Tag Archives: Illegalities

Canadian, British executives face corruption charges in Cuba

Posted on May 15, 2013 by Arch Ritter

By Mark Frank, Havana — Reuters, Globe and Mail, May 15, 2013

Canadian and British executives of three foreign businesses shut in 2011 by Cuban authorities, ostensibly for corrupt practices, have been charged after more than a year in custody and are expected to go on trial soon, sources close to the cases told Reuters.

The arrests, part of a broad government campaign to stamp out corruption, sent shock-waves through Cuba’s small foreign business community where the companies were among the most visible players.

Until then, expulsions rather than imprisonment had been the norm for those accused of corrupt practices.

The charges against the executives involve various economic crimes and operating beyond the limits of their business licenses on the communist-run island, according to the sources, who asked to remain anonymous and who include a close relative of one of the defendants. Some of the foreigners are alleged to have paid bribes to officials in exchange for business opportunities.

Dozens of Cuban state purchasers and officials, including deputy ministers, already have been arrested and convicted in the investigation into the Cuban imports business that ensued.

Cuba has mounted a crackdown on corruption in recent years as part of a gradual reform process to open up the state-run economy to greater private sector activity. Under Cuban law, trials must begin within a month of charges being filed, though small delays are common and postponement can be sought by the defendants’ lawyers.

“There is definitely movement and the trials could begin soon,” a Western diplomat said.

The crackdown began in July 2011 with the closure of Canadian trading firm Tri-Star Caribbean and the arrest of its chief executive, Sarkis Yacoubian.

In September 2011, one of the most important Western trading firms in Cuba, Canada-based Tokmakjian Group, was also shut and its head, Cy Tokmakjian, taken into custody.

In October 2011, police closed the Havana offices of the British investment and trading firm Coral Capital Group Ltd and arrested chief executive Amado Fakhre, a Lebanese-born British citizen. Coral Capital’s chief operating officer, British citizen Stephen Purvis, was arrested in April 2012.

All four men are being held in La Condesa, a prison for foreigners just outside Havana, after being questioned for months in other locations.

A number of other foreigners and Cubans who worked for the companies remain free but cannot leave the island because they are considered witnesses in the cases.

Cuban officials and lawyers for the defendants could not be reached for comment.

The legal limbo of the foreign executives has put a strain on Cuba’s relations with their home countries, where the legal process protects suspects from lengthy incarceration without charges, diplomats told Reuters.

Cuba says the cases are being handled within the letter of Cuban law. Attorney General Dario Delgado told Reuters late last year that the investigation had proved complex and lengthy.

“These cases, which involve economic crimes, are very complicated. They do not involve, for example, traffic violations or a murder,” he said.

Comptroller General Gladys Bejerano has said the length of investigations depended on the behavior of those involved.

“When there is fraud, tricks and violations … false documents, false accounting … there is no transparency and the process becomes more complicated because a case must be documented with evidence before going to trial,” she said.

Transparency International, considered the world’s leading anti-graft watchdog, last rated Cuba 58 out of 178 countries in terms of tackling corruption, ahead of all but eight of 33 nations in Latin America and the Caribbean.

Soon after taking over for his ailing brother Fidel in 2008, President Raul Castro established the comptroller general’s office with a seat on the ruling Council of State, even as he began implementing market-oriented economic reforms.

The measure marked the start of the anti-corruption campaign. Since then, high-level graft has been uncovered in several key areas, from the cigar, nickel and communications industries, to food processing and civil aviation.

Rodrigo Malmierca, the minister of foreign commerce, last week delivered a report to the cabinet highlighting “irregularities” in foreign joint venture companies, according to state-run media.

Malmierca blamed “the lack of rigor, control and exigency” of the deals “as well as the conduct and attitudes of the officials implicated,” the reports said.

Castro has been less successful, however, in tackling low salaries and lack of transparency, which contribute to the problem, according to foreign diplomats and businessmen.

There is no open bidding in Cuba’s import-export sector and state purchasers who handle multimillion-dollar contracts earn anywhere from $50 to $100 per month.

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Raúl Castro crea organismo para combatir la corrupción

Posted on March 26, 2013 by Arch Ritter

Por Redacción CaféFuerte,  25 Marzo 2013

Gladys Bejerano, Contralora General de Cuba

El gobernante Raúl Castro prosiguió su cruzada contra la corrupción y el desorden administrativo en el país con la creación de un órgano estatal de control que estudiará y dictaminará sobre los casos significativos de ilegalidades y las medidas disciplinarias para enfrentarlas.

Un decreto del Consejo de Estado, publicado por la Gaceta Oficial  anunció la designación de la Comisión Estatal de Control (CEC), que funcionará en los niveles nacional y provincial, y tendrá por objetivo “frenar y liquidar la corrupción administrativa”. La CEC  procederá al análisis y estudio de casos en los que se manifiesten “ilegalidades, presuntos hechos delictivos y de corrupción para profundizar en las deficiencias detectadas, los modos de operar, características, causas y condiciones y los efectos producidos”, señala el decreto, publicado el pasado 14 de marzo.

Además buscará “alertar y recomendar medidas de carácter preventivo y de otra índole en el interés de eliminar o disminuir, en lo posible, la reiteración de tales hechos”, y dará seguimiento a las medidas adiministrativas y disciplinarias adoptadas con los responsables directos y colaterales del acto delictivo.

Contralora General al mando

El organismo estará presidido a nivel nacional por la Contralora General, Gladys Bejerano, vicepresidenta del Consejo de Estado, y deberá nombrar como vicepresidente al Primer Vicecontralor General, según el documento.

El resto de los integrantes de la CEC serán los ministros de Finanzas y Precios, Lina Olinda Pedraza, y de Justicia, María Esther Reus; y representantes de la Fiscalía General y los ministerios del Interior, Fuerzas Armadas, Economía y Planificación, Relaciones Exteriores, Comercio Exterior y la Inversión Extranjera, y Trabajo y Seguridad Social, así como del Banco Central de Cuba, la Oficina Nacional de Administración Tributaria y la Aduana General de la República.

La CEC sustituye a una comisión gubernamental con similares fines que había sido instituida en julio del 2008 como órgano asesor del gabinete de Raúl Castro. La creación del nuevo organismo anticorrupción se suma a la batalla declarada por Raúl Castro contra este flagelo, que desangra la vida económica y social del país.

Durante la sesión de la Asamblea Nacional del Poder Popular del pasado 24 de febrero, Raúl Castro llamó a mantener el enfrentamiento a las indisciplinas e ilegalidades de todo tipo, incluyendo el combate a la corrupción que atentan contra las bases mismas del sistema socialista.

Orden, disciplina y exigencia

“Sin la conformación de un ambiente de orden, disciplina y exigencia en la sociedad, cualquier resultado será efímero”, recalcó el gobernante, que anunció que en la sesión del parlamento del próximo julio se trataría el tema a pronfundidad.

Las indisciplinas sociales e ilegalidades administrativas serán también objeto de análisis en las asambleas provinciales del Poder Popular, previas a la sesión parlamentaria.

A mediados de este mes, en una reunión amplada del Consejo de Ministros, Castro insistió en que trabajar con disciplina y exigencia es imprescindible para restablecer el orden en todos los escenarios de la sociedad cubana. La prensa oficial se ha volcado al combate de las ilegalidades y la corrupción mediante reportes y artículos sobre el tema.

“El control es parte del trabajo y no una tarea adicional”, tituló este lunes el diario Granma una entrevista conDarma Carina Solá, Contralora Jefe de la Dirección Integral de Control de la Contraloría General.

Desde comienzos de año la Contraloría General realiza auditorías en organismos y empresas estatales, lol que ha arrojado múltiples deficiencias en el funcionamiento y control de recursos, así como en el cumplimiento de los contratos.

 

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Cuba’s ‘resale’ economics: The island’s halfway capitalism has trapped Cubans between private business and the state economy.

Posted on January 23, 2013 by Arch Ritter

The island’s halfway capitalism has trapped Cubans between private business and the state economy.

Nick Miroff, January 23, 2013.

Original Article here:  Cuba’s ‘resale’ economics

HAVANA, Cuba — Cracker Man’s cry echoes down the streets of Havana’s Buena Vista neighborhood, trailed by the clatter of his shopping cart over potholes.

“Crackers! Crackers!” he barks. “Fresh from the oven!”

He’s one of roughly 400,000 Cubans now working as state-licensed entrepreneurs in the communist country’s small but growing private sector.

Cracker Man, as he’s known in the neighborhood (“el Galletero”), sells his product for about $1 a bag. He doesn’t make the crackers, but buys them from the state-owned bakery.

He’s what Cubans refer to as a “revendedor,” a reseller who buys scarce state-subsidized items from government stores to sell at a mark-up.

That’s made many people here angry. Complaints abound in the “letters to the editor” section of Cuba’s Communist Party newspaper Granma, where resellers are disparaged as parasites and good-for-nothing speculators whose main contribution to the economy is to make basic products more expensive for everyone.

They’re also entirely the creation of Cuba’s new halfway capitalism.

Raul Castro’s recent reforms — the government calls them “updates” — have provided a place for market forces to exist alongside the centrally planned, state-controlled economy. Cubans have been granted new opportunities to become tradesman, DVD vendors, pizza makers and licensed small-scale retailers whose tiny shops and stalls have bloomed along Cuba’s main streets and thoroughfares.

Other entrepreneurs navigate pushcarts through the streets as itinerant peddlers, hawking goods under the hot Caribbean sun.

The government wants the private commerce to stimulate Cuba’s moribund economy and substitute costly imports. But experts say the authorities have yet to take the next necessary step: allowing entrepreneurs to innovate and manufacture their own products.

Cracker Man, for instance, has nowhere to buy the kind of industrial ovens, bakery equipment and wholesale supplies he’d need to make crackers. Shipping those items from abroad would trigger steep import duties, never mind the logistical obstacles.

“We still haven’t created the mechanisms for a productive economy,” says economist Julio Diaz Vazquez, a Soviet-trained expert on China and Vietnam’s so-called market socialism. He criticizes the government for wanting to encourage entrepreneurship while tightly controlling it through an obtuse bureaucratic regulatory system.

He believes that’s a lost cause. “You can’t play games with the market,” he says.

The authorities say they want to sharply reduce the number of Cubans working in low-paid, unproductive government jobs by moving them into cooperatives and small-scale private businesses.

They’re setting up pilot programs to convert state-run enterprises into worker-managed cooperatives, and have expanded the range of occupations for which Cubans are allowed to obtain self-employment licenses.

But the list remains very small, with fewer than 200 officially sanctioned professions from which Cubans can choose, including obscure jobs such as “party planner” and “palm-tree pruner.”

Not the kind of thing to lift millions out of poverty or free Cuba from having to import soap, snack foods and other bare necessities on which the government spends billions of dollars abroad while its own state-run manufacturing sector withers.

Many of the newly licensed entrepreneurs sell hardware-store items and household essentials such as bleach and dishwashing detergent. As their stalls have proliferated, many of the items they sell are disappearing from state stores because private vendors are rushing to buy up supplies. The government says it’s working to set up wholesale markets to supply the new businesses, but it has yet to do so, with a few exceptions. The authorities seem nowhere close to allowing island residents to invest in the kind of infrastructure that could help give rise to private manufacturing and industry.

Until that happens, economists say, resale economics will continue to rule.

In one area of Havana known as the La Copa, private vendors offer plumbing supplies and other items not available in the state-owned hardware store next door.

Some of their goods are imported while others — such as crudely fashioned pipe fittings — are made on the island. Like most everywhere else, the rest are bought in government-owned stores.

The vendors respond to criticism about selling state-manufactured goods at higher prices saying that as long as they can show receipts proving they acquired the items legally, there’s nothing illegal about reselling them.

“I’m providing a service to my clients and to the government,” says Yormani Alayu, a plumbing-supply vendor who says he pays taxes and goes to great lengths to acquire scarce materials. He points to several rolls of flexible plastic tubing that would be nearly impossible to find in state-run stores.

“These are from Las Tunas,” he says of a city more than 400 miles from Havana.

One customer, Tania Alvarez, says she appreciates personal attention from private vendors, in contrast to the poorly paid clerks at government stores who are often indifferent toward shoppers, if not surly.

“I also appreciate the convenience,” she adds. “I don’t have to go all over town to look for these things.” She says she doesn’t mind paying slightly more.

Other resellers says they’re adding value to products they acquire from state stores.

A 21-year-old hardware vendor named Moises Amador points to colorful rum bottles on his table filled with different kinds of paint, each labeled with instructions. The paint is sold by the gallon in government stores, he explains, but often clients don’t need to buy that much. “And not everyone can afford a whole gallon,” he adds.

“I’m providing a service,” he says somewhat defensively. “I make my own labels and print them. I buy the bottles from a recycler. It’s an investment I make.”

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The Havana Genius Bar, Cuba’s Underground Economy: Going Strong and High-Tech!

Posted on September 17, 2012 by Arch Ritter

By Elien Blue Becque; Bloomberg Businessweek; September 13, 2012

Original Essay Here: The Havana Genius Bar

When my iPhone slipped from the back of the tank and into the toilet, I snatched it out immediately. Though at first all seemed fine, it soon switched off and remained unresponsive.

“It’s toast,” was the verdict from Grant, an Apple (AAPL) store Genius. “We don’t deem it really, like, worth it to replace the inner components of the shell of a broken phone. I’ll throw that guy away and get you a brand new one.” Grant said I’d have to buy a new phone for $649 (or a refurbished one for $150). I was about to leave on a trip to Cuba, where my phone wasn’t going to work anyway. So I thanked him and left.

On my second day in Havana I pass a small electronics store in the once-upscale Vedado neighborhood and stop in. Fishing the useless slab from my bag, I ask, “Is there anyone who might know how to fix this?” The woman at the counter heads to the back and returns with a thin slip of paper bearing an address in the Miramar neighborhood.

A kid wearing white-framed Ray-Bans nods when I knock on the green plywood door at the destination. His name is Andy, and he’s confident he can fix my problem. Removing the tiny screws that hold the glass cover in place, he begins a rapid disassembly. I have to admit Andy seems less impressed with my fancy phone than I might have expected. “How often do you fix an iPhone?” I ask. “Daily,” he replies.

“In the last two or three years I’ve noticed [iPhones] popping up,” says Philip Peters, a Cuba expert at the Lexington Institute. Raúl Castro’s reforms have jolted the mobile market. “In 2008, when he lifted the prohibition on Cubans’ having cell phones in their own name, that led to an explosion in the number of subscribers.” Like many products in Cuba, iPhones are often brought in by tourists or citizens allowed to travel abroad.

Andy extracts the motherboard with a dental pick, puts it in a green tank, adds alcohol from a Fanta bottle, and presses power. The contraption shakes vigorously. Abelito, his partner, says they learned most of what they know via an illegal Web connection. After 20 minutes of careful prodding and scrubbing, Andy has miraculously resuscitated my phone, but the battery holds little charge. I try to pay. He refuses. “We usually only accept payment when we’ve fixed the problem.” “But you did!” I argue. He won’t be swayed.

A day later, at Hotel Saratoga in Old Havana, I notice the porter swiping at his iPhone 3. I tell him about my battery, and he points to a thin, carefully dressed young man hanging around the bar. Ten minutes later, Roberto and I are making our way down a muddy street behind the impressive, decaying Capitol Building modeled exactly after the rather better-kept one in Washington.

We stop in front of a dark entryway. Roberto asks me to wait and bounds up a set of concrete stairs. Minutes later he returns with a new iPhone battery in its black plastic wrapper. As payment, he accepts an 8-gigabyte flash drive I’ve been carrying. Flash drives are valuable here, where Internet use is restricted and monitored. Roberto, an architecture student, explains that while “tuition here is free, you have to buy lesson books, paper, pens, your food, your transportation.” All that costs money.

Just as their fathers learned to fix obsolete Detroit cars, Andy and Roberto have learned to make a living with Palo Alto technology to which they have no official access. The healthy cell-phone repair market here is the latest example of Cuban ingenuity that locals call sobreviviendo. It’s small-scale capitalism working around a 50-year embargo and an anemic, centrally planned economy.

Two months later my phone works perfectly. The next time an Apple Genius tells you there’s no hope, consider it an excuse to visit Havana.

 

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Foreign Business in Cuba: Beware the Dangerous Embrace: Havana is at the same time attracting and terrifying entrepreneurs

Posted on August 16, 2012 by Arch Ritter

by Nancy Macdonald and Gabriela Perdomo

Original Article is located here: Maclean’s Magazine, August 8, 2012

Until this spring, Stephen Purvis had it all. The British architect, who’d helped launch the Saratoga, Cuba’s poshest hotel, was one of the more prominent figures in Havana’s business community. As chief operating officer of Coral Capital, one of Cuba’s biggest private investors, he was overseeing a planned $500-million resort in the sleepy fishing village of Guanabo. The Bellomonte resort, which would allow foreigners to buy Cuban property for the first time, was part of Havana’s ambitious, multi-billion-dollar plan to attract high-end tourists and badly needed foreign exchange. Everything he touched seemed to turn to gold. The musical Purvis produced in his spare time, Havana Rakatan, had a run at the Sydney Opera House last year before moving on to London’s West End. But in April, the 51-year-old was arrested on suspicion of corruption as he prepared to walk his kids to school in Havana.

Purvis’s arrest could have been anticipated. Coral Capital’s British-born CEO, Amado Fakhre, has been held without charges ever since his arrest in a dawn raid last fall. The investment firm is being liquidated, and both men have faced questioning at Villa Marista, Cuba’s notorious counter-intelligence headquarters. They are not alone. Since last summer, dozens of senior Cuban managers and foreign executives, including two Canadians, have been jailed in an investigation that has shocked and terrified foreigners who do business in the country.

Since replacing his brother Fidel as president in 2008, Raúl Castro has painted himself as a reformer, and Cuba as a place where foreign businesses can thrive. Over the last year, he has relaxed property rights, expanded land leases and licensed a broad, if random, list of businesses—everything from pizza joints to private gyms. And he’s endorsed joint venture golf courses, marinas and new manufacturing projects. Canadians are chief among those heeding Raúl’s call to do business with Havana. Hundreds have expressed interest in the Cuban market in the last year alone, according to Canada’s Trade Commissioner Service. Flattering reports in Canadian media have praised Raúl’s efforts. Yet they seem to overlook troubling signs that Cuba appears to be moving backwards.

Raúl’s sweeping changes were meant to pave the way for massive foreign investment in Cuba. The country, which was forced to lay off 20 per cent of its public workforce last year, is barely as developed as Haiti, and will need an influx of foreign cash to stay afloat. There is urgency to the project. Time is running out for Venezuelan President Hugo Chávez, Cuba’s benefactor, who funds the country to the tune of $10 billion a year, says José Azel, a University of Miami research associate. At home, Chávez, who is sick with cancer, is also fighting off a tough challenge from Henrique Capriles in presidential elections slated for October. His successor will almost certainly cut Cuba’s generous aid package to deal with Venezuela’s own needs.

So a strange incongruity exists in Cuba today: Havana is bending over backwards to attract foreign currency at the same time it is imprisoning some of its biggest Western investors. For all Cuba’s reforms, this Castro appears to be as intent on maintaining an iron grip on the country as the last one.

Few are more keenly aware of the pitfalls of doing business in the new Cuba as a pair of Canadians sitting in jail in Havana. It has been more than a year since Sarkis Yacoubian, the president of Tri-Star Caribbean, a trading firm with headquarters in Nova Scotia, was detained in the Cuban capital. And September will be the one-year anniversary of the arrest of Cy Tokmakjian, the president of a trading company based in Concord, Ont. He and Yacoubian have both been imprisoned without charges. Their assets now belong to Cuba. No trial date has been announced.

Both Yacoubian and Tokmakjian ran well-established businesses in Cuba, had years of experience in the country, and multi-million-dollar contracts with several government ministries. Yacoubian imported the presidential fleet of BMWs. Tokmakjian, who’d been in Cuba for more than 20 years and did $80 million in annual business there, had the rights to Hyundai and Suzuki, which are used by the country’s police.

So far, Raúl has scared off more joint ventures than he has attracted, jeopardizing the investment Cuba needs to succeed. Spanish oil giant Repsol quit the country in May. Canada’s Pizza Nova, which had six Cuban locations, packed its bags, as did Telecom Italia. The country’s biggest citrus exporter, BM Group, backed by Israeli investors, is gone. A Chilean who set up one of Cuba’s first joint enterprises, a fruit juice company, fled after being charged with corruption last year. He was convicted in absentia. Shipping investors are pulling out, even as Cuba prepares to open a new terminal on the island’s north coast.

Experts say Raúl’s crackdown is an attempt to reassert control. By targeting the biggest names in the business community, he’s sending a message, says Azel. “Raúl doesn’t want to be Gorbachev,” the Soviet statesman who brought down Communism in the former Soviet Union. “He wants to be the guy who makes socialism work.”

Yet as detentions pile up it remains unclear what exactly the jailed Canadians and Britons have done, or what the regime means by clamping down on corruption. “Cuba’s version of what is legal and proper is different from the rest of the world,” says Ted Henken, president of the Washington-based Association for the Study of the Cuban Economy. Even sales commissions are viewed as corrupt, says Yoani Sánchez, a Havana-based journalist. Foreign companies can’t pay their Cuban employees any more than the standard wage, about $20 a month, says Sánchez—barely enough for two weeks’ living in poor conditions with a poor diet. Many foreign bosses routinely top up pay with bonuses and commissions, which Havana considers bribery. For years, says Henken, corruption was the grease that made wheels turns. “You got what you needed to live from what was thrown off the back of the truck.”

It is not clear whether the detained Canadians are facing charges for salary top-ups, for example, or for legitimate corruption allegations. Canada’s Foreign Affairs department would only confirm that “consular services are being provided to two Canadian citizens detained in Cuba.” Executives at Tri-Star Caribbean and members of the Tokmakjian family declined comment, citing the “extremely sensitive” nature of the situation.

Azel’s advice to potential Canadian investors? Stay away. “You’re defenceless. There’s no independent judiciary to adjudicate any kind of claim,” he says. “Doing business with Cuba is a very risky proposition.”

So then why all the new resorts and planned golf courses? Why do so many Brits and Canadians take the personal and business risk? Because it’s widely believed that the days are numbered for the U.S. travel ban on Cuba, which has barred Americans from visiting the island for almost three decades. Predictions for tourism growth are off the charts—up to six million annual visitors, from two million today, says Gregory Biniowsky, a Canadian consultant who’s lived in Cuba for two decades. Cuba’s boosters believe the country, with its vast, undeveloped white sand beaches, just 45 minutes by plane from Florida, could come to rival Jamaica or the Dominican Republic as a tourist draw. “It’s just a matter of time before things boom here,” says Biniowsky. Five billion barrels of oil lie under Cuba’s waters, according to the U.S. Geological Survey. To some, getting in on the ground floor is worth the risk. But foreign investors who lose sight of the dangers could find themselves in serious trouble.

The old Royal Bank of Canada Building in Havana. The interior of the building is below.

Photos by Arch Ritter, April 2012

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The Economist, Special Report on Cuba, March 24, 2012

Posted on March 28, 2012 by Arch Ritter

 

The Castros, Cuba and America; On the road towards capitalism

Change is coming to Cuba at last. The United States could do far more to encourage it.

The Economist has produced one of its excellent surveys, this time focusing on Cuba.

Below are a set of hyperlinks to the various chapters of the Cuba Report. The chapter on the economy is presented following the Table of Contents.

Hyperlinked Table of Contents

  Revolution in retreat; Revolution in retreat

Under Raúl Castro, Cuba has begun the journey towards capitalism. But it will take a decade and a big political battle to complete, writes Michael Reid

  Inequality; The deal’s off

Inequalities are growing as the paternalistic state is becoming ever less affordable

Population; Hasta la vista, baby

The population is shrinking, ageing—and emigrating

The economy: Edging towards capitalism

Why reforms are slow and difficult

Politics; Grandmother’s footsteps

With no sign of a Cuban spring, change will have to come from within the party

Cuban-Americans; The Miami mirror

Cubans on the other side of the water are slowly changing too

After the Castros; The biological factor

Who and what will follow Raúl?

The Economy: Edging towards capitalism

Why reforms are slow and difficult

GISELA NICOLAS AND two of her friends wanted to set up an events-catering company, but that is not one of the 181 activities on the approved list for those who work por cuenta propia (“on their own account”), so in May 2011 they opened a restaurant called La Galeria. With 50 covers, it is a fairly ambitious business by Havana standards. They have rented a large house in Vedado and hired a top chef and 13 other staff who are paid two to three times the average wage, plus tips. The customers are mainly foreign businesspeople and diplomats, Cuban artists and musicians and visiting Cuban-Americans.

“This opportunity means a lot to us,” says Ms Nicolas, who used to work for a Mexican marketing company. “But they haven’t created the conditions for a profitable business.” There are no wholesalers in Cuba, so all supplies come from state-owned supermarkets or from trips abroad. Reservations are taken on Ms Nicolas’s mobile phone. Advertising is banned, though classified ads in the phone book will soon be allowed.

Across Cuba small businesses are proliferating. Most are on a more modest scale than La Galeria. Fernando and Orlandis Suri, who are smallholders at El Cacahual, a hamlet south of Havana, can now legally sell their fat pineapples and papaya from a roadside stall, along with other produce. Orlandis plans to rent space on Havana’s seafront to sell fruit cocktails and juice. In Santa Clara, Mr Pérez’s wife, Yolanda, sells ice-cream from their home. Having paid 200 pesos for a licence and 87 pesos in social-security contributions, she earns enough “to buy salad”. The streets around Havana’s Parque Central heave with vendors hawking snacks and tourist trinkets. Many of them are teachers, accountants and doctors who have left their jobs for a more lucrative, if precarious, life in the private sector.

No reason to work

This cuentapropismo is only the most visible part of Raúl Castro’s reform plan. “The fundamental issue in Cuba is production,” says Omar Everleny, a reformist economist. “Prices are high and wages are low because we don’t produce enough.”

Cuban statistics are incomplete, inconsistent and often questionable. But in a lifetime’s detective work, Carmelo Mesa Lago at the University of Pittsburgh has calculated that output per head of 15 out of 22 main agricultural and industrial products was dramatically lower in 2007 than it had been in 1958. The biggest growth has come in oil and gas and in nickel mining, largely thanks to investment since the 1990s by Sherritt, a Canadian firm. But output per head of sugar, an iconic Cuban product, has dropped to an eighth of its level in 1958 and 1989. Capital investment has collapsed. Raúl Castro has repeatedly lamented that Cuba imported around 80% of the food it consumed between 2007 and 2009, at a cost of over $1.7 billion a year.

The American embargo is an irritant, but the economy’s central failing is that Fidel’s paternalist state did away with any incentive to work, or any sanction for not doing so. So most Cubans do not work very hard at their official jobs. People stand around chatting or conduct long telephone conversations with their mothers. They also routinely pilfer supplies from their workplace: that is what keeps the informal economy going.

The global financial crisis in 2007-08 also took its toll. Tourists stayed away, the oil price plunged, and with it Venezuelan aid. Hurricane damage meant more food imports, just when world food prices were rising and those of nickel, now Cuba’s main export, were plunging. All this coincided with the political infighting in which Mr Lage was ousted, during which “all financial and budgetary discipline was blown away”, according to a foreign businessman. Having repeatedly defaulted on its foreign debt, Cuba has little access to credit. Instead of devaluing the CUC, which would have pushed up inflation, in January 2009 the government seized about $1 billion in hard-currency balances held by state-owned enterprises (SOEs) and foreign joint ventures. It did not finish paying them back until December 2011.

The guidelines approved by the party congress contain measures to raise production and exports, cut import demand and make the state financially sustainable. This involves, first, turning over idle state land to private farmers; second, making the state more productive by transferring surplus workers to the private sector or to co-ops; and third, lifting some of the many prohibitions that restrict Cuban lives, and granting much more autonomy to the 3,700 SOEs.

The grip of the state on Cuban farming has been disastrous. State farms of various kinds hold 75% of Cuba’s 6.7m hectares of agricultural land. In 2007 some 45% of this was lying idle, much of it overrun by marabú, a tenacious weed. Cuba is the only country in Latin America where killing a cow is a crime (and eating beef a rare luxury). That has not stopped the cattle herd declining from 7m in 1967 to 4m in 2011.

In 2008 Raúl allowed private farmers and co-ops to lease idle state land for ten years. By December last year 1.4m hectares had been handed out. The government has now agreed to extend the lease-period to up to 25 years, allow farm buildings to be put up and pay for any improvements if the leases are not renewed.

Credit and technical assistance also remain scarce, says Armando Nova of CEEC. Farmers suffer in the grip of Acopio, the state marketing organisation. It is the monopoly supplier of inputs such as seeds, fertiliser and equipment and was the sole purchaser of the farms’ output, but its monopoly is being dented. Farmers can now sell surplus production of all but 17 basic crops themselves. Under a pilot programme in Artemisa and Mayabeque provinces, near Havana, new co-ops will take over many of Acopio’s functions.

The reformers want to see Acopio go. More surprisingly, so does Joaquín Infante Ugarte at the National Association of Economists and Accountants (ANEC): “It’s always been a disaster. We should put a bomb under it.” But in around 100 of Cuba’s 168 municipalities the economy is based on farming, so Acopio is a big source of power and perks for party hacks, and its future is the subject of an intense political battle. That makes farmers nervous. A year ago the 30 or so farmers in the Antonio Maceo co-op in Mayabeque leased extra land, got a loan and planted bananas, citrus and beans. The administrator says output is up, but “it will take time to see a real difference.” And with that he clammed up.

Official data suggest that output of many crops fell last year; the price of food rose by 20%. That may be partly because farmers are bypassing the official channels. Granma, the official—and only—daily newspaper, reported in January that a spontaneous, self-organised and regulated wholesale market in farm products has sprung up in Havana. That looks like the future.

Letting go is hard to do

Reducing the state’s share of the economy has been even more contested. Raúl originally said the government would lay off 500,000 workers by March 2011 and a total of 1.1m by 2014. That timetable has slipped by several years because the government has been reluctant to allow sufficiently attractive alternatives for workers to give up the security (and the pilfering opportunities) of a state job. But including voluntary lay-offs and plans to turn many state service jobs into co-ops (as has already happened with small barber’s shops, beauty parlours and a few taxi drivers), some 35-40% of the workforce of 4.1m should end up in the private sector by 2015, reckons Mr Everleny.

Raúl sees corruption as politically incendiary at a time of rising inequality

By October 2011, he says, some 338,000 people had requested a business licence, 60% of whom were not leaving state jobs, suggesting that they were simply legalising a previous informal activity. As happens to small businesses the world over, many fail in the first year. Few of the cuentapropistas have Ms Nicolas’s business experience. Many clearly find it hard to distinguish revenue from profit. ANEC is organising training courses. But the government has stalled an attempt by the Catholic church to set up an embryonic business school.

If cuentapropismo is not to be a recipe for poverty, the government will have to ease the rules. Mr Everleny wants to see private professional-service firms being established: architects, engineers, even doctors. Already the taxes levied on the new businesses have been cut, but they are still designed to produce “bonsai companies”, in the words of Oscar Espinosa Chepe, a dissident economist.

Lack of credit is another obstacle. Start-up capital for new businesses comes mainly from remittances. In a pilot scheme the government approved $3.6m in credits in January, nearly all for house improvements. As for deregulation, Raúl has taken some simple and popular steps, lifting bans on Cubans using tourist hotels and owning mobile phones and computers, and last year allowing them to buy and sell houses and cars.

But reforming SOEs is far more complicated. They have been told to introduce performance-related pay. The boldest step was last year’s abolition of the sugar ministry. In principle, SOEs that lose money will be merged or turned over to their workers as co-ops. But a planned bankruptcy law is still pending. So is the elimination of subsidies and the introduction of market pricing. Mr Ugarte of ANEC thinks much of this will happen this year, along with a new law to introduce corporate income tax.

The pace of change has picked up since the party congress set up a commission with 90 staff under Marino Murillo, a Politburo member and former economy minister, to push through the reforms, says Jorge Mario Sánchez at CEEC. “By 2015 there won’t be the socialist economy of the 1990s, nor the same society.” But there are several gaps.

For one, the government seems undecided what to do about foreign investment, a key element in the rapid growth in Vietnam and China. It has cancelled some of the joint ventures it had signed (often in haste) during the Special Period, and such new agreements as it is entering are almost exclusively with companies from Venezuela, China and Brazil. Odebrecht, a Brazilian conglomerate, has reached an agreement under which it will run a large sugar mill in Cienfuegos for ten years. Many foreign companies are keen to invest in Cuba but are put off by the government’s insistence on keeping a majority stake and its history of arbitrary policy change.

Officials worry that foreign investment brings corruption. Raúl has launched an anti-corruption drive with the creation of a powerful new auditor-general’s office. Several hundred Cuban officials, some very senior, have been jailed, as have three foreigners. Raúl rightly sees corruption as politically incendiary at a time of rising inequality. But he is tackling the symptoms rather than the cause. “People who were making $20 a month were negotiating contracts worth $10m,” says a foreign diplomat.

The guidelines involve only microeconomic reforms. Raúl’s macroeconomic recipe has so far been limited to austerity: he has managed to trim the fiscal and current-account deficits. The trickiest reform of all will be unifying the two currencies, by devaluing the CUC and revaluing the peso. It would help if Cuba were a member of the IMF and the World Bank and had access to international credit, but so far the government has shown no interest in joining. Mr Vidal of CEEC points out that for devaluation to provide a stimulus, rather than just generating inflation, the economy would have to be far more flexible. That will require a political battle.

 

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Miriam Celaya on Corruption: “About Controls, Comptrollers and the Uncontrollable”

Posted on October 6, 2011 by Arch Ritter

An interesting and cutting critique on corruption from the Blog Sin Evasión by Miriam Celaya. October 3 2011

Miriam Celaya

One of the first rulings of General R. when he assumed the enthronement to power (please allow me to flatter the younger Castro’s vanity) was to create a system to detect and to put a stop to the rampant corruption that has been entrenched in the country through all spheres and at all levels. It is suspected that corruption is generalized, but the controls and audits reach only to a point … past this point, it might cause dangerous vertigo.

The first (detecting corruption) should be extremely easy. It is obvious and jumps up at you without much effort. The second (putting an end to it), is another matter. Because the General, of course, initiated from the start a process on the surface – not exactly from above — and downward, just where the pockets of the regime resent it the most, and many illustrious heads have rolled since then, including some gray-haired celebrity ones or some that don’t even have enough hair for a comb-over and only until recently were part of the trusted court of their olive green Majesties.

The first of the renowned Band of Seven to have been sacked were Otto Rivero, Felipe Pérez Roque, Francisco Soberón, José Luis Rodríguez, Carlos Lage, Carlos Valenciaga Estenoz and Fernando Rodríguez, who apparently were some sort of threat to the higher epaulets in the palace. “Revolutionaries” of the old guard, who until recently were known for their proven commitment to the regime have joined them.

Apparently, the effects of the Finance Ministry are proving more outrageous than what is prudent, so the official press has been given explicit orders to keep silent. That is, even more silent. So the media, mainly the written press, is engaged, with zeal worthy of better causes, to bring to the light of day the misuse of resources by the manager of some bakery or some agrarian co-op, but sweeps under the rug the dirt of ministries and of other senior bureaucrats with titles that are longer than their own names.

It seems that no one escapes the scrutiny of the severe comptroller of impulses of the purifying will of the General. Personally, I think it’s like a cash count, in which the incoming treasurer makes an effort to purify the accounts so that their own gains are not resented. Because in the state we find ourselves, it could be said that comptrollers have defecated against the ceiling fans, and more courtiers have been hit with feces than their majesties had thought. From ministers, managers of firms (foreign and Cuban), aviation directors, corporate officers of various magnitudes, including the brand-new and militant ETECSA, and countless numbers of minor number of minor entourages that have indeed been publicly beheaded.

But what more curious individuals won’t stop wondering, those who won’t stop misbehaving, who wonder about everything and are always full of ill-intentions, is who will be the leaders charged with renovating a model that seems to generate epidemics of corrupt leaders? What guarantees will there be that of those who will assume the responsibilities of the deposed won’t end up corrupted? What are the chances that a government that has not been able to create morally able replacements to carry out the “high mission of the revolution” will ever succeed in putting together, in the short run, a group of responsible and honest leaders? Will they create leadership schools? Will the General be able to trust anyone under the age of 75? Can we trust (and this is the clincher) the selection capability of the General?

But, in the midst of this sea of corruption of those who used to manage just a small slice of the power and the money, maybe the hardest questions to answer are precisely those that seem more urgent and logical: Are our president and his closest cronies the only “pure” ones we have left to take the helm in the midst of so many storms? Is the General “auditable”? Who is the comptroller who scrutinizes the financial dealings of the administration of the country?

Let’s sit and wait for the answer from the brand-new Comptroller General of the Republic.

 

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Cuba’s Anti-Corruption Drive: Second Canadian Trading Company Shut Down

Posted on September 17, 2011 by Arch Ritter

By Marc Frank | Reuters –
HAVANA (Reuters) – Cuba has shut down one of the most important western trading companies in the country as an investigation into alleged corrupt import-export practices broadened to a second Canadian firm, foreign business sources said on Friday.

State security agents on Friday watched who entered the building in Havana’s Miramar Trade Center where Ontario-based Tokmakjian Group, one of the top Canadian companies doing business on the communist-run island has its offices. The company offices of the fourth floor were sealed with a notice that it had been closed by Cuban State Security. “We received notice on Monday from the foreign ministry and the Council of State, which is the procedure in such cases, to stop all dealings with the Tokmakjian Group,” said an employee of a Cuban company that does business with the firm. Like other people who spoke to Reuters about the clampdown on the company, she asked that her name not be used.

Miramar Trade Center

Tokmakjian Group is estimated to do around $80 million in business annually with the Caribbean island, mainly selling transportation, mining and onstruction equipment. The company is the exclusive Cuba distributor of Hyundai, among other brands, and a partner in two joint ventures replacing the motors of Soviet-era transportation equipment. Company officials were not immediately available for comment.

Cuban authorities shut down Canadian firm Tri-Star Caribbean on July 15 and arrested company president Sarkis Yacoubian. The company, considered a competitor of Tokmakjian Group, did around $30 million in business with Cuba. “Apparently Tri-Star Caribbean was just the beginning. They brought in more than 50 state purchasers for questioning, arrested some of them and broadened the investigation from there,” a western businessman said. “As far as I know up to now just Canadian firms are involved, but you can bet every state importer and foreign trading company in the country is on edge,” he said.

Cuban President Raul Castro has made fighting corruption a top priority since taking over for his ailing brother Fidel in 2008, and in the past year a number of Cuban officials and foreign businessmen have been charged in graft cases.

Tri-Star Caribbean did business with around half of the 35 Cuban state companies authorized to import, from tourism, transportation and construction to the nickel and oil industries, communications and public health. The whereabouts of the man who founded the family business, Cy Tokmakjian, of Armenian heritage, born in Syria and educated in Canada, was not clear on Friday.He was last seen by Reuters a week ago, the day after his offices were sealed, but another western businessman said he had been detained by Cuban authorities. “They picked up Cy on Saturday and I heard his wife and at least one of his kids flew ion to see what they could do,” he said.

Cuba’s state-run media rarely reports on corruption related investigations until they are concluded and those charged are sentenced.
Tokmakjian, a former mechanic, is a self-made millionaire with interests in Canada and other countries besides Cuba, where he is a well known figure. He made his first deal with the Caribbean island in 1988.

President Castro, a general who headed Cuba’s Defense Ministry for 49 years, has cracked down on corruption as part of his efforts to revive the country’s sagging economy, but to date has done little to change the conditions that foster it, such as low salaries and lack of transparency. There is no open bidding in Cuba’s import-export sector and state purchasers who handle multimillion-dollar contracts earn anywhere from $50 to $100 per month.

Castro has moved military officers into key political positions, ministries and export-import businesses and in 2009 stablished the Comptroller General’s Office with a seat on the Council of State. A source close to the Tri-Star Caribbean case said the Comptroller General’s Office had been brought into the investigation, indicating it most likely was targeting high level officials.

Castro’s crackdown has resulted in the breaking up of high-level organized graft in the civil aviation, cigar and nickel industries, at least two ministries and one provincial government. An investigation into the communications sector and another into shipping are also under way.

Cy Tokmakjian

Cy Tokmakjian

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Mark Frank: “Cuba cracks down on “Guayabera” crime”

Posted on May 22, 2011 by Arch Ritter

One morning this month the nearly half a million inhabitants of Sancti Spiritus, a leafy province in central Cuba, woke up to find their local government had fallen.

Rather than some kind of US-inspired coup, however, the removal and subsequent arrest of five senior provincial officials was part of the increasing drive by Raúl Castro, president, against white-collar corruption – or white “Guayabera” crime as it is called after the distinctive Cuban dress shirt.

The crackdown, launched two years ago, has already cost hundreds of senior Cuban Communist party officials, state managers and employees their jobs and sometimes their freedom, as Mr Castro has struggled to shake-up the country’s entrenched bureaucracy and move the country towards a less centralised and more market-driven economy.

Although such campaigns are not new, the intensity of the current drive is unprecedented, as are the number of high level targets and breadth of their illicit activities, Communist party and government insiders said this week.

As well as Sancti Spiritus’s wayward officials, Havana’s mayor resigned last month after most of the capital’s top food administrators were swept away in another probe.

Last year, in the all-important nickel industry, which exports some $2bn annually, managers from mines and processing plants up to deputy ministers of basic industry were arrested after “diverting resources” and padding export weights, according to industry sources. Yadira García Vera, the minister, was eventually fired.

The drive began in earnest in 2009 when Mr Castro, 84, opened the Comptroller General’s Office, saying it would “contribute to the purging of administrative and criminal responsibility, both the direct perpetrators of crimes and the secondary ones . . . [who] do not immediately confront and report them.”

The move is designed to try and allow state-owned companies to operate more profitably, as Mr Castro wants them to, while also preventing the kind of corruption that marked Russia’s and China’s own moves to the market.

“The creation of the Comptroller General in 2009 was a significant step in the first phase of Cuba’s reform,” said Arturo López-Levy, a former analyst at Cuba’s interior ministry and now a Cuba expert at the University of Denver in the United States.

“East Asia demonstrated the wisdom of creating an anti-corruption agency early in the economic transition from a command economy.”

Cuba is fertile ground for corruption. After 20 years of economic crisis, and with state wages worth around $20 a month – a level that the government admits does not cover necessities – almost all Cubans engage in illegal activities to survive.

At the same time, the government is loosening regulations on small private business even as it cuts subsidies and lays off government workers, thereby requiring more sacrifice from state employees and pensioners.

“Raúl Castro has clearly gone to extraordinary lengths to make it clear that corruption – particularly at the higher levels – will not be tolerated, signalling he means business and higher-ups must sacrifice too,” said John Kirk, a Latin America expert at Dalhousie University in Halifax, Canada.

Cuba does not suffer from drug-related corruption like many of its neighbours, said western diplomats and foreign security personnel who work closely with Havana on interdiction.

Rather, according to foreign investors, the biggest problems they face when forming domestic joint ventures are the long delays starting and then operating a Cuban business – in part due to draconian regulations designed to prevent white-collar crime.

That is not the case in the external sector, where foreign trade and off-shore activities make corruption easier.

“The huge disparities between peso salaries, worth just a few dollars a month, and the influx of strong currencies, even in very small amounts, create extremely strong incentives to become corrupted,” said one western manager, who requested anonymity.

Cuban cigars have become the most emblematic case. Distributors in Canada and Mexico had long complained that millions of valuable “puros” – high quality cigars – were somehow making their way to other Caribbean islands and then being smuggled into their franchised territories.

But it was not until last year that the Cohiba-puffing Manuel García, the long-time vice-president of Habanos S.A., a joint venture with London-listed Imperial Tobacco and the exclusive distributor of the island’s famous cigars, was arrested along with a number of other executives and staff.

“Turns out we were complaining to the very people who had set up the sophisticated operation, complete with shell companies and paths to avoid import duties,” one foreign distributor said.

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“The Economist” on Cuba’s Housing Market

Posted on February 10, 2011 by Arch Ritter

Swap shop: Where a beach-front house can be (almost) yours for a snip

Feb 3rd 2011 | HAVANA

CUBA’S government likes to crow that over 85% of Cubans own their homes. The claim is technically correct. However, there is a catch: holding title to a property does not give you the right to sell it. The only legal way to move in Cuba is by swapping residences—a slow, bureaucratic and often corrupt process known as the permuta (“exchange”), which requires finding two roughly similar properties and getting state approval. To avoid this hassle, some Cubans prefer to marry the owner of a property, transfer the deed, and divorce.

Because there is no incentive to build new homes, Cuba suffers from a dire housing shortage. Many buildings have been repeatedly subdivided. In some families three generations share one bedroom.

After replacing his brother as president in 2008, Raúl Castro has legalised and taxed bits of Cuba’s informal economy, like pirated DVDs and used furniture. Now he has turned to housing. In 2010 the government relaxed rules on forming building companies and buying building materials. It is preparing to let foreigners buy property in tourist zones. And in April the Communist Party Congress is expected to allow Cubans to “buy, sell, or swap” their homes.

Havana’s Housing Market, circa 2002: Arranging “Permutas” on Paseo del Prado, Photo by Arch Ritter

The effect of these measures may be limited. Most permutas already involve money under the table—ranging from a few thousand dollars to $40,000 for a smart three-bedroom flat. The market will be heavily regulated: officials say they will ban the (as yet undefined) “accumulation” of property. And buyers may be discouraged if they have to prove that their money did not come from the vast black market.

Even so, allowing selling is risky. It will raise tax revenues, but could belie Cuba’s myth of material equality. If too many luxury homes pop up, the poor may further doubt that America’s trade embargo is the cause of their misery. Already a cluster of sea-front houses west of Havana, acquired via permuta by pop stars and foreigners, is getting its first lick of paint in decades.

The market will probably benefit from Barack Obama’s loosening of the embargo. He has relaxed most limits on visits and remittances, which should increase demand for Cuban homes and the amount buyers can pay. Some Cuban-Americans are even considering returning for retirement. “Now is the time to move”, says Ada Fuentes, who recently came back to Havana after 49 years in New Jersey. “If you have money, life’s good here”.

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