III. THE BAD DOMESTIC NEWS
This section summarizes four major domestic upsets: two hurricanes in 2004 and the worst drought in a century, the virtual demise of the sugar industry, and the electricity crisis.

A. Two Hurricanes and the Worst Drought in the Last Century
In the three years from November 2001 to November 2004, Cuba was hit by five hurricanes: Michele (2001), Isidore and Lili (2002), and Charley and Ivan (2004). The last two hurricanes caused $2.15 billion in damage: 54,325 hectares of crops were damaged; 2.4 million animals had to be moved, which also affected production particularly of pigs and poultry (800,000 chickens died); 5,360 dwellings were destroyed, and 94,896 were damaged (Rodríguez 2004).

For more than two years, Cuba has been suffering from severe drought throughout the island, now considered by Cuban authorities the worst in 103 years. In 2004, the average rainfall was 69 percent of the normal average, and, by February 2005, it had decreased to 58 percent of the normal average (27 percent in the eastern provinces). According to Cuba 's Institute of Hydraulic Resources , in March 2005, the 235 existing dams were at only 32 percent capacity; out of 73 dams used for water supply of the population, 15 had exhausted their reserves, and another 23 would be without water in less than three months. March is one of the months with less rain and, if the bad luck continues, there will be no relief until April or May. It is estimated that 4,000 km of aqueducts (equivalent to 37 percent of all national networks of water supply) are in bad shape, and the cost of repairs would be above 120 million convertible pesos. Close to 2 million people suffer from lack of water, mostly in the City of Havana , Las Tunas, Camagüey, and Holguín; 700,000 of them have to be supplied with water trucks. The government is imposing tough conservation measures, but half of the water in Havana homes is lost due to pipe and faucet leaks, and large enterprises consume 2 to 6 times more water that they need (“Casi Dos…” 2005; EFE 2005b; Juventud Rebelde , March 11, 2005). The losses due to drought in the last two years were estimated at the end of 2004 as $834 million, including 127,600 cattle dead, 53 million liters of milk, 220,000 tons of tubers, 40,000 tons of tomatoes, and 28,160 hectares of other crops lost and 39,972 hectares damaged (Rodríguez 2004).

Cuban authorities blamed, to some extent, the combination of hurricanes and a drought for the results of their disastrous agricultural policies. In 2003, there were no hurricanes, but outputs of eight key agricultural products were significantly below 1989 levels: sugar (minus) -73 percent, beef -54 percent, rice -49 percent, coffee -48 percent, milk -46 percent, tobacco leaf -36 percent, eggs -33 percent, and citrus -20 percent. The agricultural cooperatives (basic units of cooperative production—UBPCs) are not truly independent because the state largely determines what they produce and buys virtually all their output at prices set below the market price. Hence, the workers lack incentives, and a good part of the cooperatives have losses. As a result, the UBPCs control 58 percent of total cultivated land, but their share of sales in the free agricultural markets is only 4 percent; in contrast, private farmers, who control only 17 percent of cultivated land, are able to sell their output at market prices much higher than the prices paid by the state and account for 73 percent of the sales in the free agricultural markets (Mesa-Lago and Pérez-López 2005).

B. The Worst Sugar Harvest in One Hundred Years
In the period from 1994 through 2003, annual sugar output averaged 3.7 million tons, less than half the average production of the 1980s. Sugar production from the 2002–2003 harvest was 2.2 million tons (the lowest since 1933, when 2 million tons were produced) and 2.5 million tons in 2003–2004 (70 percent below the level of 1989). Causes of such dismal performance were the following: the sugarcane area harvested decreased by 33 percent and sugarcane lands under irrigation by about 40 percent; weeds expanded to cover as much as 15 percent of the cultivated area; sugarcane yields fell by 46 percent; and the industrial yield steadily decreased from 12.5 percent in the years from 1961 through 1965 to 10.1 percent in 2002. Lack of incentives was the underlying reason for such a debacle (Mesa-Lago and Pérez-López 2005). In 2003, 45 percent of the sugar mills were shut down, and the sugarcane cultivated land was reduced by 65 percent, from 2.2 million hectares to 765,000 hectares, because of low industry efficiency combined with low world sugar prices. According to the Ministry of Sugar (MINAZ), the peso cost of producing one peso per ton of sugar increased from 0.90 in 1993–1994 to 1.92 in 1997–1998, then declined to 1.16 but rose to 1.29 in 2002–2003; only in one harvest (1992–1993) was the cost below one peso (cited by Delgado 2005).

The 2004–2005 harvest was delayed from the usual start at the beginning of December to January, lasting four instead of five months. Out of the 79 sugar mills that operated in the previous harvest, only 56 functioned in the 2004–2005 harvest (one-third of the total number at the end of 2002), and six of them did not start until February. The drought particularly affected sugarcane plantations in Camagüey, Las Tunas, and Holguín, which produced one-third of the crop in 2003–2004; Pinar del Río, Villa Clara, and Ciego de Avila provinces, also important sugarcane producers, were also afflicted (“Eficiencia…” 2004). The lack of rain led to very small and thin stacks with low sugar content. But a high official of the MINAZ reported in March 2005 that the lack of sugarcane and frequently broken equipment (that provoked loss of time) were the main problems of the harvest, rather than the drought (AFP 2005; EFE 2005a; Varela 2005). In mid-March 2005, Castro and other Cuban officials estimated that the harvest would be only 1.5 to 1.7 million tons (the worst since 1905 with 1.3 million tons). Castro said, “Sugar belongs to slavery times and will never come back to this country” (AFP 2005; Castro 2005d).

The significant decline in sugar production in 2004–2005 will be the final blow to the sugar industry and will create serious problems as Cuba struggles to meet domestic needs (700,000 tons) and external commitments. In December 2004, Cuba bought 15,000 tons of sugar from Colombia and another 7,000 in February 2005. The world price of sugar is rising due to the extremely low Cuban harvest and problems faced by other large producers such as India, but Cuba will not be able to take full advantage of such high prices because a considerable part of the sugar produced has been already committed for export at prices lower than current world market prices.

C. The Electricity Crisis
In May 2004, the Antonio Guiteras thermoelectric plant in Matanzas, one of the country's major power generation plants, was temporarily shut down, reportedly for routine maintenance, and was slow to return to operation. A problem confronted by this and other plants is the use of domestically produced heavy oil with a high sulfur content. The overtaxed electric generation system was unable to cope with demands, and electricity blackouts rapidly multiplied, lasting as long as six to eight hours per day in some areas. To confront the severe lack of electricity, starting in August 2004, the government took the following measures: (1) shutting down of nonessential activities of state enterprises; (2) granting of paid leave to nonessential workers; (3) eliminating air-conditioning in state offices during peak demand hours and turning off lights early at night; (5) scheduling of irrigation activities during evening and dawn hours; (6) closing 4,000 hotel rooms in La Habana, Varadero, Cayo Largo del Sur, Las Tunas, Trinidad, and Santiago; (7) shutting down 188 factories during October, including the largest steel mill (for 220 days), sugar mills, paper producers, and citrus processing plants; and (8) reducing the length of the workday by 30 minutes (three hours weekly) for four months, which ended on February 28, 2005 (Mesa-Lago and Pérez-López 2005).

The electricity crisis cost more than 200 million pesos. The government did not report overall industrial output at the end of 2004 but acknowledged that it “was affected.” Output decreased or was stagnant in 12 out of the 20 industrial lines, the generation of electricity declined by 1.4 percent, and 120,000 tons of steel were lost—problems that forced the importation of many goods (Rodríguez 2004). Minister of Basic Industry Marcos Portal, a relative of the Castro family who had held that post since the early 1980s and was considered one of the country's top leaders, lost his job because of the electricity crisis. In October, he was blamed for character flaws and errors in judgment, including a failure to alert the top leadership of the party and the government of “the risks associated with a crisis that could have been prevented... and has forced the nation to undertake urgent and costly measures..."

In March 2005, Castro publicly answered two among 26,000 opinions collected in reaction to his announcement that 100,000 pressure cookers would be sold to the population (the price of the cooker, “a gift from the Commander in Chief,” is 150 pesos, tantamount to 55 percent of the average monthly salary). The first question was whether cookers would not increase electricity consumption in the midst of conservation measures. He responded that a government study had shown that energy savings in the use of kerosene would be greater than the electricity used by the cookers. The second question was how the people were going to use the cookers with constant electricity blackouts. Conceding that this was a good question, Castro promised that by the second quarter of 2006 the installed capacity for electricity generation will be so great that there will be no risks of shortages, unless incidents occur such as the U.S. invasion of Cuba or Venezuela or the assassination of President Chávez, but he warned that no illusions should be harbored. He also asserted that electricity rates would not be increased in the future “except to the self-employed and similar enterprises that consume more than the average family” (Castro 2005c; 2005d).

IV. BAD OR GOOD EXTERNAL NEWS?
This section analyzes three external events that have unambiguous results: the new U.S. government restrictions on travel and remittances to the island versus an opening of the embargo that has allowed Cuba to become the third largest U.S. food importer within Latin America; the reestablishment of normal relations with the European Union, tied to a “fortified” relationship with the dissidents and apparently a halting of economic aid; and the potential entry of Cuba into Mercosur facilitated by the new Uruguay government but blocked by the island's lack of democratic institutions.

A. U.S. Government Restrictions vis-à-vis Openings in the Embargo 

1. The Restrictions: Adverse Effects Not on the Government but on the People
In June 2004, the U.S. government enacted a series of restrictive measures regarding travel to Cuba and sending remittances and parcels, supposedly intended to cut resources and weaken the Castro regime, as follow: (1) family visits are restricted to one per year for a maximum of 14 days and permitted only for visits to immediate relatives; (2) a maximum of 44 pounds of baggage is allowed to visitors, the daily allowance per person for dollars to cover food and lodging was cut from $164 to $50, and the previously permitted imports of US$100 in currency per visitor have been abolished; (3) remittances may be sent only to the immediate family (the $1,200 annual limit was not changed by these measures); and (4) gifts parcels are restricted both in frequency and commodities authorized (U.S. Department of Commerce 2004). In addition, the United States tightened travel to Cuba masked as educational or religious. There is evidence that such policies have not significantly harmed the Cuban government but have made life even more difficult for the people, while the embargo has been significantly eroded by the opening of food and medicine exports from the United States to the island.

In the last 44 years, the U.S. embargo has failed to overthrow the Castro government. Nor will the restrictions enacted by the Bush administration be successful either in weakening Castro or the Cuban economy. For starters, the estimate of about $1 billion in foreign remittances sent to Cuba annually has been exaggerated: one scholarly study based on the U.S census and a recent survey conducted by Florida International University indicates that they do not surpass $400 million per year (see details and sources in Mesa-Lago and Pérez-López 2005). Due to the travel restrictions, the number of U.S.-Cuba flights decreased from 118,938 from July through December 2003 to 50,558 from July through December 2004, and the numbers of Americans going to the island decreased between 50 percent and 70 percent. (Among Cuban Americans, the decrease is reported only as 38 percent, despite the official limitation of trips from three to one per year, suggesting that this group is circumventing the law by traveling through third countries.) And yet, U.S. citizens constitute only 4 percent of total visitors to Cuba ; half are from Canada and most of the rest from Italy , the United Kingdom , and Spain . We have seen that in 2004 a record 2 million tourists visited the island and generated more than $2 billion in gross revenue; a 12 percent increase is forecast for 2005. There is no information on whether the maximum amounts of currency allowed to those who travel to the island—that would have required careful checking of each passenger—have been enforced. Controlling for remittances being received only by immediate relatives probably has failed because it would have required that agencies doing the transfer check the relationship of recipients with the donor. Actually, money can be sent to an immediate family member who, in turn, passes it to non-immediate relatives. It is equally impossible to guarantee that travelers do not spend more than $50 daily unless visitors are followed to ensure that they do not spend more than that sum.

The U.S. restrictions have had adverse effects not on the Cuban government but on the people on both sides of the ocean, stimulating illegal travel, increasing its costs, and obstructing but not impeding visits. In the meantime, Castro and the top leadership have not been affected in the least by the new measures, as they continue to enjoy good food, access to medicines, and privileged health care in the armed forces' hospitals. Instead of unleashing aggressive countermeasures against Washington (like a massive boat exodus), Castro took advantage of the restrictions to justify an increase from 10 percent to 35 percent in prices of goods sold at hard currency shops (Tiendas de Recuperación de Divisas—TRD) in Cuba, hence tightening one more hole in people's belts. Apparently, he does not fear that hunger will incite rebellion. Furthermore, Castro has blamed the U.S. administration for the island's abysmal economic performance. Allowing Cuban Americans to visit Cuba and to send remittances and packages of food and medicine to their relatives and friends there were the most effective actions undertaken by the U.S. government to reduce the Cuban people's animosity toward the United States , which then started the needed reconciliation and fomentation of civil society values and actions on the island. Those humanitarian and family ties have done more to erode the Castro regime than 44 years of the U.S. embargo, but the recent restrictions may have revived resentment within the people toward the United States and Cuban exiles.

2. The More Flexible U.S Embargo
In contrast with the above restrictions, in 2000 the U.S. Congress approved an act that modified the trade embargo, allowing direct exports to Cuba of food and small amounts of medicine, provided they were paid for in cash. Initially, the Cuban government rejected that opening because it wanted to buy on credit but changed its stance after the agricultural losses caused by Hurricane Michelle and with a clever strategy to soften the embargo. From the end of 2001 to February 2005, U.S. merchants and farmers sold Cuba $1.26 billion in agricultural products, making the United States the number-one supplier of such products to the island and Cuba the third largest U.S. food importer within Latin America . In 2004, at the same time the Bush administration's restrictions were imposed, such sales increased by 25 percent and reached a record $392 million; by February 2005, $340 million had already been contracted (“Declaración…” 2005; Cancio 2005).

In 2004, three important actions took place that expanded trade and other business between the United States and Cuba: (1) the U.S. Senate Appropriation Subcommittee on Agriculture voted unanimously to approve a bill making it easier for U.S. companies to market agricultural and medical goods to Cuba by removing case-by-case license requirements and allowing a general license, under the argument that the current restrictions are not hurting Castro but U.S. farmers; (2) the House of Representatives approved two proposals to facilitate trade and student travel to the island without scrutiny, although it rejected a proposal to “weaken the embargo”; and (3) for the first time, the U.S. Department of the Treasury granted authorization to an American corporation in San Diego to license the technology for development of a package of three anti-cancer vaccines, developed by the state Center for Molecular Immunology in Havana.

The Cuban government has used the lure of trade to require U.S. exporters to sign letters committing themselves to lobby in favor of lifting the U.S embargo and restoring economic relations between the two countries. In a few instances, U.S. exporters refused to go along and lost the opportunity of a sale, but most of them complied with the Cuban government's request. Buying U.S. products, therefore, not only reduced Cuba 's costs due to lower prices of goods and transportation, but also became a useful tactic to weaken the embargo. John Kavulich, president of the U.S.-Cuba Trade and Economic Council, established in 1994 to promote trade between the two countries and advise U.S. companies exploring business opportunities in Cuba, resigned in March 2005, blaming Cuban political tactics (surprisingly, he was repeatedly denied visas by the Cuban government instead of permits by the U.S. government); U.S. obstructions; and the unscrupulous behavior of some U.S. “two-bit hustlers” (San Martín 2005).

On February 22, 2005, the following new trade rules were enacted by the U.S Treasury Department's Office of Foreign Assets Control (OFAC), to be implemented on March 24: (1) Cuba can no longer pay after receiving U.S. imports but must pay cash in advance before the merchandise leaves U.S. ports and (2) OFAC is empowered to shut off U.S. exports exceeding certain limits. The reaction against these measures was immediate: 38 powerful agricultural and export organizations asked President Bush not to change the status quo because their businesses would be damaged. Twenty senators from both parties in six states threatened to block any Treasury Department nominee who requires Senate confirmation, unless these new rules are suspended, and they sent a bill to overturn them. The senators also joined in an initiative to facilitate sales even more, including direct banking transactions, allowing Cuba to pay accounts directly to U.S. banks without third country intermediaries, and simpler permits for Americans to travel to Cuba for business purposes, as well as for Cuban officials to travel to the United States to inspect merchandise for buying. Cuba's trade agency (Alimport) alleges that paying cash in advance could allow U.S. courts to seize merchandise being sent to Cuba; hence, Alimport threatened to halt U.S. imports until safe conditions are restored (“Declaración…” 2005). In order to circumvent these risks, the Cuban government has been resorting to the use of credit letters from foreign banks to pay for U.S imports, but this is costly.

B. Conditional Normalization of Relations with the European Union
In December 2000, Cuba was accepted by the Asian, Caribbean, and Pacific (ACP) countries of the European Union (EU) as a member, which is a requirement for Cuba to enter the Cotonou Accord and be eligible to receive aid from the $15.5 billion development fund of the EU, established to help ACP countries. However, Cuba 's entrance to the Cotonou Accord was halted in response to EU countries' support of resolutions from the UN Commission on Human Rights that censured Cuba for repressing dissidents. In December 2002, Cuba formally applied to join the Cotonou Accord. Negotiations started immediately, and the EU Commissioner for Development and Humanitarian Aid visited the island in March to advance the negotiations and open an EU diplomatic delegation office in Havana . Five days after the commissioner's departure, the Cuban government detained 75 peaceful dissidents and gave them jail sentences from 6 to 28 years. The EU demanded freedom for the prisoners; closed its office in Havana; suspended Cuba's entrance to the Cotonou Accord; imposed political sanctions on the Cuban government, including banning high ranking EU officials from visiting Cuba and participating in its cultural affairs; but invited dissidents to EU embassies on national day celebrations. In response, Castro accused the EU of being a “little band of gangsters shamefully serving the Nazi-fascist government of the United States ,” and the Castro brothers led demonstrations in front of the Spanish and Italian embassies in Havana and insulted the chiefs of government of both nations. On June 5, 2004, the EU unanimously approved a “Common Position,” condemning the Cuban government and reiterating the demand for the release of the 75 political prisoners and an end to the repression of dissidents (Mesa-Lago and Pérez-López 2005). A resolution of the European Parliament on November 17, 2004, ratified the Common Position, called again for the release of Cuba 's political prisoners, and condemned the expelling of three European parliamentarians who had landed at the Havana airport in an attempt to meet the dissidents.

In response to the EU's actions, Castro froze relations with embassies of all EU countries, banned Cuban officials from attending receptions where dissidents were invited, and virtually paralyzed EU diplomats in Cuba . With the March 2004 election of President José Luis Rodríguez Zapatero, Spain led an EU effort to change the status quo; on the other side of the ocean, the Cuban government “temporarily” paroled 14 of the 75 imprisoned dissidents for “health reasons” but warned that they could be re-incarcerated if they did not behave properly. After months of negotiations within the Committee on Latin America and among member countries, on January 31, 2005, all foreign ministers of the EU signed the Declaration of Brussels, normalizing relations with Havana, under the following terms: (1) disposition to reopen a constructive dialogue with Cuban authorities geared to obtain tangible results on political, economic, human rights and cooperation areas; (2) continuous encouragement of human rights and demanding the “urgent” and “unconditional” liberation of all dissidents; (3) although dissidents are no longer invited to national day celebrations, the EU promises to “develop more intense relations with the peaceful political opposition and with wider sectors of Cuba's civil society through a fortified dialogue”; and (4) the new policy will be revised in July 2005.

Former Czech President Vaclav Havel encouraged the EU to avoid engaging dictatorships but instead to support human rights and the dissidents; he also asked the new EU members from Eastern Europe not to forget their tragic experiences with totalitarian governments. Human Rights Watch urged the EU to avoid normalizing economic relations with Cuba until Castro liberates all dissidents and implements the needed human rights reforms (Brand 2005). It seems that the EU will withhold all economic aid to Cuba until the results of the new policy are evaluated (Calzón 2005).

In a repetition of his confrontational actions in 2003 that aborted Cuba 's entry into the Cotonou Accord, one day after the EU declaration, Castro stated, “Cuba does not need Europe, has learned how to live without it.” Cuban dissident Vladimiro Roca noted, in an open letter to the EU, that he had predicted Castro would ignore the EU's efforts and ridicule democratic governments (Marin 2005). The European Parliament asked Cuban Minister of Foreign Relations Felipe Pérez Roque, during his visit to Strasbourg , that Cuba make opening gestures in reaction to the EU normalization of relations. Pérez Roque refused to make such a commitment (he said: “I have not come here to pass a test”), but suggested that if the 25 members of the EU do not vote against Cuba in the UN Human Rights Commission in Geneva, the Cuban government could sign a pact with the EU on economic, social, and cultural issues, such as prisons and electoral systems (EFE 2005d; “La Habana…” 2005). If the EU complies with this demand, it would be going against the promises of the Brussels Declaration.

On the other hand, according to a the director of foreign policy for Latin America of the Spanish Chancery, the “fortified dialogue” will include the following activities: (1) every six months the EU ambassadors will meet collectively with the dissidents; (2) every month EU political and human rights advisors will meet the dissidents; (3) periodically, EU human rights advisors will meet with relatives of political prisoners; and (4) high EU officers who visit the island must raise the issue of human rights with Cuban authorities and meet with dissidents (Reyes 2005). On March 21, 2005, 12 EU ambassadors in Havana held their first meeting with Cuban dissidents. The latter requested that the EU include the liberation of imprisoned dissidents in its negotiations with Castro, but the ambassadors did not make a commitment. Some of the dissidents attending the meeting reacted positively, while others remained skeptical (EFE 2005e).

C. Entry into Mercosur?
The Southern Common Market (Mercosur) has four full members: Argentina, Brazil, Paraguay, and Uruguay; six countries are associate members: Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela. President Jorge Battle of Uruguay had vetoed Cuba 's entry into Mercosur and also broke diplomatic relations with Cuba because he was upset by Castro's insults following Battle 's support of the 2004 U.N. resolution criticizing Castro's violations of human rights. After the new Uruguayan President, Tabaré Vázquez, took office, he reestablished relations with Cuba , and Castro formally again requested entry into Mercosur as an associate member. An important obstacle, however, was that Mercosur's charter requires all member countries' full operation of democratic institutions, and decisions traditionally have been done by consensus. The chancellor of Uruguay thought that this requirement was only demanded from full members, but Mercosur's legal advisors informed him that it also applies to associate members. By the end of March 2005, when this paper was finished, Cuba 's entry was strongly criticized by the two traditional political parties in Uruguay , now in opposition; the presidents of Paraguay, Colombia, and Peru also opposed Cuba 's entry into Mercosur. Hence, the issue is virtually dead.

In contrast, Brazil , a full member of Mercosur, has helped Cuba economically on a bilateral basis. At the end of 2004, Brazil provided a credit, of an undisclosed amount, at 2.5 percent interest to Cuba for buying food (Castro 2004b). In February 2005, the two countries signed economic and trade agreements on energy, technology, education, and health. Brazil increased imports of Cuba 's pharmaceutical products, the state oil corporation PETROBRAS was expected to start oil explorations in the island, and could possibly become associated with Venezuela 's PDVSA to build a factory to produce lubricants in Cuba . Most surprisingly, Brazil promised to advise the Cubans on how to produce alcohol from sugar as a substitute for gasoline for vehicles, now obviously an impossible task in view of the virtual demise of Cuba 's sugar industry.

V. ECONOMIC RECENTRALIZATION AND CUTS IN THE PRIVATE SECTOR
Cuba 's timid market-oriented economic reforms implemented from 1993 through 1996, which introduced some decentralization of decision making and a small but vibrant private sector, were virtually halted in 1996. A reversal of the reforms began in 2003 and was strengthened from 2004 to 2005, with drastic recentralization measures in economic decision making and further reduction of the small private sector. The new policies were preceded by the demotion of key architects of the reforms: Minister of Economics and Planning José Luis Rodríguez was removed from the Council of State in March 2003 and replaced by Ramiro Valdés, the hard-liner formerly in charge of internal security; Minister of Finance and Prices Manuel Millares was dismissed in June 2003; Minister of Basic Industry Marcos Portal was fired in October 2004. The reasons for the demotions were given by José Ramón Machado Ventura (member of the political bureau of the communist party) in October 2004, when he criticized both “those who have copied capitalist methods so well that they have become capitalists themselves” and the “liberalism, lack of control and tolerance” that are affecting the entire country (cited by Frank 2004).

A. Recentralization Measures

1. Banning of Operations in Hard Currency by State Enterprises
This measure, enacted in July 2003, ordered all operations of state enterprises to be conducted in convertible pesos, all hard currency such enterprises had or received in the future from exports must be sold to the Central Bank of Cuba (Banco Central de Cuba—BCC), and hard currency needed for imports must be approved by the BCC. The criteria for making decisions to approve or reject individual transactions have not been released. State enterprises must pay from 1 percent to 2 percent of the value of hard currency they buy to the BCC (“Resolución 65” 2003). Controls on dollar accounts of foreigners have also been tightened and checkbooks withdrawn to force them to go to banks personally to conduct their business.

2. Central Control of Imports
Cuba 's Minister of Foreign Trade Raúl de la Nuez stated in March 2004 that commerce is being recentralized from state enterprises in order to control imports. The Ministry of Foreign Trade (MINCEX) has retaken control of exports and imports that were delegated to state enterprises and is organizing committees to regulate and approve foreign trade transactions, as well as a committee to buy goods for duty free stores after branches of foreign firms performing this function were closed. In March 2004, MINCEX reduced from 43 to 10 the enterprises authorized to import videos and cancelled the permits of 61 enterprises to import computers and their components. At the end of the year, 19 enterprises and units that had been decentralized from MINCEX since 1999 were eliminated.

3. Prohibition of State Enterprises to Provide Hard-Currency Services
In April 2004, the government prohibited state enterprises from conducting 87 types of services that they used to provide as side businesses to earn hard currency, in order to control those operations directly and obtain the corresponding revenue, which is needed to finance imports (“Circular 2000” 2004).

4. Single Hard-Currency Account at BCC
At the end of 2004, the government ordered all hard currency income received from any source—such as payments, taxes, and contributions—by state enterprises (including the Cuban part in mixed companies and joint ventures) to be deposited in a single hard currency account established at the BCC. The previous practice of enterprises of a state entity transferring hard currency for internal distribution has also been banned; now such funds must be deposited in the BCC's single account (discussed at the beginning of this section, V. A.1). Before any transaction, state enterprises must request permission from the BCC Committee of Hard-Currency Approval (CAD) to obtain hard currency and convertible pesos to pay for their obligations, as well as to buy equipment, raw materials, and so on. Cuban banks are prohibited from processing any transaction in hard currency or convertible pesos not previously approved by the CAD. Any lack of control or discipline will be sanctioned (“Resolución 92” 2004).

5. Control of Checks in Convertible Pesos
State enterprises are ordered to get permission from the BCC-CAD to sign checks for more than 5,000 convertible pesos. Checks on convertible pesos for payment to third parties cannot be endorsed but must be deposited in banking accounts. Companies and banks cannot accept payments or deposits unless they have been approved by the BCC. Sanctions similar to those against checks without funds will be imposed on violators (“Resolución No. 10” 2005).

6. Recentralizing Tourist Enterprises and Tight Controls on Tourism Personnel
In the fall of 2004, the government placed four decentralized state tourist companies directly under the control of the Ministry of Tourism (MINTUR). In January 2005, the following draconian regulations were enacted that applied to 100,000 tourist workers in their relations with foreigners: a ban on receiving gifts, donations, lodging, invitations to meals and parties, fellowships or trips abroad, and use of cars—without previous government permission. All gifts must be immediately reported in writing to the immediate supervisor who will decide what to do with them; electronic and video equipment will be kept by MINTUR. Tourist employees shall restrict their relations with foreigners to those strictly necessary; conversations and negotiations with foreign partners must be conducted in the presence of one witness (a euphemism for an internal security agent); employees must be discreet with information they have and not disseminate anything that could be sensitive; they must abstain from expressing ideas harmful to the government, be loyal to state politics, report in 72 hours any contact from a foreigner not related to work issues or contrary to revolutionary morale, and exert permanent vigilance on any potential action that could damage state interests. Gifts given by Cubans to foreigners in Cuba or abroad must be authorized by the MINTUR minister himself (“Resolución 10” 2005).

7. Approval of State Enterprises' Weekly Budgets
Beginning on February 21, 2005, state enterprises are prohibited from conducting foreign transactions without authorization from the BCC. All enterprises must prepare weekly budgets in advance, specifying all their planned purchases, as well as water, electricity, and other inputs; these budgets must be approved by the BCC.

8. System to Control Economic, Financing, and Accounting Activities
A system of integral management that controls all economic, financing, and accounting activities (ASSETS) was applied to 401 state enterprises and agencies by March 2005. The system keeps strict control of material and financial means and automatically registers all accounting transactions in the two monetary units, hard currency and convertible pesos, exactly at the time they take place (Calzadilla 2005).

9. Control of Purchase and Repossession of Vehicles
The Ministry of Finance was empowered in March 2004 to control the purchase of all automobiles in hard currency. The only acceptable applicants for purchasing vehicles are government officials, technicians, university professors, artists, and athletes, and they must prove that they have earned the hard currency from state work in the previous two years (“Resolución 54” 2004). Managers of state enterprises were simultaneously forced to turn in “luxury cars” (for example, Toyotas) to the state, and inspectors confiscated forbidden vehicles.

10. Further Reduction of the Small Private Sector
The practice of self-employment by state officials, administrators, and members of the military was banned in March 2004, and, in October, permits were cancelled and new licenses halted to 40 self-employed occupations previously authorized, including clowns and magicians, activities that the government says it will aptly perform in the future (“Resolución 11” 2004). The number of self-employed workers shrank from 208,500 at the end of 1995 to 149,990 in 2003, and certainly fewer in 2004. Due to the high cost of licenses, taxes, and government harassment, most small restaurants ( paladares ) have closed, and many people who rented rooms to tourists have returned their licenses (Pérez Oliva 2005). Despite those declines, in 2005, Castro criticized the “exorbitant prices” charged by self-employed workers, owners of paladares , and independent taxi drivers (Castro 2005a). Furthermore, in March 2005, Castro (2005e) asserted the need for government control of products and prices in the free agricultural markets.

B. Causes of the Recentralization Measures
Castro initiated the return to recentralization at the launching of “the Battle of Ideas,” a comeback to the emphasis on consciousness and voluntarism typical of previous idealistic cycles, such as the Revolutionary Offensive of the second half of the 1960s and the Rectification Process of the second half of the 1980s (see Mesa-Lago and Pérez-López 2005). The reasons given were corruption, the need for control and discipline, commitment of errors, and restoration of revolutionary morale (flaws that led to the dismissal of two cabinet ministers), as well as U.S. threats to the Cuban economy. In October 2004, Castro reported that 3,000 Cuban officials could operate using hard currency, a practice that had been eradicated. In February 2005, Castro hailed the “dishonorable expelling of the dollar” and proclaimed that Cuban sovereignty had been reinforced, as Cuban funds deposited in foreign banks cannot be seized by the U.S. government and added: “The state is experiencing a rebirth like a Phoenix Bird, with long-wings in its flight,” state control will increase even more, leading to the solution of all problems and reduction of inequalities between those who have access to dollars and those who do not (Castro 2005a).

In his report on the state of the economy to the National Assembly at the end of 2004, Minister Rodríguez said that Castro's principles, immersed in the Maximum Leader's Battle of Ideas, would be applied to the economy, which sounded ominously reminiscent of Chairman Mao's Red Book and the recanting of so-called reformist errors during the Cultural Revolution in China . In his leadership of Cuba 's recentralization reform, Castro then emphasized the need for more discipline instead of self-financing in hard-currency, in order to avoid “errors” that deplete central resources. And yet, Castro's previous experiments in centralization, such as the 10 million ton sugar harvest in 1970 and the self-sufficiency food plan in 1986, consistently led to grave errors and economic crises. Rodríguez cited some progress in strengthening management rigor and centralizing decision making; he justified the banning of hard currency operations, stating that the decentralization of hard currency had gone further than planned and had begun to result in unnecessary expenses. “Although the economic reordering policies of 2004 raised the capacity to confront the existing difficulties, they are still insufficient and more centralization is needed” (Rodríguez 2004). Minister of Finances and Prices Georgina Barreiro (2004) informed the National Assembly that in 2005 the recentralization policies would be extended to all municipalities in the country.

Probably the most important explanation for this recent economic recentralization is the decision of an ageing and sick Fidel Castro to secure a tight transition to leadership for his brother Raúl and the Communist Party after his death. The earlier decentralization of economic decision making into the hands of thousands of managers and the tiny but dynamic private sector, which amounted to hundreds of thousands hands, involved a tremendous risk that some would resist totalitarian control.

C. Effects of the Recentralization Measures
Cuba 's past history shows that in stages when economic centralization was enforced, its results were rigidity and inefficiency, with adverse effects on production and services (Mesa-Lago 2000). A Cuban economist has warned that this will occur with the recent recentralization wave (González 2003). The banning of operations in hard currency reduced the flexibility of state enterprises, caused delays in their operations, and resulted in lost opportunities; many negotiated deals were cancelled, and creditors could not collect payments. The single hard currency account at the BCC has created significant delays in buying needed imports, as well as in paying the legal 1 percent in convertible pesos to Cuban workers in the sugar, basic, and transportation industries.

Recentralization policies have also affected tourism and other activities. Hotel managers have complained that the elaboration of weekly budgets forces them to estimate how many rolls of toilet paper, light bulbs, and tomatoes will be needed during the following week, robbing them of considerable time that could be used to take care of their guests. Tourism officials are severely disadvantaged as they try to conduct business with foreign partners, due to the absurd restrictions imposed on their relationships. The recentralization measures have contributed to the reduction in the number of active joint ventures, from 540 in 2000 to 342 in 2003, and should have an adverse effect on the flow of foreign direct investment that declined by 77 percent over the period from 2000 through 2002 (Mesa-Lago and Pérez-López 2005). In the past, restrictions or tight controls have not worked. For example, when the state parallel market was shut down in the second half of the 1980s, the black market flourished (see section VI-B-2 of this paper).

See Introduction, Chapters I and II
See Chapters VI, VII and Conclusions

Octubre 20, 2005
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