Cuba Approves Law Promoting Foreign Interest : Latin America: Passage of the bill marks a large step for the socialist nation toward a free-market economy.

In one of its sharpest breaks yet from socialist dogma, the Cuban government Tuesday approved a law greatly increasing the role of foreign investment in the battered economy and allowing creation of free-trade zones.

The law, passed after two days of sometimes heated debates in the National Assembly presided over by President Fidel Castro, opens the way for foreigners to wholly own business and property and allows foreign investment in every sector of the economy except the strategic areas of education, health and national defense. It also guarantees that foreign properties cannot be expropriated without compensation and speeds the process of approving proposed investments.

Passage of the bill marks a large step for Cuba toward the Vietnamese and Chinese models of socialism--a one-party state with strong elements of a free-market economy. The evolution constitutes a clear departure, at least for foreigners, from the Soviet-style socialism in which the state has controlled most of the land and means of production since shortly after the triumph of Castro’s revolution in 1959.

In recent speeches, Castro has praised the Vietnamese and Chinese systems and promised “broad and radical measures” to revive the economy, which has been in a tailspin since the collapse of the Soviet bloc in 1989. Over the past three years, the government has gradually opened some sectors of the economy, principally tourism and mining, to foreign investment through joint ventures.

But foreigners could only own up to 49% of any joint enterprise and could not invest in the vital sugar industry or other important economic sectors. Cuban officials said there are currently 212 joint ventures, worth about $2 billion, operating in Cuba.

Tuesday’s measures are intended to expand that. Now foreigners can own all of a business, in almost any sector of the economy. They can own houses and land. The change also allows for free-trade zones, where foreigners can set up assembly plants to use Cuban labor and attract capital and technology.

Economists and diplomats said the latest opening will lessen state control over large sectors of the economy, which could lead to further changes in the system. For the moment, however, most Cubans are to remain employed by the state, directly or indirectly. And Cubans are not allowed to purchase or operate businesses, or hire other Cubans.

“I think we are going to see very few businesses that are wholly foreign owned,” Castro said. “It is in the interests of the country to maintain an important participation.”

Nevertheless, taken together with other measures that the Cuban government has adopted in the past two years, the Cuban economy is starkly different from what it was when the Soviet bloc collapsed. Since July, 1993, the government has authorized the free circulation of the dollar, allowed farmers to sell a portion of their produce in free markets, turned most state-owned farms into cooperatives that have to be self-sustaining, closed unprofitable factories, and slashed state subsidies and authorized self-employment in a limited number of areas--where about 200,000 people now work.

“What we are saying is that the market is fundamental for the future of Cuba,” said Omar Everleny of the Center for the Study of the Cuban Economy, a think tank here that receives some state funding. “The state has to stop administering in many areas and give a role to private initiatives and foreign capital.”

Everleny, who helped draft some of the legislation, said that, with the latest law, Cuba has taken a large step toward setting up the legal framework to make foreign investment both safe and profitable in Cuba.

However, the government, under fire from some of its hard-line members for moving too quickly toward a market economy, said the new law did not mean Cuba was giving up its Marxist revolution. Because of the debate over how far the measures should go, passage of the bill was held up for several months. Approval originally was predicted no later than June.

“This law regulates and opens broad avenues for foreign investment,” said Ernesto Melendez, minister of foreign investment. “But it is not inspired by neo-liberalism, and its goal is not a transition to capitalism. It is an opening to defend and develop socialism, and that fact is not hidden by our government.”

Foreign businessmen and analysts here said that in addition to opening up the economy for full foreign ownership and legally laying out the rules of the game for operating in Cuba, one of the biggest advances was cutting through the red tape that has made doing business here cumbersome.