Analysis: Cuba reforms convincing island's cynics

By PETER ORSI | November 4, 2011 | 4:05 PM EDT

A woman looks out from her balcony in an old building in Havana, Cuba, Friday, Nov. 4, 2011. With the announcement that Cubans will now be able to buy and sell homes, President Raul Castro has delivered on his second major promise this year to relax the government's iron grip over all aspects of the economy. The new housing law and a similar one on automobile sales comes after the island's opening to a growing class of small-business owners. (AP/Photo/Franklin Reyes)

HAVANA (AP) — The lot in teeming Central Havana used to be the neighborhood eyesore: The shattered ruins of an abandoned building was a breeding ground for mosquitoes and rats before it was cleared in favor of a dreary parking lot and government-run food stand.

Today, all of that is gone. Independent sellers hawk brightly colored clothing, wristbands and earrings as salsa music booms and a line of bicycle taxi drivers forms at the gate to wait for fares among the customers.

Newly empowered entrepreneurs, long held back by the socialist government, speak excitedly of changes that will allow them to buy and sell their homes and cars, and say the emerging new Cuba is here to stay.

This week's announcement establishing a real estate market for the first time in 50 years comes just a month after a similar opening for vehicles, and it is convincing even the island's many cynics that President Raul Castro's economic reforms, after decades of false starts and false hopes, are here to stay.

"I've been an independent worker two times, once before in the 1990s," said Andres Lambreto Diaz, a 38-year-old clothing seller at the Central Havana bazaar who has seen earlier free-market openings abruptly slammed shut when Fidel Castro reversed course. "I think this time it's for real."

Many of the reforms merely acknowledge what had long been black-market realities, and they still fall short of the fundamental free-market transformations seen in other communist countries such as Vietnam and China. But collectively, the changes have loosened the government's iron grip over all aspects of the economy and touched the lives of millions of islanders.

"The recent announcement that Cubans will be able to sell and buy houses and their used cars underscores how important the changes are," said Arturo Lopez-Levy, a Cuban-born economist who teaches at the University of Denver. "This is one of the most visible economic reforms, with a direct impact on Cuban lives.

A little over a year has passed since the government declared that many more people would be allowed to go into business for themselves and even hire employees. Some of the announced changes have been delayed, must notably a plan to eliminate 500,000 government jobs, extend bank credits and allow for mid-sized cooperative companies, but the housing and automobile laws have come in on schedule.

Officials have also shown some sensitivity to popular feedback, modifying the tax code to make things easier for new entrepreneurs and repeatedly changing laws to help new private restaurants be more profitable.

That kind of flexibility has been rare during Cuba's half-century-long embrace of Marxist theory.

Agricultural reform in the 1960s redistributed land from massive farms to medium-size ones and it enjoyed moderate success before being abandoned by the government, said economist Rafael Romeu.

In the 1980s a six-year experiment with private farmers' markets was scrapped, as Fidel Castro complained that unscrupulous middlemen were buying up the food and reselling at higher prices.

Castro grudgingly allowed independent workers to begin doing business for themselves after the collapse of the Soviet Union brought Cuba to the brink of economic ruin, then taxed and regulated them nearly into extinction in the late 1990s when the worst of the crisis was over.

But Fidel is no longer in charge. His brother Raul Castro has repeatedly said that while he has no intention of scrapping Cuba's socialist model, there's no turning back from his reforms.

Analysts say the changes so far do not do enough on a macroeconomic level. For example the housing law's immediate aim is to help redistribute existing stock among the population, allowing big families crammed into tiny apartments to move into larger homes currently occupied by just a few people. But without significant improvements in investment, supplies of construction materials and incentive to make money, it's not clear that there will be much new construction to solve the underlying problem: a housing deficit estimated at between 500,000 to 1.6 million units on an island of 11 million people.

"So far there hasn't been an all-embracing change in philosophy by the government in Cuba. What they're doing is really tinkering with sectors," said Paul Hare, a lecturer in international relations at Boston University and British ambassador to Cuba from 2001-2004. "Certainly the real estate and the car laws are major changes but there will be a lot of people wondering how they follow up. There is no philosophy of 'To get rich is good,' which is the philosophy in China and Vietnam."

Other reforms that were floated are still no more than ideas, such as proposals to relax travel restrictions and create a system of credit for the private businesses. Likewise there has been little visible progress on a wholesale market to supply the entrepreneurs, though officials said from the beginning that that would take years.

"The current reforms will deliver relief and are positive, but ... these are 'low hanging mangoes,'" said Romeu, head of the Washington-based Association for the Study of the Cuban Economy. "The real challenge is to deliver long-term sustainable growth."

Economists say it's not easy to right an economy that's been listing for decades. the 80-year-old Castro is walking a tightrope, eager to reform the country before it is too late, but cautious to not move so fast that the state loses control over the process, as happened in the Soviet Union and other Eastern Bloc nations.

He has said repeatedly that the country would change "without pause, but without haste."

Nonetheless, several Cuba observers said that once started, reforms tend to snowball and could spill beyond the realm of pure economics.

"The liberalization of these markets will ignite new demands for reforms," Lopez-Levy said. "In the long run, the question will be: How long can the economic genie be out of the bottle without people asking for more substantive political reform?"


Associated Press writer Andrea Rodriguez in Havana contributed to this report.