CASTRO TIGHTENS CUBA'S BELT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000504160002-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: February 9, 2012
• Sequence Number: 2
• Publication Date: September 16, 1985
• Content Type: OPEN SOURCE

STAT
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POLITICS & POLICY
FORTUNE
i_h September 1985
TRO
TI HTEN
UBAI BELT
He talks of a debtors' strike, but he needs the West. Lots of
sugar and Soviet aid barely keep the creaky Marxist economy
moving, and the U.S.S.R. is getting stingy. ^ by Jeremy Main
F IDEL CASTRO'S GRASP of econom- on one overabundant product, bauxite. To a
ics has never been as firm as his grip lesser extent than Cuba, Jamaica also de-
on the Cuban people. After 26 years of pends on the help of an outside power, the
unchallenged rule, Castro and Com- U.S. Cuba relies on standard Marxism; Ja-
munism have failed to lift Cuba's twin curses: maica looks to free-market forces to shape
almost total dependence on a single product, and diversify its economy. So while other un-
sugar, and on a single powerful country- derdeveloped countries watch, these con-
Spain in colonial days, the U.S. after indepen- trasting systems-the Soviet and the U.S.
dence at the turn of the century, and the So- models-are being tested on two Caribbean
viet Union for the past two decades. Today islands 90 miles apart. Thus far, neither has
Cuba is probably more than ever at the mer- produced results particularly satisfying to
cy of forces beyond its control. Carmelo their partisans: the outlook for Jamaica, as
Mesa-Lago, director of the Center for Latin for Cuba, is discouraging (see box).
American Studies at the University of Pitts- Marxism has given Cuba about what it has
burgh and a native Cuban exiled since 1962, given Russia for the past seven decades-
says: "Without a phenomenal Soviet subsidy, unsatisfied consumer demand for housing
the Cuban economy would be a disaster." and other needs; grandiose, uneconomic
Another U.S. expert estimates that Soviet projects to push industrialization; and central
aid amounts to perhaps one-quarter of the planning that creates more chaos than order,
Cuban gross national product. ? especially when Castro's quixotic shifts are
The collapse of world sugar prices begin- added to Soviet ponderousness. Castro
ning in 1980 sealed Cuba's dependence. Sug- would now like to loosen his dependence on
ar accounts for about 80% of Cuba's ex- the Russians and draw closer to the West to
ports-the same as in pre-Castro days-and earn hard currencies, buy the things Cuba
the world market price, adjusted for inflation, needs, and have trading partners closer by.
is at a record low of 3 cents a pound. Fortu- The Soviet port of Odessa is 20 days away by
nately for Cuba, the Soviet bloc is committed ship from Havana; Miami, one day.
to bu
in
f i
y
g -VOL o
ts sugar at up to ten times Many U.S. companies would like to re- Raw sugar for Russians fills the holds of a Soviet
the world market price until at least 1990. open the once important Cuba market. The
While Marxist and democratic-ideologies strength of latent American interest in Cuba Electric, International Harvester, Northwest
confront each other in guerrilla wars in Cen- was revealed when President Carter lifted Airlines, Pillsbury, Toro, and Xerox, among
tral America, Cuba and its neighbor Jamaica the ban on travel there in 1977, and some others. Kirby are playing out a subtler economic confronta- 250 major U.S. corporations sent executives consultant who organized the visits, says the
tion. Jamaicans voted out a failed leftist gov- on exploratory junkets. They represented Americans saw potential for exporting
ernment in 1980, turning to the pro-Amen- the cream of American business: Abbott Lab- fertilizer, and animal feed, and thought grain, pro-capitalist policies of Prime Minister oratories, Bell & Howell, Boeing, Borg- ban industry was getting up to where it could
Edward Seaga. Like Cuba, Jamaica depends Warner, Burroughs, Caterpillar Tractor, use U.S. high technology. Cuban export po-
RESEARCH ASSOCIATE Ann DransfieJd Louis Control Data, Cummins Engine, General tential included fruit, shellfish, and of course
120 FORTUNE SEPTEMBER 16, 1985
PHOTOGRAPHS BY GIANFRANCO C,rve-' i -...-T
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"feet freighter at Cienfuegos, 20 days by sea from the Black Sea port of Odessa. Automated loading equipment has replaced stevedores lugging250-pound sacks.
cigars, which are more a symbol of good liv-
ing than a major export.
The hopes for business dealings with
Cuba died in 1978 when Castro sent troops
to Ethiopia. The embargo on trade, first im-
posed by President Eisenhower and expand-
ed by President Kennedy, never was lifted
and seems more immutable than ever. This
spring President Reagan demonstrated again
how unlikely he is to draw closer to Castro.
He launched Radio Marti, a Spanish-language
U.S. government station beamed from Flori-
da to Cuba, and he listed Cuba among five
"outlaw" nations that export terrorism.
These actions made Castro furious.
Castro has improved his manners toward
other Latin American countries, if not the
U.S. He no longer talks, as he did in the ear-
ly days, of the need to overthrow bourgeois
governments. Trying to win friends-and
stir up trouble-he argues that Latin Ameri-
ca cannot repay its $360-billion foreign debt.
He has proposed that the debtors declare a
moratorium on repayment. So far the idea
has gained as little support in the rest of the
hemisphere as has the recent announcement
by Peru's new president, Alan Garcia Perez,
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POLITICS & POLICY
Shoppers lineup in Havana as soon as they seethe chance of buyingsomethinga little special such as this truckload of owners.
that Peru will limit debt payments to 10% of The longer the U.S. embargo endures,
exports. Still, many bankers fear that politi- the more Cuba gets locked into East bloc
cal pressures at home will eventually force systems, spare parts, and markets. Fur-
Latin America's debtor nations to back off thermore, says Mesa-Lago, "An end to the
from their commitments, which are regularly embargo wouldn't make much difference
renegotiated anyway. In July, Castro called because Cuba hasn't been able to develop
an international conference in Havana on the products to sell." Cuba even has trouble
debt situation, but few heavyweight officials meeting the Soviet Union's needs for sugar
from the hemisphere turned up. and nickel. Diverting that trade to the West
Curiously, while he urges others to re- wouldn't be easy. Another obstacle lies be-
nounce their commitments, Castro has a tween Cuba and the U.S.: claims for Ameri-
good record on Cuba's hard-currency foreign can property expropriated by Cuba in the
debt-some $3.4 billion, owed mostly to Ja- early 1960s. The U.S. Foreign Claims Set-
pan, France, Spain, Argentina, and Britain. dement Commission recognizes $1.85 bil-
Since 1982, Cuba has been unable to service lion in claims, and the 6% interest it tacks
all of its debts, but it has never repudiated on has added $2.8 billion since 1960. The
them. A group of Western bankers headed biggest sums recognized by the commis-
by Credit Lyonnais of France have agreed sion are $268 million for the Cuban Electric
from year to year to roll over about $500 mil- Co., which was owned mostly by U.S.
lion in short-term loans, and this year's stockholders, and $131 million for ITT,
agreement is about ready for signing. In addi- which had phone companies in Cuba.
lion, Cuba must reschedule $250 million in Though Cuba remains firmly in the Sovi-
longer-term hard-currency debt this year. ets' pocket, the Russians will pay only so
But Castro says: "Ours is one of the few much for the privilege of having a well-armed
countries that can and must repay its hard- satellite just off America's shores-even one
currency debts." that has proved willing to keep an estimated
122 FORTUNE SEPTEMBER 16, 1985
36,000 troops in Africa. In a series of tough
confrontations last year, Moscow apparently
told Cuba its aid would not rise above the
current level of about $4 billion in loans and
subsidies and $500 million in military assis-
tance. Since the details of Cuban-Soviet rela-
tions are regarded as a state secret, it is hard
to know how much Cuba owes Russia. Cuban
officials take some delight in keeping West-
erners guessing. Mesa-Lago of the Universi-
ty of Pittsburgh puts the figure at some-
where between $15 billion and $20 billion,
but admits he isn't sure. Whatever the debt
may be, the Russians have already agreed to
wait until 1990 for the first $125-million re-
payment, which was due in 1986.
To deal with the new Soviet stinginess,
Cuba has launched an austerity program and
won't improve the country's drab standard of
living for some years. Castro is tinkering
with Cuba's economic system, a copy of the
Soviet monolith complete with five-year
plans, by decentralizing a trifle and adding a
dash of incentives in the form of bonuses for
good performance. But free enterprise has
no place in Castro's thinking.
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JAMAICA'S DIFFERENT ROADS I . LITTERED WITH BAUXITE
^ Jamaica's central problem can easily be stated: this year the
Caribbean island's bauxite exports will total about $325 mit?
lion-.$200 million less than last year and $435 million less than
in the last good year, 1981. In a world oversupplied by low-cost
producers, Jamaica is a high-cost producer overw
pendent on bauxite. The stuff Is to Jamaica what sugar II tO
1i I
Cuba, bat Jamaica has no bauxite daddy. Prom's ,
ribbean Basin initiative, which provides
doesn't Jamaklm be& to mate t yr '
Since he gained power in 1980, Edwe[e`aapg? t prim
minister of the British Commonwealth natii l i `
modestly promising con of nmee
and lures for diversified new ants . In t
International Monetary Fund's insistence on , ?
markable cut in the budget
deficit, from 17% to 7.2% of
the gross domestic product.
In July Jamaica got its re-
ward-a $118-million IMF
loan, on top of $647 million
still outstanding.
Were it not for the devas-
tating loss of bauxite ex-
ports, the Jamaican econo-
my would be in fair shape.
Jamaica's bauxite industry
is handicapped in the world
market by a tax that aver-
ages $14 a ton, by aging
plants, and by high oil
prices. Fuel costs have. kept
Jamaica from going beyond
refining bauxite into alumi-
port. Last winter Jamaica harvested 1,000 acres of tomatoes,
cucumbers, and other vegetables and earned $4 million. Within
three years, says Seaga, Jamaica will have 10,000 acres in vege-
tables and hopes to take 10% of the Eastern U.S. market. The
,arop would then be worth about $60 million a year.
y . Jamaica is attracting new industries;-helped by a duty-free
?and tax-free trade zone in Kingston harbor, the Caribbean Basin
ive, and the Jamaica National Investment Promotion Ltd.
Ual the vast projects undertaken in Cuba, the Jamaican en-
terprises are modest, rarely involving more than $10 million.
But they add up. Corrine McLarty, rang director of the
investment agency, says it has helped promote 408 invest-
mats, worth $132 miffion. New textile investors include Jock
ey' aldenform and the Gap. They ship down pre-cut pieces of
tests, and lingerie, have them sewn by cheap Jamaican
labor, and return finished
garments to the U.S. Tour-
ism got a big boost from de-
valustion of the Jamaican
dollar in 1983; one U.S. dol-
lar fetches 5.7 Jamaican dol-
lars. But violent demonstra-
tions in Kingston protesting
gasoline price hikes fright-
ened off tourists last win-
ter, reducing income about
$30 million. Tourism
brought in $400 million in
the fiscal year that ended
last March, little more
than in the previous year,
though it had been expect-
ed to grow substantially.
The U.S. provides Jamai-
ca with around $150 million
Prim. Minist.r Edward Seaga wants hard pressed Jamaicans to accept
years of austerity while he reshapes the economy.
na, an intermediate raw material. The next stop, smelting alumi-
num, is a more profitable part of the business but takes more
energy. The big American and Canadian producers of Jamaican
bauxite and alumina-Alcan, Alcoa, Reynolds Metals, Arco, and
Kaiser Aluminum-want to cut back Jamaican operations. Alcoa
shut its Clarendon refinery earlier this year, but then agreed to
operate it for the government for two years.
Seaga is considerably more optimistic about the future of
bauxite than most metals industry executives. In an interview
with FORTUNE Seaga explained how he thinks the bauxite indus-
try can be revived. Three major operations will be modernized
so that, he says, they can "find a place in the market at the
expense of someone else." He also said Jamaica plans to cut
fuel costs by substituting U.S. coal for oil.
Seaga expects big things of agriculture, industry, and tour-
ism. "Agriculture is where we see the most investment and the
best prospects for the future," he says. "It's our brightest
spot." Jamaica is incredibly fertile, but agriculture has been
fragmented and unbusinesslike. Jamaica's superb Blue Moun-
tain coffee, which sells for up to $41 a pound in Japan, is pro-
duced on small farms that aggregate only 2,500 acres. Blue
Mountain coffee plantings are to double. The country is also
going into new crops, especially vegetables and flowers for ex-
a year in aid, but it is an unreliable uncle. The largest new Amer-
ican investment, a $20-million ethanol plant built by Tropicana
Petroleum Ltd. of Brea, California, is threatened by U.S. protec-
tionism. Domestic producers of ethanol have started lobbying
in Congress on behalf of bills that would stop the duty-free en-
try of Tropicana's ethanol. They have also petitioned the U.S.
Customs to consider changing a ruling favorable to Tropicana.
A tariff would force the Tropicana plant to shut down.
Jamaica's domestic problems are creating explosive unrest
and pose a threat to Seaga's plans. Inflation and unemployment
both hover around 30%, and the country still suffers the
wretched poverty that Cuba seems to have wiped out. Taxes
discourage investment and savings. The government takes an
oppressive 57.5% out of a $60-a-week paycheck, which is mid-
dle-class pay in Jamaica, and an even higher percentage out of
investment income. Austerity doesn't sit well with middle-class
Jamaicans, who are essential to the country's revival, and they
have begun to emigrate again. About 2.3 million Jamaicans live
in the country and hundreds of thousands outside. Headley
Brown, director general of the Planning Institute of Jamaica,
says his country needs about four years of stability to bring the
economy back where it was at the beginning of the 1980s. So-
cial unrest may not allow Seaga that much time.
SEPTEMBER 16, 1985 FORTUNE 1 23
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POLITICS & POLICY
Castro's Cuba must be credited with one
notable achievement-visitors don't find the
abject misery, wretched shacks, and filthy,
diseased children common in much of Latin
America. Cubans get the basics in food,
health care, education, and clothing from the
government. The World Bank reported last
year that Cuba had the highest life expectan-
cy in Latin America and the Caribbean, and
it counts many items twice. For example, a
piece of leather could figure once coming out
of the leather factory and again leaving the
shoe factory. The Cuban National Bank re-
ports that last year's GSP was $28 billion.
U.S. analysts make a rough guess that GNP
was about $16 billion. If that GNP estimate is
correct, the per capita income of Cuba's ten
million people would be $1,600 a year, about
number, a busy signal, or nothing at all.
Life for Cubans eased a bit after 1980
when Castro opened a window to let his peo-
ple go; 125,000 got to the U.S. on a boatlift
from the port of Martel. This ringing vote of
no confidence appears to have prompted the
Soviets to increase efforts to improve the
Cubans' lot. Stores are somewhat better
stocked, and a few new buses and cars are
rolling on the streets. Soviet-made cars,
mainly Ladas (Russian Fiats), have taken
their place beside the colorful 1950s fleet of
Pre-Castro American cars still provide much of the transport in the Cuban countrysid7
with the exception of Jamaica, the lowest in-
fant mortality rate. Castro vowed in a recent
speech to overtake the U.S. in health "even
if I have to stop smoking." His critics point
out that Cubans were doing nicely before his
revolution, but that was true only in the cit-
ies. Castro has equalized Cubans by improv-
ing the lot of rural people a bit and pushing
city people down.
Officially the Cuban economy is perform-
ing splendidly. The Cuban press, mostly two-
and four-page sheets set by ancient hot-met-
al machines, fills pages with stories under
such leaden headlines as CONCLUSION OF THE
ACTIVITIES IN RECOGNITION OF NATIONAL VAN-
GUARD WORKERS IN THE SUGAR SECTOR, along
with polemics about "imperialismo yanki."
To get behind the official version,is not easy.
Cuban statistics are elusive and incomplete,
and the methodology used to produce them
changes often. Many Western analysts don't
believe the numbers.
Even the gross national product is hard to
know. In the Soviet style, Cuba reports its
"global social product," which basically
counts physical output only, not services, but
average for Latin America. In the 1950s
Cuba ranked near the top.
Cuba has plenty of impressive new fac-
tories, seaports, power plants, citrus or-
chards, and mines to show off. Driving out of
Havana on the main highway to the eastern
end of the island, one finds an eight-lane
highway for a while-with a flow of traffic
that would offer little danger to a wandering
cow, or even a herd.
The real state of the economy begins to
reveal itself in little things. The government-
run car rental agency, Havanautos, can't
come up with a working rental car; the ga-
rage is full of relatively new Mexican-built
Volkswagen Caribes awaiting repair. When a
car finally is produced, it is filthy, both rear-
view mirrors are cracked, one tire is flat, a
side vent falls out when opened. The engine
dies on the way to the beach at Varadero. A
day in Havana is a struggle with minor ad-
versity-helping to push a taxi that can't get
started; being unable to buy a beer in 90-de-
gree heat because the bar ran cry; strug-
gling to make a connection on a phone sys-
tem that consistently produces the wrong
bulbous and befinned American cars left over
from pre-Castro days. A sort of dune buggy
assembled locally with a Cuban body on an
imported chassis has also appeared.
Many basic items are still rationed (includ-
ing sugar, of all things), and others are
scarce. Housing is shabby and overcrowded,
and transportation, mainly in the small buses
Cubans call guaguas, is abysmal. In the coun-
tryside, passengers waiting for help around a
broken-down bus are commonly seen. The
average Cuban worker earns 180 pesos a
month, which amounts to $194 at the official
exchange rate of $1.08 to the peso. On the
black market, the peso can be worth as little
as 20 cents, but the police keep black-market
activity low. Workers can boost their pay by
overfulfilling quotas, working long hours, or
signing up for especially demanding jobs; the
fishermen out of Cienfuegos, who work 18
hours a day and spend 64 days at sea at a
stretch, make as much as $1,080 a month.
Cabinet ministers earn $486 a month, and
heads of enterprises about the same.
Living costs match the pay. Education and
medical care are free, and rents for the most-
ly state-owned housing are fixed at 10% of
tenants' earnings. Rationed food, intended to
provide an adequate diet, is sold at prices
that have hardly changed since Castro came
to power. Incomes easily cover the essen-
tials, and spending the leftover money is a
problem. Items beyond the rationed essen-
tials are sold at what are known as parallel
stores, state-owned but free to charge what
the market will bear.
THE STORES have little to display.
When something special comes
along-a shipment of good beer, per-
fume, jeans-a line forms and re-
mains until the store sells out. On the main
square in the industrial city of Holgufn re-
cently, a batch of Cuban-made jeans went on
sale in a parallel store for $56 a pair. In their
eagerness, shoppers cracked a display win-
dow. They carried off as many as a dozen
pairs each. At the normal prices of $75 for
124 FORTUNE SEPTEMBER 16, 1985
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POLITICS & POLICY
Nickel Or* Pours off the conveyorbell at a mine in Moa that was onceAmerican owned. The U.S S .R. is helping Cuba open new mints and trfineries.
Cuban jeans and $100 for Spanish, Chinese,
and Nicaraguan jeans, even cash-rich Cubans
shop with less abandon.
The staggering prices illustrate how the
Cuban government siphons off the overhang
of unspent money-the Communist equiva-
lent of inflation. One afternoon recently in
the old part of Havana, around the comer
from La Floridita, the bar where Ernest
Hemingway used to drink his favorite frozen
daiquiris, a parallel store was crowded with
shoppers who didn't seem put off by the
price of Soviet appliances, which aren't fa-
mous for quality. A small refrigerator cost
$2,052, a window air conditioner $1,620. A
small tabletop fan made in Hong Kong had a
$648 price tag, a hair dryer sold for $113.
Cubans who want more quality or quantity
than their food ration offers can eat out, shop
at parallel stores for a better selection at
higher prices, or go to farmers' markets,
which offer still more. The farmers' markets
are the only significant private enterprise
permitted in Cuba. Some 60,000 to 70,000
campesinos who declined to join farm coop-
eratives supply 250 markets with produce.
Enrique Toledo, a leathery 66-year-old in a
straw hat, farms one caballerla (about 32
acres) outside the port city of Cienfuegos.
Asked why he hasn't joined a co-op, he says
only: "It's better that way." Several times a
week he drives his mule cart the three miles
or so into Cienfuegos with a load of pump-
kins, tomatoes, sweet potatoes, green pep-
pers, or whatever else he has harvested. He
pays the government 75 cents an hour for
use of a stall, plus 20% of his sales.
ERVICE WORKERS in Cuba can
also engage in a measure of free en-
terprise. A barber or plumber, for ex-
ample, can take on private clients
outside the hours of his state job. Under a
law that came into effect in July, Cubans who
rent their apartments or houses from the
government, as most city people do, will be
allowed to own them. Their rent payments
will be converted into mortgage payments.
But that's as far as private enterprise and pri-
vate ownership go in Cuba. Starting your
own business is a crime. A score of illegal
artisans were tried in a public square in San-
tiago de Cuba in June and sentenced to jail
for making and selling rings, earrings, and
other jewelry.
The key to Cuba's plans is the Soviet
bloc's willingness to buy large amounts of
Cuban sugar at inflated prices. Sugar would
seem an unpromising base for an economy,
because the world's markets are glutted. Cu-
ba's vice president, Carlos Rafael Rodriguez,
72, a Communist long before Castro became
one, explained to FORTUNE why Cuba still be-
lieves in sugar. "The U.S. made us depen-
dent on sugar and impeded our industrial de-
velopment," says Rodriguez. "We began
talking with the Soviets about sugar in 1963
and discovered they had a growing market
for sugar and might consider a preferential
price for us. So instead of being an instru-
ment for holding Cuba back, sugar could be
converted into the instrument for developing
Cuba. Through our sugar trade with the So-
viet Union we have obtained not only the pe-
troleum we need, but also all the industrial
plants we are developing; not only the accel-
erated electrification of the country, but also
the basic industries, mechanical, chemical,
126 FORTUNE SEPTEMBER 16, 1985
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POLITICS & POLICY
steel, construction, and the refineries and
the mines. The present problem of Cuba is
that it doesn't have enough sugar to fulfill its
commitments to the capitalist markets and to
the socialist countries." He said Cuba could
sell 12 million tons of sugar this year if it
could grow and mill that much.
Cuba's difficulty in meeting goals is noth-
ing new. In 1970 every available worker
the north coast of the Oriente region, Cuba's
tropical Siberia, produce the island's second-
largest export. Their value amounts to less
than a tenth of the value of sugar exports, but
like sugar, mineral production depends on
huge Soviet subsidies. Nickel is not a busi-
ness an investor would gladly get into today.
Inco Ltd., the big Canadian producer, lost
$77 million last year.
Fiberglass bodies made in Cuba are slapped on Mexican-made innards at a Havana plant.
marched out to the sugar fields to try to turn
out a ten-million-ton crop, but the hordes
achieved only 8.5 million tons, while the rest
of the economy slipped for lack of workers.
The current five-year plan originally set a
target of ten million tons for 1985, but pro-
duction reached just eight million tons.
I N THE SWEET RELATIONSHIP Cuba
has with Russia, however, the shortfall
can be turned to advantage, as the Na-
tional Bank of Cuba revealed in an un-
usually candid report to its foreign creditors
this year. To help meet export quotas to Rus-
sia-which amount to half the sugar pro-
duced-Cuba bought sugar at bargain prices
on the world market in 1984 and 1985 and
then sold it to Russia at the subsidized price.
This year, for instance, Cuba spent $100 mil-
lion for foreign sugar, which it sold to the
Russians for more than $1 billion. With the
proceeds, Cuba bought more Russian oil
than it could use. The U.S.S.R. allowed Cuba
to sell the surplus oil to the West for about
$400 million in hard currencies.
Minerals, mainly nickel from deposits on
Yet Cuba is nearly tripling its nickel capaci-
ty, from 40,000 tons a year produced by two
mines and refineries installed by the U.S.
during and after World War II at Nicaro and
Moa. Two new $700-million mines just east
of Moa on the Oriente coast, at Punta Gorda
and Las Camariocas, will each add 30,000
tons. Punta Gorda, which was to have gone
into production by 1980, is now scheduled to
start up by the end of the year. Las Camario-
cas is due to open in 1990. The old plants will
be upgraded to produce 50,000 tons.
When Western analysts of the Cuban
economy speak of Castro's penchant for
"gigantism"-undertaking showcase proj-
ects that are unlikely to pay off the nickel
mines come to mind. Production costs at the
new mines will be twice those of the old mine
at Moa because Cuba is cut off from the
U.S. technology needed to produce nickel
cheaply.
Other big Cuban projects under way today
include an eightfold expansion of the harbor
at Nuevitas, a seaside town that has been
transformed into a new industrial city; the
first of four 417-megawatt nuclear genera-
tors near Cienfuegos; and citrus orchards
that are marching across the rocky plains of
Matanzas. Cement, textile, and seafood-pro-
cessing plants add to the volume and variety
of Cuba's output. The plants bear brawny
Marxist names, such as the October Revolu-
tion Fertilizer Combine.
These new industries evidently are per-
forming poorly. Even when production goals
are cut in mid-plan, as they were for the cur-
rent five-year plan, Cuba often misses the
targets. Herminio Lazo Garcia, a vice presi-
dent of Cuba's Central Planning junta, agrees
that sugar, nickel, and citrus goals aren't be-
ing met, but claims that other industries, in-
cluding tourism, are exceeding their targets.
He says the average annual growth of the
economy from 1980 to 1984 was a solid 8%.
Observers such as Mesa-Lago find this fig-
ure hard to believe, though Cuba was insulat-
ed from the 1982 recession because the Rus-
sians kept subsidizing Cuban products and
selling Cuba cheap oil.
FOREIGN DIPLOMATS don't get to
see too much in Cuba, but they have a
strong impression of chaos-of inven-
tories out of control, of plans that are
no more than grand goals with no detailed
ideas about how to get there, and of factories
and offices overstaffed by a factor of two or
three. "It's like the Italian bureaucracy,"
says a Western diplomat in Havana. "If ev-
eryone showed up for work when they were
supposed to, there'd be paralysis." As evi-
dence of what it called "the deterioration of
labor discipline," the labor newspaper Traba-
jadorrs reported in March on a survey of 53
government offices, plants, banks, and other
entities in Havana province. Of 9,883 work-
ers 22% were absent, with or without rea-
son, when inspectors came by, and of those
on the job 23% were reading magazines or
newspapers, snacking, chatting, snoozing, or
playing.
When the Russians told the Cubans last
October not to expect any growth in aid, they
also urged them to earn more hard curren-
cies. That's not going to be easy. Since Cas-
tro came to power, Cuba has achieved a
trade surplus in only two years. Last year's
deficit in East and West trade amounted to
$1.9 billion and would have been much more
without Soviet subsidies. Cuba seems unable
to entice Western business while it remains
under the U.S. embargo. In 1982 Cuba made
a major exception to its ban on private enter-
prise by enacting a law permitting foreign
companies to invest in joint ventures in
Cuba, but not a single joint venture has re-
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POLITICS & POLICY
Off-limits to Cubans, unspoiled Cayo Largo is being turned into a duty-free, visa free resortfor
fores;r-t tourists unth hard currencies to spend.
suited. Cuba has had some success by estab-
lishing scores of shadowy trading companies
to get around the embargo, find crucial im-
ports quickly, and gather intelligence. The
biggest of the trading companies, Cimex,
based in Panama, probably grosses less than
$100 million a year.
ONLY TOURISM offers Cuba imme-
diate promise of bigger hard-cur-
rency earnings, and travel to Cuba
is not all that appealing when the
rest of the Caribbean is calling. After decades
of isolation, Cuba has lost the knack of enter-
taining tourists. The old luxury hotels like
the Havana Riviera-built in the 1950s with
the backing of American gangster Meyer
Lansky-badly need refurbishing. The Rivi-
era's carpets are threadbare, the bathrooms
mildewed, and the air conditioning turns out
more noise than cool air. The government
now gives tourism high priority. Improbable
as it sounds, debt-laden Argentina has
agreed to lend Cuba $90 million, which an Ar-
gentine company, Comarco, will use to build
eight hotels with 2,000 rooms along the
splendid Varadero beach east of Havana.
Last year some 200,000 tourists, mainly Ca-
nadians and West Europeans, brought nearly
$100 million to Cuba, a big increase over re-
cent years. But the numbers are still short of
what they were in the 1950s, and far short of
what Cuba needs.
Faced with these problems, Cuba might be
expected, like China or Hungary, to develop
a different approach to Communist econom-
ics. In the early days, Castro did experiment.
At first he tried to push aside sugar and in-
dustrialize at all costs, only to discover that
Cuba didn't have the know-how to industrial-
ize. Then he put Cuba through a mystical pe-
riod called Mao-Guevarism, founded on the
utopian theory that economic progress could
be achieved by uplifting human nature. Since
then Cuba has essentially followed the Sovi-
et model, without much debate.
Like the Soviet Union, Cuba is trying to
decentralize economic management. "We
have a long way to go," says Vice President
Rodriguez. "To have enterprise, we must
have entrepreneurs. But we don't have good
entrepreneurs. We are still victims of the
centralizing conscience. People are accus-
tomed to pushing decisions higher up. We
are beginning to defeat that." It's a small be-
ginning. For a good year's work, a plant man-
ager might now qualify for a bonus of an ex-
tra month's salary-hardly enough to turn
him into an entrepreneurial tiger.
Castro is signaling his unhappiness with
the state of the economy. He has dismissed
the minister of transport and the chief of cen-
tral planning. The Third Party Congress,
heralded by a year of propaganda, has just
been postponed from December to March-
an unusual public admission of concealed dif-
ficulties. So far Castro's government has
only picked at the fringes of its economic
problems. Foreign diplomats say pragma-
tists such as Rodriguez, who want a more
open economy, have gained influence. But
Castro himself remains the chief obstacle to
progress because he refuses to permit pri-
vate enterprise and won't let go enough to
allow decentralization to work. So long as
Castro's version of Marxism continues, Cuba
is condemned to living a bit above poverty,
130 FORTUNE SEPTEMBER 16, 1985
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