Cubaverdad

Cuba takes baby steps toward capitalism5:30 AM Wednesday Jan 11, 2012

Communist country's embrace of free market not an unmitigated success

A year at the vanguard of Cuba's economic revival has not brought Julio Cesar Hidalgo riches. The fledgling pizzeria owner has had his good months, but the restaurant he opened with his girlfriend often runs at a loss. At times, they can't afford to buy basic ingredients.

Yet the wide-faced 31-year-old says he is grateful to be in business at all. A year ago, Hidalgo was concocting chalky pastries in a Spartan state-run bakery where employees and managers competed to pilfer eggs, flour and olive oil, the only way to make ends meet on salaries of just US$15 ($19) a month. Today, he is his own boss, a taxpayer, employer and entrepreneur.

"I think my expectations were met because in Cuba today I couldn't have hoped for anything more," he said one recent December afternoon as his girlfriend, Giselle de la Noval, served customers. "We survived."

Hidalgo's story is mirrored by many of the entrepreneurs the Associated Press followed through 2011 in a year-long effort to document Communist Cuba's awkward embrace of free-market reforms.

Their experiences, like the reforms themselves, cannot be described as an unmitigated success. Of the dozen fledgling business owners, including restaurateurs, a DVD salesman, two cafe owners, a seamstress, a manicurist and a gymnasium operator, three have closed down or begun working for someone else, and one has been harassed by her former state employers. None could be considered successful by non-Cuban standards.

But despite their struggles, many tell of lives transformed, dreams realised, attitudes changed, and doors opened that had been closed for more than half a century.

For Hidalgo, personal hardships have added to the challenges of starting a business on a Marxist island that has looked askance at entrepreneurship since Fidel Castro's 1959 revolution turned a one-time capitalist playground into a Soviet satellite.

After suffering through a slow, hot, summer when nobody wanted a pizza, Hidalgo had to close for two months to care for his grandmother, who has Alzheimer's disease. Even while the business was shut, he and de la Noval had to make tax and social security payments, wiping out the few hundred dollars they had saved.

They reopened in late November with so little money they can't always afford to serve their house special.

"We've had to start from scratch, but the only reason we didn't lose the business altogether is because we were disciplined," said de la Noval, 23. "Before we did anything, we always put away the money we needed to pay the state."

A year that President Raul Castro described as make or break for the revolution has ended after a dramatic flurry of once-unthinkable reforms.

In October, the Government legalised a used car market, and a month later extended it to real estate, sweeping away decades of prohibitions. In late December, the state began extending bank credits to new business owners and those hoping to repair their homes.

But one of the most powerful reforms was Castro's decision last year to greatly expand the ranks of the self-employed, part of a somewhat unsuccessful effort to trim bloated state payrolls.

Some 355,000 people have received licences to start their own businesses. On nearly every street in Havana and in thousands of hamlets and towns across Cuba, makeshift signs and bright parasols mark the entrances of new businesses, and the long-lost cries of kerbside vendors hawking everything from fruit and vegetables to mops and household repair services fill the warm Caribbean air.

The Government has declined to release any statistics on tax revenue or payroll savings from the reforms, except for an October report in the Communist Party newspaper Granma that said tax revenue from new businesses had tripled.

Cuban leaders last month lowered their forecast for economic growth for 2011 to just 2.7 per cent from the 3 per cent originally hoped for. By contrast, China is forecast to grow by about 9 per cent in 2011, Vietnam by between 6 and 6.5 per cent and Brazil by 3.8 per cent.

Because most entrepreneurs don't have the capital to start innovative businesses, many have opened cafeterias, nail parlours, small roadside kiosks and the like.

Maria Regla Saldivar is a black belt in taekwondo who got a licence to give private lessons to neighbourhood kids in a scruffy park across the street from her job.

She began the year with dreams of persuading the Government to let her turn an abandoned dry-cleaning warehouse into a private recreation centre.

But the Government refused to grant her a lease. Then her bosses at Cuba's National Sports Institute docked her pay because they said her outside work was affecting her performance. She quit. Finally, her former boss prohibited her from using the park for martial arts lessons, which are technically prohibited. The Government considers it potentially deadly training, even though most of Saldivar's students are not even teenagers yet. "It's called envy," Saldivar said of her boss.

She insists she is not teaching taekwondo, slyly calling the discipline "Quimbumbia" a word of her own invention. She has moved classes for her 14 students into the tiny covered patio in the back of the apartment she shares with her teenage daughter.

But Saldivar says she has no regrets. She says making business decisions for herself has increased her self-esteem, and she is thrilled that she's managed to put away US$80, about four months salary at an average state job. "You may laugh, but for me it's a lot of money," she said, running her coarse fingers over the stripes on a pair of sky-blue track suit bottoms she bought. "I've wanted these for so long and now I have them. I look like a proper trainer now, not someone out picking mangoes from a tree."

Rafael Romeu, the head of the Washington, DC-based Association for the Study of the Cuban Economy, said Castro had "changed the conversation" since taking over from his ailing brother in 2006, pushing the leadership to get the island's economic house in order rather than blaming external factors such as the 49-year US travel and trade embargo.

But so far, the changes don't go far enough to revive Cuba's moribund economy.

"These are positive steps but when you say them out loud, just think about it. … You are allowed to have a cellphone, you are allowed to buy a home, you are allowed to buy a car or have a microenterprise. This is not the fall of the Berlin Wall. These are not major changes," he said. "Cuba has tremendous difficulties. This is a marathon, and they are taking baby steps."

Romeu, who has worked around the world studying emerging economies, said that Cuba was moving much more deliberately than the Chinese did when they began opening their economy in the late 1970s, or the Vietnamese a decade later.

Cuba's predicament is somewhat different, as well. Both China and Vietnam were deeply agrarian economies whose challenge was lifting tens of millions out of crushing poverty, Romeu said. Cuba is a more urban country with an ageing population whose citizens have got used to benefits including health care and education, but who have grown accustomed to a system that doesn't make them work for such middle-class perks.

"In Cuba, the challenge is sustaining the middle class, not creating one," Romeu said.

Still, some reforms seem to be moving along more quickly than many analysts had hoped.

Business is booming at a street corner long known as the centre of Havana's informal real estate market. Only now, the handwritten listings on trees openly advertise legal home sales, instead of disguising them as property "swaps".

Mendez Rodriguez, an unofficial real estate broker, said the buying and selling was aboveboard, controlled by a relatively untangled bureaucracy.

"Everything is by the law now," said Rodriguez, even if his profession is not officially licensed. He and other so-called facilitators work for "gifts" left to the discretion of their clients, he said.

Rumours that real estate brokers would be the latest addition to the list of 181 licensed entrepreneurial activities have not come to pass, but there's still hope the profession will be added in 2012. Rodriguez said the opening seems to have led to a steep increase in prices, with a home worth US$20,000 a couple of months ago going for 50 per cent more today.

Javier Acosta has sunk more than US$30,000 he saved as a waiter into his own upscale establishment, and says business is far from booming.

"There are days when nobody comes, or when I have just one or two tables, and then there are days when the place is filled."

He said his costs run to about US$1000 a month, and when business is slow he struggles to break even.

Yet the reforms, he says, have changed the face of Cuba, and cynical countrymen who doubt the opening will be lasting must wake up to a new reality.

Despite his struggles, Acosta says he would take the risk again if given the chance.

- AP

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