Big Step Backward For Cuban Economy

[Nino]

A big step backwards for the Cuban economy :

"The new regulations make one thing abundantly clear: The Cuban government, state-owned enterprises and the ruling Cuban Communist Party do not want to risk major competition to their own interests—economic, commercial, and political—from a potentially capital-rich, diversified emerging private sector. Apparently, perceived interests in security and stability have overruled Cuba’s own declared economic development goals."

 

https://www.brookings.edu/blog/order-from-chaos/2018/07/13/cuba-moves-backwards-new-regulations-likely-to-impede-private-sector-growth/

 

Cuba moves backwards: New regulations likely to impede private sector growth

Richard E. Feinberg and Claudia Padrón Cueto Friday, July 13, 2018
In a leap backwards, the Cuban government has published a massive compendium of tough new regulations governing the island’s struggling private enterprises. The new regulations—the first major policy pronouncement during the administration of President Miguel Díaz-Canel—appear more focused on controlling and restricting the emerging private sector than on stimulating investment and job creation, more concerned with capping wealth accumulation than in poverty alleviation.

Many small businesses that cater to foreign visitors are already suffering from Trump-era restrictions and travel warnings that have decimated the U.S. tourist trade in Havana. But the new regulations are more a product of domestic Cuban politics than foreign pressures.

On a positive note, the Cuban government promises to renew the granting of licenses for many categories of private businesses by year-end, repealing the extended suspension announced last summer. But the new regulations greatly empower government rule-makers and intrusive inspectors, casting a gray cloud over the island’s business climate. Many existing businesses are likely to retrench if not close altogether.

The private sector grew dramatically in recent years, to include nearly 600,000 owners and employees by official figures, with many more enterprising Cubans working informally; in contrast, the state sector stagnated and further decapitalized. Indeed, many thriving private businesses began to compete successfully against state entities, notably in restaurants, bars and night clubs, guest houses, construction, and transportation. The healthy wages paid by profitable private firms often eclipsed the meager salaries paid to disgruntled government officials and factory workers.

The extensive, highly detailed regulations, which go into effect in December, read like “the revenge of the jealous bureaucrat.” Drawing on a multitude of ministries and operating at all levels—national, provincial, and municipal—interagency committees will now be empowered to authorize, inspect, and regularly report upon private businesses under their jurisdictions. The regulations are replete with astoundingly specific performance requirements and innumerable legal breaches that seem crafted to allow government officials wide discrimination to impose heavy fines (or extort bribes), suspend licenses, and even seize properties.

To cite but a few such regulations: Private restaurants and guest houses must cook food at a minimum of 70 degrees Celsius for the time required for each food; day care centers must allocate at least two square meters per child, have no more than six children per attendant, and be outfitted with pristine bathroom facilities described in exquisite detail (private schools and academies are strictly prohibited); and private taxi drivers must document that they are purchasing fuel at government gas stations, rather than buying on the black market. Further, local officials can deny new licenses based on “previous analyses,” even if the proposed business plan meets all the other specifications, and can fix prices “when conditions warrant.”

The regulations could help shield state enterprises from unwanted private competition. The very ministries that stand to lose market shares are in charge of approving licenses in their sector. For example, the ministry of tourism has the lead in judging licenses for private guest houses. Appeals are possible, but to administrative authorities, not to judicial courts.

Government agencies are also seeking to reassert control over the island’s vibrant artistic communities. The regulations prohibit artists from contracting directly with private restaurants and bars; rather they must be represented by public-sector entities that charge commissions up to 24 percent of revenues. Moreover, performers must not use “sexist, vulgar or obscene language,” which if enforced could imply the banning of popular hip-hop and reggaeton songs and videos.

Perhaps most telling are the restrictive rules squarely aimed at inhibiting private capital accumulation. In a sharp turn from past practice, Cubans will now only be allowed one license for one business, effectively outlawing franchising and diversification. Capacity at restaurants and bars is capped at 50 guests. Most biting, the new regulations establish an upward-sloping wage scale (whereby wages rise as more workers are hired); hiring more than 20 workers becomes prohibitively expensive (six times the average wage). Unlike in the past, employers will now have to pay taxes on the first five workers hired as well.

Many private businesses must also record their transactions (revenues and expenditures) in an account at a government financial institution and keep three months of prospective taxes on deposit. Intended to reduce underreporting of income, this measure will significantly raise the effective rates of taxation. Investors must also explain their sources of funds. In a country where political authority is unchecked, these financial impositions alone will discourage many potential entrepreneurs.

The Cuban authorities have repeatedly asserted their interest in attracting foreign investment, to compensate for weak domestic savings. However, foreign investors are likely to view these new regulations, even though they apply to domestically-owned firms, as indicative of an official wariness if not hostility toward private enterprise in general. Risk-averse foreign investors will also note that the Cuban government is quite capable of precipitously altering the rules of the game.

The new regulations are the first major policy initiative promulgated during the administration of President Miguel Díaz-Canel. Many of the resolutions were approved by the Council of State under Raúl Castro, prior to Díaz-Canel’s inauguration in April, but nevertheless were issued during his young tenure. Not a good sign for those hoping that Díaz-Canel, 58 years old and ostensibly representing a younger generation, might quickly place his own imprimatur over the extensive state apparatus.

The new regulations make one thing abundantly clear: The Cuban government, state-owned enterprises and the ruling Cuban Communist Party do not want to risk major competition to their own interests—economic, commercial, and political—from a potentially capital-rich, diversified emerging private sector. Apparently, perceived interests in security and stability have overruled Cuba’s own declared economic development goals.

[PigFish]

... Damn shame. Those poor people should have it better.

(Place long diatribe for tyrannical government, and contempt for communism here)

Thanks for posting Nino.

-Ray

[Habana Mike]

Fully agree with Piggie's long diatribe for tyrannical government, and contempt for communism.

Huge blow to the people, sad.....

[GotaCohiba]

If you’re American and you want go, get off your ASS and go before it’s too late

Horrible blow to the moral of the Cuban people

[JY0]

Very sad. 

[Monterey]

1 hour ago, GotaCohiba said:

If you’re American and you want go, get off your ASS and go before it’s too late

Horrible blow to the moral of the Cuban people

Too late for what

[El Presidente]

Cuba is a private company. 

[JGD]

It’s really too bad what’s going on. However, I know that this was the fear that some people had once it was determined Diaz-Canel. 

It will be interesting to see what happens if things continue to get rolled back. One restaurant owner I spoke to in March told me he was particularly interested in seeing how people would react to a leader who didn’t have the last name Castro and more importantly wasn’t an original revolutionary (it wasn’t known back then who was coming into power, but it was clear whoever it was wouldn’t have the credentials of Fidel or Raul).

[GotaCohiba]

2 hours ago, Monterey said:

Too late for what

I expect it to get much harder for us to get there in the near future

Hope I’m wrong

[PigFish]

45 minutes ago, El Presidente said:

Cuba is a private company. 

... that can put you up against a wall and shoot you, legally!

Multiple choice question:

When you are subordinate in a private company they should be able to?

1. Dismiss you for subordination?
2. Ship you to a gulag and torture you?
3. Dispose of you and your family?
4. All the above.

-Piggy

[El Presidente]

13 minutes ago, PigFish said:

... that can put you up against a wall and shoot you, legally!

Multiple choice question:

When you are subordinate in a private company they should be able to?

1. Dismiss you for subordination?
2. Ship you to a gulag and torture you?
3. Dispose of you and your family?
4. All the above.

-Piggy

Pigster, they can do "all of the above". 

..and they have...and they will continue to do so. 

Mind you, to differing levels, so does China, Russia and a host of other countries. 

 

[oliverdst]

I confess I had never heard about Brookings before so I decided to find other articles about the new constitution.

Most of what I found was not demonizing it like Brookings article. 

Of course a communist country will not change fast but this new constitution apparently is not so bad as you are saying.

[PigFish]

2 hours ago, El Presidente said:

Pigster, they can do "all of the above". 

..and they have...and they will continue to do so. 

Mind you, to differing levels, so does China, Russia and a host of other countries. 

 

...other 

...communist 

...counties.

Fear societies, tyrannies. Typically, if not wholly linked to Marist ideology.

What is that cable company you guys all hate over there? Name me one guy they shot for bitching about the service or the bill.

The Pigster!

 

[Monterey]

4 hours ago, GotaCohiba said:

I expect it to get much harder for us to get there in the near future

Hope I’m wrong

Why?  What does how treatment of Cuban people having anything to do with our laws?  Do you really believe the reason we have an embargo is because of the way the people are treated?  Please.

 

[Baccy]

Castro may be gone but the same Commie govt is still in place and may always be. It appears that the only way it will ever be deposed is by the people, and likely through a violent revolution just like the one that overthrew the Batista regime. Batista may have been a dictator but imho he was better than their current govt...

[Derboesekoenig]

11 hours ago, GotaCohiba said:

I expect it to get much harder for us to get there in the near future

Hope I’m wrong

Americans have never really stopped going to Cuba....every time i talk to someone about Cuba (Americans) they are so misinformed about the subject. Why? Because they are too lazy to actually do their homework, or don't care enough to

[GotaCohiba]

3 hours ago, Derboesekoenig said:

Americans have never really stopped going to Cuba....every time i talk to someone about Cuba (Americans) they are so misinformed about the subject. Why? Because they are too lazy to actually do their homework, or don't care enough to

There are a lot of us Americans that have continued to go, and not all Americans are lazy 

It’s my opinion that things will get harder, if not impossible for us 

Last I checked I’m still allowed to express my opinion here

[GotaCohiba]

10 hours ago, Monterey said:

Why?  What does how treatment of Cuban people having anything to do with our laws?  Do you really believe the reason we have an embargo is because of the way the people are treated?  Please.

 

I foresee increased pressure on countries that trade with Cuba, including tourism

I pray that I’m wrong because none of us here want to see a repeat of the 90’s for the Cuban people

Again...... Just my opinion

 

[Thig]

I am struck with how much of this we have in the USA also. The food industry is regulated quite heavily by the Health Department and USDA . Daycare businesses are regulated and have strict requirements. We also have to report our source of revenue, ever heard of the IRS? I am not making light of the plight the Cuban people are in, just pointing out that if we are not careful the US government will continue to encroach on our liberties as well.

Sent from my SM-T700 using Tapatalk

[JGD]

https://www.reuters.com/article/us-cuba-politics/communist-run-cuba-to-recognize-private-property-in-new-constitution-idUSKBN1K4108

Another article about the changes. It appears they will recognize private property for the first time but the new regulations will also allow the government to confiscate said private property if violations occur. 

What I think is most important is how draconian any regulations will be. The article posted by at the top of this thread states three, however, many people would argue that cooking temperature requirements for privately owned restaurants and proper supervision at daycares aren’t a bad thing. 

[Monterey]

1 hour ago, GotaCohiba said:

I foresee increased pressure on countries that trade with Cuba, including tourism

I pray that I’m wrong because none of us here want to see a repeat of the 90’s for the Cuban people

Again...... Just my opinion

 

Nothing will be changing.  If we (the government) cared about the people and their lives, we would stop trading with every country that treats their people badly.  Cubans are treated much better than some of the countries we trade with.  Cuba is the only country that we have an embargo against, clearly it has NOTHING to do with the way the people are treated. 

 

[Fugu]

Saw that long coming, overdue and only consequential.... And some regulations even appear quite sensible (and in fact not so much different from many "western" countries), I have to agree with Oliver and others.

But private entrepreneurship and communism are two concepts that just don't go together. Best of two worlds, anyone? Haha! Can't have your cake and eat it.

[bozoshoes]

Well now; They can't create Cuban Oligarchs without Private Property rights, can they? It  will be interesting to see if whatever successful enterprises that now belong to the Government somehow end up in the hands of a few. How about Malecon oceanfront property, Havana  Club Rum, HSA, etc., etc., I think you get the picture.

 

[Nino]

19 hours ago, oliverdst said:

I confess I had never heard about Brookings before so I decided to find other articles about the new constitution.

Most of what I found was not demonizing it like Brookings article. 

Of course a communist country will not change fast but this new constitution apparently is not so bad as you are saying.

 

3 hours ago, Fugu said:

Saw that long coming, overdue and only consequential.... And some regulations even appear quite sensible (and in fact not so much different from many "western" countries), I have to agree with Oliver and others.

But private entrepreneurship and communism are two concepts that just don't go together. Best of two worlds, anyone? Haha! Can't have your cake and eat it.

 

29 minutes ago, bozoshoes said:

Well now; They can't create Cuban Oligarchs without Private Property rights, can they? It  will be interesting to see if whatever successful enterprises that now belong to the Government somehow end up in the hands of a few. How about Malecon oceanfront property, Havana  Club Rum, HSA, etc., etc., I think you get the picture.

 

Well,

here is another view of the same regulations - cannot see it changes anything from the opening article by Brookings ...
 

CUBA IMPOSES MORE TAXES AND CONTROLS ON PRIVATE SECTOR AND INCREASES CENSORSHIP ON THE ARTS

 

Posted on July 12, 2018 by Arch Ritter

BY NORA GÁMEZ TORRES

The Cuban government announced that it will start issuing licenses to open new businesses — frozen since August 2017 — but established greater controls through measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the ‘self-employment’ sector

Original Article: TAXES, CONTROLS, CENSORSHIP

https://thecubaneconomy.com/articles/2018/07/cuba-imposes-more-taxes-and-controls-on-private-sector-and-increases-censorship-on-the-arts/

 

The Cuban government issued new measures on Monday to limit the accumulation of wealth by Cubans who own private businesses on the island. The provisions stipulate that Cubans may own only one private enterprise, and impose higher taxes and restrictions on a spectrum of self-employment endeavors, including the arts.

The government announced that it will start issuing licenses to open new businesses — frozen since last August — but established greater controls through a package of measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the so-called cuentapropismo or self-employment sector.

The measures will not be immediately implemented. There is a 150-day waiting period to “effectively implement” the new regulations, the official Granma newspaper reported.

Cubans who run private restaurants known as paladares, for example, will not be able to rent a room in their home to tourists since no citizen can have more than one license for self-employment.

“There are workers who have a cafeteria and at the same time have a manicure or car wash license. … That is not possible. In practice, he is an owner who has many businesses, and that is not the essence and the spirit of the TCP [self-employment], which consists of workers exercising their daily activities,” Marta Elena Feitó Cabrera, vice minister for labor and social security, told the official Cubadebate site.

About 9,000 people, half in Havana, are affected by the measure, said the official.

In addition, all private sector workers must open an account in a state bank to carry out all their business operations. And the boteros, those who work as private taxi drivers, must present receipts to justify all their deductible expenses. Other measures curb the hiring of workers in the private sector, which currently employs 591,456 people, or 13 percent of the country’s workforce.

The government also stated it would eliminate the tax exemption for businesses that have up to five employees and would instead impose a sliding scale that increases with each worker hired. It also ordered an increase in the required minimum monthly taxes of businesses in various categories.

Government officials quoted by Granma said that the measures will increase tax collection and reduce fraud. But economists have warned that more taxes on hiring employees could dramatically hamper the development of the private sector at a critical moment. A monetary reform — which could bankrupt nearly half of the state companies, potentially leaving thousands unemployed — is expected to happen soon.
The new measures also maintain a halt on new licenses for things such as “seller vendor of soap” and “wholesaler of agricultural products,” among others.

One significant provision states that those who rent their homes to tourists and nationals may also rent to Cuban or foreign companies but “only for the purpose of lodging.” That would presumably prevent renters from subletting units.

The “rearrangement” of self-employment, as the new measures were framed in the official media, reduces licenses by lumping together various elements of one industry while limiting another. For example, while there would be only one license for all beauty services, permits for “gastronomic service in restaurants, gastronomic service in a cafeteria, and bar service and recreation” were separated — meaning that one can own a restaurant but not also a bar.

To increase controls, each authorized activity will be under the supervision of a state ministry, in addition to the municipal and provincial government entities, which can intervene to set prices. The level of control reaches such extremes that the Official Gazette published a table with classifications on the quality of public restrooms and the leasing rates that would have to be paid by “public bathroom attendants,” one of the authorized self-employment categories. Some public bathrooms are leased by the state to individuals who then are responsible for upkeep and make their money by charging users a fee.

The regulations are the first significant measures announced by the government since Miguel Díaz-Canel was selected as the island’s new president in April. But the proposed regulations had been in the making for months by different government agencies, according to a draft of the measures previously obtained by el Nuevo Herald. The announcement comes just as the Cuban economy is struggling to counter the losses brought by the crisis in Venezuela — its closest ally — and the deterioration of relations with the United States.

The new measures could also have a significant impact on the cultural sector. The decree may be used by the Ministry of Culture to increase control over artists and musicians and impose more censorship in the country.

Decree 349 of 2018 establishes fines and forfeitures, as well as the possible loss of the self-employment license, to those who hire musicians to perform concerts in private bars and clubs as well as in state-owned venues without the authorization of the Ministry of Culture or the state agencies that provide legal representation to artists and musicians.

Many artists in urban genres such as reggaeton and hip-hop, who have been critical of the Cuban government, do not hold state permits to perform in public. However, many usually perform in private businesses or in other venues.

Painters or artists who sell their works without state authorization also could be penalized.

The measures impose sanctions on private businesses or venues that show “audiovisuals” — underground reggaeton videos or independent films, for example — that contain violence, pornography, “use of patriotic symbols that contravene current legislation,” sexist or vulgar language and “discrimination based on skin color, gender, sexual orientation, disability and any other injury to human dignity.”

The government will also sanction state entities or private businesses that disseminate music or allow performances “in which violence is generated with sexist, vulgar, discriminatory and obscene language.”

Even books are the target of new censorship: Private persons, businesses and state enterprises may not sell books that have “contents that are harmful to ethical and cultural values.”

 

 

[luv2fly]

10 hours ago, GotaCohiba said:

not all Americans are lazy

No we are not.  I am sick and tired of these types of shots.  I don't voice any opinion about other countries .  Thanks for saying that @GotaCohiba!  

"Last I checked I’m still allowed to express my opinion here"

Yes you are!