Cuba: Incorrect Resolutions. Means of Buying Time

The stands in state agricultural markets in Cuba are frequently largely empty. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, August 2, 2021 — In difficult times, anything is possible. Including privately leasing state-owned vehicles that aren’t being used [Resolución 207/2021, published in the Official Gazette of the Republic number 68]. So the Cuban communist regime, faced with the most serious economic crisis since “Special Period” times, has decided to adopt a series of legal norms to “overcome some of the obstacles that prevent the agile and efficient functioning of the economy.” They’re late, they know it, but just like that, they all jump into a pool in which there is less and less water. The path of failure is served. Let’s see why.

I’m referring, first of all, to Resolution 320 of the Ministry of Finance and Prices (MFP) published in the Official Gazette No. 68 Extraordinary, of July 30, 2021, which proclaims the generic objective of stimulating the increase in agricultural production.

In the end, after a half-dozen experiments in the commercial sphere, the regime has realized that the agricultural problem is in the sphere of production. But it refuses to recognize the origin of the disaster and goes back to its old ways, with patches like this Resolution which, instead of fixing the problems, may end up enlarging them.

In fact, this rule is intended to put an end to the failure of a previous one, Resolution 18 of the MFP, of February 15, 2021, which established that, in price agreements with non-state forms of management, they took into account the maximum prices set by the provincial councils and the municipal administrations, establishing the famous “price cap” according to which they could not exceed two times the price in agricultural products.

What do they do now? Well, just the opposite, in order to reverse the economic aberration of the capped prices. As they have seen that this policy is the origin of scarcity and lack of supply by producers, who see their efforts as not cost-effective, well nothing, with the new rule they abolish the price caps, and with this they again point out that the objective is to improve marketing policy, while not losing the repressive reference “without prejudice to continuing to confront abusive and speculative prices.”

So Resolution 320 annuls what is established for maximum stockpile and wholesale prices of agricultural products, but, and here comes the technical error of the rule, “only those that are destined for social consumption, medical diets and those designated to the Family Care System (malanga, taro, plaintain, banana, and sweet potato).”

At this point it’s worth asking why they’re removing price caps for only these agricultural products, and not for all in general? Is it becuse in this case the government wants to buy cheaper from its suppliers, because it has less money, and with this decision it’s sending a signal that it cares very little about what happens to the rest of the consumers?

It is true that the state budget is running out, and there are fewer and fewer resources for subsidies, but does this mean that the prices of services associated with social consumption, etc., are going to be aligned with market prices perhaps?

The MFP says on its website that the measure aims to “create better conditions for price coordination and contracting with producers, both for social consumption and for sale in the retail market, since it recognizes the current costs to starting from the economic limitations of the country are due to the tightening of the blockade, the effects of covid-19, and the global economic crisis,” but other consumers who can exert pressure on demand (such as those who buy products for processing), are left out.

What communists should learn is that the market is a comprehensive resource allocation instrument that works efficiently when all decisions are within its purview. Fragmenting the market and pointing out who can assign via supply and demand, and who cannot, because they must do so from political power, is a serious mistake that has very negative consequences in terms of relative prices, profits and income and costs. And the worst may not yet have come.

In addition to Resolution 320 that eliminates the capped prices of products intended for certain social consumption, in the same Gazette, the Ministry of Finance and Prices issued Resolutions 321 and 323. By means of the the first, authorized entities are exempted from paying customs tax to provide the import service to non-state forms of management, for the importation of inputs and raw materials that they contract for the exercise of their activities, until December 31, 2021. Are these the entities of the “Malmierca model,” or can they also be the self-employed who dedicate themselves to these tasks? Is this measure going to apply to both?

The measure is somewhat complex and will oblige those who engage in these activities to declare which products they bring in from abroad are consigned for sale in the market, with special reference to those inputs and raw materials destined for agricultural production, not applying to finished products. Once again the authorities generate confusion with this measure, by not clearly defining who is exempted from paying customs tax and who is not, and especially why.

The rule establishes in its wording that its objective “is to reduce costs and stimulate the production of goods and the provision of services by non-state forms of management, which will benefit other actors in the economy and the population.” If they really wanted to achieve this, what would be advisable is tax relief on all goods from abroad. The patches only go so far.

For its part, Resolution 323 exempts from the payment of taxes on personal income and on sales to natural persons who carry out “garage sales,” in accordance with the regulation published a few days ago by the Ministry of Internal Trade. The rule says that “the tax treatment for these sales is established taking into consideration that they do not have a systematic nature, and are intended to boost trade and diversify product offerings to the population.” That garage sales can help the Cuban economy work better is a limited-scope idea whose results will not take long to verify.

Finally, Resolution 322 of the MFP, published in the Official Gazette No. 69 Extraordinary, of July 30, 2021, exempts natural persons from paying customs duties for the non-commercial importation of equipment that takes advantage of renewable sources of energy and energy efficiency, their essential parts and pieces, complying with the provisions of the Minister of Energy and Mines.

The equipment that benefits from this measure — solar heaters, photovoltaic pumps, small wind turbines, geomembrane biodigesters, biogas motor pumps, solar lighting, and solar air conditioning systems, as well as the essential parts and pieces of this equipment — are not part of the non-commercial import value authorized for natural persons, and must be presented to Customs separately from the rest of the imported articles.

Through this measure, it is intended to encourage the importation of this equipment, with the aim of diversifying the development of renewable energy sources and increasing their participation in the country’s electricity generation matrix. Are we perhaps facing a bullish rally of non-renewable energies? Permit me to smile.

On a more serious note. With a state deficit above 20% of GDP and all sources of income down due to the serious economic crisis, is the regime in a position to accept lower tax revenues from tax bases with supposedly increasing activity? Where’s the catch?

[1] Resolución 207/2021, publicada en la Gaceta Oficial de la República número 68

Translated by Tomás A.


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