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

Cuban economist and academic Carmelo Mesa Lago. (14ymedio)

14ymedio bigger14ymedio, 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. continue reading

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.