27 March 2011 Last updated at 16:27 GMT
Cuba inches towards market socialism
By Robert Plummer Business reporter, BBC News
The guardians of Cuba's struggling socialist system seem to have decided
that their revolution now needs a dose of evolution.
As the island prepares for its first Communist Party Congress for 14
years, to be held in April, changes to the centrally planned, state-run
economy are beginning to take effect.
President Raul Castro has ruled out large-scale market reforms and
clearly has no intention of abolishing the country's unique brand of
The very timing of the party Congress is intended to reinforce the
notion of Cuba's indomitable socialist spirit in the face of the
It is being co-ordinated to coincide with the 50th anniversary of Cuba's
defeat of a US-backed invasion force at the Bay of Pigs in 1961.
Cuba's state media are already ramping up their advance publicity for
the 16 April anniversary celebrations, which will include the inevitable
big parade in Havana with the participation of leading athletes.
Cuban Communist Party Congress discussion document
But despite the symbolism, harsh reality has set in on the financial
front, with the admission that Cuba can no longer afford the jobs for
life and the price controls that have allowed it to maintain its
near-total control of economic activity.
In September last year, it was announced that one million Cuban public
sector employees would be laid off, although the job cuts are now
expected to take longer than initially planned.
At the same time, rules limiting private enterprise were relaxed,
suggesting that many former state workers will become self-employed or
join workers' co-operatives.
Most recently, in February, the government said it would phase out
subsidies that had kept down the prices of home-grown sugar and imported
And earlier this month, the country's hard-currency convertible peso,
used mainly by tourists and foreign firms, was devalued by about 8%.
Obviously, the purpose of all this is to make the country more
productive and balance the budget, but also to pay off more of its
burgeoning foreign debt.
Reliable figures are hard to come by, but estimates suggest that Cuba's
debt runs into many billions of dollars.
The Paris Club of creditor nations lists Cuba as its second-biggest
debtor, with $30.4bn outstanding as of the end of 2009.
However, this includes money owed by Havana to the former Soviet Union.
This debt has been inherited by Russia, which is now a full Paris Club
In the past, Russian officials have estimated the amount at about $20bn,
but no updated value has been confirmed.
Outside the Paris Club, Cuba's biggest long-standing creditor is
Argentina, with an estimated $1.8bn owed, thanks to a loan granted in
1973 by the short-lived government of President Hector Campora, which
lasted less than two months.
In general, these debts were incurred during the Cold War, when Cuba was
a client state of Moscow and benefited from cosy preferential trade deals.
But after the final collapse of the Soviet Union in 1991, Fidel Castro
put more effort into finding new benefactors than into reforming an
Subsidised Venezuelan oil eventually replaced subsidised Soviet oil, as
Cuba looked to President Hugo Chavez for its energy needs.
Then Mr Castro struck lucky with China, which rapidly became Havana's
lender of last resort as it racked up still more foreign debt – perhaps
as much as $4bn, according to some Cuban sources.
But officials in Beijing now preside over an economy that exemplifies
"socialism with Chinese characteristics" – in other words, a state-led,
market-oriented system that is communist in name only.
They did not intend their loans to provide the Castros with the
wherewithal to block similar changes at home.
As a result, China is now pushing for Cuba to modernise its economy and
has offered the benefit of its experience, not least because Beijing is
fed up with Cuba's failure to meet its loan repayments on time.
For their part, Cuban ministers have realised that their country's debt
mountain has become too big to service – and they intend to use the
party Congress to further the reform process.
But they want the state to continue as the central economic planner,
while a 32-page discussion document prepared for the Congress states
that "only socialism is capable of overcoming the difficulties and
preserving the conquests of the Revolution".
In the run-up to the Cuban Communist Party's sixth Congress, there have
been howls of protest from some international left-wing groups, who have
figured out what is going on and do not like it one bit.
However, they rightly point out that for a country which sees Washington
as its main enemy, Cuba is surprisingly dependent on the US economy.
Cuba imports 80% of its food and more than a quarter of all its
foodstuffs come from the US, making it the island's number one food
Those who wish to forestall Cuba's moves towards market socialism want
it to reduce this reliance on the US by looking to other Latin American
and Caribbean nations for assistance.
Some have called on Argentina and other countries in the region that are
owed money by Cuba – including Mexico, Panama, Brazil, Trinidad and
Tobago and Uruguay – to show solidarity by cancelling its debts.
Others want Cuba to trade more with the other seven member states of
Hugo Chavez's Alba group. This is a kind of economic co-operation
agreement originally proposed by Mr Chavez in a bid to undermine plans
for a hemispheric Free Trade Area of the Americas (FTAA).
The FTAA talks eventually collapsed of their own accord, but Alba
struggles on, mostly for the benefit of various economic minnows hoping
to benefit from Mr Chavez's largesse.
Apart from Venezuela and Cuba, these include Bolivia, Ecuador, Nicaragua
and three English-speaking Caribbean countries – Antigua and Barbuda,
Dominica and St Vincent and the Grenadines.
Alba is clearly a far cry from the Comecon trade bloc that sustained the
Cuban economy in those far-off days before the fall of the Berlin Wall.
It could just be the case that, having finally run out of alternatives,
Cuba will now be forced into real economic change – or perhaps,
socialism "with Cuban characteristics".