HAVANA Aug 3 Cuba is moving along with reforms
aimed at boosting its economy, but has also laid out new taxes
that angered many and pose a threat to the growth of small
businesses critical to the government's economic plans.
The government's hopes for offshore oil development and
possible energy independence are in limbo.
The government said it would loosen its grip on some state
companies, convert 222 small and medium-sized state businesses
into cooperatives and lease more than 1,000 small cafeterias to
their employees, as it has done earlier with barber shops, hair
dressers and other minor services.
The changes will permit an unspecified number of state
companies, previously part of various government ministries, to
function more like private firms in their day-to-day management,
be self-financed and evaluated on their profitability and
productivity, reform czar Marino Murillo told the National
Assembly. Under the old system, most state companies have been
The changes are part of a five-year reform plan to move away
from direct government administration of almost all the economy
so the state can focus on managing and maintaining control of
the "basic means of production," President Raul Castro said.
The government, saddled with $22 billion in foreign debt and
expensive social programs, said a new tax code will go into
effect next year that eventually will require Cubans to pay
income and property taxes as they did before the 1959
Also, new customs duties up to 300 percent of the cost of
goods brought in will start taking effect in August, following a
renewal of taxes on food imports that began in June.
The new import measures have prompted widespread complaints
because many items are not available on the island or are
Many of the new private businesses Castro is encouraging
depend on imported goods, which is why people are generally
mystified by the tax hikes. One theory is that the government
wants to force people to buy from state stores instead of
The government has said there are now more than 390,000
Cubans who are working for themselves or for other
self-employed, nearly triple the number before Castro began
encouraging private ventures in September 2010.
Their continued growth is critical because the president
wants to cut a million jobs from state payrolls by 2015 and will
need alternative employment for those laid off.
Another 200,000 Cubans have leased government land to become
farmers under his reforms.
The government said that in the first half of the year
Cuba's gross domestic product grew 2.1 percent compared to the
same period in 2011. The goal is 3 percent GDP growth in 2012.
What to watch:
- Results of the reforms to the state companies.
- The effects of the new taxes.
- Agricultural production.
The first major exploration for oil in Cuba's offshore
started badly when the initial well, drilled by Repsol
in consortium with Norway's Statoil and India's ONGC, was
unsuccessful. The company also came up dry in an
earlier well in 2004.
Malaysia's Petronas and Russian partner Gazprom Neft, using
the same Chinese-built rig as Repsol, began drilling another
well in late May in Cuba's western waters, but there was no word
yet on results. The rig was to be passed on to Venezuela's PDVSA
for a third well, but plans after that are unclear.
The drilling rig, the Scarabeo 9, is one of the few in the
world that can drill in very deep water and does not violate the
longstanding U.S. trade embargo against the island. It is owned
by Italian oil services firm Saipem and scheduled to stay in
Cuba until July 2013.
Russia's Zarubezhneft has contracted a rig from Norwegian
firm Songa Offshore to begin drilling in late November in its
offshore leases, which are east of Havana and closer to shore
and in shallower water than the other wells.
Cuba, which says it may have 20 billion barrels of oil
offshore, is banking on the offshore exploration to free it from
dependence on Venezuelan oil.
Venezuela sends about 115,000 barrels a day to the island in
an oil-for-services deal. Cuba uses the oil to meet two-thirds
of its daily energy demand.
The U.S. Geological Survey has estimated 5 billion barrels,
but its study does not include all of Cuba's part of the Gulf of
What to watch:
- Results of exploratory wells by Petronas, PDVSA.
- Future drilling plans for Cuba offshore.
Venezuelan President Hugo Chavez has been a generous ally
whose investment in assorted other projects and strong political
support have helped Cuba emerge from the worst of the so-called
"special period" that followed the 1991 collapse of former top
benefactor the Soviet Union.
He has been treated in Cuba since an undisclosed type of
cancer was found in his pelvic region last year, but of late has
said he is cured of the disease. He said the same thing before
only to have a recurrence.
Chavez is running for re-election in October, with most
polls showing him well ahead of opponent Henrique Capriles.
If he were unable to continue in office or failed to beat
Capriles, it would threaten Cuba's main political and economic
alliance, with difficult consequences for island.
Whether it was related to concerns about Chavez is not
known, but President Castro visited old communist allies China,
Vietnam and Russia in a July trip.
Official U.S.-Cuban relations are at a standstill due to the
imprisonment of American contractor Alan Gross for illegally
installing Internet networks on the island.
The U.S. presidential election in November could determine
much about the immediate future of relations between the
long-time ideological foes. Presumptive Republican Party
presidential nominee Mitt Romney is supported by most
Cuban-American lawmakers who seek to roll back measures by
President Barack Obama to increase U.S. contacts with the
What to watch:
- Chavez's health.
- The U.S. presidential election.
After drawing a record 2.7 million tourists in 2011, Cuba
said more than 950,000 visitors came to the island in the first
quarter of 2012, up 5.3 percent from the previous year.
The rising numbers reflect in part an increase in American
tourists taking advantage of relaxed travel restrictions under
Tourism and nickel exports are among Cuba's top foreign
currency earners. Sherritt International Corp of Canada, a joint
venture partner in Cuba's nickel mining, said in its second
quarter earnings report that nickel prices for the period were
$7.88 a pound, down from $10.56 a year ago.
A tourism ministry official said 13 golf course projects
were in various stages of approval and it was hoped construction
on a first one would begin next year.
Some of the projects, which are aimed at bringing wealthier,
bigger-spending tourists and residents to Cuba, have been
pending for several years.
What to watch:
- Sustainability of tourism boom.
- Nickel prices.
- Signs of increased foreign investment.