1748. U.S. Policies Enhances Market Reform Induced Income Inequity in Cuba

By Ronald C. Archibald, The New York Times, February 24, 2015

Cubans in the Havana shantytown El Fanguito, roughly translated as “Little Swamp,” rarely have relatives abroad who can send money to augment meager wages. Photo: Eliana Aponte for the New York Times.

HAVANA — The river where Jonas Echevarria fishes cuts through neighborhoods brimming with new fine restaurants, spas and boutiques, springing up in Cuba’s accelerating push toward private enterprise.

Tattered mansions and luxury apartment blocks speak of old wealth and new. A bounty of private restaurants known as paladares serve pork tenderloin, filet mignon and orange duck to tourists, Cuban-Americans visiting relatives and a growing pool of Cuban entrepreneurs with cash to spend.

These were things Mr. Echevarria, with only a few eggs, some plantains and a handful of rolls in his pantry, would not be having for dinner.

In his neighborhood, a shantytown called El Fanguito (roughly, “Little Swamp”) on the fringe of the Rio Almendares and the margins of society, few people have relatives sending money from abroad, food rations barely last the month, and homes made of corrugated tin, wood scraps and crumbling concrete fail to keep out floodwaters.

Nobody goes to paladares, much less has the money to start one.

“Never,” said Mr. Echevarria, whose livelihood depends on the catch of the day. “I guess I could not even afford the water.”

As Cuba opens the door wider to private enterprise, the gap between the haves and have-nots, and between whites and blacks, that the revolution sought to diminish is growing more evident.

That divide is expected to increase now that the United States is raising the amount of money that Americans can send to residents of the island to $8,000 a year from $2,000, as part of President Obama’s historic thaw with Cuba.

Remittances, estimated at $1 billion to nearly $3 billion a year, are already a big source of the capital behind the new small businesses. The cash infusion has been one of the top drivers of the Cuban economy in recent years, rivaling tourism revenue and mineral, pharmaceutical and sugar exports.

Raising the remittance cap, along with allowing more Americans to visit Cuba and other steps toward normal diplomatic relations, will help “support the Cuban people,” the Obama administration contends.

But some will enjoy that support more than others. Cuban economists say that whites are 2.5 times more likely than blacks to receive remittances, leaving many in crumbling neighborhoods like Little Swamp nearly invisible in the rise of commerce, especially the restaurants and bed-and-breakfasts that tourists tend to favor.

“Remittances have produced new forms of inequality, particularly racial inequality,” said Alejandro de la Fuente, director of the Afro-Latin American Research Institute at Harvard University. “Now the remittances are being used to fund or establish private companies, that is, not just to fund consumption, as in the past.”

The Cuban government argues that the shift to more private enterprise, a pillar of its strategy to bolster the flaccid economy, will allow it to focus its social programs on the neediest. As a billboard on a busy road in Havana proclaims, “The changes in Cuba are for more socialism.”

But many poorer Cubans are frustrated by what they see as the deteriorating welfare state and the advantage that Cubans with access to cash from outside the country have in the new economy.

“As Cuba is becoming more capitalist in the last 20 years, it has also become more unequal,” said Ted Henken, a professor at Baruch College who studies the Cuban economy. “These shantytowns are all over Latin America, and Cuba’s attempt with revolution to solve that inequality succeeded to a certain degree for a time. But as capitalism increases, you have some people more well positioned to take advantage and others who are not.”

At Starbien restaurant, one of the most popular in Havana, the owner, José Raúl Colomé, said it was not unusual for a majority of the clientele to be Cubans who live on the island, rather than tourists or expatriates.

“Some are artists who are doing well or entrepreneurs who have had luck,” Mr. Colomé said. “A lot are tourists, naturally, but we are getting more Cubans who might be called middle class.”

In poorer neighborhoods like Little Swamp, many describe feeling like foreigners in their own city, watching the emerging economy but lacking the means to participate in it.

They note the predominance of white Cubans in the new ventures but broach the subject carefully, noting the gains that the revolution brought to Afro-Cubans in education and health but also the hard economic times that darker-skinned Cubans continue to endure.

“I look in those new places and don’t see anybody like me,” said Marylyn Ramirez, who works at a tourist hotel in the Vedado neighborhood and passes new restaurants on the way to work.

Asked if she received financial help from relatives abroad, she smirked and swept her hand around her small living room, which floods repeatedly in heavy rains.

“If I had that,” she said, “do you think I would be living here?”

After the so-called special period of the 1990s, when the collapse of the Soviet Union plunged Cuba into an economic crisis, thousands of desperate people moved from the countryside to Havana without permission, hoping to find work.

Many still live as virtual refugees in their own country, in neighborhoods like Little Swamp, unable to register for government services like ration books because it is almost impossible to change addresses without prior authorization.

“Erosion of poverty has always been a concern, but they have not managed to eliminate these kinds of neighborhoods in the best years of the Cuban welfare state,” Mr. de la Fuente said, “and it is much less likely they can do it now.”

Many residents mention the free education and health care the government has provided but lament that both seemed better in years past, with shorter lines for care and better teachers. The few poor residents who do receive remittances are known to pay private tutors to ensure that their children advance to upper grades, several people in the neighborhood said.

One resident mentioned a government program that offered refrigerators to those without them, for a price of about $300. But the monthly payments, made with government salaries that are rarely more than $20 a month, can last for years, “longer than the refrigerator lasts,” he said.

Cuba’s two-tier currency puts residents at a further disadvantage. One currency, known as the convertible peso and used for tourism and foreign trade, is pegged to the dollar. But most Cubans are paid in the local peso, worth a fraction of the other. Many consumer goods and other amenities from abroad are paid for in convertible pesos, keeping such comforts out of reach for many.

A government program to build housing has not kept up with demand, and residents often refuse to leave their homes when floodwaters threaten because they fear that squatters will take over or the authorities will not let them return. Jerry-built electrical wiring sprawls along walls and rooftops, a clear fire hazard.

1540. Market Reforms Widen Racial Gap in Cuba

By Reuters, September 2, 2014

Adonis, a 17-year-old barber, cuts a customer's hair in his house in Havana, August 31, 2014.  CREDIT: Reuters/ Enrique de la Osa

Cuba's experiment with free-market reforms has unintentionally widened the communist-led island's racial divide and allowed white Cubans to regain some of the economic advantages built up over centuries.

Under President Raul Castro, who took over from his brother Fidel Castro in 2008, Cuba has expanded its non-state workforce, loosened travel restrictions and promoted private cooperatives and small businesses.

As the communist government relinquishes its once near-total control of the economy, inequality has widened, undoing some of the progress seen since the 1959 revolution.

Much of the funding for new businesses such as restaurants, transportation services and bed-and-breakfast inns - targeted at tourists, diplomats and dollar-earners - comes from family members who emigrated to the United States over the last 50 years, especially Miami.

They sent almost $3 billion to relatives back in Cuba last year and, as they are mainly white, their investments put black and mixed-race Cubans at a disadvantage as they try to set up their own businesses.

Walter Echevarria, a 60-year-old black man, co-owns a humble cafeteria run out of a ground-floor Havana apartment belonging to one of his partners.

There is no seating, and the clients are mostly state workers who order pork sandwiches and juice or a coffee for about 15 Cuban pesos, or around $0.60.

"It's usually the whites who have family abroad and send them money, and they can set up bigger businesses," Echevarria said while customers lined up at the take-out window during the busy lunch hour.

With the additional economic freedom under Raul Castro's reforms, there is also greater discrimination.

Armed with a substantial resume, Miguel Azcuy quit his job at a state-owned restaurant to go job-hunting in Cuba's incipient private labor market two years ago, hoping to wait tables in the fast-growing restaurant sector.

The job offers never came. Azcuy, 39, had a degree from gastronomy school and 15 years of experience in state-owned restaurants.

He's also black, and says his race closed opportunities that would be available to white Cubans. Researchers and analysts also say the market-oriented economic reforms under way have put poorer Afro-Cubans at a disadvantage

"I felt like the owners of many of these places looked at me with disdain," said Azcuy, who has since managed to open a small cafeteria selling coffee and juice from his home near a major hospital in Havana.

"They didn't trust me. They didn't give me a chance. They probably figured that sooner or later the blacks will let you down. Here people say they are not racist but at the moment of truth their prejudices come out."

Anecdotally, the divisions appear obvious in a society descended from Spanish colonists and African slaves.

Tato Quiñones, a researcher who heads a private group called Brotherhood of Blackness, says it is enough to observe the small number of Afro-Cubans who have relatively lucrative sources of income such as owning restaurants, driving taxis, or renting out rooms in their homes.

Shortly after Raul Castro took over as president in 2008, he allowed Cubans to visit resort hotels, previously reserved only for foreigners. Today, in the exclusive beach resort of Varadero, the Cuban clientele is almost all white.

Black construction workers largely built the hotels but client-facing staff are mostly white.

Money from Miami 

When Fidel Castro seized power in 1959, it was mostly the privileged white elite that fled the country for Miami, not the largely black workforce of laborers, sugar cane cutters and domestic help.

Following changes in U.S. laws in 2009 and 2011, Cuban-Americans can now more easily travel to Cuba and send unlimited remittances to their families.

A study by the Miami-based Havana Consulting Group found Cuban-Americans sent a record $2.77 billion in remittances to Cuba in 2013. Of that total, 82 percent passed through white hands. Twelve percent was sent to mixed-race relatives, and 5.8 percent went to blacks.

By contrast, Cuba's 2012 census showed that 64.1 percent of Cuba's 11 million people are considered white, 9.3 percent black, and 26.6 percent of mixed race.

Besides financing the fledgling private sector, remittances contribute to a more general inequality in Cuba. The relatives of exiles and doctors who work overseas or commercially successful artists line up at hard-currency stores to buy luxury goods while most Cubans scrape by on $20-a-month government jobs.

Before Castro's revolution, education was largely off limits to blacks and mestizos and they were shut out of universities and jobs that involved interacting with customers. Whites had their own social clubs, beaches and private parties.

As soon as he assumed power, Castro eliminated segregation and attempted to abolish inequality by giving all Cubans access to free education and health care. The government hails those as among the revolution's greatest accomplishments.

Today Cuba is largely a mixed-race society, though one in which lighter skinned Cubans still enjoy advantages in all but sports and entertainment.

Many Cubans are of ambiguous racial heritage, and a panoply of names exist to people of various hues. The terms are more descriptive and not considered offensive.

Some Afro-Cubans say they have not experienced racism under the revolution, advancing in education and careers without impediment.

Echevarria, the sandwich shop co-owner, said he was content with his humble business and not too bothered by inequality. "Racism exists. Not like before, but it exists."

But other black and mixed-race Cubans say they feel racism, and experts say whites still have better access to good jobs and higher education.

Those disadvantages grow more acute with major economic changes, such as when the collapse of the Soviet Union caused a deep recession in the 1990s and now as market forces have a bigger role.

"That's what has dragged our people back and is being aggravated today," Quiñones said.

In 2011, the ruling Communist Party sent a message on racial equality by raising the number of blacks or mixed-race Cubans on its 115-member Central Committee to 36, almost in line with the census data.

And the official Union of Writers and Artists of Cuba (UNEAC) is working on proposals to counteract inequality, both in media representation and in society, such as harassment by police, a common complaint.

But Cuba does not publish demographic data such as income or crime by race and experts say it makes it very difficult to design economic, social and cultural policies to boost equality.

"In Cuba the statistics are color blind," said Jesus Guanche, a frequent writer on matters of race. "If you want to enact measures to help disadvantaged people, you have to identify them."

1364. Cuba Opens Its Economy to Foreign Investment, Carefully

By Adam Molon, CNBC, March 28, 2014

In this Nov. 6, 2013 photo, small fishing boats float anchored on the opposite shore of a port under construction in the Bay of Mariel, Cuba. Authorities have high hopes that Mariel could become a strategic economic center. Photo credit: Franklin Reyes, AP

The Cuban government said this week that it will open most of the nation's economic sectors to international investment and allow the existence of wholly owned foreign firms in Cuba, as part of a new foreign investment law that is expected to pass on Saturday.

The Cuban government is also expected to cut the profit tax it charges foreign enterprises operating on the island to 15 percent from the current 30 percent.

But experts like John Kavulich, a senior policy advisor at the U.S.-Cuba Trade and Economic Council, said that while these proposed initiatives have the potential to bring positive, liberalizing reform to Cuba's economy, international firms should still approach with cautious skepticism.

"What they've announced they'd do, does it sound progressive? Yes. Does it have the potential to be progressive? Yes," Kavulich said, referencing the Cuban government and the newly proposed foreign investment legislation.

"But Cuba's had a foreign investment law since the 1980s. And one of the problems has been that when the government feels that they've made enough progress, they reverse course and try to take back or eliminate the opportunities that they've presented to companies. Any changes announced now have to be looked at in that historical context."

Currently, international firms are allowed to operate in Cuba only as minority stakeholders in so-called mixed companies that are majority-controlled by the government.

Kavulich pointed to a lack of legal and procedural transparency as a key issue affecting Cuba's business environment, noting that some of the key challenges foreign firms face in Cuba include repatriation of profits, arbitration of conflicts and disputes, and regulations requiring that Cuban personnel be hired through a state-run employment agency.

"On a plate of appetizers, it's not going to be the first appetizer that you select," said Kavulich of Cuba's international investment environment. "There are many countries throughout the world that are far more transparent and have a less hostage-like relationship with cooperating partners."

John McAuliff, executive director of the Fund for Reconciliation and Development, a nonprofit organization advocating warmer relations between the U.S. and Cuba, said that a new foreign investment law enacted within an opaque and evolving system like Cuba's could lead to misunderstandings for international investors, and, in some instances, even something potentially as bad as jail time.

"In a transitional situation where not all the rules are clear or not all the laws are clear, people could, through overreach, or greed, or ignorance, get themselves into trouble with local laws," said McAuliff. "There have been serious issues with people cutting corners and getting into trouble with the law, and facing criminal charges in Cuba."

Robert L. Muse, an attorney who specializes in U.S. laws relating to Cuba, said that in order for new Cuban foreign investment policies to be effective, specificity of terms and clarity of process are key.

"I would encourage Cuba to go very quickly from the general to the highly specific. What are the timelines? What are the approval processes? How are they going to be enforced? Then, move on to specificity of rule-making and regulations," said Muse. "It's not going to be good enough to make broad pronouncements that Cuba is now seeking foreign investment. Some questions are going to have to be pre-emptively answered."

Muse cautioned that international companies considering investment in Cuba should do so with their eyes wide open to the opportunities and risks present in the island's economy and politics.

"This is a country that is opening up after 60 years of dormancy in the investment sectors," said Muse. "You're almost pioneering your way in, but there are risks associated with it."

Andrew MacDonald, director and chief executive of Esencia Group, said he finds those risks worth taking. His company plans to build biomass power plants in Cuba through a joint venture formed with a state-owned company in Cuba's Ministry of Sugar.

"There are some unique factors," said MacDonald of international investment in Cuba. "It can be a tad bureaucratic at times, but the country is developing economically in the right direction."

MacDonald said that while his company has been able to work effectively within Cuban joint ventures through considerable efforts, the prospect of being able to form a wholly owned venture in Cuba is appealing.

"One of the issues in Cuba is that it is a little bit chicken-and-egg. You've got to do a lot of prework and invest a lot of resources before you get the joint venture approved, and then you can actually do the real work," said MacDonald. "From a foreign investment point of view, it's an attractive proposition to be able to own 100 percent of your company and not have to form a joint venture."

Whether working in joint venture arrangements or as a wholly owned entity, MacDonald said his company has no plans to exit Cuba.

"The opportunity side is enormous, because Cuba is a country rich in natural resources," he said. "We believe in the Cubans, and we respect them for their technical abilities and the resources they have."