Cuba’s layoff of state workers reflects urgent bid to save the economy


LA Times:

Reporting from Mexico City– Cuba’s announcement that it will lay off half a million state employees, about 10% of the workforce, is a dramatic shift for the communist government as it urgently tries to salvage the flailing economy.

The plan, which is scheduled to launch in full force next month, calls for workers to move into a small but soon-to-expand private sector of mostly mom-and-pop businesses, such as barber shops, B&Bs and vegetable farms. The government has defined 124 jobs that citizens can take on as “self-employed” businesspeople, allowing them to pocket profits but also requiring them to pay taxes.

Can it work? Cuba has stifled entrepreneurship in the name of equality. The government will have to loosen access to cash and supplies. But a turnaround, with few resources, raw materials, capital and limited expertise, will be difficult.

And what does the policy shift say about who is running Cuba? Is it President Raul Castro, or his brother, the ill-but-recovering revolutionary legend Fidel?

It was Raul Castro who in effect delivered the pink slips in August, when he complained in a major speech that the state-run economy was bloated with unproductive workers.

“We have to erase forever the notion that Cuba is the only country in the world where one can live without working,” he said Aug. 1. (Lest anyone miss the point, the text of the speech published the next day in Granma, the official communist party newspaper, had that line in capital letters.)

This week, Cuba’s only legal labor union put a number and date on the layoffs.

“Our state cannot and should not continue maintaining companies … with inflated payrolls, losses that hurt the economy and that end up being counterproductive by generating bad habits and deforming workers’ conduct,” it said.

In comments to a visiting U.S. magazine writer published this month, Fidel Castro seemed to echo the view that the Cuban economic model no longer works. Though he later backtracked, his original remark did not contradict sentiments expressed previously by his brother and other Cuban leaders.

This suggests, several analysts said, that the two Castros are on the same page, or that Fidel is at least not standing in the way of his more pragmatic brother.

According to a government document circulating in Havana, the layoffs will begin in full force in October, be finished by spring and stretch across virtually every sector, including such sacred cows as health and education.

Workers who are not productive, or who earn more than their output suggests, will be the first to go, the plan says.

Numerous state enterprises will be converted into employee-run co-ops, and a more aggressive tax code will target sales, wages and social security benefits, according to the document.

The list of approved businesses includes upholstery; repair of dolls, toys and umbrellas; animal shodding; music teaching; sales of flowers, herbal medicines and brushes; and manicures and eyebrow waxing.

The document acknowledges, however, that many of these businesses may not survive because of Cubans’ lack of expertise and initiative.

Cubans will have to undergo a fundamental shift in mind-set, from a dependence on a paternalistic government to a self-reliant willingness to work, earn money and pay taxes, experts say.

“They are redefining the fundamental relationship between the individual and the state after 50 years,” said Julia E. Sweig, an expert on Cuba at the Council on Foreign Relations and author of the book “Cuba: What Everyone Needs to Know.”

The trick, she noted, will be to avoid sacrificing the basic services the state provides as part of its socialist pact with the citizenry.

Some analysts believe a fast-expanding private sector will be able to absorb thousands of workers because Cubans so keenly want to make money, and they also are eager to have access to services the government might not provide.

This expansion will, in effect, formalize much of the underground economic activity already rampant in Cuba, an island where you can get anything done or obtain any item under the table for a price. Bringing it above board allows the government to tax it.

The appeal for many Cubans is that they would in theory be earning so much more that it would be worth paying taxes.

The state employs about 85% of the workforce. But a state worker earns just $20 a month, on average.

Several studies have shown that private-sector workers earn considerably more. Transportation Minister Cesar Arocha was quoted recently in the Cuban press as saying that private taxi drivers — part of a pilot experiment foreshadowing the new plan — earn 33 times what taxi drivers employed by the state do.

Comments trickling out of Cuba reflect a mix of dismay among people who may suddenly find themselves unemployed, and eager anticipation among others ready to get to work.

President Castro, in the August speech, sought to reassure Cubans that “no one will be abandoned, left to their own devices.”

Cuba nationalized all businesses in the first decade after the 1959 revolution, but it began to relax some restrictions after the 1991 dissolution of its patron, the Soviet Union, gutted the island’s economy. Licenses were granted to small-scale professionals such as barbers and restaurateurs, and use of the U.S. dollar in limited transactions was legalized.

Economic reforms since then have been gradual and often reversed, especially when a new sponsor came along. Venezuelan President Hugo Chavez is providing subsidized oil to Cuba, but his patronage can’t last forever. As Cuba’s economic crisis has deepened in the last year, Raul Castro has announced a number of steps.

Just last month, the government began allowing foreign investors to lease government land for as long as 99 years, clearing the way for construction of golf courses and fancy condos. Farmers are now allowed to sell their produce more directly to markets and have greater access to supplies and tools.

Still, Cuba’s economy is reeling, and those dire straits may serve as the best incentive for the new policies to take hold. The island is suffering food shortages, and this year it registered its worst sugar harvest in a century. Devastating hurricanes have exacerbated the problems, and the government says it continues to lose millions of dollars because of the U.S.-imposed trade embargo.

By far, this week’s announcement signals the most far-reaching economic reform since the 1960s. But some analysts cautioned that the plan still falls far short of the kind of capitalism China and other communist regimes have embraced.

“This is motivated by Cuba’s serious economic problems and the lack of liquidity faced by Raul Castro’s government,” said Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at the University of Miami. “This is not motivated by a desire to create a free-market economy nor to change the basic way Cuban society works.”

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Cubans scamper to avoid dreaded blackouts


HAVANA, Cuba (Reuters) — Cubans are scrambling to turn off lights and appliances and children are going door to door reminding them to do just that under a government threat of dreaded blackouts if energy consumption is not reduced through the end of the year.

The drive to reduce energy use appears aimed at saving foreign exchange, and not related to the lack of oil and generating capacity that caused up to 18-hour blackouts in the 1990s after the demise of Cuba’s patron the Soviet Union.

In easternmost Guantanamo province, neighborhoods, on a rotating basis, are abstaining for an hour in the evenings when consumption peaks.

“It is very important to save energy house by house. People know it is the only alternative to blackouts,” Guantanamo retiree Pedro Fernandez said in a telephone interview.

In various provinces grammar school children, organized into “click brigades,” were reported going door to door to remind residents to save power.

Cuba has been grappling with the global economic downturn, which has slashed revenues from key exports, dried up credit and reduced foreign investment.

The communist-run Caribbean nation also faces stiff US sanctions that include cutting access to international lending institutions, and it is still rebuilding from last year’s trio of hurricanes that caused an estimated $10 billion in damages.

The Cuban government controls all power generation and distribution and sells electricity at subsidized prices.

“We are taking exceptional measures, such as shutting off air conditioning and refrigeration in all state entities that do not stockpile medicines and food,” the deputy governor of central Villa Clara province, Jesus Martuste, told the official Radio Rebelde.

“We have not shut down production, only adjusted some in the name of efficiency,” he said.

End-of-year university breaks have been extended a week, street lighting significantly reduced in the capital and provinces, non-essential air conditioning and refrigeration turned off, and some production and services “adjusted” away from times of high demand, according to media reports and a telephone survey of six provinces.

“The choice is simple. Save or suffer blackouts, and that is a situation nobody wants to live through again,” Gloria Hernandez, an office worker in central Camaguey province, said in a telephone interview.

A Council of Ministers circular, dated Oct. 21 and which reduced government power allocations, termed the energy situation “critical” and called for “extreme measures” through December.

“The energy situation we face is critical and if we do not adopt extreme measures we will have to revert to planned blackouts affecting the population,” said the order, which was seen by Reuters.

All provincial governments and most state-run offices and factories, which encompass 90 percent of Cuba’s economic activity, were already ordered in June to reduce energy use by a minimum of 12 percent or face mandatory electricity cuts.

The situation is not as dire as in the 1990s because Cuba receives 93,000 of the 150,000 barrels of oil per day that it consumes from strategic ally Venezuela on preferential terms.

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Cash-strapped Cuba says toilet paper running short


HAVANA (Reuters) – Cuba, in the grip of a serious economic crisis, is running short of toilet paper and may not get sufficient supplies until the end of the year, officials with state-run companies said on Friday.

Officials said they were lowering the prices of 24 basic goods to help Cubans get through the difficulties provoked in part by the global financial crisis and three destructive hurricanes that struck the island last year.

Cuba’s financial reserves have been depleted by increased spending for imports and reduced export income, which has forced the communist-led government to take extraordinary measures to keep the economy afloat.

“The corporation has taken all the steps so that at the end of the year there will be an important importation of toilet paper,” an official with state conglomerate Cimex said on state-run Radio Rebelde.

The shipment will enable the state-run company “to supply this demand that today is presenting problems,” he said.

Cuba both imports toilet paper and produces its own, but does not currently have enough raw materials to make it, he said.

One of the measures taken to address the cash crunch is a 20 percent cut in imports, which in recent days has become evident in the reduction of goods in state-run stores.

Cuba imports about 60 percent of its food.

Despite the shortages, prices will be cut between 5 percent and 27 percent for some food, drugs and personal hygiene products, officials said.

A visit to a store in Havana‘s Vedado neighborhood on Friday found that prices had dropped for mayonnaise, barbecue sauce and canned squid.

One customer, who gave his name only as Pedro, complained that “it doesn’t look like prices have been lowered for the fundamental products” such as cooking oil.

Ana Maria Ortega, deputy director for military-run retail conglomerate TRD Caribe, said there will be no shortage of basic goods.

“The conditions are in place to maintain the supply of essential products,” she said on the same radio program.

Cubans receive a subsidized food ration from the government each month that they say meets their needs for about two weeks.

President Raul Castro told the National Assembly last week that the government had cut its spending budget for the second time this year and has been renegotiating its debt and payments with foreign providers.

Cuba has long blamed the 47-year-old U.S. trade embargo against the island for many of its economic problems. It also said that last year’s hurricanes did $10 billion worth of damage that forced the government to spend heavily on imports of food and reconstruction products.

Castro, who replaced his ailing older brother Fidel Castro as president last year, also has complained that Cuba’s productivity is too low.

He has taken various steps to boost output, including putting more state-owned land in private hands and pushing for salaries to be based on productivity.

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Grocery Stores Temporarily Closed in Cuba amid Bewilderment


AP: More than a dozen stores in Cuba’s capital that had been run by the now-defunct firm Cubalse closed Thursday to tally merchandise before they were transferred to the new managing company, TRD Caribe. The change is part of a government effort to streamline bureaucracy.

Upscale grocery stores that were scheduled to close two days last week for inventory remained shuttered Monday — sparking rumors of food shortages because of the country’s dire economic situation.

When they didn’t reopen Saturday as scheduled, customers started to get concerned. Cuba has seen its revenue from nickel and other exports plummet, leaving it short on cash to pay bills overseas.

“We have been forced to re-negotiate debts, payments and other commitments with foreign companies,” President Raul Castro said in a speech Saturday night.

The shuttered stores cater to foreigners and accept only convertible pesos, a currency worth 24 times the regular peso, which most Cubans are paid in. However, some islanders get convertible pesos through remittances from relatives in the United States, or from jobs in tourism or with foreign firms, and frequent the upscale stores seeking toilet paper, ground beef, cooking oil and other products unavailable in local groceries.

Customers knocked on the door of one closed store Monday to demand an explanation.

“It’s a lack of respect for the consumer,” said Alina Marquez, a 66-year-old retiree who came because, “I ran out of laundry detergent and was also looking for a little chicken to eat.”

TRD Caribe commercial director Maria Eloisa Cabrera said Monday that the inventory took longer than expected, and added that she doesn’t yet know when the stores will reopen.

“We are taking organizational steps, and there were incompatibility issues with our computer systems,” Cabrera said.

She said when stores open again, “they are going to keep selling everything Cubalse had. Nothing is going to change.”

But the closings have raised fears of less merchandise and higher prices.

In recent weeks, grocery vendors complained they had not received shipments of everything from laundry detergent to dog food since the government dissolved Cubalse in June and canceled its contracts with international exporters.

Some stores that weren’t controlled by Cubalse, such as Palco Supermarket on the capital’s outskirts, are open but have been mobbed by crowds of customers who snapped up much of the available inventory.

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Economic situation in Cuba getting worse


Reuters:

Cuban factories are closing down and production is being cut at other workplaces as the international financial crisis weighs on the import-dependent Caribbean island, the official media said on Sunday.

A growing shortage of foreign exchange has forced the Communist-run country to drastically cut imports and local budgets, impose power quotas on state-run companies, restructure debt and put off payments to foreign suppliers.

The state-run Juventud Rebelde newspaper, the only national Sunday publication, said a tire factory had shut down since February due to a lack of rubber imports while an aluminum packaging plant cut output for similar reasons.

The newspaper said the plants were examples of a wider problem “in other sectors of the Cuban state company sector,” which encompasses 90 percent of economic activity.

Other workplaces were having difficulty obtaining spare parts, the newspaper said, and still others were being forced to scale back output after a recent government measure mandating a 12 percent reduction in power consumption.

Cuba, like other Caribbean countries, has been hit hard by the global financial crisis, which has slashed revenue from key exports, dried up credit and reduced foreign investment.

It is under longstanding U.S. economic sanctions and is recovering from three hurricanes that struck last year, causing an estimated $10 billion in damages.

Workers at lobster processing plants, cigar rolling factories and other establishments have reported layoffs for months, but Sunday’s Juventud Rebelde report was the first official admission of growing problems in the productive sector.

“The waves of the present international financial and economic crisis are slowly gaining force and the rough waters are reaching the pockets of companies and workers around the world,” the newspaper said.

“We can’t harbor the illusion that we can escape just because our country has a social system that defends justice for all,” it said.

Economy and Planning Minister Marino Murillo recently said Cuba’s growth forecast for 2009 was reduced from 6 percent to less than 2.5 percent.

Some local economists believe this year’s growth will be 1 percent or less, similar to forecasts for the region overall.

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