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    Cuba bows to pressure to reform its economy

    Cuba bows to pressure to reform its
    By Marc Frank in
    Published: December 13 2010 17:32

    Rising charges are forcing Cuba to reshape its Soviet-style economy, with leading creditor China among those cheering on the changes.

    A Cuban Communist party congress, scheduled for April, will discuss and likely ratify policies that are already starting to be implemented. These include cutting 20 per cent of state workers, cutting social benefits, eliminating state subsidies, improving Cuba’s trade balance and liberalising rules for small business and foreign .

    ChartCuba, which is the subject of a strict US and is excluded from most international lending organisations, depends on China as a creditor of last resort. Its proposed reforms are remarkably similar to those typically required under International Monetary Fund bail-outs – although privatisation of state assets is not on the agenda.

    In a recent closed-door meeting of 500 senior officials chaired by Raúl , president, Cuba’s economy minister, Marino Murillo, reportedly stated that mounting debt and the need for fresh credit had left the government no choice but to put its economic house in order.

    A video of the November meeting, called to discuss plans for next year’s congress, is making the rounds of Havana’s elite. Cuba faces rising principal and service charges over the next five years and simply does not have the money to meet them, Mr Murillo, reportedly said on the video.

    Cuba last reported its foreign debt at $17.8bn in 2007. Most analysts agree it now exceeds $21bn, or close to 50 per cent of domestic product and 30 per cent more than annual foreign exchange revenues. Many creditors have tired of Cuba’s debt reschedulings. China is a relatively new member of Cuba’s creditor club, having provided billions in loans over recent years. But it is now Havana’s biggest creditor and second largest trading partner, after .

    According to a number of people familiar with the video, Mr Murillo specifically talks about the need to repay China on time. Plans to develop oil refineries, ports, railways, the nickel industry and power generation will require billions in fresh credit.

    Mr Castro’s point man for economic reform reportedly argues in the video that state-run companies should be freed from government administration and defends plans to shift hundreds of thousands of workers to “non-state” jobs such as small businesses, farms and co-operatives.

    “Mixed-capital companies, co-operatives, farmers with the right to use idle land, rented property landlords, self-employed workers and other forms that contribute to raise the efficiency of social labour must be recognised and encouraged,” adds a 32-page discussion document prepared for the congress, which will set out Cuba’s social and economic policies through 2015.

    Cuba is counting on China and Venezuela to provide fresh development credit. Some of its debts to Beijing will be backed by Venezuelan oil as collateral. A diplomatic cable, released by WikiLeaks last week, describes a US diplomat’s breakfast meeting with the commercial attachés from Cuba’s biggest trade partners. “Even China admitted to having problems with getting paid on time,” the cable reported. “[Officials from] France and responded with ‘welcome to the club’.”

    According to Asian diplomats in Havana, Chinese and even Vietnamese officials have repeatedly “suggested” Cuba modernise and offered their assistance. Discussion documents for next year’s congress, the Murillo video and government statements all indicate that Havana may finally be heeding their advice.

    , former president, recently praised China’s “rectifications” and told students: “China is worth studying.”

    “Cuba is prepared to take advantage of China’s experience in developing reform and opening up,” Ricardo Alarcón, a long-time politburo member, added while visiting China last month. Such words will surely be welcomed in Beijing as it ponders further loosening its purse strings.