Communist Cuba has begun dismantling a vast system of state gratuities and subsidised goods and services in favour of higher wages, more individual choice and targeted welfare.

The move is part of President Raúl Castro's drive to modernise an economy in which, he recently admitted, two plus two often equals five in terms of spending and three when it comes to performance.

"Social expenditure should be in accordance with real possibilities . . . eliminating spending that is simply unsustainable, that has grown from year to year and which moreover, is not very effective, or even worse, is making some people feel that they have no need to work," Mr Castro said in a recent speech in which he talked of a "new socialist model".

The speech is currently being debated across the island.

Mr Castro has already eliminated subsidised beach holidays for exemplary workers, hotel stays for newly-weds and free meals for those accompanying hospital patients.

Fidel Castro, before ceding power to his brother for health reasons in 2006, introduced discounts for tickets to sporting events and a sliding scale for electricity charges.

Somewhere along the line, no one seems quite sure when, birthday goodies for children, five cases of beer and bottles of rum for weddings, and subsidised supplies for quinces , or coming out parties, disappeared.

Now on the chopping block are the world's longest-standing food ration, heavily subsidised monthly gas and water bills, millions of cheap chocolate mother's day cakes and countless holiday greeting cards, subsidised meals at work and universities, and many other items.

Mr Castro said free healthcare and education, and social security and full employment - all guaranteed by the constitution - would remain.

The state still pays for funerals and 13 vaccines for children under five.

Medicines are also free during hospital stays and are heavily subsidised at pharmacies.

"After installing his own team of economic planners in March, Raúl is making good on promises to fundamentally restructure the dysfunctional economy he inherited," Brian Latell, a former Cuba analyst at the US Central Intelligence Agency and author of After Fidel , said.

"But he is also warily looking over his shoulder, anticipating bitter opposition from Fidel," Mr Latell said.

Growing inequality due to access to foreign exchange through remittances, self-employment, and the black market is making the egalitarian distribution of the nation's wealth obsolete, Cuban sociologists argue.

They estimate that 50 per cent of the population has been left behind and 20 per cent impoverished. Meanwhile, a Cuban elite has emerged with a lifestyle many times grander than the norm.

This social breach is expected to be widened by an influx of Cuban Americans bearing gifts and unlimited remittances deregulated by US President Barack Obama this month.

"I understand we can't go on like this, but they should be careful. Wages and pensions are too low to eliminate everything if they do not take other measures," Julián González, a public works employee, said, expressing widespread public anxiety over the elimination of the food ration.

But in a harbinger of what local economists said could be future policy, the government has nearly doubled office worker wages at various ministry office buildings in Havana, as it closes lunchrooms in a pilot programme aimed at eliminating huge theft and waste of imported food supplies.

"The country's economy needs to place its feet firmly on the ground, which means it has to be totally reorganised," a local economist said.

"You can't live only on ideas, no matter how good they are. You cannot give away what you do not have."

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Source: Financial Times