Tag Archives: Economic Reforms

GACETA OFICIAL NO. 35 EXTRAORDINARIA, DE 10 DE JULIO DE 2018:

Posted on July 17, 2018 by Arch Ritter

New Regulations for Cuba’s Non-Agricultural Private Enterprises as of July 10, 2018

Complete Document available here:

Gaceta-Oficial-Extraordinaria, 10 de Juliode 2018, _CYMFIL20180710_0001

 

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CUBA MOVES BACKWARDS: NEW REGULATIONS LIKELY TO IMPEDE PRIVATE SECTOR GROWTH.

Posted on July 17, 2018 by Arch Ritter

Brookings, Friday, July 13, 2018

Richard E. Feinberg, Nonresident Senior Fellow – Foreign Policy, Latin America Initiative and Claudia Padrón Cueto, Reporter – El Toque (Havana, Cuba)

In a leap backwards, the Cuban government has published a massive compendium of tough new regulations governing the island’s struggling private enterprises. The new regulations—the first major policy pronouncement during the administration of President Miguel Díaz-Canel—appear more focused on controlling and restricting the emerging private sector than on stimulating investment and job creation, more concerned with capping wealth accumulation than in poverty alleviation.

Many small businesses that cater to foreign visitors are already suffering from Trump-era restrictions and travel warnings that have decimated the U.S. tourist trade in Havana. But the new regulations are more a product of domestic Cuban politics than foreign pressures.

On a positive note, the Cuban government promises to renew the granting of licenses for many categories of private businesses by year-end, repealing the extended suspension announced last summer. But the new regulations greatly empower government rule-makers and intrusive inspectors, casting a gray cloud over the island’s business climate. Many existing businesses are likely to retrench if not close altogether.

The private sector grew dramatically in recent years, to include nearly 600,000 owners and employees by official figures, with many more enterprising Cubans working informally; in contrast, the state sector stagnated and further decapitalized. Indeed, many thriving private businesses began to compete successfully against state entities, notably in restaurants, bars and night clubs, guest houses, construction, and transportation. The healthy wages paid by profitable private firms often eclipsed the meager salaries paid to disgruntled government officials and factory workers.

The extensive, highly detailed regulations, which go into effect in December, read like “the revenge of the jealous bureaucrat.” Drawing on a multitude of ministries and operating at all levels—national, provincial, and municipal—interagency committees will now be empowered to authorize, inspect, and regularly report upon private businesses under their jurisdictions. The regulations are replete with astoundingly specific performance requirements and innumerable legal breaches that seem crafted to allow government officials wide discrimination to impose heavy fines (or extort bribes), suspend licenses, and even seize properties.

To cite but a few such regulations: Private restaurants and guest houses must cook food at a minimum of 70 degrees Celsius for the time required for each food; day care centers must allocate at least two square meters per child, have no more than six children per attendant, and be outfitted with pristine bathroom facilities described in exquisite detail (private schools and academies are strictly prohibited); and private taxi drivers must document that they are purchasing fuel at government gas stations, rather than buying on the black market. Further, local officials can deny new licenses based on “previous analyses,” even if the proposed business plan meets all the other specifications, and can fix prices “when conditions warrant.”

The regulations could help shield state enterprises from unwanted private competition. The very ministries that stand to lose market shares are in charge of approving licenses in their sector. For example, the ministry of tourism has the lead in judging licenses for private guest houses. Appeals are possible, but to administrative authorities, not to judicial courts.

Government agencies are also seeking to reassert control over the island’s vibrant artistic communities. The regulations prohibit artists from contracting directly with private restaurants and bars; rather they must be represented by public-sector entities that charge commissions up to 24 percent of revenues. Moreover, performers must not use “sexist, vulgar or obscene language,” which if enforced could imply the banning of popular hip-hop and reggaeton songs and videos.

Perhaps most telling are the restrictive rules squarely aimed at inhibiting private capital accumulation. In a sharp turn from past practice, Cubans will now only be allowed one license for one business, effectively outlawing franchising and diversification. Capacity at restaurants and bars is capped at 50 guests. Most biting, the new regulations establish an upward-sloping wage scale (whereby wages rise as more workers are hired); hiring more than 20 workers becomes prohibitively expensive (six times the average wage). Unlike in the past, employers will now have to pay taxes on the first five workers hired as well.

Many private businesses must also record their transactions (revenues and expenditures) in an account at a government financial institution and keep three months of prospective taxes on deposit. Intended to reduce under-reporting of income, this measure will significantly raise the effective rates of taxation. Investors must also explain their sources of funds. In a country where political authority is unchecked, these financial impositions alone will discourage many potential entrepreneurs.

The Cuban authorities have repeatedly asserted their interest in attracting foreign investment, to compensate for weak domestic savings. However, foreign investors are likely to view these new regulations, even though they apply to domestically-owned firms, as indicative of an official wariness if not hostility toward private enterprise in general. Risk-averse foreign investors will also note that the Cuban government is quite capable of precipitously altering the rules of the game.

The new regulations are the first major policy initiative promulgated during the administration of President Miguel Díaz-Canel. Many of the resolutions were approved by the Council of State under Raúl Castro, prior to Díaz-Canel’s inauguration in April, but nevertheless were issued during his young tenure. Not a good sign for those hoping that Díaz-Canel, 58 years old and ostensibly representing a younger generation, might quickly place his own imprimatur over the extensive state apparatus.

The new regulations make one thing abundantly clear: The Cuban government, state-owned enterprises and the ruling Cuban Communist Party do not want to risk major competition to their own interests—economic, commercial, and political—from a potentially capital-rich, diversified emerging private sector. Apparently, perceived interests in security and stability have overruled Cuba’s own declared economic development goals.

 

 

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CAN CUBA’S MIGUEL DÍAZ-CANEL COMPLETE RAÚL CASTRO’S ECONOMIC REVOLUTION?

Posted on May 7, 2018 by Arch Ritter

BY WILLIAM M. LEOGRANDE ON 5/3/18 AT 12:18 PM

Original Article: MIGUEL DÍAZ-CANEL

When Miguel Díaz-Canel formally accepted the presidency of Cuba in April, he became the first non-Castro to run the country since Fidel’s revolution swept the island in 1959.

In his inaugural address, the new president pledged to continue Raúl Castro’s vision, most notably his unfinished “updating” of the economy, a Cuban form of market socialism launched in 2011 to replace the former Soviet-style central planning system. If he is successful, his reforms would produce the most profound transformation since Fidel took power six decades ago and lay the groundwork for what his brother Raúl called “prosperous and sustainable socialism.”

Salvador Sanchez Ceren recibe a VicePresidente de Cuba, Miguel Diaz Canel.

Miguel Díaz-Canel

But, in taking the helm of government, Díaz-Canel faces strong political headwinds. He has to force Raúl’s economic reforms through a resistant bureaucracy—something even Raúl had trouble doing. He has to hold together a fractious political elite, which is divided over how far and how fast to push economic change for fear of unleashing forces beyond its control. And he has to deliver the goods to a population increasingly vocal in its demands for a higher standard of living and a greater say in politics.

Never has the pursuit of continuity seemed so hard.

Progress has been slow. A total of 313 specific economic reforms were approved by the Cuban Communist Party in 2011. By 2016, less than a quarter of them had been achieved. The plans call for state enterprises that are subject to market prices and efficient enough to show a profit, a vibrant private sector to generate jobs and tax revenue, and an open door for foreign direct investment to provide the capital for growth.

But the reforms are stalled, held back by recalcitrant bureaucrats loathe to give up their authority and perks, and by senior Communist Party leaders who worry that the reintroduction of markets, private property and foreign investment betrays the revolutionary values for which they fought. Raúl called their attitude “an obsolete mentality based on decades of paternalism.”

Foreign investors have been wary. Minister of Foreign Trade and Investment Rodrigo Malmierca says Cuba needs to attract $2.5 billion a year in direct foreign investment. But in the three years since Cuba adopted a new investment law with attractive concessions, it has raised just $3.4 billion. Cuba’s opaque and unresponsive bureaucracy still deters all but the most intrepid foreign companies.

On the domestic front, most state enterprises lack adequate cost accounting systems. Introducing them and requiring that state enterprises make a profit has been an excruciatingly slow process. Some 20 percent of the state budget still goes to cover deficits from failing state companies. But closing them en masse is something the government has been unwilling to do, as it would create a huge unemployment problem.

The government has licensed 580,000 private businesses—a five-fold increase since 2010—and the agricultural sector is composed almost entirely of private farms and cooperatives. In total, the private sector now employs 29 percent of the labor force.

But in the eyes of some Cubans, private businesses have been too successful. Hemmed in by unrealistic regulations, many private companies skirt the law—buying supplies on the black market because there are no wholesale markets, evading taxes because the rates are extortionate and operating beyond the terms of their licenses because the permits are so narrow.

To conservatives in the Communist Party, this looks suspiciously like incipient capitalism run amok. To the average Cuban, the private sector’s growth has fueled rising and visible inequality. Today, unlike a decade ago, you can find fashionably dressed Cubans eating at the most expensive restaurants and staying at tourist hotels once reserved for foreigners. Meanwhile, most people struggle to get by on inadequate state salaries.

Raúl understood that market reforms would produce inequality, but he expected the changes to boost productivity, stimulate growth and raise everyone’s standard of living, thereby blunting discontent over the inequality. It hasn’t worked out that way. Because the state sector is so resistant to change, growth has been anemic, undermining the political logic of the reform process. A Cuban economist advising the government told me that Cuba’s senior leadership understands what economic steps it needs to take to put the economy on sound footing; what worries them is the political risk.

That explains why Cuba still has two currencies—the Cuban peso and the Cuban convertible peso, which is has the same value as the U.S. dollar—and multiple exchange rates. Introduced in the 1990s to attract remittances from the Cuban diaspora, the two-peso system is now a huge drag on economic growth, making realistic cost accounting almost impossible. But currency unification is complex and will ripple through the economy in unpredictable ways. With a chronic shortage of foreign reserves and no access to help from international financial institutions, Cuba will have to manage the conversion on its own.

So while Díaz-Canel’s most urgent tasks are economic, his bigger problems are political. Independent opinion polls conducted in Cuba consistently show that discontent with the economy is pervasive, and faith in the government’s ability to improve things is low. In a 2016 poll by NORC (formerly the National Opinion Research Center) at the University of Chicago, 70 percent of Cubans cited the economy as the country’s most serious problem, and half thought that inequality had become too great. Discontent is even higher among younger generations, who have no memory of the revolution’s halcyon days in the 1960s and 1970s.

As Díaz-Canel tries to navigate the ship of state through these dangerous shoals, he also has to keep an eye out for mutiny among the crew.

Although decision-making among Cuba’s top leadership is opaque, signals point to divisions over the economic reforms and how to respond to expressions of popular discontent that have grown with the expansion of the internet. Raúl Castro’s authority as a revolutionary veteran enabled him to manage these disagreements and maintain elite cohesion—an advantage Díaz-Canel will not enjoy. Although he is a seasoned politician who has spent three decades working his way up the political ladder, he is not well known outside the two provinces where he served as Communist Party first secretary. But he will not be alone. Raúl still serves as Community Party leader, and he promises to be there supporting Díaz-Canel, telling the National Assembly that he expects the new president to ultimately become leader of the party as well.

So Cuba’s new president is no mere puppet. Through a calibrated handover of power, he will become the man in charge. And he has his work cut out for him.

William M. LeoGrande is a professor of government at American University in Washington, D.C., and co-author with Peter Kornbluh of Back Channel to Cuba: The Hidden History of Negotiations Between Washington and Havana (University of North Carolina Press, 2015).

 

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BOOK REVIEW, ENTREPRENEURIAL CUBA: THE CHANGING POLICY LANDSCAPE

Posted on May 2, 2018 by Arch Ritter

Boulder, CO: First Forum Press, 2015. 373 pp.

By Archibald R. M. Ritter and Ted A. Henken

Review by Sergio Díaz-Briquets,

Cuban Studies, Volume 46, 2018, pp. 375-377, University of Pittsburgh Press

The small business sector, under many different guises, often has been, since the 1960s, at the center of Cuban economic policy. In some ways, it has been the canary in the mine. As ideological winds have shifted and economic conditions changed, it has been repressed or encouraged, morphed and gone underground, surviving, if not thriving, as part of the second or underground economy. Along the way, it has helped satisfy consumer needs not fulfilled by the inefficient state economy. This intricate, at times even colorful, trajectory has seen the 1968 Revolutionary Offensive that did away with even the smallest private businesses, modest efforts to legalize self-employment in the 1979s, the Mercados Libres Campesinos experiment of the 1980s, and the late 1980s ideological retrenchment associated with the late 1980s Rectification Process.

Of much consequence—ideologically and increasingly economically—are the policy decisions implemented since the 1990s by the regime, under the leadership of both Castro brothers. Initially as part of Special Period, various emergency measures were introduced to allow Cuba to cope with the economic crisis precipitated by the collapse of the communist bloc and the end of Soviet subsidies. These early, modest entrepreneurial openings were eventually expanded as part of the deeper institutional reforms implemented by Raúl upon assuming power in 2006, at first temporarily, and then permanently upon the resignation of his brother as head of the Cuban government.

In keeping with the historical zigzag policy pattern surrounding small businesses activities—euphemistically labeled these days as the “non-state sector”—while increasingly liberal, they have not been immune to temporary reversals. Among the more significant reforms were the approval of an increasing number of self-employment occupations, gradual expansion of the number of patrons restaurants could serve (as dictated by the allowed number of chairs in privately owned paladares), and the gradual, if uneven, relaxation of regulatory, taxing, and employment regulations. Absent has been the authorization for professionals (with minor exceptions, such as student tutoring) to privately engage in their crafts and the inability to provide wholesale markets where self-employed workers could purchase inputs for their small enterprises.

The authors of this volume, an economist and a sociologist, have combined their talents and carefully documented this ever-changing policy landscape, including the cooperative sector. They have centered their attention on post–Special Period policies and their implications, specifically to “evaluate the effects of these policy changes in terms of the generation of productive employment in the non-state sector, the efficient provision of goods and services by this emergent sector, and the reduction in the size and scope of the underground economy” (297).

While assessing post-1990 changes, Entrepreneurial Cuba also generated a systematic examination of the evolution of the self-employment sector in the early decades of the revolution in light of shifting ideological, political, and economic motivations. Likewise, the contextual setting is enhanced by placing Cuban self-employment within the broader global informal economy framework, particularly in Latin America, and by assessing the overall features of the second economy in socialist economies “neither regulated by the state nor included in its central plan” (41). These historical and contextual factors are of prime importance in assessing the promise and potential pitfalls the small enterprise sector confronts in a changing Cuba.

Rich in its analysis, the book is balanced and comprehensive. It is wide ranging in that it carefully evaluates the many factors impinging on the performance of the small business sector, including their legal and regulatory underpinnings. The authors also evaluate challenges in the Cuban economic model and how they have shaped the proclivity for Cuban entrepreneurs to bend the rules. Present is a treatment of the informal social and trading networks that have sustained the second economy, including the ever-present pilfering of state property and the regulatory and transactional corruption so prevalent in Cuba’s centralized economy.

While none of the above is new to students of the Cuban economy—as documented in previous studies and in countless anecdotal reports—Ritter and Henken make two major contributions. First, they summarize and analyze in a single source a vast amount of historical and contemporary information. The value of the multidisciplinary approach is most evident in the authors’ assessment of how the evolving policy environment has influenced the growth of paladares, the most important and visible segment of the nonstate sector. By focusing on this segment, the authors validate and strengthen their conclusions by drawing from experiences documented in longitudinal, qualitative case studies. The latter provide insights not readily gleaned from documentary and statistical sources by grounding the analysis in realistic appreciations of the challenges and opportunities faced by entrepreneurial Cubans. Most impressive is the capacity of Cuban entrepreneurs to adapt to a policy regime constantly shifting between encouraging and constraining their activities.

Commendable, too, is the authors’ balanced approach regarding the Cuban political environment and how it relates to the non-state sector. Without being bombastic, they are critical of the government when they need to be. One of their analytical premises is that the “growth of private employment and income represents a latent political threat to state power since it erodes the ideals of state ownership of the means of production, the central plan, and especially universal state employment” (275).

This dilemma dominates the concluding discussion of future policy options. Three scenarios are considered possible. The first entails a policy reversal with a return to Fidel’s orthodoxy. This scenario is regarded as unlikely, as Raúl’s policy discourse has discredited this option. A second scenario consists of maintaining the current course while allowing for the gradual but managed growth of the non-state sector. While this might be a viable alternative, it will have limited economic and employment generation effects unless the reform process is deepened by, for example, further liberalizing the tax and regulatory regimes and allowing for the provision of professional services.

The final scenario would be one in which reforms are accelerated, not only allowing for small business growth but also capable of accommodating the emergence of medium and large enterprises in a context where public, private, and cooperative sectors coexist (311). As Ritter and Henken recognize, this scenario is unlikely to come to fruition under the historical revolutionary leadership, it would have to entail the resolution of political antagonisms between Washington and Havana, and a reappraisal by the Cuban government of its relationship with the émigré population. Not mentioned by Ritter and Henken is that eventual political developments—not foreseen today—may facilitate the changes they anticipate under their third scenario.

In short, Entrepreneurial Cuba is a must-read for those interested in the country’s current situation. Its publication is timely not only for what it reveals regarding the country’s economic, social, and political situation but also for its insights regarding the country’s future evolution.

…………………………………………………………………………….

Table of Contents

 Table of Contents,

 List of Charts and Figures

Chapter I Introduction       

Chapter II      Cuba’s Small Enterprise Sector in International and Theoretical Perspective

Chapter III    Revolutionary Trajectories, Strategic Shifts, and Small Enterprise, 1959-1989

Chapter IV    Emergence and Containment During the “Special Period”, 1990-2006

Chapter V        The 2006-2011 Policy Framework for Small Enterprise under the Presidency of    Raul Castro

Chapter VI    The Movement towards Non-Agricultural Cooperatives

Chapter VII  The Underground Economy and Economic Illegalities

Chapter VIII  Ethnographic Case Studies of Microenterprise, 2001 vs. 2011

Chapter IX  Summary and Conclusions

APPENDIX                                                              

GLOSSARY                                                                                                                         

BIBLIOGRAPHY

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CUBA’S COMMUNIST PARTY ADMITS ERRORS, SLOWDOWN IN REFORMS

Posted on March 28, 2018 by Arch Ritter

HAVANA (Reuters) MARCH 27, 2018

Sarah Marsh

 

Cuba’s Communist Party admitted a slowdown and errors in its implementation of Raul Castro’s market-style reforms, just weeks before he steps down from the presidency, but vowed to continue updating the Soviet-style command economy.

The party central committee held a plenary session to discuss the state of reforms undertaken during Castro’s 10-year presidential mandate to open up the ailing economy and give the private sector and foreign investment greater roles. Castro, who steps down as president on April 19, presided over the plenary which took place this week. The 86-year old will remain head of the party, the country’s guiding political force, until 2021.

“Despite the errors and insufficiencies recognized in this plenary, the situation is more favorable than a few years ago,” Castro, 86, was quoted as saying by party newspaper Granma.

Reforms were implemented swiftly in the first three years since being agreed in 2011, the head of the party’s reform commission Marino Murillo was cited as saying.

The number of self-employed workers in the Caribbean island nation of 11.2 million residents has more than tripled to around 580,000 workers.

But implementation has slowed in the last two years due to the complexity of the process, mistakes in oversight, a lack of financial backing and low engagement of the bureaucracy, Murillo said. The party was also deliberately implementing reforms slowly to ensure they would not marginalize anyone.

The government last year froze the issuance of licenses for an important set of private sector activities as it sought to root out malpractices such as purchases on the black market and to improve regulation.

The 142-member central committee discussed the lack of a fiscal culture and accountancy tools to make a serious economic analysis in Cuba as well as difficulties communicating the complex process.

Many Cubans, whose expectations were raised by Castro’s reforms, have felt frustrated by the slowdown that they believe means Havana is not truly committed to updating the economy.

The government said late last year, for example, it would limit licenses to one per person going forwards – a move that could limit Cubans’ entrepreneurial ambitions.  Yet it did not address key private sector concerns like the lack of a wholesale market or ability to import or export.

Havana has also backtracked on reforms in the key agricultural sector over the last few years, once more assigning resources, setting prices and controlling most distribution.

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IS CUBA’S ECONOMY READY FOR THE 2018 LEADERSHIP TRANSITION?

Posted on March 20, 2018 by Arch Ritter

Pavel Vidal Professor, Pontificia Universidad Javeriana Cali

CUBA STUDY GROUP, February 2018

Complete Article, English:  Pavel_Is Cuba’s Economy Ready English

Complete Article, Spanish:  Pavel En qué condicion llega la economia cubana a la transicion generacional

Introduction

Cuba has changed considerably in these last ten years of economic reforms, though not enough. Family income, tourist services, food production, restaurants, and transportation depend less on the state and much more on private initiative. The real estate market, sales of diverse consumer goods and services, and the supply of inputs for the private sector have all expanded, in formal and informal markets. Foreign investment stands out as a fundamental factor in Cuba’s development. The country has achieved important advances in the renegotiation of its external debts.

Nevertheless, many other announced changes were defeated by internal resistance, half-heartedly implemented, or put in place in ways that replicated mistakes of the past. The bureaucratic and inefficient state enterprise sector, tied down by low salaries and a strict central plan, impedes economic progress. Cuba’s advantages in education and human capital continue to be underexploited. Neither has the international environment provided much help. The U.S. trade embargo remains in place, the Trump administration has returned to the old and failed rhetoric of past U.S. policies, and Cuba continues to depend on a Venezuelan economy that does not yet seem to have hit rock bottom.

As a consequence, the growth of GDP and productivity has been disappointing, agricultural reform has produced few positive results, and Cuba is once again drowning in a financial crisis. The reforms implemented to date did not create sufficient quality jobs, and, all told, half a million formal positions were eliminated from the labor market.

The second half of 2017 proved especially challenging due to the impacts of Hurricane Irma and new restrictive measures announced by the U.S. government. To these difficulties one must add the decision of the Cuban government to freeze (temporarily) the issuance of licenses to the private sector.

Even so, the National Office of Statistics and Information (ONEI) reported that the economy has not fallen into recession. There are reasons to doubt these statistics, however. Such doubts only multiply when we take into consideration the decision to delay, or altogether avoid, the publication of reports on individual sectors of the economy and the state of the national accounts. For 2018, the government has proposed a rather optimistic economic growth plan (2% increase in GDP) that once again does not appear to appropriately evaluate the complexity of Cuba’s macro-financial environment.

Three highly significant events are anticipated this year: the generational transition within the government, new norms for the private sector, and the beginning of the currency reform process. These three issues have raised expectations on the island, but each may be tackled in a disappointing fashion.

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Conclusions:

Two Other Changes that Could Disappoint A generational transition in the Cuban government will take place on April 19, 2018. Beyond indications that Miguel Díaz-Canel will be the future president, there are no signals as to who will be vice president or who will direct principal ministries such as the Ministry of the Economy or the Ministry of Foreign Relations. Nor do we know where politicians of the “historic generation” will end up.

The new government will want to demonstrate continuity with the former in order to assure its position with various spheres of political power. It appears that the new government will not have its own economic agenda. We can expect that documents approved by recent Congresses of the Cuban Communist Party—which define the limits of reform, the desired development strategy, and the social and economic model to which Cuba aspires—will continue to serve as economic policy guides.

Whatever the composition of the incoming government, in the short term, Cuba’s new leaders will need to convince other state actors that they have the authority and will to, first, achieve the objectives laid out in the “Guidelines for Economic and Social Policy” (Lineamientos), and then deepen the process of reform, overcoming internal forces resistant to change. The new government will thus have to carefully assess the political costs and benefits of implementing reforms to different degrees and at varying speeds, but it will start with low initial political capital due to less popular recognition and a lack of historic legitimacy. Cuba’s new leaders, moreover, must confront these challenges at a time of renewed conflict with the U.S. government. The task is by no means easy, and we will have to wait to see how they handle it.

Another change we can expect this year is the publication of new rules governing the operations of the private sector, and thus unfreezing the issuance of licenses. A greater degree of control over tax payments, as well as efforts to more strongly “bank” the sector, appear to be two basic objectives of the forthcoming rules.

It is very important that the private sector contribute to the Treasury in proportion to its earnings. This is impossible to guarantee if private sector operations are not registered in banks. An effective and progressive tax system provides net dividends to all. The state budget would benefit, exorbitant gaps in income distribution could be avoided, and the societal image of the private sector would be improved. It will be much easier to defeat political and ideological resistance to expansion of the private sector when its income also serves to finance expenses in education and healthcare, and when individual contributions are in line with variable levels of income.

We still do not know if the new rules for the private sector will focus only on fiscal and banking control, or if new policies will address some of the many complaints that the private sector itself has made—high tax rates, the struggle to obtain inputs, and the difficulty of linking operations to foreign trade, for example. A draft of the rules that has circulated does not contain answers to these problems, but rather suggests a focus primarily on more control and penalization.6 If the rules that are ultimately implemented do not differ much from what appears in this draft, depleted prospects for the private sector will be the first disappointment Cubans face in 2018.

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CUBA ABRE SU PRIMER MERCADO MAYORISTA DESTINADO SOLO A COOPERATIVAS PRIVADAS

Posted on March 20, 2018 by Arch Ritter

EFE,  17 de marzo de 2018 01:15 PM

Original Article: MERCADO MAYORISTA

LA HABANA

Mercabal, el primer mercado mayorista de Cuba, abrió el sábado sus puertas en La Habana destinado inicialmente solo a cooperativas privadas no agropecuarias y con la promesa de extenderlo a los demás trabajadores autónomos de la isla, informa el diario oficial Granma en portada.

El mercado cuenta ya con 35 clientes, que tienen acceso a un descuento del 20 por ciento del precio de venta minorista en productos como frijoles, cigarros, refrescos, cervezas, azúcar, sal, confituras, hamburguesas y salchichas, muy demandados en los restaurantes, cafeterías y bares del sector privado.

El pollo, uno de los alimentos más consumidos, se rebajará hasta un 30 por ciento respecto a su precio en la red minorista, indica Granma, que reconoce que el gobierno cubano responde así a “uno de los reclamos más reiterados de quienes ejercen las nuevas formas no estatales de gestión en el país”.

Localizado por ahora solo en la capital del país, los próximos mercados mayoristas abrirán “de forma paulatina” en el resto de la isla, “una vez que esta propuesta inicial esté en óptimo funcionamiento y en dependencia de los lugares donde más trabajadores por cuenta propia existan”, señaló la ministra.

En Cuba existen hoy más de medio millón de trabajadores privados o “cuentapropistas”, acogidos a las categorías de trabajo permitidas por el gobierno cubano.

Más de 12,000 son socios de cooperativas no agropecuarias, que ya suman unas 420 en todo el país, en su gran mayoría dedicadas a la gastronomía, el comercio, los servicios, la construcción y la industria.

Ubicado en el municipio habanero de Plaza de la Revolución, Mercabal abrirá de lunes a sábado con productos de diez proveedores directos, que reabastecerán el mercado según los pedidos mensuales de los clientes.

Para poder contratar los servicios de la nueva instalación los autónomos deben tener actualizada su ficha de cliente y poseer una cuenta con tarjeta magnética, emitida por el estatal Banco Metropolitano.

La ampliación del trabajo privado -donde se incluyen las cooperativas no agropecuarias- en el 2010 ha sido una de las reformas clave del gobierno del saliente mandatario cubano Raúl Castro para actualizar el modelo socialista y reducir las abultadas plantillas del sector estatal.

Desde agosto, la isla comenzó un proceso de reordenamiento del “cuentapropismo”, dentro del que paralizó temporalmente la entrega de licencias a restaurantes privados y casas de renta turísticas, entre otras actividades, para frenar ilegalidades, “desviaciones” y “corregir deficiencias”.

Las licencias congeladas son, precisamente, las más demandadas del sector.

A pesar de que prometió que no mantendría “por un período de tiempo muy largo” esta medida, el Gobierno cubano aún no ha retomado la entrega de autorizaciones a los autónomos cubanos, que ya representan el 12 por ciento de la fuerza laboral del país.

  

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CUBAN DRAFT RULES PROPOSE CURTAILING FLEDGLING PRIVATE SECTOR

Posted on February 23, 2018 by Arch Ritter

Sarah Marsh  FEBRUARY 22, 2018 / 7:08 PM

HAVANA (Reuters) – A draft of new Cuban economic regulations proposes increasing state control over the private sector and curtailing private enterprise, a copy of the document seen by Reuters showed.

The tightening may signal that the ruling Cuban Communist Party fears that free market reforms introduced eight years ago by President Raul Castro may have gone too far, amid a broader debate about rising inequality.

The draft document, circulating among Cuba experts and private entrepreneurs, goes beyond proposed restrictions announced in December. For example, it would allow homes only one license to operate a restaurant, cafeteria or bar. That would limit the number of seats per establishment to 50. Many of Havana’s most successful private restaurants currently hold several licenses enabling them to have a seating capacity of 100 or more.

There is uncertainty over the direction of economic policy generally as Cuba prepares in April to mark the end of six decades of rule by Castro and his older brother Fidel, who stood down formally as a leader in 2008. That has been heightened by U.S. President Donald Trump partially rolling back the Obama-era detente with the United States.

The head of the Communist Party’s reform commission, Marino Murillo, announced restrictions on the private sector in December, some of them included in the new document. But the draft regulations go into greater detail and show how far the push back could go.  “The decree strengthens control at a municipal, provincial and national level” over the private sector, according to the 166-page document, dated Aug. 3, 2017 and signed by Marcia Fernández Andreu, deputy chief of the secretariat of Cuba’s Council of Ministers.

The document said resolutions were drafted by the reform commission and were being sent to provincial and national organs of administration for consultation. Reuters could not independently verify its authenticity. Cuban authorities did not immediately respond to a request for comment.

Some analysts said they suspected the draft was leaked to gauge public opinion and could be revised.

The regulations state that measures that will apply to infractions will be more “rigorous.”

The government has increased criticism of wealth accumulation over the past year and gone on the offensive against tax evasion and other malpractices in the private sector.

The number of self-employed Cubans soared to 567,982 as of the middle of last year, versus 157,731 in 2010 at the start of the reform process designed to boost Cuba’s centrally planned economy.  Private sector workers now make up roughly 12 percent of the workforce, but the prosperity of some Cuban entrepreneurs, particularly those working in the tourist sector and receiving hard currency, has become a source of tension. The average state monthly wage is $30, the same sum a B&B owner can charge for a night’s stay.

The restrictions unveiled by Murillo in December included limiting business licenses to a single activity per entrepreneur.

Some entrepreneurs had hoped they could get around that by transferring business licenses, for activities as diverse as manicures or bookkeeping, to family members.

It was unclear from the draft document whether the measures would be applied retroactively.

Murillo said in December the number of categories in which self employment would be permitted would be reduced and in some cases consolidated. For example, manicurist, masseuse and hairdresser would fall under an expanded beauty salon license.  The draft lists 122 categories, down from approximately 200 previously.

The document calls for a new division under the Ministry of Labour to administer and control self-employed work.

 

 

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PRIVATE SELF-EMPLOYMENT UNDER REFORM SOCIALISM IN CUBA

Posted on January 4, 2018 by Arch Ritter

Mario A. Gonzalez-Corzo and Orlando Justo, The City University of New York

The Journal of Private Enterprise 32(2), 2017, 45–82

Complete Article Here: 2017_Private Self-Employment under reform Socialism in Cuba Journal_of_Private_Enterprise, 32, 2.

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Abstract

The expansion of private self-employment is one of the main economic measures implemented by the Cuban government since 2010 to update its socialist economy under a unique brand of “reform socialism.” State policies (a “push factor”), as well as economic incentives and the desire for greater economic independence (“pull factors”) have contributed to the remarkable growth of self-employment in Cuba since 2010. While employment in the state sector has declined significantly (13 percent) since 2010, self-employment has grown by more than 187 percent, and its share of total employment has increased from 3 percent to close to 9 percent. Despite these advances, Cuba’s self-employed workers face significant obstacles that limit their growth and potential economic contributions. In addition to addressing these challenges and obstacles, ensuring the success of Cuba’s self-employment reforms requires re-conceptualizing the state’s attitude toward self-employed workers and their potential contributions to economic development and growth.

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ORDER FROM CHAOS: WHAT WILL BE RAUL CASTRO’S LEGACY?

Posted on December 5, 2017 by Arch Ritter

Richard E. Feinberg, Nonresident Senior Fellow – Foreign Policy, Latin America Initiative

Brookings, December 4, 2017

Original Article: Order from Chaos
In many ways, Raúl Castro’s 10-year presidential rule, ending in February 2018, has been utterly disappointing. Cuba’s economy is stagnant and economic reform has stalled. Political power remains highly centralized and secluded. The island’s educated youth are fleeing in droves for better opportunities abroad. And the Trump administration is renewing U.S. hostility.

Nevertheless, during his decade in power Raúl Castro oversaw historic shifts in Cuban foreign and domestic policies. Raúl initiated some policy innovations, deepened and consolidated others, and merely watched while forces beyond his control drove other changes. Regardless, these changes have paved the way for the successor generation of leaders—if they dare—to push Cuba forward into the 21st century.

MORE FRIENDS

Fidel’s younger brother, now 86, can be especially pleased with his achievements in foreign affairs. Cuba had been a colony of Spain, a dominion of U.S. capital, a cog within the Soviet-dominated Council for Mutual Economic Assistance (COMECON) system. Now, for the first time in its 500-year history, Cuba has escaped the grip of a single world power.

Today, Cuban traders circumnavigate the globe, engaging both state-directed and free-market economies. The top trading 10 partners in goods in 2016 were (in rank order): China, Venezuela, Spain, Canada, Brazil, Mexico, Italy, Argentina, Germany, and Vietnam. The next tier of merchandise trading partners (between $275 million and $100 million) includes the United States, France, Algeria, the Netherlands, Russia, and Trinidad and Tobago. No single country accounts for more than 20 percent of total merchandise trade.

This trade diversification began in the 1990s following the collapse of the Soviet Union, but Raúl’s economic team extended and consolidated it. Under Raúl, Cuba also expanded the number of countries that purchase its main service export—the labor of educated professionals, especially in the medical field. While Fidel initiated large-scale service exports to Venezuela, Raúl followed suit with Brazil and dozens of other developing countries.

In the last 10 years, Cuba has also diversified the sources of foreign investment. For example, in the economy’s bright spot, international tourism, investors hail from Spain, France, Canada, Germany, Switzerland, Canada, China, and Malaysia, among other locations.

A small island economy cannot hope to be fully autonomous; it must adapt to global constraints. But by diversifying its economic partners, Cuba has minimized its vulnerability to external dictates, and maximized its own margin for maneuver. This diversification of economic partnerships has paid handsome diplomatic dividends. Cuba has become an accepted participant in various Latin American forums and diplomatic initiatives; overcame its exclusion from the Summit of the Americas leaders’ meetings; gained membership in the Central American Bank for Economic Integration (CABEI); and gained access to resources at the multilateral Andean Development Corporation (CAF). President Donald Trump is alone in his efforts to damage the Cuban economy through comprehensive economic sanctions.

BREAKING IDEOLOGICAL BARRIERS

The slow, halting pace of economic reform has discouraged many Cubans, especially recent university graduates. Conservative forces resisting change remain strong within the Cuban Communist Party. Nevertheless, Raúl leaves a legacy that could greatly facilitate the work of reformers in the future. (I will further evaluate the economic reforms and pathways forward in a February 2018 Brookings policy brief.)

Raúl’s legacy lies not in standard measures of economic performance, such as per capita GDP growth, labor productivity, or investment rates, where results have varied from disappointing to disastrous. Rather, Raúl’s legacy in economic policy lies in breaking once forbidding ideological barriers. True, Raúl’s public statements often have been contradictory and shifting, as he apparently sought to balance conflicting tendencies within the Cuban Communist Party. But in key areas, Raúl demolished or at least cracked these obstacles to change: rejection of globalization (a favorite Fidel bugaboo), fear of foreign investment, and hostility to private business and markets. He also transformed relations with the United States.

In daily life, Cubans have left behind the comfort of social uniformity and relative economic equality for the more tumultuous worlds of greater social heterogeneity and income inequalities.

Raúl is no cheerleader for globalization. But he set aside his brother’s heated denunciations of multinational corporations and “exploitative” markets. Instead, he went about the practical business of building economic relations with a multitude of governments and foreign corporations. Without much pomp and circumstance (although there was the occasional ribbon-cutting), Raúl advanced the process of normalizing Cuba’s integration into global markets.

Raúl’s decision to normalize diplomatic relations with “the historic enemy,” the United States, dramatically revised his regime’s foreign policy doctrine. The hegemon just across the Florida Straits was no longer an imminent, existential threat, readily justifying economic deprivations and tight political restrictions. Notwithstanding the altered attitude in Washington today, so far a number of the concrete gains from the Obama era détente remain in place, notably the facilitation of travel (commercial airline flights and cruise ships) and the generous flows of remittances to many Cuban families, whether for household consumption or business start-ups.

Of the reforms most directly attributable to Raúl, the suppression of the special (and expensive) permit to travel abroad was among the most important to many Cubans. As a result, most Cubans can freely leave the island (provided they can acquire an entry visa elsewhere), to be enriched by their contact with foreign lands and ideas. Greater access to mobile technology and rapidly expanding social media, permission to sell homes and cars, and more freedom to stay in once-forbidden tourist hotels have also improved life for many Cubans during his tenure.

De facto, by building commercial partnerships worldwide, and by accepting the freedom to travel, Cuba has now embraced core components of globalization.

OPENING TO FOREIGN INVESTMENT

To stave off complete economic collapse in the early 1990s, Fidel had invited in limited foreign investment. El Comandante en Jefe made these concessions holding his sensitive ideological nose and again closed Cuba’s borders once he felt politically secure. In sharp contrast, Raúl has publicly chastised his ministers for not accelerating foreign capital inflows (although he hesitated to fire them).

Periodically, the government releases a “Portfolio of Opportunities for Foreign Investment.” Each edition is fatter and glossier; the 300-page 2017-2018 version features 456 projects with a cumulative price tag of $11 billion. Yes, most projects have remained on paper, victims of bureaucratic foot-dragging and red tape; but these documents are products of an inter-agency process whereby many ministries and state enterprises join in a collective waving of hands to the international commercial community.

In a 2011 official document outlining proposed reforms, foreign investment was derided as “complementary,” a secondary afterthought. In contrast, when addressing Havana’s annual international trade fair in 2017, Raúl’s minister for foreign trade and investment sang a very different tune: “Today foreign investment ceases to be a complement and has become an essential issue for the country.”

Mariel, the new economic development zone facing the Straits of Florida, has gotten off to a slow start, having approved over three years only 26 projects worth about $1 billion. However, 15 of these projects have broken through another ideological barrier: allowing 100 percent foreign ownership.

LEGITIMIZING PRIVATE PROPERTY

Fidel disliked and distrusted private property. In 1968, for example, he nationalized remaining mom-and-pop businesses. In contrast, over the last decade the government has issued hundreds of thousands of licenses to small-scale private businesses. Raúl has also encouraged some 200,000 Cuban families to farm as homesteaders (although not all survived). In addition to these authorized private businesses, many Cubans augment their income in more-or-less tolerated gray-market activities. Altogether, as much as 40 percent of the Cuban workforce have at least one foot in the private sector.

Recently, Raúl criticized private business for illicit activities, and the government halted the granting of new business licenses. Nevertheless, these concessions to anxious Communist Party stalwarts appear to be a temporary pause. The ideological foundations, and public constituency, for the acceptance and eventual expansion of a market-driven private sector have most likely been set too deep for a full-blown counter-revolution to succeed.

SOCIAL RELAXATION

This increase in economic pluralism has unleashed public debates on economic policy. Criticism of government performance is widely voiced with less fear, even if journalists and academics are still careful not to directly confront senior authority.

Another major shift that accelerated during the last decade: the evolution of Cuban society from socialist uniformity toward a more heterogeneous mix of property relations, income levels, and social styles. While legal statutes remain to be written, property can now be private (often in partnership with diaspora capital), cooperative (in numerous variations) and foreign-owned, as well as state controlled.

Income inequalities have become more visible, even if less jarring than in other Latin American and Caribbean nations. Many Cubans still honor social solidarity. But the transition toward a more normal, relaxed, and individualistic society is unmistakable. On Havana’s streets, Cuban youth—increasingly exposed to international tourists, travel opportunities and the worldwide web—sport the variety of hairstyles, tattoos, music, and other signatures of global youth.

These ideological adaptations do not guarantee speedy policy changes, much less their faithful implementation. The Cuban government is grappling with a severe foreign exchange crisis, and the sudden, unanticipated chill in bilateral relations imposed by the United States. All the more reasons for the next generation of Cuban leaders to build upon the diversity of international economic associations and the new ideological currents unleashed during the reign of the second and last Castro brother—and to launch their island state into deeper phases of global integration and economic transformation.

Richard Feinberg

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