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In Cuba, baby steps on the long road to economic reform

HOLGUIN, Cuba_ Sergio Luis Suarez, 24, is among the new faces of Cuba's budding business class. He used to cut hair for profit before it was legal, but now he's licensed by the government and has transformed the front of his mother's apartment into a makeshift salon. His monthly profit: about $25, at 50 cents a cut.

Yaceli Hidalgo is another. She opened a small restaurant, using as start-up money nearly $4,000 sent by relatives in Italy. In this eastern city, hers is one of 19 such establishments, known in Spanish as "paladares," catering primarily to tourists and European retirees who spend part of the year in Cuba. Business is good enough that her restaurant's stayed open 14 months.

All across Cuba, there are legions like Suarez and Hidalgo — entrepreneurs striking out on their own as locksmiths, plumbers, electricians and the like. They've always existed, but operated on a smaller scale, illegally, in the informal economy.

"I can make more money," Suarez explains, comparing his take with the official government monthly salary of $20.

In the past 24 months, Cuba's communist government has announced a series of economic openings intended to ease its announced plan to trim the country's bloated government by 1 million jobs and to buy time as the country transitions away from the reign of two aging Castro brothers who've ruled since 1959 but now are both in their 80s.

The reforms include expanded self-employment, a liberalization of rules surrounding family-run restaurants, greater flexibility for Cuban farmers to sell their products and even creation of fledgling real estate markets in big cities such as Havana and Santiago.

Most of the 181 newly allowed self-employment categories involve menial labor and services that are most relevant in urban areas — beauty salons, barber shops, plumbers and the like. By the government's count, it's already granted 371,000 licenses.

The reforms, however, remain far from anything resembling free-market capitalism. Tellingly, not included among the openings are medicine, scientific research and a range of technical jobs that the government has kept under its control. There are no wholesale businesses to provide goods and services to the expanding class of entrepreneurs.

Programs to learn how to run a business also are rare, though the Roman Catholic Church now offers business-training programs in Havana. There are no trade or vocational schools to speak of. Capital for farming is all but non-existent.

Nevertheless, a week of interviews across the island, conducted by McClatchy during the recent visit of Pope Benedict XVI, indicates that Cubans welcome the change. However, many remain wary, mindful that a similar opening 20 years ago snapped shut when the economic crisis engendered by the 1991 collapse of the Soviet Union was overcome.

Among the complaints is the cut the government takes from their now-legal earnings — something that might feel familiar to an American at tax time.

Hidalgo pays taxes every month to the government and is unhappy that at the end of the year a government auditor pores over her receipts and then gives her an additional tax bill.

"You pay all year. Why do they do it to us (again) at the end of the year?" she complained.

But her biggest challenge is the lack of any wholesale market that caters to restaurants. To ensure she has food to serve, she must stand in line with ordinary Cubans doing their shopping, often crossing her city in search of items that invariably have run out.

"You have to walk the entire city looking for that one thing you need," Hidalgo said.

Unsurprisingly in a country now in its 54th year of communist revolution, entrepreneurship is a novel concept and business knowledge is rudimentary.

Angela, who like many Cubans interviewed for this story requested that her surname be withheld, works at a family-run restaurant in Camaguey in central Cuba. When asked how her business turns a profit, she at first struggled to answer, then finally explained, "I charge more than what I bought it for."

If that seems obvious, it isn't for ordinary Cubans. For most of the past 50 years, they haven't known sole proprietorship or private initiative. Her simplistic knowledge of business speaks to how long the road to economic health is for Cuba. Its per person purchasing power ranks 111th out of the world's 195 economies — though that's still ahead of 12 other countries in the Western Hemisphere, all of which have market economies.

Capitalism was anathema to Fidel Castro, the geriatric founder of the modern Cuban state who turned rule over to his brother temporarily in 2006 as his health failed and then permanently in 2008, when it became obvious he would never regain the vitality needed to be a head of state.

Fidel Castro nationalized foreign companies and all private property decades ago. For most of his rule, the country favored collective farming and state enterprises that became icons of inefficiency. It took in billions in subsidies from the Soviet Union, which bought the country's sugar at prices far above going world rates.

After the Soviet Union collapsed, Cuba opened to joint ventures in tourism, a move that brought significant amounts of foreign currency.

But it did nothing for the farming sector, and other than tobacco and its famed cigars, Cuba, once a major provider of the world's sugar, is no longer a significant exporter of agricultural goods. Several farmers with whom McClatchy spoke complained that there still was no money for modern machinery or fertilizer needed to grow and harvest crops.

Yaime, a farmer from near Bayamo in eastern Cuba, complained that the state had required him to raise pigs as part of an effort to boost food production, but after their slaughter had not paid him for months so that he could raise new swine. Things are not getting better, he said.

Cutting a second harvest of tobacco near Vinales, southwest of Havana, farmers Osmani Duarte, 45, and Antolin Perez Diaz, 63, chuckled when asked what's changed for them.

"Nothing," they responded, noting that tobacco remains a state crop and source of needed foreign earnings. The price they earn from the government remains fairly constant but they aren't sharing the profits, they said.

Ariel, a career farmer in central Cuba, said there have been some reforms that give farmers more control of their crops and whom they can sell to. It's meant direct sales to the tourism sector and greater access to previously untilled land.

Even with the changes, Cuba is unlikely to look like any of its free-market Latin American neighbors anytime soon. Raul Castro made that clear in a speech he gave a year ago unveiling the reforms at the 6th Congress of the Cuban Communist Party — the first such congress the party had held in 13 years.

He criticized the Cuban system, particularly the system of rationing food that over the years had become "an intolerable burden to the economy and discouraged work." But he couldn't quite utter the words "private sector" in announcing a shrinking role for the state.

"The growth of the non-public sector of the economy, far from an alleged privatization of the social property as some theoreticians would have us believe, is to become an active element facilitating the construction of socialism in Cuba," the Cuban leader said, carefully choosing "non-public sector" over "private sector."

That hesitancy colors Cubans' embrace of entrepreneurialism, recalling the mid-1990s, when Fidel Castro reluctantly allowed the first "paladares" as he tried to navigate the end of Soviet subsidies. There were so many restrictions that most were forced to operate illegally if they wanted to make money.

For example, pizzerias were permitted, but back then the government rationed flour and individual citizens were not given enough to run a restaurant. This led to purchases of flour on the black market, and this flour was of a different color. It made it clear to any Cuban that the restaurant was operating illegally.

Today, flour is sold openly and not on a black market, though the possibility of a change of mind is always present.

Some U.S. officials believe what's taking place is being carefully managed to lessen an inherent contradiction: the more the government opens the economy, the more it embraces what it stood against for five decades.

Adding to the uncertainty is the fact that the driver of the reforms is Raul Castro, 80, who ran the Cuban armed forces for decades before his ascent to the presidency. As army chief he turned to free-market concepts to make the military self-sufficient in crops and parts production. He's also placed military cronies in high places, suggesting the openings are calculated with an eye toward just how much liberalization can be tolerated.

"The military is really the economic engine of the country, so it's done within what the military feels it can manage," said Vicki Huddleston, a retired U.S. ambassador who ran the U.S. Interests Section in Havana from 1999 to 2002. "You have no civil society (in Cuba) is what it amounts to."

Another U.S. official currently involved in American policy toward the island called the reforms "nibbling at the margins."

Still, for Cubans like the barber Suarez, it's all worth it, even if he has to pay the government $12 to $15 a month for his license.

"I don't have to hide anymore," he said. "I can promote myself."


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