Raul Castro, who has been running Cuba since his brother Fidel was sidelined by illness 19 months ago, gestures during a meeting of the National Assembly in Havana Feruary 24, 2008. REUTERS/Prensa Latina/Pool

HAVANA (Reuters) - President Raul Castro starts work as Cuba's first new leader in almost half a century with a cadre of old guard allies to help him guarantee continuity in a country eager for a measure of change.

Castro, 76, named president by the communist state's National Assembly on Sunday, faces a balancing act as he tries to improve living standards and ensure food supplies while staying faithful to his brother Fidel Castro's revolution.

A general who has run Cuba as acting president since Fidel Castro fell ill in July 2006 and ceased appearing in public, Raul Castro has raised expectations that reform of Cuba's state-dominated economy is in the pipeline.

But his first step was to appoint Jose Ramon Machado Ventura, 77, a hard-line communist, as Cuba's new deputy leader, passing over Carlos Lage, 56, the official most closely identified with modest market reform of the 1990s.

"They are closing ranks," said a taxi driver named Manolo, who declined to be fully identified.

He had hoped to see Lage promoted because he has "good ideas."

"Raul has put old guard people in, but they will die at some point, and he will have a problem," Manolo said.

Young people, who have known no other leader in their lifetime, praised Fidel Castro for quitting as the best decision for Cuba given his 81 years and fragile health.

"The image the people of Cuba have had for nearly 50 years is Fidel and to suddenly change that is a bit difficult," said sociology student Maidolys, 20, hitching a ride to classes.

"But well, when things improve, people will accept the change," she said, also declining to give her full name.

Raul Castro promised on Sunday to work on minor reforms. But even moderate changes like making the government more efficient, revaluing the peso and lifting some restrictions will take time to churn their way through the machinery.

And Fidel Castro, who has dominated almost every aspect of life on the island since his 1959 revolution, will remain a powerful force behind the scenes.

Raul Castro stressed he would not deviate far from the socialist path and said he would still consult with his brother on important issues.

"Fidel is Fidel. Fidel is irreplaceable," he said.

Analysts say Raul Castro will make changes but move cautiously.

"My feeling is that Raul will do some modest reforms in the near future," said Cuba expert Archibald Ritter of Carleton University in Ottawa, Canada.

He urged Castro to free up restrictions on small business owners such as car mechanics, fishermen, and arts and crafts vendors. "The impact would be beneficial. I think there would be rapid pay off," he said at a conference on Cuba in Miami before Raul Castro was confirmed as president.

EXECUTIONER

Once a hard-liner who supervised the execution of enemies of the revolution, Raul Castro has encouraged moderate debate in recent months and asked Cubans to voice their concerns about life on the Caribbean island.

Most complained about hardships in an economy that is 90 percent run by the state. But by opening debate, the younger Castro has raised expectations inside Cuba.

"Raul has opened a Pandora's box," said Havana-born Carmelo Mesa-Lago, a professor at the University of Pittsburgh. "If he only introduces marginal, cosmetic change, the frustration of the people will increase."

Jose Oro, a former government official who defected to the United States in 1991, believed Lage still had a key role to play and Raul would depend on him to address priorities.

"Carlos Lage is the person who is in charge of the Cuban economy. He is a practical person and he knows that he needs to supply three meals a day to 12 million Cubans. Not a speech about socialism and not a speech about Marxism," he told Reuters in Miami.

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