Cuba's Raul Castro charts own economic course

By Marc Frank
HAVANA, June 17 (Reuters)

Four months into the new Cuban government and with multiple economic changes already announced, theories abound about where reform-minded Cuban President Raul Castro is leading the Caribbean island's economy, but the clue to the future lies in his past. Promising to improve his nation's sluggish state-run economy, he has taken small, but symbolic steps such as lifting wage caps and restrictions on consumer goods, prompting speculation Cuba may adopt a Chinese model of market socialism or something similar. But based on government actions and statements in the past year, Castro's intent is to keep the Cuban economy firmly in state hands while making it more efficient, using a model developed by the military when he was defense minister.

Raul Castro led the Cuban military from the 1959 revolution that toppled a U.S.-backed dictator until taking over as president in February 2008. In July 2006 he had already temporarily assumed the role when his older brother, Fidel Castro, was sidelined by intestinal surgery.
As defense minister, the younger Castro set about in the 1980s trying to improve the performance of companies supplying the armed forces of the communist-run country.
They adopted modern management and accounting practices, granted local managers more day-to-day decision making power and tied wages to individual and collective performance instead of nationally set salaries, with some good results. The model was applied to new military businesses in the civilian sector in the 1990s as Cuba was deep in the economic crisis that followed the collapse of its old trade and aid partner the Soviet Union. The armed forces entered tourism, urban agriculture and other sectors. An effort to extend the model to all state companies made little headway until Raul Castro took the reins.

'PERFECTING' STATE COMPANIES

Last August, while Raul Castro was still only interim president, Vice President Carlos Lage announced his economic policy, called "perfeccionamiento empresarial" -- roughly translated as perfecting of the (state) company system. The two men signed a law mandating that all companies adopt the model. Lage said Cuba would not copy China's or other socialist countries' reforms. "Their successes and failures should enrich our efforts, but the building of socialism in Cuba is only possible as a result of our own experience," Lage said. In a study of the military's economic model, Cuba expert Phil Peters at the Lexington Institute in Virginia wrote that "perfeccionamiento empresarial has no exact analogy in capitalist economies and is not borrowed from other socialist countries' models of reform." "It is not a free-market reform and it is not privatization. But it would benefit Cuba's economy to carry out the process fully," Peters told Reuters.

Frank Mora at the National War College in Washington said the policy's aim is to maintain the current one-party political system while defusing public discontent about the economy and other matters. "It is not to turn Cuba into a China or Taiwan in terms of development and integration of globalization. In the end, the objective is political," he said. Under "perfeccionamiento," there is some room for partnering with foreign companies and for competition between state firms, and for limited private initiative in agriculture and other areas on the fringes of the retail sector.
A broader push toward liberalization and streamlined management was unveiled in February when the government lifted caps on wages for companies that had not already completed the process. This was coupled with what Raul Castro has called a move to lift "excessive prohibitions" and with key personnel changes that signal his intent to push the reforms through the more than 3,000 companies run by the government.

Castro promoted the man in charge of the military's businesses, Gen. Julio Casas Regueiro, to defense minister and top party and government posts, and, according to sources, has installed Maj. Luis Alberto Rodriguez, who ran the businesses day-to-day, as Regueiro's head of staff.
"Casas Regueiro was Raul's right hand man in this process and Luis Alberto was the most brilliant CEO since the very beginning," said Domingo Amuchastegui, a former Cuban intelligence officer who defected to Miami in 1994. (Editing by Tom Brown and Frances Kerry)