"We ought not to fool ourselves. We have difficulties and we are going to have difficulties in coming years and the difficulties could be even greater."

-- President Fidel Castro on the Cuban economy, July 26, 1982.

For more than two decades, Cuba's economy has been sailing in shallow waters without ever quite running aground. American analysts point to massive Soviet subsidies as Castro's salvation, but there are other less tangible factors that have helped this country and this regime to survive.

Shortly after Castro's latest prediction of economic hardship and call for sacrifice, one of hundreds he has issued in his 23-year rule, a Latin diplomat on assignment to Havana from an ardently capitalist country cited what he considered the salvation of the Cuban revolution:

"Expectations are less than in other nations. Because of that, this is a country that has great flexibility. They take what they can get, but [when] they don't have, they adapt. Today it's much easier for them to run with lower expectations because there is more happiness with smaller gains. It's a society that is based on small expectations."

As its economic troubles continue, the extent to which Cuba really has become a revolution of lowered expectations may be crucial to its future and especially to its relations with the United States. It is vital for Castro's resistance of the 20-year-old embargo, but it could also become a factor if trade with Cuba somehow were renewed.

In his July 26 speech, Castro painted a gloomy picture of Cuba's economic expectations. Despite the special relationship with the Soviet Union, which buys Cuban sugar at high prices and sells Cuba oil at well below market rates, the Cuban economy has come to depend on the West for more than 20 percent of its trade -- and for many items necessary to its further development, from food to technology. The question now is whether Cuba can afford these imports.

According to Alberto Betancourt Roa, director of West European and North American trade for the Ministry of External Commerce, Japan and Canada are Cuba's major trading partners.

Despite attempts to cultivate Western trade, to expand the variety of its exports, and even to promote some limited Western investment, primarily in the tourist industry, Cuba remains dependent on sugar sales for the vast majority of its hard-currency earnings. And sugar prices are at a record low.

Some Cuban officials interpreted Castro's bleak forecast as a means of preparing the nation early for its likely inability to make projected economic goals over the next few years.

There is a whole school of thought among Western analysts that suggests Cuban consumerism may be one of the most potent weapons Washington could use against Castro. Many Western diplomats and analysts say that by dropping the embargo, the United States could so penetrate this country's economy that Cuba would at least have to take Washington's views into account.

But there is also evidence that the time is too late for that.

Notwithstanding the exodus of Cubans to the United States through Mariel two years ago, which arose in part from the frustration of people who wanted the freedom to consume, many Cubans seem convinced that from the point of view of social justice and basic needs, their communist island offers more to them than any other Latin country offers its people.

This may be the result of reason or simply of insistent indoctrination. It never lets up. When Henry Fonda died, the Cuban television report showed the hospital where he was treated and noted as an aside that poor people in the United States could never afford such care.

It may also be true that expectations really are not low at all, but that they are hidden in the face of omnipresent and intimidating "revolutionary vigilance" that rewards the revolutionary faithful with the kind of consumer goods the nation as a whole is asked to forgo and deprives dissenters of all but the barest essentials.

Some images and opinions from 10 days on the island:

Gema Perez is a party militant who was 11 when Castro turned Cuba's revolution to communism and she cannot or will not imagine a better life for herself and her people.

Perez was born in the town of Castillo de Jagua in the same tidy frame house where she lives now, nestled among the tile-roofed picture-postcard buildings of the fishing village at the narrow entrance to the Bay of Cienfuegos. In her breezy home are two large Soviet-made television sets, a sewing machine locked in a cabinet and a refrigerator.

Dominating one wall is what looks like a piece of cheap religious art, a framed portrait of Christ. But it is not Christ, Perez hastens to point out. It is a romanticized print of revolutionary hero Camilo Cienfuegos, long-haired, bearded, his hat back on his head so its brim seems a halo.

Before the revolution, says Perez, "this town didn't have anything." Its men led rough lives at sea and earned next to nothing. There were no public utilities; even drinking water had to be collected from cisterns or brought by boat from the city of Cienfuegos. It was, said Perez, "the way one lives in a regime where there is capitalism and you are poor."

Now, for the 1,200 people who dwell in the shadow of the village's colonial fort, there is electricity, a post office, a day-care center, telephone service, a school. New apartments have been built and a technical school, where Perez's husband is a "professor of soldering," was established for both local and visiting workers who are to construct one of Cuba's first nuclear power plants about 10 miles away.

Her four brothers still go to sea for 20 days at a time, but especially since wage increases were instituted in 1980, they earn what are considerable incomes by today's standards in Cuba. Their base pay is about average, but with good catches they receive bonuses of from $400 to $1,000 each trip. "We do not consider ourselves rich," said Perez. "They are remunerated economically for their labor."

In Castillo de Jagua, Perez concluded, "life has not improved a lot -- it has improved entirely. Now there is freedom."

"You mustn't report anything that would let them identify me," a service worker in his late 20s told a journalist in downtown Havana. "State Security works very well."

The reporter had asked if it were true, as some Cuban officials contend, that there is freedom of speech at the personal level even if there is not in the state-run mass media. "Why do you think you see people standing on corners acting like worms, running down the revolution?" a functionary had asked, answering himself: "Because they know they can get away with it."

"That is not true," said the fearful, frustrated worker. In Cuba, a man's politics, apparently, are inseparable from his economic well-being. "You can't stand on a corner and denounce the revolution. You do that and they accuse you of being a counterrevolutionary, and that's a crime. People who talk like that are left without work. If you were an engineer, you're no longer an engineer. If you were a manager, no longer. You're sweeping streets."

The worker seemed to be embittered by a sense of class conflict that Cuban officials say does not exist here. His hatred was directed at what he called the "high life" led by favored party functionaries who, as he described them, live in newly built apartment complexes in East Havana, wear Italian pullovers, Lee blue jeans and smoke Winstons or Marlboros.

"The party militants, they are the socialist bourgeosie," said the man. "But you can't say that either."

He tended to blame these people for almost all the country's problems while discounting their charges that what they describe as the U.S. blockade and the CIA are responsible for Cuba's hardships.

"The blockade and the CIA, those are the revolution's reasons for everything. Always 'the hand of the CIA.' My wife is heating milk and it boils. 'Aha!' I tell her. 'The hand of the CIA,' " he said. "I was forged by this 'socialism.' But let's just say I don't have the intellectual capacity to understand it."

Eugenio Balari is the guru of Cuban consumerism.

The head of Havana's Institute of Internal Demand has a favorite Marxist credo, but not the utopian communist notion of "From each according to his ability, to each according to his needs." Rather, as it says on one of Balari's economic flash cards, "To each according to the quantity and quality of his labor."

Balari is a bit of a showman. When he offers coffee to a visitor in his air-conditioned office -- in a reconditioned mansion a block from the seafront -- the coffee is a new instant that can be bought for the equivalent of about $8 a can "outside the ration book."

Fresh coffee is rationed, and an individual's 15-day allotment only makes about three little pots, carefully brewed. But since Cubans are great coffee drinkers, that clearly is not enough. It took more than 20 years after rationing was introduced to meet the demand by creating Instacafe, but now that it is here, Balari says it should help relieve the seemingly perpetual shortage of the favorite beverage. In the universal language of marketing he says, "It has found a great deal of acceptance."

The ration book once controlled virtually all purchases here. Now it's down to 30 percent, but it still makes interesting reading as the Cuban consumer's hated little passport to survival.

A month's supplies for one person include 10 ounces of beans, one bar of soap to clean yourself and one for your clothes plus seven ounces of detergent, half a pound of cooking oil, five pounds of rice, four cigars and four pounds of sugar -- the one thing there is a lot of in Cuba, although many sweet-toothed Cubans complain there is never enough.

The ration book limits trousers and shoes to one pair a year. "You have to be very careful with your pants," a cab driver said with barely a smile. The policies Balari advocates attempt to better rationalize the ration system and make more goods available outside it.

Alongside the cups on the conference table are copies of Opina, a monthly tabloid edited by Balari that offers feature stories providing some lightweight balance to the heavy political-intellectual fare in most of the government's publications. But most important, it publishes want ads: classified offers to sell 1952 Oldsmobiles in this city that has no traffic because it is almost without cars; offers to spray-paint refrigerators in this society where workers compare the merits of General Electric appliances made 35 years ago to those made 25 years ago.

Balari's government institute also brainstormed the peasant food mar- kets and the craft markets that raised publicity last year as the first apparent steps toward loosening the tightly controlled economy.

But even though the markets still operate, they have suffered some setbacks as the Cuban Communists found that a little capitalism, like a little learning, can be a dangerous thing. The free markets around Havana generated a new class of unauthorized middlemen.

There was the problem of shoes sold in the craft market in front of Havana's cathedral, for instance. Shoes, Balari conceded, are generally a problem in Cuba. There is always a shortage. The ration book allows only that one pair. So craftsmen making decent shoes and selling them in the open market had no trouble getting high prices and making a lot of money.

This raised suspicions. There was an investigation and, sure enough, "there appeared some subtractions of leather from some state factories. From there it was easy to find who did it." Some such middlemen, Balari said, "have had to confront revolutionary justice."

Balari can martial many statistics to show how much life has improved for Cuba's people since the triumph of the revolution on Jan. 1, 1959.

His numbers are displayed on colorful cards indicating everything from a 23-year rise in life expectancy (now 73) to the number of televisions (up from 6 per 100 families to 79). Yet Balari says it is doubtful that the country will achieve the goals set in its current five-year plan. "We are entering a stage in the life of the people that is austere but decorous," he said.

Asked about the kind of austerity that had a 15-year-old pressing her face against a store window one night recently to sketch the dresses on the rack so she could try to sew them by hand at home, Balari said, "You see, she can get the cloth."

On a hot, clear afternoon recently, 18-year-old Zenen Pumariega and his half-brother Fernando were swimming off the rocks below Havana's seafront boulevard, the Malecon, a quick escape from the stifling closeness of the residential streets in the decaying older sections of the city.

Neither Zenen, a cafeteria worker and part-time student, nor Fernando, who is about to enter the Cuban Army, can think of a much better place to live than here.

There was a time when members of their family wanted to go to the United States, said Zenen. Two years ago, a sister and uncle left through Mariel. But the latest word from the sister in Miami is that "life is pretty hard," according to Zenen.

The two teen-agers were asked what they would buy if they could buy anything in the world.

"A house, a car, food, clothes," said Fernando.

But any special car, any special food or clothes?

"Nothing special," said Fernando.

"A car that would get me to work, get me to school and get me to the beach," said Zenen.

But the boys still want to know how much things cost in the United States, and how much they cost in the dollar stores at the Havana tourist hotels to which they are forbidden access.

Zenen, who just wanted basic transportation, who seemed to have no dreams of Trans-Ams, Camaros or Mercedes, had just put on Sasson jogging shoes brought to him by a relative. The price for such luxurious footwear, noted Fernando as he donned some old army boots with a hole in the toe, would be about $120 on the street in Havana.

"And how much," Zenen wanted to know, "would a bottle of Paco Rabanne cologne go for?"