Carmelo Mesa-Lago: "The Cuban Government Panicked After Obama's Visit"

Carmelo Mesa-Lago: "The Cuban Government Panicked After Obama's Visit"

14ymedio, Maité Rico, Madrid, 1 June 12017 — Carmelo Mesa-Lago (born
Havana, 1934) has spent a good part of his life trying to open a breach
of good sense in the wall of absurdities with which that the Castro
regime has ended up plunging into bankruptcy a country that was, in the
1950s, the third most developed in Latin America after Argentina and
Uruguay.

A Professor Emeritus of the University of Pittsburgh in Pennsylvania, he
has just presented in Madrid the only study on the private sector in
Cuba (Voices Of Change In The Cuban Non-State Sector, published by
Iberoamericana-Vervuert), based on interviews with 80 self-employed
individuals.

Armed with the best statistical data, this economist views with
perplexity how the economic reforms announced by Raúl Castro in 2010 are
being diluted ("the Government takes one step forward and four steps
back"), and how the country is losing the opportunity that was offered
to it last year by the reestablishment of bilateral relations with the
United States.

It was precisely Barack Obama's outstretched hand that sowed panic in
the Government, which fears that economic openness will lead to
political change. Now there is a brake on the reforms, there are no
investments, and the crisis in Venezuela, which replaced the USSR as
Cuba's economic supporter, has plunged the country into disaster.

Rico: Is Cuba entering a new "Special Period" [a euphemism to describe
the period of hardship that followed the fall of the USSR and the end of
aid to Cuba]?

Mesa-Lago: The situation is similar, but not so dramatic, because the
dependence on the Soviet Union was much greater than that on
Venezuela. That said, the trade volume with Venezuela has dropped
significantly (from 42% to 27% in 2015) and the supply of oil has
declined from 105,000 barrels a day to 55,000.

Cuba sold a part of that oil in the world market, and it was an
important source of income that has also fallen by half. And another
income that has fallen is the most important one: the sale of
professional services (doctors, nurses, teachers) [to foreign
countries], which went from 11 billion dollars in 2013 to 7 billion. In
2015, GDP growth was 4.4%. In 2016, it was minus 0.9%. Everything points
to a very strong crisis, but I do not think it reaches the level of the
Special Period.

Rico. At least, within this parasitic economy, tourism remains.

Mesa-Lago. There is a boom, for the first time they exceeded four
million tourists and took in about 4 billion dollars. The problem is
that this gross income has to be subtracted from the value of imports of
goods and supplies for tourists. Cuba has to import everything. And that
data is no longer published. So it's not 4 billion. It's less, but we do
not know how much.

Rico. Despite the announcement of the investment plan and Obama's trip,
foreign investment has not materialized and the Special Development
Zone in the Port of Mariel, the big Brazilian bet, is quite inactive.

Mesa-Lago. It is inexplicable. Cuba needs [new investments of] at least
$2.5 billion a year. Until last month there were some 450 proposals for
foreign investment, some of them already established in Cuba. And they
have only approved some twenty of them. According to their figures,
since the opening of the Port of Mariel Special Development Zone the
cumulative figure has not reached 2 billion dollars. Why do they do
this? It does not make sense to me.

Rico. But what can Cuba offer, beyond cheap labor? The system of
production is destroyed.

Mesa-Lago. The infrastructure is a disaster. And the workforce, which is
qualified, works extremely slowly. For the construction of the Manzana
hotel, Kempinski brought workers from India because they were more
productive. The problem is that the Cuban worker earns very little and
is paid in Cuban pesos (CUP), and has to buy most things in convertible
currency (CUC), and they can't support themselves. There is no
incentive, and it is a vicious cycle. Between 1989, the year before the
crisis, and 2015, the purchasing power of Cubans fell by more than 70%.

Rico. And when are they going to solve the problem of the dual-currency
system?

Mesa-Lago. Raul has announced it many times and two years ago made a
very complicated resolution, full of equations. But nothing
happened. The problem is that inflation will be about 12% this year, it
is very high. And the unification of the currency, by itself, generates
inflation. So I find it difficult to see them doing it in the short
term. In addition, they must first do it in the state sector, and there
will be companies that will cease to be sustainable, and then comes the
population. It's going to be a longer process than in Vietnam and
probably in China.

Rico. How many workers has the state fired since the reforms began?

Mesa-Lago. They announced that between 2010 and 2015 they were going to
lay off 1.8 million unnecessary workers, but in the end it was half a
million. The private sector did not advance as rapidly as needed to
create all those jobs, and there would have been a social explosion.

Rico. But why does private activity grow so slowly?

Mesa-Lago. Because of all the obstacles. It is as if the right hand
doesn't know what the left hand is doing. There are many activities that
the Government has closed down or rescinded [the permission for, after
initially granting licenses]: clothing sales, 3D movie theaters … now
they have begun to regulate prices for private taxis and on the sale of
homes, and to interfere in the free agricultural market. Taxation is
brutal. There are something like seven taxes. The Government punishes
those who succeed and who could help the State solve its problems. It is
not logical.…

Rico. And how do you explain it?

Mesa-Lago. The only explanation I have is that in Cuba there is no
unified leadership with a single opinion, but there is a group that
resists. Obama's visit had a very positive impact on the population, but
the government panicked. From there came a a paralysis. The most
hardline group, the most orthodox, came out stronger than ever.

Rico. Are the Armed Forces putting obstacles in the way?

Mesa-Lago. Yes, and the Party, but the Army is more important because it
has economic power. And it has like a reverse Midas touch. Everything it
touches it turns to garbage … Restaurants, hotels … It is impressive.

Rico. The self-employed people interviewed agree on their problems:
scarcity and lack of inputs, regulatory overspending, taxes, difficult
access to the internet …

Mesa-Lago. Yes, and in spite of the continuous obstruction of the State,
80% of them are satisfied with what they do (although not with what they
earn). And 93% made profits, and most reinvested them into their
business. That is extraordinary.

Rico. Will the team in power be able to make the transition?

Mesa-Lago. If Raúl Castro, in ten years, has not pushed the reforms, I
doubt that his successor can be more successful. Political logic
prevails over economic logic. And they fear losing control.

_____

Editorial Note: This article was previously published in the Spanish
newspaper El País and we reproduce it with authorization of the author.

Source: Carmelo Mesa-Lago: "The Cuban Government Panicked After Obama's
Visit" – Translating Cuba -
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