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Posted August 30, 2006 by publisher in Business In Cuba

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By Edward Iwata | USA TODAY

Millions of visitors to Havana have been entranced by the Cuban capital’s resorts and restaurants, its centuries-old baroque and colonial architecture, its malecon seawall and promenade.

Behind the tourists’ facade, though, the Castro regime and military and government officials control nearly all of Cuba’s multibillion-dollar economy, including tourism, finance, retail, agriculture and energy.

Now, with 80-year-old Fidel Castro ailing after surgery, speculation is rising over the future of Cuba’s economy and the anticipated rule of brother Raul Castro, the military strongman who lords over hundreds of state-run businesses.

Despite the hope of U.S. companies that Cuba might welcome capitalism and that the U.S. might lift its long-running embargo, dramatic change probably won’t happen soon. Raul Castro is unlikely to anger Cuba’s ruling elite by launching major economic reforms, economists and Cuba scholars predict.

“If Fidel dies, the grip of the military would be even greater than now,” says Antonio Jorge, an economist at Florida International University. “Raul would buy the loyalty of generals and high-ranking officials by showering them with more privileges and economic benefits.”

Talk of Cuba’s economic fate comes amid reports of Fidel Castro’s intestinal surgery earlier this month and the transfer of power to his brother. The news fueled speculation that Castro might die, setting off street celebrations among Miami’s large Cuban population.

The stakes remain high: billions of dollars in future trade and investments and 11 million potential Cuban consumers only 90 miles from Florida. Economists say that U.S. failure to tap into the Cuban economy will benefit only leftist Venezuela and communist China, Cuba’s biggest trade partners.

“Cuba is an evolving and dramatic new market,” says Ruben Bonilla, chairman of the Port of Corpus Christi in Texas. “We don’t want to miss the party because of an embargo begun 10 U.S. presidents ago.”

Venezuela supplies Cuba with half of its oil, shipping 78,000 barrels of crude oil daily at subsidized prices. China imports nickel from Cuba and has signed a spate of business deals with the Castros.

Both countries are likely to grow closer to Cuba. It has potential crude oil reserves of up to 9 billion barrels and vast natural gas reserves, reports the U.S. Geological Survey. Already, Cuba has signed lease agreements with China, India, Canada and Spain.

U.S.-Cuba relations have been rocky since the 1962 Cuban missile crisis. A 44-year U.S. trade embargo bans nearly all exports to Cuba except agricultural and medical goods. Anti-communists say the Castro regime must fall before the embargo is lifted, while pro-trade forces say impoverished Cuba needs capitalism.

In spite of the embargo, U.S. businesses — especially in agriculture, shipping, oil and energy, tourism, retail, finance and construction — hope a new ruler might lead to a new Cuban economy.

After the Soviet Union collapsed in 1991, U.S. companies wanted to rush into Cuba, thinking it would be the next Soviet bloc country to fall, says Jaime Suchlicki, director of the University of Miami’s Institute for Cuban and Cuban-American Studies. That didn’t happen.

“Now,” says Suchlicki, “it’s beginning to pick up again because it looks like there might be change.”

A new Cuba?

Kirby Jones, president of the U.S.-Cuba Trade Association, says Canada and European nations have more than 300 joint ventures with Cuba in telecommunications, oil and energy, mining, port management and other sectors. “This is not the Cuba of old, when everything was under Soviet Union domination,” he says. “This is a brand new version, a mixture of capitalism and socialism.”

Raul Castro could continue in that direction, some economists and scholars say. Initially, he might unveil small, cosmetic reforms to polish Cuba’s image and win over his people. He might let Cubans start thousands of small businesses in trade, agriculture and tourism, as the Castros allowed in the mid-1990s.

One scenario: Cuba copies China, a blend of authoritarian state control, manufacturing, mass-market consumerism and high-tech development.

“At best, Raul will try the mini-China model,” says Antonio Gayoso of the Association for the Study of the Cuban Economy and a former economist in Cuba’s finance ministry. “At worst, he and the military will continue the repressive control they have now.”

Cuba’s economy was stronger in the 1950s, when it was one of Latin America’s top trade powers. Havana was a hot tourist site, and the U.S. and Great Britain were Cuba’s largest trading partners.

After Fidel Castro’s guerrilla war ousted dictator Fulgencio Batista in 1959, much of the economy fell apart. Cuba became a kind of welfare nation, with the old Soviet Union pouring $65 billion in aid and loans into Cuba from 1960 to 1990.

Behind the times

Economists say much of Cuba remains frozen in the past and lacks the modern ports, airports, business facilities and power grid needed to grow global trade. More than half of Cubans live in poverty, and the United Nations runs an emergency food program for 700,000. The country also is saddled by heavy debt, owing Venezuela, Russia and European nations $40 billion, Suchlicki says.

Even joint ventures between Cuba and other countries have dwindled. The State Department says they are down to 300 from 540 in 1982, and majority ownership by foreign partners does not really exist.

Production of sugar, citrus fruits, fertilizer and other goods has fallen since the early 1990s, after Soviet aid stopped.

Only oil, gas and nickel have seen growth in that period because of Venezuelan and Chinese investments, says Carmelo Mesa-Lago, an economics professor at the University of Pittsburgh. Other bright lights in Cuba’s $39 billion economy: tourism and nascent bioscience and pharmaceutical industries, economists say.

In recent years, Cuba has claimed nearly full employment for its workers and annual economic growth ranging from 5% to 12% — even with droughts, hurricanes, blackouts and disastrous sugar harvests.

Some economists say the figures are fabricated. “It is economic propaganda,” Mesa-Lago says. “Data is manipulated to show that Cuba’s economic policies are paying off, when the standard of living for Cubans has declined.”

Other obstacles to more open markets in Cuba and trade with the U.S.:

•Hardcore Stalinism. Since the 1950s, Fidel and Raul Castro have ruled the economy with iron fists, say Cuba experts. Outspoken political and economic reformers have been shunned or imprisoned.

In the 2006 Index of Economic Freedom by the Heritage Foundation, Cuba ranks as one of the world’s least-free nations, with Libya, Iran and North Korea.

“Fidel and Raul said many times, ‘No, we will never open the door to capitalists,’ ” says Jesus Marzo Fernandez, a former Cuban finance official and defector who lives in Miami. “They will never change.”

Over the years, Fidel Castro allowed six major shifts in economic policy, according to Mesa-Lago. But as the economy improved, he pulled back, fearing the growing power of business leaders.

Mesa-Lago likens Fidel Castro to Mao Zedong, the late Chinese dictator. Mao also was a charismatic Communist revolutionary who forced turbulent economic changes on his nation. And he had a youthful cadre of government officials eager to embrace global trade.

“But not until Mao died,” says Mesa-Lago, “were reformers able to push through changes.”

•Fidel Castro Inc. For four decades, Fidel Castro has controlled nearly all of Cuba’s financial resources, according to Maria Werlau, a Cuba expert and president of the Free Society Project in Summit, N.J., and congressional testimony by former Cuban finance and military officials.

Forbes has estimated Fidel Castro’s wealth at $900 million, which Castro has vehemently denied.

Werlau and other Cuba experts say the figure is low. They say the Castros and loyalists control several billions of dollars in real estate, bank accounts, private estates, yachts and other assets — called “the Comandante’s Reserves” — in Europe, Latin America and Asia.

“The best estimates appear to be well shy of the vast wealth under his command,” Werlau says.

Jorge Sanguinetty,CEO of DevTech Systems, an economics consulting firm in Washington, D.C., writes in a report that Cuba’s economy is “a gigantic privatization process with one and only one owner: Castro himself.”

•Trade embargo. Given lingering anti-communist sentiment in Congress, the embargo probably won’t vanish soon. Moreover, the 1996 Helms-Burton Act bars U.S. political and business ties with Cuba unless democracy arises there.

Pro-trade forces plan to raise the embargo issue with lawmakers this fall. Agribusiness persuaded Congress in 2000 to allow U.S. businesses to export some agricultural goods to Cuba. Since then, farmers have signed deals to ship $2 billion in cattle, poultry, grain, rice, beans, apples and cotton to Cuba, says the U.S.-Cuba Trade Association.

Food exports’ potential

State Department officials recently said the U.S. might open political and economic ties to Cuba — if Cuba were to transition into a democracy.

With no embargo, agricultural officials say, U.S. food exports could grow tenfold. Jim Sumner, president of the USA Poultry & Egg Export Council, says ranchers last year shipped Cuba 78,000 metric tons of chicken. That’s 3,500 truckloads of refrigerated containers.

“The opportunities in Cuba are tremendous, due to the proximity to the U.S.,” says Sumner, who has dined with Fidel Castro in his Havana palace during agricultural trade missions.

Ralph Kaehler, a rancher in St. Charles, Minn., has been enthused about Cuba trade ever since he flew to Havana on a trade mission with former Minnesota governor Jesse Ventura three years ago. Since that trip, Kaehler has brokered several million dollars in deals for companies to sell agricultural goods to Cuba.

“Our government talks about free trade with China, Vietnam — every country except Cuba,” says Kaehler, whose German ancestors started the family farm in 1881. “Whether you like or dislike the Castro government, if we had more trade with them, our influence and impact there would be much greater.”

Agribusiness isn’t alone in desiring more business with Cuba. At JetBlue, spokeswoman Jenny Dervinsays there would be “great demand for non-stop travel between New York and Havana,” and flights between Cuba and Florida, where JetBlue serves six cities.

Despite the Cold War politics between the U.S. and Cuban governments, pro-trade advocates say many of the Cuban people seem open to economic change.

Says Kaehler: “Cubans may not want wholehearted democracy like in the U.S., but they do want basic food and medicine and a few more freedoms.”

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  1. Follow up post #1 added on September 16, 2006 by Joseph Hopper

    I have been to Cuba serval times.Cuba is different since the Americans where in before.When the Americans were in before only the well off had medical and education.A lot of people starved and died early because disease.People in Cuba do not have much but they are well fed.I do not think the people will acept the old Americam Domination.

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