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    Carmelo Mesa-Lago: “The Cuban Government Panicked After Obama’s Visit”

    Carmelo Mesa-Lago: “The Cuban Government Panicked After Obama’s Visit”

    14ymedio, Maité Rico, Madrid, 1 June 12017 — Carmelo Mesa-Lago (born
    Havana, 1934) has spent a good part of his life trying to open a breach
    of good sense in the wall of absurdities with which that the Castro
    regime has ended up plunging into bankruptcy a country that was, in the
    1950s, the third most developed in Latin America after Argentina and
    Uruguay.

    A Professor Emeritus of the University of Pittsburgh in Pennsylvania, he
    has just presented in Madrid the only study on the private sector in
    Cuba (Voices Of Change In The Cuban Non-State Sector, published by
    Iberoamericana-Vervuert), based on interviews with 80 self-employed
    individuals.

    Armed with the best statistical data, this economist views with
    perplexity how the economic reforms announced by Raúl Castro in 2010 are
    being diluted (“the Government takes one step forward and four steps
    back”), and how the country is losing the opportunity that was offered
    to it last year by the reestablishment of bilateral relations with the
    United States.

    It was precisely Barack Obama’s outstretched hand that sowed panic in
    the Government, which fears that economic openness will lead to
    political change. Now there is a brake on the reforms, there are no
    investments, and the crisis in Venezuela, which replaced the USSR as
    Cuba’s economic supporter, has plunged the country into disaster.

    Rico: Is Cuba entering a new “Special Period” [a euphemism to describe
    the period of hardship that followed the fall of the USSR and the end of
    aid to Cuba]?

    Mesa-Lago: The situation is similar, but not so dramatic, because the
    dependence on the Soviet Union was much greater than that on
    Venezuela. That said, the trade volume with Venezuela has dropped
    significantly (from 42% to 27% in 2015) and the supply of oil has
    declined from 105,000 barrels a day to 55,000.

    Cuba sold a part of that oil in the world market, and it was an
    important source of income that has also fallen by half. And another
    income that has fallen is the most important one: the sale of
    professional services (doctors, nurses, teachers) [to foreign
    countries], which went from 11 billion dollars in 2013 to 7 billion. In
    2015, GDP growth was 4.4%. In 2016, it was minus 0.9%. Everything points
    to a very strong crisis, but I do not think it reaches the level of the
    Special Period.

    Rico. At least, within this parasitic economy, tourism remains.

    Mesa-Lago. There is a boom, for the first time they exceeded four
    million tourists and took in about 4 billion dollars. The problem is
    that this gross income has to be subtracted from the value of imports of
    goods and supplies for tourists. Cuba has to import everything. And that
    data is no longer published. So it’s not 4 billion. It’s less, but we do
    not know how much.

    Rico. Despite the announcement of the investment plan and Obama’s trip,
    foreign investment has not materialized and the Special Development
    Zone in the Port of Mariel, the big Brazilian bet, is quite inactive.

    Mesa-Lago. It is inexplicable. Cuba needs [new investments of] at least
    $2.5 billion a year. Until last month there were some 450 proposals for
    foreign investment, some of them already established in Cuba. And they
    have only approved some twenty of them. According to their figures,
    since the opening of the Port of Mariel Special Development Zone the
    cumulative figure has not reached 2 billion dollars. Why do they do
    this? It does not make sense to me.

    Rico. But what can Cuba offer, beyond cheap labor? The system of
    production is destroyed.

    Mesa-Lago. The infrastructure is a disaster. And the workforce, which is
    qualified, works extremely slowly. For the construction of the Manzana
    hotel, Kempinski brought workers from India because they were more
    productive. The problem is that the Cuban worker earns very little and
    is paid in Cuban pesos (CUP), and has to buy most things in convertible
    currency (CUC), and they can’t support themselves. There is no
    incentive, and it is a vicious cycle. Between 1989, the year before the
    crisis, and 2015, the purchasing power of Cubans fell by more than 70%.

    Rico. And when are they going to solve the problem of the dual-currency
    system?

    Mesa-Lago. Raul has announced it many times and two years ago made a
    very complicated resolution, full of equations. But nothing
    happened. The problem is that inflation will be about 12% this year, it
    is very high. And the unification of the currency, by itself, generates
    inflation. So I find it difficult to see them doing it in the short
    term. In addition, they must first do it in the state sector, and there
    will be companies that will cease to be sustainable, and then comes the
    population. It’s going to be a longer process than in Vietnam and
    probably in China.

    Rico. How many workers has the state fired since the reforms began?

    Mesa-Lago. They announced that between 2010 and 2015 they were going to
    lay off 1.8 million unnecessary workers, but in the end it was half a
    million. The private sector did not advance as rapidly as needed to
    create all those jobs, and there would have been a social explosion.

    Rico. But why does private activity grow so slowly?

    Mesa-Lago. Because of all the obstacles. It is as if the right hand
    doesn’t know what the left hand is doing. There are many activities that
    the Government has closed down or rescinded [the permission for, after
    initially granting licenses]: clothing sales, 3D movie theaters … now
    they have begun to regulate prices for private taxis and on the sale of
    homes, and to interfere in the free agricultural market. Taxation is
    brutal. There are something like seven taxes. The Government punishes
    those who succeed and who could help the State solve its problems. It is
    not logical.…

    Rico. And how do you explain it?

    Mesa-Lago. The only explanation I have is that in Cuba there is no
    unified leadership with a single opinion, but there is a group that
    resists. Obama’s visit had a very positive impact on the population, but
    the government panicked. From there came a a paralysis. The most
    hardline group, the most orthodox, came out stronger than ever.

    Rico. Are the Armed Forces putting obstacles in the way?

    Mesa-Lago. Yes, and the Party, but the Army is more important because it
    has economic power. And it has like a reverse Midas touch. Everything it
    touches it turns to garbage … Restaurants, hotels … It is impressive.

    Rico. The self-employed people interviewed agree on their problems:
    scarcity and lack of inputs, regulatory overspending, taxes, difficult
    access to the internet …

    Mesa-Lago. Yes, and in spite of the continuous obstruction of the State,
    80% of them are satisfied with what they do (although not with what they
    earn). And 93% made profits, and most reinvested them into their
    business. That is extraordinary.

    Rico. Will the team in power be able to make the transition?

    Mesa-Lago. If Raúl Castro, in ten years, has not pushed the reforms, I
    doubt that his successor can be more successful. Political logic
    prevails over economic logic. And they fear losing control.

    _____

    Editorial Note: This article was previously published in the Spanish
    newspaper El País and we reproduce it with authorization of the author.

    Source: Carmelo Mesa-Lago: “The Cuban Government Panicked After Obama’s
    Visit” – Translating Cuba –
    translatingcuba.com/carmelo-mesa-lago-the-cuban-government-panicked-after-obamas-visit/