* Economy minister says paternalistic state unaffordable
* Raul Castro aide slams resistance to retail sector reform
* Pilot projects readied in Havana in taxis, beauty salons
By Marc Frank
HAVANA, March 8 (Reuters) - Cuba's economy minister is pushing for less state intervention in one of the world's last Soviet-style economies, saying the government can no longer afford its all-encompassing control and paternalism, Communist Party sources say.
The drive by minister Marino Murillo appears aimed at overcoming resistance to new reforms under President Raul Castro, who has made extensive changes in agriculture since taking over in 2008 from ailing brother Fidel Castro and is thought to want change in other economic sectors.
Murillo told armed forces and interior ministry officials in January "the gigantic paternalistic state can no longer be, because there is no longer any way to maintain it," according to a Communist Party source who saw a video of the Jan. 16 event shown to party and government cadres.
Sensitive strategy and policy meetings are often not immediately made public in Communist-ruled Cuba, but videos of them are sometimes later shown to certain selected officials.
Cuba is grappling with a financial liquidity crisis triggered by the global recession which forced it to slash imports by 37 percent last year. Inefficiencies in the centralized economy have also reduced productivity.
Murillo said the Caribbean nation could no longer afford, for example, to pay tens of thousands of people to control state barber shops, beauty parlors and services such as appliance and watch repair shops. He suggested they could be administered differently by leasing them to workers, according to two people who also saw the video of his speech.
The economy minister, a former military officer appointed to the post a year ago, denounced those who might resist the changes, which appear to be underway in small experiments.
"I was called to a meeting last month and told the premises would be leased to employees soon as part of an experiment in the area," the administrator of a state-run beauty parlor in central Havana said, asking that her name not be cited.
A pilot project in Havana, the capital, has some state taxi drivers leasing their vehicles at a daily rate instead of receiving a wage, drivers said.
DECENTRALIZATION, COOPERATIVES, LEASING
Universities in a number of provinces have been asked to draw up proposals to transform local state-run services and minor production activity into cooperatives.
Professors who attended a similar presentation by Murillo at Havana University earlier this year said he made clear that economic necessity, not ideological choice, was driving change and that reforms already underway in agriculture were a model for what would come.
"He pointed to decentralization of agriculture and the various forms of property such as cooperatives and land leasing as a model for local production and services," said one of the professors, who, like the others, asked not to be identified due to restrictions on communication with foreign journalists.
President Castro has bemoaned the state-run economy's inefficiency and called for decentralization, local initiative and new forms of property management in non-strategic sectors. He also has said numerous state subsidies are no longer sustainable, a point Murillo repeated, the sources said.
"Raul Castro has no illusions about how the all-embracing paternalism of the past has left the Cuban economy in ruins," Brian Latell, a former CIA analyst who closely follows Cuban affairs, said.
"His dilemma is in the implementation of decentralizing reforms. Doing nothing, or proceeding too quickly could both have destabilizing consequences," Latell said.
Raul Castro has appointed a number of military officers to the Economy and Planning Ministry, which insiders say is now the operational headquarters for his economic reform efforts.
When he was appointed minister, Murillo came with a new first deputy minister, General Adel Izquierdo, who was head of the military's economic department when Raul Castro served as defense minister.
Murillo quickly named Colonel Amando Perez Betancourt, the architect of efforts to make the military's state-run suppliers more efficient, as another deputy minister.
The minister, in both speeches, said the proposed solutions to Cuba's economic problems must come from the local level, and will differ from place to place and sector to sector.
"He said that while taxi drivers, beauticians and others might lease their equipment or places of work in the capital, that would not necessarily apply to other cities or state-run eateries where different solutions might prove more beneficial," one of the two people who saw the video said.
(Editing by Jeff Franks,