Cuba's would-be capitalists are easy to spot. In a country with shortages of food, clothing and medicine, they flaunt new designer shirts and cellular phones, drive late-model Nissans, dine with foreigners in dollars-only restaurants. To the Communist Party faithful, they are bitongos, spoiled kids of the Cuban revolution who turned their back on socialism when times got hard and importunity knocked.

The rise of these capitalist caricatures is precisely what President Fidel Castro feared when he threw open his doors to private-enterprise investment and foreign tourists after the collapse of the communist bloc five years ago. Enriched by 2.5 million free-spending travelers since then and millions in joint-venture money, Cubans are getting their first real taste in 36 years of conspicuous consumption. But with it has come the bitter aftertaste of greed and graft. With resentment mounting over the brazen behavior of Cuba's newly rich, Castro declared war this summer on corruption, sparking not only a government housecleaning but also a public debate over the future of Cuban socialism.

Not since the days of the Arnaldo Ochoa trial in 1989, which led to the respected general's execution for drug trafficking and corruption, has Cuba been torn by such introspection and public breast-beating. In July, Castro convened a summit of senior ministers and executives of 200 hard-currency companies to denounce officials "ready to sell even their souls" for dollar bribes, expense-paid trips abroad and sumptuous gifts for relatives. Participants leaked nasty tales of bribery, secret bank accounts abroad and millions in profits lost. Officials at CubAzucar, the country's largest state-run company, were among those accused of taking payoffs.

Although foreign investors claim corruption is a minor problem in Cuba, Castro moved to take control. Dozens of government officials lost their jobs. A few were marched off to face criminal charges. Shady operators didn't last long either. The licenses of several foreign firms were canceled, and at least one famous U.S. fugitive ran afoul of his Cuban hosts. Robert Vesco, who fled to Cuba in the early 1980s to elude U.S. charges of securities fraud and drug trafficking, was arrested after a dispute with his partners in a medical venture.

The National Assembly, once considered a mere rubber stamp for the government, staged a heated two-day televised debate on Cuba's ideological future. Undeterred by the problems with carpetbagger capitalists, deputies passed a new law granting foreign investors--even exiles who fled from the revolution-the right to own up to 100% of Cuban businesses. That angers many Cubans who have never left home, since what's left of the socialist order decrees that they cannot own their own enterprises. "What's really going on in Cuba is not a debate about foreign investment but a debate about socialism," says one reform-minded communist. "The idea that Cubans can't invest in their own country is insulting."

As conservatives in the U.S. worried about the rising foreign presence in Cuba, Congress moved last week to tighten a 34-year-old economic embargo that bars American companies from doing business on the island. The House of Representatives voted overwhelmingly to approve the Helms-Burton bill, which would punish foreign businessmen who own or benefit from property confiscated by Castro. Specifically, Cuban exiles who are U.S. citizens could sue foreign companies for "trafficking" in their expropriated property. Whether or not the Helms-Burton bill makes it to the White House, it serves as a clear warning to President Clinton by Congress not to open up to Castro because of his economic reforms.

Despite the chilling effect of the threatened Helms-Burton ice shower, Cuba's new investment law cleared the way for several major projects launched by non-American investors, including an 80-hectare, $20 million industrial park to be built by Mexico's Grupo Domos at the Havana airport. In late November an Italian luxury liner will inaugurate Havana's new cruise port--right across the street from the old Trade House, which a Spanish firm is converting into offices. Mercedes-Benz and Fiat recently arrived in Havana, adding their presence to those of Canon, Benetton and Heineken.

Since Castro opened up, companies from 25 countries have signed deals worth $4.5 billion, although only $702 million has been committed or delivered to Havana. There is no mystery in the interest, says Marcelo Laufer, representative of Paris-based Rial Trading, which just closed a deal to build 600 luxury condos for foreigners near a planned Israeli-built shopping center: "There is now a political will to solve our problems." By Christmas, the Cubans have promised to ease difficulties with property ownership, since foreigners can own buildings but not land.

Although it's illegal for U.S. citizens to travel to Cuba, in 1994 more than 500 representatives of American companies made forays to Havana, some as Castro's guests, some illegally. Despite the embargo's ban on trade, U.S. law allows companies to seek contracts in the fields of communications, entertainment, publishing, medicine and pharmaceuticals, but they must get hard-to-obtain licenses to travel or spend money in Cuba. Despite that, U.S. companies reaped some $300 million in legally permissible business inside Cuba in the past year, says John Kavulich, head of the New York City-based U.S.-Cuba Trade and Economic Council.

Peter Blyth, president of the Minneapolis-based Radisson Hospitality Worldwide Development, has not yet made the forbidden trip, but he is impatient to get on with post-embargo plans for cruise ships, travel offices and hotels. "A number of voices have joined us in advocating an easing of the embargo--not lifting it at first, but easing travel for expatriate Cubans," he says. "Our continued absence is a detriment to commerce in the U.S."

The absence of U.S. competition clears the field for foreign firms like Canadian mining giant Sherritt Inc., which has a $150 million stake in Cuban nickel and oil. Sherritt chairman Ian Delaney, whose subsidiaries were targeted for U.S. sanctions because of their Cuba connections, is highly critical of Washington's Cuba policy but sees real movement by the Castro government. "There are smart guys running the country with a clear understanding of what the real world is about," says the executive, who meets often with Castro's young cadre of technocrats. "The concern they share is how to deal with foreign investors while maintaining the social equity achieved over 30 years. They want to avoid the experience of Russia: the corruption, the runaway inflation, the bandit capitalism."

So far, the fruits of capitalism have been small if welcome: Cubans who couldn't own a dollar two years ago can now open interest-bearing bank accounts. And even sugar workers out in the provinces can shop at government-run dollar stores.

But a dose of free enterprise cannot quickly cure the damage done by decades of communist rule--the lingering effects of inept central planning, stultifying bureaucracy and overdependence on Soviet handouts. While Castro has promoted social equality, it often seems like equality in poverty. The government ration books supply food for only 10 days a month, and families on peso salaries can't make up the difference. In central Havana thousands have no home. They sleep nights at albergues, or emergency hostels, which push them out onto the street at 6 a.m.

These conditions last year led to the first riot ever against Castro's government and prompted 30,000 people to flee Cuba's shores in tiny, treacherous boats. A year later, Cuba is stable again, but the disillusionment remains. "Workers today are essentially beggars," says dissident economist Martha Beatriz Roque, sitting in her spare three-room apartment in Santo Suarez. "People who don't steal, and that's rare, can only live the first 10 days of the month. The middle class is dying. To eat an egg is a thing of luxury...The system is broken ... There is no way between socialism and capitalism. It's absurd."

A former government worker, while eager for economic change, is similarly gloomy about the cocky mentality of the emerging capitalists. "I'm not worried about prostitution or people stealing money, and bribes, but if we're going to have wild capitalism with no respect for the symbols of the revolution, then," he says "we are in trouble." Until Castro and the Cuban people come to terms with the changes taking place, the debate about the soul of Cuba will rage on.

--With reporting by Douglas Waller/Washington