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Tuesday, 21 September 2010 11:10

Cuba faces big reforms as it embraces privatization

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Cuba's government plan to lay off half a million state workers and encourage them to move into private sector jobs is part of a sweeping economic reform. Economic experts say Cuba faces several challenges in fostering private businesses.

For months, President Raúl Castro has been warning about inevitable layoffs in the state sector, which represents 95 percent of Cuba's economy.  He says the state is struggling because too many workers are redundant and have low productivity.

Monday, the Cuban Workers Confederation unveiled a plan that includes cutting more than 500,000 state employees by April.  The labor union group says the government cannot continue to support entities with inflated payrolls and losses that drag down the island's economy.

Washington-based economist George Montalvan says the plan is in response to an economic crisis.  He says Havana made a similar move when the Soviet Union and its financial support of Cuba collapsed in the early 1990s.

"They are doing something that is similar, but definitely of greater magnitude because 500,000 individuals is 10 percent of the Cuban labor force," he said. "So it is a lot of people."

Cuban officials say most of those people can be absorbed into private sector jobs as the government prepares to relax rules on non-state industries.  The workers confederation says new reforms will allow Cubans to lease land, form cooperatives and become self-employed.

Cuba made a similar move in the 1990s when it allowed people to open small restaurants and hostels, and allowed businesses to accept U.S. dollars.  Analysts say the current plan might go even further, by allowing businesses to hire employees and lease property.

John Kavulich, U.S.-Cuba Trade and Economic Council senior advisor, says many questions remain about how these changes will be implemented.  He says current laws make it nearly impossible for Cubans to form a small business.

"They have to make available the means of production," he said. "If someone needs a machine for example, does the person own the machine?  Does the government own the machine and lease the machine?"

Another question is where Cubans will find the money to finance their own businesses.  George Montalvan says many foreign investors are wary of Cuba because of its history of failing to pay back loans and not respecting foreign ownership rights.

He says some Cubans might receive remittances from relatives abroad, but that it is unclear how the government will allow people to use that money.

"The Cuban government does not have the wherewithal to finance, in any important way, small businesses," he said. "So the question is:  where is that financing going to come from?"

The proposed reforms also might have a strong social impact for a Communist state that for decades has sought to eliminate class divisions.

Analyst Kavulich says that opening the door to private enterprise might enable some business owners to prosper, especially in the eyes of other Cubans.  He says it is unclear whether Cuban officials are ready to allow that to happen.

"The Cuban government does not do well with success; it tends to penalize it," he said.

Earlier this month, former Cuban leader Fidel Castro was quoted by a U.S. journalist as saying that the Cuban model no longer works, even for Cuba.  He later said he was misquoted and that he believes capitalism does not work.

The latest reforms, analysts say, suggest that the Cuban government led by Raúl Castro is ready for a change to overcome the country's economic crisis and build Cuba's future.

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