Author Archives: Frank Mark

CUBA INCHES TOWARD TRANSPARENCY, SEEKING INVESTMENT AND CREDIT

Wed Dec 24, 2014

 By Marc Frank

HAVANA, Dec 24 (Reuters) – Cuba released more information on its fragile external finances this week than it has in over a decade, as it seeks foreign investment and credit following its sudden improvement in relations with the United States.

The government revealed a healthy current account surplus of $1 billion for 2014, supported by remittances and the re-export of oil that it receives on favorable terms from Venezuela, its closest ally. An estimate of foreign currency reserves, normally a state secret, has also surfaced. Western diplomats told Reuters they had seen a figure of $10 billion on what appeared to be an official economic report.

The revelations followed U.S. President Barack Obama’s announcement last week that Washington would restore diplomatic ties with Cuba and lift some economic sanctions in a dramatic about-face after more than five decades of confrontation.

Hungry for fresh credit but in no position to enter the bond market, Cuba has over the past four years restructured billions of dollars worth of debt with China, Japanese commercial creditors, Mexico and Russia, obtaining substantial reductions in what it owed in exchange for payment plans it can meet.

It has also significantly increased tax incentives for foreign investment, although companies say tax cuts are not enough and complain about a lack of information needed to make investment decisions.

Debt negotiations with the Paris Club of creditor nations may begin next year after 18 months of informal contacts, according to European diplomats, but they say Cuba will have to first open its books. It appeared to be making a start this week.

FRESH FIGURES

Diplomats said the reserves figure of $10 billion seemed feasible as Cuba has increased its reserves for fear of economic and political turmoil in Venezuela. It also plans to unify the dual monetary system and devalue the one-to-one exchange rate with the dollar.

Cuba last reported its “active” foreign debt, accumulated after it declared a default in the late 1980s, as $13.9 billion in 2011. It no longer reports its “passive” debt from before the default, which economists estimate at $8 billion.

Pavel Vidal, a former Cuban central bank official who now lives in Colombia but follows Cuba’s finances closely, said he estimates the foreign debt is “somewhere between $25 billion and $30 billion” and that a $10 billion reserves figure is plausible.

The current account showed a surplus of $1 billion this year but will drop to $5 million in 2015 as Cuba increases imports by 13 percent to stimulate growth, according to Economy Minister Marino Murillo, a significant admission for a country that usually waits three years to report such information. He revealed the information in a closed-doors session of the National Assembly last week and it was broadcast by state media on Monday.

Since President Raul Castro took over for older brother Fidel in 2008, Cuba has achieved significant trade and current account surpluses after years of deficits. Exports have risen more than 50 percent while imports have grown less than 8 percent as the government tries to regain international credibility by improving its finances and meeting debt payments.

Remittances totaled $1.7 billion this year and the re-export of Venezuelan oil brought in $765 million, Murillo said in offering a fairly detailed line item review of the current account for the first time in more than a decade.

He also said the payment of dividends to foreign joint venture partners would increase from $120 million this year to $447 million in 2015. Most surprisingly, Murillo, Castro’s point man charged with dismantling the old Soviet-style economy and building one similar to Asian communism, said Cuba obtained $5.7 billion in credit to cover the same amount in debt payments in 2015.

“To open the international financial gates Cuba will have to be much more transparent in releasing economic data, especially on its balance of payments,” said Richard Feinberg, the author of several studies on Cuba’s need to join the international financial community. “This new data release is a step in the right direction.” (Reporting by Marc Frank; Additional reporting by Daniel Bases in New York; Editing by Daniel Trotta and Kieran Murray)

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EUPHORIA GRIPS CUBA AMID DOUBTS OVER DETENTE

Marc Frank in Havana and John Paul Rathbone in London

Financial Times, December 18, 2014 6:14 pm

Original Article Here: EUPHORIA GRIPS CUBA

In 1980, Mariel was the site of a massive refugee exodus to the US. Today, however, it is better known for the $800m free trade zone and container port that opened there last year – just as Washington was midway through secret talks with Havana. These culminated with this week’s US announcement that it would ease trade sanctions against the island.

“It’s going to change things around here a lot,” said Pedro Cordero, a machine operator, as he mused about Mariel’s future and the prospect of better US trade relations. “Soon we are going to have everyone here: Brazilians, Chinese, Panamanian . . . and Americans.”

Like Mr Cordero, Cubans reacted with hope and occasional euphoria to Wednesday’s announcement by President Barack Obama that the US was in talks to re-establish diplomatic relations with Cuba and improve commercial ties after a five-decade freeze.

 “It’s great, great, great. Everyone is thrilled, happy, excited,” exclaimed Anaida Gonzales, a nurse, in the provincial capital of Camaguey, after learning the news.

Mr Obama’s move, which follows 18 months of back-channel talks, does not end the US embargo, which requires an act of Congress. Nonetheless, Havana’s decision to sink scant resources into Mariel’s modern container terminal – and to build new marinas and golf courses elsewhere – suggests Raul Castro, president, decided long ago to make an all-out effort to normalise commercial relations.

The need for the boost this would bring has grown as Mr Castro’s limited economic reforms – which include liberalising small businesses and allowing some co-operatives – have failed to kickstart Cuba’s stalled Soviet-style economy.

The economic crisis in Venezuela, Cuba’s largest benefactor, has compounded the problem. Caracas will potentially soon be unable to afford the millions of dollars worth of subsidised oil it sends to Havana each year.

The easing of US-Cuban commercial relations “sends a very strong signal to the international community about the future of the Cuban economy and also the profitability of investments, especially with the US market so near”, said Pavel Vidal, a former Cuban central bank official, who now teaches at Javeriana University in Cali, Colombia. “If investment does increase, growth could rise to five or six per cent a year.”

Mr Vidal said he expected the biggest short-term boost would come from Cuban-Americans. Under the new rules they can send $2,000 every three months to their relatives on the island – four times the current limit.

Cuba’s potential removal from the US list of national terrorist sponsors would also trigger the end of some of the financial sanctions that have deterred foreign investment and trade.

Diplomats believe Washington and Havana hope to see relations fully restored by the time Mr Obama leaves office in 2017, or by 2018, when Mr Castro has said he will step down. However, they are cautious about the prospect of the congressional approval needed to end the US embargo and about the speed of change in Cuba.

For one, the most complicated elements of Mr Castro’s reform programme are yet to be put in place — unifying Cuba’s myriad exchange rates and granting full autonomy to state enterprises. And, despite revamping its foreign investment law in July to lure business, Cuba has not announced a single new deal.

From past experience, Havana is likely to move slowly as it balances the need for economic reform against the political risks of liberalisation. “The agenda on the far side of the Florida Straits we now know in detail, but the internal one remains, as it so often does, hidden and secret,” wrote Cuban dissident blogger Yoani Sanchez from Havana.

Other Cubans voiced disquiet amid the euphoria, fearing that the rapprochement could prompt a wave of emigration by Cubans who want to take advantage of current rules that make gaining US citizenship relatively easy, amid concern that these might change.

“I’m worried about a new immigration crisis over the next few months as people rush to set foot in America,” Alexis Fernandez, a local tour guide, said.

Nonetheless, the general mood in Cuba is one of ebullience, with small-scale entrepreneurs rubbing their hands at the prospect of more US visitors and others hopeful that their daily hardships might end.

“Everyone is grinning, some people are crying,” said said Ileleny Santiesteban. “This is wonderful . . . that it will be easier for everyone in the future, here and over there. That, maybe, it is finally over.”

What happens next

Travel and commerce American internet and telecoms companies, as well as banks, will be able to start doing business with Cuba. US visitors will be able to bring back $100 worth of cigars, writes Geoff Dyer.

Official meetings Roberta Jacobson, US assistant secretary of state for the western hemisphere, will visit Havana in January. John Kerry, secretary of state, will likely follow soon after and the White House has not ruled out a presidential visit.

A new embassy The US already has a large Interests Section in Havana. It wants to upgrade this into a proper embassy.

US Congress Some leading Republicans in Congress, who are deeply critical of the opening to Cuba, have threatened to block funding for an embassy and to hold up nomination of an ambassador.

Sanctions President Obama went almost as far as he could within the law in reducing restrictions on dealing with Cuba, but ultimately a real relaxation of the embargo will require approval of a Congress that contains many sceptics.

mariel.jpg 2Old Mariel

mariel

The New Mariel Container Port

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AS CUBAN ECONOMY STAGNATES, ECONOMISTS PRESS FOR DEEPER REFORMS

By Marc Frank HAVANA (Reuters Oct 24 2014) –

Some of Cuba’s best-known economists are openly questioning the very core of the Soviet-style command economy and saying market reforms under way are too modest to boost weak growth.Emboldened by freer debate in the country, they are increasingly vocal in criticizing rigid instructions coming down from the top and the uneven management of policies across the economy, from banking to agriculture. Their influence on government policy-makers is difficult to gauge due to the secretive nature of the ruling Communist Party, but they clearly have been given leeway to call for changes.

Seeking to build a “prosperous and sustainable” socialism, President Raul Castro pushed through a 311-point reform agenda that was adopted by the Communist Party in 2011. It has led Cuba to liberalize farming and retail services by turning much of them over to cooperatives and allowing small private businesses. The Caribbean island is also actively seeking foreign investment. Castro, who took over from his older brother Fidel in 2008, has repeatedly said he despises false consensus and has encouraged debate as long as it takes place within the system.

The economists now talking out are generally members of the Communist Party and some have contact with high-ranking officials, suggesting they may be able to influence the debate inside government on the speed and scope of reforms.They have called for economic reforms for years, but never targeted so sharply the very pillars of the system.

Juan Triana, one of the best-known and most influential economists, says the government’s reforms have signaled a reliance on market mechanisms but officials have still not embraced competition for core parts of the economy and more than 2,000 state companies. “The cost of not recognizing the importance of competition for development are paid in lower rates of growth than the potential, the incorrect assigning of resources, lower than possible rates of productivity and efficiency, and most of all a lack of incentives for innovation, one of the principal motors of development,” he said in a recent presentation to mid-level government officials and peers at a seminar in Havana. The seminar was hosted by the Havana University Center for the Study of the Cuban Economy (CEEC), known for its bold stand for reform over the last 15 years and its criticism of the status quo.

Speaker after speaker joined Triana in urging deeper reform, according to copies of presentations seen by Reuters. Central planning, the government’s sway over strategic company decisions and the state’s monopoly in foreign trade were all criticized.

Frente-CEECCentro de Estudios sobre la Economia Cubana (CEEC), Universidad de la Habana

 “Probably, the so-called state monopoly on foreign trade is a big obstacle to the diversification and growth of exports,” said Miguel Alejandro Figueras, winner of Cuba’s top economics prize in 2007.

While Castro’s reforms have raised the expectations of many Cubans, they have largely disappointed. Public frustration over a lack of well-paid jobs has contributed to a sharp increase in the number of Cubans risking dangerous and illegal journeys on home-made boats in search of better opportunities in the United States. “Most Cubans support the reforms but are coming to realize that much more needs to happen. I think everyone from top to bottom is concerned with the numbers and reality on the ground,” said one Cuban economist, who asked to remain anonymous due to a prohibition on talking with foreign journalists without permission.

The economists generally believe Cuba’s leaders are listening, in part because the reforms so far have failed to lead to growth. They say they hope to reinforce the more reform-minded leaders in closed-door debates at the highest levels. Many liken Cuba’s process to the first years of reform in China and Vietnam, when partial measures proved ineffective and eventually gave way to deeper reforms. But Castro has moved at a deliberate pace, and despite official calls for a more critical press unorthodox views rarely get aired in the state-controlled media. The government revised down its economic growth forecast for this year to 1.4 percent, a second straight year of slowing growth, and food prices are rising on average 10 percent a year. Meanwhile, more than 70 percent of the economy remains in state hands, usually in the form of monopolies.

At the recent seminar, economist Jorge Mario Sanchez criticized state monopolies as out of step with a growing mixed economy and international competition. “The state-centrist culture of production and trade by the state and for the state should begin to transition to another broader mode from and for society,” he said.

Others say harsh U.S. economic sanctions against Cuba are only partially to blame for a lack of state financing and delays in the arrival of supplies and parts, which lead to disruptions in production and shortages. “Our top leaders are very aware of these problems, but unsure how to proceed without creating greater inequality,” said the economist who asked to remain anonymous.

Hal Klepak, a Canadian military historian and author of two books on the Cuban military and Raul Castro, said he thought Castro and other leaders “find criticism welcome not because it is comfortable but because it allows them to push for more and faster movement of a deeply cutting kind.” “There will be more and deeper reform since there is really little hope for any other option,” Klepak said.

Another outside expert differed, doubting that major changes were coming any time soon. “There is still no blueprint as to where the major state-controlled sectors will be in 5 or 10 years time,” said Paul Hare, a former British ambassador to Cuba who now teaches at Boston University.

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Juan Triana, CEEC

Jorge Mario SanchezJorge Mario Sanchez, CEEC

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AFTER OFFSHORE OIL FAILURE, CUBA SHIFTS ENERGY FOCUS

By Marc Frank; Reuters; 1:00 p.m. EDT, August 11, 2014

HAVANA (Reuters) – Cuba has shifted its focus away from offshore oil, concentrating on renewable energy and improving output from onshore wells due to a lack of interest by foreign companies for further deep-water exploration, sources close to the industry say.
With so much oil readily available around the world, oil companies including those from allies China and Russia see little incentive in drilling off the Caribbean island, delaying the Cuban dream of oil wealth that could inject vigor into its socialist revolution.

With the U.S. trade embargo of Cuba further complicating drilling plans, the country is seeking investors in renewable energy such as biomass and wind while attempting to increase output from existing onshore and shallow water wells.

Russia’s state-run Rosneft and the China National Petroleum Company (CNPC) separately agreed last month to help Communist-run Cuba extract more oil along the traditional northwest heavy oil belt, but did not sign on to deepwater exploration.
The northwest heavy oil belt is a 200-mile (320-km) stretch of the northern coast from Havana to Villa Clara and reaching up to 3 miles (5 km) offshore. It produces poor quality oil that meets 40 percent of the country’s needs.

Rosneft and CNPC will also support the horizontal drilling of new wells from shore and join Canadian firm Sherritt International and another Russian state-run oil company, Zarubezhneft, which are already carrying out similar work. Cuba had hoped Russia and China, whose presidents visited in July, would explore deepwater offshore fields that it says may hold 20 billion barrels of oil and end its dependence on socialist ally Venezuela. Venezuela sends 115,000 barrels of oil per day to Cuba under favorable terms.

“The Cubans have stopped talking about offshore oil exploration in the state-run media and in private appear more interested in new recovery methods for existing wells, biogas projects and windmill farms,” a European diplomat said.

Three deep-water wells drilled in 2012 by Spanish, Norwegian, Indian, Malaysian, Russian and Venezuelan firms came up dry. All but the Norwegian state firm Statoil ASA and Venezuelan state oil company PDVSA have pulled out, and those companies are inactive. Future drilling has been postponed for the foreseeable future.

Untitled-Scanned-43Pumping Petroleum, Near Cardenas, 1994

A BIG GAMBLE

Difficult geology from hard rock encountered while sinking the wells, alternative prospects elsewhere and U.S. sanctions that require oil rigs to carry less than 10 percent U.S. technology are discouraging further drilling, according to Western diplomats.
“Exploration is not a one-shot deal, but in Cuba due to many factors it is. Drilling is like playing once at a roulette wheel with $100 million chips,” said a diplomat whose country was involved in exploration.

Jorge Pinon, an expert on Cuban oil at the Center for Energy and Environmental Policy at the University of Texas in Austin, said, “They are shifting their focus and efforts to the known coastal reservoirs rather than on the unknown offshore deep-water reservoirs.”
Cuba’s heavy crude fields have a recovery factor of about 10 percent (10 barrels for every 100 barrels in a well), due to the viscosity of the crude and the porosity of the rock formations from which it is extracted, Pinon said.

“If successful, Cuba could increase its present recovery factor from 10 percent to maybe 17 to 20 percent adding an additional 12,000 to 15,000 barrels of new production if not more to their current level of approximately 50,000 barrels per day,” Pinon said.

Vice President and politburo member Marino Murillo told parliament in July that Cuba planned to invest $3.6 billion over the next 15 years in alternative energy, which is a priority for foreign investment. Murillo said 96 percent of energy generation came from oil and that the goal was to reduce that by 2030 to 76 percent, with the remainder coming from 19 bioelectricity plants attached to sugar mills, 13 wind parks and solar facilities. He did not mention deep-water oil exploration.

 

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Cuban sugar harvest falters; foreign investment sought

  By Marc Frank

Original here:  Cuban Sugar Harvest, 2014   

HAVANA, March 4 (Reuters) – For the third consecutive year Cuba’s reorganized sugar industry is failing to perform up to expectations, increasing pressure on the government to open up the once proud sector to foreign investment.

Already one mill, the first since the industry was nationalized soon after the 1959 revolution, is under foreign management, with at least seven others on the auction block.

AZCUBA, the state-run holding company that replaced the Sugar Ministry three years ago, announced plans to produce 1.8 million tonnes of raw sugar this season, 18 percent more than last season’s 1.6 million tonnes. But the harvest is 20 percent behind schedule, sugar reporter Juan Varela Perez wrote recently in Granma, the Communist Party daily.

“Continuous and heavy rainfall in almost all provinces of the country has affected the harvest since January,” state-run Radio Rebelde said late last week, reporting on a meeting of AZCUBA executives at the end of February. “To this has been added the habitual problems of inputs arriving late, disorganization and the poor quality and slowness of repairs,” the report said.

Sugar was once Cuba’s leading export, both before the revolution and afterward, when the former Soviet Union bought Cuban sugar at guaranteed prices. Today it is Cuba’s seventh largest earner of foreign currency, behind services, remittances, tourism, nickel, pharmaceuticals, and cigars.

“These days it is a true odyssey to go through a harvest. The mills need more profound repairs, but that costs millions upon millions of dollars,” Manuel Osorio, a mill worker in eastern Granma province, said in a telephone interview on Tuesday. “So they do some superficial repairs and start grinding and immediately the problems begin and this year to top it off it is hot and raining almost every day. The cane needs cool and dry weather to mature. If not, it is like milling weeds.”

The sugar harvest begins in December with the “winter” season and runs into May, with January through March the key months as dry and cool weather increases yields, but not this year.

“I can’t remember a wetter winter and it is almost impossible to harvest,” sugarcane cutter Arnaldo Hernandez said in a telephone interview from eastern Holguin province.

Cuban sugar plantations lack adequate drainage, making harvesting by machine difficult when it rains, and humid weather retards the production of sugar in cane.

“Going into the plantations is a heroic task, and when the cane reaches the mills it yields little sugar,” Hernandez said. “Look, even the Guaraperas (sugarcane juice) they sell in the city is like water. I know because I tried some myself yesterday.”

Rainfall was twice the average for the month in key eastern and central provinces through most of February, according to official media.

“So far this year 115.2 millimeters (4.5 inches) of rain has fallen in (the eastern province of) Las Tunas, twice the historic average,” the National Information Agency reported in late February. The agency said the harvest in Las Tunas was 35,000 tonnes of raw sugar behind schedule to date toward a plan of 194,000 tonnes through May.

A similar situation was reported in central Villa Clara, where the goal is 218,000 tonnes, and in central Camaguey, which reported production to date was 13 percent, or 11,000 tonnes, below plan.

INVESTMENT OPENING

Cuba produced just 1.2 million tonnes of raw sugar three seasons ago when AZCUBA was formed, compared with 8 million tonnes in the early 1990s, before the demise of the Soviet Union led to the industry’s near collapse. Industry plans call for an annual average increase in output of 15 percent through 2016, though over the last three harvests the increase has been 12 percent, according to AZCUBA. The poor performance so far this year may accelerate AZCUBA’s plans to open the sector to private investment.

President Raul Castro, who assumed power from his ailing brother Fidel Castro in 2008, is trying to revive the country’s economy through reforms passed by the Communist Party in 2011. The plans include more foreign investment.

This year, the Cuban Chamber of Commerce listed seven more sugar mills as candidates for foreign investment, all of which were built after the revolution and are therefore not subject to claims by previous owners. The remaining 48 mills in the country were all built more than 60 years ago.

This month the Cuban National Assembly is expected to pass a new foreign investment law that makes the island, and agriculture, more investor friendly.

Odebrecht SA, a Brazilian corporation, began administering a mill in central Cienfuegos province this year, the first foreign company allowed into the industry since 1959. Odebrecht subsidiary, Compañía de Obras en Infraestructura, plans to upgrade the mill as well as the supporting farm and transport sectors, and has expressed an interest in other mills, as have a number of other foreign companies. Its 13-year contract calls for an investment of around $140 million to increase output to more than 120,000 tonnes of raw sugar from 40,000 tonnes.

Cuba consumes between 600,000 and 700,000 tonnes of sugar a year and has an agreement to sell China 400,000 tonnes annually, with what remains sold to other countries.

 DSCN0496

 

Mechanized Zafra

cimg3076Cane Transport

New-Picture-4

An Aerial View of what was Left of the Australia Sugar Mill, 2011

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Cuban hopes dashed as new and used cars go on sale

 

By Marc Frank

HAVANA (Reuters) – Cubans awoke on Friday for the first time in half a century with the right to buy new and used vehicles from the state without special permission, but markups of 400 percent or more quickly dashed most people’s expectations.

At the state-run Peugeot dealership in Havana on Friday morning, where prices ranged from $91,000 for a 2013 model 206 to $262,000 for a 508, people walked away shaking their heads in disgust.

“I earn 600 Cuban pesos per month (approximately $30). That means in my whole life I can’t buy one of these. I am going to die before I can buy a new car,” Roberto Gonzales, a state driver, said, walking back to his 1950s Plymouth. The average monthly wage in Cuba, where four out of five of the 5 million-strong labor force work for the state, is $20.

A European diplomat quipped, “I am slightly flabbergasted. With these prices, the old-time U.S. cars will not disappear fast from the streets.”

Under a reform two years ago, Cubans can now buy and sell used cars from each other, but until Friday had to request authorization from the government to purchase a new vehicle or second-hand one, usually a rental car, from state retailers. Before September 2011, only automobiles that were in Cuba before the 1959 revolution could be freely bought and sold, which is why there are so many 1950s or older cars, most of them American-made, rumbling through Cuban streets.

Geely-CK

New Geely cars, Cuba’s #1 best seller

Along with Cuba’s famous rolling museum of vintage U.S. cars, there are also many Soviet-made cars, dating from the era when the Soviet Union was the island’s biggest ally and benefactor. Newer models are largely in government hands and were sold used before Friday at a relatively low price to select individuals, for example, Cuban diplomats, doctors and teachers who served abroad.

Across town from the Peugeot dealership, where more than a hundred used rent-a-cars went on sale for prices ranging as a rule from $25,000 on up, disgust turned to anger on Friday.  “These prices show a lack of respect for all Cubans. What is here are wrecks. I now have no hope of getting a car for my family,” artist Cesar Perez said, looking at a 2005 Renault on sale for the equivalent of $25,000 and available outside the country on the Internet for $3,000.

A teacher looked at the price list and yelled “Are there any bicycles?” as she stomped away without giving her name.

STATE MONOPOLY

The Cuban state maintains a monopoly on the retail sale of cars. There are 650,000 autos on the island, half of them owned by the government.

The decades-old ban on importing cars and need for state permission to purchase from the state has left nine out of 10 Cuban households without a car or other vehicle such as a motorcycle and dependent on the decrepit public transportation system.

The cost of new and used cars sold by Cubans to each other is similar to those that went on sale on Friday because of limited availability.

The government said all profits would go into a special fund to upgrade public transportation.

Diplomats, foreign businesses and select Cubans will still need government permission to import a new or used car without the huge markup.

The liberalizing of car sales was one of more than 300 reforms put forth by President Raul Castro, who took over for his ailing brother Fidel in 2008, and approved in 2011 at a congress of the Communist Party, Cuba’s only legal political party. The proposed changes put a greater emphasis on private initiative, which had been largely stifled under Cuba’s Soviet-style system, and less government control over the sale and purchase of personal property such as homes and cars.

“These prices will clearly be outside the purchasing capability of the vast majority of Cubans, even with the support from relatives abroad. In essence, they represent a luxury tax imposed by the government on the nouveau riches of Cuba,” John Kirk, one of Canada’s leading academic experts on Latin America and author of a number of books on Cuba, said by email.

There are now tens of thousands of small private businesses in Cuba, and thousands of farm, construction, transportation and other types of cooperatives, all of which in theory should benefit from the opening up of car sales.

Bert Hoffmann, a Cuba expert at the German Institute of Global and Area Studies in Hamburg said in an email that many businesses needed vehicles, but such high prices would make it difficult for most and cut into other business activity, stalling their overall development.

Cuba Apr 2012 072’57 Ford;  CuC 1.00  for having a photo taken

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Exclusive: Russia signs deal to forgive $29 billion of Cuba’s Soviet-era debt – diplomats

By Marc Frank;  HAVANA Mon Dec 9, 2013 3:55pm EST

HAVANA (Reuters) – Russia and Cuba have quietly signed an agreement to write off 90 percent of Cuba’s $32 billion debt to the defunct Soviet Union, a deal that ends a 20-year squabble and opens the way for more investment and trade, Russian and European diplomats said.

The two sides announced an agreement to settle the debt dispute earlier this year and finalized the deal in Moscow in October. It would have Cuba pay $3.2 billion over 10 years in exchange for Russia forgiving the rest of a $32 billion debt – $20 billion plus service and interest, the diplomats said. It must still be approved by the Duma, Russia’s lower house of parliament.

800px-Embassy_of_Russia_in_Havana_-_Nick_De_MarcoRussian Embassy, Havana

Negotiations on the form in which Cuba will pay the remaining debt are ongoing, the diplomats said, as even $320 million per year represents a large sum for the cash-strapped country, which has labored under a U.S. economic embargo for decades.

Cuba’s total export earnings are around $18 billion, including tourism and medical and educational services.

Neither Cuba nor Russia has made any official comment on the debt agreement. Cuban officials were not immediately available for comment.

Cuba defaulted on its debt in the late 1980s but recently has been trying to restructure the old debts to improve its international credibility.

Russian Prime Minister Dmitry Medvedev, during a visit to Cuba in February, signed a general agreement to work out a formula and settle the old debt by next year. The decision rankled other countries grouped in the Paris Club of creditor nations because it broke ranks with the collective approach of the organization.

PARIS CLUB CONTACTS

The Paris Club is an informal group of creditor governments including Canada, France, Germany, Japan, Russia, the United Kingdom and the United States as well as a number of smaller European nations. The Paris Club reported that Cuba owed its members $35 billion at the close of 2012, now estimated at around $37 billion, which would leave the island owing $5 billion to $6 billion of non-Soviet debt to the club’s members.   The organization has a Cuba working group, which does not include the United States.

Russia pledged to work with Cuba towards reaching an agreement with the Paris Club as part of the October settlement, one Russian diplomat said. “The Paris Club should be grateful as it removes a huge amount of money from the table and makes an eventual agreement more likely,” he said.

While some Paris Club members clearly preferred a united front, one European diplomat said Russia’s help in settling Paris Club debt could prove important and that a reduced debt would indeed be more easily negotiable.

Since the Medvedev visit, the Paris Club has put out feelers to the Cubans and a few months ago two representatives traveled to the Caribbean island to meet with the central bank, the first such visit in over a decade. Unlike the International Monetary Fund and World Bank, from which Cuba is excluded under the longstanding U.S. trade embargo, the Paris Club does not issue multilateral loans.

Cuba releases very little information about its foreign debt. Last month the government reported its “active” foreign debt, accumulated after it declared a default in the late 1980s, as $13.6 billion in 2010. The government no longer reports its “passive” debt from before the default and estimated at around $8 billion. The Communist-run island has never included debt to the Soviet Union in its figures, claiming the amount was in overvalued convertible rubles and that the country sustained massive damage from broken contracts when its former benefactor collapsed.

Cuba has post-1980s default debt of hundreds of millions of dollars to Russia. “The final deal recognizes some of the Soviet debt, and that’s politically important for Russia. It also opens the way for more credit which is important for Cuba,” a Russian diplomat said, like others requesting anonymity.

SEARCH FOR CREDIBILITY

Three years ago Cuba restructured its active government and commercial debt with China, estimated at around $6 billion. Last year Cuba settled a dispute with Japanese commercial creditors dating back to the 1980s. Under the Japanese agreement, 80 percent of the 130 billion yen debt (about $1.4 billion) was forgiven, with the remainder to be paid over 20 years. Mexico recently forgave 70 percent of a $478 million debt Cuba accumulated in the late 1990s, in exchange for the remaining $146 million being paid over 10 years.

“The agreements with China, Japan, Mexico and Russia ease some outside financial restrictions on the Cuban economy and should facilitate trade ties with these countries,” said Pavel Vidal, a former Cuban Central Bank economist now teaching at Colombia’s Javeriana University. “The austerity measures adopted by the government in 2009, and these accords to lower the foreign debt, help stabilize the island’s finances at a very important moment when a significant monetary reform over three years (devaluation and elimination of the dual currency system) has begun,” he said.

Raul Castro, who replaced his ailing brother Fidel as president in 2008, has drastically reined in imports and cut state payrolls and subsidies while insisting the near-bankrupt government get its financial house in order.

In 2011, the Communist Party approved a five-year economic plan that called for efforts to “enhance Cuba’s credibility in its international economic relations by strictly observing all the commitments that have been entered into,” before and after the default. The plan also called for expediting the rescheduling of Cuba’s foreign debts and implementing “flexible restructuring strategies for debt repayment” as soon as it is practical.

(Editing by David Adams and Jim Loney)

Soviet Spy Ship, havana Harbour, 1971; Photo by Arch RitterSoviet Spy Ship, Havana Harbour, 1971; Photo by Arch Ritter

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Cuba bids to lure foreign investment with new port and trade zone

By Marc Frank

Original Article Here:   Mariel

Mariel Harbor

HAVANA, Sept 23 (Reuters) – Cuba published rules and regulations on Monday governing its first special development zone, touting new port facilities in Mariel Bay in a bid to attract investors and take advantage of a renovated Panama Canal.

The decree establishing the zone and related rules takes effect on Nov. 1 and includes significant tax and customs breaks for foreign and Cuban companies while maintaining restrictive policies, including for labor.

Cuba hopes the zone, and others it plans for the future, will “increase exports, the effective substitution of imports, (spur) high-technology and local development projects, as well as contribute to the creation of new jobs,” according to reform plans issued by the ruling Communist Party in 2011.

The plan spoke positively of foreign investment, promised a review of the cumbersome approval process and said special economic zones, joint venture golf courses, marinas and new manufacturing projects were planned. Most experts believe large flows of direct investment will be needed for development and to create jobs if the government follows through with plans to lay off up to a million workers in an attempt to lift the country out of its economic malaise.

The Mariel special development zone covers 180 square miles (466 square km) west of Havana and is centered around a new container terminal under construction in Mariel Bay, 28 miles (45 km) from the Cuban capital.

The zone will be administered by a new state entity under the Council of Ministers, and investors will be given up to 50-year contracts, compared with the current 25 years, with the possibility of renewal. They can have up to 100 percent ownership during the contract, according to Cuba’s foreign investment law.

Investors will be charged virtually no labor or local taxes and will be granted a 10-year reprieve from paying a 12 percent tax on profits. They will, however, pay a 14 percent social security tax, a 1 percent sales or service tax for local transactions, and 0.5 percent of income to a zone maintenance and development fund.

Foreign managers and technicians will be subject to local income taxes. All equipment and materials brought in to set up shop will be duty free, with low import and export rates for material brought in to produce for export.

However, one of the main complaints of foreign investors in Cuba has not changed: that they must hire and fire through a state-run labor company which pays employees in near worthless pesos while investors pay the company in hard currency.

Investors complain they have little control over their labor force and must find ways to stimulate their workers, who often receive the equivalent of around $20 a month for services that the labor company charges up to twenty times more for.

And investors will still face a complicated approval policy, tough supervision, and conflict resolution through Cuban entities unless stipulated otherwise in their contracts. And they must be insured through Cuban state companies.

MARIEL PORT

The Mariel container terminal and logistical rail and highway support, a $900 million project, is largely being financed by Brazil and built in conjunction with Brazil’s Grupo Odebrecht SA. The container facility will be operated by Singaporean port operator PSA International Pte Ltd. The terminal is scheduled to open in January.

Future plans call for increasing the terminal’s capacity, developing light manufacturing, storage and other facilities near the port, and building hotels, golf courses and condominiums in the broader area that runs along the northern coast and 30 miles (48 km) inland.

Mariel Bay is one of Cuba’s finest along the northern coast, and the port is destined to replace Havana, the country’s main port, over the coming years. The Mariel terminal, which will have an initial 765 yards (700 meters) of berth, is ideally situated to handle U.S. cargo if the American trade embargo is eventually lifted, and will receive U.S. food exports already flowing into the country under a 2000 amendment to sanctions.

Plans through 2022 call for Mariel to house logistics facilities for offshore oil exploration and development, the container terminal, general cargo and bulk foods facilities. Mariel Port will handle vessels with up drafts up to 49 feet (15 meters) compared with 36 feet (11 meters) at Havana Bay due to a tunnel under the channel leading into the Cuban capital’s port.

The terminal will have an initial capacity of 850,000 to 1 million containers, compared with Havana’s 350,000.

Leaving Mariel, April 1980

April 23, 1980: Arriving in Key West  on the shrimp boat Big Babe.

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Cuba pushes ahead on reforms but insists island not for sale

By Marc Frank in Havana, Financial Times,  July 15, 2013 1:29 pm

Cuba’s efforts to build a more market-driven economy are moving from lifting prohibitions on personal property, travel and minor economic activity to reform of larger state companies. But one of the most powerful men in the land had bad news last week for those who might harbour hope of owning a piece of the Caribbean island.

 “Life has demonstrated that the state cannot occupy itself with the entire economy, that it must cede space to other forms of administration,” Marino Murillo, the man appointed to head President Raúl Castro’s reform efforts, told journalists visiting the country last week. But Mr Murillo, a member of the politburo and vice-president of the Council of Ministers, emphasised that it was a transfer of administration and not a “property of the people” reform.

Since Raúl Castro took over from his ailing brother Fidel Castro in 2008, and first began to institute austerity measures and reforms, the country’s current account has run a surplus, but economic growth has stagnated at just over 2 per cent annually. The Cuban Communist Party and government adopted a more than 300 point plan in 2011 to “update” the country’s economic and social model, “but the party made clear the changes were to take place within the limits of socialism”, Mr Murillo said.

Asked repeatedly about foreign investment opportunities, the officials offered nothing new at all, repeating stock lines about investment being complementary to their development schemes and that existing regulations were flexible and adequate.

Mr Murillo said the government was developing a list of offers that should be ready by 2014 and were planned to stimulate investment. The implication was that drawn-out negotiations over control of joint ventures, duration of the agreements, tax breaks and labour relations are unlikely to be resolved soon. The possible exception is a special economic zone in western Cuba expected to open next year and which is awaiting publication of its rules and regulations. None of the 190 companies managing and temporarily in joint ventures in Cuba own any property outright, nor do they have the right to sell shares except with the authorisation of their partner, the state.

The Havana Cross-Harbor Ferry Chasing a Container Ship

Mr Murillo said agriculture represented more or less what authorities envision for minor and secondary sectors of the economy.  The country has leased fallow state land to nearly 200,000 would-be farmers in recent years, loosened the regulation of co-operatives that were already leasing state land and freed up all agricultural actors to sell more of their produce (currently 47 per cent) on the open market, bypassing the state’s wholesale and retail outlets. “Eighty-one per cent of the land is social property owned by the people, and 70 per cent of the land is administered by co-operatives and small farmers,” he said. Twenty per cent is owned by small farmers and their private co-operatives.

Cuba has been busy fostering development of small businesses in retail services, transport, construction and minor production, and allowing market forces to govern their activities, along similar lines to the agricultural sector. The government is leasing taxis and thousands of state shops, with up to five workers, to its former employees or any takers, and this month began to transfer larger enterprises with 6 to around 50 workers to co-operative administrations, 124 to date, with another 71 approved.

Currently, 4m people out of the country’s 5.1m-member labour force work for the state, the remainder occupied in what is called the “non-state” sector, Mateu Pereira, an adviser to the minister of labour and social security, told the journalists. An estimated 1m Cubans of working age do not seek employment. The co-operatives are the first outside of agriculture since all businesses were nationalised in 1968. The government says many more establishments will follow, beginning in 2014.

The co-operatives function independently of the state on the basis of supply and demand, divide their profit among members and receive better tax treatment than individually owned businesses, according to Cuban officials. A decree law published in December allows for an unlimited number of members and use of contracted employees on a three-month basis.

Cuba will also begin deregulating state-run companies in 2014 as reform of the Soviet-style command economy moves from retail services and farming into its biggest enterprises, the head of the Communist Party’s reform efforts said. Mr Murillo said the 2014 economic plan included dozens of changes in how the companies, accountable for most economic activity in the country, did business.  The reforms will affect big state enterprises such as telecommunications company Etecsa, tourism corporations, trading company Cimex and sugar monopoly Azcuba.

Mr Murillo said changes include granting managers more autonomy and permission to sell excess products after meeting state obligations on the market, and allowing companies to retain half of their profits after taxes for such things as minor investment and wage increases.

Artesan market, La Rampa November 2008; not state enterprise

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Cuba to Embark on Deregulation of State Companies

By Marc Frank; HAVANA | Mon Jul 8, 2013

Original here:  Cuba to embark on deregulation of state companies

HAVANA (Reuters) – Cuba will begin deregulating state-run companies in 2014 as reform of the Soviet-style command economy moves from retail services and farming into its biggest enterprises, the head of the Communist Party’s reform efforts said.

Politburo member and reform czar Marino Murillo said the 2014 economic plan included dozens of changes in how the companies, accountable for most economic activity in the country, did business. He made the comments in a closed-door speech to parliament deputies on Saturday, and some of his remarks were published by official media on Monday.

“The plan for the coming year has to be different,” Murillo was quoted as saying by Communist Party daily newspaper Granma. He said that of 136 directives for next year “51 impact directly on the transformation of the companies.”

The reforms will affect big state enterprises like nickel producer Cubaniquel and oil company Cubapetroleo and entail changes like allowing the firms to retain half of their profits for investment and wage increases and giving managers more authority. The plan also threatens nonprofitable concerns with closure if they fail to turn themselves around.

“Murillo’s empowerment of state-run companies is a milestone on the road toward a new Cuban model of state capitalism, where senior managers of government-owned firms become market-driven entrepreneurs,” said Richard Feinberg of the Washington-based Brookings Institution and an expert on Cuba’s economy.

“But only time will tell whether the government is willing to truly submit the big firms to market discipline – to let the inefficient ones go bankrupt,” he said.

Murillo cited the Communist Party’s reform plan, adopted in 2011, which he said called for freeing productive forces to increase efficiency and reducing how companies’ performance was measured to a few indicators such as profit and productivity.

Already this month, 124 small to medium state businesses, from produce markets to minor transportation and construction concerns, were leased to private cooperatives which, with few exceptions, operate on the basis of supply and demand and share profits.

Hundreds more were expected to follow in the coming years as the state moves out of secondary economic activity such as retailing and farming in favor of individual initiative and open markets under reforms orchestrated by President Raul Castro, who took over for his ailing brother Fidel in 2008.

Cuba’s economy was more than 90 percent in state hands up until 2008 and almost all of the its labor force of 5 million workers were state employees.

Cuba began laying off hundreds of thousands of state workers and deregulated small retail services in 2010, simultaneously creating a “non-state” sector of more than 430,000 private businesses and their employees as of July and leasing land to 180,000 would-be farmers.

Now larger enterprises, from communications, energy and mining to metal works, shipping, foreign and domestic trade, are being tweaked as the country strives to avoid bankruptcy and boost growth, which has averaged around 2 percent annually since the reforms began.

John Kirk, one of Canada’s leading academic experts on Latin America and author of a number of books on Cuba, summed up the changes announced by Murillo: “Cuba maintains its path towards a mixed economy.”

“It appears as if government determination to modernize the economy is slowly overcoming the profoundly rooted inertia of the bureaucracy,” he said.

 

CUPET: Out of gas? 

ELIMINATING BARRIERS

Murillo said companies would keep 50 percent of profits for recapitalization, minor investments, wage raises and other activities, instead of handing over all profits to the state and then waiting for permission to spend the money.

“The plan is designed so that a businessman from whatever sector does not have to ask permission to make minor investments to ensure production does not stop,” Murillo was quoted as saying.

“It eliminates administrative barriers to salary payments, which directors of companies can decide on, always and when they have sufficient profits to cover them,” he said.

Companies, which in the past were assigned hard currency for imports, will now be able to use the money to purchase local products.

“If an institution has … $200 million to import, and a local producer can produce what it plans to import, this body can directly pay that local producer with the approved funds,” Murillo said.

At the same time state firms that have reported losses for two years or more will be expected to turn a profit or they will be downsized, merged with others or closed.

“We can’t make a plan that includes companies like these … because the phenomena of having to finance these losses will persist,” Murillo said.

Cuba has already implemented some measures to set the stage for state company reform.

Most companies have been moved out of government ministries in favor of operating as “independent” holding companies and in some cases, such as in tourism, allowed to keep a percentage of revenues.

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