Despite US Coercion, Cuba Dips Toe Into Capitalist Zones

If Cuban authorities have their way, this quiet port an hour west of Havana will soon become a center of international commerce, the first free-enterprise zone in this Communist country.

Manuel Pacheco, a technician in the town of 20,000, can't wait.

"For 30 years we've had a Soviet-style economy," he said, sitting in a rocking chair on his porch. "Now we need to have elements of capitalism in order to solve our problems."

Today, the country's economic health depends on foreign investment. But US pressure, especially the Helms-Burton Act, which targets foreign investors in an effort to force democratic reforms in Cuba, has begun to take a toll on an economy already made stagnant by President Fidel Castro Ruz's policies and the loss of trade with ex-Communist nations.

To avoid collapse, Cuba has moved in recent years to allow foreign investment, self-employment, and the possession of dollars.

The proposed free-enterprise zone for foreign investors and traders is the latest evidence so far of Cuba's move toward a mixed economy. But a dependence on foreign investment has made the Castro government more vulnerable.

Despite continuing American pressure, Cuba has little choice but to continue to try to attract foreign investment, which has reached $2 billion, according to official statistics.

The acceptance of free-trade zones - once seen as a symbol of capitalist exploitation - suggests the extremes to which Cuba is now willing to bend its communist principles in its attempt to woo foreign investors.

Under the Law for Free Trade Zones and Industrial Parks, approved last month by the Cuban legislature, maritime, commercial, and industrial zones are being considered. Companies that set up factories in free-trade zones will be granted the right to ship raw materials into Cuba, assemble them using Cuban labor, and export them tax free.

With a highly educated work force and basic wage of about $10 a month, the Cuban government is confident that the proposal will take off. Mariel residents say that the government is planning to build a massive complex of warehouses, shops, and factories. Cuban officials, meanwhile, have kept mum about their plans.

BUT questions remain whether investors will flock to Cuba, given the economic climate created by the Helms-Burton Act. Congress passed it after Cuban MiGs shot down two civilian planes in February. The law targets foreign investors in Cuba who profit from properties expropriated from American citizens or companies after Castro took power in 1959.

"The Helms-Burton law will slow our economic growth, but it will not push back our recovery," Cuba foreign relations official Carlos Fernandez de Cossio said.

Mariel, made famous after the 1980 Cuban boat lift named after it, is perhaps the community most directly affected by the new law. An enormous cement factory on the outskirts of town has been closed for over a month since Cementos Mexicanos, or Cemex, pulled out of its $80 million joint venture with the Cuban government in response to the US law.

Felix Ordaz, one of about 900 idled cement workers, sat in Mariel's plaza drinking a soda. Despite the problems at the cement plant he said he was convinced of Cuba's need to continue to attract foreign investment. "We're going to maintain socialism here," he argued. "But you have to adapt it to the new realities."

Last week, Dutch banking and insurance company ING, which provided financing for Cuba's sugar industry, announced that it too was pulling out of Cuba.

Executives from at least four other foreign companies with investments in Cuba have received US State Department letters informing them that they will not be granted US visas unless they cancel their investments.

Cuba's economic changes began with the collapse of its trading partners in the former Soviet Union and Eastern Europe. The Center for American Studies, a think tank in Havana, says the Cuban economy shrank by 45 percent between 1989 and 1993.

Confronting economic ruin and widespread hunger for the first time since the 1959 revolution, the Cuban government implemented a series of economic reforms beginning in 1990. It opened some sectors of the economy to foreign investment. By 1994, the government also began to ease restrictions on self-employment and decriminalized the possession of dollars.

By the beginning of 1996, 200,000 Cubans from electricians to farmers were earning their living in Cuba's incipient private sector. The government also opened a series of dollar-only stores, and with food and consumer goods more readily available the value of the dollar dropped from 150 Cuban pesos in 1993 to 23 today.

In a speech in April, Ral Castro, the president's brother and leader of the Cuban armed forces, acknowledged that economic liberalization has had serious political costs. "Self-employment can generate many negative effects," he pointed out. "It can constitute the breeding ground for the subversive work of the enemy."

But technician Pacheco is more optimistic about Cuba's ability to create a new kind of socialism that can accommodate capitalism. "If you have more and I have less we're still comrades," he said. "Nobody can change that."