Wednesday, January 11, 2012

Cuba takes baby steps toward capitalism

Cuba takes baby steps toward capitalism
5:30 AM Wednesday Jan 11, 2012

Communist country's embrace of free market not an unmitigated success

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
US$15 ($19) 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 followed through 2011 in a year-long 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
realised, 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 shut, 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 has ended after a dramatic flurry of once-unthinkable reforms.

In October, the Government legalised a used car market, and a month
later extended it to real estate, sweeping away decades of prohibitions.
In late December, 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 licences to start their own
businesses. 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 kerbside vendors
hawking everything from fruit and vegetables to mops and household
repair services fill the warm Caribbean air.

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 last month lowered their forecast for economic growth for
2011 to just 2.7 per cent from the 3 per cent originally hoped for. By
contrast, China is forecast to grow by about 9 per cent in 2011, Vietnam
by between 6 and 6.5 per cent and Brazil by 3.8 per cent.

Because most entrepreneurs don't have the capital to start innovative
businesses, many have opened cafeterias, nail parlours, small roadside
kiosks and the like.

Maria Regla Saldivar is a black belt in taekwondo who got a licence to
give private lessons to neighbourhood 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 centre.

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. She says making business decisions
for herself has increased her self-esteem, and she is thrilled that
she's managed to put away US$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, DC-based Association for the
Study of the Cuban Economy, said Castro had "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 US 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 was 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 ageing population whose citizens have got 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 centre 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 was 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.

Rumours 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 US$20,000 a couple of months ago going for 50 per cent more

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

"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 US$1000 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

Despite his struggles, Acosta says he would take the risk again if given
the chance.

- AP

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