Monday, December 13, 2010

Cuba bows to pressure to reform its economy

Cuba bows to pressure to reform its economy
By Marc Frank in Havana
Published: December 13 2010 17:32

Rising debt charges are forcing Cuba to reshape its Soviet-style
economy, with leading creditor China among those cheering on the changes.

A Cuban Communist party congress, scheduled for April, will discuss and
likely ratify policies that are already starting to be implemented.
These include cutting 20 per cent of state workers, cutting social
benefits, eliminating state subsidies, improving Cuba's trade balance
and liberalising rules for small business and foreign investment.

ChartCuba, which is the subject of a strict US embargo and is excluded
from most international lending organisations, depends on China as a
creditor of last resort. Its proposed reforms are remarkably similar to
those typically required under International Monetary Fund bail-outs –
although privatisation of state assets is not on the agenda.

In a recent closed-door meeting of 500 senior officials chaired by Raúl
Castro, president, Cuba's economy minister, Marino Murillo, reportedly
stated that mounting debt and the need for fresh credit had left the
government no choice but to put its economic house in order.

A video of the November meeting, called to discuss plans for next year's
congress, is making the rounds of Havana's elite. Cuba faces rising
principal and service charges over the next five years and simply does
not have the money to meet them, Mr Murillo, reportedly said on the video.

Cuba last reported its foreign debt at $17.8bn in 2007. Most analysts
agree it now exceeds $21bn, or close to 50 per cent of gross domestic
product and 30 per cent more than annual foreign exchange revenues. Many
creditors have tired of Cuba's debt reschedulings. China is a relatively
new member of Cuba's creditor club, having provided billions in loans
over recent years. But it is now Havana's biggest creditor and second
largest trading partner, after Venezuela.

According to a number of people familiar with the video, Mr Murillo
specifically talks about the need to repay China on time. Plans to
develop oil refineries, ports, railways, the nickel industry and power
generation will require billions in fresh credit.

Mr Castro's point man for economic reform reportedly argues in the video
that state-run companies should be freed from government administration
and defends plans to shift hundreds of thousands of workers to
"non-state" jobs such as small businesses, farms and co-operatives.

"Mixed-capital companies, co-operatives, farmers with the right to use
idle land, rented property landlords, self-employed workers and other
forms that contribute to raise the efficiency of social labour must be
recognised and encouraged," adds a 32-page discussion document prepared
for the congress, which will set out Cuba's social and economic policies
through 2015.

Cuba is counting on China and Venezuela to provide fresh development
credit. Some of its debts to Beijing will be backed by Venezuelan oil as
collateral. A diplomatic cable, released by WikiLeaks last week,
describes a US diplomat's breakfast meeting with the commercial attachés
from Cuba's biggest trade partners. "Even China admitted to having
problems with getting paid on time," the cable reported. "[Officials
from] France and Canada responded with 'welcome to the club'."

According to Asian diplomats in Havana, Chinese and even Vietnamese
officials have repeatedly "suggested" Cuba modernise and offered their
assistance. Discussion documents for next year's congress, the Murillo
video and government statements all indicate that Havana may finally be
heeding their advice.

Fidel Castro, former president, recently praised China's
"rectifications" and told university students: "China is worth studying."

"Cuba is prepared to take advantage of China's experience in developing
reform and opening up," Ricardo Alarcón, a long-time politburo member,
added while visiting China last month. Such words will surely be
welcomed in Beijing as it ponders further loosening its purse strings.

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