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Cable sobre la sección de intereses de EE UU en febrero 2010

Reunión de consejeros comerciales de los principales países acreditados en La Habana que pintan un panorama económico sombrío

ID: 248021
Date: 2010-02-09 18:49:00
Origin: 10HAVANA84
Source: US Interests Section Havana
Classification: CONFIDENTIAL
Dunno: 09HAVANA322 09HAVANA631 09HAVANA763
Destination: VZCZCXRO9953
PP RUEHAG RUEHROV RUEHSL RUEHSR
DE RUEHUB #0084/01 0401849
ZNY CCCCC ZZH
P 091849Z FEB 10
FM USINT HAVANA
TO RUEHC/SECSTATE WASHDC PRIORITY 5178
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0114
RUEHKO/AMEMBASSY TOKYO PRIORITY 0039
RUEHBS/USEU BRUSSELS PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUCOGCA/COMNAVBASE GUANTANAMO BAY CU PRIORITY
RHMFISS/HQ USSOUTHCOM MIAMI FL PRIORITY
RUCOWCV/CCGDSEVEN MIAMI FL PRIORITY
RHMFISS/JOINT STAFF WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 HAVANA 000084

SENSITIVE
SIPDIS

STATE FOR WHA/CCA

E.O. 12958: DECL: 02/08/2020
TAGS: ECON, EFIN, PREL, PGOV, CU
SUBJECT: KEY TRADING PARTNERS SEE NO BIG ECONOMIC REFORMS
IN 2010, AGREE CUBA'S FATE HINGES ON VENEZUELA

REF: A. 09 HAVANA 631 (GOC TELLS CUBANS TO FEND FOR
THEMSELVES)
B. 09 HAVANA 322 (...ANOTHER SPECIAL PERIOD?)
C. 09 HAVANA 763 (NATIONAL ASSEMBLY SESSION)

HAVANA 00000084 001.2 OF 004


Classified By: Principal Officer Jonathan Farrar for reasons 1.4 (b) an
d (d).

1. (C) SUMMARY: There is little prospect of economic reform
in 2010 despite an economic crisis that is expected to get
even worse for Cuba in the next few years, according to key
commercial specialists, economic officers and Cuba-watchers
in Havana. Promised structural reforms remain on hold while
the Cuban government wrings its hands in indecision, fearful
of the political consequences of these long-overdue changes.
The one potentially significant reform implemented in 2009,
the leasing of idle land, has not been effective. The Cuban
government (GOC) could be forced to speed up reforms in the
event of a significant reduction of assistance from an
increasingly unstable Venezuela. Otherwise, the GOC will
continue to prioritize military-led control and aim for a
slow, measured pace of reform focused on agriculture and
import substitution. The Cuban people have grown accustomed
to tough times and will respond to future government belt
tightening with similar endurance. END SUMMARY.

2. (SBU) Pol/Econ Counselor hosted a breakfast with
commercial and economic counselors from six of Cuba's seven
largest trading partners, including China, Spain, Canada,
(the U.S.), Brazil and Italy, plus key creditors France and
Japan. These countries also represent most of the foreign
companies investing in Cuba, with the notable exception of
Venezuelan state-owned enterprises.

DIPLOMATS ARE MOSTLY PESSIMISTIC
--------------------------------

3. (C) The global financial crisis and the inability to
service foreign debt will make the dire situation in Cuba
even worse in 2010, according to EU diplomats. Brazil was a
bit more optimistic noting that Cuba can still withstand more
economic hardship. All diplomats agreed that Cuba could
survive this year without substantial policy changes, but the
financial situation could become fatal within 2-3 years.
Italy said GOC contacts had suggested Cuba would become
insolvent as early as 2011.

TRADE AND INVESTMENT: NO ROOM FOR IMPORT REDUCTIONS
--------------------------------------------- -------

4. (C) The GOC has responded to the crisis with calls to
further reduce imports and increase domestic production.
However, Spain argued there is little more room for Cuba to
reduce its imports after a 37% reduction in 2009 as the
increasing majority are now basic necessities like food and
animal feed. (Note: press reports February 9 that Cuba has
cut rice imports from Vietnam, its largest supplier, by 11
percent for 2010. End Note.) Exports and other sources of
foreign currency (tourism and remittances) are unlikely to
increase substantially without a dramatic global turnaround,
access to U.S. markets or an opening to U.S. tourists.
Two-way trade with China alone in 2009 fell by close to $1
billion. Regarding increasing production, the only
significant reform in the last five years, the leasing of
idle land to improve agricultural production, has little
chance of succeeding as implemented. The diplomats noted
that many of the Cubans that were granted land have no
farming experience, and the few farmers with experience have
limited access to capital, tools and markets.

STILL DEFAULTING ON TRADE PARTNERS
----------------------------------

5. (C) Payment problems continue for all countries. Despite
once again restructuring all of its official debt in 2009,
Japan has yet to see any payments. Even China admitted to
having problems getting paid on time and complained about

HAVANA 00000084 002.2 OF 004


Cuban requests to extend credit terms from one to four years.
When France and Canada responded with "welcome to the club",
China suggested Canada help secure payment from a Cuban joint
venture that includes Canadian firm Sherritt International
which is now reportedly receiving its share of profits.

AN UNWELCOMING ENVIRONMENT FOR FOREIGN INVESTORS
--------------------------------------------- ---

6. (C) Foreign investors have been treated poorly in Cuba
and new investors will demand additional protections and
guarantees, according to the French. The Chinese complained
that the GOC's insistence on keeping majority control of all
joint ventures makes no sense. "No matter whether a foreign
business invests $10 million or $100 million, the GOC's
investment will always add up to 51%," China's commercial
counselor said in visible exasperation. He noted a joint
venture to produce high-yield rice that produced a good first
harvest but was not sustainable at the GOC-mandated prices.
Brazilian investors are taking a longer term view on returns,
however, noting some success in raising capital for the
refurbishment of the port at Mariel.

MAJOR REFORMS ON HOLD
---------------------

7. (C) Despite the grave analysis, none of our contacts
foresee meaningful economic reform in 2010. Immediate reform
is neither necessary nor politically advisable since it has
the potential of being too politically "destabilizing," said
the Brazilian. Even reforms openly supported in the official
press late last year (Ref A), such as the ending of the food
ration system, are now on hold due to the initial negative
public reaction. Any discussions around Chinese-style
reforms, particularly regarding foreign investment, have been
difficult and "a real headache" according to the Chinese.
The French said the GOC will not act until its face is up
against the wall and it runs out of options, which is not yet
the case in spite of all the challenges. One cited example
of the GOC's hesitancy is that all proposals for micro-credit
programs coveted by the Ministry of Foreign Investment
require the Council of State's approval. To date, only one
small project by the Spanish has been approved with little
success.

AS VENEZUELA GOES
-----------------

8. (C) The Spanish see future reforms determined by two
factors: 1) foreign pressure that is outside of the regime's
control; and 2) domestic pressure developed after a consensus
is reached through internal discussions. All our colleagues
agreed that Venezuela is the most important and "increasingly
complicated" foreign variable. Without Venezuelan support,
the GOC would have to enact significant reforms similar to
those that enabled the regime to survive through the Special
Period of the early 1990s (Ref B), according to the Spanish.
The view from the French is that Venezuela "es en flames" and
a source of serious concern for Cuba.

THE DOMESTIC DEBATE CONTINUES
-----------------------------

9. (C) If reform is driven by domestic factors it will be
slow and hesitant. Unlike former president Fidel Castro,
Raul Castro needs the "support of the machine" to make
chnges, according to the Canadians.naul Castro's National
Assembly speech in December (Ref C) made it clear that the
GOC is in no hurry to reform, argued the Italians. The
Spanish noted that the consensus-building process likely
explains the numerous official press stories and letters to
the editor in support of some sort of economic reforms,
without the accompanying government measures. Even though
this limited but noteworthy public debate is almost always
framed in socialist and revolutionary rhetoric, many of the
articles are highly critical of current policies and propose
market-oriented reforms. The simple fact that space still

HAVANA 00000084 003.2 OF 004


exists (and appears to be growing) within Cuba for this form
of public dissent indicates that the GOC has not completely
given up on bigger reforms.

SLOW, MEASURED AND MILITARY-STYLE REFORMS
-----------------------------------------

10. (C) In lieu of structural reforms, the GOC will continue
to take small steps to increase domestic production and
reduce imports, focusing on lifting agricultural production
from its current lamentable state. The GOC has started on a
slow and steady path, according to the Canadians. "Unless
(or until) the situation becomes unstable, the government is
not going to walk any faster." An example of step-by-step
reform is the pilot suburban agriculture project taking place
in the third largest city in Cuba. A Reuters reporter told
us that he witnessed the GOC clearing land and providing
resources to private, collective and state farmers working
around the city of Camaguey. As an incentive, the GOC will
permit farmers to sell a bit more of the production directly
to consumers. The goal is to encourage idle workers to
return to farms close to the city and produce enough food to
feed the surrounding areas. The focus on local production
will also cut down on costs associated with state-run (and
thoroughly corrupt and inefficient) transportation and
storage. If successful, the GOC will replicate this project
in other cities.

11. (C) Even limited reforms could open up private sector
opportunities (e.g. permitting cooperatives to operate barber
shops, restaurants or retail stores), but in general the
military will continue to expand its influence in core
economic activities. According to the French, the Cuban
leadership believes it can transfer the successes of military
state companies that control a good part of the tourism
industry to the rest of the economy. Many of our contacts
agreed that the military is generally better regarded in Cuba
than the political institutions, and reportedly intervened
directly in the operation of flour mills earlier this year
after bread had disappeared from markets. The Italians noted
that the Agriculture Ministry is in the hands of the general
most faithful to Raul Castro in Ulises Rosales del Toro. The
French argued that the military is seizing all core economic
activities of the state. The Cuban economy is increasingly
run by military engineers that are capable of running the
day-to-day business activities, but do not have the vision to
enact reforms or lead the country out of the economic mess of
centralized state planning.

12. (C) As a result, several of our colleagues commented
that leadership of the Cuban economy is more centralized this
year. A side effect of such control is that the economic
ministries are restricting access. The French complained
that the running of the GOC's finances has shifted from the
Central Bank to the Ministry of Economy and Planning and,
with that shift, the French no longer have any access to
officials or information. A Reuters reporter said that
unlike in past years he was not granted any officials
meetings on a recent trip to eastern Cuba despite several
requests. All agreed that decision-making circles are small
and increasingly isolated.

RELATIONS WITH THE UNITED STATES
--------------------------------

13. (C) Many officials in the GOC have reconciled themselves
to the inevitability of better relations with the United
States, said the Brazilians. The Cubans involved in the
Mariel Port project have said that the project is in
preparation for the day when U.S. - Cuba economic relations
normalize. While the French see the window for improving
relations as closed after the GOC could not bring itself to
take the necessary steps, the Brazilians argued that mixed
signals from the Cuban regime are a reflection of dissent in
the power circles about whether to move ahead. Some in the
GOC objected to the U.S. role in Honduras and Haiti and
decided that better relations were not worth the risk.

HAVANA 00000084 004.2 OF 004


(Comment: the "U.S. role" according to the official Cuban
press was to support the coup in Honduras and a military
occupation in Haiti. End Comment.)

THE CUBAN PEOPLE WILL SURVIVE
-----------------------------

14. (C) In the short term, the GOC will require even more
belt tightening from the Cuban people. The Italians and
French explained that Cuba cut imports before increasing
production, which simply means there are fewer products
available for Cubans. The GOC has been clear in its public
statements that 2010 will be just as difficult as 2009 and
further savings (i.e. cuts) will be necessary. Everyone
agreed that the Cuban people could withstand more hardship,
although the Italians questioned whether further economic
tightening would end up weakening and delegitimizing the GOC
further.

COMMENT
-------

15. (C) Despite how badly Cuba needs them, significant
economic reforms are unlikely in 2010, especially with the
continued delay of a policy-revising Communist Party Congress
(Ref C). The GOC's direction and leadership remains muddled
and unclear, in great measure because its leaders are
paralyzed by fear that reforms will loosen the tight grip on
power that they have held for over 50 years. Faced with
political uncertainty regarding future Cuban leadership and
relations with the United States, the Cuban people are more
likely to endure a slow erosion of state-subsidies than a
much-needed radical restructuring.
.FARRAR