PATTERN DEVELOPING IN ANNOUNCED "CHANGES"

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000325 SIPDIS SIPDIS E.O. 12958: DECL: 04/18/2008 TAGS: CU ECON PGOV PHUM SUBJECT: PATTERN DEVELOPING IN ANNOUNCED "CHANGES" REF: A. HAVANA 257 ¶B. HAVANA 279 ¶C. HAVANA 284 ¶D. HAVANA 288 Classified By: COM Michael E. Parmly for reasons 1.4(b) and (d) ¶1. (C) Summary: The announcement of a change in housing policy once again piqued interest in the international press, but that and other changes seem to be fitting a pattern: i.e., they formalize existing practices, they facilitate rather than loosen control, they lessen the bureaucratic burden of doing so on the GOC, and they exacerbate divisions in Cuban society. The most important, and the most difficult to define, policy change may be taking place in the agricultural sector and in the rumored mergers of ministries. End Summary. ¶2. (C) International news sources trumpeted a formal GOC decree that appeared to offer Cubans the opportunity to gain title to their home. In fact, Resolution 71/08, which is dated March 10, 2008, only applies to "associated" housing. "Associated housing" (vivienda vinculada) is essentially company housing assigned to employees as part of their employment with state enterprises, such as in the sugar industry. In many cases it is located in what are really company towns constructed to house workers. These workers always had the possibility of gaining "title" to the property after 5 or 20 years depending on their conditions of employment. (Irrespective of this measure, Cubans are still unable to have "title" to any property in the sense that term is understood in the U.S. and elsewhere. This has not changed.) What Resolution 71/08 does is to decentralize and simplify a process that already existed by devolving that authority to the provincial as opposed to the national level of the Ministry of Housing. As such, its main benefit is to the GOC, which will now need fewer steps and therefore fewer employees, to process transfers of such property. This measure could conceivably be used to liberalize the "titling" of personal housing in the future, but it would not be necessary for such a step to happen, nor does it clearly presage such a step. ¶3. (C) While Cubans may not "own" their homes in the same sense that we do, there is still a lively real estate market and home improvements are made frequently. Lawyers and the filing of formal papers are involved, along with the exchange of significant sums of money--much of its dedicated to bribes. But these transactions or "permutaciones," are not recognized legally for what they are. If the regime were serious about boosting the economy, it might move to legalize these transactions and begin to create the basis for some personal wealth. Such a step is not likely in the foreseeable future, however. A USINT officer with real estate experience recently visited the house of her Spanish language teacher and reported the following: "I visited the home of my Spanish instructor, who is adding a 2nd and 3rd floor to her home for her grown children. I was invited to look at the finished 2nd floor property and the unfinished 3rd floor property. To my surprise, when I looked at the 2nd floor flat, it was not just remodeled in a manner to be livable but it was actually charming and very similar to a small city flat in any European capital. Finished with Italian marble tiles, etched wood doors, hand crafted wood furniture carved by Cuban carpenters, with two partially covered and open patios with plants and outdoor furniture, it was turned out very well by any standard. Of course, they admitted everything was bought on the black market, and they have paid fines to the government for building without the required permits. Then, the young couple (who have never been outside of Cuba) started to talk to me about the potential market value for such a flat in Madrid or the U.S. They quoted approximate dollar and euro prices for such living quarters that were within the ballpark of the true costs." ¶4. (C) With this latest announcement, some clear trends seem to be developing. Each new "liberty" simply formalizes practices that already are taking place either outside the law or on the margins of the law. By bringing part of the process into the formal sector, e.g., by selling cell phone contracts or electronic goods, the regime takes options away from the black market, identifies the purchasers of such goods, and collects the proceeds itself. As in the case of Resolution 71/08, most of these measures decentralize management and, therefore, reduce bureaucracy at the top. If HAVANA 00000325 002 OF 002 there is a price to pay in terms of the revolution itself, it is in the fact that these measures really affect only a very small percentage of the population--those with access to convertible currency. One hotel manager told us that the opening of hotels to Cubans under the terms of the GOC's new guidelines makes the inequality that always existed much worse. Some Cubans were always able to beat the system and get into a hotel. But now, only those who are capable of paying up to four times as much as a European tourist can afford to do so, since the hotels are required to charge Cubans the maximum allowable hotel rate at all times. ¶5. (C) More important changes may be taking place in the agricultural sector, but these are much harder to determine in the short term. Nothing about those changes has been published formally, but we have heard anecdotally about the nature of many of the changes (REF A). We have received further reports that cooperative lands are being broken up to be assigned to individual farmers for their use and management (though farm prices and production quotas continue to be set by government decree). There is not enough evidence to make a solid prediction about the ultimate direction the agricultural sector will take, but changes in agricultural policy are a necessary first step to any broad economic reform in Cuba. Another possibility mentioned by Raul Castro is the consolidation of ministries. Cuba is even more afflicted with ministerial creep than its most inefficient neighbors. There are as many as four or five ministries dedicated to industry, for example, when Cuban industry is virtually non-existent. Cuban observers with whom we have spoken point to the merger of ministries, if it takes place, as the best indication that Raul Castro is really getting serious about reforming the island since the impact on patronage would be devastating. PARMLY