At the height of the Cold War, Cuba's soldiers became a
legend on the island when they punched through enemy lines, defeating South
Africa's army in Angola. Today Cuban generals are applying capitalist
tactics to try to improve bottom lines in businesses that range from growing
beans to running hotels and airlines.
Cuba's Revolutionary Armed Forces rent rooms to tourists
through Gaviota SA, the island's fastest-growing hotel conglomerate. They
sell premium cigars, peddle consumer goods through an island-wide retail
chain and serve lobster dinners at the Divina Pastora restaurant in Havana's
landmark Morro Castle. The military also has a say in allotting nickel mines
and leasing offshore lots for oil exploration. The University of Miami's
Institute for Cuban and Cuban-American Studies estimates that soldiers
control more than 60% of the island's economy.
The military's economic role will likely become even more
critical after the death of Cuba's ailing 80-year-old leader, Fidel Castro,
who is widely believed to be dying of cancer. Although Mr. Castro has
steadfastly opposed economic reforms during his 47-year communist regime,
his younger brother and anointed successor, Raúl, has shown a deep interest
in free-market experiments in the past. As defense minister since the 1959
revolution, he has frequently looked to the military as his laboratory.
With Raúl and the military at the helm of the economy, Cuba
could be poised to follow what islanders call the "Chinese model" of
liberalization. That means carefully experimenting with market incentives in
one of the world's few remaining communist economies, while trying to retain
tight political control. It's far from clear that a Raúl Castro government
could accomplish a Chinese-style transformation. For one thing, China isn't
located just 90 miles from the U.S. and a wealthy community of exiles
looking to reshape their home country along American lines. And the military
could move to extend monopolistic control -- and opportunities for
corruption -- after Fidel's death, squelching any competition.
But the seeds of economic reform in Cuba may be planted
more firmly than many suspect. One piece of evidence: Raúl has traveled to
China a number of times to study Beijing's economic policies and in 2003 he
invited the leading economic adviser to then Chinese premier Zhu Rongji, who
played a leading role in opening up China to foreign trade and investment,
to give a series of lectures in Cuba. Fidel Castro, who deeply opposes
reforms, was a notable no-show, says Domingo Amuchastegui, a former Cuban
intelligence officer who now lives in the U.S. and keeps close tabs on
political developments on the island.
In the 1990s, Raúl sent officers, who had previously
trained at prestigious Soviet military schools, to learn hotel management in
Spain, and accounting in Europe, Latin America, Asia and Canada, says Mr.
Amuchastegui. For a time, business books such as "In Search of Excellence"
by Tom Peters and Robert H. Waterman became required reading for ambitious
officers looking to advance in the ranks, says Eugenio Yañez, an economist
who taught management to army officers at Havana's Superior Institute of
Raúl, now 75, also adopted capitalist-style accounting and
management incentives to run military-owned factories that made everything
from uniforms to bullets. In some cases, workers were given incentive pay.
Modest by Western standards, these reforms, called "perfeccionamiento
empresarial" -- loosely translated as "entrepreneurial improvement" -- were
nevertheless cutting-edge for Cuba.
For most of his career, Raúl Castro was considered a tough,
even brutal, communist whose hand, as he put it, "didn't tremble" in 1989
when he ordered the execution of a former close colleague deemed a danger to
the regime. Some analysts don't think he has changed much since then. "He's
a Stalinist," says Jaime Suchlicki a Cuba analyst at the University of
Miami, who predicts Raúl will resort to more repression after Fidel dies.
In recent weeks, speculation has grown about Fidel's health
problems. The longtime dictator temporarily relinquished power on July 31 to
Raúl after announcing he had undergone surgery for intestinal bleeding.
After rumors of his death swirled in Havana, the Cuban government released a
video on Oct. 28 showing a gaunt and aged Castro in a track suit. U.S.
officials believe Mr. Castro has some sort of stomach or colon cancer. With
his brother incapacitated, Raúl has taken a blustery communist line. "When
the U.S. says there should be a transition in Cuba, they mean a shameful
return to the neocolonial garbage of capitalism they imposed on this country
for 60 years," Raúl told an audience of government union leaders in
But many Cuba watchers believe those statements are meant
to give political cover to Raúl, who has become more pragmatic as he has
aged, and has been searching for ways to improve Cuba's dismal economic
performance, especially after the Soviet Union ended its subsidies in 1990.
Between 1989 and 1993, Cuba's gross domestic product fell 35%, while the
island's foreign trade slumped by 75%, says Carmelo Mesa-Lago, professor
emeritus of economy at University of Pittsburgh.
As living standards plummeted, Havana residents ate many of
the city's cats. An epidemic of optic neuropathy, caused by deficiencies in
nutrition and resulting in temporary blindness, struck down some 35,000
Cubans. For Raúl, economic security became a critical part of national
security. "Beans are more important than cannon," he told troops in 1994.
Desperate to cut costs, Raúl slashed the military from
about 300,000 troops in 1990 to some 45,000 today, according to Frank O.
Mora, a Cuban military expert at the National Defense University in
Washington. To revive the economy, he pushed innovations such as farmers
markets and self-employment for plumbers, hairdressers and other small-time
At the time, Fidel Castro reluctantly allowed the changes,
because Cuba had little alternative. The Castro brothers appointed military
and intelligence officers, who were their most trusted and unswervingly
loyal supporters, to court foreign capital. Col. Gustavo Loret de Mola, an
electrical engineer by training, was named deputy minister of communications
and negotiated Cuba's first cellphone deal, with a Mexican company, in 1991,
says his son, Camilo Loret de Mola. He helped the military recruit foreign
tenants for Soviet-built bases that were turned into duty-free zones.
The experiments sometimes flopped. In 1998, the younger Mr.
Loret de Mola says he persuaded a Spanish entrepreneur to start a travel
agency and hydroponics vegetable farm inside the cavernous helicopter hangar
at a former submarine base in the port of Mariel. The businessman only
managed to send a few flights of cucumbers and tomatoes on Aerogaviota, an
airline owned by the Cuban armed forces, before the farm went out of
business. "When he had workers to harvest the vegetables, he couldn't get a
plane, when he could get a plane, he couldn't get workers," says Mr. Loret
de Mola, who now sells insurance in Miami.
By 2000, some 1,400 state companies out of about 3,000 were
being evaluated for or being run under "perfeccionamiento" management
techniques, according to Philip Peters, a former U.S. diplomat who is now a
director of the Lexington Institute, an Arlington, Va., think tank. A
manager of a tire plant told Mr. Peters in 2001 that using such techniques
had tripled profits in just two years. While far from a free-market reform,
Mr. Peters believes that the military has laid the groundwork for further-reaching
reforms in the future.
Another success: The military found foreign joint-venture
partners for Cuba's moribund citrus industry, which almost collapsed after
losing its markets in the Soviet block. Today, citrus is an important export.
Cuba's most important citrus company is a joint venture with Grupo BM, an
Israeli firm that operates a 115,000-acre farm that grows grapefruit using
state-of-the-art drip irrigation techniques.
An International Monetary Fund study in 2000 said the
limited reforms pushed by Raúl were "instrumental" in helping turn the
economy around in the mid-1990s. But then Fidel Castro clamped down on
reforms, arguing that they were sullying the revolution. Now, Cuba relies on
about $2 billion annually in fuel subsidies provided by Venezuela's populist
president Hugo Chávez, and hundreds of millions of dollars of Chinese
investment in Cuban nickel mines.
With reforms out of fashion, Cuba since 2004 has canceled
business and management courses funded by the European Union, Sweden and
Canada, which together trained more than 1,300 high-ranking Cuban officials
in capitalist management techniques. Free-trade zones emptied, while the
number of self-employed Cubans as well as foreign joint ventures fell
But the military's own economic empire has continued to
grow. Today, the military's web of companies are run by the Grupo de
Administración Empresarial SA, or the Business Administration Group. Known
by its Spanish acronym Gaesa, the group is headed by Deputy Defense Minister
Gen. Julio Casas Regueiro. The group's deputy head is Col. Luis Alberto
Rodríguez, Raúl Castro's son-in-law. The group is run from offices on the
fourth floor of Cuba's defense ministry, according to Mr. Mora of the
National Defense University.
Gaesa's most important business is Gaviota, the tourism
company. Gaviota, which means "sea gull," began by turning officers' clubs
and navy bases into resorts. Now it has about 8,500 rooms out of Cuba's
total of 40,000 hotel rooms. Many of its hotels are luxury four- and five-star
establishments managed by companies such as Spain's Sol Melia and France's
Gaviota also owns the domestic airline, Aerogaviota, which
uses Cuban air-force pilots who fly refurbished Soviet transport airplanes.
The company even organizes tours for military enthusiasts who want to visit
the island's colonial forts and the no-man's land surrounding the U.S. naval
base in Guantanamo, says retired Col. Hal Klepak, Canada's former military
attaché in Havana, who has written a book on the Cuban military. Gaviota
also rents cars, runs marinas, manages gourmet restaurants and operates an
attraction that allows tourists to swim with dolphins, according to a recent
study by the Spanish Institute of International Trade.
Generals also occupy top management slots in the country's
economic ministries. Gen. Ulises Rosales del Toro, who was named Cuba's
sugar czar in 1997, shut down two-thirds of Cuba's 156 antique sugar mills
in 2002 and is still trying to revive production, which reached a 100-year
historic low of 1.3 million tons this year. Other generals run the civil
aviation, fishing, telecommunications and transportation ministries. A
colonel is in charge of Habanos SA, a joint venture with the Spanish firm
Altadis, which markets the country's famous cigars abroad. Another colonel
runs the tourism ministry.
The military has the power to cut bureaucratic red tape
that stifles other Cuban state entities that want to engage in business,
says Mark Entwistle, a former Canadian ambassador to Havana who now advises
foreign companies in Cuba. In 2004, he says that a Canadian business that
wanted to grow soybeans on the island was having a hard time getting
permission through the ministry of agriculture. But once the Canadians began
dealing directly with the military, the red tape vanished. "The military has
a whole unit devoted to doing joint ventures in agriculture," says Mr.
Entwistle. "There was zero ideological content, it was 100% business."
Giving the armed forces a critical role in running the
economy has helped the Castro brothers reward their supporters and gives
them a stake in the preservation of the regime. But it has also introduced a
corrupting influence in the military that could worsen if the military's
role expands further in a post-Fidel Cuba. A number of high-ranking "entrepreneur
soldiers" have already been dismissed and sometimes jailed for corruption.
The military also faces potential dissension within its
ranks: Soldiers involved with foreign joint ventures, who live far better
than others in the military, are viewed by many officers with distrust and
envy, analysts say.
Another problem sign is what Ricardo Pascoe, a former
Mexican ambassador in Havana, calls the rise of the "juniors" -- the sons of
high-ranking military officers who often live abroad and enjoy privileges
undreamed of by ordinary Cubans. During his time in Havana from 2001 to
2003, Mr. Pascoe says, many Mexican businessmen complained to him that the "juniors"
charged commissions for contracts through their fathers.
Mr. Mora of the National Defense University believes that
if unchecked the "juniors" could become the kernel of semicriminal mafias
that could dominate much of the economy if Cuba liberalizes its economy.
Instead of China becoming the model for Cuba, he says, Raúl Castro could
inadvertently turn Cuba into a Caribbean version of oligarchic, post-Communist
Write to José de Córdoba at