CubaBrief: Communist Cuba’s internal blockade is the source of Cuban’s misery. U.S. sanctions forced Havana to ease up.

Nationwide protests in Cuba on July 11, 2021 were for freedom.

Over the past year, U.S. government representatives have been holding high level meetings with Cuban officials in Havana and Washington. The latest is underway this week in Havana. The usual suspects have emerged calling for the lifting of economic sanctions on the Cuban government. Some restrictions were already loosened by the Biden Administration in May 2022, but did not have the desired effect. This is due to a misunderstanding of the source of economic misery in Cuba. Cubans are not suffering due to economic sanctions imposed on the Cuban regime, but by the internal blockade imposed on the Cuban people by the communist dictatorship.

Human rights, and the plight of over 1,000 political prisoners were not a priority in the loosening of restrictions. The fact that restrictions were lifted on the Castro regime, the day after a new penal code that expanded death penalty categories and more severely punished freedom of expression sent the wrong signal to officials in Havana.

This action also generated hopelessness in the Cuban populace, gave regime officials the idea that they had a free hand to carry out more repression, and led to more Cubans fleeing the island for the United States. This should not have been unexpected. During Obama’s thaw with Raul Castro over 120,000 Cubans fled to the United States through Central America.

Thaw with Cuba in 2014-2016 led to Cuban military taking greater control of the economy

Beginning in 2009, the Obama Administration repeatedly eased sanctions on Havana, with the results being the polar opposite of what Cuba experts predicted. Trade between the two countries fell to $185.7 million in 2015, from a high of $711.5 million in 2008, the final year of the Bush Administration. Furthermore, during President Barack Obama’s détente with Cuba, the Cuban military expanded its role in the tourist economy and centralized economic control even further.

Raul Castro restarted economic liberalization in 2008 out of necessity, prompted in part by US sanctions. The 2009 detente with Havana and the 2015 normalization of relations relieved pressure and increased international support for the dictatorship. This coincided with the rollback of economic reforms and the expansion of the Cuban military into previously civilian sectors of the economy in 2016. The internal blockade was tightened not loosened by the Obama thaw.

Finally, in late 2016, U.S. and Canadian diplomats in Cuba began experiencing debilitating neurological injuries that became known as the Havana Syndrome, the cause of which has yet to be determined, but there is a high probability it was by a “pulsed electromagnetic energy delivered by an external device.

Nestor Carbonell , a Cuban author, published an article on January 31, 2021 “CUBA CAUGHT IN THE CROSSFIRE AGAIN” found that “from 2015 to 2016, many in Washington thought that the impressive flow of American visitors to the island marked a new beginning in US-Cuba relations, which could achieve the three main objectives listed by Obama’s chief negotiator, Ben Rhodes, in his published memoir. Sadly, they turned out to be three illusions quashed by the Castro regime, as shown here:”

–“Expand the nascent private sector”—It was frozen, not expanded. New government licenses for microbusinesses, including the popular and rapidly growing in-home restaurants and bed-and-breakfasts, were abruptly suspended in 2017 for nearly one year. When reinstated, new restrictions were imposed.

–“Allow foreign businesses to hire Cubans directly”— Investors still have to partner with state enterprises (mainly the military) and cannot hire or fire employees or pay them, except through a government agency which collects the hard currency and pays the workers a fraction in local currency.

–“Show more restraint in its treatment of protestors”—Repression actually increased, significantly. Detentions and poundings of peaceful dissidents peaked in 2016, with nearly 10,000 documented cases. Women and minors were not spared. Today, emboldened by the prospects of a new US rapprochement, the Castro regime has intensified human rights violations–this time attacking artists and young activists seeking freedom of expression (San Isidro Movement).

These negative trends were reversed early in the Trump Administration, which implemented a Cuba policy that reversed the Obama opening and restricted trade with Cuban military-controlled companies. Florida Senator Marco Rubio, who advised President Trump on Cuba policy, told El Nuevo Herald in April 2017 that “it is not in the national interest of the United States for us to be doing business with the Cuban military.”

Restricting the Cuban military’s access to hard currency generated reform

On June 17, 2017, Al Jazeera’s Andy Gallacher reported from Miami that “essentially, Trump is looking to stop funding for the Cuban government, the Castros and the military, while encouraging young entrepreneurs to make their own way.” The Trump administration tightened sanctions against the Castro regime, particularly the Cuban military, over the next three years.

On July 29, 2020, Reuters reported in the article “Cuba Loosens Straitjacket on Private Sector to Stimulate Economy” that “Communist-run Cuba is loosening restrictions on small businesses as it seeks to stimulate a state-dominated economy hammered by the implosion of ally Venezuela, U.S. sanctions, and the pandemic.”

Seven months later, in addition to additional sanctions against military-economic conglomerates such as GAESA, Havana opened its doors to “most small business initiatives.” Labor Minister Marta Elena Feito Cabrera announced at the Council of Ministers meeting on February 6, 2021 that they would “expand the field [allowing small private businesses operating in] from 127 activities to more than 2,000,” reported Reuters on February 6, 2021. This opening is necessary for the regime to generate more economic activity. It also loosened the internal blockade on Cubans. However, if other countries provided more credits and loans to Havana, the reforms would be reversed because Cuba’s dictatorship sees a growing private sector as a threat.

Businesses formally permitted, but the devil is in the details

Officials have formally permitted micro, small and medium-size businesses (MSMEs), but in practice are using them to benefit regime oligarchs, and those connected to them. Foreign trade under Castroism has been a monopoly of the Cuban government, and especially its military conglomerate GAESA. The has forced emerging MSMEs to use state intermediaries for imported products.

Rafaela Cruz in Diario de Cuba has written the article, “All About MSMEs in Cuba: Liberated But Controlled,” that outlines how officials are using the MSMEs, and explains that it is a rigged to maintain control.

Not allowing free competition can only be part of an attempt to ensure that in the “race” those MSMEs linked to those in power win, thanks to exclusive and ad hoc advantages, or because directly or indirectly they economically benefit someone “important.”

Cash and carry trade between U.S. businesses and the Cuban government since 2000

The United States since 2000 permitted sales to Cuba, but has not provided credits to Havana and maintained a cash in advance trade arrangement for the purchase of agricultural and pharmaceutical products. This has protected U.S. taxpayers from having to subsidize the Cuban dictatorship when it defaults on its financial obligations. Their European, Latin American and Asian counterparts cannot say the same to their respective taxpayers.

Both the Chamber of Commerce and the AG lobby are pushing to make credits available to the regime in Havana. This is a bad idea for taxpayers and for advocates of reform in Cuba, but good for the dictatorship and companies seeking to profit off the suffering of Cubans and the earnings of U.S. taxpayers. More hard currency for the Cuban regime means less pressure to loosen the internal blockade.

One final observation
Who do you think has more leverage in a negotiation?  The country that has economic sanctions in place and 20 years of trade surpluses with Cuba as its fifth leading trading partner or one of the long line of countries that have loaned the Cuban government billions of dollars in loans that it has defaulted on?

The Star-Ledger, January 15, 2023

Opinion

Menendez’s Cuba stance is the one that works | Letters

  • Published: Jan. 15, 2023, 3:49 p.m.

Letters to the Editor | The Star-Ledger

The Star-Ledger editorial “Menendez clings to damaging embargo on Cuba” expresses concern for the Cuban people’s plight, but for the wrong reason. It also mischaracterizes the position of U.S. Sen. Bob Menendez, D-N.J., on Cuba.

Over 120,000 Cubans fled to the United States through Central America during the 2014-2016 thaw in relations announced by then-President Barack Obama. During Obama’s opening to Cuba, the private sector shrank. Instead, the Cuban military’s control of the Cuban economy expanded. On Aug. 1, 2016, the Cuban military took over Old Havana from the City Historian’s Office and absorbed 20 hotels, 30 stores and over 25 restaurants into the military’s business wing, GAESA.

When President Donald Trump reintroduced restrictions, they targeted the Cuban military, and forced it into reforms that helped Cuban civilians, not the military. Restrictions on the island haven’t been tightened since 2019, but were loosened under President Joe Biden in May 2022.

There was no migration crisis regarding Cuba over the Trump administration’s four years when sanctions were tightened beginning in 2017.

Menendez’s position on Cuba is best reflected in a July 14, 2021, MSNBC interview: “This shouldn’t be a U.S.-Cuba issue. The international community should be listening to the cries of the Cuban people for basic freedoms as recognized by the universal declaration of human rights.”

Otto J. Reich, President, and John Suarez, Executive Director, Center for a Free Cuba, Falls Church, Va.

https://www.nj.com/opinion/2023/01/menendezs-cuba-stance-is-the-one-that-works-letters.html

https://www.cubacenter.org/articles-and-events/2023/1/15/menendezs-cuba-stance-is-the-one-that-works-by-amb-otto-j-reich-and-john-suarez-the-star-ledger

U.S. State Department, January 13, 2023

Department Press Briefing

January 13, 2023

Vedant Patel, Principal Deputy Spokesperson

Washington, DC

January 13, 2023

QUESTION: Can I ask a question on Cuba?

MR PATEL: Sure.

QUESTION: There’s a high-level delegation that’s going to be visiting Cuba soon, U.S. delegation. Does that indicate that maybe relations with Cuba is becoming more normalized or we’re on the cusp of normalized relations with Cuba?

MR PATEL: Are you speaking about the law enforcement —

QUESTION: Law enforcement, international law and all that stuff.

MR PATEL: Yeah, sure, sure.

QUESTION: But I’m sure that they will probably discuss —

MR PATEL: Said, let me – if you’ll let me offer some broader thoughts. So to – for those that might be tracking, U.S. and Cuban officials will meet as part of the U.S.-Cuba Law Enforcement Dialogue in Havana next week to discuss topics of bilateral interest on international law enforcement matters, increased international law enforcement cooperation, and this is an opportunity to enable the U.S. to better protect U.S. citizens and bring transnational criminals to justice.

The Departments of State, Justice, and Homeland Security will co-chair the dialogue for the United States. And broadly speaking, Said, to your question, improved law enforcement coordination between the United States and Cuba is in the best interest in the United States and the Cuban people. And during the dialogue, the U.S. and Cuba will address topics of bilateral interest.

QUESTION: Thank you.

https://www.state.gov/briefings/department-press-briefing-january-13-2023/#post-411145-CUBA

Diario de Cuba, December 21, 2022

MSMEs

All About MSMEs in Cuba: Liberated But Controlled

It is the government, not the market, that determines which MSMEs will prosper and which will disappear or survive on a very low productive scale.

Rafaela Cruz

La Habana 21 Dic 2022 – 22:03 CET

According to international statistics, 80% of companies go bankrupt in their first three years of operation, and only one in ten operate for more than a decade… The competition is fierce.

In Cuba, the figures will not reach these extremes, as, although for the moment the existence of small and medium private companies is allowed, there is no free competition on the island, and it is and will be the government, not the market, that chooses which MSMEs will prosper and which will disappear or survive on a very low productive scale.

Although 6,000 of these private ventures (mostly tiny and insignificant reconversions by the self-employed) have already been approved, the fact that such approval requires a political decision-making body, and is not completely open to those who meet the same basic standards for all, means that it is the Government’s interests that determine the issuance of permits to form companies.

This power reserved by the Government is a first filter to decide the number, size and location of companies according to what behooves it, ignoring the preferences of the people, as consumers.

And, although this mechanism of selectivity has not yet been fully realized, and almost all the MSMEs proposed are being approved (because there are still too few for there to be competition between them), this is a formula bound to promote small and large private monopolies, with their consequent unproductivity, high prices, scant innovation, and low wages… a burden for the national economy. In addition, other mechanisms to regulate competition in accordance with the State’s interests are already in place.

In a tiny market with as little purchasing power as Cuba’s, foreign trade is vital for companies, but Castroism has declared that its monopoly on that trade is a must, forcing emerging MSMEs to use state intermediaries, which not only takes time, and is an impediment to creating commercial links with foreign companies, but also an unnecessary expense and a very likely source of corruption. Does the government actually want Cuban private companies to be corrupt, so that they always have something to legally hang over them?

Surprisingly —although Raúl Castro identified it as the Castroist model’s red line— this state monopoly is no longer so absolute. Some private companies with a lot of “luck” have obtained permission to trade directly with the outside, an overwhelming advantage compared to those that lack this prerogative.

Partly because of the state’s cornering of international trade, MSMEs import, according to official figures, almost 10 times more than they export, so obtaining foreign currency is a luxury that ought to be reserved for those that best serve society, and therefore, obtain more profits and can buy more foreign currency on the exchange market. But this is not the case, as the government invented a “secondary currency allocation scheme” to provide cheap dollars to some privileged companies, constituting yet another arbitrary advantage that corrupts its attempt to emulate a free market.

Free competition in a fair market is not a capitalist whim or an ideological defect, but rather the only economic mechanism so that customers —that is, the people— have the capacity, through demand, to allocate scarce resources to the companies of their choice, which will be those that best serve them.

Not allowing free competition can only be part of an attempt to ensure that in the “race” those MSMEs linked to those in power win, thanks to exclusive and ad hoc advantages, or because directly or indirectly they economically benefit someone “important.”

No free competition as a mechanism for the allocation of resources is a sure recipe for slow development and impoverishment, which will exacerbate Cuba’s increasingly noticeable social differences, which are particularly unfair because they are the result of political arbitrariness and not legitimate business success. But, first of all, this is a further demonstration of the extent to which, even though there seems to be change in Cuba, the most important thing remains the same: the Government has power, and its priority is to maintain it, not to improve the lives of the people.

https://diariodecuba.com/economia/1671656633_44177.html

From the archives

Reuters, February 6, 2021

Cuba opens door to most small business initiatives

By Marc Frank

HAVANA (Reuters) – In a major reform of the state-dominated economy, the Cuban government will allow small private businesses to operate in most fields, eliminating its limited list of activities, state-run media reported on Saturday.

The measure, coming as the Caribbean island seeks to recover from an economic slump, will expand the field from 127 activities to more than 2,000, Labor Minister Marta Elena Feito Cabrera was quoted as saying. She spoke at a council of ministers meeting that approved the policy.

She said there would be 124 exceptions, but the media reports provided no details.

Reform-minded Cuban economists have long called for the role of small business to be expanded to help jump-start the economy and to create jobs.

The economy has stagnated for years and contracted by 11% last year, due to a combination of the coronavirus pandemic that devastated tourism and tough U.S. sanctions. Cubans have been dealing with a scarcity of basic goods and endless lines to obtain them.

The crisis has forced a series of long promised but stalled reforms, from devaluation of the peso and reorganization of the monetary system to some deregulation of state businesses and foreign investment.

“The self-employed are not going to have it easy in this new beginning due to the complex environment in which they will operate, with few dollars and inputs in the economy,” said Pavel Vidal, a former Cuban central bank economist who teaches at Colombia’s Pontificia Universidad Javeriana Cali.

“But with the ingenuity of the Cuban and the sophistication of the parallel market, they will be able to take off little by little,” he added.

President Miguel Diaz-Canel said last year the country faced an international and local crisis and would implement a series of reforms to increase exports, cut imports and stimulate domestic demand.

He said the measures would include “the improvement of the non-state sector, with immediate priority in the expansion of self-employment and removal of obstacles.”

The non-state sector – not including agriculture with its hundreds of thousands of small farms, thousands of cooperative and day laborers – is composed mainly of small private businesses and cooperatives; their employees, artisans, taxi drivers and tradesmen.

The labor minister said there were more than 600,000 people in the sector, some 13% of the labor force. They are all designated as self-employed and an estimated 40% depend mainly on the tourism industry or work in public transportation.

Over the last six months the government has also moved to grant small businesses access to wholesale markets and to import and export, though only through state companies.

(Reporting by Marc Frank; Editing by Frances Kerry and Andrea Ricci)

https://news.yahoo.com/cuba-opens-door-most-small-141913306.html

Associated Press, September 9, 2016

Cuban military expands its economic empire under detente

By ANDREA RODRIGUEZ

September 9, 2016

HAVANA (AP) — At the height of Cuba’s post-Soviet economic crisis, a man with the obscure title of city historian began transforming Havana’s crumbling historic center block by block, polishing stone facades, replacing broken stained glass and repairing potholed streets.

Over a quarter century, Eusebio Leal turned Old Havana into a painstakingly restored colonial jewel, a tourist draw that brings in more than $170 million a year, according to the most recent available figures. His office became a center of power with unprecedented budgetary freedom from the island’s communist central government.

That independence is gone. Last month, the Cuban military took over the business operations of Leal’s City Historian’s Office, absorbing them into a business empire that has grown dramatically since the declaration of detente between the U.S. and Cuba on Dec. 17, 2014.

The military’s long-standing business wing, GAESA, assumed a higher profile after Gen. Raul Castro became president in 2008, positioning the armed forces as perhaps the prime beneficiary of a post-detente boom in tourism. Gaviota, the military’s tourism arm, is in the midst of a hotel building spree that outpaces projects under control of nominally civilian agencies like the Ministry of Tourism. The military-run Mariel port west of Havana has seen double-digit growth fueled largely by demand in the tourism sector. The armed forces this year took over the bank that does business with foreign companies, assuming control of most of Cuba’s day-to-day international financial transactions, according to a bank official.

“GAESA is wisely investing in the more international — and more lucrative — segments of the Cuban economy. This gives the military technocrats a strong stake in a more outwardly oriented and internationally competitive Cuba deeply integrated into global markets,” said Richard Feinberg, author of “Open for Business: The New Cuban Economy.”

Castro has never publicly explained his reasoning for giving so much economic power to the military, but the armed forces are widely seen in Cuba as efficient, fast-moving and relatively unscathed by the low-level payoffs and pilferage that plague so much of the government. Economic disruption also is viewed as a crucial national security issue while the government slowly loosens its once-total hold on economic activity and renews ties with its former Cold War enemy 90 miles to the north.

While U.S. President Barack Obama has said detente was meant partly to help ordinary Cubans develop economic independence from a centrally planned government that employs most of the island’s workers, the Cuban government says the U.S. should expect no change in Cuba because of normalization with the U.S.

The takeover of Old Havana shows how the Cuban government is, so far, successfully steering much of the peace dividend into military coffers.

The announcement nearly two years ago that the U.S. and Cuba were restoring diplomatic relations set off a tourism boom with Old Havana at its epicenter. The cobblestone streets are packed with tourists browsing souvenir stands, visiting museums and dining in trendy private restaurants. World figures and celebrities from Madonna to Mick Jagger to Pope Francis and Obama have all visited. Hotels are booked well through next year.

The largest business arm of the historian’s office, Habaguanex, named for a pre-Columbian indigenous chief, directly runs some 20 hotels and 30 stores and more than 25 restaurants in Old Havana.

Under a special exemption by the ruling Council of State, the office has been allowed to use its revenues as it sees fit rather than returning them to the national treasury and receiving a yearly budget allocation from the central government. That 1993 measure is widely credited for giving Leal the power and flexibility to restore Old Havana to international standards while much of the rest of Havana suffers from neglect that has left buildings collapsing and streets rutted with big potholes.

A towering figure in Cuba’s intellectual and political life, Leal, who turns 74 on Sept. 11, is often chosen to deliver meditations on Cuban history and culture at major public events. He has never groomed an obvious successor. He has appeared frail and thin in some recent public appearances and close associates say he has been receiving treatment for a serious illness.

“I’m giving up everything that I think should be, under current conditions, better directed,” Leal told The Associated Press when asked about the military takeover of his financial operations. “There’s a reality. I was trained and educated to work in cultural heritage, and that’s my calling.”

Through its economic wing, the blandly named Business Administration Group, the Cuban armed forces have become the nation’s biggest retailer, importer and hotelier. The military corporation Cimex, created two decades ago, counts retail stories, auto-rental businesses and even a recording studio among its holdings. The military retail chain TRD has hundreds of shops across Cuba that sell everything from soap to home electronics at prices often several times those in nearby countries. Gaviota has 62 hotels with 26,752 rooms across Cuba, pulling in some $700 million a year from more than 40 percent of the tourists who visit Cuba.

Cuba welcomed more than 3 million tourists last year, a nearly 20 percent rise over 2014.

“It’s obvious that the military has an economic power far beyond what’s needed for its national-security responsibilities,” said Arturo Lopez-Levy, a political science lecturer at the University of Texas-Rio Grande Valley.

The Cuban government did not respond to a request for comment on the military’s business operations.

The Business Administration Group, known by its Spanish acronym GAESA, formally took over the city historian’s office on Aug. 1, according to three employees with the office who spoke on condition of anonymity because they were not authorized to talk with the press.

“They’re going to carve everything up and it’ll be absorbed by military businesses that are already operating. The hotels go to Gaviota, the restaurants to Cimex and the stores to TRD,” said one of the officials.

Going forward, the historian’s office will be responsible only for cultural projects and will retain only the proceeds of museum entry fees and souvenir stores, officials told the AP.

“They’re going to impose discipline and probably it’ll function better that way,” said another official in the business wing of the historian’s office. “It will affect those of us on the business side, but I don’t think it will affect cultural projects. The Cuban military isn’t stupid.”

https://apnews.com/article/1a473ab397bb4868a4c1c4fae7f4a816