By Karen DeYoung. Washington Post Staff Writer. The Washington Post. Monday, July 24, 2000; Page A20
HAVANA –– The Havana Palace, a 73-unit condominium building with pool and garage, is nearing completion in the upscale Miramar section of the Cuban capital. Designed to be sold to foreigners with business interests in Cuba, or those merely looking for a Caribbean pied-a-terre, it is
one of 17 projects being built under a joint venture construction program authorized by the Cuban government in 1997.
But two months ago, foreigners were suddenly prohibited from buying the condos. A terse announcement by the Ministry of Foreign Investment and Economic Cooperation said all but a handful of the approximately 2,300 units in the foreign-financed initiative will be purchased by the government,
which presumably will rent them to approved foreigners.
It is not clear where cash-strapped Cuba will get the estimated $175 million needed to buy out foreign investment in the project. It's even less clear what spooked the government into canceling the sales program. Rumors in the business community range from panic over an inability to provide
sewer and water hookups, to fears that anti-Castro exiles would try to buy the condos through third parties, to complaints by Communist hard-liners that the private ownership initiative had simply moved too fast.
Whatever the reason, the condominium episode is cited by many business representatives and economists here as an illustration of the two steps forward, one step back liberalization policies Cuba has implemented since beginning its long climb from economic rock bottom in the early 1990s.
Some openings seem here to stay; President Fidel Castro said last month he believed Cuba would "never again" find it necessary to ban private possession of dollars, and he touted the wisdom of individual ownership in certain agricultural sectors. But the sudden and unexplained closure
of others has put many existing and potential investors on edge.
"There is a jerkiness" in the way Cuba conducts business that makes investors nervous, said a representative of one major foreign investor who requested anonymity. "The regulatory framework is not there. When momentum is interrupted, it feels like you're going backward."
A Cuban economist who works inside the system put it more broadly. "For a foreigner to want to go to a country and invest a large sum of money, the government has to be coherent. They can't say on the one hand they want something, and, on the other, have a leader who gives public speeches
denouncing the international financial system."
Castro continues to denounce the International Monetary Fund and the World Bank along with "the insanity of privatization," even though the vast bulk of Cuba's $11 billion foreign debt has been overdue for years and the government is largely restricted to short-term international
financing for imports at what Cuba's Central Bank calls "onerous" interest rates.
Much of what Cuba imports is food. While the government seeks an end to the U.S. trade embargo, the main benefit of pending U.S. legislation eliminating a ban on food sales would be the difference between the cost of carrying Chinese and Vietnamese rice halfway around the world versus the price
of shipping Louisiana and Arkansas rice across the Gulf of Mexico.
But it is investment that is crucial to Cuba's continued recovery from the rapid economic fall following the abrupt end in 1989 of about $4 billion a year in subsidies from the Soviet Union.
"In economic terms, Cuba sustained terrible damage," during the 35 percent contraction in the economy that occurred virtually overnight, Castro said in a recent interview. "Supplies of fuel, food, raw material and parts for machinery and factories were abruptly and almost
completely cut off."
While many outsiders did not believe any economy could survive such a precipitous downturn, severe belt-tightening and new foreign investment have put Cuba's gross domestic product into the plus column, where it has remained since 1994. The Cuban Central Bank said the economy grew 6.2 percent
last year, and 4.5 percent growth is projected for 2000.
But the price has been high for individual Cubans. Government-subsidized rations, ranging from 12 eggs and six pounds of rice a month to 1 bread roll a day, are considered about half of what is necessary. The monthly ration basket costs less than 15 pesos a person, or about 70 cents; that figure
more than doubles with the addition of subsidized milk for children under 7. The current domestic exchange rate is 21 pesos to the dollar.
Beef is still largely unavailable--most cattle in Cuba are milk producers and unauthorized slaughter is illegal--and shellfish is reserved for tourists and export. Domestic chicken production is one-fourth what it was in 1989 because imported feed is deemed too expensive, and pork production is
less than one-third.
The average monthly salary last year was 221 pesos--$10.52 at the domestic exchange rate--according to the Central Bank. Most people do not pay rent, utilities are subsidized and education and health care are free, although there is a chronic shortage of medicines.
"You have to do a lot to make up for what was lost between 1989 and 1993," said the Cuban economist, who asked not to be identified. "It would take 8 to 9 percent growth annually to reach the point where individuals actually feel a difference.
"They've gone through 10 years saying that people can live on one piece of bread a day," he said. "It's a problem you can't see from the outside, but anybody who spends two weeks in Cuba knows what it is."
Many Cubans are sustained by the economic liberalizations that allow them to receive, earn and spend extra money outside the government system. Although estimates vary widely, between 30 and 60 percent of Cubans have access to modest amounts of dollars, through joint venture employers or money
sent from abroad. Consumer goods are available in government-run dollar stores, and farmers are allowed to sell food on the open market once they have met their state quota.
As the economy begins to recover, however, some of the space that was opened for private entrepreneurs has begun to narrow. Although some Cubans are allowed to run restaurants in their homes, few licenses have been granted for such enterprises. Restaurateurs said there were none in the last two
years. Frequent government inspections verify that those businesses do not expand beyond set limits and make sure taxes are paid.
Some argue that while Cuba's basic economic structure can continue to produce growth over the medium term, it has little long-term promise.
Tourism and sugar production, which together produce 70 percent of all foreign exchange, have expanded substantially in the last five years, but most of the cash goes right back out to pay for imports. Sugar prices are falling and, while more than 1.6 million tourists visited Cuba last
year--nearly half from Canada and Europe--the need to import most of what they consume limits profitability.
The impact of structural changes has been mixed. What was once a centralized, Soviet-style system has been decentralized into a number of individual, state-owned companies. While still subject to quotas, these companies have varying degrees of autonomy, can sign contracts with each other and
handle their own marketing. Some, particularly in the tourism sector, have signed management contracts with foreign companies.
But old habits die hard, and unrealistic quotas or slow production have put a number of the companies in debt--many to other Cuban enterprises. Government audits of 300 state-owned companies this spring showed that only a third had acceptable accounting practices. The Central Bank announced a
crackdown, noting there was little, if any, documentation of transactions for "billions of pesos" between individual companies.
Foreign investment can be profitable for those with the nerves for it. Most enterprises are in Cuba on a 50-50 basis in which Cuba contributes land and facilities and foreigners pay for capital costs and labor. Taxes average 30 percent and all profits can be repatriated.
While some are interested only in getting a foot in the door while waiting for more stable economic conditions, others have made substantial commitments. The U.S.-Cuba Trade and Economic Council, which is funded by U.S. businesses, said Cuba's largest foreign investor is Spain's Altadis, which
spent a reported $500 million in December for half of Cuba's Habanos S.A., the government's tobacco and cigar export marketer.
Second is a subsidiary of Telecom Italia, which bought a 29 percent interest in the Cuban national telephone company for a reported $400 million. The third largest, according to the council, is Canada's Sherritt International Corp., with investments in nickel, oil, gas, electricity generation
and other sectors.
But even the hardiest investors retain doubts. In the "risks and uncertainties" section of its 1999 annual report, Sherritt noted that Cuba's policies on foreign investors and payments "could be affected by the political environment and economic pressure. . . . The corporation is
entitled . . . to certain [Cuban government] assurances . . . that protect it from adverse changes in law," but such changes were unpredictable and beyond company control, the report said.
"Right now, they've got a period of grace, a window of opportunity" to institutionalize a system governing all aspects of foreign investment, said a representative of one foreign investor. "These are all the things that people who put money into a place expect [and] it's needed in
every sector."
Those who are openly critical of the government's political model, however, say its demands will trump the economy every time. "There is no economic model in Cuba," said Marta Beatriz Roque, an economist recently released from a lengthy prison term for sedition. "They used to say
it was socialist, but it's really not now. But it's not capitalist. It's like a laboratory test tube. They pour things in, and see what happens."
Paying for Food
Every Cuban receives a ration book each month allowing the purchase of food and other supplies at government-subsidized prices. Other goods are available at market prices. The average monthly salary in Cuba was 221 pesos in 1999, according to the Cuban Central Bank, and the current domestic
exchange is 21 pesos to the dollar.
Food/supplies; Quantity (Per month); Total price (In pesos)
Rice; 6 lbs.; 1.50
Sugar; 6 lbs.; 0.75
Legumes (half peas, half beans); 1.5 lbs.; 0.48
Coffee; 0.25 lbs.; 0.80
Eggs; 12; 1.80
Meat; 1 to 2 lbs.; 0.75 to 1.50
Cooking oil; 0.125 lbs.; 0.15
Salt; 1 lb.; 0.10
Fish; 1 to 2 lbs.; 1.00 to 4.00
Laundry soap;
1 bar; 0.20
Bath soap; 1 bar; 0.25
Tooth paste; 1 tube; 0.65 to 1.00
Quantity (Per day)
Bread; 2.8 oz.; 0.05
Milk (through age 6); 2.1 pints; 0.50
Quantity (Per week)
Soy yogurt (age 7 to 13); 6.3 pints; 3.00
VOTES IN CONGRESS
By Roll Call Report Syndicate. Sunday, July 23, 2000; Page M04
HOYER-YES
FOOD AND MEDICINE SALES TO CUBA
For-301 / Against-116
The House adopted an amendment on Thursday lifting the 38-year-old U.S. embargo on the sale of American food and medicine to Cuba. This occurred during debate on a fiscal 2001 spending bill for the Treasury Department and other agencies (HR 4871). A yes vote was to allow U.S. food and medicine
sales to Cuba.
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