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FACTBOX-Key political risks to watch in Cuba

Mon, 5 Mar 2012 16:41 GMT

Source: reuters // Reuters

By Jeff Franks

HAVANA, March 5 (Reuters) - Government efforts to encourage private enterprise as it cuts back the size of the state, and the health of Cuba's main ally, Venezuelan President Hugo Chavez, are the key political risks to watch in Cuba.

ECONOMIC REFORMS

With several of its major economic reforms now in effect, the government appears to be trying out others regionally before making them national policy. They include private management of state-owned food outlets and more flexible rules for farmers leasing state land.

The government wants to slash a million jobs from its payroll and encourage more private initiative. It has already turned many non-food small businesses, nationalized since the 1960s, over to employee cooperatives.

It is encouraging self-employment, with more than 362,000 people now working for themselves. Economy Minister Adel Yzquierdo Rodriguez has said 170,000 state jobs would be cut in 2012 and as many as 240,000 new non-state jobs added.

The government hopes to have up to 40 percent of the island workforce of 5.2 million in non-state jobs by 2015.

President Raul Castro has made reform of Cuban agriculture a top priority and the state, which owns 70 percent of the country's land, has leased 3.5 million acres (1.4 million hectares) to 150,000 farmers during his administration.

In an indication that the reforms may be kicking in, the National Statistics Office said agricultural production, excluding sugar, rose 8.7 percent in 2011, compared to a 2.5 percent decline in 2010. [ID:nN1E81FO15]

But the cash-strapped country is still producing less food than it did in 2005 and food prices shot up nearly 20 percent last year. [ID:nL2E8CVDBW].

President Castro told the National Assembly that Cuba expects to spend $1.7 billion on food imports in 2012.

As part of his campaign to make government more effective, the Council of Ministers approved the creation of the Ministry of Energy and Mines and the Ministry of Industries to replace the Ministry of Basic Industry.

Castro also continues to emphasize the importance of his crackdown on corruption, which has closed three foreign firms and sent some of Cuba's top executives to prison. Anti-corruption videos are now being shown to state companies. [ID:nL2E8DMO9O]

What to watch:

- The pace of reforms and their consequences.

- The development of small businesses.

- Agricultural production and food prices.

FINANCIAL HEALTH

Castro said the economy grew 2.7 percent in 2011 and is expected to rise 3.4 percent in 2012.

Cuba drew a record 2.7 million tourists in 2011, bringing in revenues of about $2.3 billion. Travel experts say tourism, fueled in part by a rising number of Americans, has boomed this winter and shown the need for more hotels to accommodate the industry, which is a top hard currency earner for the country. [ID:nN1E80L01C]

Despite troubled economies in Europe and the global spread of anti-smoking laws, increased luxury spending boosted sales of Cuban cigars by 9 percent to $401 million in 2011, worldwide distributor Habanos S.A. said. [ID:nN1E81QO37]

Cuba is heavily indebted and still recovering from a liquidity crisis that led to a default on payments and freezing of foreign business bank accounts in 2009. [ID:nN24211495]

Castro told the National Assembly that accounts for foreign suppliers to Cuba had been unfrozen and steps taken to prevent the problem from happening again.

Hopes that reforms would bring more foreign investment have been slow to materialize, but Brazilian company Odebrecht said it would sign a contract to help Cuba improve its troubled sugar industry. One executive said the deal would include ethanol production. [ID:nL2E8CU1F2]

What to watch:

- Resolution of outstanding short-term debt.

- Signs of increased foreign investment interest.

OIL PLANS

The Chinese-built rig Scarabeo 9 is drilling the first of three exploration wells in Cuba's part of the Gulf of Mexico. [ID:nL2E8D2EIN] The well, begun in late January, is expected to take about 60 days to complete.

Spain's Repsol YPF and its partners plan to drill two wells and Malaysia's Petronas and its partner, Russia's Gazprom Neft, will drill another, all this year and with the same rig.

Cuba depends on imports from its oil-rich ally Venezuela, but says it may have 20 billion barrels of oil offshore. The U.S. Geological Survey has estimated 5 billion barrels.

Beatriz Johnson Urrutia, vice president of the provincial assembly in eastern Santiago de Cuba, told reporters a doubling of the capacity of the oil refinery there, announced in 2008 and to be backed by Venezuela, still has not happened.

What to watch:

- Results of Repsol's exploratory well.

FOREIGN RELATIONS

Pope Benedict XVI is scheduled to visit Cuba in late March, with expectations for a fairly low-key visit consolidating improved church-state relations on the island.[ID:nL6E7NC3I6]

Venezuela's Chavez, a loyal ally whose government provides 114,000 barrels of oil a day and investment to Cuba, returned to Cuba in late February following a recurrence of cancer discovered in his pelvis last year.

He said he was recovering well [ID:nL2E8E16UR]. In 2011, after surgery and chemotherapy, he declared himself cancer free [ID:nN1E79J13X] but experts said then it was too soon to tell.

By providing oil and taking on other projects with Cuba, Chavez has helped the island emerge from the dark days of the so-called "special period," after the 1991 collapse of its former top ally and benefactor, the Soviet Union.

If Chavez were unable to continue in office or to run for re-election this October, it could threaten the flow of aid, which would be a devastating blow to Cuba.

Among other things, Venezuela financed the laying of a fiber optic line between it and Santiago de Cuba with the plan to provide high-speed Internet for the island. It still is not working, said provincial vice president Johnson Urrutia, calling the cable an "investment that is in process."

U.S.-Cuba relations, which thawed briefly under President Barack Obama, have been frozen by the imprisonment of U.S. aid contractor Alan Gross. [ID:nN1E7AT2CK] He is serving a 15-year sentence for providing Internet gear to Cuban Jews under a U.S. program promoting Cuban political change.

A document reported to be the court's sentence said Gross knew the political aims of his work and tried to hide it from Cuban authorities despite his claims to the contrary. [ID:nL1E8CL0D8]

U.S. Senators Patrick Leahy and Richard Shelby discussed Gross with President Castro during a visit to Havana in late February. [ID:nLeE8DO5UR] (Additional reporting by Marc Frank; Editing by Kieran Murray)