Tag Archives: Tourism

CUBA’S ECONOMIC CRISIS IS SPURRING MUCH-NEEDED ACTION ON REFORMS

William M. LeoGrande, Tuesday, Nov. 17, 2020

Complete Article:  ACTION ON REFORMS

Cuba’s economy was already struggling before the coronavirus pandemic, due to persistently poor domestic productivity, declining oil shipments from Venezuela and the ratcheting up of U.S. sanctions. But now, the closure of the tourist sector due to COVID-19 has thrown Cuba into a full-fledged recession, deeper than anything since the economic crisis of the 1990s that followed the collapse of the Soviet Union—what Cubans know as the “Special Period.”

Perhaps paradoxically, the downturn also appears to have broken a logjam of disagreement among Cuba’s senior leaders and accelerated the implementation of economic reforms. Reforms entail risks, President Miguel Diaz-Canel told the Council of Ministers this summer, but “the worst risk would be in not changing and in losing popular support.”

In 2011, the Cuban Communist Party approved a new economic policy to promote growth by giving freer rein to market forces; requiring unproductive state-owned enterprises to make a profit, even if it means laying off workers; promoting small private businesses; and attracting foreign direct investment. Over the ensuing years, however, implementation slowed to a glacial pace, at least in part because of resistance from some segments of the Cuban political elite who stood to lose from the changes. With the economy buoyed by cheap oil from Venezuela and a booming tourist sector, the need for reform was less urgent.

See the source image

Still, economic growth lagged. GDP increased at an average rate of just 2.1 percent from 2011 to 2019, and only 1.3 percent since 2016. The anemic growth in recent years reflects those declining oil shipments from Venezuela, which Caracas provides in exchange for medical services from Cuban doctors and technicians. In 2016, then-President Raul Castro had to declare an energy emergency and begin rationing fuel to state-owned enterprises.

The one bright spot in the domestic economy has been the spectacular growth of Cuba’s tourist sector in the past three decades. From 1991 to 2018, the number of foreign visitors increased more than 11-fold, from just over 400,000 to 4.7 million. The tourist sector got another big boost in 2014, when then-President Barack Obama agreed with Castro to begin normalizing relations, and the Obama administration eliminated most restrictions on U.S. travel. The number of non-Cuban American U.S. visitors jumped six-fold, from 92,325 in 2014 to a peak of 637,907 in 2018. Including Cuban Americans, U.S. visitors in 2018 comprised about a quarter of all foreign visitors to the island.

But President Donald Trump immediately pledged to “cancel” Obama’s opening to Cuba when he took office in 2017. The Trump administration launched a concerted “maximum pressure” campaign, designed to systematically cut off Cuba’s principal sources of foreign currency. To deter foreign investors, Trump activated Title III of the 1996 Cuban Liberty and Democratic Solidarity Act last year, enabling U.S. nationals who lost property after the 1959 revolution, including Cuban Americans, to sue Cuban, U.S. or foreign companies in U.S. federal court for “trafficking” in their confiscated property—that is, making beneficial use of it.

Faithfully executed, the reforms could boost productivity significantly over the next year or two, but shorter-term relief for Cuba will depend on circumstances beyond its control.

The administration also targeted Cuba’s energy supply by imposing sanctions on companies shipping Venezuelan oil to Cuba, aggravating fuel shortages. The State Department pressured other countries to end their partnerships with Cuba’s international medical assistance programs—a major source of foreign exchange earnings for Havana—and conservative governments in Brazil, Ecuador, Bolivia and El Salvador quickly obliged. The Brazilian program, by far the largest, involved over 11,000 medical personnel, generating $250 million in annual revenue for Cuba.

But Trump’s most serious blows have focused on travel and remittances. The administration eliminated the people-to-people category of legal travel, thereby blocking the majority of non-Cuban American travelers; severed commercial and charter air links to all Cubans cities except Havana; and banned U.S. cruise ships, which carried some 800,000 people to Cuba in 2018, from docking there. This campaign led to a 20 percent drop in the number of foreign visitors to the island in the early months of 2020 before the onset of COVID-19.

Remittances, which Obama removed limits on in 2009, were capped at $1,000 per quarter. Then, just weeks before the presidential election, Trump announced new rules prohibiting Cuban Americans from sending remittances through Cuban money transfer companies run by the armed forces, which includes almost all of them. The restrictions, which are set to go into effect later this month, would produce deep suffering among the roughly 60 percent of Cubans who rely on $3.6 billion in cash remittances annually for sustenance.

Then came the pandemic. Although Cuba has had considerable success containing COVID-19, by virtue of a health care system premised on prevention and a disaster response apparatus second to none, the impact on Cuba’s economy has been catastrophic. In March, Cuba closed the island to all foreign visitors and has only gradually begun to reopen some of the more remote tourist resorts in the Cuban Keys. The closure has cost Cuba some $3 billion in lost revenue; estimates are that GDP has contracted by 8 percent this year. The shortages of basic commodities, including food and medicine, are severe due to the shortage of foreign exchange reserves, and Cuba has been unable to meet its debt service obligations.

The severity of the crisis prompted the Cuban government to finally act on potentially significant economic reforms it previously promised, but which were delayed due to disagreements within the leadership. Perhaps most significantly, the government has indicated that it will soon eliminate the dual currency and exchange rate system—which includes Cuban pesos for domestic use and convertible pesos that are roughly pegged to the dollar. The Cuban pesos have a 25:1 exchange rate with the convertible peso in the retail sector, and 1:1 rate between enterprises—a distortion of value that stimulates imports while discouraging exports and aggravating the country’s foreign exchange crisis.

In July, the government announced that private and cooperative businesses would be allowed to hold convertible foreign currency bank accounts and import and export directly, rather than having to go through government agencies. To prioritize food security, the government reduced price and administrative controls on private and cooperative farms. To generate and capture more remittances, it lifted the 10 percent tax on U.S. dollars entering the country and opened dozens of stores that accept payment in convertible currency.

Faithfully executed, these reforms could boost productivity significantly over the next year or two, but shorter-term relief for Cuba will depend on circumstances beyond its control: the speed at which the pandemic subsides, allowing the tourist sector to reopen; and the policies of the incoming U.S. president. Cubans celebrated openly when Joe Biden won this month’s election, and the government has signaled its willingness to improve relations. During the election campaign, Biden promised to reverse Trump’s sanctions that disrupted family ties and imposed economic hardship on the Cuban people, which could mean a reopening of travel and elimination of Trump’s restrictions on remittances. That would measurably improve the standard of living for the Cuban people, but sustainable development for the long run depends on Cuba completing the reforms necessary to build a productive economy.

Posted in Blog | Tagged , , , , | Leave a comment

NO MORE RUM OR TOBACCO, NOR HOTEL STAYS: TRUMP IMPOSES NEW SANCTIONS ON CUBA

BY NORA GÁMEZ TORRES

Nuevo Herald  News Sanctions, SEPTEMBER 23, 2020 05:22 PM

Trump honors Cuban-American veterans who served in 1961 Bay of Pigs  invasion - U.S. - Stripes

Trump with Bay of Pigs Veterans

Americans traveling to Cuba will not be able to buy rum or tobacco as souvenirs, nor will they be able to stay in government hotels, according to new restrictions announced by President Donald Trump on Wednesday.

“Today as part of our continuing fight against communist oppression, I am announcing that the Treasury Department will prohibit U.S. travelers from staying at properties owned by the Cuban government,” Trump said in a speech to honor Bay of Pigs veterans at the White House. “We are also further restricting the importation of Cuban alcohol and Cuban tobacco. These actions will ensure U.S. dollars do not fund the Cuban regime.”

The Treasury Department modified the embargo regulations on Cuba to prohibit imports of rum and tobacco, as well as lodging in hotels or properties controlled by the Cuban government, government officials and the Communist Party, or their close relatives.

The properties appear in a new list created by the Department of State. Travel and tourism companies subject to U.S. jurisdiction will not be able to make reservations at these properties.

The list names 433 hotels and properties, including some “casas particulares” (private rentals) that the State Department determined were not independent of the government, said Carrie Filipetti, deputy assistant secretary of state for Western Hemisphere affairs, in a call with reporters on Wednesday.

Top of Form

Bottom of Form

Among the private rentals included is Casa Vida Luxury Holidays, a property advertised on Airbnb that, according to media reports, is linked to Vilma Rodríguez, granddaughter of Communist Party head and former president Raúl Castro.

The measures will deal a harsh blow to Cuba’s tourism industry because the government owns all the island’s hotels. Many travel companies have operations in the United States and will therefore be affected by the measure. Previously, the administration had banned accommodation in hotels run by military companies, but now the prohibition extends to all state-run properties.

Thousands of Cuban Americans who travel to the island every year usually take their families on vacation at these hotels.

“The prohibition on the use of hotels owned by the government of Cuba will also result in fewer airline flights from the United States to Cuba,” said John Kavulich, the president of the U.S.-Cuba Trade and Economic Council.

Filipetti said the restrictions aim at denying funds to the government, which dominates the hospitality industry as well as tobacco and rum production. She added that the policy intends to benefit owners of private bed and breakfasts.

“The Cuban government profits from properties in the hospitality industry owned or controlled by the Cuban government … all at the expense of the Cuban people, who continue to face repression at the hands of the regime,” said Secretary of State Mike Pompeo in a statement. “Authorized travelers should instead stay in private accommodations, or casas particulares, owned and operated by legitimately independent entrepreneurs.”

The Treasury Department also eliminated a general authorization policy for the participation or organization of conferences, seminars, exhibitions and sporting events. Citizens, residents and companies subject to U.S. law must apply for a specific authorization or license for these activities.

Organizations in favor of more engagement with Cuba quickly pointed out that further restricting travel to Cuba could also hurt the private sector the administration officials say the U.S. wants to lift up.

“To continue limiting American citizens to travel to Cuba is to continue to put pressure on Cuba’s growing private sector, which is already hurting from the domestic economic crisis, the impact of U.S. policies, and the effects of the COVID-19 pandemic,” said María José Espinosa, interim president of Engage Cuba.

The new rules will go into effect Thursday, when they will be officially published in the Federal Register.

MORE SANCTIONS TO CUBA

Cuban leader Miguel Díaz-Canel blasted on Twitter the U.S. “empire” and the new measures “that violate the rights of Cubans and Americans. Its cruel and criminal policy will be defeated by our people, who will never renounce their sovereignty.”

In the last two years, the administration has intensified its “maximum pressure” campaign against the Cuban government, citing human rights violations and its support of Nicolás Maduro in Venezuela.

In June, the Trump administration included Fincimex, a company controlled by the military conglomerate GAESA, on a list of entities linked to the Cuban military. Persons subject to U.S. jurisdiction are prohibited from direct financial transactions with these entities.

The United States also suspended all charter and commercial flights to Cuba, except for flights to Havana. It also limited per person remittances to $1,000 per quarter. And it has sanctioned companies involved in the shipments of Venezuelan oil to Cuba.

U.S. sanctions, the coronavirus pandemic, and the decline in Venezuela’s oil aid have plunged Cuba’s inefficient socialist economy into a deep crisis. The population suffers from a severe shortage of food, medicine and hygiene products, and although the government has promised some economic reforms, none appear to be immediate.

On Tuesday, Díaz-Canel complained to the United Nations General Assembly about the increase in the “aggressiveness of the U.S. blockade. … Not a week goes by without that government issuing statements against Cuba or imposing new restrictions.”

U.S. officials have rejected the Cuban government’s narrative and have pushed back on criticism that the sanctions may aggravate the situation of ordinary Cubans.

What the Cuban people are “going through, it’s a serious humanitarian concern. The embargo has specific provisions to allow Cuba to import food from the United States; it has exceptions for food and medical supplies,” said Mara Tekach, coordinator for Cuban affairs at the State Department in an interview with the Miami Herald on Wednesday. Citing Cuba’s long-standing inability to feed its population, Tekach added that “the regime is the one that ultimately is failing its people.“

The sanctions and the unrelenting attacks on socialism have secured President Trump the support of a significant portion of Cuban-American voters.

“The Obama-Biden administration made a weak, pathetic, one-sided deal with the Castro dictatorship that betrayed the Cuban people and enriched the communist regime,” Trump said in the White House speech. “Today, we reaffirm our ironclad solidarity with the Cuban people, and our eternal conviction that freedom will prevail over the sinister forces of communism.”

Filipetti denied that the timing of the announcement was linked to the upcoming presidential election, as critics of the administration have suggested.

“This announcement, just weeks before the presidential election, shows what the Trump Administration’s Cuba policy is really about,” said Collin Laverty, president of Cuba Educational Travel. “It’s about South Florida and it places absolutely no importance on the well-being of the Cuban people, democracy, human rights or advancing U.S. national interests in the region.”

Follow Nora Gámez Torres on Twitter: @ngameztorres

 

Posted in Blog | Tagged , , | Leave a comment

ASCE (ASSOCIATION FOR THE STUDY OF THE CUBAN ECONOMY), A Selection of Papers from the 2018 Annual Conference

The complete set of papers is here:  ASCE Conference Proceedings for 2018.

A complete set of all the papers from the annual ASCE conferences can be found here:  ASCE Conference Proceedings

Cuba: Los Retos Económicos del Gobierno de Miguel Díaz-Canel Omar Everleny Pérez Villanueva PDF version
Cuba 2018: Entre la Continuidad y la Oportunidad Dagoberto Valdés Hernández PDF version
Cuban Peso Unification: Managed Rate and Monetary Analysis Luis R. Luis PDF version
La Agricultura en Cuba: Transformaciones, Resultados y Retos Armando Nova González PDF version
Principal Elements of Agricultural Reforms in Transition Economies: Implications For Cuba? Mario A. González-Corzo PDF version
Cuba’s Economic Liberalization and The Perils to Security and Legality Vidal Romero PDF version
Growth and Policy-Induced Distortions in The Cuban Economy: an Econometric Approach Ernesto Hernández-Catá PDF version
Comparing The Quality of Education in Pre- and Post-Revolutionary Cuba Using U.S. Labor Market Outcomes Luis Locay and John Devereux PDF version
The Global Economy and Cuba: Stasis and Hard Choices Larry Catá Backer PDF version
Five Keys to Presidential Change in Cuba Arturo López-Levy and Rolf Otto Niederstrasser PDF version
Cuba’s Political and Economic Arteriosclerosis – It Is Not Just The Castros Gary H. Maybarduk PDF version
Cuban Tourism Industry in The Eye of The Storm Emilio Morales PDF version
Experiencias de Cuentapropistas Ted A. Henken PDF version
Cuban Demography and Economic Consequences Humberto Barreto PDF version
     
“The Revenge of The Jealous Bureaucrat”: A Critical Analysis of Cuba’s New Rules For Cuentapropistas Ted A. Henken PDF version

 

Posted in Blog | Tagged , , , , , , | Leave a comment

LA ECONOMÍA CUBANA EN 2018: OTRO AÑO SIN COLAPSO Y SIN PROGRESO

Por Pavel Vidal Alejandro, Diciembre de 2018.

Este año el crecimiento económico nuevamente quedará por debajo del plan oficial. Desde el tercer trimestre el gobierno cubano ajustó la meta de 2 por ciento a 1 por ciento, después de obtenerse un crecimiento de 1,1 por ciento en el primer semestre. Se sabía que este iba a ser un año complicado para sectores claves como el turismo y la industria azucarera, y para el sector exportador en general. Se sabía que este año el entorno económico iba a ser desfavorable y que iba a ser difícil encontrar impulsos al crecimiento debido a las secuelas que dejó el huracán Irma en la agricultura, a los problemas por los que sigue atravesando Venezuela (a pesar del aumento en el precio del petróleo), y debido al efecto de las medidas de la Administración Trump sobre el arribo de visitantes. A ello se le une una situación financiera nacional que todavía no se recompone y que obliga a mantener contraídas las importaciones.

Los últimos datos de la Oficina Nacional de Estadísticas e Información (ONEI) confirman la complicada situación por la que atraviesa el comercio exterior cubano, evidenciando que los shocks internacionales (la crisis venezolana y las nuevas restricciones en la política de Estados Unidos) y los atrasos en las deudas comerciales, tienen una alta responsabilidad en lo que sucede con el PIB. Las exportaciones de bienes y servicios presentaron un crecimiento nulo en 2017 (medidas a precios contantes), lo que lleva a acumular cuatro años sin aumento real de los ingresos externos. Ello exige ajustar las importaciones y limita la disponibilidad de insumos para el sector productivo. Las importaciones reales cayeron un 1,6 por ciento en 2017, en 2016 también habían caído (-10,6 por ciento) y en 2014 (-1,5 por ciento).

Probablemente a finales de diciembre se anuncie un dato oficial de crecimiento del PIB algo mayor que cero, que otra vez contrastará con una realidad que se sigue pareciendo más a una recesión. Los enormes problemas para cumplir los compromisos financieros con proveedores e inversionistas, la escasez de productos básicos, y la dinámica de los precios de los bienes de consumo, cada vez coinciden menos con las estadísticas oficiales del PIB y del Índice de Precios al Consumidor.

El crecimiento económico cubano se mantiene en una media de 1,7 por ciento en los últimos cinco años, según unos registros oficiales (que probablemente esconden una ligera recesión). Pero, así y todo, es meritorio ver cómo las autoridades cubanas han logrado mantener a flote una parte de la actividad productiva mientras el principal socio comercial (Venezuela) ya ha perdido la mitad de su PIB. Con la dependencia que aún mantiene Cuba de Venezuela para la exportación de servicios profesionales (médicos, principalmente) y para la importación de petróleo, sigue pareciendo increíble el resultado.

Ciertamente, esta es una capacidad que han desarrollado las autoridades económicas después de tres décadas de funcionamiento bajo restricciones financieras casi constantes. Las estructuras económicas monopólicas y controladas centralmente, las cadenas de suministros administradas por el Estado, los mercados racionados, y las regulaciones financieras y cambiarias se activan al máximo bajo el mando político en épocas de crisis, y se ponen en función de distribuir y en tratar de repartir prioritariamente los escasos ingresos.

Se debe reconocer que es un sistema que ha mostrado ser efectivo para manejar las crisis y evitar el colapso económico, como también ha sido “efectivo” en limitar la iniciativa privada, la innovación y el despegue de la productividad. Es un sistema que tiene el récord de mantener al país con las menores tasas de inversión de América Latina. Y así lleva casi 30 años ya el aparato productivo cubano: no colapsa del todo, pero tampoco hay progreso económico.

Dos amortiguadores del shock venezolano

 En estos últimos años la economía cubana ha logrado, además, encontrar otras dos vías para amortiguar el shock venezolano. En primer lugar, el impulso que alcanzó desde 2015 el arribo de turistas. Un crecimiento promedio de 16 por ciento por tres años ayudó a obtener otras fuentes de ingresos externos (aunque no alcanzó para hacer crecer el total de las exportaciones), y dinamizó al sector privado y a la inversión extranjera directa.

Por eso ha sido tan preocupante que en 2018 el sector turístico se haya desacelerado. Las restricciones de viaje para los ciudadanos estadounidenses y la mala publicidad que generan los supuestos “ataques sónicos”, han tenido un efecto prolongado en el mercado turístico cubano. Desde 2015 hasta 2017, el arribo de visitantes desde Estados Unidos (incluyendo cubanoamericanos) había venido creciendo a una tasa promedio anual de 44 por ciento y había duplicado su participación en el total de visitantes a la Isla (en 2017 llegó a representar un 22 por ciento del total de la demanda). Sin embargo, en el primer semestre de 2018 los visitantes desde Estados Unidos acumulaban una caída del 24 por ciento en comparación con igual período de 2017.

Se puede estimar que, de no ser por la nueva política estadounidense, Cuba podía haber llegado a la cifra de los 5,7 millones de visitantes en 2018, bastante por arriba de los 4,9 a los que se debe llegar este año. Así, el empeoramiento de las relaciones con Estados Unidos, ha implicado recibir alrededor de 785,000 turistas menos en 2018, lo que tiene un costo para la economía cubana de alrededor de US$557 millones, por concepto de ingresos no recibidos (ver Cuba Standard Economic Trend Report, 2018 tercer trimestre). Este es un impacto incluso mayor que el estimado de US$300 millones que se dejarían de recibir por la cancelación del programa médico cubano en Brasil.

Afortunadamente, la tendencia de los últimos datos mensuales de arribo de visitantes internacionales evidencia una significativa recuperación en la demanda por el mercado turístico cubano. Gracias a esta tendencia positiva, ya en el tercer trimestre de 2018 la cantidad de visitantes fue un 5 por ciento mayor que los recibidos en igual período de 2017. Tal resiliencia de la demanda por el mercado cubano es un excelente dato para la economía de la Isla, dado que el turismo será clave para la dinámica de 2019.

En segundo lugar, ha funcionado también como amortiguador la política fiscal expansiva. En 2017 el gasto de gobierno fue el componente de la demanda agregada que más creció a precios constantes: un 2,2 por ciento. Desde 2015 viene aumentando el gasto del presupuesto del Estado y el déficit fiscal como proporción del PIB. Después de años de austeridad fiscal, el gobierno echó manos del gasto fiscal para amortiguar los efectos de la crisis venezolana.

Para reducir los efectos inflacionarios de esta política fiscal expansiva, el Ministerio de Finanzas y Precios ha venido estrenando en grande los bonos públicos. Es decir, ya no se imprime dinero nuevo para financiar el gasto fiscal que no tiene respaldo en ingresos, sino que lo financian los bancos comerciales estatales al comprar los bonos públicos.

Tal política fiscal anticíclica ha amortiguado la caída del PIB, pero lo preocupante es que ha generado un hueco fiscal por encima de 8,000 millones de pesos en 2017 (8,6 por ciento del PIB) y de cerca de 12,000 millones de pesos para 2018 (alrededor de un 12 por ciento del PIB). El déficit fiscal en pesos corrientes es el histórico más alto y, en relación al PIB, es una proporción que no se veía desde la crisis de inicios de los años 90. No cabe duda de que la expansión fiscal ayuda al crecimiento del PIB en el corto plazo, pero sobre una burbuja financiera que se está acumulando en la forma de bonos públicos en manos de los bancos comerciales estatales.

Los cambios irrelevantes en el margen

 Y no se puede obviar la pérdida de dinamismo en las reformas estructurales, lo cual mantiene estancado el potencial de crecimiento de la economía. Es decir, hay factores cíclicos y coyunturales, pero también siguen lastrando el potencial de crecimiento tanto la dualidad monetaria y las ineficiencias del sector empresarial estatal, como las restricciones sobre la agricultura y al sector privado, todo lo que impide acumular más capital físico y hacer un uso intensivo de la tecnología y el capital humano.

El presidente Díaz-Canel, por el momento, se mantiene en la senda de las transformaciones graduales que no tocan la columna vertebral del sistema centralizado y el monopolio de la empresa estatal. Ello coincide con las expectativas de un Presidente que no llega al poder presentando una agenda propia, sino que fue seleccionado por la generación de los “históricos” para darle continuidad al programa definido durante el período de Raúl Castro.

Una manera simple de ilustrar la manera en que se vienen aplicando las reformas es la siguiente. Si hay que cambiar diez cosas para que funcione eficientemente un sector productivo, un mercado o un mecanismo económico, el gobierno cubano va a cambiar solo dos, y estas dos nunca van a ser las más importantes. Con ello, mantienen la imagen de reforma, minimizan los conflictos y divisiones políticas al interior del gobierno y el Partido, pero gastan tiempo y energía en producir transformaciones que no tienen la posibilidad de ofrecer resultados significativos, dado que no se han cambiado las otras ocho cosas que impiden el funcionamiento eficien Lo acabamos de ver este año cuando se deciden realizar modificaciones a la Ley 118 de la Inversión Extranjera con vistas a acelerar la llegada de capital extranjero, y para ello se establece que, en las propuestas de inversión, hay dos documentos que ya no son necesarios presentar al Ministerio de Comercio Exterior (MINCEX), y que ya no hay necesidad de presentar un estudio completo de factibilidad de la inversión, sino un estudio más sencillo de pre-factibilidad.

Sin embargo, las modificaciones no tocan, por ejemplo, el sistema de contratación de la fuerza de trabajo a través de empresas empleadoras estatales que operan con objetivos rentistas y dañan la competitividad, ni van dirigidas a potenciar la inversión con capital de los cubanos residentes en el exterior.

También se evidencia en las recientes medidas para evitar la evasión fiscal del sector privado, en las cuales se considera la obligación de tener una cuenta bancaria por parte de los negocios de mayores ingresos, pero no se atacan las principales fuentes de informalidad y del uso del efectivo, tales como la ausencia de un mercado mayorista, la no autorización para importar insumos, el poco uso de medios de pagos electrónicos y que los negocios no cuentan con personalidad jurídica.

En la agricultura también vimos este año otro ejemplo de medidas en el margen que no van a producir resultados significativos. Se decide ampliar los tiempos del usufructo y las extensiones máximas de tierra asignadas a los privados, pero no se desmonta el sistema centralizado de Acopio estatal, y los campesinos siguen sin contar con un mercado donde obtener los bienes de capital, la tecnología y los insumos suficientes.

El año 2019 tendrá como elementos positivos la recuperación del turismo, la reanudación de entrega de licencias a los privados, el aumento de la inversión extranjera a partir de los proyectos ya aprobados, y las múltiples oportunidades que se abren para generar nuevos servicios a partir de la conexión 3G a los teléfonos celulares.

Una de las mayores ilógicas de la reforma cubana es que solo abrió el sector privado a actividades de bajo valor agregado, teniendo Cuba un capital humano de calidad. Tal vez la conexión 3G sea un punto de inflexión para que esto cambie, y el sector privado pueda aportar más al progreso económico desde el conocimiento y la innovación. Pero para ello se requiere que la política pública se salga del margen y cree un marco regulatorio adecuado, no para restringir, sino para promover la expansión de una de las áreas de la llamada economía naranja de mayor dinamismo a nivel internacional.

Dr.  Pavel Vidal

Posted in Blog | Tagged , , , , , , | Leave a comment

THE MAN WHO SAVED HAVANA: EUSEBIO LEAL

AS ITS GREATEST OLD BUILDINGS WERE FALLING DOWN, A FEARLESS HISTORIAN NAMED EUSEBIO LEAL REMADE THE CITY INTO A STUNNING WORLD DESTINATION and WORLD HERITAGE SITE.

Smithsonian, May 2018.
Read more: EUSEBIO LEAL

On a sweltering morning in Old Havana, a courtly figure in a crisp gray guayabera shirt weaves through the Plaza de Armas, the city’s Spanish colonial heart, trying not to attract attention. Although none of the foreigners lolling beneath the banyan trees and royal palms recognize him, a ripple of excitement passes through the Cubans, who nudge each other, smile and stare. Perhaps only on this island obsessed with its operatic past could a historian become a celebrity on a par with a Clooney or DiCaprio. Eusebio Leal is the official historian of the city of Havana, a regal-sounding position that brings with it enormous influence and exposure—he starred for many years in his own TV show where he explored Old Havana’s streets—and he is as far from the cliché of the dusty, isolated academic as it is possible to get. In fact, Leal is credited with almost single-handedly bringing Old Havana from the brink of ruin to its current status as the most ravishing and vibrant architectural enclave in the Western Hemisphere.

Deftly dodging well-wishers, Leal ducks into the Historical Library, where some 50 female workers line up to kiss him on the cheek and offer flustered greetings. In his hectic round of duties, he has come to honor one of Cuba’s countless obscure intellectual champions—a certain Alfredo Zayas Méndez, who founded this archive 80 years ago, an exalted act in a nation with the highest level of education in Latin America. Standing before a plaque, Leal orates off the cuff for 45 minutes about the biblio-hero Zayas, a rhetorical tour de force that includes fond personal anecdotes, philosophical musings on “the importance of memory” and flirtatious exchanges that make the audience collapse into helpless laughter. He then takes questions, poses for snapshots, examines a restoration plan for the Havana Capitol—offering his expert opinion about work on the dome—before dashing off with his minder to a high-level government meeting.

The whirlwind visit leaves everyone a little dazed. At age 75, Leal shows no signs of slowing his notoriously hectic pace. For the last 50 years, almost as long as the Cuban revolution has lasted, his outsized personality has been inseparable from Old Havana itself. Working within the Communist system, he pioneered a capitalist network that would save the district’s architectural heritage at the same time as maintaining its community life so that it would not become a “living museum” like Venice or Old San Juan. A consummate politician, he combined a deft personal touch with the poorest residents while navigating the high corridors of government and hobnobbing with Fidel Castro. Although he has stepped back from direct power in the last couple of years following a serious illness, he is still regularly loaded with international honors, as both Cubans and foreigners—even Miami exiles—fall over themselves to pile him with praise.

“Eusebio Leal is a legendary figure in the preservation world,” says Joshua David, president of the World Monuments Fund in New York, who visited Havana for a workshop on architectural restoration in February 2017. “He pioneered innovative ways to fund restoration in Old Havana, which at the same time supported social programs like health clinics and old age homes.” “He’s an incredibly complex, brilliant man,” declares Gregory Biniowsky, a left-wing Canadian lawyer who has worked in Havana since 1995 and has dealt with Leal and his Office of the Historian (OHC) regularly. “He’s the best of the revolution.” Leal’s own workers are intensely loyal. “He inspires everyone,” says Mariela Mulet, the chief of the Prado Investment Group working on the Capitol. “He saved Old Havana though his own willpower. There won’t be another one like him in a long time.” On the street, the support is even more effusive: “Leal is the only person who Cubans would erect a monument to while he is still alive,” declares Alian Alera, a young librero, or bookseller. “When I was a boy, I was there when he personally came and presented my father with his book-selling license.” “Without Leal, Havana would be nothing like what it is today,” sums up the American historian Nancy Stout, who worked with his office on several books. “A lot of Cubans would do anything for him.”

The original article: : https://www.smithsonianmag.com/travel/man-who-saved-havana-180968735/#2rcuoRIt648z7XX9.99

Plaza Vieja,  under revival, 2011

Plaza Vieja 2018

But still enough work to do, especially in Central Havana

Posted in Blog | Tagged , , , , , , | Leave a comment

TOURISM BOOMING IN CUBA DESPITE TOUGHER NEW TRUMP POLICY

Published 1:15 PM ET Fri, 19 Jan 2018, The Associated Press

Original article: Tourism Booming In Cuba

  • 2017 was a record year for Cuban tourism, with 4.7 million visitors pumping more than $3 billion into the island’s otherwise struggling economy.
  • But the tourism dollars from big-spending Americans seem to be heading into Cuba’s state sector and away from private business.
  • That’s largely due to tougher Trump policy requiring “people-to-people” travel to take place only in tour groups, which depend largely on Cuban government transportation and guides.

On a sweltering early summer afternoon in Miami’s Little Havana, President Donald Trump told a cheering Cuban-American crowd that he was rolling back some of Barack Obama‘s opening to Cuba in order to starve the island’s military-run economy of U.S. tourism dollars and ratchet up pressure for regime change.

That doesn’t appear to be happening. Travel to Cuba is booming from dozens of countries, including the U.S. And the tourism dollars from big-spending Americans seem to be heading into Cuba’s state sector and away from private business, according to Cuban state figures, experts and private business people themselves.

The government figures show that 2017 was a record year for tourism, with 4.7 million visitors pumping more than $3 billion into the island’s otherwise struggling economy. The number of American travelers rose to 619,000, more than six times the pre-Obama level. But amid the boom — an 18 percent increase over 2016 — owners of private restaurants and bed-and-breakfasts are reporting a sharp drop-off.

“There was an explosion of tourists in the months after President Obama’s detente announcement. They were everywhere!” said Rodolfo Morales, a retired government worker who rents two rooms in his home for about $30 a night. “Since then, it’s fallen off.”

The ultimate destination of American tourism spending in Cuba seems an obscure data point, but it’s highly relevant to a decades-old goal of American foreign policy — encouraging change in Cuba’s single-party, centrally planned system. For more than 50 years, Washington sought to strangle nearly all trade with the island in hopes of spurring economic collapse. Obama changed that policy to one of promoting engagement as a way of strengthening a Cuban private sector that could grow into a middle class empowered to demand reform.

Cuba’s tourism boom began shortly after Obama and Cuban President Raul Castro announced in December 2014 that their countries would re-establish diplomatic relations and move toward normalization. U.S. cruise ships began docking in the Bay of Havana and U.S. airlines started regular flights to cities across the island. Overall tourism last year was up 56 percent over Cuba’s roughly 3 million visitors in 2014.

While the U.S. prohibits tourism to Cuba, Americans can travel here for specially designated purposes like religious activity or the vaguely defined category of “people-to-people” cultural interaction.

Obama allowed individuals to participate in “people-to-people” activities outside official tour groups. Hundreds of thousands of Americans responded by designing their own Cuban vacations without fear of government penalties. Since Cuba largely steers tour groups to government-run facilities, Americans traveling on their own became a vital market for the island’s private entrepreneurs, hotly desired for their free spending, heavy tipping and a desire to see a “real” Cuba beyond all-inclusive beach resorts and quick stops on tour buses. The surge helped travel-related businesses maintain their role as by far the most successful players in Cuba’s small but growing private sector.

Trump’s new policy re-imposed the required for “people-to-people” travel to take place only in tour groups, which depend largely on Cuban government transportation and guides.

As a result, many private business people are seeing so many fewer Americans that it feels like their numbers are dropping, even though the statistics say otherwise.

“Tourism has grown in Cuba, with the exception of American tourism,” said Nelson Lopez, a private tour guide. “But I’m sure that sometime soon they’ll be back.”

While Trump’s new rules didn’t take effect until November, their announcement in June led to an almost immediate slackening in business from individual Americans, many Cuban entrepreneurs say. The situation was worsened by Hurricane Irma striking Cuba’s northern coast in September and by a Cuban government freeze on new licenses for businesses including restaurants and bed-and-breakfasts. Cuban officials say the freeze was needed to control tax evasion, purchase of stolen state goods and other illegality in the private sector, but it’s had the effect of further restricting private-sector activity in the wake of Trump’s policy change.

Cuban state tourism officials did not respond to requests for comment.

Trump’s policy changes did not touch flights or cruise ships. Jose Luis Perello, a tourism expert at the University of Havana, said more than 541,000 cruise ship passengers visited Cuba in 2017, compared with 184,000 the previous year. Even as entrepreneurs see fewer American clients, many of those cruise passengers are coming from the United States, he said.

Yunaika Estanque, who runs a three-room bed-and-breakfast overlooking the Bay of Havana, says she has been able to weather a sharp drop in American guests because a British tour agency still sends her clients, but things still aren’t good.

“Without a doubt our best year was 2016, before the Trump presidency,” she said. “I’ve been talking with other bed-and-breakfast owners and they’re in bad shape.”

A Great Casa Particular, my Home for Cuba visits from 1997 to 2017, undoubtedly still thriving due to its excellence.

Posted in Blog, News on the Cuban Economy | Tagged , , , | 1 Comment

TRUMP’S NEW CUBA SANCTIONS MISS THEIR MARK

aqlogo_white

BY WILLIAM M. LEOGRANDE | NOVEMBER 9, 2017

Original Article: SANCTIONS MISS THEIR MARK

REGULATIONS ON TRAVEL AND TRADE WILL LIKELY HAVE LITTLE IMPACT ON CUBA’S GOVERNMENT, HURTING ORDINARY CUBANS INSTEAD.

After two years of restored diplomatic ties, new U.S. regulations on Cuba are bringing back a thicket of travel, financial and trade restrictions – and a tougher stance toward the island. The goal of these restrictions, according to U.S. President Donald Trump, is to starve the Cuban government of money from travel, remittances and commercial ties. But the real victims of the new sanctions will be U.S. residents whose right to travel is curtailed, Cuban families who depend on remittances to survive, the struggling Cuban private sector, and U.S. businesses that will face an even greater disadvantage competing with Asian and European firms.

The regulations issued by the Treasury and Commerce Departments on Nov. 8 re-impose significant limits on educational travel to Cuba that former President Barack Obama relaxed. They also redefine “prohibited officials of the Government of Cuba” expansively, potentially cutting off remittances to hundreds of thousands of Cuban families. Finally, they prohibit anyone subject to U.S. jurisdiction from engaging in any “direct financial transactions” with entities controlled by the Cuban military or security forces that “disproportionately benefits” those entities.

All this marks the implementation of new sanctions Trump announced on June 16, 2017, at a Cuban American rally in Miami. The sanctions were mandated by the National Security Presidential Memorandum the president signed onstage, and included several major changes to the Cuban Assets Control Regulations (CACR), which spell out the operational details of the U.S. embargo.

Educational travel

In January 2011, Obama relaxed restrictions that former President George W. Bush had imposed on educational exchanges with Cuba – restrictions so onerous they eliminated most U.S. study abroad programs. Trump’s new regulations re-impose the Bush era restrictions, albeit with some exceptions for students accompanied by a representative of their U.S. academic institution. When combined with the State Department’s Sept. 29 travel warning advising people not to visit Cuba at all because of the injuries suffered by two dozen personnel at the U.S. embassy, the new restrictions on educational travel could drastically reduce U.S. study abroad in Cuba, which had been on the upswing since 2014.

U.S. visitors traveling under the “people-to-people” educational license (for educational travel not leading to an academic degree) can no longer travel on their own. They must now travel with organized groups under the auspices of a U.S.-based, licensed travel provider. Obama had lifted the group travel requirement in March 2016, providing an immediate boon to Cuba’s emerging private sector because individual travelers are much more likely to stay at private B&Bs (casas particulares), eat in private restaurants (paladares), take private taxis, and hire private guides. Most organized groups are too large for private rentals and thus have to be booked into government-owned hotels. Consequently, although Trump’s policy purports to boost Cuba’s private sector, the prohibition on individualized people-to-people travel hits the private sector hardest.

Although Cuban private businesses may suffer, the new travel regulations are not likely to put a huge dent in the number of U.S. visitors. The volume of travelers from the United States jumped dramatically in 2015, up 77 percent over 2014, after Obama and Cuba’s President Raúl Castro announced their intention to normalize relations in December 2014. This surge occurred before Obama ended the prohibition on individualized “people-to-people” travel. U.S. visitors are far more likely to be deterred by the State Department’s travel warning. Even then, a significant decline in U.S. visitors will not do serious damage to the Cuban tourist industry, which hosted four million foreign visitors in 2016 and is on track to host 4.7 million this year, of which only seven percent were non-Cuban American U.S. visitors.

Remittances

The new regulations redefine “prohibited officials of the Government of Cuba” to include all employees of the Ministry of the Revolutionary Armed Forces and Ministry of the Interior, thousands of ordinary Cubans who volunteer as leaders of their local Committees for the Defense of the Revolution, as well as senior government and party officials. The previous regulatory definition of prohibited officials, put into place by Obama in October 2016, was limited to members of the Council of Ministers and flag officers of the Revolutionary Armed Forces. The new definition encompasses hundreds of thousands of people, since the armed forces manage a significant number of commercial enterprises such as the Gaviota hotel chain and TRD Caribe retail stores, especially in the fast-growing tourism sector.

Cubans who are “prohibited” are not allowed to receive payments from U.S. nationals. That includes remittances and gift packages (Cuban Assets Control Regulations,  §515.570), so the new regulations could potentially deprive hundreds of thousands of Cuban families of support from their relatives abroad. However, the actual impact is harder to predict. There is no way to enforce this prohibition since the U.S. government does not have a list of all the people covered in the expanded definition. Moreover, Cuban Americans can carry funds and gift packages to family when they travel or can wire funds through third countries, just as they did in 1994 when former U.S. President Bill Clinton tried, unsuccessfully, to cut off remittances to punish Cuba for the balsero (rafters) migration crisis.

Apart from whether the new prohibition proves effective, it would seem to run counter to the purported aim of Trump’s policy to empower the Cuban people by directing U.S. funds to them, rather than to the Cuban government. Remittances are by far best way to do that because the dollars go directly to family on the island.

Transactions with military-linked enterprises

The most complex regulatory change is the prohibition on engaging in any “direct financial transactions” with businesses controlled by the Cuban military or security forces if they “disproportionately benefit” those forces. This is a potentially significant prohibition because the Cuban armed forces ministry administers commercial holding companies involved in everything from banking and port management to hotels and retail sales. The presence of military enterprises is greatest in the tourist sector, where both U.S. visitors and U.S. companies are most likely to encounter them.

The U.S. Department of State was tasked with creating a list of prohibited enterprises, which it released along with the new regulations. The list includes 180 entities, 58 percent of which are in the tourist sector, including 84 hotels – by far the largest category of businesses included. Some of the entities listed are holding companies for hundreds of retail outlets, but U.S. travelers and companies can still do business with subsidiaries of prohibited entities so long as the subsidiaries themselves are not specifically listed. Quite reasonably, the State Department took the view that it could not expect travelers to know which retail outlets might be subsidiaries of prohibited entities unless they were specifically named.

Senator Marco Rubio (R-Fla.) and Representative Mario Díaz-Balart (R-Fla.), who were the intellectual authors of the ban on transactions with military-linked enterprises, complained that the State Department’s list was not inclusive enough because “bureaucrats” were “refusing” to carry out Trump’s policy. Rubio wanted to see the entire Cuban tourist sector put off-limits because the Minister of Tourism, Manuel Marrero Cruz, is a former military officer. According to Rubio, that means the entire sector is controlled by the armed forces.

The Cuban government was not happy with the sanctions either. Josefina Vidal, Director General for U.S. Affairs in the Foreign Ministry, said the new measures “confirm the serious regress of bilateral relations as a result of the decisions adopted by the government of the President Donald Trump,” and called some of them “subversive.”

In truth, the impact of these sanctions on commercial relations with Cuba is likely to be limited. The Cuban government, adept at coping with U.S. hostility for the past half century, may feel the pinch, but it can look elsewhere for trade partners and tourists. Also, in order to avoid disrupting ongoing business relationships, the new regulations exempt existing contracts from the prohibition on doing business with military-linked enterprises. So, for example, Marriott-Starwood Hotels’ contract to manage hotels owned by holding companies administered by the armed forces ministry is not affected by the new regulations. Moreover, even future contracts will be allowed with military-linked businesses involving ports, airports, and telecommunications, which are the three sectors in which most U.S. businesses (cruise ship lines, airlines, and cell phone companies) now operate.

On balance, the regulatory burden falls most heavily on U.S. academic institutions, whose study abroad programs in Cuba will be curtailed; on U.S. travelers who can no longer travel by themselves on a people-to-people educational license; on Cuban-Americans whose families on the island who will no longer be eligible to receive remittances and gift packages; and on U.S. businesses that may want to sell goods to Cuba in sectors where their counterparts are commercial enterprises managed by the armed forces ministry.

The Cubans who will suffer most are small business owners, suppliers, and employees who cater to individual U.S. travelers; employees of state firms managed by the armed forces ministry and their families, who may lose remittances and gifts; and Cubans who might have found employment with U.S. companies whose potential business deals are now blocked.

The Cuban state will suffer only marginally from Trump’s new sanctions – certainly not enough to force it into the sorts of concessions Washington demands.

 

 

Posted in Blog | Tagged , , , , , | Leave a comment

DOES THE CUBAN MILITARY REALLY CONTROL SIXTY PERCENT OF THE ECONOMY? ANATOMY OF A FAKE FACT

William M. LeoGrande, Contributor, Professor of Government at American University

Huffington Post, 06/28/2017 11:39 am ET

Original Article: Fake Fact

President Donald Trump’s decision to prohibit U.S. transactions with Cuban enterprises controlled by the military has thrown a spotlight on the role of the armed forces in Cuba’s economy. That role is extensive, reaching across a number of different sectors, and it has grown in recent years along with Cuba’s tourism industry, where military-controlled firms are concentrated. These enterprises are managed by the holding company Grupo de Administración Empresarial S.A., GAESA, which reports to the Ministry of the Revolutionary Armed Forces (MINFAR).

The sudden spurt of media interest has produced widespread repetition of the spurious “fact” that the Cuban military controls 60% of the economy. “GAESA is the business arm of the Cuban Revolutionary Armed Forces and controls 60 percent of the island’s economy,” the Miami Herald reported shortly after Trump’s speech and repeated several times thereafter. The EconomistPoliticoThe GuardianThe Times of London, Business Insider, and others repeated it.

Even a cursory review of the composition of Cuba’s Gross Domestic Product demonstrates that this “fact” is ludicrous. Sectors in which the military has little or no participation easily comprise more than half of GDP, and in the other sectors, there are civilian as well as military-controlled firms (Anuario Estadístico 2015).

So how much of the economy do military enterprises really control and where did the 60% claim come from?

The Cuban government does not routinely report the revenue from individual enterprises, but we have a few data points for the largest military holding companies from which we can make reasonable projections.

Total revenue from enterprises managed by the military was reported as $970 million in 1997. Since a large portion of their revenue comes from tourism, let’s suppose that their revenue has increased in tandem with the rapid growth of that sector. In 1997, Cuba had 1.2 million foreign visitors (according to Cuba’s 2004 statistical year book, Anuario Estadístico). In 2016, Cuba had 4.1 million — a 249% increase. At that same rate of increase, projected revenue from military-linked firms in 2016 would be $3.4 billion.

We can check the reliability of this estimate with data from the three main military companies, Gaviota, Cimex, and TRD. Gaviota, the largest military-controlled conglomerate, is concentrated in tourism. Total revenue from the tourism sector was $2.8 billion in 2015 (Anuario Estadístico 2015). While Gaviota is the largest player, it does not hold a monopoly; it controls 40% of all available hotel rooms (though it has a higher proportion of the better ones), plus car rentals, tourist taxis, and restaurants. It is plausible, then, that Gaviota may generate as much as 60 percent of the earnings from tourism, or approximately $1.7 billion.

Cimex had 2004 revenue of $740 million. Using the same projection method based on the growth of tourism, Cimex’s estimated 2016 revenue would have been about $1.3 billion. The Havana Consulting Group, whose President Emilio Morales was formerly an executive at Cimex, estimates its revenue as $1.2 billion.

TRD, a chain of retail stores created to capture hard currency, had sales of $250 million in 2004. Using the same projection method, TRD’s estimated 2016 revenue would have been about $442 million.

Thus we estimate that the three largest GAESA companies taken together would have had 2016 revenue of about $3.45 billion, very close to the $3.4 billion initially estimated from the data on total MINFAR revenue. Emilio Morales at the Havana Consulting Group, using data he has collected over the past 15 years, estimates GAESA’s total current revenue at $3.8 billion.  Using Morales’ estimate, GAESA’s revenue constitutes 21% of total hard currency income from both state enterprises and the private sector, 8% of total state revenue, and just 4% of GDP (Anuario Estadístico 2015). That’s a long way from 60% of the economy, no matter what metric you use.

Where Did It Come From?

So where did the wildly inaccurate claim of 60% come from?

It first appeared in a February 2004 story in the Miami Herald about the head of Gaviota, Manuel Marrero Cruz, being named Minister of Tourism. “Cuba’s armed forces have taken over up to 60 percent of the island’s economy,” the Herald reported, citing the Cuba Transition Project (CTP), a U.S. government-funded project of the University of Miami’s Institute for Cuban and Cuban-American Studies.

In subsequent months, Institute Director Jaime Suchlicki regularly repeated the claim. In the proceedings of a November 2004 CTP conference, he wrote, “Today, more than 65 percent of major industries and enterprises are in the hands of current or former military officers.” In August 2006, he told the Associated Press, “They’re running 60 percent of the Cuban economy. All major industries are in the hands of the military’s active duty or former military people.”

Although no data or evidence was ever produced to support that claim, Suchlicki’s formulation was at least plausible, though misleading, because he included not just enterprises managed by the armed forces, but civilian enterprises and whole ministries led by active or retired military officers. The implication was that these entities were controlled by the armed forces, although there was no basis for such a conclusion. On the contrary, because the military has always been among the most efficient Cuban institutions, it has a long history of exporting managers to the civilian sector, going back to the 1970s.

Before long, the claim of military control devolved into a claim that MINFAR enterprises themselves constituted 60% of the economy. “The University of Miami’s Institute for Cuban and Cuban-American Studies estimates that soldiers control more than 60% of the island’s economy,” the Wall Street Journal reported in November 2006.

Other conservatives picked up the theme. “The military… controls about 60 percent of the economy through the management of hundreds of enterprises in key economic sectors,” wrote Carl Gershman, President of the National Endowment for Democracy (which also received U.S. government funding for “democracy promotion” in Cuba), and Orlando Gutierrez, national secretary of the exile organization Cuban Democratic Directorate. A 2008 Heritage Foundation report declared, “Serving or former military officers direct an estimated 60 percent of Cuba’s business and industry.”

By 2016, Suchlicki himself, who had originally been careful to specify that he was talking about major industries and enterprises run by military officers and former officers, had lapsed into the broad, unqualified claim that “more than 60% of the economy is under military control.”

Various newspapers and web sites repeated the claim over the years, setting the stage for this oft-repeated “fact” to be widely circulated when President Trump’s announcement made the Cuban military’s role in the economy a news story, as exemplified by the Miami Herald’s declaration, “GAESA…controls 60 percent of the island’s economy.”

It’s a case study in how fake facts become legitimated and spread, even without the boost of social media. Promulgated by a university-based center, which gave the claim credibility, it began as an exaggeration of the military’s control, lumping together military enterprises and civilian enterprises run by officers and former officers.

Gradually, those details fell away, perhaps because the flat statement of 60% control was more dramatic, or a better sound-bite, or perhaps because journalists failed to understand the nuances of the claim. As more and more sources quoted it, it gained credibility. By the time of President Trump’s June 16 policy announcement in Miami, it had become conventional wisdom that Cuban military enterprises controlled 60% of the economy, even though that “fact” was spectacularly wrong.

Posted in Blog | Tagged , , , | Leave a comment

WHAT TRUMP’S NEW CUBA POLICY MEANS FOR AMERICAN BUSINESS

By Mimi Whitefield

Miami Herald, June 23 2017

Some U.S. executives that do business with Cuba breathed a sigh of relief after President Donald Trump outlined his new Cuba policy in Miami because it won’t have much impact on their companies. But others have pressed the pause button until they see how the new regulations implementing the changes are written.

Lawyers who help firms navigate the thicket of laws and regulations governing the embargo and dealings with the island have been combing through a memorandum that Trump signed on June 16 as well as three pages of frequently-asked questions issued by Treasury’s Office of Foreign Assets Control (OFAC) and a White House fact sheet to get a sense of the new policy.

Until the regulations are written, that’s all they have to go on. Trump has mandated that the regulation-writing must begin by mid-July.

“Until the regulations change, everything is status quo,” said Yosbel Ibarra, a Miami lawyer on Greenberg Traurig’s Cuba practice team.

How long it will take to write new rules is anybody’s guess, but it isn’t an easy task because multiple agencies and departments will be involved. Some key posts that would have oversight over the new policy also have yet to be filled by the Trump administration, according to lawyers.

Don’t expect a rush by U.S. companies that have proposals pending before the Cuban government to get deals inked before the new rules go into effect, say lawyers and business consultants.

“The way corporations are, when they know rule-making is underway, they are always going to hold up until the regulations are written,” said Robert Muse, a Washington lawyer who specializes in U.S.-Cuba law. “They are not going to set themselves at the far end of the branch based on a Q&A from OFAC.”

There will be important changes in the new policy: it bars most business by U.S. companies with Cuban entities owned or controlled by the military or intelligence services and cuts out people-to-people trips to Cuba by individuals. Group travel in that category is still OK – although there is expected to be more scrutiny of all Cuba travelers to make sure the purpose of their trips isn’t tourism.

The prohibition on doing business with the military is significant because since the 1990s, the Cuban military has been taking control of ever larger chunks of the economy, partly because military managers are viewed as more efficient. Many officers have been sent abroad for business training.

Now the military conglomerate GAESA controls an estimated 40 to 60 percent of the economy, with heavy involvement in the tourism industry, logistics and retail operations.  The military’s Gaviota Tourism Group, for example, controls or has joint ventures with foreign partners in 64 hotels and villas, including many resort hotels as well as the Saratoga, a favorite of visiting Congressional and business delegations, and the new luxury Gran Hotel Manzana Kempinski in Havana.

Even though former President Barack Obama opened up more opportunities for U.S. companies to do business in Cuba, not that many agreements have been finalized. Most are in the transportation sector, the telecommunications industry (notably roaming agreements and Google’s deal to install its servers on the island) and in the hospitality sector.

Some of the U.S. companies have inked deals with military entities. Telecommunications projects, for example, go through ETECSA, the state communications company that is controlled by the military, and Starwood Hotels & Resorts, now a part of Marriott International, has signed an agreement with Gaviota, the military tourism company, to manage a Cuban hotel as a Four Points by Sheraton.

But the administration has said it doesn’t want to hurt American businesses that have engaged in lawful commercial opportunities with Cuba and those agreements will be grandfathered into the new Cuba policy. That’s also true of any other projects that are in place prior to issuance of the new regulations.

Meanwhile, the coming prohibition on doing business with the Cuban military has prompted calls from clients who want to make sure exactly who their Cuban counterparts and business partners are, said Ibarra.

But even companies looking at business that seemingly have nothing to do with the Cuban military are wary.      “I’ve already had a client from New York call and say I guess I’m not going forward [in Cuba],” said Charles Serrano, a Chicago business and travel consultant who has taken clients on more than 130 trips to Cuba.

He is helping four other companies that have signed agreements, have submitted proposals or are in negotiations. But Serrano, managing director of The Antilles Strategy Group, said: “This will slow the interest of American businesses in exploring opportunities in Cuba. They calculate risk based on real things.”

The next battleground is how the new regulations are written.   “After the announcement there was a little sense of relief because companies now know more or less what the landscape will look like and the direction policy is going,” said Pedro Freyre, chairman of Akerman’s international practice, which includes clients doing business or trying to do business in Cuba. “But now the next level of anxiety is about what the regulations will look like. Depending on how they are crafted, they could shut down a lot of business activity.”

Hardliners can be expected to make the case that the rules should be written so as much U.S. business activity as possible is precluded. But the Cuban Study Group, which includes executives and professionals who favor engagement, wants the administration to narrowly interpret what it means to do business with the Cuban military.

“There is a vast difference between a Fortune 500 company forming a joint venture with the Cuban military and a U.S. humanitarian worker buying a water bottle at a government-run store,” said the group in a statement. Among the military’s holdings are retail stores where visitors often buy bottled water.

“Nothing stops business like uncertainty,” said Ibarra. “The more clear and transparent the new regulations are, the better.”

Eventually, the State Department is expected to publish a list of military concerns that are off limits for U.S. companies.

Despite military links to airport and seaport operations in Cuba, the new policy allows cruise lines from the United States to continue to call at Cuban ports, U.S .airlines to keep on flying and limited legal trade, under exceptions to the embargo, to keep flowing.  “Carnival Corp. is pleased that the policy changes announced by the Trump administration will allow our ships to continue to sail to Cuba,” said spokesman Roger Frizzell. He said Carnival plans to review how the tightening of travel rules potentially might affect its passengers.  But he said all cruise passengers since Carnival’s social impact line Fathom inaugurated the first regular cruise service by a U.S. line to Cuba in March 2016 have been traveling under permissible categories for travel to Cuba.  Carnival Corp. has discontinued its Fathom service to Cuba, but its Carnival Cruise Line currently calls in Cuba and its Holland American Line plans to begin sailing there in December.

Other cruise lines also have jumped into the Cuban cruise market. With current sailings and service that is planned, nearly 200,000 travelers are expected to sail from the United States to Cuba this year.

American Airlines, which offers 70 flights weekly to six Cuban cities, doesn’t expect too much impact from the new Cuba policy. Because all but one of its flights — a Charlotte-Havana route — depart from Miami, they have proved popular with Cuban Americans whose travel is not restricted by the new policy.  “Because Miami is the heartland of Cuban exiles, we have a strong market of passengers visiting family and friends in Cuba,” said Martha Pantin, an American spokeswoman.  Since it began regular scheduled flights to Cuba last year, American has opened a ticket office in Havana, begun selling tickets at the Havana airport and installed self-service kiosks there too. “By July, we expect to have self-service check-in at all the airports we serve in Cuba,” said Pantin.

Posted in Blog | Tagged , , , , | Leave a comment

SUN, SAND AND SOCIALISM: WHAT THE TOURIST INDUSTRY REVEALS ABOUT CUBA

Stuck in the past: The revolutionary economy is neither efficient nor fun.

The Economist, April 1, 2017

Original Article: STUCK IN THE PAST

TOURISTS whizz along the Malecón, Havana’s grand seaside boulevard, in bright-red open-topped 1950s cars. Their selfie sticks wobble as they try to film themselves. They move fast, for there are no traffic jams. Cars are costly in Cuba ($50,000 for a low-range Chinese import) and most people are poor (a typical state employee makes $25 a month). So hardly anyone can afford wheels, except the tourists who hire them. And there are far fewer tourists than there ought to be.

Hotel at Vinales; apparently constructed with Mafia money as part of their major money-laundering 1950s tourism investment project. (Photo by Arch Ritter, 2015)

Few places are as naturally alluring as Cuba. The island is bathed in sunlight and lapped by warm blue waters. The people are friendly; the rum is light and crisp; the music is a delicious blend of African and Latin rhythms. And the biggest pool of free-spending holidaymakers in the western hemisphere is just a hop away. As Lucky Luciano, an American gangster, observed in 1946, “The water was just as pretty as the Bay of Naples, but it was only 90 miles from the United States.”

There is just one problem today: Cuba is a communist dictatorship in a time warp. For some, that lends it a rebellious allure. They talk of seeing old Havana before its charm is “spoiled” by visible signs of prosperity, such as Nike and Starbucks. But for other tourists, Cuba’s revolutionary economy is a drag. The big hotels, majority-owned by the state and often managed by companies controlled by the army, charge five-star prices for mediocre service. Showers are unreliable. Wi-Fi is atrocious. Lifts and rooms are ill-maintained.

Despite this, the number of visitors from the United States has jumped since Barack Obama restored diplomatic ties in 2015. So many airlines started flying to Havana that supply outstripped demand; this year some have cut back. Overall, arrivals have soared since the 1990s, when Fidel Castro, faced with the loss of subsidies from the Soviet Union, decided to spruce up some beach resorts for foreigners (see chart). But Cuba still earns less than half as many tourist dollars as the Dominican Republic, a similar-sized but less famous tropical neighbour.

But investment in new rooms has been slow. Cuba is cash-strapped, and foreign hotel bosses are reluctant to risk big bucks because they have no idea whether Donald Trump will try to tighten the embargo, lift it or do nothing. On the one hand, he is a protectionist, so few Cubans are optimistic about his intentions. On the other, pre-revolutionary Havana was a playground where American casino moguls hobnobbed with celebrities in raunchy nightclubs. Making Cuba glitzy again might appeal to the former casino mogul in the White House.

The other embargo is the many ways in which the Cuban state shackles entrepreneurs. The owner of a small private hotel complains of an inspector who told him to cut his sign in half because it was too big. He can’t get good furniture and fixtures in Cuba, and is not allowed to import them because imports are a state monopoly. So he makes creative use of rules that allow families who say they are returning from abroad to repatriate their personal effects (he has a lot of expat friends). “We try to fly low under the radar, and make money without making noise,” he sighs.

Cubans with spare cash (typically those who have relatives in Miami or do business with tourists) are rushing to revamp rooms and rent them out. But no one is allowed to own more than two properties, so ambitious hoteliers register extra ones in the names of relatives. This works only if there is trust. “One of my places is in my sister-in-law’s name,” says a speculator. “I’m worried about that one.”

Taxes are confiscatory. Turnover above $2,000 a year is taxed at 50%, with only some expenses deductible. A beer sold at a 100% markup therefore yields no profit. Almost no one can afford to follow the letter of the law. For many entrepreneurs, “the effective tax burden is very much a function of the veracity of their reporting of revenues,” observes Brookings, tactfully.

The currency system is, to use a technical term, bonkers. One American dollar is worth one convertible peso (CUC), which is worth 24 ordinary pesos (CUP). But in transactions involving the government, the two kinds of peso are often valued equally. Government accounts are therefore nonsensical. A few officials with access to ultra-cheap hard currency make a killing. Inefficient state firms appear to be profitable when they are not. Local workers are stiffed. Foreign firms pay an employment agency, in CUC, for the services of Cuban staff. Those workers are then paid in CUP at one to one. That is, the agency and the government take 95% of their wages. Fortunately, tourists tip in cash.

The government says it wants to promote small private businesses. The number of Cubans registered as self-employed has jumped from 144,000 in 2009 to 535,000 in 2016. Legally, all must fit into one of 201 official categories. Doctors and lawyers who offer private services do so illegally, just like hustlers selling black-market lobsters or potatoes. The largest private venture is also illicit (but tolerated): an estimated 40,000 people copy and distribute flash drives containing El Paquete, a weekly collection of films, television shows, software updates and video games pirated from the outside world. Others operate in a grey zone. One entrepreneur says she has a licence as a messenger but wants to deliver vegetables ordered online. “Is that legal?” she asks. “I don’t know.”

Cubans doubt that there will be any big reforms before February 2018, when Raúl Castro, who is 86, is expected to hand over power to Miguel Díaz-Canel, his much younger vice-president. Mr Díaz-Canel is said to favour better internet access and a bit more openness. But the kind of economic reform that Cuba needs would hurt a lot of people, both the powerful and ordinary folk. Suddenly scrapping the artificial exchange rate, for example, would make 60-70% of state-owned firms go bust, destroying 2m jobs, estimates Juan Triana, an economist. Politically, that is almost impossible. Yet without accurate price signals, Cuba cannot allocate resources efficiently. And unless the country reduces the obstacles to private investment in hotels, services and supply chains, it will struggle to provide tourists with the value for money that will keep them coming back. Unlike Cubans, they have a lot of choices.

Posted in Blog | Tagged , , , , , | Leave a comment