• The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba. It includes analyses and observations of the author, Arch Ritter, as well as hyper-links, abstracts, summaries, and commentaries relating to other research works from academic, governmental, media, non-governmental organizations and international institutions.
    Commentary, critique and discussion on any of the postings is most welcome.
    This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' original blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement:
    "... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

Omar Everleny Pérez Villanueva: “The Current Deregulation of Cuban Enterprises”

Posted on October 2, 2013 by Arch Ritter

The complete document is available here:  Omar Everleny Pérez Villanueva, The Current Deregulation of Cuban Enterprises. Oct. 3 2013

Introduction

We cannot examine the last 50 years of Cuban economic activity without casting a critical eye. Even if we are clear about future goals, which are certainly full of challenges, an awareness of the pitfalls, errors, mistakes and misunderstandings from the past period may help to correct the future perspective.

 Cuba is undergoing changes directed at achieving efficiency and increasing the productivity of the state-run enterprises (the plan), where efficiency depends, among other factors, on productivity. Productivity can be increased from different sources, but the important factor is that although a company may be proactive in the search for solutions, it is not possible to be proactive while being heavily regulated.

 Various academic analyses show a decrease in the majority of state-owned economic sectors in the last 20 years, between the early 90’s and 2010, as well as in virtually all sectors, with the exception of a few, such as telecommunications, mining and construction, sectors that have received a strong injection of foreign capital since the early 90’s. Another study on skilled labor force shows low motivation, due to unsatisfactory wages, few moral and material incentives, organizational problems, over-qualification and, of course, technical materials problems.1

……….

Concluding Comment

On January 29, 2012, at the closing of the First National Conference of the Communist Party, Raul Castro stated that:

“The only thing that can lead to the defeat of the revolution and socialism in Cuba would be our inability to eradicate the mistakes made in the 50 years since January 1, 1959 and those that we incur in the future.”

 Following this thinking, it is clear that the challenges posed by the transformation at a relatively short term of the existing structural distortions in the Cuban economy. If we want Cuba to become a land of opportuni­ties and to achieve a sustained increase in the standard of living for all Cubans, then the time to make such decisions is not very far away, and the measures to take must be more pragmatic than those taken under the current government. At the same time we cannot forget to take into consideration the harassment that Cuba is subject to in its external transactions by the U.S. government.

IMG_0186.jpgd

DR. OMAR EVERLENY PEREZ VILLANUEVA

Professor at the University of Havana. Former director of the Centro de Estudios de la Economia Cubana at the University of Havana. Doctorate in Economic Sciences of the University of Havana in 1998. Masters in Economic and International Relations from CIDE, AC Mexico City, Mexico in 1990. Bachelors in Economics from the University of Havana in 1984.

Dr. Perez Villanueva has presented at conferences in various Cuban institutes as well as internationally, includ­ing in the United States, Japan, France, Canada, Spain, Brazil, Puerto Rico, Mexico, Dominican Republic, Venezuela, China, Malaysia, Argentina, Peru, Jamaica, Barbados, Trinidad and Tobago and Norway. He has served as a visiting professor at Universities in the United States, Japan and France and has published over 70 research papers in a variety of areas of the Cuban and global economy.

Dr. Perez Villanueva has also published over 75 articles in publications and has co-authored several books in Cuba and abroad, including “Cuban Economy at the Start of the Twenty-First Century,”  with Jorge Dominguez and Lorena Barberia (Harvard University. ISBN 0-674-01798-6, 2004), the second edition of “Reflections on the Cuban Economy” (Editorial Ciencias, Havana. ISBN 959-06-0839-6, 2006) and “Outlook fo the Cuban Economy I and II” (ISBN 978-959-303-004-5). His last book is “Fifty Years of the Cuban Economy” (Editorial Ciencias Sociales. Havana. ISBN 978-959-06-1239-8).

 

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Cuba Faces Challenges in Push to End Dual Currency

Posted on October 1, 2013 by Arch Ritter

HAVANA October 1, 2013 (AP)

By PETER ORSI Associated Press

Cuba is the only country in the world that mints two national currencies, a bizarre system that even President Raul Castro acknowledges is hamstringing the island’s socialist economy and must be scrapped. Exactly how to do that is the problem.

Months after Castro made currency unification a centerpiece of a forceful address to parliament, no details have been made public. But a pilot program operating under the radar might hold clues to a way out.

Since the system was created in 1994, most islanders have been paid in national pesos worth 24 to the dollar in exchange houses, while tourists and the Cubans who attend to them receive a much more valuable peso pegged at 1-to-1 with the U.S. greenback. The imbalance means doctors and physicists can make more money driving taxis or renting rooms than they can working in the professions for which they spent years preparing. In his July speech, Castro denounced the setup as having a warping effect on the economy and society in general.Shaking up the dual currency system risks spiking inflation and creating new winners and losers, always dangerous on an island that embraces the goal of egalitarianism. It would also force a change in accounting rules that would eliminate a huge subsidy to state-run enterprises at a time when cash is so short.

Che-Three-Pesos QMoneda Nacional: Three old pesos = CuP 3.00 = $US o.12

But there are signs that change is coming, and hints at how the value of the currencies might meet in the middle.

Pavel Vidal, a former Cuban Central Bank economist now at Colombia’s Javeriana University, told The Associated Press that a pilot program is being launched with select state businesses operating at a 10-to-1 exchange rate. The businesses are in key sectors such as sugar, hotels and non-agricultural cooperatives. There has been no mention in the official media, but Vidal said it is happening and it’s a good step. “I think it’s great because the elimination of the double currency must be gradual,” he said.

Even incremental change may be tough to pull off, and requires the unraveling of Byzantine accounting practices that effectively allow state companies to purchase dollars at a fraction of what ordinary Cubans pay for them.

While the rate in exchange houses is 24 pesos to 1 convertible peso, or CUC, the Cuban government treats them as equal in official accounts, meaning state entities are getting them at a 1-to-1 subsidized rate. “Whoever is getting these dollars at one-to-one is doing well, and that’s the official sector,” said Rafael Romeu, former president of the U.S.-based Association for the Study of the Cuban Economy.

Despite reforms under Raul Castro, the state still may be too inefficient to quit the subsidy cold-turkey. “They would be basically confronting their budget constraint in a serious way, and I don’t think they are ready to do that,” Romeu said. “They would have to cut a lot of social services.”

The two pesos have been circulating in parallel since 1994, when the loss of billions in Soviet trade and subsidies forced Cuba to reluctantly open the economy to tourism, while trying to insulate most islanders from its capitalist effects.

The drab local one-peso note bears the visage of independence hero Jose Marti, while the brightly colored CUC bill shows an image of the monument that honors him. Holding it up to the light reveals a magnetic strip with the words “Fatherland or death — we will be victorious,” in Spanish.

Other communist countries have experimented with second, hard currencies aimed at foreigners and business dealings, only to drop them. The Soviet Union tried dual currencies in the 1920s and China in the 1980s and 1990s. For Cuba, the idea seemed simple: Canadian and European travelers would spend hard currency at government CUC shops catering almost exclusively to foreigners, while Cubans would keep living a socialist ideal in the other currency. It hasn’t worked out that way. As authorities pulled back on subsidies that once covered almost all of islanders’ housing and food needs, people grew increasingly dependent on the added CUC income — moonlighting in the tourism industry or receiving remittances from relatives abroad.

The result is the upside-down wage structure where low-skill workers like hotel chamber maids earn more from travelers’ tips than professionals. A 53-year-old doctor recently left the medical profession after 25 years because his $25-a-month salary was putting food on the table for just two days a month. He now helps his mother rent rooms to tourists paying in convertible pesos.

“Professional salaries are in a desperate situation,” he said, speaking on condition of anonymity because doctors generally are not authorized to talk to foreign media. “There’s no motivation, and every day they ask more of you.”

Contrast that with Rigoberto Sanchez Beltran, who pulls in about $70-$100 a month in tips for watching over parked cars at a tourist complex in Havana. Getting by is still tough, but he knows the job gives him a leg up on many of his more-educated neighbors. “You get to know the regulars, and they give you a little more,” he said.

Since 2010, Cuba has seen reforms including the legalization of a real estate market, increased private small businesses and creeping decentralization of state enterprise. In July, Castro declared that the dual currency was “one of the most important obstacles to the progress of the nation.” He did not say, however, how the cash-strapped state would manage to pay white-collar workers more.

Cuban officials have long argued that state salaries are effectively much higher than the often-reported average of $20 a month if you factor in things such as free health care, education and monthly food ration cards. But today just about everyone acknowledges that low pay has been the enemy of efficiency, doing little to inspire hard work. Employees often pilfer supplies to resell or barter, or spend work hours on side projects that bring in CUCs.

At stores that still offer cheaper prices in national pesos, goods from soap to mops sell out quickly, snapped up by hoarders or black marketeers. So finding basics such as cooking oil and eggs often entails a trip to a CUC store.

“It’s totally absurd that you get paid in one currency, but in order to live you need to pay with another,” said Margarita Nieves, 69. “Until they fix that, they can’t keep telling people there’s no productivity.”

tres_pesos_convertibles Q

Three “Convertible Pesos” or CuC; CuC3.00 = $US 3.00 more or less.

 

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Cuba lets athletes compete in foreign leagues

Posted on September 27, 2013 by Arch Ritter

By ANNE-MARIE GARCIA;  Associated Press Sep 27, 7:55 AM EDT

HAVANA (AP) — Cuba announced Friday that island athletes will be allowed to sign contracts to compete in foreign leagues, a shift from decades of policy that held professional sports to be anathema to socialist ideals.

The measure promises to greatly increase the amount of money baseball players and others are able to earn, and seems geared toward stemming a continuing wave of defections by athletes who are lured abroad by the possibility of lucrative contracts, sapping talent from national squads.

It was not immediately clear if the ruling would let Cuban baseball players jump to the U.S. Major Leagues without restrictions at home or under U.S. laws that restrict money transfers to the communist-led island. Athletes will be eligible to play abroad as long as they fulfill their commitments at home, the Communist Party newspaper Granma reported. “It will be taken into account that they are in Cuba for the fundamental competitions of the year,” Granma said.

The paper said the decision was approved at a recent session of the Council of Ministers, which is headed up by President Raul Castro. “International experiences, including 10 sporting laws of various Latin American nations, were studied,” it added.

Until now, few Cuban baseball players have been permitted to play abroad. Alfredo Despaigne spent this summer with the Pirates of Campeche, Mexico. Previously, Omar Linares played in Japan.  In the 1990s, some athletes in other sports such as volleyball played in European leagues. A number of athletes, especially baseball players, have defected in recent months and years. They include Yasiel Puig, who signed a multimillion-dollar contract with the Los Angeles Dodgers.

Professional sports were outlawed under Fidel Castro in 1961, two years after the Cuban Revolution.

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Cuban Workers, Strikes & the Socialist State: Workers do not strike in Cuba – or so it seems

Posted on September 26, 2013 by Arch Ritter

Rogelio Manuel Diaz Moreno, Havana Times, September 13, 2013 |

HAVANA TIMES — In the years immediately following the triumph of the Cuban Revolution (in January 1959), the island’s trade union leadership undertook to do away with the strike as a mechanism for asserting worker demands.

The Cuban Workers’ Federation (CTC) was absorbed by the State apparatus, regulated by the government and controlled by the single-party system which came into being at the time. The government assumed the commitment of brining economic and social progress to the country.

The CTC did its part, and did it well. Though it is true the revolutionary government helped the majority of the population living in abject poverty, putting behind their deplorable living conditions, it is also true that it lost its direction somewhere down the road. This, at least, is the view expressed by Raul Castro, who went as far as saying the country had been taken to the edge of a precipice.

Thus, we have arrived at a situation in which working people do not receive enough, in wages, to be able to get by. That is another statement made by Cuba’s president. Lacking an institution that can organize and represent them, Cuban workers have no means of making any kind of labor-related demands.

They look on the CTC as a mere appendage of their company’s management and of State institutions. Union meetings, for them, are basically an occasion to express support for government and Party directives, calling for more work, less earnings, accepting a lay-off without protesting, etc.

Defending worker rights or calls for public protests, which earn one the reputation of being a troublemaker and pave the road to unemployment, is, of course, out of the question. The State / government is free to do whatever it pleases.

¿Or is there another side to this?

A responsible and courageous attitude on behalf of the CTC’s representatives and members, and an attitude of respect from the State, would be a means of channeling tensions and difficulties and of working towards a consensus around the solutions ultimately imposed on us by reality.

All societies have a rebellious lot. Cuban construction workers may not have approached the CTC to express their grievances, but they did, at one point, stage a de facto strike. In the 1990s, Cuba’s construction companies were practically left without employees. The State had no choice but to substantially improve wages, accommodations for employees, food, and other conditions, in order to repopulate the industry with part of the lost labor force.

A similar situation arose in connection with another difficult job, that of maintaining public order. The government had to re-locate police officers from the eastern provinces to Havana en masse, as nearly no one in the capital was willing to do such a thankless job for the low wages the State was offering. Once again, the State, faced with an inexorable need, had to give in and began paying police officers more decorous salaries.

State farms in Cuba’s countryside also witnessed an exodus of workers. Here, the State didn’t respond by raising salaries but by distributing idle lands to those willing to make an honest living with the sweat of their brows. In the long run, workers again had their way.

Of course, these aren’t “strikes” in the strictly theoretical or academic sense of the word. The loss of teachers, qualified health specialists and high-performance athletes, who either change professions or countries, also does not fit nicely into the Marxist paradigm of proletarian struggle. The theft of goods, raw materials, fuels and other products from any workplace that isn’t rigorously monitored fits this paradigm even less.

When those at the bottom perceive that the strongest and less scrupulous of the lot are the ones who come out on top, they do what they can, even if it’s not in the textbook and isn’t exactly heroic. The dominant class, at the top, tightens the screws in response, and the result is a kind of arm wrestling match where the one who can hold out the longest wins.

The Party bureaucracy and its servile underlings still find it hard to accept that working people have rights and value. They squeeze as much as they can out of them in every sphere. They try different strategies to ride out the storm or confuse their opponents, depending on the sector: they mobilize workers through the Food Program, launch intensive teacher training courses, re-locate construction workers, police officers and teachers to other regions and tolerate or encourage the broadcasting of alienating and superficial videos through the mass media.

Unfavorable productivity rates are hidden behind a thick curtain of demagogy and flattering figures are extolled without limits. All the while, workers are required to show their unconditional support for the government if they have any hopes of getting ahead, working abroad or earning a very limited bonus.

A string of tiresome political campaigns – as oppressively dense as they can be thrown together – are used so as to drain people of the energy or will to think about changing the (dysfunctional) way in which things work in the country.

At certain points in time, more material incentives are made available in given jobs and, when a more or less precarious stability is achieved, they are taken away. Where none of this can be put into practice, or where it fails beyond any hope of recovering the sector, or where the government cannot afford to lose the profits to be gained there, they liberalize the sector and make concessions to foreign capital.

The CTC is the most conspicuously absent organization throughout these processes. So much so, that it is evident that Cuba suffers from a degeneration of supposedly grassroots organizations, those which ought to organize and defend the workers.

 

A responsible and courageous attitude on behalf of the CTC’s representatives and members, and an attitude of respect from the State, would be a means of channeling tensions and difficulties and of working towards a consensus around the solutions ultimately imposed on us by reality.

This would pave the way towards a possible raise in worker salaries and the implementation of measures and plans aimed at increasing production, improving services, taking better care of the environment, satisfying community needs and other improvements.

One is more likely to see an apple tree sprout oranges than a privileged class give up its benefits willingly. We probably won’t be able to avoid an intermediate stage of chaos in which the country’s productive structures and services infrastructure are worn down, when hard facts will force many to change their way of thinking.

Those who have stifled, or stood by as others have stifled the ability of Cuban workers to self-manage and organize, bear a heavy burden of responsibility for the incalculable damage to the nation and the people this has brought upon us.

I say this so as not to come off as too much of a radical, and affirm that, since we aspire to build a socialist system, where the means of production are controlled by the workers, what we simply need to do is do away with the country’s bureaucracy in one fell swoop and let the workers manage their workplaces, and the country, as they see fit.

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The Tax Regimen for the Mariel Export Processing Zone: More Tax Discrimination against Cuban Micro-enterprises and Citizens?

Posted on September 26, 2013 by Arch Ritter

 By Arch Ritter

The Mariel Export Processing Zone (EPZ) is the second attempt since May 1997[i] to set up an EPZ that will promote foreign investment and thereby generate jobs, income, domestic value added and foreign exchange earnings for Cuba. This new container port facility and industrial park will free Havana Harbor for restoration and regeneration ultimately for recreational rather than industrial purposes. One might expect that Brazilian and Chinese enterprises – private and state-owned- will seize the opportunity to operate in Mariel vigorously with an eye for exports or re-exports to the Caribbean region.

The regulation and tax regimes for the Mariel EPZ were announced on September 23, 2013 (Marc Frank, Reuters, September 24 2013). The tax regime for the foreign firms operating in the Mariel EPZ is generous. It includes:

  •    a ten-year holiday from paying a tax on profits  and
  • presumably the full ex-patriation of profits;
  •   a 12% tax rate after 10 years;
  • the normal Cuban income tax rate for foreign workers
  •   a 14% (of wage) payment for workers’ social security;
  • zero tax on imported equipment; low duties on imported materials; and
  •  0.5% for EPZ maintenance.

These provisions should provide a strong incentive for foreign firms to locate in the EPZ. On the other hand, this tax regime in itself will not generate a huge amount of foreign exchange revenues for the Cuban Government.

The down-side of the tax regime for foreign investors and the major earner of foreign exchange for the government will be the hidden taxation involved in the hiring of labor. EPZ enterprises, like those in joint enterprises will have to pay hard currency to a state company to cover the wages and salaries of Cuban workers at a rate around $US 1.00 = 1 peso (CuP in Moneda Nacional) while the rate that is relevant for Cuban citizens is $US 1.00 = 26 pesos (CuP). The government can then sell the hard currency (“convertible pesos” or CuCs) at the rate of 1CuC = 26 CuP, meaning a profit on each CuC of 25 CuPs. This profit to the government is in effect a 96% tax rate (1 – 25/26 = 0.038) .  This counterbalances to some extent the generosity of the rest of the tax regime for the EPZ firms.

In the words of Marc Frank:

“However, one of the main complaints of foreign investors in Cuba has not changed: that they must hire and fire through a state-run labor company which pays employees in near worthless pesos while investors pay the company in hard currency. Investors complain they have little control over their labor force and must find ways to stimulate their workers, who often receive the equivalent of around $20 a month for services that the labor company charges up to twenty times more for.” Frank, Reuters, September 23, 2013

 EPZ enterprises also would prefer to operate with a reasonable and realistic exchange rate and the power to hire labor directly rather than to go through the state labor company.

The accompanying table compares the tax regimes for micro-enterprise, foreign firms in joint enterprises and EPZ enterprises. While the reforms of the micro-enterprise tax regime in 2010-2011 reduced the discrimination favoring foreign enterprises, but did so only slightly. For foreign firms the tax base is total revenues minus all costs of production and investment. In contrast, for micro-enterprises the tax base is total revenue minus arbitrary and limited maximum allowable levels of input costs ranging from 10 to 40 percent depending on the activity, and regardless of true production costs. As a result, for Cuban micro-enterprises the effective tax rate can be very high and could exceed 100% while the effective tax rate for foreign enterprises is exceedingly low. Moreover, investment costs are deductible from future income streams for foreign firms, this being the normal international convention. But for Cuban micro-enterprise, investment costs are deductible only within the 10 to 40% allowable cost deduction levels for the current year. 

The highest tax rate or bracket for domestic micro-enterprises is 50% while that for foreign firms in joint-enterprises is 30% generally but 50 % for mining (namely for Sherritt International). The Mariel EPZ rate is 0.0% for 10 years and 12% thereafter.

The EPZ firms can import equipment and materials at 0.0% import duty. For many imported inputs required for micro-enterprises, the sales tax they pay in the “convertible currency” stores is 140%, though wholesale markets are to appear before long providing imported inputs at prices that may be a good deal lower.

All in all, the differential tax regimes represent a surprising type of discrimination against Cuban citizens and in favor of the foreign firms in joint enterprises or the Mariel EPZ. The tax system permits very low taxes for the foreign owners of enterprises investing in the EPZ. IN contrast, Cuban micro-enterprises face a daunting tax regime.

From the perspective of Cuba’s national interest, the tax regime has another weakness. This is the heavy but hidden taxation on the payment of labor in the EPZ. The effective 96% tax operating through the dual exchange rate system does generate revenue for the Government. However, by making labor relatively expensive for the EPZ firms, it will provide a disincentive to job creation in the EPZs. This is a central objective of Cuban economic policy at this time as it tries to absorb up to 1 million workers that it considers to be redundant in the state sector of the economy.

Moreover, while the wage compensation to Cuban workers is pitifully low under the dual exchange rate system, the cost to employers is high. Under the wage payment systems of the previous EPZs, illustrated in the Table 2 below, the wage costs to employers were well above neighboring countries in the Caribbean region. This may well persist under the tax arrangements for the new Mariel EPZ.

[i]Three EPZs were established in 1997 at Mariel, Berroa, some ten kilometers from the port of Havana  and Wajay by the airport outside Havana. Their performance was mediocre; hence the new approach for a “Super-EPZ” at new container port at Mariel.

Table 2.Source: Larry Willmore, Export processing Zones in Cuba, in A. Ritter (editor). The Cuban Economy. University of Pittsburgh Press 2004.

 

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

Posted on September 25, 2013 by Arch Ritter

By Marc Frank

Original Article Here:   Mariel

Mariel Harbor

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

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

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

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

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

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

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

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

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

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

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

MARIEL PORT

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

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

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

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

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

Leaving Mariel, April 1980

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

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Oscar Espinosa Chepe, 1940-2013

Posted on September 23, 2013 by Arch Ritter

By Arch Ritter

It is with great sadness that we mourn the death of Oscar Espinosa Chepe, who passed away today, Monday September 23 2013, in Madrid with his wife Miriam Leiva by his side. He had been seriously ill with a liver disease and had gone to Spain for treatment.

Oscar Espinosa Chepe and Miriam Leiva, 2012. Photo by Arch Ritter

Oscar will be seriously missed. His was always a voice of reconciliation among Cubans and between the United States and Cuba. He argued strongly against US interference and spoke for Cubans solving their own problems. His was always a voice championing democracy and good economic sense, un-beholden to the powers that be. He and Miriam displayed immense courage, speaking their minds and stoically accepting the consequences imposed by the authorities.

We are fortunate that Miriam will undoubtedly continue her own independent journalism and activism for reconciliation and democratization.

Oscar became, over time, an independent analyst on the Cuban economy. From 1965 to 1968, however, he was in an Economic Advisory Group to the President. After some disagreements regarding economic policy, he was demoted and sent to work in the fields. He was later reinstated as a professional economist in the government with the support of Carlos Rafael Rodríguez  and then worked for some years in Belgrade on Cuba’s economic cooperation with Hungary, Czechoslovakia, and Yugoslavia.

Returning to Cuba, he was employed in the National Bank of Cuba until 1996 when he was fired, again for his critical views on economic policy. He then began his independent analytical work until he was arrested in the “Black Spring” of March 2003 along with 75 other dissidents. He was sentenced to twenty-year incarceration for “activities against the integrity and sovereignty of the State.” Amnesty International declared him a “prisoner of conscience.” He was released early after about two years due to illness.

Oscar then continued to make his own analyses of economic issues from 2005 into 2013. Most recently, he published a book length study of Cuban economic policy[i] and contributed to another book[ii], edited by Ted A. Henken, Miriam Celaya, and Dimas Castellanos, forthcoming in 2013.

 See also:

1.      Wikipedia on Oscar Espinosa Chepe

2.      Miriam Leiva and The The Cuba Central Team on Oscar Espinosa Chepe


[i] Espinosa Chepe, Oscar.  2011.  “Cambios en Cuba: Pocos, Limitados y Tardíos,” Havana. http://reconciliacioncubana.files.wordpress.com/2011/03/cambios-en-cuba.pdf.

[ii] Espinosa Chepe, Oscar, and Ted A. Henken.  2013.  “Economics,” in Cuba, edited by Ted A. Henken, Miriam Celaya, and Dimas Castellanos.  Santa Barbara, CA: ABC-Clio,

 Oscar Espinosa Chepe and Arch Ritter

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Stephen Purvis, Wrongfully Accused of Spying and Fraud: Letter to the Economist

Posted on September 23, 2013 by Arch Ritter

From The Economist, August 13, 2013

“Dear Editor,

I enjoyed reading about my misfortunes in the Economist, albeit many months after publication and in the company of fellow inmates in the Cuban high security prison, La Condesa. I would ask you to correct the impression that you give in the May 9th 2012 edition and subsequent articles that I was accused and detained for corruption.

During my 8 month interrogation in the Vila Marista I was accused of many things, starting with revelations of state secrets, but never of corruption. After a further 7 months held with a host of convicted serious criminals and a handful of confused businessmen, most of whom were in a parallel predicament to mine, I was finally charged and sentenced for participating in various supposed breaches of financial regulations. The fact that the Central bank had specifically approved the transactions in question for 12 years, and that by their sentencing the court has in effect potentially criminalised every foreign business investing or trading in Cuba was considered irrelevant by the judges. I am thankful however that the judges finally determined that my sentence should not only have with a conditional release date a few days before the trail thus conveniently justifying my 15 months in prison, but, bizarrely was to be non-custodial. So my Kafkaesque experience at the sharp end of Cuban justice ended as abruptly as it began.

I spent time with a number of foreign businessmen arrested during 2011 and 2012 from a variety of countries, although representatives from Brazil, Venezuela and China were conspicuous in the absence. Very few of my fellow sufferers have been reported in the press and there are many more in the system than is widely known. As they are all still either waiting for charges, trial or sentencing they will certainly not be talking to the press. Whilst a few of them are being charged with corruption many are not and the accusations range from sabotage, damage to the economy, tax avoidance and illegal economic activity. It is absolutely clear that the war against corruption may be a convenient political banner to hide behind and one that foreign governments and press will support. But the reasons for actively and aggressively pursuing foreign business are far more complicated.  Why for example is the representative of Ericsson in jail for exactly the same activities as their Chinese competitor who is not? Why for example was one senior European engineer invited back to discuss a potential new project only to be arrested for paying technical workers five years ago when he was a temporary resident in Cuba?

You interpret the economic liberalisation evident at street level as an indication of a desire for fundamental change. It is true that these reforms are welcomed, especially the dramatic increase in remittance flows that have injected fresh hard currency into the bottom strata of a perennially cash strapped economy. But until the law relating to foreign investment and commerce is revised and the security service changes its modus operandi for enforcing these laws, Cuba will remain extremely risky for non-bilateral foreign business and foreign executives should be under no illusion about the great personal risks they run if they chose to do business there.  As businessmen emerge from their awful experience and tell their individual stories perhaps the real reasons for this concerted attack against business’s and individuals that have historically been friends of Cuba will become a bit clearer. In the meantime your intrepid reporters could usefully investigate the individuals and cliques who are benefitting from the market reorganization and newly nationalized assets resulting from this “war on corruption”.

Yours faithfully, Stephen Purvis”

Stephen Purvis and Family after his return to Britain

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Ernesto Hernández-Catá, “Cuba, the Soviet Union, and Venezuela: A Tale of Dependence and Shock.”

Posted on September 18, 2013 by Arch Ritter

The complete analysis is available here: “Cuba, the Soviet Union, and Venezuela:  A Tale of Dependence and Shock.”   September 2013

Introduction

Recently there have been several estimates of Venezuelan economic assistance to Cuba—for example by Lopez (2012) and Mesa-Lago (2013). My latest estimates suggest that payments from Venezuela increased rapidly during the first decade of the XXI century and peaked at almost 19% of Cuba’s GDP) in 2009. They declined over the following two years but remained quite large: I estimate Venezuelan assistance in 2011 (the last year for which the required data are available) at just over $7 billion, or 11 % of Cuba’s GDP. These numbers are large, and they have invited comparisons with Soviet assistance to Cuba in the late 1980s. It has been implied that the adverse effect on Cuba’s real GDP of ending Venezuelan aid would be similar in size to the devastating impact of the elimination of Soviet aid in 1990. This is almost certainly wrong.

Conclusion

The analysis presented in this paper indicates that a complete cancellation of Venezuelan assistance to Cuba would cause considerably less damage than the elimination of Soviet assistance in the early 1990s, with the fall in real GDP estimated at somewhere between 7% and 10%, compared to 38% after the breakdown of Cuban/Soviet relations. Moreover, if the Cuban government were to avoid the policies of   subsidization and inflationary finance pursued in the post-Soviet period, the post-Venezuelan contraction would be at the lower end of the range or approximately 7%.

This is still a lot, however. To be sure, the danger of a sudden elimination of aid inflows has diminished considerably since the Venezuelan election of April 2013. Nevertheless, the prospect of a more gradual reduction in aid remains likely given Venezuela’s economic difficulties. In that case, the effect would be a reduction in the growth of the Cuban economy spread over several years, rather than a sudden contraction of output. Furthermore, current efforts to obtain financing at non-market terms from other countries, like Algeria, Angola and Brazil, would, if successful, diminish the magnitude of the shock. But it would perpetuate dependence and delay the needed adjustment.

The only way to diminish the pain of reduced income and consumption would be a decisive effort to expand Cuba’s productive capacity by intensifying the reform process. The list of required actions is familiar to all: liberalize prices, unify the exchange rate system, dismantle exchange and trade controls, stop the bureaucratic interference with non-state agricultural producers, continue efforts to downsize employment in the state sector, and increase substantially the list of activities opened to the private sector, including (why not?) doctors, nurses, teachers and athletes. Private clinics and schools would pop up, consultancy services would flourish, and the baseball winter leagues would come back to life.

 Karl Marx (1852) credited Hegel with the idea that history repeats itself twice. Unfortunately for him, he added: “the first time as a tragedy, the second time as a farce”. This is not necessarily true. Often the second time is also a tragedy, as when the West gave Eastern Europe to Stalin at Yalta, less than a decade after giving it to Hitler in Munich. And why couldn’t the second time be an epiphany? Cuba’s rulers now have a historic opportunity to allow people to improve their own standard of living, and to stop wasting resources to keep the faded and sinister red banner afloat. Without a doubt, history will absolve them if they take that chance. And then, perhaps, Cuba will be allowed to replace its politically inspired dependence on doubtful friends with free, mutually beneficial trade with all nations.

Ernesto Hernandez-Cata was born in Marianao, Havana, Cuba in 1942. He holds a License from the Graduate Institute of International Studies in Geneva, Switzerland; and a Ph.D. in economics from Yale University. For about 30 years through, Ernesto Hernandez-Cata worked for the International Monetary Fund where he held a number of senior positions. When he retired from the I.M.F. in July 2003 he was Associate Director of the African Department and Chairman of the Investment Committee of the Staff Retirement Plan. Previously he had served in the Division of International Finance of the Federal Reserve Board. From 2002 to 2007 Mr. Hernandez-Cata taught economic development and growth at the Paul Nitze School of Advanced International Studies of the University of Johns Hopkins. Previously he had taught macroeconomics and monetary policy at The American University.

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Oscar Espinosa Chepe

Posted on September 13, 2013 by Arch Ritter

Miriam Leiva and The The Cuba Central Team on Oscar Espinosa Chepe

From The Cuba Central Team, original here:http://www.democracyinamericas.org/blog-post/vigil-in-madrid-some-thoughts-about-oscar-and-miriam/

Dear Friends:

“I expect the end to come soon.”

Miriam Leiva wrote these words about her husband, Oscar Espinoza Chepe, whose long struggle against liver disease seems near its end in Hospital Fuenfría near Madrid in Spain.  As we read her message, we were reminded why we respect this couple so much.

They just like to tell the truth as they see it. 

Their candor made some people in Havana and Miami very uncomfortable.  Three years ago, Oscar referred to hardliners in both cities as “The Taliban.”  This may explain why Oscar and Miriam are rarely mentioned by the embargo’s biggest supporters in Washington, because their views never fit so neatly into the hardliner’s black-and-white definition of what constitutes “dissent.”

Oscar Espinosa Chepe, an economist and independent journalist, fell from grace in Cuba more than once. In the 1960s, after serving as an economist for Fidel Castro, he was sent to work in the fields after he expressed negative views about the economic situation in his country. 

In the 1980s, Oscar, back in favor and working as an economic counselor, served for three years in Eastern Europe with Miriam, then a member of Cuba’s foreign service, just as perestroika was beginning to take hold.  But, upon their return to Cuba for a vacation, they were told they could not go back to Europe.  Instead, Oscar was assigned to work at the National Central Bank of Cuba. 

In 1992, they were called to a meeting where Oscar was called out as “counter-revolutionary.” For the next twenty years, he and Miriam were devoted activists, though, as Oscar said, “We expressed our views in a pacific way.”

Oscar was arrested with 74 others in Cuba’s March 2003 crackdown.  Sentenced to twenty years, Oscar left prison after twenty months, released on a temporary medical parole; at any time, authorities could have ruled he was no longer sick and returned him to custody.  

Nevertheless, upon leaving custody, Oscar resumed speaking his mind.  While he praised President Raúl Castro’s economic reforms as sensible and rational if incomplete, he was sharply critical of officials inside the system who were obstacles to change, and criticized those who saw private property as incompatible with social justice.  

He chastised the government for failing to reciprocate President Obama’s “gestures,” the reforms on family and people-to-people travel.  He expressed his bewilderment at the imprisonment at Alan Gross and thought he should be set free.

This record of speaking out could have endeared Oscar to sanctions supporters in Miami except for his unshirted contempt for those he called “Hardliners for Castro.” He believed their support of sanctions kept Cubans hostage to their dreams of returning to power in a Cuba that last existed during Batista’s reign in the 1950s.  He resented their attacks on Cuba’s Catholic Church, which was instrumental in freeing the remaining prisoners arrested in 2003, along with many others. 

In his statement opposing travel restrictions offered by Rep. Mario Díaz-Balart, Oscar said: “If the policies proposed for Cuba by the hardliners had been maintained for Eastern Europe and China, we would possibly still have a Berlin Wall and the heirs of the Gang of Four would still govern China.”

Oscar and Miriam, in their work together, were motivated by a spirit of reconciliation that included everyone; even those who took no personal risks, but sat in air conditioned offices far from Cuba and questioned their credibility as political activists.  Instead, they chose to believe that all Cubans could work together, that families could reunite, and that “all animosity prevailing in our country since March 10, 1952 can be overcome.” 

Earlier this year, a medical crisis led them to depart Cuba for Spain, so Oscar could receive what Miriam then called “urgent” medical attention for his chronic liver failure.

Another truth Oscar never left unspoken was his love for Miriam, especially when he recalled the vigils she organized with other spouses and family members of the 75 detainees.  He once said of her: “She is modest. She is brave, especially as demonstrated by her actions while I was in prison.”  Whether he was in Guantanamo or Santiago de Cuba, “she was there.”

Now, on another vigil, Miriam is there for Oscar again.  By posting updates on Facebook and a blog, Reconciliación Cubana, she has made it possible for us to accompany her on this sad, respectful, journey that she hopes will end soon.

Muy Grave Oscar Espinosa Chepe en Madrid

Oscar Espinosa Chepe, economista y periodista independiente, prisionero de conciencia de los 75, condenado a 20 años de cárcel durante la Primavera Negra de 2003, con licencia extrapenal ¨hasta que recupere su salud¨, 

Chepe llegó a Madrid el 12 de marzo para recibir asistencia médica a su grave dolencia crónica del hígado, exacerbada durante la permanencia en el Cuartel General de la Seguridad del Estado ¨Villa Marista¨, la Prisión Provincial de Guantánamo, Boniatico en la Prisión de Boniato en Santiago de Cuba y la cárcel de máxima seguridad Combinado del Este en La Habana, con estancias en los hospitales de esas provincias por difíciles gestiones de la familia e internacionales.

Su firme propósito era regresar a Cuba tan pronto como mejorara su precario estado físico, para el cual no había mayores tratamientos médicos en Cuba, que los proporcionados durante varios ingresos en el Hospital Manuel Fajardo y en el Centro de Cirugía de Mínimo Acceso en La Habana. Con ese fin, el gobierno de España ha propiciado la atención médica en el Hospital Puerta de Hierro de Majadahonda, con la asistencia del Cardenal Jaime Ortega, a los cuales agradece su apoyo, así como a la Comunidad de Madrid, los médicos y personal sanitario, amigos españoles, de otras nacionalidades y cubanos.

Sin embargo, la especializada atención en el moderno Hospital Puerta de Hierro no ha podido revertir el curso de la enfermedad, por lo que en estos momentos Chepe se encuentra en muy grave estado, con su esposa en Madrid. Lamentablemente, Oscar no ha recorrido la acogedora y bella ciudad, pues la enfermedad mermó sus fuerzas físicas progresivamente y ha permanecido ingresado en el hospital o acostado en la habitación del lugar de residencia. Su cuerpo se apaga con grandes molestias, mientras sus ideas y pensamientos continúan dedicados a Cuba y su pueblo. Espero un desenlace fatal pronto.

Miriam Leiva, Esposa de Oscar Espinosa Chepe,

Activista de Derechos Humanos y Periodista Independiente,

Madrid, 21 de agosto de 2013

Oscar Espinosa Chepe, Arch Ritter and Roberto Robaina,  April 2012

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