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    Key political risks to watch in Cuba – 01-2012

    Key political risks to watch in Cuba
    Wed Jan 4, 2012 3:03pm GMT
    By Jeff Franks

    HAVANA Jan 4 (Reuters) - Cuba has opened more of its retail services to
    the private sector and liberalized land lease terms so farmers can rent
    more state land and keep it in the family as reforms aimed at fortifying
    the socialist system for the future continue.

    The Caribbean island's self-employed sector has continued to grow and
    Cuba's long-delayed hope of exploring for oil offshore is close to
    becoming a reality as a Chinese-built drilling rig is expected to reach
    Cuban waters this month.

    If oil is found, it will take at least three to five years to produce,
    but eventually should reduce or eliminate reliance on oil imports from
    Venezuela, whose President Hugo Chavez, the island's top ally and
    economic partner, had surgery for cancer last year.

    ECONOMIC REFORM

    The government said it would allow Cubans to operate various service
    businesses such as appliance and watch repair, locksmith and carpentry
    shops, just as it has done the past year with 1,500 state barbershops
    and beauty salons. [ID:nN1E7BPOOL]

    They will pay a monthly fee for the government-owned space, buy
    supplies, pay taxes and charge what the market will bear in another step
    away from the doctrinaire communism imposed after the 1959 revolution.

    Government officials said there are now more than 357,000 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 and encourage more private initiative. It has temporarily
    lowered taxes and begun providing credits to the new entrepreneurs.

    No figures have been released but government insiders said in October
    that just under 150,000 people had lost their jobs as the government
    pushes toward its goal of having up to 40 percent of the island
    workforce of 5.2 million in non-state jobs by 2015.

    Economy Minister Adel Yzquierdo Rodriguez told the National Assembly in
    late December that 170,000 state jobs would be cut in 2012 and as many
    as 240,000 new non-state jobs added.

    The Cuban state owns 70 percent of the land on the island and, according
    to figures given at the National Assembly, has leased almost 3.5 million
    acres (1.4 million hectares) to 150,000 private farmers since 2008 with
    the goal of increasing agricultural production so it can reduce
    budget-draining food imports. About 70 percent of the leased land was
    said to be under cultivation.

    Food output was up in 2011, but still below 2005 levels, so starting
    this month, in response to farmer suggestions, the amount of land they
    can rent has been quintupled to 165 acres (67 hectares) and leases
    extended from 10 years up to 25.

    The leases can be renewed and passed on to family members and farmers
    can build homes on the land. [ID:nN1E7BH02Q]

    President Raul Castro told the National Assembly that Cuba still
    expected to spend $1.7 billion on food imports in 2012.

    He also emphasized the importance of an ongoing crackdown on corruption,
    which already has shuttered three foreign firms and brought the arrest
    of top executives at Tecnotex, a company run by the Cuban military.

    Cubans had hoped Castro would announce reforms making it easier for them
    to travel abroad, but he said only that changes would be made gradually.

    The Cuban Communist Party and the government passed a series of reform
    plans this year that would move all business administration out of the
    ministries and grant newly formed holding companies more authority to
    make day-to-day decisions and control a percentage of their profits.

    Cubans are now allowed, for the first time in decades, to buy and sell
    homes and used cars. As of the end of November, 6,009 cars had changed
    hands and 301 homes had been sold, officials said.

    What to watch:

    - The pace of reforms and their consequences.

    - The development of small businesses.

    - The shedding of business management by the ministries.

    FINANCIAL HEALTH

    Castro said the economy grew 2.7 percent in 2011 and was expected to
    reach 3.4 percent in 2012.

    Cuba said it would end 2011 with a record 2.7 million tourists for the
    year and a 9 percent increase in tourism revenues over the $2.1 billion
    in 2010. Tourism is a top hard currency earner for the island.

    Reserves at the Bank for International Settlements stood at $5.649
    billion in June, double what they were three years ago.

    Cuba is heavily indebted and still recovering from a liquidity crisis
    that led to a default on payments and freezing of foreign business bank
    accounts in 2009. [ID:nN24211495]

    Castro told the National Assembly that accounts for foreign suppliers to
    Cuba had been unfrozen and steps taken to prevent the problem from
    happening again.

    Hopes that reforms would bring more foreign investment have yet to
    materialize with no significant new ventures this year.

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

    What to watch:

    - Resolution of outstanding short-term debt

    - Signs of increased interest in foreign investment.

    OIL PLANS

    A Chinese-built drilling rig, the Scarabeo 9, was in Trinidad and Tobago
    in early January and expected to reach Cuba later in the month. 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, to allay safety concerns, Repsol will let the United States inspect
    the rig. [ID:nN1E79H1XN] [ID:nN1E7BJ077] U.S. companies are forbidden
    from operating in Cuba by the 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.

    What to watch:

    - U.S. inspection of drilling rig.

    - Results of Repsol's exploratory well.

    - U.S. pressure to stop the drilling.

    FOREIGN RELATIONS

    A planned Papal visit in March [ID:nL6E7NC3I6] and improved ties with
    Brazil are bright spots even as it faces a more hostile Spanish
    government elected in November.

    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
    underwent chemotherapy in Cuba and has declared himself cancer free
    [ID:nN1E79J13X], but experts say it is too soon to tell. If he were
    unable to continue in office, it would be a big blow to Cuba.

    U.S.-Cuba relations, which thawed briefly under President Barack Obama,
    have been frozen by the imprisonment of U.S. aid contractor Alan Gross.
    [ID:nN1E7AT2CK] He is serving a 15-year sentence for providing Internet
    gear to Cuban groups under a U.S. program promoting Cuban political change.

    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. [ID:nN1E7BR0BZ] (Additional reporting by Marc Frank;
    Editing by Kieran Murray)

    http://af.reuters.com/article/energyOilNews/idAFN1E7BR07020120104?pageNumber=2&virtualBrandChannel=0&sp=true