Cuba inches towards market socialism

The sun has not yet set on Cuban socialism

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 tropical communism.

The very timing of the party Congress is intended to reinforce the notion of Cuba's indomitable socialist spirit in the face of the arch-capitalist US.

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.

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.

Debt burden

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 rice.

And earlier this month, the country's hard-currency convertible peso, used mainly by tourists and foreign firms, was devalued by about 8%.

More private enterprise is to be allowed in Cuba

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 member.

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.

New lenders

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 inefficient system.

Subsidised Venezuelan oil eventually replaced subsidised Soviet oil, as Cuba looked to President Hugo Chavez for its energy needs.

Workers' co-operatives may gain more autonomy

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".

Dependence fears

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's government employs about 85% of the country's 5.1 million workers

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 supplier.

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".