citizenship rights. That meant Cubans
seeking an economic solution no longer had to leave their homeland
definitively to take part in the global economy or seek new opportunities.

The reforms also have laid bare Cuba’s racial divide. But unlike in the
past, the government has now sanctioned discussion about the economic
inequities between blacks and whites.

“The population generally speaking wants change. There is a thirst for
change,” said Arch Ritter, an economist and Cuba scholar at Carleton
University in Ottawa. “The economic changes are real.” But the
government “could prevent the reforms from going much further if they
threaten the political control of the [Communist] Party,” he added.

Already some targets have slipped. The government initially said it
wanted to move 500,000 Cubans off state payrolls into self-employment by
2011. Then the target was revised to 1.8million workers by 2015. Early
this year, state payrolls had been reduced by 596,500 workers through
layoffs and by converting workplaces to co-ops. Some 476,000
self-employed workers were registered at the end of September.

But analysts say significantly speeding up dismissals from state
enterprises is risky for the Cuban government because it could cause
social problems.

So far, the government has made reforms only around the edges. Castro
talks of perfecting or updating the current socialist system instead of
doing away with it. But it’s also clear Havana wants a smaller
government, a more vibrant economy and citizens who don’t look at
emigration as the only solution to economic problems.

Though the government has blown hot and cold on foreign investment,
officials now say foreign investors are essential to spurring the type
of growth Cuba needs to develop. This fall, it released a wish list of
246 projects for which foreign money is welcome.

And the 800-pound gorilla — unifying Cuba’s dual monetary system and
fixing its haphazard pricing system — has yet to be dealt with, although
the government says it is preparing conditions for elimination of the
two-tiered system.

What all the reforms will add up to is something of a mystery.

“The Cuban government hasn’t set out clearly what the desired end state
should be. They haven’t laid out a clear development model,” said
Richard Feinberg, a professor of international political economy at
University of California, San Diego and a senior fellow at the Brookings

Castro — who officially became Cuba’s leader in 2008, two years after he
took the reins from his ailing brother — has made it clear he won’t be

He “likes to experiment before moving forward and measure the results
and the repercussions,” said Domingo Amuchastegui, a former Cuban
intelligence analyst who now lives in South Florida.

“That’s reasonable, but Raúl just doesn’t have the time,” said Carmelo
Mesa-Lago, a Cuba expert and economics professor emeritus at the
University of Pittsburgh.

The reforms were fueled not so much because Cuban leaders truly embraced
them but because they had little choice as the world shifted, support
from traditional allies came into question, and the economic status quo
became unsustainable.

Cuba has flirted with economic reforms before and pulled back when its
economy has improved. But Amuchastegui said “reversing the process is
now out of the question, and everyone knows that.”

So far, the results have been mixed and economic growth has remained

The Cuban economy is expected to grow by only 1.3 percent this year,
according to government estimates. The 2014 target was 2.2 percent. The
merchandise trade deficit in 2013 topped $9billion — the second highest

At a recent Cabinet meeting, Economy Minister Marino Murillo Jorge said
2015 growth was expected to come in at just over 4 percent. The U.N.
Economic Commission for Latin America and the Caribbean estimates 2015
growth at 3 percent. Mesa-Lago finds both estimates optimistic.

The problem in gauging the reforms’ success or failure, said Peters, is
that the process isn’t complete. “There has been substantial progress in
many areas, but they’re not done,” he said.

Although self-employment is proceeding more slowly than the government
envisioned, it now seems to have moved beyond simply legalizing the
shadowy realm of Cuba’s informal economy and black marketeers.

Among the most popular fledgling businesses are those linked to the
tourist trade. Both casas and paladares have been legal since the 1990s,
when the collapse of the Soviet Union plunged Cuba into an economic
crisis. Then the regime seemed to view them grudgingly as competition
rather than business partners.

“Now, they’ve begun to integrate them into the broader economy,” said
William LeoGrande, an American University professor who specializes in
Latin America.

Also spurring the establishment of new paladares is a change in rules
that allows them to hire staff rather than just family members. Up to 50
seats are also permitted, compared to 12 previously. Mood lighting,
contemporary art, terrace or poolside dining, nouveau cuisine and Cuban
fusion dishes are among the features of the most upscale ones.

Sellar recently visited Havana to add more casas particulares to his
online booking site. The 20 new ones he liked will bring the total on
the site to 120. During the high season in December and
January, most have no vacancies, he said.

Casa owners also have been busy upgrading with new Chinese bathroom
fixtures, air conditioning — even rooftop hot tubs — and adding
services. The Artedel Luxury Penthouse in Havana, for example, offers a
private driver, a translator and assistant, massage and laundry and will
organize salsa and Spanish classes for guests.

In September, the government announced plans to gradually shift Cuba’s
8,984 state-owned restaurants into private hands — although it will
still own the land they sit on. And more than three years ago, the
government began turning over state-owned beauty salons and barber shops
to employees who run them as cooperatives.

Murillo said the creation of 498 cooperatives has been approved, and 329
of them are in operation. Another 300 proposals are under evaluation, he

“The key now is these non-agriculture cooperatives. If the Cubans do
this right, it will create a means to move a large number of small and
medium-sized state businesses to the private sector,” Peters said.

But many of the self-employed are hustling to merely get by. During a
recent trip to Cuba, LeoGrande found one street-corner cuentapropista
whose business was refilling disposable plastic lighters. He’d drill a
hole, fill it up with lighter fluid and then cover the hole.

Almost all the private ventures he saw — from bicycle repair shops to
pizza stalls were tiny. “I got the sense they are open to taking
advantage of any opportunity they see,” he said.

When Amuchastegui traveled to Artemisa, a small city west of Havana, in
November, he found lots of home building and renovation taking place as
well as many small private businesses from cellphone and computer repair
shops to carpenters’ workshops.

“It’s become business and making money, business and making money,” he
said. At the Banco de Crédito y Comercio, Amuchastegui said, lines
snaked down the block as people waited to apply for credits, mostly for
home improvements.

But if self-employment is the most visible of the reforms and among the
most popular, agricultural reform may be the least successful.

“For me, agriculture is the key to a successful economic reform, and so
far they don’t have the results,” said Mesa-Lago.

In an effort to boost its agricultural output, Cuba announced a new plan
for land tenure in 2009 and then further reformed the process in 2012 to
allow larger plots and permit small farmers to build homes and barns on
the land. Although the state retains ownership of the land, farmers are
allowed to cultivate it under 10-year contracts with the state.

“It is not doing the trick,” Mesa-Lago said. Among the problems, he
said, is the farmer must be tied to inefficient state farms or
cooperatives to get seeds and farm equipment and must market through
them. Investments in the land also are restricted by the state.

Other reforms established wholesale markets for farm supplies and
eliminated the requirement that 70 percent of the harvest be sold to the
state at set prices. But the latter reform applies to only three
provinces — Havana, Mayabeque and Artemisa.

“Essentially, they need to provide more incentives for farmers,”
Feinberg said.

It’s possible agricultural production will edge up slightly this year,
but it will be below 2005 levels and well below the peak year of 1989,
said Mesa-Lago. “Cuba is still importing 70 to 90 percent of the food it
needs at a cost of around $2 billion annually,” he added. Next year, the
government estimates food imports will increase to $2.194 billion.

Since Cuba began allowing its people and permanent residents to freely
buy and sell real estate in November 2011, se vende signs have begun to
pop up on homes and apartments. Last year, real estate agents, who had
long operated illegally, were added to the list of approved
self-employment jobs.

Internet sites like and also have sprung up.
The cubisima site recently listed a four-bedroom, three-bath colonial
home on Miramar’s Fifth Avenue that had been partially renovated for

“This is a game changer,” said Antonio R. Zamora, a Miami lawyer who
specializes in foreign investment. For the first time since the early
days of the revolution, Cubans have been able to unlock the value of
their homes and begin building capital, he said.

“It’s a big change in the net worth of the Cuban people — and it doesn’t
really involve the government” other than making payment through a state
bank, recording a sale and paying tax on it, Zamora said.

Despite all the activity, Mesa-Lago said, there are still only pockets
of a market economy in Cuba. The changes to date, he said, add up to
only a “fraction of the total economy.” He’d like to see the reforms
accelerate and deepen — and he believes Castro, who is 83 years old and
plans to retire in February 2018, may have the best chance of pushing
them through.

That’s because it’s unclear whether Miguel Díaz-Canel, first vice
president of Cuba’s Council of State and Castro’s heir apparent, or
whoever succeeds Raúl Castro will have the same political clout as he
does to carry out reforms that may be unpopular with Communist Party
conservatives, Mesa-Lago said.

“They are afraid of delegating economic power, and they fear what
happened in Eastern Europe,” he said. “They want to avoid the classic
example of the snowball that gets bigger and bigger and can’t be stopped.”

Cuban Economic Growth

Year % Growth

2008: 4.1

2009: 1.4

2010: 2.4

2011: 2.8

2012: 3

2013: 2.7

2014 estimate:1.3

2015 estimate: 4

Sources National Statistics Office, Cuban government estimates

The Evolution of Cuba’s Economic Reforms

Nov. 2010: First draft of lineamientos, or economic guidelines, approved
after national debate.

April 2011: Sixth Communist Party Congress discusses and debate the

May 2011: Second draft of the lineaminetos is approved. There were 311
lineamientos in the second draft.

Source: Building the new Cuban economy | The Miami Herald –

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