(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000100130001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 24
• Document Creation Date: January 12, 2017
• Document Release Date: April 22, 2010
• Sequence Number: 1
• Publication Date: February 27, 1985
• Content Type: REPORT

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Central Intelligence Agency
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DIRECTORATE OF INTELLIGENCE
27 February 1985
Castro Declares Economic War
Summary
Cuba's mounting economic problems and Soviet criticism of
Havana's economic management are probably behind President Fidel
Castro's recent emphasis on increasing access to Western markets,
implementing austerity measures at home, and reducing tensions
with the US. The Cuban leader's statements over the last few
months, as well as the hasty revision of Cuba's 1985 economic
goals--aimed at boosting exports to the West, meeting trade
commitments to the Soviet Bloc, limiting imports, and honoring
Western and Soviet debt obligations--indicate that he is heeding
Moscow's implicit warnings about future levels of economic
assistance. Castro has called on all Cubans to wage an "economic
war" against waste and inefficiency, and warned them that they
will face continuing hardships for at least another 15 years.
Castro's economic battleplan, and the punitive action taken
in January against several high-ranking party hardliners who seem
to have opposed the policy shifts, indicate a resurgence of more
pragmatic economic planning in Havana. For example, Castro
apparently recognizes that Cuba cannot afford the increased
imports needed to stimulate long-term economic growth without
concurrently expanding exports to earn hard currency. Havana's
his memorandum was prepared by
Office of African and Latin American
Analysis. Comments and queries are welcome and should be
addressed to Chief, Cuba Branch, Middle America-Caribbean
Division,
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ability to export, however, is limited by its dependence on sugar
exports--its primary foreign exchange earner--and the weak world
market for the sweetener. The Castro regime's new focus on
austerity and conservation measures probably will cause Cuba to
fall far short of its 5-percent economic growth target this year,
especially as energy rationing takes hold and cuts are made in
construction and social service projects.
The influence of the pragmatists appears to extend to other
policy areas as well. They probably are counseling Castro that
improved trade relations with the West will require a lowering of
Castro's profile in subversive activities as well as an easing of
political tensions with Washington. In our opinion, this could
explain Castro's propaganda efforts since early January
emphasizing his willingness to be more conciliatory towards the
US on a variety of issues, and his contention that the emigration
agreement reached with Washington presages a general improvement
in US-Cuban relations. Castro's campaign to project an image of
responsibility and moderation probably is the cornerstone of a
broader campaign to reduce Cuba's isolation and deflect US
pressure on Central America, as well as to locate willing trading
partners for Cuban exports--especially in Western Europe and
By hinting that the emigration agreement with Washington is
the start of a trend toward a general reconciliation, Castro
appears bent on exploiting fears that a sudden breakthrough in
relations with the US will leave Latin American governments
politically embarrassed and West European firms at a trade
disadvantage. For their part, many Latin American leaders view
upgraded ties to Cuba as an expression of their independence and
Third World credentials, although they remain suspicious of
Havana's intentions and are likely to be guarded in their
association with Castro.
Despite Castro's conciliatory overtures, we do not believe
the new policy thrust portends a change in his basic distrust of
and antipathy toward the United States. Even in his most recent
public statements, the Cuban leader reiterated his unwillingness
to alter Cuba's relations with the Soviet Union, to renounce his
commitment to revolution, or terminate his su o the
Sandinistas or the Salvadoran insurgents.
Growing Economic Pressures
After two years of tightened economic austerity caused in
part by debt rescheduling agreements with its Western creditors,
Havana apparently gambled in lQ84 that a burst of spending on
imports and government construction projects would stimulate
sustained economic growth. The Cuban leadership probably hoped
that pumping up the economy would increase employment and
eventually improve dreary Cuban living standards, and that this
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might soothe growing popular discontent and divert attention from
its recent foreign policy blunders. By the middle of last year,
however, it was apparent that unfavorable world markets for Cuban
commodities and domestic economic bottlenecks were foiling
Havana's recovery effort. At best, the costly experiment was
producing moderate short-term economic growth, but at the cost of
a rapid expansion of the hard currency trade deficit, and sharp
criticism from Havana's Western and Soviet creditors.
We estimate that the real growth of the Cuban economy was
close to 3 percent last year, far less than the 7.4 percent real
growth claimed by the Cuban government, which has traditionally
ignored or underestimated the impact of domestic inflation.
According to official statistics, growth was driven by a surge in
the construction sector--apparently stimulated by
government investments in transportation and city
large
planning
projects--and a 6 percent increase in industrial
production.
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In reality, Cuba's economic growth last year probably was
made possible only because of a sharp rise in imports that
allowed a short-term boost in production. Earlier restraints on
imports--applied in 1982 and 1983 while Havana grappled with
foreign exchange shortages and two debt renegotiation
exercises--were abandoned in 1984. According to Cuban data,
imports as a percentage of national income rose from 34 percent
in 1983 to 43 percent in 1484. During the first half of last
year, imports from the Soviet Bloc rose 19 percent while those
from the West jumped 69 percent, probably largely the result of
an expanded line of credit from Argentina and the resumption of
government-guaranteed export insurance from Japan. Past trends
and official Cuban policy suggest that more than half of the
imports from the West consisted of raw materials and
intermediate googR that would have contributed directly to
domestic growth.
Little Improvement In Sight
As 1984 drew to a close, Cuban policymakers were
confronted by a series of unpromising economic events that
probably convinced them that moderate economic growth could not
be repeated easily in 1985. Soviet economic assistance has
*The US Interest Section in Havana estimates that the cost
of living rose about 7 percent last year--almost five percentage
points higher than the figure implicit in official Cuban
statistics.
**See Table 1 on the composition of Western imports by
country and economic sector.
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leveled off in recent years and Cuban press reports indicate
that, despite Havana's vigorous lobbying, Cuba received little
assurance of any real increase in aid from its Soviet and East
European*benefactors at the annual CEMA head-of-state summit in
October. Nor was the outlook for new lending from Western
creditors bright. Official statistics released last fall
indicated that Havana was falling far short of meeting yearend
targets for hard currency trade and reserves set by official
Western creditors as conditions to any further debt
rescheduling.
The short-term outlook for hard currency export earnings
at the end of last year also indicated that Havana would be
unable to fund increased levels of hard currency imports in the
future.
Havana faced a number of problems:
-- The world sugar price was continuing on its
downward spiral and was projected to stabilize near
the record low through much of 1985 owing, in part,
to the disintegration of the International Sugar
Agreement in December and massive world sugar
stocks.
-- The inferior quality of Cuban citrus and contracts
obligating Havana to ship the bulk of its crop to
the Soviet Union and Eastern Europe were limiting
short-term growth of hard currency citrus
earnings.
-- Despite Havana's expectations of increased nickel
production as new factories are brought on line,
hard currency nickel earnings will be limited by a
continued weakness in the world market price and by
US agreements with Japan and several West European
nations prohibiting the sale of steel containing
Cuban nickel to the US.
Furthermore, with no promise of increased levels of energy
shipments from the Soviets forthcoming, Havana was doubtless
realizing that maintaining its ability to resell surplus Soviet
petroleum for hard currency would require strong energy
conservation measures to support the energy demands of new
factories, particularly in the energy-intensive nickel
sector.
*See Table 2 on Soviet assistance to Cuba from 1980 to 1984.
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Havana's Economic Management Under Fire
Havana's handling of its economic problems came under
sharp attack from the Soviets last year.
Cuba's economic performance was also being scrutinized by
Cuban economists and Western creditors. According to the US
Interests Section in Havana, Cuban economists warned that the
government's assertions regarding economic growth should be
adjusted downward to reflect reality. Western creditors, kept
relatively well informed of Cuba's financial situation through
quarterly reports required under the terms of past debt
reschedulings, could not have been pleased with Havana's free-
wheeling spending on imports. Commercial and Western
government creditors will likely make their concerns known as
negotiations over the rescheduling of Cuba's 1985 debt get
under way later this Spring.
Economic War Declared
In recent policy addresses, Castro declared a "profound
economic revolution" to be fought by all Cubans against waste
and inefficiency. The Cuban president announced the
appointment of a high-level working group charged with
reviewing the economic crisis and making emergency revisions in
economic plans. Discussions are to be held in every workplace
on the new economic priorities:
-- Increase non-sugar export earnings to the West by
at least 20 percent.
-- Meet export commitments to the Soviet Bloc.
-- Limit import spending.
-- Honor debts from both Western and Soviet
creditors.
Havana has released only general information on the
implementation measures that will be required to meet its new
goals. Based on Castro's recent speeches, Havana will attempt
to generate increased hard currency earnings by developing and
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marketing non-traditional export products and by increasing the
availability of Soviet-supplied petroleum products for resale
on spot markets through stricter energy conservation
measures. Import expenditures are to be cut by the local
production of import substitutes and by increasing domestic
productivity and savings. For example, Cuban budget planners
have warned that cuts in construction expenditures and trimming
of some social service projects may be forthcoming.
Cuban economists may well have run up against problems in
detailing an implementation scheme; when taken together,
Havana's targets are unrealistic and often contradictory. For
example:
-- Havana's over-ambitious plan to boost hard currency
export earnings will be limited by the need to
funnel exports to CEMA members to meet trade
quotas, by Soviet insistence that Cuba concentrate
on the production of traditional export products
such as sugar, where Cuba has a comparative
advantage, and by the difficulty of conserving
energy for resale.
-- Despite the goal to limit total import
expenditures, Castro has admitted that Cuba will
need increased levels of Western inputs to
production in order to support economic growth this
year.
-- With the uncertain outlook for export earnings, and
barring substantial new trade credits, Havana
probably will have insufficient hard currency
reserves with which to import necessary Western
inputs.
In our judgment, implementation of Castro's "war plan"
will cause the country to fall far short of its announced 4.5
to 5 percent growth target for 1985. For example, planned cuts
in government spending for construction and social service
projects, as well as energy rationing will dampen economic
activity. In addition, Havana will have to push ahead with
sugar production if it is to meet export commitments to the
Soviets and maintain sales to hard currency markets. However,
even Havana has lowered its 10
million ton target for sugar production next year owing to the
extended cane cutting season last year, unseasonable rainfall,
and a shortage of Western herbicides.
The Cuban population will feel the brunt of the new
austerity policies as the simultaneous drive to cut imports and
increase exports reduces domestic consumption and as it becomes
apparent that the production, as well as the importation of
consumer goods, will become Havana's lowest priority. Castro's
clear warning that Cuba will continue to face at least another
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15 years of economic hardships is a severe blow to the long-
suffering Cuban whose rising expectations have been fed by
recent moderate economic growth and optimistic rhetoric. A
high-level Cuban official admitted in 1983 that government
polls revealed great dissatisfaction over housing, public
transport, restaurants and other services. New regulations to
stimulate productivity--such as longer working hours and the
relocation of workers from inefficient factories--are likely to
add to popular discontent.
In an apparent attempt to mollify the populace, Castro
already has assured Cubans that there will be no decline in
current living standards. Havana is likely to dangle the
possibility of emigration to the United States under the recent
bilateral agreement as a means of temporarily quieting
critics. Havana also may loosen some economic controls, such
as it did recently with a new housing law that allows the
private ownership and leasing of real estate, to assuage the
population and help stimulate production without directly
taxing government finances.
However, new measures such as the housing law carry the
danger of unleashing long pent-up expectations within the
populace for additional reform. These demands could lead to
serious ideological conflict within the leadership. Civil
disobedience is almost certain to increase, as it has in past
periods of heightened austerity and shortages, and the regime
may have to resort to increased repression at a time when it
needs to project an impression of governmental restraint.
The Pragmatists vs. Hardliners
The far-reaching remedial measures Castro has endorsed to
meet the challenge that these economic pressures have placed on
him suggest a revitalization of the influence of those
individuals in the leadership who, over the years, have usually
argued for pragmatic policies to alleviate problems on both the
domestic and international fronts. In policy deliberations,
these pragmatists, who are responsible for the day-to-day
functioning of the Cuban economy, must compete with the
hardline element of the leadership for Castro's attention. The
hardliners, most of whom took part in the guerrilla struggle
*The US and Cuba reached agreement last December to return
to Havana approximately 2,700 "undesirable" refugees and to allow
up to 30,000 Cubans to emigrate to the United States annually.
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that brought Castro to power, head the military and in~ernal
security establishments and the ideological apparatus.
The competition between these two general elements of the
leadership is not new, and in our judgment stems largely from
the pressures that each official feels as a result of
individual job responsibilities. We believe those in the
security or ideology fields see permanent confrontation with
the West as necessary to prevent ideological penetration and
contamination and they apparently view "exporting" revolution
as a defensive measure as well as an ideological necessity.
Those who must ensure Cuba's economic survival, on the other
hand, see increased contacts and trade with the West as
imperative at this stage of Cuba's revolution and argue that
the promotion of armed struggle contributes to Cuba's isolation
and thus is costly economically.
These job-related tensions have appeared in many policy
areas. In the moral-versus-material incentives debate that has
continued off-and-on since the early 1960s, for example, the
pragmatists claim that material incentives are still a
necessary evil required to overcome worker apathy and boost
productivity; but the hardliners insist that moral incentives
are the only ideologically acceptable motivation if Cuba is to
remain true to Che Guevara's ethic of forming the "new man."
To cite another example, the pragmatists were successful in
late 1978 in convincing Castro--over the hardliners'
objections--that allowing Cuban exiles to visit their families
The pragmatists' predictions were borne
out in 1979 as the flood of exile visitors enriched Cuban
coffers by some $100 million but, as the hardliners had warned,
the exiles' obvious affluence was a major source of
disenchantment for those who had remained in Cuba. This laid
the groundwork for the massive exodus that took place the
following year during the Mariel boatlift.
As a confirmed revolutionary, Castro in our view clearly
prefers the dramatic activism advocated by the hardliners, but
economic reality, especially when reinforced by pressure from
Moscow, has caused him to pay greater heed to the pragmatists
when major policy issues are being debated. This has resulted
in policy swings of a cyclical nature as one group replaces the
*For identification of some of the most influential members
of the pragmatist and hardliner camps, see Appendix I.
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other as the predominant influence in the leadership.* Cuba's
current economic difficulties coupled with Soviet pressure and
foreign policy setbacks that embarrassed the hardliners--
Grenada, for example--appear to have vaulted the pragmatists
back into predominance. A measure of their success can be
found in the ease with which Cuba's ideologically controversial
housing law was promulgated last fall and approved in December
by the National Assembly. Many of its provisions--such as
those permitting the reemergence of landlords--almost certainly
were opposed by the regime's ideological purists. Similarly,
Castro's decision in January to allow France to establish a
cultural center in Havana was a means of adding substance to
his stated intention to improve ties with the West, but it must
have appalled those in the regime charged with preventing
ideological penetration of Cuba.
Castro appears to have ridden roughshod over those who
exhibited a reluctance to accept even temporary ideological
backtracking. Havana, for example, publicly announced that the
party's Secretary for Ideology, Antonio Perez Herrero, was
"released" from that post, as well as from his alternate seat
on the ruling Politburo, at an unusual special plenum of the
Central Committee on 31 January, presumably for resisting too
strongly the changT~ Castro has been championing. Two other
hardline officials were shifted to lesser posts at the same
time and the plenum, according to the Cuban media, "fully
approved and gave its highest evaluation of Fidel's untiring
and creative activities" in the formulation and execution of
foreign policy. The plenum's message is clear: Castro's
decision to heed those in the leadership who would give top
priority to pressing economic matters enjoys the firm support
of the country's highest political body.
Impact on Policy
If past patterns hold true, the current predominance of
the pragmatists among Castro's circle of advisers will have a
major impact on Cuban policy in terms of tactics and focus, but
not in ultimate goals. It has become clear from the pattern of
*For a description of the cyclical swings in policy since
1959, see Appendix II.
**One, Orlando Fundora, headed the Central Committee's
Department of Revolutionary orientation and had ideological
control of virtually all the Cuban media; he was subordinate to
Perez Herrero. The other was Politburo member and Havana City
Province party First Secretary Julio Camacho Aguilera who was
shifted to eastern Cuba as first secretary in Santiago de Cuba
Province.
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Cuban policy over the past quarter of a century that the
pragmatists' differences with the hardliners lie only in how to
achieve those goals. Both groups are firmly united, for
example, in their deep-seated antipathy toward the United
States. Moreover, the hardliners continue to wield
considerable power by virtue of their positions in the party
and government, and they will take advantage of any opportunity
to regain lost ground. As has occurred before, Castro will
temporarily pay them less heed when he seeks the counsel of the
members of the leadership but we expect he will again turn to
them and give them freer rein if the pragmatists' policies fail
to ease tensions with the United States and alleviate Cuba's
economic pressures.
The advice that Castro is now receiving--and heeding--from
the pragmatists seems to be much the same as that which they
offered during their previous period of predominance in the
1970s. Havana thus is placing great stress on developing
diplomatic, commercial, and cultural ties with other countries
(excepting, of course, political pariahs such as Chile,
Paraguay, and South Africa) in a behavior modification program
aimed at developing new markets and increasing Cuban exports.
To promote these ties and, in the process, achieve Havana's
economic goals, Castro has donned the cloak of peacemaker and
is relying heavily on his own formidable persuasive skills to
refurbish Cuba's--and his own--image in West Europe, Latin
America, and the US. Exuding charm and sincerity, he has
already been able to convince a steady stream of Western
visitors to carry the message abroad that he is ready to
negotiate virtually any differences Cuba may have with any
country, especially the US.
Former Chancellor of West Germany and President of the
Socialist International Willy Brandt, for example, came home
from a visit to Havana last October with the clear impression
that Castro would like to free himself from his current
dependence on the Soviet Union, according to a discussion
Brandt had at our embassy in Bonn. Brandt said that Castro
denied he was a Communist prior to the revolution, claiming he
was persuaded by events that Communism was the proper course to
take. The record shows that Castro has used this bait
effectively with other West European leaders, feeding
unrealistic hopes of weaning him away from the USSR and
perpetuating the myth that Cuban-US frictions are solely the
result of Washington's intransigent hostility.
More recently, Helmut Schaefer, a deputy in West Germany's
parliament and international affairs spokesman for the Liberal
Democratic Party, spent a week in Cuba in mid-January and told
the press that Havana was obviously seeking greater
independence from Moscow and wanted a dialogue with the US.
Although his scheduled meeting with Castro was cancelled when
Castro abruptly decided to attend the inaugural ceremonies in
Nicaragua, Schaefer met with Vice President Rodriguez and other
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high-ranking spokesmen for the regime and, judging from his
comments to the press, came away convinced--despite Cuba's
obvious economic problems and Castro's public pledges to meet
his trade commitments to East Europe--that Havana is ready to
increase trade significantly with the West at the expense of
In our opinion, Castro's politicking in Managua in January
is probably a foretaste of what Cuban behavior will be like at
least for the rest of this year. Judging from his statements
as well as his overt efforts to contact a broad range of
personalities then visiting Nicaragua, Castro wanted to use his
trip to Daniel Ortega's inauguration to project an image of
responsibility and moderation. The subsequent comments of the
people he talked with suggest that Castro favorably impressed a
number of observers. According to reports from several US
diplomatic missions, for example, in a private meeting that he
and Vice President Rodriguez had with three of the four
Contadora foreign ministers, Castro chided the Nicaraguans for
adopting a hard line and pledged to do whatever the Contadora
group wanted in order to assure the success of the process.
These reports indicate that the three ministers came away
convinced that he had taken a constructive stance-and would use
his influence to moderate the Nicaraguan position. In
addition, his meeting with British Labor Party leader Neil
Kinnock in Managua, according to the US Embassy in London,
helped to ensure the full and generally positive coverage that
the British press gave the Nicaraguan inaugural ceremonies, and
in a long meeting with Guillermo Ungo of El Salvador's
Revolutionary Democratic Front, according to a source of our
Embassy in San Salvador, Castro advised him to seek an
"alliance" with Salvadoran President Duarte.
Outlook
Castro's recent statements and the broad effort he has set
in motion over the past several months indicate he is seriously
attempting to address his economic problems. He appears to be
placing great hope in an opening to the West as a means of
*This claim, of course, contradicts the long-held--and, in
our estimation, unchanged--Cuban position that any increase in
trade with the West will not involve a shift in trade from the
Soviet bloc. Shaefer's interlocutors are engaging in misleading
semantics and are taking advantage of Western hopes of enticing
Cuba back to the West because they want to encourage greater
Western contacts and openness with Cuba. What they mean, in
reality, is not that Cuba's trade with the Bloc will decline but
that the Blocs' share of overall Cuban foreign trade will be less
than the current 85 percent.
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alleviating Cuba's mounting economic pressures. He seems
convinced that, if Cuba is to increase exports, attract more
tourists, and send surplus labor abroad for hard currency,
Havana will have to adopt a posture of appearing more
responsible in its international behavior. Apparently it has
begun to do so.
As part of his attempt to pull Cuba out of its economic
doldrums, we believe Castro will continue to place heavy
emphasis on personal diplomacy in which he can impress
important foreign figures with his sincerity, statesmanship,
and reasonableness. This probably will entail many more
invitations to visit Cuba--Argentina's President Alfonsin has
already been invited, according to press reports, and Castro
claims the Pope has been invited--as well as trips abroad by
Castro, Vice President Rodriguez, and other top Cubans who can
sell Havana's new image convincingly.
On the defensive ever since the Grenada intervention,
Havana will continue to place increased emphasis on expanding
its diplomatic, commercial, and cultural relations,
particularly with the countries that hold some promise of
providing Cuba with economic relief, and this will require the
Castro regime to behave in a manner that will lend substance to
the new image of respectability that is being projected.
Support for insurgents in Central America will continue, in our
judgment, but Havana is likely to be reluctant to promote major
new "armed struggle" undertakings unless they are especially
promising or are aimed at a government that is generally held
in international disrepute. A similar pattern of restraint
occurred during the previous period of pragmatist predominance
in the early 1970s.
Diplomatic reporting over the years has indicated that
leaders in some Latin American countries that do not have
formal ties to Cuba have always feared that they will be caught
short by a sudden breakthrough in the Cuban-US relationship.
The Cubans, in an effort to "stampede" such countries into
establishing formal ties, will continue hinting--as they have
already done following the bilateral agreement on the Mariel
excludables and emigration from Cuba--that a reconciliation may
be developing rapidly. The Cubans will probably also use the
same ploy in the area of foreign trade, hoping to attract
otherwise reluctant businessmen anxious to pre-empt potential
US competition. To buttress their case, they are likely to
give wide press play to any statements by US businessmen or
other US notables suggesting that relations are, or should be,
For a review of Cuba's diplomatic initiatives, as well as
support of insurgent groups in South America see Appendix III.
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Cuban officials will not simply limit their attention to
foreign government officials. Special care will also likely be
given to cultivating groups positioned to influence policy in
their homelands. Havana, for example, has a campaign already
well under way to enhance its standing among foreign religious
representatives. This January, a delegation from the US
Bishop's Conference, including two archbishops, met in Havana
to discuss aid for the Catholic Church in Cuba and ways to
improve Cuban-US relations, according to press reports. In
addressing the US delegation, Vice President Rodriguez called
for "peaceful coexistence" between Catholics and Marxists and
openly admitted the group's propaganda usefulness. In our
judgment, Castro's sudden "tolerance" toward religion is wholly
tactical; it will be pursued only so far as it contributes to a
positive image of the regime, as evidenced by his failure to
loosen the restrictions on religious practices that have
hampered church groups in Cuba for more than two decades.
Other groups and individuals in the United States--
journalists, businessmen, politicians, academics--will probably
also be invited to Cuba in the expectation that they will
return home gratified for the red carpet treatment they have
received and ready to plead the case for a less hostile
relationship. Ever since the Grenada intervention in 1983,
Castro has been concerned about improving the US press coverage
of Cuba. He seems determined to create a constituency in the
United States that will serve as a restraining factor in
Washington's Central America policy and will promote
expectation of great economic benefits for the United States in
restoring commercial ties with Havana.
Elsewhere, we believe that Cuba will try to address its
economic problems directly by increasing its efforts to export
surplus labor for hard currency. Castro's suggestion of years
ago that Cuban workers go to Siberia to cut timber may yet come
to fruition. He probably also entertains hopes that Cuban
labor can be exported to Iran and Iraq once the war there ends
and, despite the odds, he may continue to seek a peacemaker
role in that conflict as a means of enhancing his prestige in
the Third World as well as for economic reasons.
A new urgency will likely be added to expanding the
tourist industry in Cuba, which will require significant
investment in hotel construction and related facilities. The
two Cuban airlines, Cubana and Aerocaribe, may look for
additional aircraft to maximize the profit from the flow of
tourists. In addition to a drive to boost exports, Havana will
also increase its efforts to sell services abroad; Cuban
commercial representatives in West Europe, for example, act as
purchasing agents for Angola, and Cuban front companies do
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Regardless of the exact mix of economic and diplomatic
moves, if this period parallels the last era of pragamatist
predominance in the 1970s, there will be a shifting of top
military officers to the civilian sector to bring to the
bureaucracy much needed discipline and administrative talent.
There are already some tentative indicators that such changes
are in the offing for senior military personnel. We believe
they are intended, at least in part, to make headroom for young
professionals in the military establishment as well as to
increase civilian regimentation--the latter was a major feature
of the pragmatists' policy in the late 1960s and early 1970s.
Although there is no evidence that the regime is considering
military personnel cutbacks of the magnitude of that era, there
have been hints in recent speeches that the armed forces will
have to share economic cutbacks along with the civilian
bureaucracy.
Implications for the United States
In our judgment, the economic pressures Castro is now
facing will not be sufficient to bring about any breakthrough
on the two key policy issues: relations with the Soviets and
support for foreign revolutionary movements. Abandoning ties
with Moscow would be suicidal for the Cuban economy and the
military establishment, and abandoning foreign revolutionary
movements would be a betrayal of the very core of the
philosophy of Castroism. Indeed, it is largely Soviet pressure
that is influencing Castro to make the current policy shifts,
and the direction he is now taking appears to have gained
Moscow's blessing and helped the bilateral relationship recover
from the period of coolness it experienced in mid-1984. As for
halting arms shipments and other support for guerrillas, Castro
recently told Washington Post editors "if that is the price for
improved relations with the United States, we cannot pay that
price." He has maintained since the 1960s that these two
issues involve immutable principles of his revolution and thus
are not, and never will be, negotiable. He reaffirmed this
position during his recent lengthy interview on US television,
and his chief of policy toward Latin America, Manuel Pineiro,
bluntly admitted to a visiting US official in February that
Cuba continues to support--meaning with arms, equipment, and
training--insurgents in El Salvador, Guatemala, and Chile.
This is not to say that Castro would not take a more
judicious approach to launching new guerrilla operations in the
region if the economic equitites in his relationship with the
United States were enhanced. We believe, for example, that a
restoration of trade with the United States would give him a
vested interest in more acceptable international behavior.
Moreover, popular expectations certain to be fueled by a
resumption of trade would increase the domestic cost to Castro
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of taking some precipitate action that was likely to cause
Washington to reinstitute the "economic blockade." A resump-
tion of trade would also enhance the position of the
pragmatists in the leadership and create a constituency that
would have a vital interest in maintaining improved ties. This
almost certainly would not deter Castro from involvement in
some especially promising, new opportunity for subversion--
against Pinochet in Chile, perhaps, or Stroessner in Paraguay--
that might arise, nor would it prevent him from meddling in
such ways as financing electoral candidates or training trade
union cadres in how to gain influence; but we believe it would
increase his reluctance to promote "armed struggle" where
success is uncertain.
The pressures on Castro will probably make him more
amenable to negotiate solutions to other, less critical
bilateral matters--a new anti-hijacking agreement, perhaps--and
to be more flexible on multilateral issues. On Central
America, for example, we believe he now sees negotiations as a
means of preserving a flagging insurgency in El Salvador and
buying time for the Sandinistas in Nicaragua. In addition to
providing him with a veneer of statesmanship, negotiations, in
our opinion, are appealing to Castro because they hold the
promise of achieving international legitimacy for the
Salvadoran insurgents--something they have not been able to
gain through force of arms--as well as providing at least tacit
international approval of Cuba's self-assumed right to
determine which regimes in the region are fit to govern and
which are not. We see nothing to convince us, however, that
the Cubans, as inexperienced as they are in compromise, are
ready to make any concessions on Central American issues that
might threaten the consolidation of the Sandinistas' grip on
power or undermine the political or military strength of the
Salvadoran insurgents.
Neither do we see anything in Castro's new mood that
suggests a lessening of his basic aversion for and distrust of
the US. Indeed, the fact that circumstances--economic problems
plus Soviet and US pressure--have put him openly on the
defensive is likely to reinforce his personal antipathy for the
United States as well as his letermination to persist in what
he sees as his historic mission against imperialism. Moreover,
he knows he cannot relax his overt hostility towards Washington
without the risk of feeding popular expectations that an
imminent improvement in relations with the United States will
bring immediate economic relief, and, in our opinion, he wants
no such internal pressure that might limit his policy
options. In a sense, he is a captive of his own anti-US
Indeed, under some conditions, we believe Cuban-US
relations could take a turn for the worse despite the
pragmatists' hopes of eventually gaining access to US
markets. If Castro became convinced that Radio Marti was
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playing a key role in inciting the population, or if austerity
boosted popular dissatisfaction to a dangerous level, he could
unleash another Mariel refugee exodus. As 1980 proved, he is
not beyond undertaking some precipitate action that is
detrimental to Cuba if it helps to satisfy his desire to punish
the United States. Because of his current economic headaches
and the grim prospects for the future, Castro seems willing to
negotiate a more comfortable modus vivendi with the United
States, but we see no chance that he will permit any
fundamental change in the adversarial nature of the
relationship.
At the same time, Castro's relationships with other
countries, particularly in South America, are likely to improve
and the United States will almost certainly be faced with
greater challenges in maintaining the effectiveness of its
economic denial program against Cuba. The dissipation of
Cuba's diplomatic isolation would enhance Castro's potential
for troublemaking in multilateral forums and Cuba's greater
international respectablility would probably provoke criticism
of Washington, even from some of its allies, for not'reacting
in a positive way to the "reborn" Castro.
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TABLE 1. Composition of Western Imports by Country and
Economic Sector for 1983
Country Amount
(millions of US $)
Argentina 95
Canada 43
France 116
Italy 22
Japan 99
Mexico 27
Netherlands 43
Spain 123
Sweden 37
Switzerland 37
United Kingdom 107
West Germany 75
Other 145
Total 969*
Percent of Total
9.8%
4.4%
12.0%
2.3%
10.2%
2.8%
4.4%
12.7%
3.8%
3.8%
11.0%
7.7%
15.1%
100.0%
Economic Sector Amount Percent of Total
Capital Goods 186
Consumer Goods 64
Intermediate Goods 670
Uncategorized Goods 49
Total 969
Represents 12% of total imports in 1983
19%
7%
69%
5%
100%
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TABLE 2
Soviet Assistance to Cuba
Million US $
1980
1981 198
2
1983
1984a
Development Aidb
830
1415 97
5
1070
850
Trade Subsidies
2633
3143 369
1
3145
2900
Sugarc
1165
1366 258
0
2740
2800
Petroleumd
1480
1657 100
6
300
0
Nickelc
-12
120 10
5
105
100
Total Economic Aid
3463
4558 466
6
4215
3750
aProjection for 1984 is based on preliminary trade data.
bBased on balance of payments aid necessary to cover Cuban trade
deficits with the USSR, Cuban purchases of capital goods from
Moscow, and public statements by Cuban and Soviet officials
concerning the amount of development aid extended. This aid is
repayable but terms are highly concessional.
CSugar and nickel subsidies are estimated as the difference between
the price Moscow pays for these commodities and their world market
value. The difference is considered as a grant.
dThe petroleum subsidy reflects the difference between the value of
the petroleum purchased from the USSR and the value of these imports
at world market prices. It is considered as a grant.
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Appendix II: Cyclical Swings in Policy
Although we know little of the inner workings of the Cuban
policy-making machinery, it is reasonable to assume that, in the
guns-versus-butter type of deliberations, the pragmatists and
hardliners are pitted against each other for a share of the
country's limited resources. It is clear from his actions over the
years that, in weighing the advice of both groups during policy
debates, Castro has favored the arguments of his old guerrilla
comrades among the ranks of the hardliners. From 1959 through 1967,
for example, when Castro had virtually no institutional restrictions
on his exercise of power, he gave free rein to those who called for
radical political, economic, and social measures to resolve Cuba's
problems and pressed for a continuation of violent revolution
throughout the hemisphere. This initial period of hardliner
predominance saw large-scale nationalizations of private property,
the destruction of virtually all old institutions and the creation
of new "revolutionary" institutions, unswerving antagonism toward
the United States, and the launching of subversive operations
throughout Latin America as well as in several colonies in Africa.
Anyone who warned that these policies were detrimental to the Cuban
economy or leading to Havana's diplomatic isolation went unheeded or
was suspected of harboring "counterrevolutionary" sentiments.
The swing toward the pragmatists began in 1967 when the Soviet
patience with Cuban behavior ran out. Cuba's almost indiscriminate
promotion of violent revolution--without a single success--clashed
head-on with the more realistic policies of various Latin American
Communist parties and became a serious point of friction with Moscow
as demonstrated by strong public statements from both sides. The
Soviets also were critical of Havana's massive waste of their
economic assistance and eventually brought pressure on Castro
through Cuba's heavy dependence on Soviet oil. Moscow's pressure
coincided with the failure of Che Guevara's subversive operations in
Bolivia--Cuba's most embarrassing guerrilla defeat in nine years of
fruitless sponsorship of terrorism--and eventually convinced Castro
that major changes in Cuban policy were long overdue.
The period of pragmatist predominance lasted from 1968 to the
late 1970s and featured the wholesale reorganization of the
government, party, and mass organizations; the adoption of a new
constitution; a 60-percent reduction in the manpower of the Cuban
armed forces; and the holding of the party's first congress. In
addition, a number of top military officers were shifted to key
posts in the government to add discipline and organizational talent
to the bureaucracy. This resulted in the adoption of a number of
measures--the militarization of much of the school system, for
example--that sharply increased the regimentation of Cuban
society. This period became known as t of
institutionalization.
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In the foreign policy area, Havana greatly reduced its
promotion of guerrilla warfare and made a major effort to bring its
policy in line with that of Moscow. Cuba's broad campaign to break
out of its diplomatic isolation paid off as formal ties were
established with several dozen countries. Relations with Moscow, at
a low point in 1967, improved dramatically and Cuba became a member
of the Council for Mutual Economic Assistance. Castro's efforts to
woo the Third World also were warded and he became chairman of the
Nonaligned Movement. 25X1
The performance of the Cuban military establishment in Angola
beginning in 1975, and later in Ethiopia during the Ogaden campaign,
however, served to redeem the hardliners--as well as impress
Moscow--and by 1978 they apparently had convinced Castro that the
time was ripe for a dramatic increase in the promotion of armed
struggle. This resulted in a major guerrilla support operation for
the Sandinista insurgents in Nicaragua, involving Havana's shipment
of more arms and supplies than it had provided to any guerrilla
group during the 1960s. The victory of the Sandinistas returned the
hardliners to the predominant position in the leadership and led to
greater Cuban invo lvador, Colombia, and Honduras in 25X1
subsequent years.
The Grenada intervention in October 1983, however, put the
hardliners' fortunes again on a steep downhill slide. 75X1
the performance of the Cuban military 25X1
detachment in Grenada was so bad--in Castro's eyes at least--that
the detachment's personnel were cashiered on return to Cuba and sent
off to Angola as common soldiers to redeem themselves in combat. So
outraged was Castro over the defeat that the Interior Ministry's
chief of foreign intelligence, one of the regime's top military
officers, was dismissed and the chief political officer of the armed
forces, an alternate member of the party's Political Bureau, was
reassigned. Moreover, the hardliners' efforts to exploit the
revolution in Suriname failed as Colonel Bouterse expelled virtually
all Cubans from the country; Cuba's military involvement in southern
Africa seemed threatened as Presidents Machel and Dos Santos opened
negotiations with South Africa; and the trend in Central America
seemed to turn against Cuba and its insurgent allies. It was again
time for the pragmatists. 25X1
We believe Soviet pressure played a key role in the current
resurgence of the pragmatists just as it did in 1967. Moscow's
determination to halt the ever ballooning cost of its investment in
Cuba, coupled with Cuba's own deteriorating economic position,
appears to have precipitated a reordering of priorities to place
major emphasis on economic matters and a downplaying of support for
violent revolution in Latin America. 25X1
22 25X1
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Cuba-South America: Scope of Relations
Diplomatic Initiatives
Argentina Full relations at ambassador level;
political ties correct but not warm;
commercial ties growing.
Bolivia Relations at charge level; Siles's
domestic problems probably rule
out any change before elections this
summer.
Brazil No relations; slight chance of full
relations being established this
year; commercial relations more
likely but still not assured.
Chile No relations.
Colombia No relations, but Castro and
President Betancur have developed
personal working relationship.
Restoration of relations could occur
this year, but there is strong
domestic opposition.
Ecuador Full relations at ambassador level,
but President Febres-Cordero cool
to Cuba.
Peru Relations at charge level; likely to
Uruguay
be raised to ambassador level if
current favorite-a center-iertist-
wins upcoming election.
No relations; full relations at
ambassadorial level expected after
Inauguration of new Urugua1an
civilian government.
Support to Subversives
Havana continues its support to
the Montoneros and the People's
Revolutionary Army, but
apparently is advocating a non-
violent path for now.
Cuba provides limited training
and funding to radical groups,
but apparently playing down its
support to avoid providing
ammunition to Siles's opposition.
Little or no activity.
Cuba continues actively
supporting several leftist groups
with funding and training; Havana
advocating armed revolution to
oust the government.
Cuba continues to provide
training and possibly arms to the
M-19, but Castro apparently
advising them to limit their
terrorist activities for now.
Cuba provides training and
funding to two radical leftist
groups, one of which has
increased terrorist activity over
the last year.
Havana apparently has no
contact with the Sendero
Luminoso guerrillas.
Castro maintains contract with,
and support to, Tupamaro
guerrillas, who are mostly in exile,
but apparently not involved in
supporting antigovernment
activity in Uru
u
g
ay
Venezuela Venezuelan Charge in Havana. but Little activity.
Cuba has no official representative
in Caracas. Full relations could be
restored this year, but bilateral
problems persist.
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State Department
Copy 1 - Director, Office of Cuban Affairs, Skoug
2 - Assistant Secretary of State for Inter-American Affairs, Motley
3 - Under Secretary of State for Economic Affairs, Wallis
4 - Under Secretary of State for Political Affairs, Armacost
5 - D/INR, Abramowitz
6 - INR/INC, Knepper
White House
7 - Assistant to the Vice President, National Security Affairs, Gregg
8 - Deputy Assistant to the President, National Security Affairs,
Poindexter
National Security Council
9 - Senior Staff Member, Inter-America, Menges
10 - Assistant Director, International Economic Affairs, Wigg
National Security Agency
Defense Department
12 - Deputy Assistant Secretary of Defense for Inter-American
Defense, Sanchez
13 - Under Secretary of Defense for Policy, Ikle
14 - D/DIA
15 - DIO/Latin America, Bosch
Treasury Department
16 - Special Assistant to the Secretary, National Security, Mulholland
Commerce
17 - Director, Office of Intelligence Liason, Jackson
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Central Intelligence Agency
18
- Executive Director, 7E12
19
- SA/DCI, 7E12
17
- ED/DCI, 7E12
18
- C/DDI/PES, 7F24
19
- NIO/LA, 7E62
20
- NIO/ECON, 7E62
21
- NIO/At Large,
7E47
22
- NIC/AG, 2G40
23
-
24-28
- DDI/CPAS/ISS, 7G50
29
- CPAS/IMC/CB, 7G02
30
- DISOVA
31
D/EURA
32
- D/OGI
33
-
34 -ILS
35 D/ALA
36-37 - ALA/Production Staff
38 ALA/Research Director
39 - C/MCD
40-41 - DC/MCD
42 MCD Files
43-4'/ MCD/CU
1:3 MCD/CU Files
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