FIDEL CASTRO faces one of the most serious crises in his 31-year rule as the Soviet Union and new East European governments impose tougher trade terms on Cuba, Western observers say. Even as its economy weakens, Cuba's growing political isolation is underscored this month by a dispute over asylum seekers that heightened differences with former ally Czechoslovakia and created a damaging schism with Spain, the island nation's chief Western trading partner.
Castro's determination to survive all challenges, however, was clear last week as Cuba celebrated the 37th anniverssary of the battle that launched his revolution.
In a speech before several hundred thousand supporters crowded into the Plaza of Revolution, Castro vowed that Cuba would not abandon communism.
``Our a reaction is to struggle and struggle, to resist and resist,'' Castro told the cheering throng. ``Socialism is not an option. It is a historic need. Socialism is ... a result of our history.''
Yet Castro also acknowledged what most Cubans already know. As the Soviets and East Europeans force Cuba toward trade based on market prices and hard currency, the country's economy will be strained to its limits - and an already bleak standard of living is almost certain to decline.
About 71 percent of Cuba's trade is with the Soviet Union, and some 14 percent with former East Bloc nations. Since July 2, East Germany has demanded US dollars in exchange for its goods, drawing down Cuba's estimated $l70 million foreign currency reserve. The Soviet Union has indicated that it, too, will seek cash.
As a result, Cubans are tightening their belts. Several times this year Castro has referred to the possible need for a ``special period'' when the economy would move to a warlike footing in order to reduce consumption. This spring, longshoremen practiced unloading ships by hand and road crews used picks and shovels instead of machinery to practice special-period conditions.
``We lack resources and we have worked with less imports. We have economic difficulties, like all third-world countries,'' says Jose Viera, vice minister in the Ministry of Foreign Affairs.
Phil Brenner, a Cuba specialist at American University in Washington, says new trade arrangements mean central planners will have little margin for error.
``They were used to dealing with government agencies, and now they have to go to the international market,'' Mr. Brenner says. ``They're not quite prepared for that.''
Castro has tried to boost hard- currency earnings by expanding tourism and increasing production of primary exports, including sugar, coffee and shellfish.
Cuban coffee, for example, is almost imossible to buy on the island because nearly the entire crop is exported. Cheaper foreign coffee is imported for domestic consumption. Lobster, shrimp and crab also are earmarked for export.
``They're the fourth largest shellfish producer, and you can't get it in Cuba,'' Brenner says. Meat, eggs, milk are hard to find.
Even among Castro's supporters, economic inefficiency has generated cynicism, says a middle-aged engineer.
``You take a common glass and tell your child it is a pitcher, and the child says, `No, it's a glass.' You tell him again, `It's a pitcher.' Soon he will tell you that it's a pitcher. But really he knows it's still a glass. And in the streets, they know it's a glass,'' he says.
The government is encouraged that production of sugar, the island's top money-maker, rose from about 7 million tons in 1989 to 8 million tons in 1990.
Brenner says Cuba is expanding nickel production. But both sugar and nickel depend on trade with Eastern Europe. Spare parts for sugar mills purchased there, and boosting nickel production with Bulgarian help, will cost more in the future, Brenner says.
The economic outlook also has been clouded for the past three weeks as Cuba has faced a diplomatic crisis created when refugees crowded into several European embassies in Havana.
Cuba has reserved its bitterest rhetoric for Spain, with whom it carries on $300 million in trade annually. Spain, whose embassy harbors 18 Cuban refugees, responded to the rhetoric by freezing several assistance programs. On Friday, four Cubans in the Italian ambassador's residence surrendered.
But amid such turmoil are some bright spots in Cuba's economy. Medical technology has become a growing source of income. Last year Cuba exported about $80 million dollars worth of vaccines to Brazil. Cuba also has begun exporting AIDS test kits.
Politically, Castro has responded to pressure by consolidating control. He tightened his grip on the Army by eliminating possible challengers, including Gen. Arnaldo Ochoa Sanchez, executed last year for treason. He also crushed what little dissent existed. Earlier this month, 11 human-rights workers were sentenced to long prison terms.
``The danger is constant. It is a police state,'' says Gustavo Arcos, who fought at Castro's side during the revolution and served as ambassador to Belguim before becoming disillusioned with communism. He is one of the few Cubans who dares criticize Castro openly. ``What has been obtained through this revolution has been at the cost of individual freedom,'' Mr. Arcos says.
Western diplomats here say the crackdown indicates Castro feels threatened. But they say it does not mean he is in jeopardy. One reason is that Castro remains a hero to many, particularly to those who remember the brutal regime of Fulgencio Batista.
Castro has refrained from violence that would alienate people. He has also tempered discontent by promising more freedom. Discussions for the Fourth party Congress next year, have included debate on broader rights for church members and homosexuals.
``He knows the Cuban people better than anyone else,'' says one diplomat who spoke on condition of anonymity. ``He continues to have a moral and historical authority, as opposed to his former colleagues in Eastern Europe. To move against him - it's hard for those brought up in the system he created to contemplate.''