Cuba: Moving ahead or marking time?

Article by: THE ECONOMIST
Updated: September 17, 2012 - 5:50 PM

Raúl Castro's reforms seem to be stalling. The question is: Will they roll again?

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The image of Fidel Castro, aging and ailing, looms over everything in Cuba, even as the country supposedly moves toward the more free economy promised by his successor and brother, Raul Castro

Photo: Franklin Reyes, Associated Press

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When President Raul Castro of Cuba gave his latest big speech, to a meeting of the National Assembly in July, he repeated his stock response to those who urge him to move faster with reforms to his country's stagnant, state-run economy: Change, he said, would progress "without haste, but without pause."

Many on the island, however, question whether reforms -- officially called "updating" -- have, indeed, paused.

Changes Castro instigated since taking over from his ailing brother, Fidel, in 2006 are significant. Many restrictions on private business, some of which had been in place since the 1960s, have been lifted.

Cubans may now buy and sell houses and cars and may employ people. More than 200,000 of them have become self-employed since October 2010. Farmers may lease idle land from the state. Private eateries are free to serve whatever they like to as many diners as they like, leading to hundreds of new restaurants.

There are plenty of catches, though. Cubans can buy only secondhand cars, because no new-car dealerships have been allowed. The rules on house purchases are so complicated many people are doing what they have always done: swap homes and pay each other under the table.

Perhaps the biggest stumbling block is that private wholesale markets, long promised, have yet to be authorized. Restaurants and other businesses have to buy supplies at retail prices from supermarkets or on the black market.

The 181 permitted categories of self-employment include trades, such as plumbing, but still exclude professions. The state remains the sole importer of food. Agricultural output remains below its level of 2007. Projects involving foreign investment, such as several golf resorts, have been put on hold.

In addition, there have been some seeming U-turns. A particularly unpopular measure, imposed Sept. 3, dramatically raised duty payable on travelers' excess baggage above a limit of 30 kilograms (66 pounds) per person. This tax used to be paid in the local Cuban peso. Now it must be paid in the "convertible" peso, worth 24 times more. As a result the cost of bringing in goods such as televisions and music systems has soared from a few dollars to hundreds of dollars.

The government said the change was meant to reduce lines and increase efficiency. Certainly, since 2009, when President Obama removed almost all restrictions on visits to the island by Cuban-Americans, Havana's airport has struggled to cope with the half-dozen daily flights that now arrive from the United States. Baggage carousels creak under the weight of everything Cuba lacks.

The rise in duty will hurt private businesses, whose owners had been assured by state media that, unlike under Fidel Castro's watch, they are a welcome part of Cuba's new economy. Many depend on imports.

"Everything seems on hold," a Havana-based European businessman says.

One theory about the impasse is that Castro, 81, lacks the energy to overcome resistance to change within the ruling Communist Party. The ghostly presence of Fidel remains an obstacle to reform.

Raul Castro's crackdown on corruption is another dampener. Malpractice and fraud have been discovered in every industry examined by investigators. Dozens of Cubans and several foreigners have been jailed.

The latest probe, in which the president's son, Alejandro Castro, played a role, concerned a project to expand a nickel-processing plant, a joint venture with Canada's Sherritt International. After a brief trial, 12 officials, including three deputy ministers, were jailed last month. In their defense, the officials said all their talks with foreign partners were held openly. As evidence, Sherritt provided contracts, some signed by Fidel Castro.

"In this atmosphere everyone is lying low," the European businessman says. "No one is making decisions."