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In Cuba, prosperity will require changes to government control

In Cuba, prosperity will require changes to government control
By Karen DeYoung February 14 at 3:30 AM

HAVANA — When Cuba was hit with rolling blackouts a decade ago, Fidel
Castro decided to save energy by ordering everyone on the island to
switch from incandescent to fluorescent lighting. Millions, perhaps
billions, of bulbs were ordered from China, and teams of students were
dispatched to enter every home and business and make the switch.

It was, a former high-level government official said, “a typical Fidel
thing.”

The grand gesture as a way of addressing economic crises, from the mass
mobilization to harvest sugar in 1970 to the attempt to replace every
light bulb in the country 35 years later, has disappeared under Cuba’s
current leader, Fidel Castro’s brother, Raul.

“What most people want now is prosperity that can be sustained,” said
the former official, who did not want to be identified so he could speak
candidly. “Fidel wouldn’t accept anybody telling him he was wrong. Raul
is a hardline party guy. But he wants the opinions of experts.” And
economists here have been telling their government that prosperity will
require significant changes in the way Cuba does business.

Nearly a month after President Obama eased travel and trade restrictions
against Cuba, it remains unclear whether Havana can or will take full
advantage of new opportunities to buy U.S. products.

New categories of permitted U.S. exports, such as telecommunications
equipment, are tied to expanding civil rights and freedoms for the Cuban
people, and purchases will require political decisions by the government
here. Critics of the new policy charge that Havana will not take
advantage of the offer because it prefers to keep its population in the
dark, with severely limited Internet and access to the outside world.

But more immediately, any purchases from the United States will require
cash that is in short supply. Under the terms of the continuing U.S.
embargo, Cuba cannot buy U.S. products on credit.

“We don’t have enough money to buy what we need,” Juan Triana Cordovi, a
government economist at the University of Havana’s Center for Cuban
Economic Studies said in an interview. “The financial situation today in
Cuba is strained.”

While the United States has long permitted export of agricultural goods
to Cuba, last year’s shipments were the smallest amount in more than a
decade. The difference, in an economy that imports up to 75 percent of
its food, has been made up by Latin American and other countries that
sell on credit.

“Many U.S. agricultural producers want to sell a lot to Cuba, but Cuba
needs money to do it,” Triana said. “If these companies are willing to
extend credit, fine. If not, it’s impossible for Cuba to increase its
purchases.”

There is much about life here that most Cubans take for granted and are
unlikely to want to give up. All receive free education and health care;
housing is free or heavily subsidized for many. Each Cuban receives a
ration book each month for food staples. Life expectancy and literacy
are the highest in Latin America and among the highest in the world.

But government control of the economy extends far beyond such basics.
Except for a relatively small number of allowed private enterprises and
portions of the agricultural sector, all businesses and means of
production belong to the government. Foreign investors, including those
who have built many of the tourist hotels that draw more than two
million visitors a year, must recruit their workers through the
government, and pay wages into government coffers in a dollar-pegged
special currency.

The government then pays all workers, from doctors to tourism workers to
janitors, in the far less valuable local money, the national peso, at an
exchange rate of 24 to 1.

The dual currency system, and the average monthly wage of about 475
pesos, leaves most with a converted monthly income of about $20, even as
it allows state enterprises to hide inefficiencies and corruption.

Many here receive overseas remittances, which totaled $2.7 billion last
year from the United States, and new regulations the Obama
administration announced last month quadrupled the amount that can be
sent to individuals. Those in the tourist and restaurant industries
receive tips in hard currency.

But even for those with disposable income to purchase consumer goods,
few things are available to buy. Most imports must be paid for in
“convertible” pesos.

Tourism is the government’s biggest hard currency earner, but it also
takes in revenue from discretionary local purchases such as telephone
calling minutes. The average Cuban spends $10 a month on minutes. With
two million phone lines among a population of 11 million, that’s an
income of $240 million a year — only slightly less than Cuba spent on
U.S. agricultural imports in 2014, most of it frozen chicken, soy and corn.

Increased tourism and remittances under the new rules are expected to
offset falling oil shipments from Venezuela, its key foreign ally, which
account for about 20 percent of Cuba’s gross domestic product of about
$70 billion. In exchange for medical services, which Cuba has in
relative abundance, Venezuela provides the oil for free, and Cuba sells
some of it for hard currency.

Many outside economists, and many inside, believe Cuba could thrive as
an international service economy, and could vastly increase its
agricultural production, with basic changes to resolve inefficient use
of resources and underemployment of an educated, highly qualified workforce.

In recent years, Raul Castro’s government has taken a number of small
steps toward reorienting the economy away from the strict state-run
system that has prevailed for more than 60 years. Private business is
allowed in more than 200 sectors, Cubans are allowed to travel overseas,
and private sale and purchase of real estate is allowed. Foreign
investment laws have been revised, although so far there have been few
takers.

The government has said since 2011 that it intends to do away with the
dual-currency system.

While acknowledging that the economy is over-regulated and
under-productive, Triana said the failure rate for private sector
businesses here is high, and maintained that most Cubans are not
interested in turning to capitalism.

“The government is into a lot of sectors that are never going to be
efficient,” he said. “But it provides things people need.”

Besides, he said, “we’re a socialist country.”

Karen DeYoung is associate editor and senior national security
correspondent for the Washington Post.

Source: In Cuba, prosperity will require changes to government control –
The Washington Post –
http://www.washingtonpost.com/world/national-security/in-cuba-prosperity-will-require-changes-to-government-control/2015/02/14/71844fee-afe0-11e4-886b-c22184f27c35_story.html

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