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Cuban state company reform looks to be a tough job

 

* Government to maintain control of state companies

* But efforts planned to improve state sector management

* Experts skeptical, say culture change required

 

Marc Frank, REUTERS

 

HAVANA.- While Cuba opens some sectors to private initiative, the thousands of state companies that dominate its sluggish economy will stay under government control and plans to overhaul the management culture guiding them look like an uphill challenge, local experts said.

 

They said reform proposals now under discussion for a Communist Party congress in April were a step in the right direction by President Raul Castro. But they still leave most economic activity in the hands of a state with a history of mismanagement, despite plans to loosen modestly companies' ties to ministries.

 

"Raul will have to bring in people from another planet or get them from I don't know where," said the chief executive officer of a mid-sized Cuban state company.

 

"There are too many people living well off of this disorder for them to be the ones who try to straighten it out," said the executive, who asked not to be named.

 

The reform blueprint calls for the government to cede much of agriculture, retail services and small-scale production to family farms and businesses, cooperatives and leasing arrangements over the next few years.

 

But there is no indication the party is ready to move in a similar direction with other sectors. Instead, the proposals simply call for changes in how the often poorly run and rarely profitable state companies are managed.

 

Future government "control of business management will be mainly based on economic-financial methods instead of administrative methods," and the companies will enjoy greater autonomy to manage funds and make business decisions, the congress proposals state.

 

The approximately 3,700 state companies manage a broad swath of the Cuban economy.

 

Their activities range from the direction of hotels and of the nickel, oil and cigar industries, to utilities, transportation, banks, international and domestic trade and sugar mills, a local expert on the state company system said.

 

"I estimate 35 percent to 40 percent of the businesses are critical to the economy and more than 50 percent of all the companies operate at a loss," he said, asking not to be named because of a prohibition on talking with foreign journalists.

 

"CHANGE THE ADMINISTRATIVE CULTURE"

 

Companies are currently managed by government ministries through clusters of firms attached to the ministries. Ministers appoint executives, review all plans, set salaries and prices, control imports and exports, manage partnerships with foreign firms and conduct endless inspections.

 

Government insiders said there were plans for the elimination of the company groups, and by implication some ministries, in favor of public holding companies operating outside the government.

 

The holding companies would be responsible for the profitability of subsidiaries and overall management and as a rule would not be eligible for state subsidies, they said.

 

A local economist who specializes in business administration said the proposals raised more questions than solutions. "It all sounds really good, a first step forward, the elimination of a layer of bureaucracy, but we have to see how it actually works out," he said.

 

"It will take time because you have to change the administrative culture of the country," he added.

 

The economist said the congress proposals did not make clear what prerogatives the new-look state companies would have, how debts to each other and foreign entities would be settled, or if the increasing role of the military in the civilian economy, which he estimated at between 30 percent to 35 percent, was temporary or permanent.

 

Half a dozen active and retired state managers said the proposals, while positive, were too vague. They were skeptical the plans would be properly implemented anytime soon.

 

"If the plans are carried out with intelligence and discipline the situation should improve. The question is how to carry them out," said Roberto, a long-time executive in the communications industry.

 

Anibal, a retired executive from the food processing industry, said the state's willingness to loosen its grip on companies would have to be seen to be believed.

 

He pointed to the current slashing of 500,000 state jobs, where the government set quotas for the companies, and a recent move stripping some firms of licenses to import and export.

 

"These and other similar contradictions are what make me doubt there is a willingness to change the architecture of measures that have suffocated companies up to now," he said.

 

(Editing by Jeff Franks and Cynthia Osterman)