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Cuba hits walls in privatization effort

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HAVANA >> Nearly two years into the Cuban government’s economic overhaul aimed at slashing public payrolls and bolstering private enterprise, the reforms have slowed so much that many in Cuba are questioning the aging leadership’s will — or ability — to reshape one of the world’s last Communist systems and shift nearly half of the island’s output to private hands.

Those awaiting measures to create even more opportunity for privatebusiness got the oppositelast week, when news spread of a little-advertisedgovernment decision to charge steep customs duties onthe informal imports, from Miami and elsewhere, that are the lifeblood of many young businesses.

“This could have a huge impact,” said Emilio Morales, president of the Miami-based Havana Consulting Group, who said state-owned shops in Cuba were losing business to street vendors. “It shows the state isn’t ready to compete with the private sector.”

After the Cuban government began allowing people to open businesses in late 2010, nearly a quarter of a million of themhave opted to work for themselves, opening restaurants, snack bars and makeshift shops, driving taxis and fixing cellphones. Together with those who took advantage of an earlier experiment with privatization in the 1990s, about 387,000 Cubans, out of a population of about 11 million, are now self-employed; Cubans are also privately trading homes and cars for the first time in 50 years.

As the private sector has grown, so has the deluge of goods brought to Cuba each day in suitcases and duffel bags, principally from Panama, Ecuador, the United States and Spain. With no access to a wholesale market, Cubans turn to friends, relatives and so-called mules for everything from food to trinkets to iPhones. This parallel trade has ballooned to more than $1 billion per year, Morales estimates, since the Obama administration began loosening of restrictions on travel and remittances in 2009.

Yunilka Barrios, who sells sunglasses, hairbands, nail polish and glittery bra straps from a grimy, narrow doorway, was alarmed by the prospect of a 100 percent tax on informal imports that the government indicated would go into effect in September.

“Things seem to be tightening up,” she said.

Economists, businesspeople and diplomats believe that President Raul Castro is treading carefully because of resistance from midlevel functionaries reluctant to lose their perks, and from conservative officials nervous about the social and political impact of economic enfranchisement.

The Cuban leader, who has sworn off the “shock therapies” that ruptured the Soviet Union, said in a speech in December that the government would proceed “without hurry or improvisation, working to overcome the old dogmatic mind-set and correcting any mistakes in a timely fashion.”

But the pace of change has been too slow for people like Yelena Lopez de la Paz, who went bust because of competition, lack of experience and low margins. She opened a snack bar on her block in July 2011 and made about $100 profit the first month, selling pizzas, juice from her mother’s homegrown mangos and chewing gum sent by her grandmother in Miami. Then three snack bars opened nearby, and by the time she closed in November, de la Paz was taking home a dollar a day.

“I was investing a lot of money and time and earning nothing,” she said in frustration.

Given the lack of progress, the government’s pledge in April to move about 40 percent of the country’s output to the nonstate sector in five years is less and less plausible, experts say.

“At the rate they are going, there is no way they will reach that figure,” said Carmelo Mesa-Lago, a Cuban-born professor emeritus at the University of Pittsburgh.

With the National Assembly set to meet next Monday, Cubans are anticipating an expansion of the number of co-ops beyond the existing agricultural ones.

Separately, the government is turning small, state businesses, including cafes and watch repair shops, over to employees in some provinces. It has lifted a $4 ceiling on the value of contracts between state entities and individuals and is subcontracting work, such as construction, to independent operators.

Authorities agreed in November to lengthen leases for farmers who cultivate state-owned land and allow them to build on it, but the rules have not yet been published.

“This is the first time since the 1970s or 1980s that the country has a plan, and this is the first time that there is discipline in implementing the strategy,” said Rafael Betancourt, an economist based in Havana.

But such caution is at odds with Cubans’ urgent needs, some say. Orlando Marquez Hidalgo, editor of the Catholic magazine Palabra Nueva in Cuba, said recently that if workers laid off by the public sector failed to find other jobs, their “discontent and frustration” would grow, as would “the number of those who dissent or wish to leave.”

“Time is vital,” he said.

The government aims to trim state payrolls by 170,000 this year and add 240,000 private-sector jobs, a tough goal given that just 24,000 Cubans took out licenses for self-employment in the first five months of the year.

Esteban Lazo Hernandez, a vice president of the Council of State, said in April that private-sector output would grow to between 40 percent and 45 percent of the gross national product in five years, from about 5 percent now.

Not all the entrepreneurs are struggling. Some restaurants and taxi services are making profits, and Carlos Saladrigas, a Cuban-American businessman, said during a visit to Havana in March that he knew of people “making a lot of money, even by American standards.”

In interviews, a dozen Cuban entrepreneurs said they were making much more than they were in the public sector. However, supplies at state retail stores were expensive and unreliable, they said, and they often used the black market to cut their overhead.

The owner of a snack bar, who asked not to be identified because he was describing illegal activity, said he bought hamburger rolls out of the back door of a state-run bakery and meat patties from a friend who filched ground beef from his employer. One man selling hardware said most of it came from “Roberto,” a Cuban euphemism for stolen goods.

For Amarilis Albite Cabezas, a 23-year-old accounting student who runs a busy snack bar in her home in a Havana suburb, the restrictions stem from a continued distrust of individual wealth.

“They just haven’t gotten things organized,” said Albite, who gave up on getting a bank loan to buy a $700 refrigerator because she was asked to provide two guarantors, each of whom would have to leave the full amount in escrow until she had repaid.

“They opened these businesses so that people could survive and so that they, too, would survive,” she added. “But I don’t think anybody is getting rich. That would be — I don’t know — capitalism.”

Mesa-Lago said one impetus for reform may be Cuba’s dimming hopes of tapping offshore oil deposits. Repsol, the Spanish oil giant, decided in May to leave Cuba after its second well came up dry. Other companies are exploring different sites, but the dry well dented Cuba’s prospects of reducing its dependence on Venezuela, which provides billions of dollars’ worth of oil each year in exchange for a range of Cuban services.

For the moment, Barrios is happy in her doorway, taking home $10 to $15 on a good day, after she pays $2 to the neighbor who shares the entrance. She has cut prices to compete and frets about rumors that the government may crack down on stalls in passages and entranceways.

As she fished for change in a pouch at her waist, she said, “I just want to keep this going.”

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