The Cuban Kid Jude Wanniski January 19, 2000

To: Bob Novak
From: Jude Wanniski
Re: Elian Gonzalez

In the 30 years of our friendship, Bob, I have never, ever seen you so irrational as you have become over the Cuban kid. I'm glad you at least acknowledge that you are fanatical on the matter -- insisting you know what is best for him, and that our government should approve of his kidnapping. The reason, you say, is that Cuba is a totalitarian government, and that any kid is better off living here with his aunts and uncles than he is back home in Havana, with his father and both sets of grandparents. It does not seem to bother you a bit that the Immigration Service has concluded the boy's father is a good, honest fellow who actually looked after the boy with more care and better sense than his mother -- who drowned at sea with her boyfriend while risking the boy's life as well. Pat Buchanan, who wants to lift the Cuban embargo, seems to line up with the fanatics in the Cuban exile community regarding the boy, although he did indicate on Face the Nation that if the boy's father comes to the states and picks up his son, he would be satisfied that the boy should go home with him. I gather the Cuban government has no objection to that idea either, but our Justice Department has warned against him coming. The fear is that the right-wing fruitcakes in Congress would throw a loop around him, the way the left-wing loonies in the United Kingdom have kidnapped Chile's Pinochet.

Can you explain to me, Bob, what makes you so adamant when it comes to Fidel Castro and the Cubans? On every other subject but this one, you are able to keep your head. Maybe it is primordial, an impulse from pre-civilized days when warriors of one tribe sought to capture the young men of another. Do you think? Seriously, I'd like to remind you that in 1993, Rep. Charlie Rangel talked me into helping Havana figure out how to convert its economy to market socialism. I spent a small fortune in the year that project lasted and got into trouble with the Treasury Department because I flew to Cuba without getting official permission I didn't know I had to get. I did learn a lot about the politics of Cuba and the Florida exile community, though. The most important thing I learned is that Castro has been perfectly willing to negotiate a modus vivendi with the U.S., but that the Florida Cubans insist that before there be any such discussions, Castro must either commit suicide or take up residence in some other country. The way I reason, Bob, is that when people get that fanatical, the blame for any distress that befalls the people of Cuba falls on their shoulders, not Castro's. He and the other Cuban leaders understand that Moscow and Beijing lost the Cold War and that there must be accommodations to that fact, but not if it means Fidel has to be treated like a war criminal.

I don't remember if you read the long Polyconomics client report I published on June 23, 1994, "A Visit to Castro's Cuba," but this is as good a time as any to make it available on my website. I recommend you read and weigh its implications. Because it is so long, I will run it in two parts, today and tomorrow. By the way, although I never got to see Castro on that trip, the government did take my advice and stabilized the peso, and the economy has been improving ever since.

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VISIT TO CASTRO'S CUBA: Background
June 23, 1994

Last October, Rep. Charles Rangel [D-NY] invited me to a dinner at his home in Harlem to meet the Cuban Foreign Minister, Roberto Robaina. Rangel, an influential member of the House Ways & Means Committee who advocates lifting the U.S. embargo of Cuba, indicated that the economic situation in Cuba appeared to be growing worse. Aware of my interest in helping communist countries convert to market economies, he thought it would be useful if the Cubans could draw on my experience with Moscow and Beijing. Because of a prior commitment, I asked Irene Philippi, my senior economist for Latin America, to attend the dinner. She came back impressed with the youthful flexibility of Robaina, who spoke of "breaking the embargo against ideas in Cuba." ["A Dinner With the Cubans," October 12, 1993] She found "a determination to work at replacing the crumbling edifice of Cuba's political economy. Robaina clearly understands that Cuba's model is exhausted and that pragmatic openness is required for the nation's survival."

Rangel thereupon encouraged me to explore the possibilities of developing thoughts on how we might peacefully bring about a normalization of relations between our two countries. I asked Ms. Philippi to travel to Washington for a further exploratory meeting with the Cuban diplomats who work out of the Swiss Embassy. Believing they might try to retain our services, I had Irene inform the Cubans this would compromise my relations with Republican political leaders, but that I might be able to assist them pro bono. Late in 1993, I visited them in Washington, and we spoke largely of the difficulties involved in converting a command economy to a market economy, and my experience in advising the Russians and Chinese in such matters. Knowing that Rangel had told the Cubans I was an outside advisor to Senate Minority Leader Bob Dole, I felt I could not proceed without informing Dole. I met with him, explained Rangel's interest and that of the Cubans, and told him I would not proceed if he did not want me to. This secured his passive assent. I also met with presidential counselor David Gergen at the White House and informed him of these developments. The Cubans throughout knew that I was keeping my government informed. They asked if I would go to Havana to meet with government economic officials, but I asked that Ms. Philippi be invited to make the initial inquiries. As a result, she spent a week in Havana in January and we published her lengthy report, "Cuba's First Step Toward Reform," on March 2. The summary of her report read as follows:

Cuba is currently in the early, halting stages of transition, as it attempts to move away from the socialist-command dictatorship structure in place since the revolution of 35 years ago. Polyconomics last year was asked by Rep. Charles Rangel [D-NY], the leading advocate of a diplomatic solution to the Cuba problem, to undertake an assessment of the Cuban political economy -- and to advise the Cuban government on a transition strategy. An invitation from the Castro regime led to a January visit to Havana, to meet with senior government officials and to evaluate the nascent forms of market activity and participatory democracy that have so far been instituted. This report is the result of that fact-finding mission. Unlike the "big bang" approach that was attempted in the formerly communist nations of eastern Europe, Cuba's paradigm is cautious incrementalism. More than any other, the Cubans wish to follow the model first adopted by China, which has been stunningly successful in raising the living standards of the Chinese population. Market mechanisms will coexist with the state apparatus until the political and social concerns about private ownership and control of economic assets can be fully resolved. In Cuba, the full evolution of this process may take several years. At this early stage, however, the government appears to recognize the importance of establishing the foundations for a market economy, including monetary confidence and incentives for private entrepreneurial activity.

The report circulated in the Cuban government and Ms. Philippi's characterizations were generally accepted, as the Foreign Ministry then asked me to provide it with dates when I could travel to Cuba. I indicated the primary purpose of my trip would be to meet with Fidel Castro, to permit me to discuss political philosophy with him, in order to determine for myself the parameters of his flexibility. Throughout, I had indicated to all concerned that I believed a peaceful solution to the problem necessarily required the genuine agreement of Castro, the head of state, whom I believed would not agree to any solutions that would infringe upon the sovereignty and independence of the Cuban state. My guess, and that of Cubans with whom I spoke in the Cuban American community, was that he would sooner go down with the ship than suffer such indignities. Although I did not meet with Castro, the trip I undertook, from Sunday May 29 to Friday June 3, confirmed my sense that after 35 years in power, the 68-year-old Cuban President has no intention of departing with a whimper. If he should leave his post with his boots on, it will either be on his own terms, with the dignity of his office and person intact, or with a fight.

In the several excellent meetings Ms. Philippi and I had in Havana, I explained that on my return to the United States I would stop in Miami for two days, to meet with leaders of the Cuban American community, to report on my findings, and to assure them I understand that no peaceful solution to the problem is possible without their political assent. During one of those meetings in Miami, at the home of one of the leaders of the émigré community, I was told that my efforts were appreciated, but that in the end I would fail in my mission because Castro had become deranged. He would not listen to reason, but would prefer a Gotterdammerung exit, bunkered down in Hitler fashion, and going down in flames. The evidence of this derangement was a story, told to the Cubans recently by the President of Portugal, Mario Soares, who met last year one-on-one with Castro during a conference in Brazil. As he tells it, Soares sat for 20 minutes or so telling Fidel how much he and the Latin American political community wanted to help him out of his box. But Castro had to show some flexibility, he said, some small signs that his friends could use as diplomatic leverage, some gestures, such as freeing political prisoners or a liberalization of the press. When Soares finished, Castro stood up, walked over to him, and fingered the small flag pin in the lapel of the president's suit. "What is this, a flag of Portugal or a flag of Brazil?" he asked. The Portuguese president was amazed, as if Castro had sat there all that while without listening, and said, "Of course, it is the flag of Portugal. I am the president!" Whereupon Castro smiled, shook his hand warmly, told him what a pleasure it was to visit, turned, and walked away.

The account was meant to persuade me that some of Castro's screws are loose, but instead I took it to mean that he is not open to any suggestions that he improve his position vis-à-vis the United States by offering gestures, which he sees as an attempt to gain something by giving away some of Cuba's sovereignty. His question about the lapel pin was not out of curiosity. There is no point in trying to find a peaceful solution to this problem by asking Castro in any way to genuflect to Uncle Sam. If I were to succeed, I would have to find another route which would appeal to Fidel Castro's national pride. Insofar as the Cuban émigrés, or "exiles" as some still call themselves, also have national pride that might offset their hatred of Castro, there might be some room for maneuver. A photograph of Castro in the June 16 New York Times, shows him attired in a cotton sport shirt, a guayabera, instead of the olive military garb he has worn for 35 years; this, for a summit meeting of Latin American heads of state in Cartagena, Columbia, at which Castro participated in preparations for a Latin American common market. This, I thought, is tangible evidence that he is ready to do business. The war is over. Castro knows his team lost. It only remains for a peace treaty to be drawn up, one that does not require the abject humiliation of the head of state.

Meetings in Havana

Of the several meetings in Havana, none lasted less than two hours, and some extended to three or more. At the Foreign Ministry: Isabel Allende, deputy foreign minister; Alina Alayo, head of the U.S. desk; Tomas Misas, protocol officer. At the National Bank of Cuba: Raul Amado Blanco, vice president; Sergio Plasencia Vidal, department chief; Luis Torres Borges, specialist in American and Caribbean business. Dr. Alejandro Aguilar, senior researcher at the National Institute for Economic Research (INIE). At the Ministry for Foreign Investment: Dr. Miguel Figueras, senior advisor; Maria Carrillo de Albornoz, associate consultant. At the National Assembly: Dr. Ricardo Alarcon, president of the National Assembly of the People's Power. At the Trade Ministry: Maria de la Luz B'Hamel, minister of trade. At the Chamber of Commerce: Dr. Carlos Martinez Salsamendi, president. In addition, I hosted dinners on consecutive evenings with Ms. Alayo, head of the U.S. desk at the Foreign Ministry, with Professor Aguilar of INIE, and with Tomas Misas, protocol officer, U.S. desk.

General Impressions of Cuba

The 11 million people of Cuba, excepting the small number who have gotten a foothold in the "dollarized economy," are in desperately poor circumstances. It is amazing that on the surface the people seem as cheerful as they do, without the long faces I remember from Moscow during 1990-91 when the economy was in a similar stage of disintegration. The peso economy is deteriorating at a steady rate, as evidenced by the continuing decline of the purchasing power of the peso on the black market. The official rate of one Cuban peso equaling US$1.35, was also the official rate of the Russian currency before Moscow floated the ruble in 1990. In January, Irene Philippi had found the black market rate at 90 pesos to the dollar. It is now 120 to the dollar in Havana and 140-150 to the dollar in western Cuba, according to a Canadian businessmen I happened to meet. As there are 11 billion pesos in circulation, at the 120 rate the total value of these pesos is about $92,000,000, which amounts to $8.36 per capita. Aside from the U.S. dollars in circulation, an unknown amount, this $8.36 per capita represents the entire monetary capital available to the population. Their physical capital is nil, as the state owns all of the nation's assets (excepting the small, but growing amount in the hands of foreign investors, mainly from Canada, Spain, Italy and Germany).

There is no discernible business activity in Havana involving peso exchange, as there is nothing to buy with pesos. The people are given ration books for food and clothing, and must pay with pesos at rates fixed when the peso's purchasing power was still equivalent to the dollar. But increasingly, the monthly allotments are not to be found, even with the ration coupons. There are no shoes, for example, except for dollars. Gasoline can be bought only with dollars, at $4 per gallon, which can be had for 480 pesos. The standard wage, for doctors and university professors, as for everyone else, is 400 pesos per month. Ordinary citizens with whom we spoke say conditions are getting worse daily, that every day is now becoming an exercise in survival, that electricity is available in homes only a few hours per day, and that even the supply of tap water is becoming sporadic. (At the Foreign Ministry, one of the few buildings in Havana that had been freshly painted, there was no running water in the men's lavatory.) Health care is "free," but the only medical supplies coming into Cuba are those carried in by the daily visitors from Miami's Cuban community. A young man with a broken leg told me he was turned away at the hospital on a Saturday because they did not have plaster on hand for a cast, finally getting it the following Tuesday. Others told me they could exist only on the money they received from relatives in Miami and did not know how those without relatives could survive.

Still, it appears everyone is somehow surviving, probably because the few earning dollars from tips in the tourist trade, or illegally through theft and rampant prostitution of teenage girls, share their earnings with their families and friends. At the best hotel in Havana, the Nacional, where we stayed, the security is so tight that there is a definite police-state feeling reminiscent of my visits to Moscow. When, for example, a man and woman, both middle-aged, got on the elevator with Ms. Philippi at the ground floor, the operator asked the woman if she was registered. When the man said she was just visiting, the operator advised him it would not be allowed, that she had to be registered. What startled me was not only that the elevator operator was on the lookout, but that he also was able to identify a non-registered guest when he saw one. It is not that the hotel is trying to keep out prostitutes. They were everywhere in evidence, earning hard currency in the obvious employ of the best hotel in Havana -- a marvelous 60-year-old edifice, with food and service as bad as in Moscow. There are a few very good hard-currency restaurants in Havana, in the embassy district, but these are also state owned.

Even the officials of the government will acknowledge that Havana is not close to being a tourist attraction. There is a faded charm to the city, which has not been much disturbed since the revolution, but it will take a decade of face-lifting to clear away the general dilapidation. There are few shops and little to occupy a tourist trade. We took a few hours to walk around the old part of Havana, but with children and old women tugging at our clothes, begging for "dollars," it was not very pleasant. We walked along the seawall promenade, and it struck me that there was no music to be heard, although young people gathered there in small groups. There are no batteries available, no radios. In the evening, a larger crowd of young people gathered near where a hard-currency cruise boat was anchored to hear the latest music from the U.S. drifting across the water.

There remains a reservoir of support for Castro in the general population. Criticism of the government is open and sharp, but as yet people cling to hope, to the possibility that Castro will somehow turn things around. The growing, organized efforts to escape the island, either by seeking asylum in foreign embassies, or by hijacking boats, is hard evidence, however, that Castro is running out of time. One Argentine businessman, who has spent serious time in Havana trying to assess investment opportunities against political risk, told us that Castro's public appearances before mass audiences are becoming riskier -- any spark could turn them into angry demonstrations against him.

Foreign Investment Reforms

The Cuban government is earnestly trying to find an acceptable path to a market economy, "market socialism" if you will. And as Irene Philippi found during her January trip, Castro has introduced a grass-roots democratic process designed to find a popular consensus on how to proceed. A new set of reforms were announced in May, but it was not until we reached Havana that we received sufficient detail to understand them, what they seek to accomplish, and the theory behind them. It was my unhappy task to inform everyone I saw that the steps being taken, while well-meaning, were misguided, and would not work to achieve their stated objectives. Indeed, upon examination and some discussion, I was forced to point out that they are in the same economic framework as the reforms produced in the Soviet Union that Mikhail Gorbachev called perestroika. The biggest mistake is in trying to initiate the conversion process by loosening up the rigid economic system by attracting foreign capital through joint ventures. This element was necessary as a step in the conversion process, but it leads to all sorts of difficulties when it is high on the priority list. "You are letting the tail wag the dog," I suggested in every meeting. The worst effect, which developed in the USSR, is that the government is first subject to a barrage of advice from foreign investors on how to conduct the reform process. The advice is invariably tailored to increase the profitability of the foreign investments, with little consideration of the effect on the domestic economy. In later stages, as foreign investors interface with the bureaucracy in control of the economy, bribery and corruption follow. It is almost impossible to expect government bureaucrats who are paid in a worthless currency to resist dollar bribes. The vast majority of ordinary citizens look on as their conditions worsen, while a small minority operate in an underground economy controlled by local mafia. The Russian economy is now in the later stages of this development. Cuba is in its early stages.

Throughout my visit, I had to explain that serious foreign investors are not yet interested in Cuba as it exists today. The official view is that the U.S. embargo is denying U.S. businessmen the opportunity to get in on the ground floor of a booming Cuba. They should, I was told, persuade the government to lift the embargo. The truth, I said, is that there is no U.S. embargo against Russia today, and yet there is little serious foreign investment there. The first rule of foreign investment is to assess the level of domestic contentment. If the people are happy, government political risk will be small, and political risk in large part determines the value of financial assets. A nation's principle creditors are its own people. A nation's currency is its non-interest bearing debt. If the value of a nation's currency is falling, it can only mean that the people are betting against the government, showing discontent by refusing to hold the government's debt instruments.

Until the Cuban government concentrates on increasing the demand for pesos by its own citizens, it cannot hope to attract long-term capital from abroad. There are foreign businessmen in Havana who represent serious international companies, looking around, doing small joint ventures that will establish a commercial beachhead against the day when Cuba successfully completes its transition. The most important thus far is that of Mexico's Grupo Domos International, which will eventually sink $1.4 billion into rebuilding Cuba's decaying phone system, in exchange for 49% of the state phone company. But these are outnumbered at the moment by the sharks and pirates, looking for fire-sale bargains at ten cents on the dollar that could be immediately cashed. I asked the Cuban officials to think of the U.S. foreign investor as a single person, walking into a restaurant for a buffet lunch. He can select from a huge bowl of Europe, an exciting selection of China, Japan and the rest of Asia, a NAFTA platter of Canada and Mexico, and the enormous emerging market of Latin America. In this buffet Cuba is a tiny dish, with a sign marked, "Don't Touch." The U.S. investors who are most interested in Cuba are the Cuban Americans in the émigré community, those who have the best feel for the market, the best inside knowledge of how to do business within the Cuban culture, and are consequently the most likely long-term investors. The equivalent in China, of course, are the Chinese capitalists in Hong Kong, Singapore and Taiwan. These are the foreign investors you have to think about attracting, I suggested, and you will receive prices for state assets far better than you could get for your phone company. If you can get your domestic economy humming, the Cuban community in the U.S. will itself urge the lifting of the embargo -- and it will be done. The Cuban community in the U.S., perhaps one million people, has grown so wealthy and politically influential in the last 35 years that it now dominates both the Democratic and Republican parties on the issue of Cuba and its status. It has veto power on the embargo.

There is underway in the U.S., I explained, a shifting attitude toward Cuba and Castro, but it is not nearly enough to bring political normalization between our two countries. This is partly based on a softening of opinion toward most of the countries that had been arrayed against us during the Cold War, including China and Vietnam. But these have no political communities in the U.S. comparable to that of the Cuban émigrés and exiles, and also have markets that dwarf Cuba's. There is at least some softening toward Castro himself, I thought, based on the small signs that he seems to be willing to move Cuba toward a market economy, which necessitates an expansion of the economic and political freedoms of the people. Otherwise, I said, I wouldn't be there. When Irene Philippi visited Havana in January, she had a lengthy meeting with Finance Minister Rodríguez-García. He persuaded her that Castro was prepared to end the state monopoly over its own citizens, giving them the same economic privileges now accorded foreigners. Since then, we have not seen any movement in that direction, although we were again assured that they were in the planning stages. The reform measures announced in May, in fact, were in the wrong direction. It struck me that Cuba is like a giant, dying fish, like the tuna in Hemingway's "Old Man and the Sea," with Castro watching helplessly as the circling sharks chew away at his prize catch.

Gradual 'Shock Therapy'

If a thousand economists were asked to write down ten steps for conversion to a market economy, I suggested in my Havana meetings, almost all would list the same steps. They would each in some way reduce economic control and decision-making at the elite center, dispersing this power to the free marketplace of ordinary people. The problem is that the sequence of steps would be different in every case, and that most economists trained in the west since World War II would put currency reform near the end of this list. Almost none would put it first, although that is where it belongs. The disastrous effects of the "Shock Therapy" method designed for the USSR by Harvard economists Jeffrey Sachs and Lawrence Summers were predictable, in that they advised ending central controls on wages, prices and capital allocation before a marketplace mechanism had been established. A modern marketplace requires a financial services mechanism -- a banking system, stock and bond markets, etc. -- which cannot function without a unit of account that has a known, predictable value throughout the realm and over time. Foreign investors can operate without a ruble unit of account in Russia or a peso unit of account in Cuba, because they insist their contracts with the government be drawn in hard currency or in commodities. The ordinary people, who must transact in the domestic currency, cannot even begin an effective conversion to a market economy without the currency being guaranteed in value by their government. People work each day to consume and to save. If they do not have a paper asset that holds its value from one day to the next, they will not work to save, and commerce and wealth creation become impossible, except on the black market. The Chinese have been successfully managing their conversion to market socialism because they worked for most of the last 16 years to keep their unit of account, the yuan, steady in value against the U.S. dollar. The Chinese do not understand how the Russians can expect to do otherwise: "You do not burn down your old house before you build a new one," an official of the People's Bank of China told me last September in Beijing, advice I shared throughout Havana.

The Cuban government, including its central bank officials, actually believe they are working to stabilize the peso by trying to reduce the quantity of pesos in people's hands through increased taxation. They also insist they will not emulate the Russian example of shock therapy, although that is exactly what they are doing. I'm reluctant to quote individual officials to whom I spoke, because I had not asked if I could do so. The Financial Times, of June 3, though, accurately presents this Cuban view through Osvaldo Martínez, president of the Economic Commission of Cuba's National Assembly, who was visiting London. The article, entitled "Cuban Economy 'Set to Recover Next Year,'" reports in part:

Mr. Martinez says the main problem facing the government is the big overhang of currency in the Cuban economy. A meeting of the National Assembly at the start of this month, following consultation with 3.5 million workers, has provided the outline for tackling this issue, he says.

The government does not intend to apply shock therapy -- "the type of neo-liberal policies as you see in Latin America. The task is to correct the internal financial imbalance and not to kill the social cohesion."

However, the government recognizes that excess liquidity has had negative effects on the economy. "It hurts the discipline of work and the interest in work. It hurts productivity and efficiency and contributes to the development of the black market," says Mr. Martinez.

Excess liquidity was estimated at the start of last month at about 11bn pesos -- representing about 15 months of the population's earnings....Some 60 percent of this monetary overhang was in the form of deposits in savings banks, and the rest in cash.

This is being made worse by a continuing budget deficit. It was 5.2bn pesos last year, and this year the government is aiming to reduce it by 24 percent, mainly by reducing the inefficiency in and cutting subsidies to state enterprises...

The monetary overhang will be addressed in three ways. Policies will be aimed at encouraging savings; raising prices and eliminating subsidies and certain government gratuities, such as free water; and through the introduction of wider taxation. At the moment, only a few thousand Cubans pay income tax.

Price rises were announced this week, significant ones on products Mr. Martinez describes as non-essential goods, such as cigarettes, tobacco, alcoholic beverages, and on petrol. Electricity prices will also go up, but by how much will depend on what is consumed.

"We think that we need not less than 18 months to see the problem under control," though the first effects of the policy will be seen before that. The aim, he says, is to "restore the purchasing power of our national currency." After the problem of excess liquidity is resolved, the possibility of making the peso convertible will be considered.

The policy, which sounds as if it was designed by the International Monetary Fund, whose Russian expert is said to have visited Havana earlier this year to offer friendly advice, will have exactly the opposite effect. The purchasing power of the peso cannot be increased by taxing pesos out of the hands of the people. Because the state owns all the nation's assets, the prices it charges for goods it acquires from the production of the people determine the purchasing power of the peso, as I tried to explain. It may reduce the quantity of pesos by raising prices, which is the same as raising taxes, but people will then have less incentive to work for pesos, which now buy less. At the margin, they will leave the peso economy and enter the underground dollar economy. The velocity of the pesos in circulation will increase, as people try to get rid of them in any way they can, more than offsetting the reduction in the quantity of pesos. With less production, the government budget deficit widens, and it must print more pesos to cover it. When Moscow tried the same method, the ruble traded at four to the dollar on the black market. It is now almost 2000 to the dollar. The collapse began in earnest when the government "floated the ruble" in 1991, abandoning the official exchange rate of one ruble to US$1.35, the same as the Cuban peso's rate today. Even though the black market peso rate is 120 to the dollar, I told the Cubans I thought it significant and important that they had not abandoned the old official rate, which gives them something to shoot for.

In some of our meetings, there was resistance to our assertion that the peso's decline on the black market was a gathering vote against the government. I explained that it was the only peaceful way the people had to express disagreement with the direction of government policy and should be viewed in that context. In the same way, the value of Cuba's hard-currency debt in the international market is the purest indication of how the world is rating Cuba's reform efforts. In January, Cuba's $8 billion debt was trading at 16 cents on the dollar. It moved up smartly, touching 32 cents, with reports of the contested elections for the National Assembly and expectations that the government was preparing the market reforms announced in May. With the announcement, though, the debt slumped back to 23 cents. Irene Philippi pointed out that they were still ahead of where they were in January, two steps forward, one step back. If the peso's value continues to fall in the black market, however, this might further persuade global speculators that Cuba's hard-currency debt should be discounted back to 16 cents or below.

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Tomorrow: China's impact on Cuba agriculture, reform recommendations, the Miami Cubans, and a possible Cuban project.