Chinese Vicepresident in Cuba to meet on economic ties

HAVANA (Reuters) – Chinese Vice President Xi Jinping arrived in Cuba on Saturday for a three-day visit expected to accelerate fast-growing economic relations between the two communist-run countries.

One of Cuba’s six vice presidents, Esteban Lazo, was at Havana’s Jose Marti International Airport to greet Xi, who is tipped to succeed Chinese President Hu Jintao in 2013.

Xi came to Cuba from Italy, where $3.2 billion in business deals were unveiled during his visit, and he was to go on to Uruguay and Chile.

China is in the midst of a massive expansion of economic activity in Latin America, where its trade last year totaled $180 billion, up 50 percent from 2009, official Chinese news agency Xinhua reported.

In a written statement to the press, Xi said he was in Cuba to “increase friendship (and) deepen cooperation” in pursuit of development.

Xi and President Raul Castro were scheduled to hold talks and preside over the signing of so far undisclosed accords on Sunday.

A Chinese official told Xinhua this week the two countries would begin negotiations on a five-year plan for bilateral economic cooperation.

China is Cuba’s second largest trading partner, trailing only Venezuela, with trade between the two increasing to $1.83 billion last year from $440 million in 2001, according to Xinhua. The 2010 figure fell from $2.2 billion in 2008.

China has become the lender of last resort for debt-ridden Cuba, which is carrying out reforms to modernize and strengthen its Soviet-style economy.

Last year, China restructured debt believed to be as high as $4 billion and agreed to extend new credit in what Havana-based diplomats said was a show of support for Cuba’s reforms.

In his statement, Xi praised a recent Cuban Communist Party congress affirming the economic changes, which are timid compared with the market economy China has embraced.

Castro, who succeeded ailing older brother Fidel Castro in 2008 and turned 80 on Friday, is slashing government payrolls, expanding the private sector, putting more agriculture in private hands and giving state companies greater autonomy.

He has said the goal is to make sure Cuban socialism survives once the current generation of aging leaders is gone.

China’s involvement in Cuba’s economy is increasingly evident, with Chinese-made goods filling the stores and Chinese buses and cars a common sight on Cuban roads.

A unit of China National Petroleum Corp is expected to begin work later this year on a $6 billion project to expand and upgrade an oil refinery in Cienfuegos on Cuba’s southern coast, with plans including construction of a liquefied natural gas terminal.

China buys nickel, sugar and other products from Cuba and jointly produces pharmaceuticals in China.

After Sunday’s meeting with Castro, Xi will visit a Havana medical clinic on Monday, then leave for Uruguay from the beach resort of Varadero on Tuesday.

Tax system to get complete overhaul

The Cuban government will completely overhaul the country’s tax system, Vladimir Requeiro, deputy chief of the Oficina Nacional de Administración Tributaria (ONAT), announced on state TV.

The overhaul of the tax law of 1994 is occurring as the number of self-employed Cubans is skyrocketing. As of early May, more than 300,000 Cubans were licensed to operate small businesses, up from 130,000 in October last year, when the government began issuing self-employment licenses. Officials announced in May that all private businesses will be allowed to hire; however, a 313-point document outlining economic changes outlines progressive employment taxes that increase with the number of employees of a company.

According to the “Guidelines” document, the new businesses must pay 25 to 50 percent taxes on profits, 10 percent sales or service tax, 25 percent employment tax, and 25 percent social security contribution.

Requeiro said that tax rates will be according to income bracket, and that agricultural producers benefit from a special tax system to stimulate food production.

Most Cubans have never had to pay taxes. Even so, Cuban economists expect the government to collect hundreds of millions of dollars of tax revenues this year from private businesses.


2011 Vuelta a Cuba cancelled

Velonation: The two-week classic stage race, the Vuelta a Cuba, will not take place in 2011. The president of the Cuban Cycling Federation, Jose Pelaez, noted at a press conference that the decision was made “as part of a necessary rescheduling of the plan of national and international competitions and the implementation of a strategy to face upcoming events such as the Pan-American Games in Guadelajara later this year and the Olympic Games in London in 2012.”

The hope is that the resources saved through canceling the arduous two week tour will be better served bolstering the rest of the Cuban sports system according to Pelaez.

“This decision will help devote all of our efforts and resources to complete the key objectives in Cuban sports at the next stage.”

With that in mind, it’s not surprising that the cuts in cycling will not affect Cuban baseball, the island nation’s sport of choice, and also the country’s showcase discipline on the world’s stage.

The cancellation of the Vuelta a Cuba goes with the theme of President Raul Castro’s recent budget cuts with the goals of reducing the burden on the state by eliminating assorted, unnecessary expenses including half a million public sector jobs according to

According to the Cuban News Agency, Cuban cyclists will utilize a number of other major cycling events to prepare for the listed goals of the Pan-Am Games and the coming Olympic Games in London. In the coming weeks and months, the Cuban National Team plans to race the Vuelta al Tachira in Venezuela, the Tour de San Luis in Argentina, the Track World Cup in Manchester, England, and the Track World Championships in Apeldoorn, Holland.

The race, first run in 1964, has been cancelled on a number of other occasions, including 1970, 1975, 1982, and the period between 1991-1999.

US cable: Cuba to be insolvent within 2-3 years

HAVANA(AP) – A newly released confidential U.S. diplomatic cable predicts Cuba’s economic situation could become “fatal” within two to three years, and details concerns voiced by diplomats from other countries — including China — that the communist-run country has been slow to adopt reforms.

The cable was written in February, months before Cuban President Raul Castro announced a major revamp of the island’s economy, laying out plans to fire a half million state-workers and open up the island to expanded forms of private enterprise.

The cable, sent by the U.S. Interests Section in Havana, which Washington maintains instead of an embassy, was released Friday by WikiLeaks. It was apparently written by America’s chief diplomat on the island, Jonathan Farrar.

It details a breakfast meeting held by the Interests Section’s chief economic officer with diplomats from some of Cuba’s main trading partners, including China, Spain, Canada, Brazil and Italy, as well as France and Japan, both of which are among the island’s top creditors.

“All diplomats agreed that Cuba could survive this year without substantial policy changes, but the financial situation could become fatal within 2-3 years,” the cable said, adding that Italian diplomats cited sources within the Cuban government as predicting that the island “would become insolvent as early as 2011.”

Even the Chinese diplomat expressed what the cable referred to as “visible exasperation.” It said the Chinese were particularly annoyed by Cuba’s insistence on retaining majority control of any joint venture.

“No matter whether a foreign business invests $10 million or $100 million, the GOC’s (Government of Cuba’s) investment will always add up to 51%,” the cable quoted the unnamed Chinese commercial counselor as saying.

The Chinese also complained about problems getting loans repaid, and in particular a Cuban request to extend from one year to four years the amount of time it has to repay credit.

The cable said Cuba’s attempts at agricultural and other reform up to that point had been ineffective, and said more changes were unlikely.

“There is little prospect of economic reform in 2010 despite an economic crisis that is expected to get even worse for Cuba in the next few years,” it said, citing Cuba experts.

It is no secret that Cuba’s economic situation is increasingly dire. Castro has warned that the state can no longer afford to subsidize nearly all forms of Cuban life. The government provides free health care and education, and nearly free transportation, housing and utilities. All Cubans also receive a ration book that provides them with some basic food, though not enough to live on.

Most islanders work for just $20 a month in a state-dominated economic system riddled with inefficiency.

Yet the island has survived the collapse of the Soviet Union, which caused the near-failure of its economy, as well as a 48-year U.S. trade embargo, the retirement of revolutionary leader Fidel Castro in 2006 and countless other bumps along the way.

And the cable’s confidence that the government would not enact economic reforms did not pan out. The reforms announced by Raul Castro in September are considered the most significant in a generation. Still, it is unclear if they will be enough to save the island’s perennially weak economy.

Raúl the pragmatist

The Economist:

SHORTLY after he took charge of Cuba from his ailing brother, Fidel, in 2006, Raúl Castro declared that his country’s moribund communist economy needed to change. But his failure to make anything more than marginal adjustments disappointed hopes that he would follow Chinese and Vietnamese communist leaders in combining capitalist economics and growing social freedom with continued party control.

Raul Castro

Now, at last, Mr Castro is showing signs of boldness. Over the past few weeks he has launched some potentially far-reaching changes. By April 1st 500,000 Cubans will be laid off from their state jobs and encouraged to make their own living in small businesses. Over the next two or three years, another 800,000 are likely to join them. Eventually up to two Cubans in five will no longer work for the state.

This week Mr Castro convened a much-postponed Congress of the Communist Party for late April: its job will be to bless the new economic model. Meanwhile, the government has released more than 50 political prisoners. Two decades after the fall of the Berlin Wall, is Cuban communism finally on the way out?

Any answer must be hedged about with caveats. The economists advising Mr Castro are barred from talking of “reform”. In its guidelines for the party congress, the leadership declares that “only socialism [ie, communism] is capable of overcoming our difficulties and preserving the gains of the revolution” and that in the new economy “planning will be paramount, not the market.” No Cuban official has matched Deng Xiaoping’s embrace of “market socialism”, let alone his (perhaps apocryphal) injunction that “to get rich is glorious”. The welcome release of prisoners seems merely to have been a move to deflect outside criticism after the death of one of them in a hunger strike, rather than a first step in dismantling the island’s police state. Indeed the army is playing a bigger role in the economy and in government.

Yet Raúl’s reforms go much further than Fidel’s reluctant acceptance of foreign investment and limited self-employment after the collapse of the Soviet Union, partially reversed on the appearance of a new benefactor, Hugo Chávez’s Venezuela. For the first time since the 1960s Cubans will be able to employ other Cubans (even though the constitution bans such “exploitation”). Many of the rules under which these new businesses will operate are still being drawn up. But it seems that Cubans will now be able to get loans and rent and buy property. Other changes are likely to follow. Mr Castro talks of gradually eliminating the free food rations that Cubans get, and moving towards targeted social assistance (as elsewhere in Latin America). The corollary is that wages will have to go up—and increasingly they will be set in the market.

In all this Mr Castro is bowing to reality. He has been withering in his criticism of the featherbedding that has bankrupted the state. He has also refused to blame the American economic embargo for problems which he rightly says are self-inflicted. His pragmatism has finally won out against his brother’s doctrinaire Utopianism.

Apart from the economy, the other big task facing Mr Castro, who is 79 (and Fidel 84), is to start handing over power to a younger generation. That may come after the party congress next year. In the meantime, his new boldness represents an opportunity for those who hope that Cuba will eventually join the rest of Latin America in accepting democracy and the market economy, for once the market’s green shoots appear they tend to flourish.

How to help kill communism

Outsiders should take their lead from the common position that Europe adopted in 1996, which allows it to help in “the progressive and irreversible opening of the Cuban economy” while predicating closer friendship on moves towards democracy. Offering training and credit—as Brazil has done—to Cuba’s incipient private sector would be a good move. Rewarding Cuba for releasing prisoners who should never have been locked up in the first place—as Miguel Moratinos, Spain’s recently sacked foreign minister, wanted—would not.

America’s embargo remains as futile and counter-productive as ever. Although Barack Obama has commendably reversed George W. Bush’s restrictions on visits and remittances by Cuban-Americans, Republican control of Congress will make it even less likely that the embargo will be dismantled. That’s a great shame. The embargo has allowed the Castros to pose as proud Cuban nationalists standing up to a bullying hegemon and thus helped them cling to power. If change is at last under way it is despite the embargo, not because of it.

Cuba tourism inches up despite global economy

HAVANA  AP– Cuba says tourism on the island has inched up during the first nine months of 2010, with both revenue and the number of visitors climbing despite global economic weakness.

Revenue through September was $1.3 billion, up 3.5 percent from the $1.26 billion reported over the same period last year. The number of tourists also increased during the period, up about 50,000 to 1.89 million through September.

Canada remains the country that sends most tourists to the island — with 733,000 in the first nine months of 2010 — followed by Great Britain, Italy, Spain and Germany. U.S. tourists are effectively barred from coming to Cuba, and Washington has maintained a 48-year trade embargo on the island.

Tourism and nickel production are Cuba’s main sources of income. The country is in the midst of a deep economic downturn. Communist leaders are in the process of revamping the economy, injecting a measure of free market capitalism into the state-dominated system.

Cuba To Eliminate Ration Cards Introduced In 1962

HAVANA, Nov 10 (BERNAMA-NNN-MERCOPRESS) – Cuba is proposing the orderly elimination of the ration card according to a document prepared for the ruling party Communist Congress scheduled for April next year.

The social policy document under the heading of “Guidelines’ project for economic and social policy” went on sale yesterday here and is expected to be approved in the coming congress.

The document anticipates “implementing the orderly elimination of the ration card, a regulated and fair distribution system at subsidised prices”.

The ration card favours both the needy as the non needy “promotes bartering and resale practices and encourages an underground market”.

Effective since 1962, the ration card is supposed to deliver at symbolic prices cereals, sugar, chicken, fish, eggs, rice, coffee, cooking oil, pasta and bread among other staples (when they are available) to the 11.2 million residents of the island.

In recent months the Cuban government decided to end with the supply of potatoes and tobacco, which triggered the debate over whether the ration card should subsist or be eliminated.

“It is also important to improve ways to protect the vulnerable population because of food supply”, points out the document.

In other words this means keeping the “social food distribution system in social services, health centres and education establishments that need it” as well as in the workers mess rooms which are “essential”, but charging subsidised prices.

The closure of subsidised workers mess rooms begun in Sept last year in several ministries on a trial basis and with the purpose of cutting government expenses.

The programme also includes leaving redundant half a million government employees that will be encouraged to become small entrepreneurs or self employed.

Another half million will follow taking advantage of the experience collected with the first batch hoping to promote a dynamic private sector of small shop keepers and tradesmen.

These latest announcements are in the framework of other measures on economic policy undertaken by President Raul Castro since taking office and with the purpose of “up-dating” and making more transparent and realistic the Cuban economy.

Castro will convene the April congress, the first since 1997, with the specific task of addressing economic policy.

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.”

Cuba: Castro Explains His Words

The New York Times:

www.cubaluxuryrent.comFidel Castro said Friday that his recent comment that Cuba’s economic model did not work was badly understood and that what he really meant was that capitalism did not work.

Mr. Castro, speaking at the University of Havana, said his words had been misinterpreted by his interviewer, Jeffrey Goldberg of Atlantic magazine. Mr. Goldberg wrote in a blog on Wednesday that he had asked Mr. Castro, 84, if Cuba’s model was still worth exporting to other countries.

“The Cuban model doesn’t even work for us anymore,” Mr. Castro told him. Mr. Castro confirmed that he said those words “without bitterness or concern.”

But, he said, “the reality is that my response means exactly the opposite.” He continued, “My idea, as the whole world knows, is that the capitalist system now doesn’t work either for the United States or the world, driving it from crisis to crisis, which are each time more serious.”

Cuba’s quick fix

Miami Herald:

It’s amazing that the Castro brothers have any free hands left, what with having used so many fingers to plug the gushing dike that is Cuba’s failed economy.

Their most recent stopper came Sunday, when Raúl Castro announced another contradictory economic salvation: allowing more private enterprise. There are an estimated one million excess workers in Cuba, and the government needs them off its bloated redundant workforce.

Cubans have long made ends meet with what they euphemistically call “by the left” — illegal capitalism.

Mismanaged economy

The Cuban government is getting in on the game by relaxing prohibitions on business licenses. This will allow the Castros to squeeze workers again by charging income and sales taxes on previously under-the-table transactions working Cubans rely on.

This may be a welcome change for the self-employed who long for extra cash without dodging the state police. But it’s not enough to save a woefully mismanaged central economy that does not have enough currency for food.

It’s a step back to the mid 1990s, when more than 200,000 small businesses operated on the island. That leap toward capitalism to save communism fell short, and small business owners had the rug yanked from under them when the economy improved.

Two years into Raúl Castro’s drive to reform agriculture, that industry shrank 13 percent.

High hopes dashed

Even as he announces the pursuit to be less paternalistic and offer fewer services, his cabinet is more cautious. Economy Minister Marino Murillo should be taken at his word: “There shouldn’t be any talk of reforms. Central planning will continue to rule.”

Castro stepped into his brother’s shoes exactly four years ago amid high hopes that he would make bold changes. The novelty of the DVD players and cellphones he permitted has worn off, just as the buzz of new beauty parlors, taxi permits and other forms of self employment will wane if the government doesn’t do a lot more to raise the quality of life, instead of merely padding government coffers.

Fidel Castro’s recent appearances don’t instill confidence. By popping up everywhere from TV shows to the aquarium, he is letting his little brother know that brash moves do not go unnoticed, and eager anticipation of meaningful change is premature.