More Red Tape for Businesses in Cuba Needing to Import
“This new deformed version of what was the CUC is a lot worse than its predecessor,” says economist Juan Triana.
By El Toque
HAVANA TIMES – The Cuban Government continues to take a different path to the one economists suggest to resolve the crisis of the island’s economic system and to revive its economy.
Despite recommendations from economists and other experts in different fields about the need to cut out state intermediaries from imports and exports by private businesses, the Government recently published an updated list of these intermediary companies, adding another six to manage this service.
According to Camilo Condis on El Enjambre, a podcast by elTOQUE, this goes hand-in-hand with a new tax on retail sales to individuals and legal entities selling agricultural products at retail points belonging to credits and service cooperatives, farmers’ markets, agricultural production cooperatives, sales at fairs, etc.
“The measure was ordered and made public by the Ministry of Finance and Prices, and completely goes against suggestions made by Cuban economists to stimulate farm production. This regulation is only going to increase the price of agricultural products in the short-term. Meanwhile, any tax will be reflected in Cuban people’s pockets,” Camilo says.
Lucia March and Maykel Gonzalez agree with Camilo, saying that the country needs to get rid of taxes in the agricultural production chain, given the critical situation the country is in right now.
The second contradiction between economists and the Cuban Government has to do with the stores selling with USD prices via magnetic currency called MLC. According to El Enjambre hosts, Alejandro Gil, deputy prime minister and the minister of Economy, stated last week that if MLC stores didn’t exist, the country would be in an even tighter spot and goods and services being sold to the population in Cuban pesos would be even less, given extreme shortages on the commercial network.
Furthermore, Gil said that MLC stores were a social justice measure because they allowed foreign currency to be redistributed, stocking up the commercial network in Cuban pesos. “The insult comes as a slap in the face when you realize that Gil isn’t even an economist and that what he’s saying, doesn’t in fact agree with what economists are saying, unfortuntely,” Maykel points out.
Interestingly enough, that same week Alma Mater published a series where they asked economists to talk about the elements that have an effect on Cubans’ everyday lives. One of the questions they asked was the following: Would it be better for MLC stores to be closed immediately and for good? The experts answered the following:
Antonio Romero, a professor at the International Economy Research Center at the Universidad de La Habana, said that eliminating the network of MLC stores should form part of the economic and institutional reforms process, drawn up in a way so that monetary sovereignty is reestablished and the national currency accomplishes everything it’s meant to.
Oscar Fernandez, an independent consultant, pointed out: “MLC stores aren’t the problem, the problem is that there is a selection of goods that can only be found at these establishments and there isn’t a market in Cuban pesos. This wouldn’t be a problem if there was a legal mechanism for those who don’t earn their wages in MLC, allowing them to exchange their pesos and go to these stores to buy what the rations doesn’t sell them.
“As there is no currency exchange market, people are forced to turn to the informal market. Economic policy drives Cubans towards an illegal activity, while the draft bill of the Penal Code proposes extremely severe sentences for people who make deals on the informal exchange market, and this conflict is unacceptable.”
On the other hand, Betsy Anaya, director of the Cuban Economy Study Center at Universidad de La Habana, said: “I don’t have the statistics about how much MLC stores mean to the country in terms of revenue. While they are significant, it’s unsustainable and unacceptable that basic essentials are being sold in a currency that isn’t the Cuban Peso and for which there isn’t an official exchange mechanism. Lastly, at a time when an important rise in foreign currency entering the country isn’t being noted, the informal exchange rate is becoming higher and higher, as are prices, consequently, of products for Cubans who have no access to hard currency.”
Anaya added that this network was conceived with the mission of holding onto dollars in Cuba, the ones that were leaving to other countres such as Panama, to buy different goods, as a temporary measure to face the “shock” that has come from a combination of the COVID-19 pandemic and a stricter blockade. In this regard, she recommended we go back to the initial objective: to promote sales in free trade areas for individuals and legal entities, but also to ensure freely convertible currency is legally sold to anyone who wants to go to these spaces.
According to Juan Triana, an economist from the Cuban Economy Research Center at Universidad de la Habana, an appropriate exchange policy needs to be adopted and dollar purchases need to be respected in these stores. He says that the operating scheme of these stores seems to be broken at its core, as these stores are unable to guarantee a stable supply so products are being sold at high prices, which contributes to inflation, speculation and hikes up the demand for dollars and growth of speculation on the USD – MLC market, and vice-versa, fueling inflation again.
“This new deformed version of what was the CUC is a lot worse than its predecessor. The root of this evil lies in the extent to which the retail sector has been nationalized and monopolized since 1968,” the expert says.
Consultant Ricardo Torres believes that the issue of MLC stores is economic and political in nature. “The underlying issue here is that revenue in foreign currency plummeted and the Government opted for a solution that has an extremely high political cost. The fact that Cuba depends so much upon remittances and the financial system and the fact the financial system doesn’t offer an alternative for these currencies to enter the economy, clearly illustrates the steep downturn in productivity that is severely affecting the country. There are other ways to get a hold of these currencies, but this won’t resolve the problem large population groups have in accessing them.
Iliana Fernandez, a professor at the Department of Cuban Economics at Havana University, summarized the two alternatives: or dollarize the entire economy or eliminate MLC stores completely.
“Experts who have worked or work in institutions that have the task of analyzing and studying the Cuban economy are advising the Government to get rid of MLC stores or to sell MLC to Cubans officially. None of this is a priority though for the minister of Economy, who defends the exact opposite; nobody can get their head around that! The minister should read a little more Alma Mater and Temas,” says Camilo.
What is so difficult in those upper echelons of Cuban communist decision makers whom seem to be so myopic in their vision and views of how to eradicate themselves from the economic ineptness and malaise overlaying the entire Cuban economy?
The economists in the article make sound recommendations that are in keeping with how Vietnam lifted itself from being one of the poorest nations in the world to an economic success story. “When the 20-year Viet Nam War ended in 1975, Viet Nam’s economy was one of the poorest in the world, and growth under the government’s subsequent five-year central plans was anaemic.” (Vanham, P. The story of Vietnam’s Economic Miracle, World Economic Forum).
As of 2018, and moving forward to today “. . . Viet Nam is one of the stars of the emerging markets universe. Its economic growth of 6-7% rivals China, and it exports are worth as much as the total value of its GDP.” (Ibid).
The Cuban economists know this and have made sound economic suggestions to the Cuban government cadres who keep going in the exact opposite direction? Go figure? For sustainable economic growth, Cuban economists insist, “ . . . the need to cut out state intermediaries from imports and exports by private businesses.” Logical. So what does the Cuban communist cadres do: “. . . the Government recently published an updated list of these intermediary companies, adding another six to manage this service.” Perfect. More bureaucracy to add insult to injury for a potential Cuban entrepreneur to try to start up a business or existing Cuban business owners to simply through up their arms in futility.
How did Vietnam achieve economic success? One reason, the country created a “Law on Foreign Investment” which in a nutshell makes investment in the country easy and is pro-investor and more to the bureaucratic point “ . . . aiming to reduce administrative bureaucracy and better facilitate foreign investment into Viet Nam.” Exactly what the Cuban economists recommended; exactly what the Cuban communist cadres ignore.
Besides the new bureaucratic hurdles, another reason for the dismal economic situation is taxes. The Vietnamese decision makers were very astute in their economic decisions to propel their economy forward. Their economy “ . . . has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business.” (Ibid). That is lower taxes so that entrepreneurs can keep more of what they earn to reinvest in their production and properly pay their employees.
As the Cuban economists pointed out, the Cuban government, regarding taxes, also decided to go in the opposite, offensive and oppressive direction. The Cuban government goes ahead and imposes “ . . . a new tax on retail sales to individuals and legal entities selling agricultural products at retail points belonging to credits and service cooperatives, farmers’ markets, agricultural production cooperatives, sales at fairs, etc.” How does that help struggling Cuban farmers, Cuban market owners, and other Cubans involved in the very important agricultural sector to prosper under the burden of more onerous taxes to deal with?
Moreover, the ordinary Cuban suffers tremendously because the inflationary consequences of increased taxes to agricultural producers will be passed onto the Cuban consumer. The Cuban family continues to be the unfortunate scapegoat of insane, incomprehensible, economic policies dictated by, it seems, decision makers who really do not know what they are doing.
The Cuban Minister of Economy, as Camilo suggested, should read a little more Alma Mater and Temas. No. Perhaps that Cuban Minister need only take a trip to Vietnam and listen and learn the basic economic principles instituted there and replicate them in a timely fashion as best he can in Cuba.