Cuba's Year Of Economic Changes

(AP Photo/Javier Galeano) (AP2011)

Cuba's shocking economic reforms has not brought Julio César Hidalgo the wealth he hoped for.

The fledgling pizzeria owner has had his good months, but the restaurant he opened with his girlfriend often runs at a loss. At times, they can't afford to buy basic ingredients.

Yet the wide-faced 31-year-old says he is grateful to be in business at all. A year ago, Hidalgo was concocting chalky pastries in a Spartan state-run bakery where employees and managers competed to pilfer eggs, flour and olive oil, the only way to make ends meet on salaries of just $15 a month. Today, he is his own boss, a taxpayer, employer and entrepreneur.

"I think my expectations were met because in Cuba today I couldn't have hoped for anything more," he said one recent December afternoon as his girlfriend, Giselle de la Noval, served customers. "We survived."

Hidalgo's story is mirrored by many of the entrepreneurs The Associated Press has followed since January in a yearlong effort to document Communist Cuba's awkward embrace of free-market reforms.

Their experiences — like the reforms themselves — cannot be described as an unmitigated success. Of the dozen fledgling business owners, including restaurateurs, a DVD salesman, two cafe owners, a seamstress, a manicurist and a gymnasium operator, three have closed down or begun working for someone else, and one has been harassed by her former state employers. None could be considered successful by non-Cuban standards.

The reforms have advanced, perhaps not quickly enough considering the problems that have accumulated, but they have advanced, one after another, and there is no sign that they will stop or be rolled back.
— Omar Everleny Pérez, the head of Havana University's Center for Cuban Economic Studies.

But despite their struggles, many tell of lives transformed, dreams realized, attitudes changed, and doors opened that had been closed for more than half a century.

For Hidalgo, personal hardships have added to the challenges of starting a business on a Marxist island that has looked askance at entrepreneurship since Fidel Castro's 1959 revolution turned a one-time capitalist playground into a Soviet satellite.

After suffering through a slow, hot, summer when nobody wanted a pizza, Hidalgo had to close for two months to care for his grandmother, who has Alzheimer's disease. Even while the business was shuttered, he and de la Noval had to make tax and social security payments, wiping out the few hundred dollars they had saved.

They reopened in late November with so little money they can't always afford to serve their house special.

"We've had to start from scratch, but the only reason we didn't lose the business altogether is because we were disciplined," said de la Noval, 23. "Before we did anything, we always put away the money we needed to pay the state."

A year that President Raúl Castro described as make or break for the revolution is ending after a dramatic flurry of once-unthinkable reforms that are transforming economic and social life.

In October, the government legalized a used car market, and a month later extended it to real estate, sweeping away decades of prohibitions. On Tuesday, the state began extending bank credits to new business owners and those hoping to repair their homes.

But one of the most powerful reforms was Castro's decision last year to greatly expand the ranks of the self-employed, part of a somewhat unsuccessful effort to trim bloated state payrolls.

Some 355,000 people have received licenses to start their own businesses, and the results can be seen and heard everywhere. On nearly every street in Havana and in thousands of hamlets and towns across Cuba, makeshift signs and bright parasols mark the entrances of new businesses, and the long-lost cries of curbside vendors hawking everything from fruit and vegetables to mops and household repair services fill the warm Caribbean air.

"The reforms have advanced, perhaps not quickly enough considering the problems that have accumulated, but they have advanced, one after another, and there is no sign that they will stop or be rolled back," said Omar Everleny Pérez, the head of Havana University's Center for Cuban Economic Studies.

The government has declined to release any statistics on tax revenue or payroll savings from the reforms, except for an October report in the Communist Party newspaper Granma that said tax revenue from new businesses had tripled.

Cuban leaders this month lowered their forecast for economic growth for 2011 to just 2.7 percent — from the 3 percent originally hoped for — an extremely poor showing for a developing country. By contrast, China is forecast to grow by about 9 percent in 2011, Vietnam by between 6 and 6.5 percent and Brazil by 3.8 percent.

Private business owners have complained about the high taxes they must pay, the lack of raw materials and the fact they are suddenly surrounded by competitors. Because most entrepreneurs don't have the capital to start innovative businesses, many have opened cafeterias, nail parlors, small roadside kiosks and the like.

Anisia Cárdenas, a seamstress, is among more than 100,000 Cubans who have held private business licenses since the 1990s, the island's last experiment with the free market. In the latest reform, she decided to expand, paying $2 a day to rent the front porch space of a neighbor's house to set up her sewing machine.

But business was slow — and competition from new license holders fierce. Within a few months she had to retreat to her tiny apartment. By the summer, she began to wonder if she might have to close down, unable to meet the $19 monthly tax payments. By December, she had gone to work as an employee for another seamstress.

"Things are hard," said Cárdenas, who is trying to save money for her daughter's 15th birthday party in January. "Everything is very expensive."

Others complain of rules that are often illogical, and state employers who still view entrepreneurship with suspicion.

María Regla Saldívar is a black belt in taekwondo who got a license to give private lessons to neighborhood kids in a scruffy park across the street from her job. She began the year with dreams of persuading the government to let her turn an abandoned dry-cleaning warehouse into a private recreation center.

But the government refused to grant her a lease. Then her bosses at Cuba's National Sports Institute docked her pay because they said her outside work was affecting her performance. She quit. Finally, her former boss prohibited her from using the park for martial arts lessons, which are technically prohibited. The government considers it potentially deadly training, even though most of Saldívar's students are not even teenagers yet.

"It's called envy," Saldívar said of her boss.

She insists she is not teaching taekwondo, slyly calling the discipline "Quimbumbia" — a word of her own invention. She has moved classes for her 14 students into the tiny covered patio in the back of the apartment she shares with her teenage daughter.

But Saldívar says she has no regrets about how the year has unfolded. She says making business decisions for herself has increased her self-esteem, and she is thrilled that she's managed to put away 2,000 pesos ($80), about four months salary at an average state job.

"You may laugh, but for me it's a lot of money," she said, running her coarse fingers over the stripes on a pair of sky-blue track suit bottoms she bought. "I've wanted these for so long and now I have them. I look like a proper trainer now, not someone out picking mangoes from a tree."

Rafael Romeu, the head of the Washington, D.C.-based Association for the Study of the Cuban Economy, said Castro has "changed the conversation" since taking over from his ailing brother in 2006, pushing the leadership to get the island's economic house in order rather than blaming external factors such as the 49-year U.S. travel and trade embargo.

But so far, the changes don't go far enough to revive Cuba's moribund economy.

"These are positive steps but when you say them out loud, just think about it. ... You are allowed to have a cellphone, you are allowed to buy a home, you are allowed to buy a car or have a microenterprise. This is not the fall of the Berlin Wall. These are not major changes," he said. "Cuba has tremendous difficulties. This is a marathon, and they are taking baby steps."

Romeu, who has worked around the world studying emerging economies, said that Cuba is moving much more deliberately than the Chinese did when they began opening their economy in the late 1970s, or the Vietnamese a decade later.

Cuba's predicament is somewhat different, as well. Both China and Vietnam were deeply agrarian economies whose challenge was lifting tens of millions out of crushing poverty, Romeu said. Cuba is a more urban country with an aging population whose citizens have gotten used to benefits including health care and education, but who have grown accustomed to a system that doesn't make them work for such middle-class perks.

"In Cuba, the challenge is sustaining the middle class, not creating one," Romeu said.

Still, some reforms seem to be moving along more quickly than many analysts had hoped.

Business is booming at a street corner long known as the center of Havana's informal real estate market. Only now, the handwritten listings on trees openly advertise legal home sales, instead of disguising them as property "swaps."

Méndez Rodríguez, an unofficial real estate broker, said the buying and selling is aboveboard, controlled by a relatively untangled bureaucracy.

"Everything is by the law now," said Rodríguez, even if his profession is not officially licensed. He and other so-called facilitators work for "gifts" left to the discretion of their clients, he said.

Rumors that real estate brokers would be the latest addition to the list of 181 licensed entrepreneurial activities have not come to pass, but there's still hope the profession will be added in 2012. Rodríguez said the opening seems to have led to a steep increase in prices, with a home worth $20,000 a couple of months ago going for 50 percent more today.

That's the kind of price jump many of the new struggling business owners say they could use.

Javier Acosta has sunk more than $30,000 he saved as a waiter into his own upscale establishment, and says business is far from booming.

"This has been a hard year, a year of sacrifice," he said. "There are days when nobody comes, or when I have just one or two tables, and then there are days when the place is filled."

He said his costs run to about $1,000 a month, and when business is slow he struggles to break even.

Yet the reforms, he says, have changed the face of Cuba, and cynical countrymen who doubt the opening will be lasting must wake up to a new reality.

"After 50 years where everything was prohibited it takes time to change people's minds and make them understand that this time is different," he said, sitting in his empty second-floor restaurant one recent afternoon. "If you don't work, you don't eat."

Despite his struggles, Acosta says he would take the risk again if given the chance, a sentiment shared by Hidalgo and de la Noval. They had hoped to close on New Year's Eve, which Cubans of means celebrate with a traditional feast of pork leg, yucca, black beans and sweets.

Hidalgo said the family simply doesn't have enough saved to take the night off after its year of trials and tribulations. Instead, he's planning to keep the pizzeria open late and celebrate on the job with his girlfriend and his aunt at his side.

"We're thinking of making a small meal for the three of us," he said. "If we can afford a leg of pork it'll be to sell, not to eat ourselves."

Based on reporting by Paul Haven of the Associated Press.