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    Want to Invest in Cuba? Meet Your Partner, Castro’s Son-In-Law

    Want to Invest in Cuba? Meet Your Partner, Castro’s Son-In-Law
    Michael SmithSep 30, 2015 12:01 am ET

    (Bloomberg) — Omar Everleny Pérez ?is eager to show me how far Raúl
    Castro’s overhaul of Cuba’s socialist economy has advanced, and so, on a
    muggy evening in August, the 54-year-old economist invites me into his
    home in Havana’s Marianao neighborhood. Above his cramped desk, shelves
    sag under the weight of economics books and monographs, including more
    than a dozen that Pérez wrote. “Just look at this,” he says, pointing to
    the screen of his wheezy black desktop PC. He clicks on a file, and
    scenes of Havana’s colonial-era port appear. A female narrator with a
    soothing voice describes a 14-part government plan to replace the gritty
    piers with cruise ship terminals, restaurants, and hotels, all to be
    bankrolled by foreign investors. Run-down warehouses fade digitally into
    luxury apartments, shops and offices, and marinas crowded with yachts.
    Little virtual people jog and bike along ?greenways where an oil
    refinery now sits, and a ferry glides into a modern glass-and- steel
    terminal.

    “It’s really visionary, what they want to do, if you think about it,”
    says Pérez, a professor at the University of Havana and a researcher at
    the influential Center for the Study of the Cuban Economy.

    Later, a few steps from the port in Old Havana, I see the city’s
    redevelopment in progress. Near El Floridita, where Ernest Hemingway
    once knocked back daiquiris, the hulking Manzana de Gómez building is
    being transformed into a five-star hotel. Stylish boutiques sell perfume
    and stereos. Inside an old warehouse is a microbrewery teeming with
    people drinking lager made in huge steel tanks imported from Austria.

    What isn’t immediately apparent to a person taking a walk on a warm
    Caribbean night is that all of this—and anything else that stands to
    make money in Old Havana, and much of the rest of the country—is run by
    a man who is little known outside the opaque circles of Cuba’s
    authoritarian regime. A quiet general in the Revolutionary Armed Forces,
    Cuba’s multibranch military, he has spent his life around the communist
    elite that served Fidel Castro’s revolution. Yet he is chairman of the
    largest business empire in Cuba, a conglomerate that comprises at least
    57 companies owned by the Revolutionary Armed Forces and operated under
    a rigid set of financial benchmarks developed over decades. It’s a
    decidedly capitalist element deeply embedded within socialist Cuba.

    This is Luis Alberto Rodriguez. For the better part of three decades,
    Rodriguez has worked directly for Raúl Castro. He’s the gatekeeper for
    most foreign investors, requiring them to do business with his
    organization if they wish to set up shop on the island. If and when the
    U.S. finally removes its half- century embargo on Cuba, it will be this
    man who decides which investors get the best deals.

    It’s a decidedly capitalist element deeply embedded within
    authoritarian, socialist Cuba.

    Rodriguez doesn’t just count Castro as a longtime boss. He’s family.
    More than 20 years ago, Rodriguez, a stocky, square-jawed son of a
    general, married Deborah Castro, Raúl’s daughter. In the past five
    years, Castro has vastly increased the size of Rodriguez’s business
    empire, making him one of the most powerful men in Cuba. Rodriguez’s
    life is veiled in secrecy. He’s rarely been photographed or quoted in
    the media, and his age isn’t publicly known. (He’s thought to be 55.)
    Rodriguez and the other Cuban government officials in this story
    declined multiple requests for comment.

    In a country where capitalism was treated as a subversive enemy force
    for a half-century, Raúl Castro has been cautiously opening the island
    to private enterprise since he effectively succeeded Fidel as president
    of the country in 2006. Daily life has changed for many people. There
    are now 201 permitted types of private businesses (restaurants and
    bed-and-breakfasts are the biggest categories), employing a million
    people, or a fifth of the Cuban workforce, according to Pérez and other
    economists.

    Raúl Castro has legalized the sale of homes and cars, scrapped travel
    restrictions, and allowed private farming and cooperative businesses.
    It’s now legal for Cubans to stay in hotels, and 2.6 million people own
    cell phones, up from close to zero a decade ago.

    But Castro has kept the big-money industries in the hands of the state,
    and much of it is managed by his son-in-law. (Or former son-in-law;
    there are rumors, difficult to confirm, that Rodriguez and Deborah
    Castro have divorced.) Rodriguez’s Grupo de Administración Empresarial
    runs companies that account for about half the business revenue produced
    in Cuba, says Peréz. Other economists say it may be closer to 80 percent.

    GAESA, as it’s called (it’s pronounced guy-A-suh), owns almost all of
    the retail chains in Cuba and 57 of the mainly foreign-run hotels from
    Havana to the country’s finest Caribbean beaches. GAESA has restaurant
    and gasoline station chains, rental car fleets, and companies that
    import everything from cooking oil to telephone equipment. Rodriguez is
    also in charge of Cuba’s most important base for global trade and
    foreign investment: a new container ship terminal and 465-square-
    kilometer (180-square-mile) foreign trade zone in Mariel.

    Cubans talk constantly about the changes they’ve seen. But for a
    majority of people, Castro’s reforms haven’t delivered that most basic
    thing: a living wage. Salaries average just 584 pesos, or about $24, ?a
    month, government figures show. That’s what it costs to buy 2 kilos (4.4
    pounds) of chicken breasts, a couple bags of rice and beans, and four
    rolls of toilet paper in one of GAESA’s Panamericana supermarkets. Costs
    are sky-high for most people because they earn Cuban pesos but
    everything they have to buy is priced in a parallel, dollar-linked
    currency called Cuban convertible pesos, or CUCs.

    On a breezy Saturday morning, I head to the neighborhood of La Timba,
    down a warren of streets lined with tin-roofed shanties and piles of
    rotting garbage. It’s all within sight of the hulking, Soviet-inspired
    monuments of Plaza de la Revolución, where Fidel Castro used to speak
    for hours on end and Raúl Castro has his offices.

    Dayanis Cabrera, 38, calls me into her home, three rooms built from
    cracked cinder blocks and rotting planks. The intense morning sun
    pierces the darkness through gaps in the corrugated- metal roof. Her
    elderly father, who’s suffering from cancer, lies on a bare mattress in
    the small bedroom to the left. Cabrera leafs through her little, 22-page
    food-rationing booklet, which lists the staples every Cuban can get for
    next to nothing at government food depots.

    “No one can live off this,” she says, sitting in her kitchen, where a
    tattered curtain serves as a door. Her family’s rations: a quarter-kilo
    of chicken, 10 eggs, one pack of spaghetti, a half-kilo of black beans,
    and a quarter-liter of cooking oil per person per month. Shortages of
    food are rare, but the price of most things is simply prohibitive. “I’m
    just hopeful that all this change will bring a living wage,” Cabrera
    says, shaking her head.

    As we speak, she’s loading a metal tray with peanuts she’s roasted over
    her gas stove. She’ll take them around her neighborhood and try to sell
    them on the street.

    Most Cubans have to scrape and hustle to put together a decent living.
    Nearly everyone I meet in Havana has a story of moonlighting in odd jobs
    or even stealing to make up for dismal pay. One friend’s father sells
    Cohiba cigars pilfered from the factory where he works. A young engineer
    drives tourists around in his mother’s Lada to supplement his $19.59
    monthly salary as a university professor.

    Since Dec. 17, when Castro and President Barack Obama announced plans to
    normalize U.S.-Cuban relations, the country has been abuzz with talk of
    money to be made. You hear Cubans everywhere speaking giddily about the
    imminent end to the U.S. embargo that’s hobbled the country for half a
    century.

    On Aug. 14, I walk to the U.S. embassy on the Malecon seaside promenade
    to watch U.S. Secretary of State John Kerry order ?a Marine honor guard
    to run up the U.S. flag, for the first time in 54 years. I am among
    thousands of cheering Cubans. Some weep, holding homemade American
    flags. Digmari Reyes, a 27- year-old worker at a finance company owned
    by GAESA, stands there afterward, smiling broadly. She’d waited three
    hours in the searing heat to watch the flag go up. “This has to bring
    something good, some prosperity for the vast majority of us who don’t
    earn enough to live a dignified life,” Reyes says, as people surge past
    her to take selfies with the embassy’s flag in the background.

    I meet Alcibiades Hidalgo, an eloquent man of 70 who spent decades
    working in Cuban state media and government posts, at an Italian
    restaurant in Doral, a prosperous Latino neighborhood in Miami. He’s
    part of a network of Cuban defectors and self- described exiles engaged
    in a cottage industry of sorts, that of forecasting Raúl Castro’s next
    move. Hidalgo wants to offer his perspective on how Castro plotted the
    changes Cuba is now experiencing.

    In April 1981, Castro called Hidalgo, then a young diplomat, into his
    sprawling office on the fourth floor of the headquarters of the
    Revolutionary Armed Forces. He directed Hidalgo to join a handful of
    powerful advisers who, among other things, were going to overhaul the
    economy. Unlike his impulsive, autocratic brother, Castro was always a
    conciliatory, methodical commander who preferred change when it was
    gradual, well planned, and, above all, efficient. He ordered his
    advisers to scour the world for interesting economic policies that might
    be adapted to Cuba. “Raúl always wanted to study economic experiments
    and apply them to the economic model,” says Hidalgo.

    One of the most powerful advisers of them all was general Julio Casas, a
    bank accountant–turned–guerrilla commander who fought under Castro’s
    command during the revolution. In meetings, Castro praised Casas for his
    stingy nature, which was applied to controlling costs and improving
    efficiency in whatever mission he was given. Castro put Casas to work
    building what would become GAESA. Casas’s top aide was Rodriguez, who
    would sit quietly near Casas in meetings with Castro, talking only when
    addressed, Hidalgo recalls.

    “Luis Alberto was not very sophisticated.”

    Casas built GAESA around wringing revenue from the military’s properties
    and assets. Soldiers planted crops on fallow swaths of bases. Work
    brigades built tourist hotels. Military planes were refitted for
    domestic passenger flights for GAESA’s ad hoc civilian airline,
    Aerogaviota. Casas, assisted by Rodriguez, also helped develop ?a
    benchmarking process for state companies called the Business Improvement
    System. “Under Raúl, the military had its own, parallel economy,”
    Hidalgo recalls.

    As Casas started new businesses, he put Rodriguez in as manager. “Luis
    Alberto was not very sophisticated,” says Hidalgo, who rose to become
    Castro’s chief of staff. (In 2002, Hidalgo fled Cuba at night in ?a
    speedboat, bound for Miami, after being sidelined and then blacklisted
    for almost a decade, in one of the regime’s political purges.) “But he
    was an efficient manager who was cold and calculated in his pursuit of
    power.”

    With the collapse of the Soviet Union in 1991, Cuba lost its economic
    patron, and the country was plunged into a crushing four-year
    contraction known as the Special Period. Cubans endured shortages of
    food and medicine. Jobs disappeared. The sugar industry, which had long
    supplied the Soviets at inflated prices, fell apart. In 1993, Cuba’s
    gross domestic product shrank 14.9 percent, according to the World Bank.

    Fidel Castro responded with schemes to lure foreign money into Cuba. He
    legalized the possession of hard currency. He allowed people to start
    dozens of kinds of private businesses, including family restaurants.

    Big change came to GAESA as well. Its tourism arm, Grupo de Turismo
    Gaviota, cut deals with international chains, most notably Spain’s Meliá
    Hotels International and Iberostar Hotels & Resorts, to build and run
    hotels and resorts in Varadero, ?a 20- kilometer stretch of white, sandy
    beach two hours east of Havana by car.

    By the late 1990s, the Castros had found their savior in Hugo Chávez,
    the charismatic ex-paratrooper who was elected president of Venezuela on
    promises to emulate Cuban-style socialism. He quickly flooded Cuba with
    free oil—up to 115,000 barrels a day. Cuba also cut creative and
    lucrative deals with other leftist leaders, including Brazil’s Luiz
    Inácio Lula da Silva, to send tens of thousands of medical doctors to
    work abroad. Under the terms of those deals, many of which are still in
    place, the Cuban government kept up to 90 percent of the doctors’ wages.

    After Chávez died of cancer in March 2013, Venezuela slid into an
    economic crisis. The country slashed oil shipments to Cuba—some
    estimates say by a third or more. Cuba once again needed cash.

    “Raúl Castro has to open Cuba up to the world, to the capitalist,
    free-market world. He has no choice,” says Emilio Morales, a former
    marketing executive at Cimex, a big conglomerate later folded into
    GAESA. Morales, too, now lives in Miami, where he runs the Havana
    Consulting Group. He has developed an unmatched database of thousands of
    new, private businesses in Cuba.

    Morales opens his laptop to take me through his analysis of the new
    Cuban economy. According to his research, people made 650,000 trips to
    Cuba from America last year, taking advantage of Obama’s and Castro’s
    relaxed travel restrictions. “Look at this,” he says, pointing to a 2013
    survey of travelers to Cuba. “They brought $3.5 billion of goods with
    them in their suitcases.” And Cuban-Americans sent $3.1 billion to
    relatives in Cuba. “It’s a huge impact.”

    Foreign businesspeople are not immune.

    So much has changed in Cuba, but so much hasn’t. In August alone, the
    month the flag was raised over the U.S. embassy, security forces made
    913 politically motivated arrests, according to the Cuban Human Rights
    Observatory. Castro’s government represses dissent, routinely harasses
    independent journalists and activists, and restricts access to the
    Internet for the vast majority of Cubans, Human Rights Watch says.

    Foreign businesspeople are not immune. Sarkis Yacoubian, a 55-year-old
    Canadian, made his home in Cuba for two decades, building a company
    called Tri-Star Caribbean. He sold cars, trucks, and industrial
    equipment, mainly to GAESA-owned companies. On July 13, 2011, armed
    internal security troops—Cuba’s secret police—swarmed Yacoubian’s
    office. He was held for more than two years as police interrogators
    leveled allegations of tax evasion, corruption, and, ultimately, espionage.

    Investigators seemed to believe, Yacoubian says, that the BMWs a GAESA
    executive expressed interest in buying contained technology that would
    allow Cuba’s enemies to track Raúl Castro. Yacoubian denied all the
    allegations; he says he wasn’t given the time or resources to prepare a
    proper defense. Government officials and documents concluded that
    Tri-Star and Yacoubian didn’t owe any taxes in Cuba, court records show.
    Nevertheless, after a two-day trial in May 2013, a Havana court
    sentenced Yacoubian to nine years in prison and fined him $7.5 million
    on charges of bribery, tax evasion, and causing economic harm to Cuba.

    Then, in February 2014, Yacoubian was suddenly released without
    explanation and put on ?a plane to Canada. The Cuban justice ministry
    seized Tri-Star Caribbean’s assets, valued at $20 million. Most of them
    were absorbed by GAESA’s Almacenes Universales and other companies
    Yacoubian did business with. “They took everything from me,” says
    Yacoubian, who is now a consultant on Cuban business issues. “I was
    completely innocent.”

    Cuba is a place both ?frozen in time and moving swiftly toward a future
    in which private enterprise will be a bigger part of life. Vast areas of
    Havana are little changed from 1959, when Fidel Castro’s bearded
    guerrilla fighters marched into town. The streetscapes are largely free
    of billboards and ads. Vintage American cars are, as promised,
    everywhere. ?As for the fast-arriving future, there are ?Afro-Cuban jazz
    clubs, swank private restaurants, and boutique hotels. More tellingly,
    on street corners within the few, closely controlled, government-
    sponsored Wi-Fi zones, Cubans by the hundreds sit and stand all day in
    the tropical sun, clutching phones, tablets, and laptops, ?eager to take
    advantage of the first chance many have ever been given to connect.

    What’s amazing about all this is how Raúl Castro has managed to convince
    the most die-hard followers of Cuba’s socialist ?revolution to embrace
    his capitalist changes. After succeeding his brother as head of state,
    Castro placed a series of reform proposals before a powerful body he
    leads, the Council of State.

    Miguel Barnet, a famous Cuban anthropologist, author, poet, and
    translator who sits on the council, says he’s no economist but he was
    convinced that Cuba had to embrace Castro’s vision. “We need to develop,
    and these changes will help us do it without sacrificing the
    revolution,” says Barnet, 75, who in conversation toggles between
    Spanish and near-perfect American English, which he polished in New
    York, where he spent several months after winning a Guggenheim
    Fellowship in 1983.

    The members of the council debated and shaped Castro’s proposals
    endlessly. In April 2011, the Cuban Communist Party’s Sixth Congress
    approved 313 Economic and Social Policy Guidelines of the Party and the
    Revolution.

    In early 2013, Marino Murillo, who’s known as Castro’s economic reform
    czar, called 20 of Cuba’s top economic minds to his office on Plaza de
    la Revolución. They were leaders of university departments, think tanks,
    and foundations, including Pérez. Murillo, a general known for his
    straight talk and blunt style, didn’t mince words. He told them to use
    their knowledge to turn the guidelines into policies that would reshape
    the Cuban economy.

    Murillo ordered one group, which included Pérez, to come up with
    proposals to overhaul Cuba’s 1995 foreign-investment law. They had to
    sum it up in fewer than 32 pages, following a strict PowerPoint-?like
    format used in the Cuban military. Pérez and six other economists
    studied foreign-investment laws from around the developing world. Six
    months later, they gave their pitch to a panel of military commanders,
    government officials, and economists. The changes they proposed included
    allowing foreign companies to own 100 percent of their ventures in Cuba,
    up from 49 percent, and giving them an eight-year respite from paying
    taxes. “They asked a lot of hard questions. There was a lot of
    reflection, trying to square it with their ideology,” Pérez says. The
    National Assembly of People’s Power, Cuba’s legislative arm, approved
    the new law in March 2014. “In the end, they accepted 80 percent of what
    we proposed,” Pérez says.

    By then, Castro had already moved Cuba’s most profitable state companies
    under GAESA and Luis Alberto Rodriguez. The biggest addition to GAESA
    was Cimex, which had been run for three decades by military commanders
    chosen by Fidel Castro. Adding the Cimex companies more than doubled the
    size of GAESA. More recently, Rodriguez was given the green light to
    take over Habaguanex, the state company that owns the best commercial
    real estate in Old Havana, including 37 restaurants and 21 hotels.

    Rodriguez rarely deals with clients, apparently preferring to delegate
    to the managers who run GAESA’s collection of companies. Early one
    morning, Mohamed Fazwi, who runs operations in Cuba for Blue Diamond
    Resorts, a Barbados-based hotel chain, meets me for coffee at Memories
    Miramar Havana, set amid a cluster of grand art deco and neoclassical
    mansions. Fazwi has been busy since 2011, when Blue Diamond won its
    first hotel contract in Cuba.

    The company now manages 14 hotels across Cuba, with 8,600- plus rooms,
    second to the Meliá group. Many of Blue Diamond’s contracts are with
    GAESA’s Hoteles Gaviota, the biggest state lodging company. “The
    executives we deal with are very, very knowledgeable and active. They
    know what they want and are really good negotiators,” says Fazwi, 43, a
    man of Spanish- Palestinian descent who moved to Cuba in 2008. “They are
    savvy.”

    Rodriguez seemed to be more hands-on in Mariel, where he was entrusted
    with building the $1 billion megaport and surrounding free-trade zone.
    As the vast ship terminal rose atop an abandoned U.S. air base by the
    old Mariel port, where Fidel Castro allowed 125,000 people to flee to
    the U.S. in 1980, Rodriguez regularly assembled his engineers for
    progress reports. Rodriguez liked to listen more than talk, according to
    people who dealt with him in these meetings. But when he spoke,
    Rodriguez was concise, specific, and crystal clear. The government saw
    the port and the surrounding special development zone as a gateway for a
    new economy for Cuba, Rodriguez explained. It would anchor a wave of
    international trade, factories, and economic growth.

    On Jan. 27, 2014, the port was ready, and dignitaries took their seats
    under a brilliant sun for the formal opening. On the stage was Castro,
    Venezuelan leader Nicolás Maduro, and Brazilian President Dilma
    Rousseff. The port, a collection of more than a dozen big cranes, a
    700-meter-long pier designed to handle the world’s biggest container
    ships, a highway, and a rail line to Havana, had been built by Brazil’s
    mightiest construction company, Odebrecht SA. It was financed at
    subsidized rates by ?Brazil’s state development bank in a deal
    negotiated directly between Castro and Lula, the former Brazilian president.

    Rousseff, smiling, walked up to the podium and startedher speech with
    the customary naming of dignitaries in the crowd. She thanked Castro and
    unnamed Cuban ministers, foreign executives, and leaders. And just
    before she leaned into her short address, she thanked one more person by
    name: GAESA Chairman Luis Alberto Rodriguez.

    This story appears in the November 2015 issue ofBloomberg Markets. With
    assistance from Blake Schmidt.

    Source: Business: Washington Post Business Page, Business News –
    http://washpost.bloomberg.com/Story?docId=1376-NVH1TT6S972H01-27M6VRPB95VGJL219LH8RS45GF