Saturday, December 24, 2011

Cuba wraps up dramatic year of economic change

Cuba wraps up dramatic year of economic change

A year at the vanguard of Cuba's economic revival has not brought Julio
Cesar Hidalgo riches. The fledgling pizzeria owner has had his good
months, but the restaurant he opened with his girlfriend often runs at a
loss. At times, they can't afford to buy basic ingredients.

Yet the wide-faced 31-year-old says he is grateful to be in business at
all. A year ago, Hidalgo was concocting chalky pastries in a Spartan
state-run bakery where employees and managers competed to pilfer eggs,
flour and olive oil, the only way to make ends meet on salaries of just
$15 a month. Today, he is his own boss, a taxpayer, employer and

"I think my expectations were met because in Cuba today I couldn't have
hoped for anything more," he said one recent December afternoon as his
girlfriend, Giselle de la Noval, served customers. "We survived."

Hidalgo's story is mirrored by many of the entrepreneurs The Associated
Press has followed since January in a yearlong effort to document
Communist Cuba's awkward embrace of free-market reforms.

Their experiences — like the reforms themselves — cannot be described as
an unmitigated success. Of the dozen fledgling business owners,
including restaurateurs, a DVD salesman, two cafe owners, a seamstress,
a manicurist and a gymnasium operator, three have closed down or begun
working for someone else, and one has been harassed by her former state
employers. None could be considered successful by non-Cuban standards.

But despite their struggles, many tell of lives transformed, dreams
realized, attitudes changed, and doors opened that had been closed for
more than half a century.

For Hidalgo, personal hardships have added to the challenges of starting
a business on a Marxist island that has looked askance at
entrepreneurship since Fidel Castro's 1959 revolution turned a one-time
capitalist playground into a Soviet satellite.

After suffering through a slow, hot, summer when nobody wanted a pizza,
Hidalgo had to close for two months to care for his grandmother, who has
Alzheimer's disease. Even while the business was shuttered, he and de la
Noval had to make tax and social security payments, wiping out the few
hundred dollars they had saved.

They reopened in late November with so little money they can't always
afford to serve their house special.

"We've had to start from scratch, but the only reason we didn't lose the
business altogether is because we were disciplined," said de la Noval,
23. "Before we did anything, we always put away the money we needed to
pay the state."

A year that President Raul Castro described as make or break for the
revolution is ending after a dramatic flurry of once-unthinkable reforms
that are transforming economic and social life.

In October, the government legalized a used car market, and a month
later extended it to real estate, sweeping away decades of prohibitions.
On Tuesday, the state began extending bank credits to new business
owners and those hoping to repair their homes.

But one of the most powerful reforms was Castro's decision last year to
greatly expand the ranks of the self-employed, part of a somewhat
unsuccessful effort to trim bloated state payrolls.

Some 355,000 people have received licenses to start their own
businesses, and the results can be seen and heard everywhere. On nearly
every street in Havana and in thousands of hamlets and towns across
Cuba, makeshift signs and bright parasols mark the entrances of new
businesses, and the long-lost cries of curbside vendors hawking
everything from fruit and vegetables to mops and household repair
services fill the warm Caribbean air.

"The reforms have advanced, perhaps not quickly enough considering the
problems that have accumulated, but they have advanced, one after
another, and there is no sign that they will stop or be rolled back,"
said Omar Everleny Perez, the head of Havana University's Center for
Cuban Economic Studies.

The government has declined to release any statistics on tax revenue or
payroll savings from the reforms, except for an October report in the
Communist Party newspaper Granma that said tax revenue from new
businesses had tripled.

Cuban leaders this month lowered their forecast for economic growth for
2011 to just 2.7 percent — from the 3 percent originally hoped for — an
extremely poor showing for a developing country. By contrast, China is
forecast to grow by about 9 percent in 2011, Vietnam by between 6 and
6.5 percent and Brazil by 3.8 percent.

Private business owners have complained about the high taxes they must
pay, the lack of raw materials and the fact they are suddenly surrounded
by competitors. Because most entrepreneurs don't have the capital to
start innovative businesses, many have opened cafeterias, nail parlors,
small roadside kiosks and the like.

Anisia Cardenas, a seamstress, is among more than 100,000 Cubans who
have held private business licenses since the 1990s, the island's last
experiment with the free market. In the latest reform, she decided to
expand, paying $2 a day to rent the front porch space of a neighbor's
house to set up her sewing machine.

But business was slow — and competition from new license holders fierce.
Within a few months she had to retreat to her tiny apartment. By the
summer, she began to wonder if she might have to close down, unable to
meet the $19 monthly tax payments. By December, she had gone to work as
an employee for another seamstress.

"Things are hard," said Cardenas, who is trying to save money for her
daughter's 15th birthday party in January. "Everything is very expensive."

Others complain of rules that are often illogical, and state employers
who still view entrepreneurship with suspicion.

Maria Regla Saldivar is a black belt in taekwondo who got a license to
give private lessons to neighborhood kids in a scruffy park across the
street from her job. She began the year with dreams of persuading the
government to let her turn an abandoned dry-cleaning warehouse into a
private recreation center.

But the government refused to grant her a lease. Then her bosses at
Cuba's National Sports Institute docked her pay because they said her
outside work was affecting her performance. She quit. Finally, her
former boss prohibited her from using the park for martial arts lessons,
which are technically prohibited. The government considers it
potentially deadly training, even though most of Saldivar's students are
not even teenagers yet.

"It's called envy," Saldivar said of her boss.

She insists she is not teaching taekwondo, slyly calling the discipline
"Quimbumbia" — a word of her own invention. She has moved classes for
her 14 students into the tiny covered patio in the back of the apartment
she shares with her teenage daughter.

But Saldivar says she has no regrets about how the year has unfolded.
She says making business decisions for herself has increased her
self-esteem, and she is thrilled that she's managed to put away 2,000
pesos ($80), about four months salary at an average state job.

"You may laugh, but for me it's a lot of money," she said, running her
coarse fingers over the stripes on a pair of sky-blue track suit bottoms
she bought. "I've wanted these for so long and now I have them. I look
like a proper trainer now, not someone out picking mangoes from a tree."

Rafael Romeu, the head of the Washington, D.C.-based Association for the
Study of the Cuban Economy, said Castro has "changed the conversation"
since taking over from his ailing brother in 2006, pushing the
leadership to get the island's economic house in order rather than
blaming external factors such as the 49-year U.S. travel and trade embargo.

But so far, the changes don't go far enough to revive Cuba's moribund

"These are positive steps but when you say them out loud, just think
about it. ... You are allowed to have a cellphone, you are allowed to
buy a home, you are allowed to buy a car or have a microenterprise. This
is not the fall of the Berlin Wall. These are not major changes," he
said. "Cuba has tremendous difficulties. This is a marathon, and they
are taking baby steps."

Romeu, who has worked around the world studying emerging economies, said
that Cuba is moving much more deliberately than the Chinese did when
they began opening their economy in the late 1970s, or the Vietnamese a
decade later.

Cuba's predicament is somewhat different, as well. Both China and
Vietnam were deeply agrarian economies whose challenge was lifting tens
of millions out of crushing poverty, Romeu said. Cuba is a more urban
country with an aging population whose citizens have gotten used to
benefits including health care and education, but who have grown
accustomed to a system that doesn't make them work for such middle-class

"In Cuba, the challenge is sustaining the middle class, not creating
one," Romeu said.

Still, some reforms seem to be moving along more quickly than many
analysts had hoped.

Business is booming at a street corner long known as the center of
Havana's informal real estate market. Only now, the handwritten listings
on trees openly advertise legal home sales, instead of disguising them
as property "swaps."

Mendez Rodriguez, an unofficial real estate broker, said the buying and
selling is aboveboard, controlled by a relatively untangled bureaucracy.

"Everything is by the law now," said Rodriguez, even if his profession
is not officially licensed. He and other so-called facilitators work for
"gifts" left to the discretion of their clients, he said.

Rumors that real estate brokers would be the latest addition to the list
of 181 licensed entrepreneurial activities have not come to pass, but
there's still hope the profession will be added in 2012. Rodriguez said
the opening seems to have led to a steep increase in prices, with a home
worth $20,000 a couple of months ago going for 50 percent more today.

That's the kind of price jump many of the new struggling business owners
say they could use.

Javier Acosta has sunk more than $30,000 he saved as a waiter into his
own upscale establishment, and says business is far from booming.

"This has been a hard year, a year of sacrifice," he said. "There are
days when nobody comes, or when I have just one or two tables, and then
there are days when the place is filled."

He said his costs run to about $1,000 a month, and when business is slow
he struggles to break even.

Yet the reforms, he says, have changed the face of Cuba, and cynical
countrymen who doubt the opening will be lasting must wake up to a new

"After 50 years where everything was prohibited it takes time to change
people's minds and make them understand that this time is different," he
said, sitting in his empty second-floor restaurant one recent afternoon.
"If you don't work, you don't eat."

Despite his struggles, Acosta says he would take the risk again if given
the chance, a sentiment shared by Hidalgo and de la Noval. They had
hoped to close on New Year's Eve, which Cubans of means celebrate with a
traditional feast of pork leg, yucca, black beans and sweets.

Hidalgo said the family simply doesn't have enough saved to take the
night off after its year of trials and tribulations. Instead, he's
planning to keep the pizzeria open late and celebrate on the job with
his girlfriend and his aunt at his side.

"We're thinking of making a small meal for the three of us," he said.
"If we can afford a leg of pork it'll be to sell, not to eat ourselves."


Associated Press writers Peter Orsi, Andrea Rodriguez and Anne-Marie
Garcia contributed to this report.;_ylt=A0wNcnL6ePZOMSEB1Qb9SpZ4

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