Cuba’s Gradual Revolution: Will Capitalist-Style Reforms Save The Socialist Nation?

By: Raymond Tham   Date: 22 November 2011

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Raymond Tham

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On November 10 2011, Cuba’s Communist Party implemented free market-like reforms to the nation’s property market, by finally allowing Cubans to buy and sell property on their own. These reforms have been met by both optimism and scepticism from within the Cuban and international community, as doubts remain over their long-term future. How will these reforms affect Cuba, and how should the rest of the world react?

Cuba’s Gradual Revolution: Will Capitalist-Style Reforms Save The Socialist Nati

Buildings, Such As These, Along The Streets Of Havana Could Soon Be In Line For A Makeover
Photo Credit: Anton Novoselov

Along the streets of Havana, Cubans are finally starting to get their houses in order. Thanks to the recent reforms introduced by the Castro government, an average Cuban now has the ability to buy and sell residential property – a privilege that few can claim to have experienced after the Cuban Revolution in 1959 turned all their homes back then into properties of the state. However, the latest reforms now mean that Cubans can, and should, profit from the homes they live in; sparking a renewed vigour among households to renovate their long-neglected and once-crumbling domiciles.

“We're making it look beautiful again,” said Antonio Tresol, a resident of the Centro Habana neighbourhood, to NPR.org. Centro Habana is one of the smaller municipalities located in Havana, but has the highest population density within the capital city. The infrastructure of the municipality was built over 450 years ago, and has since seen heavy deterioration after the collapse of the Cuban-Soviet trade partnership during the 1990s.

This could change soon. Like Tresol, many Cubans have been doing up their homes as they embrace the latest in a spate of new economic reforms introduced by President Raul Castro, Fidel’s brother, to salvage the Cuban economy. For many years, Havana’s dilapidated buildings reflected the lacklustre, and increasingly feeble, state of the Cuban economy; But today they could very well be a part of a growing paradigm shift within the Cuban government, who, like its citizens, is also attempting to get its house in order.

The most significant (and perhaps, literal) step to this has been the introduction of a Cuban property market on November 10 this year. Previously, the only kind of property transactions that Cubans were allowed to make were “permuta(s)” – a complicated bartering system, which while legal, often included illegal payments made under the table. The “permuta(s)” also failed to assign any kind of value to the properties, relying more on arbitrary factors to determine the nature of the swap. With the new changes, not only will buyers and sellers in Cuba be allowed to dictate their own prices, but also Cubans now will be able to bequeath property to their relatives, even if they leave the country permanently.

“To say that it’s(the new reforms are) huge is an understatement,” said Columbia Law School professor Pedro Freyre, an expert in Cuban-American legal relations, to the New York Times. This is the foundation, this is how you build capitalism, by allowing the free trade of property.

Havana architect and urban planner Miguel Coyula added that with millions of cash-poor Cubans suddenly finding themselves in possession of a valuable liquid asset, no one quite knows what will happen next.

"Havana is a city that appears to be a city frozen in time. And now you suddenly open the market. You can buy, you can sell. And the question will be, in my opinion, the impact of this in the society, in the market. We are opening a new opportunity, a new field, for which we are not completely prepared, many people are not prepared."

Nowhere is this lack of preparedness more evident than in the prices quoted for some of the houses. While some apartments listed in online classified ads can go for around $5000 to $10,000, others easily cost in the upwards of hundreds of thousands of dollars, with an ocean-side villa in the resort town of Varadero costing more than a million dollars. The number is particularly staggering, considering most government salaries in the country only averages at about $20 a month.

But some Cubans do have the money, said Omar Everleny Perez, the lead economist at Havana University's Centre for Cuban Economic Studies, in an interview with Time. Bank accounts are concentrated among 13 percent of islanders who control 90 percent of the deposits, with some worth between $160,000 to $200,000. Cuban exiles, particularly those who migrated to the US, are also more than likely to transfer funds to their relatives back on the island so that they may live in better conditions. 

This could be precisely what the Cuban government wants. Although the property market is certainly freer than it used to be, there remain certain restrictions to it, which Cuban officials have claimed to be necessary in order to maintain the nation’s socialist beliefs. Owners, for instance, will be limited to only two homes (a residence and a vacation property), while financing must go through Cuba’s Central Bank, which will charge fees, which have not been determined. Furthermore both the buyer and seller must share the cost of an 8 percent tax to be paid directly to the Cuban government.

Rather than empowering individual Cubans, the regime's goal in allowing the open trade of houses is to hopefully siphon more Cuban American money into the island's perennially bankrupt economy,” said José R. Cárdenas of Foreign Policy magazine. “With average Cubans on the island too poor to buy or improve their dilapidated dwellings, their hope is relatives in Miami and elsewhere will remit even more cash to the island attempting to improve their relations' situation. Indeed, the cynicism of relying on Cuban exiles to support the Cuban economy has never bothered the Castro brothers in the slightest.

Since 2009, The flow of money and people from the US to Cuba has soared after US President Barack Obama lifted almost all of the restrictions on Cuban-Americans who wished to send cash to Cuba or visit the island. Today, Havana airport's terminal 2 receives up to six flights a day from Miami alone, with new routes from other US cities being opened up shortly. Cuban-Americans are also said to send an estimated $1 billion in the form of remittances back to the island annually.

Most experts, and Cubans on the island, expect these efforts to accelerate.

“I don’t know if they will control the marketBut it is certainly going to be the case that the market is going to settle in a way that’s heavily influenced by demand from outside Cuba coming from relatives,” said Philip Peters, a scholar at the Lexington Institute and adviser to the Cuba Working Group in the US Congress to the New York Times.

Peters, also insisted that while there are obvious monetary benefits for the Cuban government in making these changes, the new reforms should be embraced by the international community as they symbolised a deeper sense of change within the Cuban society and economy. 

“The question of the home is a key theme for families in any country, and to reinstate the ability to buy or sell a house is to respect the right to property…. All this is indicative that the government is indeed ready to make structural changes in the Cuban economy, and that communist leaders have a certain comfort with a great increase in private activity, because this is much deeper than (giving Cubans access to) hotels, mobile phones or DVDs,” said Peters, as quoted by Deutsche Presse-Agentur.

Cuban-American political scientist Arturo Lopez-Levy is even more adamant about the deeper symbolism behind Cuba’s move.

This is like reversing a decision of the Pope. And that basically says that there's a new administration here, with a lot of continuity with the previous. There's no drastic rupture with the government because it continues to be the same, but it's evident that they're thinking about the economic model in a new way.”

Still, it is obvious that more needs to be done. Human rights issues remain a fundamental problem within Cuba as reports continue to emerge of “harassment, beatings, and threats against political opponents by government-organized mobs and state security officials acting with impunity; harsh and life-threatening prison conditions, including selective denial of medical care; arbitrary detention of human rights advocates and members of independent organizations; and selective prosecution and denial of fair trial.”

Doubts also remain over the long-term sustainability of the property reforms, due to the broken promises made in the past by the Cuban government over economic liberalisation. In 1994 for instance, the Castro regime had allowed some businesses to prop up after the end of the Soviet Union had virtually ended all financial aid that it had received from Russia. But the Castros eventually got nervous by the amount of wealth being accumulated by some Cubans and increased the prices for licenses dramatically, killing off many start-ups in the process.

Nevertheless it does seem as though Raul Castro, once dismissed as little more than an understudy to his brother, is making his mark. Apart from the property reforms, the younger Castro has also implemented other free-market changes – including firing 500,000 state workers to force them into the private sector last year, as well as trying to make a more concerted attempt at tackling corruption in order to reduce government waste.

"Raúl has shown he is far more comfortable than his brother ever was, with a smaller state and more market activity," said Peters to The Guardian. "Cuban socialism is going to look quite different."

Most analysts are counting on that, particularly with as the faltering Cuban economy continues to underperform. According to Richard Feinberg, a non-resident senior fellow with the Latin America Initiative at the Brookings Institution, Cuba’s current agricultural output is insufficient to feed the population, while merchandise exports, at a paltry $3bn to $4bn a year, has left a chronically large trade deficit. National savings and investment rates are also extremely low, relegating Cuba to a low-growth trap.

Related: Cuba Economy

Related: Cuba Economic Statistics and Indicators

The international development community, especially financial institutions like the IMF and World Bank, and the United States should thus reach out to communist Cuba as it pursues economic reforms and bring it "in from the cold,” said Feinberg, in a new think-tank report quoted by Reuters. 

"My argument precisely is not to deny that there are forces of inertia there; clearly there are and they remain strong. But it is the role of the international community in circumstances such as this to lend their weight to the positive forces of change.” 

"IFI (international financial institutions) staff economists and sector specialists are chomping at the bit to engage in Cuba and they should be allowed and encouraged to do so," he added.

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