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Cuba under Raúl: Creeping toward capitalism?

Since Raúl Castro took the helm in February, he's rolled out a series economic changes, including allowing Cubans to buy cellphones and giving farmers profit-incentives.

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There is the neighbor who rents out her empty apartment to foreign tourists – even though by law to rent a room in your house you must live there. There is another who sells pizzas out her side window at night.

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As Mr. Aviles walks down the street, he gets "business" proposals, ranging from risky to innocuous. One a recent day, he bumps into an old friend and is offered a year's supply of soap bars for $75. He counters by offering the spare room he sometimes rents by the hour to couples. The friend replies that he and his girlfriend have recently gotten their own place. How about an installment plan of $25 a year for three years, he asks. Aviles passes.

"Everything here is about selling and negotiating, and it's all illegal," says Aviles, who insists on using a pseudonym since he is on the government's radar after being fined in November for renting his room to foreign tourists without authorization.

He questions why endeavors that would be considered entrepreneurial and encouraged in most countries are outside the law here.

Back at his underground gym, Arrastia also knows he faces a fine if he is found out.

After he lost his computer sales job and hit on the idea of a gym in the parking lot, he sought a government license for his gym. But he found out that the business category doesn't exist. So he consulted his building's neighborhood association, which approved of his plans. Today he pays the association about $12 a month to keep quiet about the arrangement. He knows he is at the mercy of any disgruntled neighbor, but he also says that such endeavors will be legalized and that his tiny exercise room with about 25 homemade machines will be the template for a much bigger business some day.

"I do believe this will be authorized," says Arrastia. "I want to have another much bigger gym, legally.... I will grow this business and have gyms all over Havana."

Farm reform on fast track

How soon, if ever, urban Cubans like Arrastia will get the opportunity to legally run small businesses isn't clear. But Cubans in the countryside may already be on a faster track to change. Agricultural reforms could radically transform the island's economy: Last week, Raúl granted private farmers the right to till plots of up to 99 acres of unused government land. This follows a previous announcement to shift control of farms from the central government in Havana to local councils, raise prices for certain products to boost production, and give farmers the right to use whatever farm equipment they can afford to buy.

Almost immediately upon taking power 50 years ago, Fidel Castro began nationalizing the telecommunications industry and expropriating farm lands. Less than a decade later almost all businesses were in state hands. In exchange, Cubans were given subsidized food, free healthcare, and homes. The economy never functioned independently, and it has never quite recovered from the fall of the Soviet Union.

Cuba now relies heavily on Venezuela, whose leftist President Hugo Chávez sends nearly 100,000 barrels of oil a day to the island in exchange for social services, such as Cuban doctors and teachers. Even though Raúl promises not to veer from the ideals of the revolution, he has publicly acknowledged that the system does not work in its current form.

The moves to increase crop production are, in part, a response to a global spike in fuel and food prices, which has made the subsidized food system – once regarded as one of the major successes of the revolution – untenable for many ordinary Cubans today. "We're [in deep trouble]," whispers a man, using an expletive, while exiting a state-run produce market in Havana. He says he could not afford to buy anything to supplement the monthly ration of rice, beans, potatoes, eggs, a little meat, and other goods. Many Cubans say the ration does not last them more than three weeks, if that.