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    Cuba Hits Wall in 2-Year Push to Expand the Private Sector

    Cuba Hits Wall in 2-Year Push to Expand the Private Sector
    By VICTORIA BURNETT
    Published: July 16, 2012

    HAVANA — Nearly two years into the Cuban government's economic overhaul
    aimed at slashing public payrolls and bolstering private enterprise, the
    reforms have slowed so much that many Cuban entrepreneurs and
    intellectuals are questioning the aging leadership's ability — or will —
    to reshape one of the world's last Communist systems and shift nearly
    half of the island's output to private hands.

    Those awaiting measures to create even more opportunity for private
    business got the opposite last week, when news spread of a
    little-advertised government decision to charge steep customs duties on
    the informal imports, from Miami and elsewhere, that are the lifeblood
    of many young businesses.

    "This could have a huge impact," said Emilio Morales, president of the
    Miami-based Havana Consulting Group, who said state-owned shops in Cuba
    were losing business to street vendors. "It shows the state isn't ready
    to compete with the private sector."

    After the Cuban government began allowing people to open businesses in
    late 2010, nearly a quarter of a million of them have opted to work for
    themselves over the past 20 months, opening restaurants, snack bars and
    makeshift shops, driving taxis and fixing cellphones. Together with
    those who took advantage of an earlier experiment with privatization in
    the 1990s, about 387,000 Cubans, out of a population of about 11
    million, are now self-employed; Cubans are also buying and selling homes
    and cars among themselves for the first time in 50 years.

    As the private sector has grown, so has the deluge of goods brought to
    Cuba each day in suitcases and duffel bags, principally from Panama,
    Ecuador, the United States and Spain. With no access to a wholesale
    market, Cubans turn to friends, relatives and so-called mules for
    everything from food to trinkets to iPhones. This parallel trade has
    ballooned to more than $1 billion per year, Mr. Morales estimates, since
    the Obama administration began loosening of restrictions on travel and
    remittances in 2009.

    Yunilka Barrios, who sells sunglasses, hairbands, nail polish and
    glittery bra straps from a grimy, narrow doorway, was alarmed by the
    prospect of a 100 percent tax on informal imports that the government
    indicated would go into effect in September. "Things seem to be
    tightening up," she said.

    Economists, businesspeople and diplomats believe President Raúl Castro
    is treading carefully because of resistance from midlevel functionaries
    reluctant to lose their perks, and from conservative officials nervous
    about the social and political impact of economic enfranchisement.

    The Cuban leader, who has sworn off the "shock therapies" that ruptured
    the Soviet Union, said in a speech in December that the government would
    proceed "without hurry or improvisation, working to overcome the old
    dogmatic mind-set and correcting any mistakes in a timely fashion."

    But the pace of change has been too slow for people like Yelena López de
    la Paz, who went bust because of competition, lack of experience and low
    margins. She opened a snack bar on her block last July, and made about
    $100 profit the first month, selling pizzas, juice from her mother's
    homegrown mangos and chewing gum sent by her grandmother in Miami. Then
    three snack bars opened nearby, and by the time she closed in November,
    Ms. de la Paz was taking home a dollar a day.

    "I was investing a lot of money and time and earning nothing," she said
    in frustration.

    Given the lack of progress, the government's pledge in April to move
    about 40 percent of the country's output to the nonstate sector in five
    years is less and less plausible, experts say.

    "At the rate they are going, there is no way they will reach that
    figure," said Carmelo Mesa-Lago, a Cuban-born professor emeritus at the
    University of Pittsburgh.

    With the National Assembly set to meet next Monday, Cubans are
    anticipating an expansion of the number of co-ops beyond the existing
    agricultural ones.

    Separately, the government is turning small, state businesses, including
    cafes and watch repair shops, over to employees in some provinces. It
    has lifted a $4 ceiling on the value of contracts between state entities
    and individuals and is subcontracting work, such as construction, to
    independent operators.

    "This is the first time since the 1970s or 1980s that the country has a
    plan, and this is the first time that there is discipline in
    implementing the strategy," said Rafael Betancourt, an economist based
    in Havana.

    Even some who see the changes as slow remain confident they will happen.
    "It may be a little frustrating for a spectator," said Philip Peters, a
    Cuba expert at the Lexington Institute in Virginia, "but it's not a
    five-alarm fire."

    But such caution is at odds with Cubans' urgent needs, some say. Orlando
    Márquez Hidalgo, editor of the Catholic magazine Palabra Nueva in Cuba,
    said recently that if workers laid off by the public sector failed to
    find other jobs, their "discontent and frustration" would grow, as would
    "the number of those who dissent or wish to leave."

    "Time is vital," he said.

    The government aims to trim state payrolls by 170,000 this year and add
    240,000 private-sector jobs, a tough goal given that just 24,000 Cubans
    took out licenses for self-employment in the first five months of the year.

    Esteban Lazo Hernández, a vice president of the Council of State, said
    in April that private-sector output would grow to between 40 percent and
    45 percent of the gross national product in five years, from about 5
    percent now.

    Not all the entrepreneurs are struggling. Some restaurants and taxi
    services are making profits, and Carlos Saladrigas, a Cuban-American
    businessman, said during a visit to Havana in March that he knew of
    people "making a lot of money, even by American standards."

    In interviews, a dozen Cuban entrepreneurs said they were making much
    more than they were in the public sector. However, supplies at state
    retail stores were expensive and unreliable, they said, and they often
    used the black market to cut their overhead.

    The owner of a snack bar, who asked not to be identified because he was
    describing illegal activity, said he bought hamburger rolls out of the
    back door of a state-run bakery and meat patties from a friend who
    filched ground beef from his employer. One man selling hardware said
    most of it came from "Roberto," a Cuban euphemism for stolen goods.

    For Amarilis Albite Cabezas, a 23-year-old accounting student who runs a
    busy snack bar in her home in a Havana suburb, the restrictions stem
    from a continued distrust of individual wealth.

    "They just haven't gotten things organized," said Ms. Albite, who gave
    up on getting a bank loan to buy a $700 refrigerator because she was
    asked to provide two guarantors, each of whom would have to leave the
    full amount in escrow until she had repaid.

    "They opened these businesses so that people could survive and so that
    they, too, would survive," she added. "But I don't think anybody is
    getting rich. That would be — I don't know — capitalism."

    Professor Mesa-Lago said one impetus for reform may be Cuba's dimming
    hopes of tapping offshore oil deposits. Repsol, the Spanish oil giant,
    decided in May to leave Cuba after its second well came up dry. Other
    companies are exploring different sites, but the dry well dented Cuba's
    prospects of reducing its dependence on Venezuela, which provides
    billions of dollars' worth of oil each year in exchange for a range of
    Cuban services.

    For the moment, Ms. Barrios is happy in her doorway, taking home $10 to
    $15 on a good day, after she pays $2 to the neighbor who shares the
    entrance. She has cut prices to compete and frets about rumors that the
    government may crack down on stalls in passages and entranceways.

    As she fished for change in a pouch at her waist, she said, "I just want
    to keep this going."

    http://www.nytimes.com/2012/07/17/world/americas/economists-question-cubas-commitment-to-privatizing-businesses.html?pagewanted=all