U.S. Adopts Hands-Off Cuba Policy : Cold War: Officials think the Castro regime, with Soviet aid dwindling, will sink by itself.

TIMES STAFF WRITER

Senior U.S. officials have concluded that the Cuban economy is now in a free fall, its prospects growing grimmer by the day. But they have decided not to put new pressure on Cuban dictator Fidel Castro in an active effort to topple him quickly, Administration sources say.

Instead, President Bush will pursue a "watch-and-wait strategy," convinced that Castro's regime will crumble of its own accord now that Soviet economic aid and military support are ending. "The ball is not in our court," said one senior Administration official. "The ball is in Fidel's court. I don't think you will see a radical review of U.S. policy toward Cuba."

The decision to refrain from squeezing Havana comes at a pivotal moment because the Communist island-state--one of the most consistently irritating adversaries in the Cold War for U.S. Presidents dating to John F. Kennedy--is more vulnerable today than at any time in three decades.

Not since Castro was struggling to consolidate his revolutionary grip on the island has he been so exposed. With Soviet economic aid and military support ending, the Communist leader who once exported revolution throughout Latin America has been reduced to relying on oxcarts and bicycles.

But to crush him, U.S. officials have concluded, risks upsetting the far more important apple cart of peaceful transition in Eastern Europe and the Soviet Union. They acknowledge that the Cuban regime may now retrench and avoid collapse soon.

The Administration's conditions for improved relations with Cuba are the same as Bush outlined last May, when he said he would extend the hand of friendship only "if Cuba holds fully free and fair elections under international supervision."

So far, Castro has shown no interest in holding elections or building better relations with Washington. His response to Cuba's economic decline has been a Draconian austerity program backed by the slogan, "Socialism or death."

With Soviet President Mikhail S. Gorbachev's announcement this week that Soviet troops will be withdrawn from Cuba and with Soviet economic aid declining rapidly, U.S. officials believe that Castro's real options are liberalization or death. The Administration's policy is to give Castro plenty of time to make that choice.

Nevertheless, some government analysts believe the death throes of Cuban communism will be prolonged. By substituting oxen for tractors and bicycles for cars, and by shifting agricultural production from cash crops such as sugar to subsistance farming, the Cuban people will face plenty of hardship but probably not starvation.

Castro's army cannot survive indefinitely without Soviet military aid, the analysts say. But it can last quite a time because the withdrawal of most Cuban troops from Africa left the force with an equipment surplus that can be used or cannibalized for parts.

For most of the last 32 years, Castro's regime has done its best to antagonize the United States--sending arms and advisers to leftist insurgents throughout the Western Hemisphere and subverting U.S. policy in Africa by dispatching combat-hardened troops to Angola and Ethiopia. Even more troublesome, Cuba has been a potential Soviet military base just 90 miles from the U.S. mainland.

With the collapse of communism in the Soviet Union and Eastern Europe, Havana seems far less threatening. Cuban troops have been sent home from Africa. The disintegrating Soviet Union is ending its military and economic support. And Cuba's own economic problems have eroded its capacity to support anti-government rebels in El Salvador and elsewhere.

But Castro's mounting woes have not engendered sympathy in Washington, which is determined to pressure Havana until the Cuban government joins the worldwide swing to democracy.

Wayne Smith, former chief of the U.S. diplomatic mission in Havana, thinks the Administration's continuing hard line is a mistake. He contends it is time to ease up a bit. "This business of trying to isolate Castro is counterproductive," Smith said. "You can only bring about change in Cuba without bloodshed with Castro (cooperating).

"People in Cuba understand the need for change, but almost any government reacts badly to being told from abroad what it must do," he added. "Why should we do that any more? Cuba is no longer a problem. The Cuban troops are out of Africa; the surrogate wars in Central America are over; the Soviet troops are out."

There can be no doubt that the U.S. economic embargo has aggravated Cuba's economic distress. But the biggest blow to Castro's economy is being delivered by his former friends in Moscow.

U.S. analysts say that Soviet support for Cuba began to decline about three years ago, when Gorbachev determined that his struggling economy could no longer afford to subsidize Cuba at the rate of $5 billon a year. Soviet payments to Cuba were something less than $3 billion last year and declined further during the first part of this year. Since the failure of the coup against Gorbachev, Soviet subsidies seem to have dried up entirely.

Despite Moscow's budget pinch, the largest Soviet electronic listening post outside of the borders of the Soviet Union is in Cuba, making Havana an important intelligence asset for Moscow. The cuts in aid to Cuba were far less extensive than the cuts in Soviet support for other client regimes, U.S. analysts say.

Still, U.S. analysts are watching closely to see if Moscow will give up the listening post at Lourdes.

The powers that be in the reconstituted Soviet Union may be less concerned with maintaining a facility to spy on the United States than they are with obtaining economic aid from Washington.

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