Alan Gross: Castro's prisoner
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    Key political risks to watch in Cuba – 11-2011

    Key political risks to watch in Cuba
    Tue Nov 1, 2011 2:28pm GMT
    By Jeff Franks

    HAVANA Nov 1 (Reuters) - The Cuban government has been quietly cutting
    its bloated payroll and stepping up plans to boost agricultural
    production as part of reforms aimed at strengthening its socialist
    system for the future.

    Its long-delayed offshore oil exploration project in the Gulf of Mexico
    is expected to start in January after the arrival of a Chinese-built
    drilling rig now on its way from Singapore.

    If oil is found, it will reduce or eliminate Cuba's reliance on oil
    imports from Venezuela, whose President Hugo Chavez -- the island's top
    ally and economic partner -- is battling an undisclosed type of cancer.
    He is receiving treatment in Cuba.

    ECONOMIC REFORM

    Cuba has begun a government reorganization that will include replacement
    of its sugar ministry with a state holding company [ID:nS1E78S0AG] and
    the creation of new energy and mining ministries. Other ministries may
    be eliminated.

    Most state companies are controlled by ministries and lose money, but
    will be given greater independence in hopes of improving their
    performance. [ID:nS1E78T0I8]

    Cuban media reports say there are now 338,000 people working in the
    self-employed sector, the growth of which is being encouraged because
    the cash-strapped government wants to slash a million jobs from its
    payrolls.

    So far, just under 150,000 people have lost their jobs, government
    insiders say. [ID:nN1E7940HC] The goal is to have a third of Cuba's work
    force of 5.2 million working in the "non-state" sector by 2015, up from
    15 percent in 2010.

    Cuban media said many state-owned small service businesses would be
    leased to employees in October to run essentially as private businesses,
    an extension of an experiment begun last year with barber shops and
    beauty salons. So far, there has been no announcement of the change or
    evidence it has begun.

    Still to be announced are reforms, promised by President Raul Castro,
    that will liberalize the sale of homes and loosen restrictive travel and
    immigration rules. [ID:nN1E7701VN]

    Cuba has been handing out idle land for farming and, looking to increase
    output, has decided to increase the maximum size of plots to 165 acres
    (67 hectares), up from the current maximum of 33 acres (13 hectares.
    [ID:nN1E79I0BN]

    Food output is up this year but still below 2005 levels and farmers
    complain reforms are slow in coming. [ID:nS1E78R08J]

    Two Canadian trading companies [ID:nS1E78F16C] and a British investment
    firm [ID:nN1E79F034] are under investigation as part of Castro's
    campaign to crack down on corruption that he says is a drag on the economy.

    What to watch:

    -- The pace and final version of reforms.

    -- The numbers and performance of the newly self-employed.

    -- Agricultural production.

    FINANCIAL HEALTH

    Cuba still is recovering from a liquidity crisis that led to a default
    on payments and freezing of foreign business bank accounts.
    [ID:nN24211495] President Castro said the bank accounts issue will be
    resolved by year's end, but many companies say they are still owed money.

    The government has said tax payments from the self-employed have
    increased revenues, while its top hard currency earners -- tourism and
    nickel exports -- have improved.

    Castro has said Cuba's economy should grow 2.9 percent this year, up
    from 2.1 percent in 2010. Cuba's reserves at the Bank for International
    Settlements stood at $5.75 billion in March, double what they were at
    the end of 2008. [ID:nN1E79U0I0]

    Long-awaited golf course developments, aimed at attracting wealthier
    tourists, remain on hold. [ID:nN04118234]

    The first American tourists to visit Cuba under more flexible travel
    rules ordered by U.S. President Barack Obama began arriving in August.
    Experts say the new rules could bring as many as 100,000 additional
    Americans this year. [ID:nN1E77F13C]

    What to watch:

    -- Resolution of bank account access for foreign businesses.

    -- Effects of global economic problems.

    -- The growth of American travel to Cuba.

    OIL PLANS

    A Chinese-built drilling rig, the Scarabeo 9, is expected to arrive in
    Cuban waters by late December [ID:nN1E790U0], where it will be used in
    the first major exploration of Cuba's part of the Gulf of Mexico.
    [ID:nN1E77P03U] Spain's Repsol YPF and its partners will get the rig
    first, followed by Malaysia's Petronas and its partner, Russia's Gazprom
    Neft.

    The project has drawn opposition in the U.S. Congress [ID:nS1E78R1P9],
    but Repsol has rejected accusations it is breaking U.S. law
    [ID:nL5E7KU118] and said it will let the United States inspect the rig.
    [ID:nN1E79H1XN] U.S. oil companies are forbidden from operating in Cuba
    by a long-standing U.S. trade embargo.

    Cuba depends on imports from its oil-rich ally Venezuela, but says it
    may have 20 billion barrels of oil offshore. The U.S. Geological Survey
    has estimated 5 billion barrels.

    China has signed an agreement to play a major role in increasing Cuban
    oil production [ID:nN08140650] and its state oil company is said to be
    considering leasing exploration blocks in Cuban waters. [ID:nN1E76C1S6]
    China and Cuba are also negotiating contracts for a $6 billion expansion
    of Cuba's Cienfuegos refinery and a liquefied natural gas project.
    [ID:nN22266891]

    What to watch:

    -- Arrival of drilling rig.

    -- Results of Repsol's exploratory well.

    -- U.S. pressure to stop the drilling.

    -- China's growing involvement in Cuban oil development.

    FOREIGN RELATIONS

    A major concern for Cuba is the health of Chavez, whose government
    provides 114,000 barrels of oil a day and investment to Cuba.

    He has been undergoing chemotherapy in Cuba and recently declared
    himself cancer free [ID:nN1E79J13X], but his death or departure from
    office would be a big blow to the island. Chavez is very close to former
    leader Fidel Castro, who is 85 and increasingly frail.

    U.S.-Cuba relations, which thawed briefly under Obama, have been frozen
    by the imprisonment of U.S. aid contractor Alan Gross. [ID:nN24221723]
    He is serving a 15-year sentence for providing Internet gear to Cuban
    groups under a U.S. program promoting Cuban political change.
    [ID:nN12265306]

    Cuba is angry that five Cuban agents have been jailed in the United
    States since 1998, and has given no indications that Gross will be
    released early.

    What to watch:

    -- Health of Chavez.

    -- Continued imprisonment of Alan Gross. (Additional reporting by Marc
    Frank; Editing by Kieran Murray)

    http://af.reuters.com/article/commoditiesNews/idAFRISKCU20111101?sp=true