Wednesday, September 15, 2010

Cuba on brink of new economic era

Cuba on brink of new economic era
Published: Wednesday, September 15, 2010
Associated Press

HAVANA — An internal Communist Party document envisions a radically
revamped Cuban economy, with a new tax code, freshly legalized private
cooperatives and a state payroll no longer shackled by the need to
support at least a half-million idle or unproductive workers.

The document — obtained Tuesday by The Associated Press — also offers a
cold dose of reality for those who think reforming one of the last
bastions of Soviet-style communism will be easy: It warns that many of
the new businesses will be shuttered within a year.

The document fleshes out some of the details of sweeping layoffs of
500,000 workers by March 2011 that Cuba announced Monday in the most
dramatic reform instituted since President Raul Castro took over from
his ailing brother, Fidel, in 2008.

Workers at the ministries of sugar, tourism and agriculture will be let
go first — and some layoffs at those entities already began in July, it
said. The last in line for cutbacks include the Civil Aviation sector
and the Ministry of Social Services — the very agency charged with
overseeing the layoffs.

No government sector appears to go untouched, with cuts slated for
Cuba's vaunted athletics program — long favored under sports-crazy Fidel
Castro since the early days of his 1959 revolution — and even its Health
and Education Ministries.

Taken together, the plan represents the largest shift to private
enterprise since the early 1990s, when the collapse of the Soviet Union
forced cash-strapped Cuba to legalize the U.S. dollar and allow people
to open private restaurants and small vegetable stands. Many of those
reforms were rolled back once the severe economic crisis eased.

It was Fidel Castro himself who led the effort to scale back those
reforms — and now his brother is in charge. Indeed, analysts said the
tone of this week's announcement is entirely different, signaling that
the changes are here to stay.

"When they expanded self-employment in the 1990s, it was to get out of a
crisis, and officials really didn't want to talk about it," said Phil
Peters, a Cuba specialist at the Lexington Institute near Washington.
"But here, Raul Castro has decided that the government and its
enterprises have to shed a large number of employees, and so this shift
to the private sector is to achieve one of his strategic objectives."

The document obtained by AP — which is dated Aug. 24 — said many
laid-off workers will be urged to form private cooperatives. Others will
be pushed into jobs at foreign-run companies and joint ventures. Still
more will need to set up small business — particularly in the areas of
transportation, food and house rental.

It even explained what to look for when deciding whom to lay off. Those
whose pay is not in line with their low productivity and those who lack
discipline or are not interested in work will go first.

It said some dismissed workers should be offered jobs in the public sector.

The plan hints at higher wages for the best workers — something Raul
Castro has been promising for years — but said, "It is not possible to
reform salaries in the current situation."

The outline includes a long list of "ideas for cooperatives," including
raising animals and growing vegetables, construction jobs, driving a
taxi and repairing automobiles — even making sweets and dried fruit.

But it warned that many of the fledgling businesses won't get off the
ground because laid-off workers often lack the experience, skill or
initiative to make it on their own.

"Many of them could fail within a year," the document said, without
outlining what to do with people whose enterprises go under.

The reforms received a lukewarm response from Washington, with a State
Department spokesman noting the U.S. is also interested in seeing
political change on the island.

"Opening the Cuban system — economically and politically — is clearly in
the interest of the Cuban people," State Department spokesman Charles
Luoma-Overstreet told AP. "If these changes in fact provide for more
space for individual Cuban entrepreneurs and businesses to operate, that
would be positive."

Already, 823,000 Cubans work in the private sector, including about
144,000 that work for themselves legally. The state still employs the
other 84 percent of the 5.1 million-member work force.

Those statistics don't include an unknown number of Cubans working
quietly on the black market, who pay no tax on what they earn. In a
country where doctors and scientists make only slightly more than the
national average monthly salary of $20, it is not uncommon to see
surgeons driving illegal taxis in their spare time.

The internal document refers to a "new tax system" that will be "more
personalized and more rigorous." It says taxes will be collected on
wages, sales, social security payments to retirees and on small
businesses that employ people.

The payroll tax is particularly striking, as it envisions some Cubans
getting rich off the labor of their compatriots, a major departure for a
government that long said it was marching toward an egalitarian utopia.

Some doubt the change can be pulled off.

Oscar Espinosa Chepe, a state-trained economist who is now an
anti-communist dissident, said the changes are long overdue. But he
worried that the government would not create an environment conducive to
private enterprise and instead would try to mandate free enterprise from

"If they are going to start cooperatives, they need to let people make
their own decisions, without imposing anything on them," he said. "The
cooperatives need to be real initiatives of those doing the producing,
not created from on high."

Peters, who has long favored expanded cooperation with Cuba,
acknowledged the challenges, but said he had no doubt the government
would follow through.

"These are serious changes that are going to expand the private sector
in Cuba and improve the welfare of many thousands of Cuban families as
they engage in entrepreneurship," he said. "There are going to be zigs
and zags because it is a big change, but it is clearly a move toward a
much larger private sector inside a socialist economy."

Euridis Rivero, 34, who makes a living selling pizza and ham sandwiches
from his private stand in Havana, could be a vision of Cuba's future. He
pays 315 Cuban pesos ($15) a month in taxes, and keeps any other profits
for himself.

Rivero said the sweeping changes announced Monday are good, but that
many who have grown accustomed to a steady state paycheck will have
trouble adjusting.

"People are worried," he said. "They like working for the state, but the
state can't afford to pay them."

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