Nouveau Riche Cause Castro Grief

Stepping out of the 40-year-old powder blue Ford he drove from his 12-acre farm to his 12-seat roadside restaurant an hour from Havana, Julio Larralde was the picture of Cuban prosperity.

At the restaurant door, he pushed back his cowboy hat to drain the rain that had puddled in his brim. He then shared some wisdom he had learned in two years as an independent farmer and eight months as a restaurateur.

“The problem with money is not easy,” he confided. “One would like for everyone to be equal, but that is not possible because everyone does not work equally. We all want the same benefits, but we are not all the same.”

Once as close to heresy as one could come in atheist Cuba, that philosophy of capitalist inequality is spreading across this island almost as rapidly as the government can sell business licenses.

In just a few years, dreams of wealth have replaced visions of a classless society.

Cubans at all levels feel angry and betrayed.

The rich are angry because big-ticket imported goods such as new autos are still rationed so that the best they can buy is a car brought in before the 1959 Revolution. The poor are angry because they cannot even afford vegetables.

This anger has paralyzed President Fidel Castro’s regime, leaving it afraid to go forward with economic reforms and unable to go back to an economy based on foreign subsidies that disappeared when the Soviet Union collapsed in 1991.

Without those subsidies, Cuba was plunged into five years of economic free-fall that ended only when Larralde and others like him were allowed to open businesses. Along with joint-venture companies--partnerships between the government and foreign private capital--they were the engines that drove the economy forward by 2.5% last year despite the worst sugar harvest in 50 years.

But no one is thanking them.

With their newly acquired jalopies, fat bank accounts and ambition, the nouveau riche--independent farmers, small-business owners and the well-paid employees of international corporations--have created huge income disparities. This gap has permitted money to pile up in the bank accounts of a few savers while most Cubans struggle from paycheck to paycheck.

The result is a surprising concentration of wealth.

After 37 years of socialism, Cuba is threatening to once again become a society of rich and poor. And Cubans are finding that to escape poverty they must rely on their own ingenuity, not wait for the government.

As a result, an estimated 1 million of Cuba’s 3.4 million workers earn their living in the private sector--mainly in the 208,000 licensed family businesses.

“They are the embryo of a future political opposition in this country,” predicted Pedro Monreal, a researcher at the American Studies Center in Havana.

That potential opposition is far larger than the 100 or so human rights activists who now occasionally embarrass Castro abroad.

They also are harder to dismiss as marginal malcontents because they are the backbone of Cuba: veterans of the war in Angola, volunteers who harvested sugar cane, small farmers, widowed mothers and young adults who were educated, nursed and fed by the revolution their whole lives.

Fear of this potential opposition is why Castro slowed the pace of reform despite the clearly favorable results for the economy, analysts said.

Officials have announced that 1996 will be a year for “consolidating” the changes that began in 1991 after three decades of Soviet subsidies stopped.

Consolidation does not mean turning back, economists argue.

Castro, they say, cannot crush budding free enterprise as Josef Stalin did in the Soviet Union.

“There are those who aspire to go back to the way things were,” Monreal said. “Officials talk about a return to normal as if it were normal to have a big [Russian] bear giving you everything. That is not normal unless we find another Santa Claus.”

Spendthrift Antics

But Cubans such as Pablo Leon, 48, a bicycle tire repairman in Havana, recall how abruptly an earlier experiment with quasi-capitalist farmers markets ended two decades ago.

“I don’t think this will last,” he said. “Those of us with our little stalls will just be hounded out of business.”

Then he added the Cuban verbal shrug, “Pues, bien . . . . “ (“But, well . . .”)

One of the most compelling arguments for a crackdown on money-making is the spendthrift antics of the newly rich.

For a $10 cover charge--a month’s wages for a factory worker--they mix with foreign tourists and their dates on the crowded dance floor of El Cafe Cantante (The Singing Cafe), where speakers as tall as customers blare salsa off the walls of a concrete cave.

“Oh yeah, that’s where the rich kids hang out,” said a taxi driver, pulling around the back of the stately National Theater to the cafe’s basement entrance. The line outside is mainly couples, with the best-dressed and best-known quickly whisked inside.

The regulars are the beginning of a new social class, Monreal said.

“They are overwhelmingly white, well-educated and under 40,” people who do not remember the discrimination and inequality that characterized Cuba before Castro took control in 1959, he added.

They are people such as Ariel Bardanca, 22, marketing director at the Spanish-owned Melia Cohiba Hotel.

Nearly every Sunday, he treats his friends to bowling for $2.50 a game at the Havana Country Club.

“We like the service,” Bardanca said between bites of pizza as he waited for one of the two lanes to open.

He got his job through a work-study program when he was 18.

U.S. Dollars Abound

Foreign corporations are supposed to pay Cuban employees in pesos. But executives of foreign companies usually seem to have dollars--as do cab drivers, hotel maids and waiters.

Close to $500 million--including remittances from relatives abroad--circulate in Cuba, economists estimate, equal to all the pesos in all the wallets and bank accounts on the island.

Cubans with access to dollars have created their own economy-within-an-economy.

What they buy is superior to what their dollar-less comrades can afford. They eat in paladares--privately owned restaurants, usually in homes, with menus priced in dollars.

Ordinary Cubans plunk down a month’s pay to rent wedding finery for 220 pesos--about $11 at the recent exchange rate of 20 pesos to the dollar--and “Sweet 15” dresses for about 25 pesos from a state-run store. The lace and dotted-swiss concoctions are created in the store’s back room.

Odelis Fuentes, 22, took one look at the state store couture and ran straight to Casa Elsa, where brides with $25 or more can rent satin and seed-pearl dresses from Miami.

Her fiance, Alexis Favelo, 29, owns a popular cafe, La Orquidia, and can well afford her choice: a silky gown with a sweeping train.

Elsa Rodriguez said that a fifth of her customers marry foreigners and that most of the rest are engaged to Cubans who own businesses.

She tries to keep her prices within customers’ reach, mainly by practicing what economists call price discrimination.

“You have to calculate quickly whether the bride is marrying a foreigner--and if he’s a foreigner, how much money he has,” she said.

Rodriguez and her daughter, now 6, were struggling on her monthly widow’s pension of 350 pesos--about $17.50--when a friend in Miami asked how she could help her take advantage of the opportunity to open small businesses.

Rodriguez asked her to send wedding gowns. She started with three dresses six months ago and now has a $2,000 inventory.

In a good month, she makes about $850. Most of that goes into inventory. But what is left over has made a big difference, she said: the difference between having and not having dollars.

Cubans with dollars can shop at what once was the “diplomatic store” in Havana’s Miramar district, a sort of embassy row.

These days, more Cubans than foreigners wander the aisles in the complex of boxy buildings. Gone are the barbed wire and guarded gate where diplomatic passports were checked.

Still, on most days, the dollar requirement keeps out Agueda Gonzalez. A widow with six sons, four still at home, she indulged in the luxury purchase of light bulbs at 75 cents but observed that a friend really bought them.

“If not, I would not have any,” she said. She does not bother to mention that peso stores have been out of bulbs for months.

Now her hopes are on her 25-year-old son, a dancer who earns 148 pesos--about $7--a month.

“That doesn’t go anywhere,” she said, “but he auditioned for a tour to Spain, and they will pay him in dollars. That would change our lives. I don’t want luxuries, just what I need to live. I don’t want a color television. I just want to buy my son shoes when he needs them.”

Pues, bien . . .

Embargo Woes

What used to be just living has become luxury for many Cubans.

Trying to recover part of their old standard of living, they often run into a problem that Nelson Perez calls the domestic embargo, a reference to the U.S. embargo of Cuba.

The shoe shortage that irks Gonzalez looked like an opportunity to Perez, a retired shoemaker who served two tours in Angola and volunteered 15 times for the backbreaking labor of cutting sugar cane with a machete.

Two years ago, when family businesses were authorized, he paid 45 pesos for his business license--about $2 at current exchange rates--from his 174-peso monthly pension and became an independent cobbler.

Then he found out why there are no shoes. There is no leather or heavy thread or commercial-grade glue for sale legally.

“These geniuses in charge of self-employment should have first created the right conditions . . . an honest way to buy raw materials,” Perez said.

He and his neighbors in a converted guest house in Havana’s once-fashionable Vedado district became entrepreneurs not because they wanted to get rich but because they lost their jobs.

Crowded into tire repairman Leon’s living room, long ago the home’s maid quarters, they sip rum and speak longingly of the 1980s.

Back then, Leon was a Linotype operator at a youth newspaper. He made enough to build a loft addition to his one-room apartment, and on paydays he took his wife, Virtudes, dancing at the garden restaurant of the Hotel Victoria.

Then a newsprint shortage hit, shrinking the paper to a weekly and leaving Leon out of a job five years from retirement. Recalling the tire repair skills he learned as a boy, he rented a porch on a main boulevard for one peso a day. Now he makes about 400 pesos a month, compared to his 247-peso salary as a Linotype operator, but it does not go as far.

“I spend it all just on food,” he said. As for the Victoria, he added, “who knows when we’ll ever go again?”

Pues, bien. . .

Closed Factories

Cubans never noticed that their lifestyle was based on subsidized imports because what their government purchased abroad was raw materials. The finished products that they bought were made in Cuba at big, centrally planned factories--which now have almost as much trouble finding raw materials as Perez did.

Many of those plants are mothballed, their workers laid off.

The ones still operating have changed drastically, in ways that explain why Cubans without dollars find store shelves bare. Factories price most of their output in dollars because they cannot pay for imported raw materials if they sell goods in pesos at government-controlled prices.

That is not only true for manufactured goods. The food shortage mocks the ration books that entitle Cubans to buy groceries in state stores at government-fixed prices.

The hitch is that the stores have almost nothing to sell.

Shoppers who want vegetables must go to the agromarket, where they can find almost anything they want--at the seller’s offering price. Or they can haggle.

The agromarket is the place where the real money is being made in Cuba these days.

Minuscule by the standards of most Latin American farmers markets, they offer the magic of variety. Carrots for 8 pesos a pound. Chinese cabbage at 12 pesos a pound. Pork and chicken, but never, openly anyway, beef, which remains a government monopoly.

Cuban society is divided into those who cannot afford to shop at the agromarket, those who can and those who sell. Pablo Gonzalez Barrios is among the few in that last, privileged caste.

From the four-acre farm near Guanabacoa where he was born 47 years ago, he sells 22 kinds of produce in three Havana agromarkets, splitting profits with the middlemen who tend the stalls. Four men work for him, earning 20 pesos a day, good wages by Cuban standards.

Gonzalez served in the army for four years, then worked as a mechanic for the state. He took over the farm six years ago when his grandfather died.

“My only regret is that I didn’t do it sooner,” he said, strolling among rows of parsley and bok choy on a nippy morning.

One of the top producers under the old cooperative system, when all goods had to be sold to the government, he switched to the private market as soon as it became legal in 1994. He, his wife and three daughters each have bank accounts of more than 20,000 pesos.

“We do not live badly,” he said.

But he would like to live better and cannot. He wants, for example, to take his wife to Miami on vacation but cannot convert his pesos to dollars and believes that he would be denied a visa.

He plans to buy a pre-revolution vintage jalopy, but what he really wants is a new Russian Lada, “a car that no one else has ever driven.” The imported Ladas are assigned by the government, and he is ineligible.

“I cannot buy what I want with my money,” he lamented.

That, economists say, is why a few Cubans have so much saved, with 14% of savers controlling 80% of the money in bank accounts.

“Cubans save money not because they are thrifty or want to invest it or buy something but because there is nothing to spend it on,” Perez said.

Excess Money Supply

The immediate result, he explained, is that farmers have no incentive to increase production, which would lower prices and allow more Cubans to buy vegetables in the agromarket.

The longer-term effect is an accumulation of money--an excess money supply--that could easily turn to inflation if not managed properly.

Perez’s solution is to persuade farmers to invest in expensive capital goods, such as tractors, and make some high-priced consumer goods, such as mattresses, more available.

But treating that money like normal capital, which can be invested, creates other problems, Monreal said.

“You can legally be rich in Cuba,” he said, “but a lot of these fortunes are illegal.”

Many of the current fortunes were made by selling privately before the agromarkets became legal, he explained, “and what signal does that send to the Cuban people?”