CU Econ 2004
15 April 2004

HAVANA - (Reuters) - Managers of Cuba's state enterprises have been told to hand over their expensive cars like Toyotas and Mitsubishis and stick to the more proletarian Russian-made Ladas or smaller vehicles. Nor can they drive cars with decorations or air-conditioning, which has set them apart from ordinary Cubans in the sweltering heat of tropical summer. It's part of President Fidel Castro's campaign to roll back the market-oriented reforms that gave rise to social differences in an officially classless, communist-run society. The most recent clampdown has targeted executives of state companies, whose perks are under fire. A decade ago, Cuba sowed the seeds of capitalism when it reluctantly legalized the U.S. dollar and permitted some private enterprise as it battled to survive a post-Soviet meltdown of its centrally planned economy. State corporations, particularly those involved in tourism, the Caribbean island's main hard currency earner, adopted modern business practices. With that came the perks and status symbols of capitalist society that are now being wrung out of the economy. But inspectors have begun fanning out this month to make sure executives are complying with a Transport Ministry circular specifying what cars they can use. Anything bigger than a Lada will be handed over to the ministries and state protocol service, according to the document seen by Reuters. "Cuban officials feel they have weathered the crisis and it's time for the state to take an even more central role in the economy," said Phil Peters, an exert on Cuba at Washington's Lexington Institute think tank.
"They are opting for equality over growth," he said. Orthodox socialists who held their noses over the reforms following the loss of Soviet aid are running policy again, Peters said. Increased circulation of the U.S. currency brought division between haves and have nots -- Cubans with dollars and those with no access to dollars who remained stuck in the peso economy. In a country where monthly salaries average $15 and a taxi driver can earn more from tourists in a day than a brain surgeon earns in a month, small capitalists known as "cuentapropistas" multiplied fast. To cover a dramatic shortage of services, the government licensed many Cubans over the last decade to have small businesses, from plumbers to taxi drivers. For a year, Cuban regulators have been chasing unauthorized private entrepreneurs and heavily taxing licensed businesses like room rentals for tourists and small family restaurants called "paladars." Red tape has forced many out of business. Western diplomats said Cuba is retrenching economically as well as politically. They point to a crackdown on dissent last year and increased regulation of foreign companies too. "The number of joint ventures fell by 70 last year, and will decline by a similar number this year. Tens of thousands of small independent business have folded in recent years under government pressure and small foreign trading companies are packing their bags," a European commercial attache said.
In the state sector, which accounts for 90 percent of the economy, a re-centralization is underway, as the government takes back decision-making power that had gone from ministries to state companies. Local analysts say Castro views state business managers as a potentially corrupting force that played a role in bringing down East European communism. He would like to end private Cuban businesses and do away with the dollar, the currency of his arch-enemy the United States, they said. In recent speeches, Castro has criticized costly imports by too many state companies and justified centralized control over dollar reserves that cash-strapped Cuba badly needs to pay for essential food and oil imports. "The decentralization of hard currency has gone further than planned and begun to cover unnecessary expenses," Economy Minister Rodriguez told the National Assembly in December. Cuba's Caribbean beaches attract thousands of European and Canadian sun seekers that bring in hard currency, while remittances to Cubans from U.S. relatives is a key source of dollars. State corporations that branched out into a myriad of dollar-earning services trying to be financially self-sufficient -- from shops to restaurants -- have been told to concentrate on their core business, according to a circular sent out by Economy Minister Jose Luis Rodriguez. A document seen by Reuters lists 87 services that can no longer be charged in dollars.
Havana allowed the dollar to circulate freely alongside the peso in 1993 and it quickly became the currency of choice since the local currency buys little Cubans want. Last August, the Central Bank introduced exchange controls and banned state companies from using dollars in most operations, requiring usage of the convertible peso, a locally printed currency equal to the dollar but with no value outside Cuba. Dozens of executives of the two largest corporations, Cimex and Cubanacan, were removed over alleged mishandling of dollars, charging of commissions and the use of foreign bank accounts. The government also ended the freedom most state companies had gained to import goods. "It's a double blow. First the dollars were taken away, and now the right to trade and make independent decisions," a Cuban economist said. "We are going back to the 1980s when everything was centralized."