• 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."

Cuba’s Debt Situation: Official Secrecy and Financial “Jineterismo”

Posted on June 8, 2012 by Arch Ritter

By Arch Ritter

Does Cuba have an “external debt problem”? Is servicing the debt, that is, paying the interest and amortization, a serious burden for the balance of payments?

Unfortunately, Cuba does not provide sufficient information to analyze this issue clearly. One searches in vain in the documentation of the Oficina Nacional de Estadisticas (ONE) and the web site of the Banco Central de Cuba (BCC) for useful and up-to-date information on debt magnitudes or the cost of servicing the debt. Why is it that all the countries in Africa – excepting Somalia and South Sudan – and all the countries of Latin America can provide up-to-date information on their debts but Cuba can not? [For Africa see the African Economic Outlook, 2012, Table 12    and for Latin America, Naciones Unidas, CEPAL, CEPAL, Naciones Unidas, Balance Preliminarde las Economias de America Latina y el Caribe. 2012]

One can only conclude that Cuba’s debt issue is a matter of “official secrecy”. Presumably it is not due to incompetence in the Central Bank or the Statistical Agency.

Surprisingly, the present lack of timely and detailed information on the external debt is in sharp contrast with the situation under the government of President Fidel Castro in the 1980s. In this period, the BCC published detailed information on the external debt which permitted independent external analysis (See for example A. Ritter, “El problema de la deuda de Cuba en monedas convertibles”; “Cuba’s convertible currency debt problem”, – Revista de la CEPAL; CEPAL Review, 1988, not available in electronic format.)

The most recent number for Cuba’s external “gross debt” provided by the ONE for 2008 was 11.6 billion pesos in Moneda Nacional. This constituted 19.1% of Cuba’s GDP for that year (ONE AEC Table 8.2). These numbers are undoubtedly higher now in 2012 after the 2008-2009 recession.

The total external debt ostensibly amounted to 92.7% of Cuba’s exports of both goods and services in 2008. This does not seem unduly onerous. However, Cuba’s service exports, paid for primarily by the Government of Venezuela in exchange for medical and other services are vulnerable to change if Hugo Chavez were to leave the scene or lose the forthcoming presidential election. These service exports are unsustainable in the long run in any case as countries develop their own medical services.

As a percentage of merchandise exports, Cuba’s gross debt comes in at 325%, a magnitude that is more onerous. Unfortunately lack of relevant information prevents a determination of debt service as a percentage of exports of goods and services or of merchandise exports alone.

But how meaningful are these gross debt figures?

Cuba’s external debt is in foreign currency. Cuba’s domestic GDP is measured in Moneda nacional. What is the reasonable exchange rate for translating Moneda Nacional into a common foreign currency such as the US Dollar? The appropriate exchange rate would not be the official 1.00 CuP = $US 1.00. Nor would the appropriate rate be  24.00 CuC = $US 1.00, which was the exchange rate of the CuP (in Moneda Nacional) to the CuC (or the Convertible Peso.) If it were the latter, then the hard currency debt of 11.6 billion would be 458% of Cuba’s GDP, an amount that would be horrendous. Likely the true weight of the external debt is somewhere the 19.1% of GDP and the astronomical 458% of GDP, but we have little idea exactly where.

Cuba underwent a debt crisis in the late 1980s when it faced a total hard currency debt of $US 5.5 billion. It resolved the problem by first arranging a series of reschedulings. When these did not solve the problem, Cuba suspended negotiations on July 1, 1986, and entered a debt moratorium paying neither interest nor amortization.

According to a report by the Republic of Cuba-European Union entitled Country Strategy Paper and National Indicative Programme for the period 2011-2013. 24 March, 2010, “Annex VIII: Debt Sustainability Analysis.” Cuba’s creditors, excluding the former Soviet Union, were owed a total of $31.7 billion in 2008. The total volume of debt outstanding now in 2012 is undoubtedly higher than the 2008 figure. Some 20 billion of this was “inactive” or no longer honored by Cuba, but we do not know which debts were no longer active.

Under President Fidel Castro and perhaps Raul Castro as well, Cuba has played an interesting and remunerative game, making economic friends with a succession of suitors, obtaining trade, official and bank credits from its partners, and then reneging on the debt. The most dramatic example was of course the former Soviet Union which extended credits amounting to around 20 billion transferable rubles, or some $US(1988) 28 billion. This debt plus other debts with the countries of the Soviet Bloc is not acknowledged by Cuba will never be repaid.

More recently, Venezuela, China and Iran have been the favored economic partners with Cuba extending credit to promote their exports. Will they also be “stood up”, “let down” or “dumped” by Cuba when the credits run out?

Certainly when Chavez leaves the scene and when Venezuela decides to end its special relationship with Cuba, Cuba will likely declare a moratorium. Are there additional suitors who are willing to enter a special economic relationship with Cuba and provide new credit lines? I can no longer see a waiting list of suitors. However, there may well some ready to succumb to the charms of Cuba, its diplomats and its trade negotiators. Perhaps Brazil is next in line!

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Blogger Yoani Sanchez filed the demand to know why she’s banned from leaving Cuba.

Posted on June 1, 2012 by Arch Ritter

By Juan O. Tamayo; jtamayo@ElNuevoHerald.com May 30, 2012

Cuban blogger Yoani Sánchez has filed a notice with the Interior Ministry demanding to know why she’s not allowed to travel abroad, the latest in a string of daring legal challenges to the communist government.
Sánchez said the notice filed Wednesday asks Interior Minister Abelardo Colomé Ibarra to explain why the ministry office that is in charge of exit permits never answered her Nov. 18, 2010 request for the reasons behind the refusals.
Colomé Ibarra now has 60 days to respond to her complaint of “administrative silence,” Sanchez said. If he doesn’t, she will file a lawsuit against the minister seeking a court order that he must reply.
“Of course, I know what’s going to happen. But I want to maintain that innocence of having hope,” Sánchez added, referring to the high probability that her complaints will go nowhere in a country where the courts faithfully follow the government line.
Cubans who want to travel abroad require a government permit, known as a “White Card” and regularly denied to dissidents. It has turned down several Sánchez requests to travel abroad to receive prizes, attend conferences or for other reasons.
She has repeatedly asked for an explanation at the Interior Ministry’s Office for Immigration and Foreigners’ Affairs, but received none. Her notice Wednesday elevated her question to the minister’s office.
“It’s a step before a lawsuit,” she told El Nuevo Herald by phone from Havana. “It is a legal, juridical opportunity in the hands of citizens, which allow an appeal against Cuban authorities when the authorities have not responded to a petition.”
Her notice was the latest in a handful of bold attempts by dissidents and others to use Cuba’s legal system to challenge official actions. The courts have knocked down almost all the cases, including some filed against police.
But the Cuban Juridical Association is still fighting a three-year-old case seeking the legal recognition of the Justice Ministry as a group of lawyers that provides legal advice on a nonprofit basis, usually to government critics.
CJA chief Wilfredo Vallín, who also is advising Sánchez on her case, took the first step required to register the group in April 2009 by asking the Justice Ministry’s Registry of Associations to certify that no other group had registered the same name.
The registry never replied so the 1992 graduate of the University of Havana Law School elevated his request to Justice Minister María Esther Reus. When she didn’t reply, he filed suit under Cuba’s Law for Civil, Administrative and Labor Procedures.
To his surprise, a three-judge panel first officially accepted Vallín’s complaint, and then ordered Reus to appoint lawyers to defend her. Cuba’s highest court, the Supreme Tribunal found a technical fault with one of his filings last year but allowed the case to continue and later ordered the minister to reply to Vallín’s initial request.
The Justice Ministry certified last June that no other group was registered with the same name or purpose as the CJA, but earlier this year it rejected the CJA’s application for recognition on technical grounds. Vallín has vowed to appeal.
Ministry officials had never officially recognized any dissident group, making them illegal and therefore subject to sanctions for the crime of “illegal association.”
Cuba’s justice system argues that the role of the law is to promote stability and the development of a “socialist society.” Dissidents put on trial are almost always convicted.
Lawyers are required to work for the government or government-approved Collective Law Offices, where criminal defense attorneys can be hired. But lawyers who spend too much time defending dissidents are sometimes fired from the law offices.

Arch Ritter, Yoani Sanchez and Reinaldo Escobar, Havana April 2012

 

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Phil Peters: “A Viewer’s Guide to Cuba’s Economic Reform”

Posted on May 31, 2012 by Arch Ritter

A comprehensive, concise and high quality study on Cuba’s economic reforms has just been published by Phil Peters, the Vice President of the Lexington Institute.  Peters is also the author of the Blog The Cuban Triangle: Havana-Miami-Washington events and arguments and their impact on Cuba.

The complete presentation is available here:  Phil Peters, A Viewers Guide to Cuba’s Economic Reform

TABLE OF CONTENTS

Introduction

A Tale of Two Speeches

Raul Gets Started

The Communist Party Blueprint for Economic Reform

A Viewer’s Guide, Sector by Sector

Small Entrepreneurs

Agriculture

Cutting Government Spending

Private Cooperatives

State Enterprises

Foreign Investment

Removing “Excessive Prohibitions”

Tax Policy

 Local Government

Credits for Business and Home Improvement

 Conclusion

APPENDICES

A Chronology of Reform

The Media and Reform

The Legalization of Residential Real Estate Sales

The Demographic Squeeze

Phil Peters, Lexington Institute

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Cuba waits anxiously for oil dreams to materialize

Posted on May 29, 2012 by Arch Ritter

By PAUL HAVEN. Associated Press, May 27, 2012

HAVANA (AP) — It was supposed to be Cuba’s economic savior: vast untapped reserves of black gold buried deep under the rocky ocean floor.

But the first attempt in nearly a decade to find Cuba’s hoped-for undersea oil bonanza has come up dry, and the island’s leaders and their partners must regroup and hope they have better luck – quickly.

Experts say it is not unusual that a 3-mile (4.8-kilometer) deep exploratory well drilled at a cost of more than $100 million by Spanish oil giant Repsol was a bust. Four out of five such wells find nothing in the high-stakes oil game, and petroleum companies are built to handle the losses.

But Cuba has more at stake, and only a few more spins left of the roulette wheel. The enormous Scarabeo-9 platform being used in the hunt is the only one in the world that can drill in Cuban waters without incurring sanctions under the U.S. economic embargo, and it is under contract for only one to four more exploratory wells before it heads off to Brazil.

“If oil is not found now I think it would be another five to 10 years before somebody else comes back and drills again,” said Jorge Pinon, the former president of Amoco Oil Latin America and a leading expert on Cuba’s energy prospects. “Not because there is no oil, but because the pain and tribulations that people have to go through to drill in Cuba are not worth it when there are better and easier options in places like Angola, Brazil or the U.S. Gulf of Mexico.”

A delay would be catastrophic for Cuba, where 80-year-old President Raul Castro is desperately trying to pull the economy out of the doldrums through limited free-market reforms, and has been forced to cut many of the subsidies islanders have come to expect in return for salaries of just $20 a month.

It could also leave the Communist-governed island more dependent on Venezuela, where President Hugo Chavez is ailing with cancer. Chavez provides Cuba with $3 billion worth of heavily subsidized oil every year, a deal that might evaporate if he dies or fails to win re-election in October.

An oil find, on the other hand, would potentially improve Cuba’s long-bitter relations with the United States, some analysts suggest. They say the U.S. oil industry could lobby Congress to loosen the embargo so it could get in on Cuba’s oil game. At the very least, coordination between the Cold War enemies would be necessary to prepare for any spill that could coat beaches in the U.S. and Cuba with black goo.

The Cuban government has not commented on Repsol’s announcement May 18 that the first well came up dry, and declined to make any oil officials or experts available to be interviewed for this article.

Next in line for using the drilling rig in Cuban waters is Malaysia’s Petronas, which holds the rights to explore an area in the Florida Straits known as the Northbelt Thrust, about 110 miles (180 kilometers) southwest of Repsol’s drill site. Wee Yiaw Hin, Petronas’ executive vice president of exploration and production, told The Associated Press that drilling has begun and he expects results by the end of July.

After that, two industry experts said, Repsol is under contract to drill a second well, though it could get out of the deal by paying a penalty to Saipem, the Italian company that owns the rig. Kristian Rix, a spokesman for Repsol in Madrid, said a decision on whether to sink another well was still being evaluated.

Venezuela’s PDVSA and Sonangol of Angola have options to drill next, but are under no obligation if they don’t like their odds. While both countries are strong allies of Cuba, at $100 million a well, the decision to drill will likely be based solely on economics.

Even if oil is found, the Scarabeo-9 is under contract to power up its eight enormous thrusters and sail to Brazil after that, with no date set for its return to Cuba. The bottleneck highlights the difficulties Cuba faces, and why it could be well into the 2020s before the island sees any oil windfall.

“Assuming they’re successful in finding oil, to bring the oil to market will take years of development efforts,” said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.

Once an exploratory well finds oil, companies generally drill between 10 and 20 additional wells nearby to get a sense of the reservoir’s size. The process can take several years even under normal circumstances, and circumstances are not normal in Cuba.

The Scarabeo-9 was built in Asia with less than 10 percent U.S.-made parts to avoid violating Washington’s embargo, making it the only rig in the world that meets the requirement. That means no other rig could be used in Cuba without risking U.S. sanction, and the additional wells would have to be drilled by the rig one at a time, with each taking about 100 days to complete. At about three wells a year, it could take up to six years for this second phase – assuming the rig is available.

After gauging a reservoir’s size, an oil company then must assess whether the economics of a field make it a prime spot for exploitation, or whether to concentrate resources elsewhere.

If exploitation does go forward, complicated equipment is required to pull oil from such depths. Several industry experts said the only country that produces the necessary apparatus is the United States, although Brazil and other countries are working to catch up. Unless they do, the oil could not be removed unless the U.S. embargo was lifted or altered.

“A lot of folks are looking at the energy sector in Cuba because they are looking at a Cuba of five years from now, or 10 years from now,” said Pinon. “So a lot of people are betting that either the embargo is going to be lifted, or the relationship between the U.S. and Cuba is going to improve in some way.”

Still, the benefits of hitting a gusher would be enormous for Cuba, and the impact could be felt long before any oil was pumped.

Because of the embargo, Cuba is shut off from borrowing from international lending institutions, and the island’s own poor record of repayment has left most other creditors leery. Cuba, for instance, owes the Paris Club of creditor nations nearly $30 billion.

An oil find could change the game, with Cuba using future oil riches as collateral to secure new financing, economists say. They point to China and Brazil as potential sources of new funding, but say neither is likely to put money into the island without reasonable confidence they will get their investment back.

Lee Hunt, the recently retired president of the Houston-based International Association of Drilling Contractors, said the stakes are enormous for Cuba that one of the wells hits oil before the Scarabeo-9 leaves. Hunt has worked to bring U.S. and Cuban industry and environmental groups together.

“If the only rig you can work with is gone, it’s like somebody took your shovel away,” Hunt said. “You are not going to dig any holes without a shovel, even if you know the treasure is down there.”

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Prison workers used in many Cuban government enterprises

Posted on May 25, 2012 by Arch Ritter

By Juan O. Tamayo, Miami Herald, Posted on Mon, May. 21, 2012

Combinado del Este

 The Cuban government-owned enterprise Provari is known on the island for making everything from bricks and construction blocks to mattresses, tourist handicrafts and the insecticide Lomaté — I Killed It.

What is less well known is that the vast majority of its workers are prison inmates — what dissidents denounce as “slave laborers” who work with few safety protections and receive meager wages or are not paid at all.

Prison labor in Cuba is extensive yet “like the dark side of the moon, not well known at all,” said Elizardo Sánchez Santa Cruz, head of the Cuban Commission for Human Rights and National Reconciliation.

A Provari business prospectus claimed it had 150 production facilities around the island in 2001. Sánchez said it operates in virtually all of the estimated 200 prisons and labor camps in Cuba.

Prison labor is common around the world. In the United States, prisoners make license plates, government furniture and much more. Florida state prisons require inmates to work unless they are exempt for medical or other reasons. Most earn nothing, and canteen workers, barbers and a few others get only $50 a month.

“There’s no objection in principle to companies managing factories in prisons,” said Andrew Coyle of the International Centre for Prison Studies in London. But inmates should have equal salaries and work conditions. “This should not be forced or slave labor.”

But Cuba is a dictatorship, Sánchez argued, where the communist government can do anything and keep it secret. That includes exploiting inmate workers at will and punishing anyone who complains.

He added that he was specially concerned about the safety conditions in prison factories and singled out the Lomaté insecticide, manufactured in Havana’s Combinado del Este and other prisons around the island.

Farm workers seldom get special clothing to protect them from chemicals, and cane cutters rarely get proper boots to protect their feet from their machetes, said Joel Brito, a former safety expert in the island’s lone labor union, the Cuban Workers’ Central.

The Interior Ministry (MININT) and Ministry of the Armed Forces, which own a large number of manufacturing and construction enterprises, do not report industrial accidents to the National Statistics Office, Brito noted.

“There are no protective measures because there’s always a shortage of money. And if that’s the case in the general economy, imagine what it’s like for prisoners,” added Brito, who now heads a Miami group that monitors labor abuses in Cuba.

Questions about prison labor in Cuba arose recently amid reports that the IKEA furniture chain and an East German firm had hired the Cuban state-owned company EMIAT to use prison labor to manufacture tables and sofas in 1987.

One Cuban business report says EMIAT imports supplies and commercializes products for government-owned companies, including Provari. EMIAT and Provari — Enterprise for Various Products — share a Havana address in some of the reports.

A man who answered the phone at Provari’s Havana office, asked if the company uses prison labor, said, “Yes, the work is by prisoners.” He also confirmed the firm is owned by MININT, which is in charge of prisons, but declined further comment.

A Cuban government radio report on Provari’s work last summer said it was established 20 years earlier “principally with the objective of offering work to prisoners … and integrating them into work useful for society.”

Many prisoners work for the chance at fresh air and perhaps better food, and to avoid having their records marked “refused to work,” which would dash any hope for an early release, said Luis Enrique Ferrer, a dissident who spent eight years in prison.

Authorities allow only common criminals to work, fearing that political prisoners would publicize the work conditions, he added. Ferrer, who did not work in prison, was freed in 2010 and now lives in Miami.

But dissidents and independent journalists in touch with prisoners have published several reports over the years alleging problems at Provari’s prison workshops.

Journalists Jorge Alberto Liriano Linares reported in 2010 that 16 inmates suffered serious accidents at a Provari factory for construction materials at the Kilo 8 prison in eastern Camaguey Province, where he served part of his own13-year sentence.

Inmates in “this killer factory” are forced to work without salary, clothes, shoes or gloves, he wrote for the news service Hablemos Press. They work 10 hours a day and handle toxic chemicals “and because of that they suffer respiratory and skin diseases.”

Brito’s International Group for Corporate Social Responsibility in Cuba reported in 2010 that a factory in Prison 1580 near Havana was forcing inmates to work up to 12 hours a day making construction blocks and seldom paying the promised $10 a month.

Its 2009 annual report included complaints that inmates at the Nieves Morejón prison in Sancti Spiritus were paid a mere $2 per month, and that prisoners in Boniato in eastern Cuba were paid $1 per month — plus a promised bonus that was never paid.

Dissident Felix Reyes reported last year that prisoners at the Canaleta prison in eastern Ciego de Avila had complained that the gloves bought for them by the Provari factory there “were rotted and were missing fingers.”

Independent journalist Dania Virgen Garcia, who has written often about prison conditions, told El Nuevo Herald that she knew of prisoners who worked up to 16 hours a day, six days a week, and were paid nothing.

Sanchez and Ferrer said most of the overall prison labor in Cuba involves agricultural work like weeding fields, harvesting vegetables and picking fruit — some for sale, some for the prisons’ own consumption.

Provari uses the prison labor more for manufacturing, said Sánchez and García. It also has subsidiaries that build roads and government buildings, although it is not clear if they use prison labor.

A report last year in the government’s Guerrillero newspaper noted that the Provari branch in the western province of Pinar del Rio had the equivalent of $200,000 worth of sales in 2010, “mostly for products sold locally rather than export.”

The branch’s production included bleach and muriatic acid, beach chairs, cribs and playpens, clay and concrete construction blocks, paint and paint brushes, plastic tubes and ornamental plants, according to the report.

A large shop in a Havana women’s prison sews jeans for export under several brand names, as well as uniforms for the police and the military, García said. Sánchez said the Boniato prison, where he spent time in the 1990s, makes metal chain link fencing.

Other Cuban news reports noted that a Provari unit in eastern Ciego de Avila made 20,000 plastic molds, and that the enterprise and the Ministry of Construction were to provide the materials for a 2010 campaign to step up home construction.

The company also manufactures the Lomaté insecticide as well as lice and tick killers “and other products “for sanitary hygiene,” and was planning to build a 170-liter solar water heater, according to other media reports.

A business prospectus issued in 2001 listed some of Provari’s activities as carpentry using precious woods as well as textiles sold under the OESTE and HERCULES brands and the upholstery of office furniture sold under the brand name of OFIMAX.

The prospectus also said the enterprise was ready to do business “with foreign and national companies,” though the deal with IKEA appeared to have run into trouble.

The first sofas made for IKEA in 1988 reportedly had “quality problems,” and it was not clear if any part of the deal was ever carried out.

 

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Cuba crackdown sees foreign companies exit

Posted on May 24, 2012 by Arch Ritter

Financial Times, May 21, 2012 5:29 pm

Cuba crackdown sees foreign companies exit

By Marc Frank in Havana

Tighter restrictions following President Raúl Castro’s crackdown on state corruption and inefficiency is leading foreign businesses to leave Cuba, jeopardising the investment that his reform programme needs if it is to succeed.

The number of foreign joint ventures in Cuba has now fallen to no more than 240, according to government insiders, versus 258 in 2009, the last official figures available, and more joint ventures have closed than opened since the reform package was approved last April.

One of the latest companies to go is Unilever, the Anglo-Dutch consumer giant, after a 15-year joint venture expired and a dispute over the controlling interest in a new venture could not be resolved, a local manager said, asking not to be named.

At the same time, an offshore oil find that Havana had hoped would lead to increased access to international capital and less dependency on socialist ally Venezuela has so far proved fruitless after Repsol, the Spanish oil company, said late last week that the first of three test wells drilled in Cuban waters had no oil.

It was hoped that sweeping reforms adopted by the Communist party last year would open the way for significant foreign investment. But the government has instead re-examined existing agreements and stalled new projects, foreign business sources said.

Four joint ventures controlled by two Canadian trading firms are in the process of being “liquidated”. The top two executives in a British fund, Coral Capital, which says it has invested $75m in Cuba – much of it in the luxurious Saratoga hotel – are being held, although not charged with any offence, on suspicion of corrupt practices. Another target – Max Marambio, a Chilean businessman and friend of Fidel Castro – fled the country after being charged with corruption last year.

Although Mr Castro’s reform plan promised a review of cumbersome foreign investment procedures, promoters of several golf course projects report they are still waiting for approval, despite government promises to sign off in 2011, as are various companies that have been negotiating sugar ventures since 2006.

A multibillion-dollar plan to expand a refinery in central Cienfuegos and build a petrochemical complex around it, announced years ago, has also yet to materialise.

“I like to think the government is cleaning up the house before opening the front door,” Cuban economist Juan Triana told a gathering of British and Canadian businessmen last week.

One western diplomat said: “Cuba is reviewing the investment terms and some officials have said they want to fix mistakes made when the country first opened up to foreign investment in the 1990s, closing contracts that were not beneficial enough.”

Most experts and diplomats believe Mr Castro’s plans to lay off up to 1m state workers and lift the country out of its economic malaise will fail without large flows of direct investment, or a major oil find in the Gulf of Mexico.

The need for foreign partners is especially acute given the uncertain future of Cuba’s cancer-stricken ally, Venezuelan president Hugo Chávez, who provides the island with some 115,000 barrels of subsidised oil a day and faces a presidential vote in October, which he could lose.

“While it is far from clear what the future holds for Chávez and Venezuela, Cuba must be ready for it,” said John Kirk, a Latin America expert at Dalhousie University in Halifax, Canada.

“Given the continued US will to stymie any access to international lending organisations, the only source of significant capital around is still going to be foreign and private,” he added.

Of the dozen or so multinationals operating in Cuba, Telecom Italia left in 2011 while those remaining include Nestlé (bottled water), Sol Melia (hotels), Pernard-Ricard (rum), Anheuser-Busch InBev (beer), Imperial Tobacco (cigars) and Bouygues Batiment (construction).

If Havana hoped an offshore oil find would strengthen its position, it may now have to think again after Repsol said on Friday that the test well it drilled to 4,500m below the seabed was dry. Russia’s Gazprom and Malaysia’s Petronas will soon drill a second well, and Venezuela’s PDVSA is tentatively scheduled to drill a third. The US Geological Survey has estimated that Cuban waters could contain 5bn barrels of oil.

 

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Cuba’s crumbling buildings mean Havana housing shortage

Posted on May 17, 2012 by Arch Ritter

By Sarah Rainsford;  BBC News, Havana

Havana risks seeing its historic city centre reduced to ‘a void’

Havana is beguiling from a distance, especially its old colonial buildings bathed in tropical sunshine. But up close this city is crumbling. Number 69 on the Malecon, the city’s long seafront, looks particularly perilous. The apartment block has gaping holes where chunks of brick and plaster have fallen away. Bare metal rods protrude where balconies used to be.

“Look how badly these columns have deteriorated,” says Olga Torriente, pointing to thick cracks in the external wall of her flat, up on the top floor.

She pulls her bed into the centre of the room in a storm, afraid the whole wall could come crashing down.  Big chunks have already fallen off this building on the Malecon Some of Olga’s neighbours – those judged priority cases – have been rehoused. Others joined a “microbrigada”, or construction team, almost three years ago to help build a replacement apartment block for themselves. But there is still no completion date, and no alternative.

“How long will we have to wait? We need to get out,” says Ms Torriente. “People ask me if I’m not afraid to live here. Of course I’m afraid, but this is my house so where can I go?”

Like Ms Torriente, most Cubans own the house they live in – one of the principles of the revolution. But many have lacked the funds to maintain them.

Adding to Cuba’s difficulties, some 200,000 families across the island were left homeless by devastating hurricanes in 2008.

“Buildings are crumbling because they’re old. Then there’s the salt spray, humidity, termites, hurricanes and overcrowding. There are many kinds of problems and sometimes altogether,” explains former city architect Mario Coyula.

Seven out of every 10 houses need major repairs, according to official statistics. Some 7% of housing in Havana has formally been declared uninhabitable. The province around the capital needs some 300,000 more properties.   The shortage has forced expanding families to build lofts and new partitions within their homes, putting weakened structures under additional strain.

“It’s difficult, because neither the government nor the people have the money to care for the buildings. In a way, we inherited a city we are not able to keep,” Mr Coyula says, referring to Havana’s once grand colonial-era architecture in particular.

But the government is now trying to stop the rot – literally. For decades, Cuba subsidised all construction materials, but production slumped when state budgets became strained. Finding materials was difficult and an expensive black market emerged. There were also tight restrictions on building work.

Now, Cuba has shifted tack. It is allowing builders yards to sell materials at market prices, while offering state funds to help those home owners in most need. Hurricane victims are a priority but anyone on a low income and in what is considered “vulnerable” housing can apply.

“We used to subsidise materials now we’re subsidising the individual,” says Marbelis Velazquez, from Havana’s provincial housing office. “Not everyone is in the same situation, economically and the state clearly has to help those most in need,” she says.

The new grants range from 5,000 Cuban pesos ($208) for minor repairs to a maximum 80,000 pesos ($3,333) to build a 25 sq metre room from scratch.

In Cerro, one of central Havana’s most run-down districts, the Padro family is hoping their own petition will be accepted. Nadia Padro’s parents built a basic wooden and brick shack in their garden when living there with six siblings and assorted partners and grandchildren became too crowded. There is a kitchen, with water and electricity. But the roof leaks when it rains and Nadia and her husband have to squeeze into one bed at night alongside their two young children. “A government grant would really improve things,” Nadia says, explaining that they want to build a separate room for their daughters. Neither she nor her husband has a steady job and could never afford the work on their own.

The government plans to fund the grants with the sales tax it collects from state-owned building yards. It has already increased production and after years of bare forecourts, the yards are filling up with materials for sale.

“Before you had to hunt for things through friends or contacts,” Hernan Mayor explains, as he loads roofing material onto the back of his bike at The Wonder builders yard. He has been saving money to build a small extension to his house. “The materials are all here legally now, which is better. If things were a bit cheaper, it would be perfect. But at least they’re available now,” he says.

Nadia Padro is hoping to get a government grant to build another room in her shack New regulations have also made it much faster – and simpler – to get a licence for new building work. And, for the first time, bank credit is becoming available.

So Cuba is creeping into action over its housing stock. But the delay has already cost dearly. In Havana alone, it is said that three houses collapse either partially or completely every single day.

As for the city’s heritage, beyond the carefully restored “hub” of Old Havana, much of that may already have been lost for good. “It’s impossible to preserve all the buildings, I know many will go,” says s architect Mario Coyula. “If nothing changes, Havana may end like a circle…with a void in the middle where the city used to be.”

Havana, April 2012, Photos by Arch Ritter


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Mark Frank: “Cuba drags feet on foreign investment”

Posted on May 16, 2012 by Arch Ritter

* No increase in foreign investment despite reforms

* Potential new partners wait for answers

* Existing ventures under scrutiny

Camilo Cienfuegos Refinery

By Marc Frank

HAVANA, May 15 (Reuters) – Cuba’s reform plans to attract more overseas investment are off to a slow start as the government focuses more on regulating existing foreign joint ventures than encouraging new ones, businessmen and diplomats say.

In fact, Cuba has closed more joint ventures than it has opened since the ruling Communist Party adopted wide-ranging economic reforms a year ago, and remains far off highs reached in the 1990s, according to official reports.

The list of endangered or terminated joint ventures includes one big name, Unilever PLC, the Anglo-Dutch consumer giant, and a number of others that have operated in the country for 15 years or more.

Cuba’s investment reform plan announced last year spoke positively of foreign investment, promised a review of the cumbersome approval process and stated that 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.

It will be particularly critical given the health of cancer-stricken ally Venezuelan President Hugo Chavez, who has championed close cooperation between Cuba and oil-rich Venezuela.

While the reform plan built up hopes of an opening to foreign capital, it also made clear that existing and future investments would be subject to “rigorous controls” on “regulations and procedures, as well as the commitments assumed by foreign partners.” This part of the program has been vigorously carried out, according to both business and Cuban sources, with a review of the country’s approximately 240 foreign investment projects recently concluded.

That number is a decline from the 258 projects Foreign Trade and Investment Minister Rodrigo Malmierca reported at the close of 2009 and way down from the 700 Cuba had a decade ago.

The issue in part appears to be the result of old ideological habits dying hard, said Geoff Thale, program director at the Washington Office on Latin America.

Other reforms, such as encouraging more self employment and private farming, have been easier to implement.

“From the point of view of the state, an opening to foreign investment seems like a much bigger step to take in changing the economic model than does the liberalizing of domestic agriculture or current opening to small business,” Thale said.

VENTURES CLOSE

Unilever PLC, the Anglo-Dutch consumer giant, is the latest and best known of the foreign firms to pack its bags.

The company’s 15-year, 50-50 economic association has expired and a dispute over the controlling interest in a new venture could not be resolved.

“We wanted 51 percent of the new venture and so did the Cubans. At this point we are leaving, even though some discussion is still going on,” a company manager said, requesting anonymity.

Israeli investors, operating out of the Panama-based BM Group, recently pulled out of their longstanding juice processing business after new contract negotiations broke down, according to the business sources.

Investors in Havana’s container terminal are leaving as Cuba prepares to open a new terminal at Mariel, diplomats said.

Several ventures controlled by two Canadian trading firms and British investment fund Coral Capital under investigation for alleged corrupt practices are in the process of liquidation. Th e ir offices were closed last year and their top executives arrested as part of the crackdown on corruption.

SOCIALIST INVESTMENT

Following the election in Venezuela in 1998 of president Hugo Chavez, an avowed socialist, Cuba turned away from encouraging private investment in favor of state-funded cooperation with its new oil-producing ally.

Venezuela has since become Cuba’s biggest economic partner, with some 50 joint ventures signed over the last 10 years, although many are still only on the drawing board.

Cuba depends on Venezuelan oil to meet its domestic energy needs and Chavez’s uncertain future makes it more imperative that the Cuban government pick up the pace if it wants more foreign investment, said a western diplomat.

“The Cubans may be allergic to foreign investment, but the clock is ticking, and concessions on this front are inevitable,” the diplomat said.

“Instead, they are going over existing companies with a fine-tooth comb. It is hard to understand. Perhaps they are waiting for oil to be discovered offshore,” she said.

Other investment projects remain up in the air. A dozen golf course projects report no progress despite government promises to sign off after years of negotiations, as do companies negotiating ventures with the sugar industry since 2006.

Billion dollar plans to expand refineries and build a petrochemical complex around a refinery in central Cienfuegos, announced years ago, have yet to be signed off on.

On the other hand, in perhaps the most promising joint venture in decades, offshore oil exploration began in earnest this year with foreign partners planning at least three wells drilled by a massive, Chinese-built rig now parked 20 miles off the coast in the Gulf of Mexico.

Camilo Cienfuegos Refinery

$900 Million Brazil-financed Port Development at Mariel

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Can Cuba Move Half its Economy to the ‘Non-State’ Sector?

Posted on May 15, 2012 by Arch Ritter

From the Inter-Americanj Dialogue’s “Latin America Adviser” comes some interesting comments on the feasibility of shifting half of Cuba’s economy as measured by GDP to the non-state sector. The analysts are undoubtedly correct in arguing that the conditions are not yet in placed to permit an expansion of the private sector so as to constitute 50% of the economy.

However, as a statement of intention, Hernández comment is interesting. This objective may provide the impetus for intensifying the reform process in order to permit the expansion of the non-state sector to occur.

The original is located here: Inter-American Dialogue, Latin America Adviser, May 11, 2012

 Question:

Cuba wants to move nearly half of its economy to the “non-state” sector within the next five years, Communist Party official Lazo Hernández said last month in a speech in Havana. Currently, government-run businesses account for 95 percent of the island’s GDP, said  Hernández. Is the plan to move almost half of the country’s economy to private businesses realistic? Can the country’s tiny private sector absorb such an effort? Would such a move strengthen Cuba’s economy?

 Answers:

José Azel, senior scholar at the Institute for Cuban and Cuban- American Studies at the University of Miami:

“Lazo Hernández announced that the country is seeking to transform its economy by increasing the economic participation of the ‘non-state’ sector tenfold. To accomplish this, the government is relying on its Draft Guidelines for Economic and Social Policy. This document proposes to chart Cuba’s economic future and states paradoxically that ‘central planning and not the market will be supreme in the actualization of the economic model.’ The centerpiece of this plan revolves around firing as many as a million state employees (20 percent of the workforce) who could then solicit licenses to become self-employed as ‘cuentapropistas‘ in precisely 181 specified trades.

Moreover, the guidelines insist that prices will be set according to the dictates of central planning and the plan will insure that any new ‘non-state’ economic activities (apparently the term ‘private sector’ is not to be spoken) do not lead to the accumulation of wealth. To fully appreciate the economic surrealism of the Cuban ‘reforms,’ it is useful to examine a handful of the 181 trades and activities that are authorized for self-employment and which are foreseen as becoming 50 percent of the country’s economic activity. These include: trimming palm trees, cleaning spark plugs, refilling disposable cigarette lighters, mattress repair, wrapping buttons with fabric, umbrella repair and natural fruit peeling. This bizarre list of permitted private service sector activities will not drive the economic development of the country. Cuba’s GDP today is made up primarily by tourism, the services of doctors abroad, nickel and a handful of agricultural exports. Hernández’s stated goal seems mathematically impossible given a private sector permitted only in subsistence-level activities. An impediment to real reforms is simply that without inspired democratic leadership, the set of long-held Marxist economic assumptions will not be swapped for another set of economic beliefs. These are not reforms to unleash the market’s ‘invisible hand,’ but rather to reaffirm the Castros’ clinched fist.”

Lorenzo Perez, member of the Association for the Study of the Cuban Economy and former deputy director of the Middle East and Central Asia Department at the IMF:

“An expansion of Cuba’s private sector will certainly strengthen the economy. The realism of moving half of the economy to the private sector over a five-year period will depend on the measures taken to attain this goal. While positive steps have been taken in recent months, the measures up to now have been too timid or contradictory to attain this goal. A significant expansion of the private sector would require the opening of most sectors of the economy to private initiatives, respect for private property and the rule of law, freedom for markets to operate and the establishment of a sustainable macroeconomic framework. The activities opened to the private sector are too few (some 200 activities) and continue to limit most private professional activities, thereby negating possible benefits from the country’s well-educated labor force. Insufficient institutional arrangements have been adopted to establish clear property rights and promote the creation of private companies. For example, land distributed to farmers has only been leased, while the creation of companies with unlimited capacity to hire labor is not envisaged. Markets are not operating freely; a substantial amount of food production has to be sold to the state at fixed prices, the private sector cannot carry out most foreign trade activities and a heavy tax burden discourages private investment and hiring. A sustainable macroeconomic framework does not exist with public finances and the balance of payments depends on politically motivated financial relations with Venezuela. No effective measures have been taken to restructure the external debt with most industrialized countries, including negotiations with the United States to settle political differences. As a result, Cuba continues to be isolated from the international economy and organizations.”

Carmelo Mesa-Lago, distinguished professor emeritus of economics and Latin American studies at the University of Pittsburgh:

“The plan to generate half of GDP from the non-state sector requires that 1.8 million workers are transferred from the state sector by 2014, tantamount to 35 percent of the labor force. In 2006-2010, the non-state sector shrank. Under Raúl’s reforms, the government dismissed only 140,000 unneeded state workers in 2011 (14 percent of the target). In that year, there were 357,000 self-employed people (7 percent of the labor force) out of which 209,600 were new and only 17 percent had been unemployed. In addition, from 2009 to 2011, 147,000 agricultural producers were granted usufruct contracts in unused state land (2.9 percent of the labor force), but much less in 2011 alone. Finally 1,500 cooperatives in production and services were created in 2011; the number of members has not been released but assuming 4 members per coop there would be 6,000 (0.1 percent). In summary, perhaps 300,000 jobs in the non-state sector were created in 2011 (5.8 percent of the labor force), which means that 1.5 million non-state jobs must be created in the next three years to reach the 1.8 million target, at an annual average of 500,000. That is impossible at last year’s growth rate. Thus, the structural reforms must be accelerated and deepened, for example, through significant tax cuts in the non-state sector, an expansion of self-employment to university graduates and the elimination of bureaucratic impediments. If this were the case and the targets of state worker dismissals and non-state job creation were met, then the economy would probably be strengthened. The state would save a lot on wages and the private sector, which has proven to be more efficient than the state sector, should increase production and productivity. But a lot of ‘ifs’ must materialize.”

Uva de Aragón, associate director of the Cuban Research Institute at Florida International University:

“It isn’t an easy goal, but it could be attainable if there is: 1) a change of mentality  and acceptance that actors in the nonstate economic sector have a right to profits, and that the creation of a middle class would be healthy for the country; 2) a transparent legal framework; 3) a tax code based on profits, with a moratorium of at least two years for new businesses; 4) expansion of the areas in which the non-estate sector can grow; 5) reduction and eventual elimination of bureaucratic red tape; 6) access to tools and raw materials, in a timely manner and at reduced costs; 7) sustainable markets, which will require among other things higher salaries and pensions for remaining state employees and retirees,  respectively; 8) significant advance in technology; 9) training of Cubans in businesses practices; 10) restructuring of monetary policies (the disparity between salaries in Cuban pesos and cost of products in convertible pesos cannot be maintained) and 11) capital. Where will the capital come from? Can a climate of stability be created to entice foreign investors? Will they allow Cubans in the diaspora to invest, even if only as partners with their relatives and friends? As changes take place, can the state continue to provide a safety net—education, healthcare, social services— for most Cubans? The changes needed are so deep they cannot be done too quickly; but a slow pace is as dangerous. Will Cuba find the needed steady rhythm to transform itself? I personally hope it does.”

José Azel, Uva de Aragon, Carmelo Mesa-Lago and Lorenzo Peréz

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SPECIAL REPORT: “Cuba’s little capitalists are ready to rumba”

Posted on May 4, 2012 by Arch Ritter

Fri May 4, 2012 3:30pm IST

By Jeff Franks

HAVANA May 2 (Reuters) – When Ojacy Curbello and her husband opened a restaurant at their home in Havana in late December, not a single customer showed up.

It was a disheartening debut for Bollywood, the first Indian restaurant in the Cuban capital. Curbello worried that their dream of cashing in on recent reforms in this Communist-run country would collapse.

The next day customers began trickling in. As word spread, the trickle became a flood. Many nights the couple had to turn people away or serve them at the family dining table and call in extra help. Today they are planning to increase the 22-seat capacity by expanding their 1950s home and putting tables and a bar in what is now their bedroom.

“It has been amazing how quickly it has taken off,” said Curbello, still looking slightly stunned. She sat with her husband, Cedric Fernandez, a Londoner of Sri Lankan descent, in the main dining area, hung with prints of Indian figures.

Bollywood’s story is an example of how life is slowly changing in Cuba since President Raul Castro launched a string of limited economic reforms in 2010.

Continue reading Here: Mark Frank SPECIAL REPORT Cuba’s little capitalists are ready to rumba

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