Senora Bejarano and the Internal Control of Socialist State-Run Businesses in Cuba

Gladys Bejerano Portela, Comptroller General of the Republic of Cuba (Cuba Headlines)

14ymedio biggerElías Amor Bravo, Economist, September 8, 2022–Cuban state-run businesses go from one mess to another. They spend more time receiving orders, executing them and subjected to controls than efficiently producing and generating wealth, which is what they should be dedicating themselves to. And now, as if the demands of the regime were not enough for them to be the core of the economic system, the ineffable Señora Bejarano* arrives with her famous National Internal Control Audit. At the worst possible time.

Not for nothing, but this year they have spared no costs and have selected 305 entities from the business system across all provinces (around 30% of businesses) and they announce the participation of more than 2,000 auditors of which almost a thousand will be university students from related fields and experts. They’re doomed. Will there be enough time to work, produce and manage? Then they ask themselves why Cuban state-run businesses cannot meet their goals.

Comptroller Bejarano returns to her old ways positioning herself at the head of a national-level operation, from September 19th through October 31st. During that time, this woman will return as the all-powerful within the regime and the party, directly responsible for the execution of the XIV National Internal Control Audit, conducting compliance audits among a sample of selected organizations.

On the margins of relevance to quantitative estimates which were announced with great fanfare, or of the relative importance the regime assigns to the practice of research and checks on state-run business, carried out by the Comptroller, it is evident that to know what happens with businesses and obtain information on their financial status and compliance with norms, audits are an instrument widely used in all countries.

In fact, they are carried out by external professionals who, working independently or in groups or partnerships, provide services for which they are paid. In any case, audits require independence of the auditor with regard to the business being evaluated which provide all the information requested and which, upon analysis, results in a professional assessment that is based on whatever was analyzed (the accounts, management, procedures, etc.).

Many of us fear that what Bejarano announced in Cuba now, in its XIV edition, has little or nothing to do with international business audit practices. The so-called National Audit appeared at a time of many changes to the Cuban economy, many of these are still in progress, and really little remains today of that initial push, except for checking the box. continue reading

What, at the time, was announced as a grand operation to discover pockets of inefficiency and poor management which could be corrected through appropriate measures, amid the pandemic, turned into boring, cumbersome, ungratifying practices of relatively low level compared to expectations.

If anything was unnecessary in this whole process, it is the epic and emphatic language of the state press, when the State newspaper Granma stated that “the auditors and all members of the National Audit System, when facing the challenges as a team, have resolved to contribute to perfecting socialist state businesses, which is much needed for the country’s development.

Well, can anyone cite a result, just one, of the last 13 audits which served to improve the functioning of the socialist state-run businesses in any way? It’s that, in addition, over time, many of the regime’s businesses have become insolvent after the Tarea Ordenamiento [Ordering Task*], and what is worse, they remain, without any hope for improvement.

They announced that “the objective of the audits will be to evaluate the application and impact of the measures adopted by the government, with the goal of contributing to strengthening the socialist state-run business; including management of those that produce goods and services for export, as well as to replace imports and general indications to verify the allocation of liquidity and use of fuel.” Hopefully they will succeed.

I recommend they focus on the Ordering Task and start from there. The rest has resulted because since then, state-run businesses have been struggling to get by and that is where most of their problems lie. Their structural weakness, inability to profitably produce, to replace imports or to export stems from an obsolete and failed economic model that the communist rulers insist on maintaining when it has no future whatsoever. But of course, let’s see how the Comptroller can raise her voice under these conditions and, above all, whether it would make sense for Señora Bejarano to lose her relevance in a confrontation with her regime/party colleagues.

These considerations make the National Internal Control Audit an absurd practice, a waste of time, money and effort among many others which, each year, the regime conducts; waste and more waste which throw the accounts off balance and prevent efficient management. And, in addition, this year’s version arrives at an especially complex moment, with increasing inflation, lack of electricity and financial difficulties.

Señora Bejarano has once again included university students in the “selfless work of auditors and supervisors” as stated in Granma. In principle, as a practicum, it is not bad; if students could later establish themselves as independent audit professionals offering their services to all kinds of businesses. Many of us fear that the catalogue of government-sanctioned self-employment occupations does not include this type of professional; on the other hand, what they learn during the National Audit from Señora Bejarano is of little use to conduct the same task in Spain or the Dominican Republic, where business audit practices follow a completely different path.

It is a shame because it could be a magnificent option for a career path which extends beyond the Island’s borders. A process which results in a useless lie, a mere form which must be completed, even as Señora Bejarano describes the National Internal Control Audit as a “preventive and educational” task, she lies and she knows it. This has ended badly for more than one business leader, although they always find a way out. In any case, complex times are ahead; these will be difficult for socialist state-run businesses and working on the audit is just more communist nonsense. Perhaps they should have left it for another time.

Translator’s note: For an assessment of Señora Bejarano when she was first appointed ten years ago, see here.

Translated by: Silvia Suárez

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

From Cuba’s Daily Drama of Blackouts to Unimplemented Innovations, No One Understands It

Customers in a Havana electronics store, in line to buy fans, to cool the night air and repel mosquitos. But the fans are useless when there is no electricity.

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 5 September 2022 — La Guiteras has been incorporated into Cuba’s national electricity system after overcoming the failures that caused its shutdown, news that in any other country in the world would be inconsequential. But in Cuba, in this agonizing summer of 2022, in which the alumbrones [a word coined to mean periods when the lights are on] have become a daily event in the difficult coexistence on the Island, it’s great news when a thermoelectric power plant produces electricity.

And as the communist regime enjoys the propaganda and the legendary narrative of the events that happen in the country, the article published in the State newspaper Granma is not wasted and says something like “after about four days of uninterrupted work, in which more than 200 maintenance actions were carried out, the largest unitary bloc in the country went online after ten o’clock on Saturday night, and on Sunday morning it exceeded 200 MW.” That doesn’t fool anyone and isn’t a heroic deed. This is a brief description of the usual operation in these cases, by the way, not exclusive to La Guiteras, since the rest of the plants are the same, or worse.

Granma added that “the operators solved the localized breakdown in the boiler and the vacuum damage in the condenser-turbine, and eliminated the causes that led to high water consumption, the origin of the problem that forced the plant to stop.” This is one more example of the work of informational monitoring by the regime so that Cubans understand the official version of the origin of the blackouts and attribute them to short-term or specific causes, which are resolved in this way, when the national electricity system is really a victim of the prevailing economic model, and its destiny is linked to it. That is, in order to enjoy quality electricity again and continuously, it is necessary to implement structural changes that the regime doesn’t even want to talk about. continue reading

And as the Guiteras problem will promptly return, Granma says that “to achieve greater reliability, it will be necessary, as soon as possible, to carry out the proper cleaning of the boiler and eliminate all the defects that limit its efficiency.” (so, what have they done?) and adds in this regard that “the washing of the boiler requires a shutdown of approximately ten days to increase the load to 280 MW and prolong its permanence in the system, without unforeseen exits.” Thus, a shutdown of Guiteras and a return to the blackouts are foreseen.

Spinning with the Failure of Foreign Investment in Cuba

Mariel Special Development Zone – ZEDM

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 4 September 2022 — Cuban communists have failed dramatically with foreign investment. They were wrong to believe that an interventionist law and not guaranteeing property rights were going to serve to promote investment. They were wrong about the Mariel Special Development Zone, which has not been special, nor anything close. They were wrong about the devices for hiring labor, the design of joint ventures or the absence of funding. They were wrong in everything; hence, the failure.

And now, the State newspaper Granma published an article entitled “Lend a hand” to national industry and economy with foreign investment. Wouldn’t this be like going for the jugular? Nor would putting the national infrastructure that is still state-owned at the service of foreign investment make it possible to patch over a pothole that has its explanation in the desire to apply the communist model to foreign capital, an erroneous pretense that doesn’t have a leg to stand on.

The foreign investor wants freedom to decide what to do with his money. The hands of the state, the farther away, the better. This is something that the Cuban communist regime cannot understand, and that’s how it goes.

Contrary to what is stated in Granma, analysts emphasize that the framework of foreign investment in Cuba continues without undergoing the necessary changes to achieve its increase, and the recent decisions of the regime have passed without pain or glory, because they don’t go to the heart of the problem. But with these decisions, the communist state intends to solve critical problems that throw the Cuban economy into a situation of extreme weakness, such as with food or electricity, and in these matters, foreign capital seems to have little interest. continue reading

The regime intends for foreign capital to enter to operate in wholesale distribution, but this stumbles over the legal framework in Cuba. On one hand, there is no guarantee because this activity is subject to control by the regime, and on the other, why dedicate itself to distribution when the problem is that there are not sufficient products or goods?

The two vectors point to a scenario in which no matter how hard the authorities try, they won’t find a foreign distributor to provide the technology and experience that will achieve radical changes in the gray commercial landscape of the communist economy. You don’t build a house from the roof down; you need a solid foundation. As much as Minister Gil tries at the National Hotel to convince representatives of embassies, national and foreign businessmen and officials from agencies of the State, he knows that this initiative won’t go very far; and in any case, if it happens, the government will have a partner subject to communist decisions who, sooner or later, will abandon the business.

Likewise, Gil claimed the new scenario according to which, currently, both the private and state sectors have a demand for resources to produce, backed up by imports, which means a space for the participation of foreign capital in wholesale trade. But in this, he also didn’t tell the truth, since while the state sector agrees to dollar-to-peso exchanges at the rate of 1×24, others, the non-state, must get used to the semi-official rate of 1×130, or resort to the informal market rate of 1×150, and rising.

Gil said that the country has an infrastructure that is above production levels, and this is false, according to the results of 2021, but by disagreeing with it, he refused to accept the technological obsolescence of numerous sectors and companies in sugar, electricity, manufacturing, transport, etc. The minister is wrong to say these things, and the foreign investor is attentive to all this when making decisions.

It’s not surprising that other Caribbean countries, such as the Dominican Republic, benefit from this black hole of the Castro regime, which aims to trap unsuspecting investors so that they place their capital in warehouses or factories whose cost of reactivation is much higher than putting it into operation from the beginning. If you think not, look at the estimate of 255 million dollars to update the electricity sector.

Haste has never been a good adviser in economic policy decisions. In reality, attracting foreign capital to Cuba simply requires another model, another economic structure, another legal framework, and that doesn’t happen overnight. Going around in a vicious circle doesn’t lead anywhere.

Therefore, when the minister declares that he is willing “to make national infrastructure available to foreign investment,” he should clarify how he intends to do it, in terms of what model, with what instruments and within what deadlines, because that being said, in open terms, he will not be able to attract anyone; on the contrary, he will scare off foreign capital. The lost foreign exchange income in the country, which is more than 3 billion in a very short period, will never come within the current framework of foreign investments.

The minister abandons the idea of international investors deploying their structures to produce and generate employment in Cuba, seeing that this is impossible, and therefore, he now wants to make it easier for foreigners to bring products into the country, taking advantage of their experience, their financial facilities, their technology and for this, to take advantage of the communist state infrastructures. They aren’t going to be successful, not in the wholesale trade and much less in the retail trade. There are many countries to attend to first, with promising markets. Cuba lags behind in this international competition, and for Cubans things are getting worse and worse.

As always happens in these business forums, such as the one held at the National Hotel, ministers participate in the road show to present business opportunities to foreigners who then, when studied in detail, end in nothing. The five proposals offered by the director of foreign trade of Havana, Luis Carlos Góngora, surprised the attendees. First, the possibility of wholesale and retail production and marketing of consumer and intermediate goods in the capital, which are in high demand, associated with the activity of breadmaking and pastry, artisanal and industrial productions of candies and other jams, and the processing and preservation of food.

He stressed that there is a market for this, due to the growing number of micro, small and medium-sized companies that are engaged in these activities, in addition to the fact that these products and raw materials are for widespread domestic use, in family food, which also justifies a retail market. And among the products to be marketed, he mentioned sugar, salt and flour, in addition to specific mixtures, gluten-free flour, packaging, fats, oils, yeasts and dyes, among other raw materials.

The business director of the Ministry of Industries, Tomás Oviedo, proposed several areas for foreign investment; for example, the marketing of tires and rubber articles, as well as inputs and equipment related to these productions. The proposal would be in the form of a wholesale marketing company, and the opportunity lies in the high unmet demand, with potential customers such as the ministry itself, MITRANS [the Minstry of Transport], the construction sector or any other branch of the economy that owns automotive transport.

From the chemical industry, there was talk of the creation of a wholesale entity that markets flat glass and items of this material, supplies and equipment for the respective factories, which would  meet the demands of that market, acquire new technologies for the development of this industry and recover and make the most of the capacities already installed.

In the field of agriculture, it was proposed to develop a chain of wholesale and retail stores, no less than five, to offer a variety of products and commodities with national reach, supported by wholesale warehouses. This proposal would be supported by a high demand in the sector for raw materials, tools and accessories, among other things, and as another potential it added the existence of underutilized logistics capabilities, with a network of establishments that are out of stock.

The question that appears in all this list of opportunities is the same: Why haven’t the Cubans done this themselves, and why do you have to resort to foreign capital? Or more importantly, why doesn’t the state do it with its state companies?

On the other hand, it abounded in several conditions and guarantees of operation, such as the “Single Window,” created to accompany investors and facilitate the entire process.

Castroite leaders have thrown in the towel, aware that the communist model can’t go on, except to highlight interventionist nonsense such as the portfolio of opportunities or the one-stop-shop. They speak of a more favorable environment for foreign investment, but they don’t realize that the current times, due to a serious global economic crisis caused by Cuba’s partner, Putin, will bring with it a collapse of markets and financing. It’s unfortunate that Cuban leaders are going to look for investments just when it can become more complicated. Always swimming against the current.

Not even letting businesses operate in foreign currency, which means taking them away from the reality of a weak and increasingly fragmented domestic market, will manage to interest any foreign investor. No one trusts these types of decisions that, at any time when the conditions of the economy change, can be reversed, and then it’s over. This lack of guarantees is what worries many investors.

The eternal bureaucracy is also frightening investors, so, when the flexibility in the requirements for proposals was announced, the reduction in the content of the documentation that is required today for approval, some rejoiced, but sadness returned when it was seen that the required paperwork remained the same and that the multiplicity of partners again casts shadows of doubt.

Finally, no one told Minister Gil and his colleagues that in order to attract foreign capital for business opportunities in the sectors of the economy, something must be done first, and that it’s very important.

And that is to pay off the debts. No attendee said anything about this issue. It’s an annoying matter for those who haven’t paid the Paris Club and other creditors for two years. And so, with that data about non-payment, they want to attract investments? Good luck with that.

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Cuban President Diaz-Canel and the Blackouts: Enemies On All Sides

Cubans are frequently reduced to using candles as their only source of light. (Yoani Sanchéz)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 29 August 2022 — It is one thing to say that Cuba will overcome the current energy crisis; what Díaz-Canel did is quite another matter, he insulted the Cuban people who are fed up with so many lies, and with waiting for “The New Man” who will never arrive. Even Silvio Rodríguez spoke up.

During his trip to two power plants — the Máximo Gómez plant in Mariel and the Ernesto Guevara plant in Serna, Santa Cruz del Norte — the communist ruler provided details of the strategy to overcome the national electricity system’s situation which has resulted in continuous blackouts over several months. But also, according to some, he’s freaking out. What is happening to Díaz-Canel?

Who would have predicted it? Once again the embargo or blockade appears as the justification for all the maladies that accumulate on Díaz-Canel’s agenda. That is,  Cuba’s communist ruler, after acknowledging that the energy crisis has nothing to do “with enemy activity, nor with any bad behavior of the thermo-electric plant employees” he launched harsh attacks against the United States, faulting the blockade [i.e. the US embargo] for “the systematic effects it has provoked, which left the country without possible financing to carry out the maintenance work, repairs and the new investments needed in that sector.” Up until this point, nothing new.

Once again, taking the Doberman out for a walk. Maybe one of the state newspaper Granma’s journalists should have reminded Díaz-Canel of the Soviet-communist origins of the power plants that are still in operation, with several issues of obsolescence. No. Putin, Díaz-Canel’s principle associate, certainly would not like to receive this type of critique of his technology. continue reading

Without taking responsibility for a single one of the events, Díaz-Canel found a new argument, blaming some “presumed enemies of the revolution” for the whole situation, which is being taken advantage of to “create discouragement, uncertainty, to call for vandalism, to promote disorder. Sadly there are people who, with vandalism, indecent behaviors, lend themselves to these activities.” Inconceivable. What is the communist ruler acknowledging publicly?

Not content, he added that this type of behavior should be separated from “the doubt that the population may have at a certain point, of its demands or of the concerns that are channeled through the [communist] party’s system of services, the government, and the revolution’s institutions.” In fact, he did not realize, or he does not want to realize that it is the same, and he is running out of credit. On this, even Silvio Rodríguez agrees with this blog, which is not usually the case.

In addition, Díaz-Canel should understand that when faced with the dissatisfaction that exists, no party line will suffice, it’s simple, get the electricity to work. Problems are not fixed by covering them up, but rather by resolving them.

When Díaz-Canel wastes Cubans’ time by talking about “the hypocritical, double standard, genocidal, inhumane policies to which they subject the country through unjust sanctions and an intensified blockade” he only wastes energy on an argument which not even he still believes. And all he has to do is resolve, as quickly as possible, a problem which cannot last days, nor weeks, nor months because it could all blow up. When he least expects it.

To simplify Cuba’s communist leader’s statement during his trip to the two power plants in Mariel and Santa Cruz del Norte, “today we have a process of accumulated technological deterioration which cannot be resolved in short order.” And how did we arrive at this situation?

The whole situation corresponds to the communist state-run media’s new propaganda campaign which insists, once again, to a people tired of so many promises and lies, that ” Cuba will overcome the current energy crisis created by the effects over several years of the United States blockade.” Then it remains calm because, with that, it intends to buy time and return to the essence of the revolution, which they have not moved away from in 63 years. Meanwhile, Cubans are fleeing the island in one of the largest exoduses of the last 20 years.  [Translator’s note: In fact, ’largest ever’.]

Díaz-Canel observed during his trip to the power plants “intense work, under very difficult conditions, over many hours and with enourmous determination on the part of the power plant employees to recover the power generation capacity as soon as possible and of course, provide more stability, and get us away from these very complex and unpleasant situations which affect our entire population.”

None of that can be criticized, far from it, but did he really expect anything else to happen? Díaz-Canel knows and the plant employees also know that this energy crisis will not be resolved overnight and that its effects will continue, unless a 180 degree turn changes everything.

Díaz-Canel recalled his television appearance in June, during which he said there would be a strategy to eliminate the blackouts by summer, and which Granma described as “a well conceived design.” However, it is evident they must have been talking of another country because this summer, which is not yet over, has been one of alumbrones* more than blackouts and the entire country has been affected by the lack of electricity.

Clearly, it is due to the “accident in the Felton 2 boiler, when the bearing at Felton 1 broke and due to the instability with which CTE Antonio Guiteras, in Matanzas, functions and we have not been able to maintain it to the degree necessary.” Events which they try to present as accidental but which have a peculiar background which should, in any case, be the subject of further investigation.

Somehow, it seems Díaz Canel is crying out for that investigation commission to establish where the responsibility lies when he declared that “for the country’s electrical energy system to function in a stable manner, it is necessary for the hard core where it is generated, which are the Felton and Guiteras plants, to be functioning at full capacity.” If this is known, then what game is he playing?

None. Selling smoke which will dissipate just like the Matanzas fire. Trying to convince Cubans fed up with the situation, that the umpteenth update to the strategy aimed at getting away from the blackouts in the shortest time possible “before the end of the year,” to develop, in 2023, an investment and maintenance group that will stabilize the system and change the energy matrix. And Cubans look at each other knowing that this blah blah blah is more of the same and the way things are going, the problems will continue.

They will continue because the electricity crisis is not resolved with strategies, but with actions. With money, which instead of being dedicated to the hotel industry, should be directed at the capital development of the economy in proportion to the GDP. If this basic infrastructure development indicator, which in Cuba barely reaches 15% compared with 25% in Latin America, there is nothing to do. It is an issue of money and profitability that cannot be repaired with a patch of a few replacement parts. Electricity is either managed profitably or it goes under. Like the rest of the sectors of the Cuban economy.

Financing, once inaccessible, now seems to come mostly to recover unforeseen thermal and distributed generating capacity; in a group of new technologies for generation. The same question then arises, why wasn’t that financing available earlier, and most importantly, from where does it come? Beware of indebtedness, these aren’t the best times for risk-taking ventures.

Díaz Canel neither takes responsibilities for this electricity disaster, nor those of his predecessors, the Castro brothers, who really did very little in all of this. One of communism’s great failures in Cuba has been forecasting, and therefore, the current situation of instability of and decline in electricity supply has not been an isolated event, but rather has been a long time coming. What happens is that when these unforeseen events arise, there is no other option but to see that the social communist system of organization does not have the capacity to confront them.

The response is to continuously follow up on the maintenance and repairs, “to prove how the capacities are being incorporated, how the rest of the system behaves, and which electricity generation results have been achieved.” That is, more of the same as always: bureaucracy and hierarchy, hopefully it will not occur to them to create an OSDE [Organization of Direct Business Services} for all of this. That would be the limit.

What was said does not have a response and now the attacks come from all directions. It’s bad.

*Translator’s note: “Alumbrones” is a word coined in Cuba in the 1990s during the so-called Special Period, to refer to the unexpected moments when the lights came ON, versus the long periods without electricity.

Translated by: Silvia Suárez

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

The Official Foreign Exchange Market: Failure is Already Coming

A line outside a currency exchange (Cadeca). (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 27 August 2022 — There is no doubt that the issue of the moment, at least for those of us who are dedicated to the analysis of the Cuban economy, is the official authorization of foreign exchange in a series of establishments and for a fixed amount only for natural persons, while the 1×24 (US dollar to Cuban peso) exchange rate remains for other transactions.

In this blog we have already explained the reasons that lead us to think that behind this authorization there is something hidden, and the negative consequences that can be derived from it, but as the regime moves forward, we can only verify what we see happening.

An article has been published in the State newspaper Granma with the title “Why was the exchange rate of the informal market taken as a reference?” Its source is the website of the Central Bank of Cuba in a common entry with the Ministry of Economy.

What does the article say? Well, basically, to restore the operations of the official foreign exchange market in Cuba, which, it should be remembered, were interrupted by the regime shortly after beginning the Ordering Task* with the impracticable exchange rate of 1×24, there has been no choice but to “take into account the pre-existing conditions of the foreign exchange market in the country.”

And of course, that foreign exchange market is the informal one, which has been operating just since the regime decided not to make changes. Hence, the decision to implement an exchange rate for buying and selling similar to the one that exists in the informal market is justified. Can anyone think of the Cuban communist regime accepting the price of chicken in MLC (freely convertible currency) stores as the same as that in the regulated (rationed) basket? Difficult. continue reading

For those interested in communist dialectics applied to the foreign exchange market, the article will go down in history. Prisoners of the totalitarian ideology that prevents the contemplation of an economy as a continuously growing interdependent market, Cuban communists invent a sui generis definition of the exchange rate, according to which, it “emerges through a market process in which the supply and demand of foreign exchange are equalized, in which agents (households, companies and governments) have free and timely access to hard currencies, in exchange for national currency and vice versa.” Error.

The exchange rate, such as the price or level of production of the economy, arises from the interaction of domestic markets (goods, labor, assets, etc.) with external markets. The economy cannot set the relative price of its currency only with the currencies that go in and out, but with the destination they have in the national economy. Cuban communists are unable to observe this interrelationship, worried as they are about filling the coffers of the state for their own purposes.

And that’s where the second big mistake comes from when they say that “the state can influence in the establishment of a type of balanced exchange over the sources of supply and demand for foreign currency, through exchange, fiscal, monetary and other policies, but its ability to set an exchange rate is limited by the prevailing conditions in the economy.”

The state can say whatever it wants, but if the economy is in balance, which unfortunately doesn’t happen to the Cuban economy, it’s of little or no use for the state to intervene in the foreign exchange market. The only thing it can achieve is to alter the behavior of supply and demand, which is what it has ended up doing. Markets are looking for balance. Governments, with their economic policies, can influence it but not change it.

Therefore, getting the exchange rate right is not playing roulette, but knowing the equilibrium conditions of the economy and getting it to work. This is not the place to give lessons in practical macroeconomics to Cuban communists, but before acting as foreign exchange players they should start by reducing uncontrolled public spending, reducing the expansion of money in circulation, stimulating national supply through structural reforms, monitoring the value of the peso in terms of fundamentals of the economy; in short, doing things that help and don’t distract economic agents.

In reality, the same regime helps Cubans feel especially motivated to acquire a greater amount of foreign currency, by artificially maintaining a 1×24 exchange rate for the economic operations of the state and its companies and conglomerates, as well as another cheaper exchange rate for the general public. That duality doesn’t go anywhere and usually ends badly, very badly.

And if they want to tell the truth, the one thing that led to the birth of the informal foreign exchange market in Cuba was none other than the state, by renouncing its functions. If it now intends to “illegalize it,” this will be a big mistake, since it will reduce supply and increase prices, removing them from any equilibrium option.

At this point, it could be said that the regime’s decision to choose the exchange rate of the informal market for the restoration of official exchange rate operations in Cuba, should perhaps have led to the testing of other formulas such as a possible authorization of money changer as a form of self-employment that would bring to light the activity of the “informals.”

The informal exchange rate, although it reflects the serious imbalances that exist in the rest of the economic markets, is the one most suitable to deal with the supply and demand of foreign exchange for Cubans. The impossibility of the regime to promote its extension to all economic agents (the state and its companies) indicates that it’s not a general rate, but a partial solution, painted with a ridiculously large brush, that won’t result in anything good. Because the informal market is something very different from the cadecas [official currency exchange points], banks and airport offices. Everyone understands that.

On the other hand, charging as the regime does against the informal exchange rate, accusing it of being “impacted by speculative processes and the costs associated with informality” is unfair. It’s an argument that falls under its own weight, from the moment the regime makes it in this relaunch of the official foreign exchange market.

If the agents who attend the informal market feel motivated to exchange foreign currency (divisas) for national currency and vice versa, at the rate that governs operations, it will be for something, but not at all for those speculative processes or costs. This is unacceptable because it anticipates where the sanctions can come from.

Using the informal exchange rate to ensure that, since the relaunch of the foreign exchange market, the operations of buying and selling foreign currency take place as smoothly as possible through the financial system, is a clear interference of the state and the regime in the private activity of a market that has functioned efficiently and continuously since the changes were suspended at the beginning of 2021.

Good proof of this has been that from the beginning, that exchange rate substantially similar to the one that exists in the informal market has collapsed, and there are already places where the peso is quoted at 1×140 and continues to fall freely. The limitation in the number of authorized establishments, the rationing of dollars at 100 per person per day and the organizational clumsiness of the banks have led to long lines outside these  establishments, and the discomfort, protests and anger of citizens. These types of events rarely occur in the informal market, which is preparing to compete directly with the regime.

For those of us who defend the free market economy, attending these first steps in the foreign exchange market in which the regime is powerless to manage its role vis-à-vis private economic agents who operate efficiently and oriented by the needs of its customers, is a formidable spectacle.

Contemplating how the communist giant created by Fidel Castro is defeated by the Goliath of the informal exchange market is great news, which confirms how clueless the Central Bank or Alejandro Gil’s Ministry of the Economy are to face competition with the informal market under the current conditions in which the campaigns of repression and harassment that are supposed to arrive soon have not yet been unleashed. If this scenario were extended to the rest of the markets of the economy, totalitarian communism would have ended decades ago.

Communists are reluctant to maintain an artificially low exchange rate in the market of the population and non-state economic actors, because, as they say in the article, “this would imply constantly injecting foreign currency from other sectors of the economy, which in the medium term would make that exchange rate unsustainable and force the adoption of a new devaluation, which will allow the official rate to be approximated to market equilibrium to continue making foreign exchange operations viable.”

Well, then what do you think is going to happen in a few months with the decision they just made? There will be no choice but to depreciate the peso. Why don’t they wonder how, with the new exchange rate for the sale of dollars, the salary in pesos of an average Cuban has suddenly fallen by more than 400%? It’s true that whoever receives remittances won’t have complications because they will get more pesos, but what about internal inflation? Also, what happens to then 70% of society that operates only in pesos? Too many questions for the regime.

The official exchange market has been born in such unfortunate conditions, that far from fulfilling its purpose, it will pass without pain or glory, being inoperative in a short time. The economy can predict human behaviors with some ease when it comes to “free choice,” something that Cuban communists haven’t understood for 63 years. Failure is coming

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

What’s Going to Happen with Cuban President Diaz-Canel’s Foreign Exchange Market?

Cubans spend inordinate amounts of their time waiting in lines, while supplies run out before their turn comes. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 18 August 2022 — It’s difficult to answer this question. With the dollar in the informal market above 130 pesos and rising, Cubans see with concern how access to the currency that allows the purchase of basic necessities and services, which are not accessible in national currency, becomes increasingly complicated. And to curb these fears, the Ministry of Economy and Planning has decided to publish on its website a note that it says is “explanatory” but that confirms how clueless the leaders of the Cuban economy are on all these issues.

If a caveat is allowed to be introduced from the first moment, the informative note says that “the foreign exchange market is the space where foreign currency is bought and sold, which allows the national currency and foreign currencies to be connected” and well, here the first “technical” error occurs when affirming that the market is a space.

It’s not true. Economic science says the opposite. It’s not a physical space, it’s something else. To associate the market with a spatial and even temporary reference is to trivialize something that operates so that millions of decisions by economic agents, expressed in terms of supply and demand for all products and services, reach a simultaneous balance that leaves everyone in a better position. And it’s not necessary for it to have any “physical space.”

Then the equilibrium price of this market, somewhat different from the price of malanga or yam, which establishes the exchange rate between the different currencies and the national currency, depends, as in any market, on the position of supply and demand for foreign currency. As the ministry’s note points out, in this market, “the providers of currency are export companies, foreign visitors, recipients of remittances and other agents who receive foreign currency, while the demand comes from agents of the economy who need to import, travel abroad or who require foreign currency for other purposes.”

I certainly don’t get their accounting. Does the ministry really believe that these are the only providers and demanders of foreign currency? They fall short and leave out more than 80% of operators. In this market, if demand exceeds supply, the exchange rate of the national currency will fall, and vice versa. continue reading

But really, the exchange rate market is much more than that, and Cuban communists don’t seem to be clear in their note about the true meaning of the exchange rate, which is nothing more than the factor that establishes a relationship between the value of the national economy and that of other, foreign economies.

They talk about the connection of the productive agents with the outside world, both for their needs for input through imports and for the sale of their production through exports. But there is much more to that relationship between internal and external supply than these commercial issues, and not taking them into account is another big mistake. For example, access to financial and capital markets is a matter of primary relevance and doesn’t appear anywhere in the note.

The recommendation, therefore, is that rather than taking into account supply and demand, attention must be paid to a series of variables and indicators that influence the determination and evolution of the relative prices, which are the exchange rates.

And to do this, an exchange rate policy must be designed that is related to and, at the same time, serve the achievement of the rest of the objectives of the national economic policy. The question is, does anyone know what those objectives are and what is supposed to be achieved? We’re in bad shape.

There are few things that are true in the ministry’s note, but one of them, perhaps the most obvious, is to recognize that the market and its exchange rate have an influence on all the prices of the economy. But the influence is much more than that, and as is being seen in Cuba, its greatest effect on prices is inflation, which is pushed upwards, unfairly, depending on the access to foreign exchange by different sectors of the population.

But, in turn, rising inflation deteriorates the exchange rate; therefore, the interdependence between the two poses a danger to achieving exchange-rate stability and controlling inflationary pressures. What came first, the chicken or the egg?

While Cuban communists try to find the answer, the conclusion is that when an exchange market is inefficient and doesn’t function properly, it generates distortions that prevent the fulfillment of the aforementioned objectives, limiting productive capacity, economic growth and development of the country. They should get to work as quickly as possible.

As for the legal or illegal access referred to in the informative note,  of economic agents to foreign exchange, offering security, confidence and transparency, there is a clear commitment to putting an end to the only market that has worked since the entry into force of the Ordering Task* (and therefore, the foreign exchange market), which is the informal one, which began exchange services as soon as the Central Bank, bank branches, official exchange offices and airport offices stopped doing so. Aggression towards the informal market is a real threat that can pose an eventual repression of people engaged in these activities, which would not only be unfair, but also inefficient. Who is going to sell dollars in Cuba?

The note insists on the need to create and develop an official exchange market for the Cuban economy, but this is counterproductive, since it doesn’t seem necessary to remind government leaders that this market already exists. It was defined with a fixed official exchange rate of 1X24 and entered into force on January 1, 2021, with the beginning of the ordering task (it was one of the measures included).

Therefore, recreating what has already been created is a meaningless double back that should be translated into reality, which is none other than assuming the failure of the first launch and announcing this second, which looks like it won’t end well. For now, the regime begins to operate only with an exchange rate, which they say is “economically substantiated” but only for foreign exchange transactions and at only one address for the purchase of foreign currency. The sale is neither there nor is it expected.

The note attributes to the foreign exchange market two functions that, at this point, look like a chimera. The first is to ensure that the national currency allows access to all the goods and services of the economy, and to this end, dollarization is eliminated. This is a difficult issue as long as the regime itself continues to support and encourage the stores that sell in MLC [freely convertible currency].

The minister declared in the national assembly that 70% of the country’s monetary circulation moves in Cuban pesos, while the remaining 30% do so in MLC. Returning to stability positions from these levels can be much more complicated than it seems. Dollarization and stores in MLC are a business for the regime that will hardly change.

The second function is to ensure macroeconomic balance. This is the one sensible thing contained in the information note, but we are very afraid that it’s quite impracticable. The note says that progress must be made in reducing the fiscal deficit and monetary issuance. Perfect, what prevents the communists from lowering the deficit of 11% of GDP reached in 2021, more than double that of 2019?

There is no COVID-19 cost that justifies an expansion of spending of this magnitude, whose objective, as seen, has been to sustain GDP growth by 1.3% in the budgeted sector, while productive activities remained inert.

The note also refers to other functions, such as an alleged resizing of the state sector based on greater efficiency and effectiveness of public spending, and the control of wages without productive support, excessive profits and payments to private individuals, among other factors. It’s hard to believe that the foreign exchange market can be used for all this, but if they say so, let them do it, because it’s necessary to put order as soon as possible in an economy that doesn’t work.

The note concludes by pointing out that the ultimate goal should be to constitute an exchange market for the entire economy with a single exchange rate that guarantees the connection with foreign currencies of the national currency. In fact, this scenario, described in these terms, has not been presented in Cuba in a stable way since 1959.

Before that date, it should be remembered that the dollar and Cuban peso were on parity; that is, they were quoted at the same value. The same regime that started in 1959, which is still in power in 2022, makes no presence of facing this issue.

And they recognize that the implementation of the foreign exchange market is only a small part “of a much larger scaffolding, where no isolated measure alone will bring satisfactory results.” I totally agree. Once again, the lyrics seem well written, but then, as in so many other times, the music is out of tune. What a pity. The foreign exchange market will be another problem in a not very long time.

*Translator’s note: The “Ordering Task” (tarea ordenamiento) is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy.   

Translated by Regina Anavy 

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

The Fire at Cuba’s Supertanker Base is Out. Good. Now What?

The smoke from the four burning storage tanks, of the eight at the Supertanker Base. (Cubadebate)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 12 August 2022 — Nearly a week after the fire started in the industrial zone of Matanzans, it is more than evident that the Cuban communists have been overwhelmed by this catastrophe, for which there was no organization, nor protocols, or anything like that.

The state-run communist press, attempting as always to appear in the best light, accused the free press, the objective press, social media, i.e. us, of not speaking of heroism and of harassing when there was uncertainty. They also accused us of using the terms “failed state” and “country in crisis.” Let’s see how unaccustomed to criticism the Cuban communists are.  They prefer to die while killing, but something makes them think they must spin a fine web or the whole thing will collapse.

It would be good, now that the fire is under control, it they would investigate, with utmost transparency, responsibilities for what occurred, and purge those who are not up to the circumstances. It would be an exercise in credibility, transparency, and responsibility to the Cuban people, and the entire world.

In case this would happen again, we must determine whether the operation was carried out correctly, if the available resources were on par with the needs, the true reach of international aid, the people affected and the solutions to be taken; in short, to learn from experience so that if it were to happen again they won’t spend a week carrying out activities that were mostly failures.

This is the direction that Diaz-Canel’s revised discourse should take, before one of local communists in charge, audacious and bothersome, such as Sucely Morfa, steps in. It is a piece of advice for Díaz-Canel to tell the truth, rather than ’wandering the hills of Úbeda’*, and to take the bull by the horns or there will be a Sucely who will do it for him, in spite of the imposed hierarchy among communists.

And, take note that I’ve said Sucely Morfa and that it did not cross my mind that the role should be played by Prime Minister Marrero, Provincial Governor Sabines or Vice President Morales Ojeda. They are for other things. Díaz-Canel should watch the youth, divine treasure, because the conga that will replace him will emerge from there.

I know that in politics decisions must be made at two levels. In the short term, facing the gallery to appease the Tyrians and Trojans*, one must do what is necessary to avoid turmoil. In the medium term, investigate and purge those responsible, however painful. continue reading

Díaz-Canel’s discourse belongs entirely on the first level, like when he gave his support to the colleagues of several organizations, especially drivers, or appreciated the international air and naval cooperation. That discourse has reached its end, it no longer makes sense, and now we must begin to demand responsibilities if things, as all indications are, have not been handled well.

This agenda compromises Díaz-Canel, who at the same time must be wondering what he will do with the supertanker base and must lay a foundation for recovery without resting on his laurels.

And then, official data will not cease to surprise, day after day. The Minister of Public Health said that as of Thursday, 130 people had been injured and treated, including two firefighters who were admitted to the hospital the day before for mild intoxication due to smoke inhalation. Only one death, 24-year-old Elier Correa Aguilar, providing services in the Firefighter Corps, although he was from Granma province. Twenty-three patients remain hospitalized, two were re-admitted to the hospital for follow up. Four patients remain in critical condition, two critical and 17 serious. We must thank God the disaster didn’t cause more harm, which is why it is so important to investigate and find the missing.

It is also surprising that the Minister of Science, Technology and Environment continues to state, with satellite images and radar, that it is not possible to detect the cloud, as it has disbursed. This is perhaps the worst possible scenario, rather than calculating its toxicity and effect on air quality. The longer it takes, the worse it will be. And they will need to prove the impact not only on air, but also on rain, vegetation, the soil and grasslands, in the medium and long term. A disaster from every viewpoint.

With the fire out, for which we should all be glad, the time has come to carry out equally important work, before the applause and the doling of awards puts an end to what occurred in Matanzas. These are new times that are not related to the evils of revolutionary times. A final piece of advice for Díaz-Canel: beware of Sucely Morfa. It has begun.

Translated by: Silvia Suárez

*Translator’s note: ’Wandering the hills of Ubeda’ is a very common Spanish expression, from the 13th century, meaning going off on a tangent, losing the thread, failing to focus on what matters.

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

In Desperation: Foreign Investment in Trade, Under the Control of the Cuban State

The attempt to promote development in the country’s business to boost wholesale trade through foreign investment faces the same problem as always: what to trade. (Granma)

14ymedio bigger14ymedio, Elías Amor Bravo, Valencia (Spain), 16 August 2022 — No one was calmed by the appearance on State TV’s Roundtable show of Betsy Díaz Velázquez, Minister of Internal Trade, and Ana Teresita González Fraga, First Deputy Minister of Foreign Trade. The officials used their appearance to announce alleged changes in the role of foreign investment in domestic trade and thus try to solve the problems of shortages in the wholesale and retail trade that afflict Cubans.

Badly, things are going very badly in Cuba, such that there is a leap into the void like this. Nor do they believe most of the things they said, and thus they were unconvincing and with an argument bordering on the most absolute lack of credibility.

Why do we say this and not believe that these new measures will achieve the positive effects on the functioning of wholesale and retail trade, as well as foreign investment in Cuba?

For the same reason that the “63 measures” haven’t served to stimulate agricultural production. Once again, Cuban communists believe that the main problem of the economic model that governs the country can be fixed with ’sake of appearance’ patches, ignoring the structural reforms that must change, update and modernize it. Let them forget about it: a house is not built starting with the roof, but with solid and firm foundations. That’s what the two Castroite leaders didn’t talk about on state television.

Several aspects deserve attention, in addition to this superficial way of addressing a more structural problem. The measures announced are temporary, which makes it difficult to achieve any interrelationship between them, no matter how much the communist leaders say otherwise. In fact, they can only be seen independently and in isolation, and they arise in a global economic context that is by no means the most suitable to adopt for this type of problem.

The measures, in addition, seem to be made, preferably, for state enterprises; in particular, the elimination of the foreign exchange restrictions with which they operate. Has the regime already found a way out for the dollars it started buying on August 4 with the exchange rate instrument? This is bad, like killing flies with a cannon. continue reading

This circulation of foreign exchange from the private sector to State entities to overcome the problems of shortages in the domestic market of goods, highly demanded by the population and by non-state actors, is a reckless decision, which won’t achieve the objective, no matter how flexible customs procedures and operations become. The first thing that has to be guaranteed is a stable framework for these operations to actually be carried out, without the need for promotion by the State, and here we have one of the evils of the Cuban economy.

The communist leaders were cautious and recognized that “actions are insufficient to curb the complex economic situation, since shortages in the domestic market are maintained, and the expected impact on the development of wholesale trade hasn’t been achieved.” So, what is the point of straining the domestic economic scenario, more than it is, with measures in which no one has the slightest confidence? Who will assume responsibility when in a few months the new failure of these measures is seen?

The idea of transferring the alleged benefits derived from the participation of foreign investment in the development of trade in areas like the access to supply markets, attracting financing, equipment, administration methods or the use of innovative techniques for logistics management, should be based on a prior analysis of the intention of foreign investors to participate in this “business.”

They might be surprised, because it’s difficult for foreign capital to have any motivation to make this contribution. Will this objective be achieved through direct interference by the State? Let them say it, because then foreign investment will leave the country. It’s that simple.

The two ministers should know that the attempt to promote the development of business throughout the country to boost wholesale trade through foreign investment faces the same problem as always: what to trade, and what production of goods and services can be directed to these operations? In addition, doing it with joint ventures is no less complicated, since this entity is the least used by foreign capital in Cuba. Let them wonder why.

The idea that businesses with foreign investment are mainly destined for the sale of raw materials, inputs, equipment and other goods that boost national production, as well as the supply of some finished goods — for example: food, cleaning products or electricity installation systems with renewable energy sources — is part of that obsessive mania of Cuban communists to control and direct foreign capital, a model that hasn’t produced revenue since the adoption of Law 118.

That there are entities that can finance domestic producers who have the conditions to become suppliers, with a differentiated financial scheme applied to these entities, which guarantees the stability of the supply chain, including the authorization to make sales in freely convertible currency (MLC). This creates confusion between the different agents and lays the foundations for a principle of political discretion in decision-making. Not good.

It is also intended to authorize the modalities of foreign investment established in the country for the provision of goods and services, which have the conditions for this purpose, that can be sold in the wholesale trade segment, including forms of non-state management, non-governmental organizations, embassies, business representations and branches in Cuba. It’s a crazy decision, which has very little to do with economic rationality and which falls into this area of “every man for himself” and the Regime’s lack of credibility that we talked about at the beginning of this article. Imagine an embassy in Cuba selling sanitary napkins or toilet paper to small businesses.

Entangling trade with foreign investment through these measures “carries a very high responsibility so that they have the immediate result that the population expects,” Ms. Díaz Velázquez acknowledged.

On a theoretical level, the minister believes that sales in MLC will increase products available in pesos and, with this, it will be possible to counteract the increase in inflation and stabilize supply. The problem is that this cycle has been in operation for more than a year and has not yielded any results. So, what reasons are there to expect that it can be different now? None. The figures for the sector are the same. Nothing has changed and will not change, so any transformation is impossible.

Cuban trade, modern, competitive and efficient before 1959, has become a useless waste after 63 years of communist domination. It’s probably one of the most inoperative and unfair trading systems in the world, with an aging, underutilized and deteriorated infrastructure, and without incentives to improve supplies. There is a lot lost, because the communists eliminated intermediaries and commercial agents from the beginning. Recovering trade goes beyond putting patches on foreign investment.

The Regime’s obsession with prioritizing the State market and interfering in the businesses that may arise to boost national production, achieve productive chains and offer goods and services to the population, leads to the very disaster of measures that lack experience in other countries of the world. Far from unblocking operating conditions, this will make them more confusing by authorizing only certain foreign investments and prioritizing what has to be done based on political and discretionary decisions, the worst thing that can happen to an economy.

And in the midst of this national environment of widespread shortages suffered by Cubans, the leaders who participated in the Roundtable came up with the idea that it’s necessary to export however and as soon as possible. Export what? Apart from the fact that the State has a monopoly on foreign trade, which implies absolute control of this activity and the execution by State entities of export and import operations, which “has not been renounced nor will it be renounced,” as one of the communist leaders said, in case anyone had the slightest doubt, there are still “risks” from applying these measures, because of that obsessive mania of the Cuban communists with everything that has to do with economic freedoms.

________________________

Editor’s note: This article was originally published on the Cubaeconomía blog and is reproduced with the permission of its author.

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Why Are Cubans Right to Distrust Their Banks?

A line at the doors of a bank in Havana after announcements in changes in the system. (14ymedio)

14ymedio bigger14ymedio, Elias Amor Bravo, Economist, 14 August 2022 — In the second year of the Ordering Task,* the Cuban communist regime has gone a step further in the line of formal banking procedures for economic transactions with the publication of Resolution 123/2022 of the Central Bank of Cuba, which updates the processes of issuance, use and the processing of payment card transactions. In essence, a set of mandatory rules is established for those who want to operate with “plastic money.”

The focus on banking [versus all cash transactions] in the Cuban economy has been announced on numerous occasions by communist leaders, who are obsessed with the high ratio of money in circulation — known as ’M2’, a measure of the money supply that includes cash and readily available deposits — relative to the GDP. This ratio reached as high as 91% in 2020, to fall to 57% in 2021. However, this data has to be evaluated with extreme care, since it includes the combined effects of monetary unification and inflation, so it likely was not, in fact, so low, but it continues to worry the leaders.

Why do communists want to ’bank’ the economy — that is shift from an economy that operates primarily in cash?

Basically, for two reasons, and both are in the interest of the regime and have little to do with the well-being and prosperity of Cubans.

The first is that the expansive circulation of paper money is a dangerous part of the inflationary spiral. In fact, in the Cuban economy, the acceleration of the GDP or CPI deflator since 2019 had a lot to do with the abundance of cash, especially in the hands of the public. continue reading

##Much of the responsibility for this situation lay with the communist regime in authorizing wage increases without concurrent increases in productivity, which increased the amount of money without increasing the availability of goods and services. Inflation produced from this situation became the economy’s response to very serious errors in terms of wages and pensions.

Therefore, the reduction of cash in circulation, through moving money to banks seemed an option to be developed. Unfortunately, there is no information available on what percentage of monetary circulation continues to materialize through cash in the hands of the public, and what percentage flows through banks, but it’s estimated that the former can be around 80% of the total. The interest of the regime is to control the latter, where higher value-added products and services move. They believe moving to magnetic cards makes it easier, or so they think. It remains to be seen if they succeed.

The second reason is in the DNA of the communist regime. Banks are an instrument of party and state control. They inform, control, and handle customers’ personal information at will. There is no level of protection for personal data in Cuba as in other countries of the world. Cuban banks are empowered to ask customers about the origin and/or destination of the funds they are going to dispose of, a practice that breaks with the elementary principles of bank secrecy.

So, having most of the productive money in the “banked” economy, allows the regime to tighten its control mechanisms over the banks in question. This is one of the aspects that causes widespread mistrust among Cubans towards the banking system, regardless of bank runs, confiscations and other similar practices in these 63 years of communist rule.

The truth is that the leaders want to get away with it, and in recent years they have done their homework regarding how to shift the economy to banks (versus cash), paying salaries and pensions by transfers in a large part of state companies and agencies in the budgeted sector, thus breaking the dependence on the “cash envelope” that was the main monetary link of the population. But is that payment by transfer enough for people to use payment, debit or credit cards?

As always happens with these things, the communist regime wants to impose, through resolutions, economic behaviors that don’t exist in reality, and, as a result, instead of achieving the objective, it ends up encountering the most absolute rejection of the measures imposed by economic agents.

This time the same thing is going to happen, no matter how much the state press supports the campaign. Cuban communists don’t quite know that before imposing a mandatory legal framework, you have to take a moment to see if what you want to regulate already exists in reality. They don’t. They throw themselves into the dry pond and then crash. Resolution 123/2022 of the Central Bank of Cuba (CCB) will be a good example.

The rule is redundant, and, so to speak, it says things that are already known. For example, everyone knows that the power of the Central Bank is to “exercise the regulation and surveillance of the country’s payment systems and dictate the rules of operation, in order to ensure that they function efficiently, within adequate levels of security for participants and the general public.” But is it really dedicated to it or is it just print on paper? Is there a study that reveals the efficiency of the Central Bank in ensuring the proper functioning of payment systems? I don’t know of any.

The relevance of the bank card in its different modalities, which the resolution has opened to the maximum, should be based on a prior knowledge of what percentage of Cubans use that means of payment and, above all, which segments of society, and going a little further, what they use the card for. And more importantly, the state of banking technology that allows operations with plastic money should be investigated. That way no one would get surprises.

The resolution refers surprisingly to “participants who act under license as issuers, payment transaction processing centers and payment card acquirers” as if they want to convey the idea that in addition to banks there may be others that issue cards. It may be causing a real proliferation of plastic money that ends up generating more problems than solutions. The procedure is also simple, if other standards within the Cuban communist regime are taken into account.

In this sense, the concern for the prevention and detection of operations in the fight against money laundering, financing, terrorism, the proliferation of weapons and the movement of illicit capital boasted by the regime should be extended to all types of banking operations and not just cards.

This will be a process to follow over time, because it has just begun. The Cuban communists’ objective of ’banking’ the economy is hampered by the logical and justified fear of citizens of the banking system, and what is even worse, the scarce tradition of Cubans’ relations with their banks. A tradition that was broken in 1959 with the confiscations and expropriations of funds, deposits and all kinds of financial operations of Cubans in the banks that existed in Cuba at the time. Wanting to erase all that with the stroke of a pen, as if it hadn’t happened, will not be easy. There are still many of us left to remember that dark episode of our history.

*Translator’s note: The “Ordering Task” is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures related to different elements of the Cuban economy. 

Translated by Regina Anavy  

____________

COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

There Was No Show on the First Day of Cuba’s New Exchange Rate Initiative

A line outside a currency exchange (Cadeca) in 2016, amid rumors of a reduction in the value of the Cuban convertible peso (CUC), which no longer exists. (14ymedio)

14ymedio bigger14ymedio, Elias Amor Bravo, Economist, 6 August 2022 — The regime’s state press was surprised to see that the first day of the new measure of foreign exchange buying by the State “passed calmly and as planned.” What did they think was going to happen? Perhaps they had imagined one of those shows that the communists like so much, with hordes of desperate citizens trying to sell their dollars or euros for whatever they could, or that at some point, even, a conflict would take place between the state entities that offer the exchange because they weren’t prepared. Anything in order to change the focus. It shouldn’t be forgotten that this exchange initiative comes at a time when Cuba is in total crisis. So no. There was no show. The measure, according to the minister who keeps pounding it in, is nothing more than “an important step in the purpose of establishing an exchange market to buy and sell foreign currency legally” to foreign visitors, the population and non-state economic actors. It was just one more day in which everything was absolutely normal on the city streets.

So the Cuban communists were left without the show and the first steps of the communist state as a buyer of foreign currency, including the US dollar in cash, of course with an exchange rate higher than that offered in the informal market, which had no reaction and, as expected, remained calm, operating efficiently as always and providing services to those who requested them.

The show was left for another occasion. Basically, because no matter how hard the authorities insist on dressing up a simple measure of authorizing currency exchanges as something relevant, it isn’t, and, best of all, this service has already been provided on a regular basis for a year and a half by people who have taken over the role of the financial system, at a time when it completely abandoned its function.

The directors of Economic Policies and Institutional Information and Communication of the Central Bank of Cuba (BCC) can say whatever they want and waste time with communication campaigns in the state press to try to convince people that Economy and Planning Minister Alejandro Gil’s measure “is an important step in the purpose of establishing an exchange market to buy and sell foreign currency legally to foreign visitors, the population and non-state economic actors.” It’s a waste of time, because continue reading

Cubans who need foreign exchange know where and how to get it without having to resort to the state.

So this first day of the process of exchanging currencies to the new rate with the 1×120 dollar has been normal, and it has passed without pain or glory, with the population going to carry out their currency exchange operations for cash in CUP, cash deposits on magnetic cards in CUP and cash withdrawals in CUP from foreign exchange accounts, as well as transfers from foreign currency accounts to accounts in CUP, all without large crowds or stridency despite the fact that all operations had to be carried out at windows. Everything is very quiet, and yes, by paying commissions in the form of a commercial margin that, in the informal market, many recalled, are not usually charged or are not so high.

The official press referred to the fact that the cash in Cuban pesos available in bank branches and exchange offices to meet exchanges was barely used, despite the fact that the regime had made strenuous efforts to guarantee the conditions and availability of cash in Cuban pesos in response to the advertised foreign exchange purchase service. Which, if you think carefully, is another miscalculation, because what Cubans are looking for are dollars and not Cuban pesos, which happens to be the weak currency, so that those who have dollars keep them, except in exceptional cases, waiting for their value to rise, which it will. The banks and chains were really empty this first day and will continue to be so until the sale is announced, and then we will see.

The exchange rate of 1×120 didn’t attract dollar owners. Perhaps because it isn’t the rate they deem appropriate (it stays at 110 with the commissions), or because the information from the informal market and social networks tells them that in the not-too- distant future they can achieve rates of 140 and 160. Some ads in the independent digital press already establish this rate for exchanges on credit.

The peso comes out very strong with this rate of 120, and once again, the regime will deny the obvious to Cubans, as in the Ordering Task* when it launched the 1×24 rate. It’s a shame, no matter where you look, that the regime is cornered in its exchange rate policy by a free and efficient market of supply and demand, which Cubans use satisfactorily and which is expected to continue to function, despite the veiled warnings of Minister Gil.

With no show to present to the state media, and with Cubans reserving the dollars for when the peso drops lower, the initiative of Minister Gil, who has given so much to talk about, starts off on the wrong foot, and we know what that means for the communists. They are like children who protest and make a lot of noise until they have the toy they crave, but once they get it, they forget about it and leave it in a corner of the attic. The same thing can happen here, and it would be for the best. Let them forget about the state exchange market, and let economic freedom and the informal market work. Cubans and everyone else would appreciate it.

*Translator’s note: The “Ordering Task” [tarea ordenamiento] is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), thus leaving the Cuban peso (CUP) as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency, which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy.

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

The Cuban Minister of Economy Declares War on the Informal Exchange Market. Who Will Win?

Today the Central Bank of Cuba began to buy foreign currency at a new exchange rate. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Valencia, 4 August 2022 — Finally, what was promised has been fulfilled. On July 21, Minister of Economy and Planning Alejandro Gil announced in the National Assembly a set of measures that, in his opinion, “within socialism will serve to strengthen the economy.” And yesterday, on State television’s Roundtable programtogether with the president of the Central Bank of Cuba, he confirmed one of the measures that had aroused the most interest, the implementation of an exchange market for the purchase and sale of foreign currency to the population with an “economically grounded exchange rate and where we can work with all currencies, including dollars in cash.”

In the words of the minister, “it’s expected that one of the main benefits will be the possibility for Cubans and travelers to be able to exchange currencies at a more attractive exchange rate and not have to go to an illegal market.” The minister has declared war on the informal exchange market. Who will win?

There’s no doubt that there is interest in knowing how this new foreign exchange market is going to be launched, with what exchange rate, and what effects the measure will have on the battered Cuban economy.

After explaining the differences between the secondary currency allocation scheme (implemented last May for food and manufacturing) and the foreign exchange market that is now intended to be launched, the minister gave the scoop of the night, announcing that today, August 4, mark this date, the foreign exchange market will begin to operate, at the official exchange rate of 1:120 in the upper band of the informal market. A devaluation of the peso with the dollar of 400%.

At the moment, the state exchange market starts with the purchase of foreign currency by the State, including the cash dollar. Later, the sale of foreign currency will begin, but it won’t be immediate. The minister acknowledged that work is still being done to create the conditions to do so later at points of the Cadeca exchanges, banks and airports.

Gil believes that the purchase of foreign currency at a higher exchange rate will mean an incentive to sell foreign currency to the State, in what can be understood as the regime’s decision to liquidate the informal market that has been operating since last year. It won’t be easy, and he will soon discover that in an economy there is room for everyone, and that those who focus their activity on meeting the needs of others manage to survive, even in difficult and dark times. continue reading

So the communist regime wants to do this immediately with the exchange business of the informal market, and for this, it has decided to allow the purchase of dollars in cash, although it still doesn’t authorize the placement of those dollars on a card in MLC [freely convertible currency] due to its impact on greater purchasing power that cannot be met under the current conditions. The minister doesn’t have them all with him. And of course, as it couldn’t be otherwise, the blame is on the ’blockade’ [i.e., the embargo] imposed by the United States, which he described as “an anomaly in the financial functioning of the country that has not moved a millimeter and doesn’t allow taking that step that would be favorable for the population.”

There is so much distrust posed by these measures, that Gil warned that the entry into operation of the foreign exchange market this Thursday will not affect the business system, where the 1×24 exchange rate is maintained, so that “the imports that enter do so with that rate, as well as the exports that are generated in the country.”

Señora Wilson, president of the Central Bank of Cuba, also present at the Roundtable, reported that rules have been established that facilitate the implementation of exchange market measures through the repeal of decrees 17 and 37 of 2021, and 62 of 2022, since they established a single exchange rate to operate in the national economy, and the publication of a new one, 63, which will allow different exchange rates to be established.

Based on this legal framework, Resolutions 126, relating to the issuance of several exchange rates, and 127, which establishes the purchase of foreign currency by the banking system, which is going to be implemented first, are issued. Specifically, the latter resolution establishes that banks and non-bank financial institutions will not accept US dollars in cash from natural and legal persons for deposits in bank accounts but only for purchase, justifying this decision by maintaining the conditions of the ’blockade’ and the difficulties in operating with dollars and exporting them in foreign trade operations.

Less optimistic than the minister, she acknowledged that “this foreign exchange market will not solve the problems of the domestic economy. The foundations must exist, for which we are working on new measures to provide the country with foreign exchange and the goods and services that lead to economic stability. This will allow us to go to the final objective, which is to establish a single exchange rate that allows balance in the economy and where the national currency is the currency with which everyone wants to do business.”

As of August 4, people can make the sale through transfers they receive from abroad, through accreditation to an account in national currency. Also by means of freely convertible currency accounts, with request for transfers to CUP (Cuban peso) accounts. Likewise, it can be done in cash.

The national currency will be received through deposits in CUP accounts, so that the margins are more favorable, since that is what they are promoting. Also through the delivery of cash, which will have a less stimulating margin. She added that, due to the situation of the economy, there is a very high demand for cash, but anything that is not issuing more banknotes and favoring electronic transactions will be encouraged. Likewise, she pointed out that these operations will be, for the time being, at the counter, and ATMs will soon be included as an option.

Where will this type of exchange be implemented? It will be in all provinces, in key municipalities, and, to the extent that demand allows, new conditions will be created. The service will also be provided at airports, hotels and tourist centers. The branches where this activity will be carried out will be published on the website of the Central Bank of Cuba.

At this point, the president of the Central Bank indicated that they have “considered the exchange rate of 120 CUP to 1 dollar” and that “this exchange rate is not the equilibrium rate of the economy, it’s the one for the beginning of this market.” The fixed exchange rate system established in the ordering task has passed to a better life.

Commercial banks will be guaranteed a margin for buying and selling, in accordance with an international standard. These margins are aimed at encouraging non-cash transactions and the purchase of non-dollar currencies. Specifically, a range between 2% and 9%. These margins, in the case of the purchase of foreign currency in cash and at airports, improve compared to the previous exchange rate of 1×24. Excessive margins will offer incentives to operate in informal markets that will surely refine the costs of their operations so as not to lose competitiveness.

The trading margin conditions of the operations are harmful. “If you go to the bank tomorrow and sell a euro, the bank would be giving you 119.69 CUP. For the dollar, the margin is 8%. If you sell a dollar to the bank tomorrow, you will receive 110.40 CUP.” The competitive advantage is in transfers from abroad; here the margin for the purchase of the currency will be zero, as well as for purchases or withdrawals of international cards and transfers of foreign currency accounts to CUP at the exchange rate of 1×120. For cash withdrawal through currency accounts, there will be a trading margin of 1%. For currency cash deposits in CUP accounts, it will be 1.5%, and the dollar will have a greater impact.

The president of the Central Bank reiterated that the foreign exchange market starts with the purchase operations, but at a certain time the sale will have to be implemented, because then it wouldn’t be a market. She again pointed out that the objective of the Central Bank is to defend the country’s national currency and try to ensure that all transactions are in that currency. And she recognized that, at the time, there was no choice but to implement a trade in a currency other than the peso, but that must be corrected, because it has brought distortions in the economy.

She concluded by pointing out that, in order to achieve the equilibrium exchange rate that the economy needs, it’s necessary to “produce goods and services that encourage the population to buy in the national currency and discourage the need to acquire freely convertible currency to meet their needs.”

Minister Gil was convinced that the exchange rate chosen, 1×120, offers a “reasonable guarantee so that there’s an incentive to sell the foreign currency to the state and the state can buy it.” All people who have foreign currency “can legally exchange it at an economically based exchange rate, which guarantees a return in national currency that, today, gives it a purchasing power above what those who have a salary receive. This creates a distortion in relative prices.

He also insisted that with this measure the prices of the ’regulated family basket’ (within the rationing system) or the prices of stores in Cuban pesos are not increasing; there is no growth in the price level of the economy at the level of the new exchange rate. And he stressed that “no one can say that he had to increase prices because at the Roundtable they said that they are going to buy dollars at 120 pesos. That has no impact. We are talking about buying foreign currency and giving Cuban pesos in return.”

The minister was convinced that to the extent that foreign currency can be captured, invested in the economy and offers increased in pesos, decisions can be made in the ordering of the markets, increasing offers in national currency. Some of these decisions were cited only in passing, when he referred to the concern about the control of the public deficit and the tax evasion that injects liquid into the economy that heats inflation. The minister’s distrust led him to say that “this isn’t a magical measure. It’s an indispensable measure. It’s a step in which we have to continue moving forward and incorporate the sale,” an argument that reminds us, a lot, of the Ordering Task*.

He recognized that the exchange rate of 1×120 is not equilibrium, nor market; it’s only for buying. When buying and selling operations begin, an exchange rate will be sought that balances supply and demand, and certain limits will have to be placed on the sale. Bad business. If the minister wants to manage and put limits on market action, he will obtain the worst possible result. Achieving the equilibrium exchange rate is the result of the action of supply and demand, with the state keeping its hands off the process.

The minister said that with these measures it’s possible to achieve a society with the greatest possible equity and social justice and mentioned that people who don’t have dollars or euros to sell be given national currency in return. In his opinion, “if the socialist state captures these currencies, they are reinvested in favor of society.” An erroneous conviction of which he has long experience. Finally, he recognized that this measure is taken to “give legality to the foreign exchange market, putting its feet on the ground with an objective vision of reality and looking for ways to capture and channel those currencies according to society.” If instead, he had supported the informal market for its consolidation in the economy, the result would be much better.

He concluded by pointing out that immediate effects cannot be expected. The measures try to address the lack of foreign exchange, look for a mechanism to channel the currency according to offers in national currency and tax the objective of recovering the purchasing power of the Cuban peso. All this is to achieve an economy that operates in national currency in all its transactions and to have the ability to buy from a salary, from income. And by the way, end the informal exchange market, one of the few spaces of economic freedom and efficiency in the Cuban economy. It is another thing for him to understand this.

Editors’ note: This article is reproduced with the permission of its author and was originally published in Cubaeconomía.

*Translator’s note: **Tarea ordenamiento = the [so-called] ‘Ordering Task’ is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy. 

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Entertaining People with Popular Control: The Castro Regime Has No Remedy

State agricultural markets in Sancti Spíritus look almost empty. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 2 August 2022 — With all that is going wrong in Cuba, the state press doesn’t miss an opportunity to transmit a false sense of normality that, far from being confirmed, leads to thinking just the opposite.

Constantly in the Castro regime, there is talk of “people’s power” everywhere, without anyone knowing very well what it means. It’s not just any realization. There’s enough for a doctoral thesis, like that of Cuban President Díaz-Canel’s on science and innovation. For this reason, someone at the State newspaper Granma has wondered if popular control, that is, the power of the people, works as a direct expression of socialist democracy in Cuba. But what power of the people are they talking about?

They allude to the old constitutional pipe dream, which even has a law, Law No. 132/2019, on the organization and operation of the municipal assemblies of People’s Power and the people’s councils that establish how “the people can exercise control and build the country’s model.” Let’s see if we understand anything.

In the State newspaper Granma they want to answer a disturbing question: how can Cubans who don’t hold a political or governmental position, from the base, in the community, access and use their power to contribute to transforming reality? It’s difficult. See if you haven’t  the video that runs through social networks in which an angry [Prime Minister Manuel] Marrero* is observed before a violent outburst from a revolutionary grandfather, who could well be taking a nap, and who nevertheless lashes out at another communist militant who complains that in 35 years no one has done anything to solve a problem. continue reading

And, of course, like everything in Cuba, if you want to understand something, you have to go to the Law, which with its 210 articles and eight chapters establishes the structure, functions and prerogatives of each of the components of the so-called “people’s power,” which, as Granma points out, “is manifested daily in the actions of the delegates and voters as the foundation of the Cuban political system.”

Precisely, one of the most important changes to Law No. 132 was the right of members of the people’s councils to carry out controls on local production and service entities, as a “potential regulatory mechanism against illegalities and violations that usually occur in state and non-state institutions,” involving the citizen himself as an engine of the changes he needs around him.

Granma reviews the experiences on this topic: Are the controls effective? What results have they had? How can they improve?

Popular controls are welcomed by the communist organization as a tool to respond to the demands of the people, an idea that is here to stay. Delegates ensure the proper functioning of the entities that operate in their constituencies, but what Chapter VII of Law 132 proposes is to involve people more in transforming their environment.

So, although previously only delegates participated in the so-called control and audit, anyone who can contribute “to evaluate, show, suggest and thoroughly review the administrative work of public and private entities, even more so if they have been pointed out by the vox populi, are now invited.

Every month, three popular control exercises are carried out, which are approved at the end of the year so as not to leave any area or sector without going through the filter of citizens and analyzing topics such as water supply, the situation of schools, grocery stores and medical offices, the sale of liquefied gas, the production of bread, the marketing of agricultural products and the so-called colerosHey, did anyone hear blackouts? It’s incredible.

The communists are exultant. Every time a control is announced, service specialists, retirees, community leaders and anyone who wishes are incorporated into the group, forming a conga line with a complicated rhythm, which ends up being deadly for some state and non-state entities, when the report is prepared with positive and negative signs and a plan of measures is required in response. Those responsible, as one can imagine, have little desire to continue.

Therefore, when agencies fall behind with the requested response, and others don’t immediately adopt the suggested decisions, some other, tougher measures are taken. In some cases, the focus is on the workers of the institutions under control, in a clear exercise of bridging those responsible for them, which leads to a further deterioration of the situation. Popular controls add fire to conflicts where the problem could be fixed with a little good will. You can see the Castro inspiration behind all this.

What is the communist regime looking for with these controls? Perhaps that the grocery stores are painted, renovated; that the culture of commerce wins, as Granma says. Let’s see: if there is nothing to sell and the grocery stores are empty, all the rest remains. That’s where popular control should begin if it wants to be of any use. There is the impression that the regime wants to fuss over popular controls to keep people entertained, away from the main concerns about blackouts, inflation or lack of food. If this is the case, it’s not strange that they talk about achieving even greater systems of controls, because according to them, credibility can be lost, and in this case, there is even the authority to request support from the president of the Municipal Assembly.

One can now imagine that all this is another waste of time within the day-to-day life of Cubans. Granma recognizes the problems that these controllers of people’s power have when certain entities located in the municipal council cannot be controlled because the scope of their work is provincial, and, in these cases, alleged negligence cannot be punished. Or the need they say to review the communication mechanisms, because, although the opinion of the delegates is that most people know when, how and where the controls are carried out, practice shows that this is not the case.

That is why, to finish filling the agenda, the leaders say that it’s necessary to take more advantage of traditional socialization methods (meetings, offices with voters), or to create new ones (social media channels or groups, informal opinion leaders) so that more people know and participate in these demonstrations of popular power. They have no remedy.

*Translator’s note: Marrero blamed doctors and other healthcare workers in Cienfuegos for the handling of the pandemic (in 2021)

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Someone is in a Hurry With the Rules for Non-commercial Imports by Natural Persons

A young Cuban-American waits with his family’s luggage to board a plan to Cuba. (AP Photo/Lynne Sladky)

14ymedio bigger14ymedio, Elías Amor Bravo Economist, 29 June 2022 — They hurried. Said and done. The words of Minister of Economy and Planning Alejandro Gil Fernandez still resonated announcing to the National Assembly the 75 measures to “revitalize the economy” and the resolutions of the Ministry of Finance and Prices (MFP) and the General Customs of the Republic establishing the processes related to the flexibility of non-commercial imports by natural persons were already published in the Official Gazette.

The economic situation is tightening. Cubans are having a very hard time in this summer of 2022. So much so that some already see signs very similar to those of the so-called “Special Period,” and the immediate reaction of the people, once again, is to leave the country, losing confidence that the situation will change.

If the communist model imposed by the so-called revolution since 1959 in Cuba has failed in anything, it is trade. Private commercial intermediation was destroyed by communist reforms; Cubans don’t have freedom of choice and live overwhelmed by a permanent shortage of everything. They are forced to survive with an increasingly meager ration book or regulated basket of goods, and see how, on top of that, the only goods and services that abound have to be bought in well-stocked stores which accept only freely convertible currency or in informal markets, in dollars.

Therefore, taking into account the disaster of state supplies of goods and services, communists who won’t accept that private companies recover wholesale or retail commercial activity, have opened their hands to this formula of non-commercial import, known for a long time to the regime, and decide to extend over time rules that, in principle, were going to be for a short period of time.

And they are in a hurry to do it. The measures enter into force on August 15; that is, right now, with new tariffs to be paid by natural persons who receive non-commercial air, sea, postal and courier shipments in the national territory; as well as the rules for non-commercial imports made by natural persons. Everything is highly regulated and controlled, so that no one escapes. continue reading

There is everything in these measures. For example, according to MFF resolution 204/2022, natural persons who receive non-commercial air, sea, postal and courier shipments in the national territory are exempt from the payment of customs tax for the first 30 dollars of the value or its equivalent weight, on up to three kilograms of the shipment, in the value/weight ratio, established by Customs. With 30 dollars, little can be taken away. Seeing the packages that arrive at Cuban airports, three kilograms seem like little.

Therefore, the rule says that natural persons who receive items in excess of 30 dollars and up to a value of 200 dollars, will have a tariff rate of 30%, adding that the calculation of the customs tax to be paid is carried out by applying, to the import value, the established tariff rate, and its result is converted into Cuban pesos, according to the current exchange rate. At the official rate, of course, of 1×24.

For its part, Customs resolution 175/2022 develops the rules for non-commercial imports made by natural persons, “taking into account that these are carried out occasionally for their personal, family or household use, through luggage, shipments, household goods or other authorized charges.” Actually, that occasional use is quite questionable, since these imports are the ones that then make up the mercantile mass of goods and products that are traded informally in the country, but this is the least interesting thing to the regime.

The rule states that “items and products to be imported by natural persons will be admitted as long as they correspond to a non-commercial import; the quantities to be imported are declared transparently and varied; that their import does not exceed the limit of what is established as appropriate; and that the nature and functions of an article or the repetition of the imports made do not show the nature or commercial purpose of its import.”

Everything is so open and subjective that in this way you can bring practically everything into the country. Otherwise, as is always the case in these cases, it is up to Customs to decide whether the import is carried out on a commercial basis and to apply the sanction provided for in customs regulations.

The resolution establishes, under these conditions, that “when the customs authority determines that there is a commercial nature due to the repeated non-commercial imports, it notifies the infringer of the sanctioning decision and the period in which, from that act, his right to import is limited.” Now we will see who pays, and how much. The possibility of sanction is there, but in these cases, and in many others, the law is made, the trap is set.

The aforementioned resolution also establishes that when an item or product is not defined in the reference values, the referential price available, including that of sale in domestic commerce and in other origins, is taken as a basis, in accordance with the provisions of current legislation. Once again, it is Customs that is authorized to apply the value-weight alternative method for all those items that, due to their characteristics and value, can be valued by that method, as legislated.

To household appliances, computer and communications equipment and other durable items are applied, as a method of valuation, the Customs declaration, the purchase invoice or the reference value, without prejudice to applying the provisions of specific provision or what is requested by the person, in which case the acceptance of weighing it or not is evaluated.

On the other hand, Customs Resolution 176/2022 uses the value-weight alternative method for the determination of the Customs value of items that are classified as miscellaneous and others where, due to their characteristics, it is applicable, items that are imported non-commercially by natural persons through shipments, applying the equivalence of one kilogram equal to ten US dollars.

For the determination of the value of shipments through this alternative, values that are based on automated dispatch, in which the weight of the miscellaneous of the shipment is obtained, are taken into account. The items contained in the shipment for which the value-weight method is not applied are individually valued and considered within the established import limit.

The annexes to the resolution include specifications on the rules for non-commercial imports of natural persons, aspects to be taken into account in the classification of other items or products that are not considered miscellaneous and the list of reference values for non-commercial imports that are made by any means.

Finally, a list of reference values is published for non-commercial imports made by natural persons by any means, products that are not distributed by “legal” trade and that go through the vicissitudes of these Castro rules. Photographic products whose valuation is less than 50 USD: the value-weight alternative applies. Non-durable household and hardware items: up to five items of each type that are classified as hardware, provided that their value does not exceed 50 USD; and for those that exceed that value up to three are admitted. Paints, varnishes, pigments and thinners, provided that the total sum of the contents of their containers does not exceed 20 liters. Household appliances: provided that they are varied, accepting up to two items of the same type, provided that the sum of their values does not exceed the limit established for the importation of luggage. Computer and telecommunications equipment: up to three items related to telecommunications and network devices, including accessories or peripherals of computer equipment.

Cell phones or smartphones: up to five units.

Musical instruments: up to three items, in all cases in accordance with the import limit. Furniture: up to five items of each type that are classified as home furniture, as long as their value does not exceed 50 USD.

Motor vehicles, their parts, parts and accessories: it allows the importation as luggage of up to two items of the so-called electric mopeds of up to two seats or one by means of shipments. Bicycles, electric and pedal-assisted bicycles, electric skateboards or the like: up to two items.

Nothing is left to improvisation. A package of resolutions like this was already being drafted and in the process of being launched long before Minister Gil announced it in the National Assembly. The regime is aware of its failure and that it is in a terminal phase in which multiple anomalies that are impossible to solve with the communist economic model accumulate. The question is, will we see more in this torrid summer?

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Cuba, Summer 2022: Clay for Children or a Vaccine Against COVID-19?

Cuban schoolchildren during the ceremony where they take on the red scarf. (14ymedio)

14ymedio bigger14ymedio, Elias Amor Bravo, Economist, 31 July 2022 — Cuba’s State newspaper Granma wants to leave behind this month of July, of accumulation of anomalies for the regime, with some news that aims to mean a return to normality. Not so much to justify that 10.9% GDP growth that Economy Minister Alejandro Gil Fernandez said occurred in the economy, but so that people breathe and can regain some calm after so many blackouts, lack of food, insecurity for the future and absolute loss of confidence in the leaders. The first news is that there is a return to the production of children’s modeling clay, with the manufacture of about 200,000 sets of colored clay intended for day care centers throughout the country. The Education Media Production Company (EMEG), after a period of difficulty, has assumed the delivery of this educational material to the Ministry of Education (MINED).

This return to normality has been possible “after part of the production process was stabilized with the entry of imported raw materials (whose availability was affected during the stage of confronting COVID-19 in Cuba).” Apparently, Cuban clay manufactured by EMEG depends on raw materials that can only be obtained outside the country, which affects its final quality. Since 1989, the company has been manufacturing a product with a better quality and longer lasting duration than other imported clay, but it depends on those raw materials that, apparently, no one has ordered to be manufactured in Cuba.

Clay, the national one, due to the vicissitudes of the moment, is only limited to commitments to MINED. If a child wants to play at home with this clay, he can’t do it, since the regime decided that it couldn’t be bought in stores. In this way, the authorities limit the growth possibilities of the state company that, if it could produce more, would do so at lower unit costs, be more competitive, meet unmet demands, and who knows if it wouldn’t be able to export its surplus to other countries in the area? If the clay is so good and no one doubts its quality, why not sell it to children in the Dominican Republic or Costa Rica? What does it matter, who cares about all this in Cuba? continue reading

And just like colored clay, Granma announces with great fanfare that the Center for Genetic Engineering and Biotechnology (CIGB) already has the Cuban vaccine candidate against the Omicron variant of SARS-COV-2 ready. Now it seems that it’s so, although you have a certain feeling of déjà vu when reading this news for the umpteenth time.

And as usually happens in these cases, the information was given by the member of the Political Bureau of the Central Committee of the Party and the General Director of the CIGB, Dr. Martha Ayala Ávila, during a technical meeting with the highest authorities of the BioCubaFarma Business Group. The party is always behind this kind of thing, even with the production of clay.

Apparently, it was also said that they will continue with preclinical and toxicological evaluations in animal models and then move on to the clinical trials phase, in conjunction with the Center for the State Control of Medicines, Equipment and Medical Devices (CECMED) and the Ministry of Public Health (MINSAP). In other words, in a few months we will have the vaccine ready again. As you can see, Dr. Ayala doesn’t answer to a board of directors, usually little given to this news of fireworks, but the regime is only interested in certain facts.

The world offered a master lesson in 2020 when the COVID pandemic broke out, and large drug manufacturers worldwide began a race to identify vaccines to curb the disease. And they did it, each country at its own pace and according to its needs. There was even plenty of international cooperation to fight COVID-19. The Cuban communist regime made its own decision to advance its vaccination candidates, and here we are. The new vaccine candidate is based on the RBD sequence; that is, the receptor binding domain of human cells, through which this type of coronavirus penetrates, which has already had extensive development and practical application in the millions of people vaccinated with the second and third doses.

In Cuba, immunogenicity is now being evaluated in animal models, to check if the vaccine has the ability to induce a high immunogenicity. From there to being in a position to address the development of this vaccine candidate and then decide when to use it in the population is a stretch, probably a long one. It was said that the CIGB has the capacity to produce this vaccine candidate in its plants, to link with AICA Laboratories and carry out clinical studies in coordination with MINSAP, always with the approval of the Cuban regulatory authority, which may mean that the regime is studying the possibility of marketing the vaccine abroad through more exports. To do this, it will need some type of WHO approval that, it should be remembered, still hasn’t happened for the first vaccines given to the population in Cuba.

That they get to it right now and that Granma turns it into a great announcement is smoke in the wind, and has a lot to do, like children’s clay, with that feeling of a terminal phase that the regime uses to counteract this warm and torrid summer for millions of Cubans. The distance of the population from the leaders is opening up more and more, and this type of news does nothing but increase the gap. There is little to celebrate for Raúl Castro to gain time, and in his 91 years he won’t have to see the collapse of the mammoth built by his brother and him. The end is near, even if it’s built out of clay. Granma doesn’t know what to say anymore.

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

There Will Be No Foreign Investment for the Private Sector in Cuba

One has to worry about what the communists don’t know how to do, which is nothing more than creating a favorable environment for the prosperity of business. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 23 July 2022 — In recent days, we have witnessed a torrent of measures by the Cuban regime to get the economy of the island out of the vicious circle in which it has been locked by the communist economic model that the authorities are stubbornly determined to apply.

And of all the ministerial hodgepodge of proposals, some hilarious ones such as the recovery of the “microbrigades” or the “in-person learning” reminiscent of the revolutionary old days, those related to foreign investment in Cuba have undoubtedly been the ones that have received the most attention — in some cases, resulting in undesirable confusion.

The person responsible for this mess has been the Minister of Foreign Trade and Foreign Investment, Rodrigo Malmierca, who reported in the National Assembly on the activity of his department, exemplified in the negotiation of 57 projects with foreign capital in prioritized sectors of the economy, valued at almost $5 billion, all of them still without a materialization date.

Malmierca, immune to discouragement and the fact that the application of Law 118 on foreign investment has been a resounding failure since 2014, told the deputies that “if you work well and make an effort, we have the conditions to attract more foreign capital despite the existing difficulties,” with less conviction than what these words really say.

The difficulties, in line with the official argument of the regime, come, of course, from the ‘blockade’, but also, and here comes the interesting thing, from what Malmierca called “works that depend on us, including delays in the procedures and the lack of preparation in the negotiating groups.”

Actually, if those were the obstacles to the development of foreign investment in Cuba, there could be some hope, but when you compare the Cuban experience since 2014 with that of, say the Dominican Republic, you can understand why foreign capital turns its back on Malmierca and, nevertheless, lines up to be able to enter the neighboring Caribbean island.

Trying to attract investment only with a law is a waste of time. First, you have to worry about what communists don’t know how to do, which is nothing more than creating a favorable environment for business prosperity, so that people can increase their standard of living and companies can operate freely. In Cuba, that is simply impossible, and therefore, not because of laws or obstacles, foreign investment passes it by. continue reading

But Malmierca knows how to catch attention and that is why, after recognizing that the management of his department leaves much to be desired (at the end of last year, 285 businesses had been approved in Cuba since 2014, 49 located in the Mariel Special Development Zone and 29 reinvestments), he announced that “about seven foreign investment projects linked to forms of non-state management are being studied, and the relevance of approving businesses in domestic trade is being analyzed.”

The deputies of the Assembly, who at that time were sleeping peacefully, felt a small convulsion. Some even used their mobile phones to say that Malmierca was thinking of authorizing foreign investment in the private sector. People couldn’t believe it.

So when the minister changed the subject and began to talk about the virtues of the unique digital window and the measures to attract foreign capital at the municipal level, everyone’s interest was in that mention of the possible entry of foreign investment into private businesses — something that, until now, had been banned. Everyone wanted more information, but the deputies of the Assembly rarely bother the top leaders of the regime, so it would be best to wait.

Little by little, the State newspaper Granma’s headline summary of the news — “There are possibilities of attracting more foreign capital” — began to run from mobile to mobile. Yes, but how would that idea be translated into reality, in view of the experience since 2014? It seemed evident that Malmierca was proposing an update of the policy for attracting foreign investment in Cuba and its flexibility in favor of more profits, as well as the actions being taken to encourage and improve this mechanism, but was there really a will to open foreign capital to the private sector?

Malmierca had said that the reforms that were going to be introduced would in no case mean that “the socialist character of our government would be violated,” but someone saw that the portfolio of opportunities for foreign investment had included, among other options, small projects and 60 others that emerged from the territories. They were no longer the great millionaire pharaonic projects that used to frighten foreign investors for the mobilization of required financial resources.

But so far, nothing more. The natural date would be the 38th Havana International Fair (Fihav-2022) to be held in November. Apparently someone said that there were preparations being made “for exceptional projects, and the strategic axes of the National Economic and Social Development Plan until 2030 will be taken into account.”

And reading the news, someone said they had mentioned it. Granma reported “the minister pointed out that another flexibility of the policy is the possibility that the more than 4,000 forms of non-state management can work with foreign investment, in accordance with the provisions of the law.” That’s it. This is the key to authorizing the entry of international capital into the private sector, but it’s advisable to read it in detail and to not be in a hurry.

“Working with foreign investment” is not well known and is not the same as receiving foreign capital and offering a stake in it, by the way, which at no time is mentioned. These are very different things, and until the proposal is outlined, you have to understand the first version: “work with foreign investment.” And that’s not nothing.

Then there are the dangers that aren’t obvious. If Malmierca wants there to be foreign investment in the retail sector, the first thing that has to be achieved, and this seems almost impossible in the Cuban economy, is that there are products to be sold and bought and also purchasing power to do so, and it doesn’t seem that these two parameters are currently in the reality of trade and the retail trade circulation of the Cuban economy.

Little by little, people calmed down. No one should expect any change in the foreign investment policy because the communist regime’s nature is to have absolute control of the economy and to prevent the accumulation [of profit] and the prosperity of private businesses. There will be no foreign investment in the private sector, at least with the 2019 communist constitution in force. The alarms stopped going off. It’s very difficult to get out of the vicious circle of the Cuban economy.
________________________

Note from 14ymedio: This article is reprinted with the permission of the author. I was originally published in Cubaeconomía.

________________________

Translated by Regina Anavy

____________

COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.