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Cuba imposes tighter controls on nascent private sector

July 16, 2018

July, 10 2018 (Reuters)

HAVANA (Reuters) – The Cuban government issued new controls on the island’s private sector on Tuesday, including restricting business licenses to one per person, reflecting its concern that market reforms have fueled wealth inequality, tax evasion and the black market.

The regulations, which will take effect in December, had been expected since the government froze issuing licenses for some popular business categories nearly a year ago, saying it needed to develop better rules for the fast growing private sector.

The ruling Communist Party said in March that there had been errors in the implementation of a market opening that former President Raul Castro introduced in 2010 in an effort to cut the bloated state payroll and kick-start the ailing economy.

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The new regulations are the first major policy announcement since President Miguel Diaz-Canel succeeded his mentor Castro in April, although they had been under review since before then. Reuters reported in February on a draft similar to the approved regulations.

Running small businesses has transformed life for many people on the Caribbean island in recent years. The number of self-employed in areas like tourism and transport has nearly quadrupled to more than 591,000 since 2010, around 13 percent of Cuba’s overall workforce, according to the Communist Party newspaper Granma.

Cuba will be reining the private sector in at a time when its economy is already facing declining subsidies from Venezuela, tighter U.S. trade and travel regulations and the devastation wrought by various storms in the past two years.

“I have to give up one license now,” said Ariadna Pérez, 31, who runs a cafeteria and a manicure business in Havana. “I will lose much of the little I am earning, and I have children and a family to support.”

Perez said she had been planning on expanding the cafeteria but she would hold off on investing.

INEQUALITY

The growth of the private sector has sparked complaints in the Communist Party and among ordinary Cubans about rising inequality, albeit from a low level. The earnings of some business owners dwarf the modest income of most people who are self-employed, and of those getting by on state wages.

A person owning several businesses is “distant from the principles that sustain the approved policy,” Granma quoted Deputy Labor Minister Marta Elena Feitó Cabrera as saying.

However, some analysts said the government was also worried about the potential for successful entrepreneurs to threaten its grip on power.

“It’s clear the government, state-owned enterprises and Cuban Communist Party do not want to risk major competition – economic, commercial, political – from a large-scale, capital-rich, diversified private sector,” said Richard Feinberg, an expert on Cuba at the Brookings Institution.

Some of the well-heeled owners of Havana’s most successful restaurants have several licenses, enabling them to increase their seating capacity. Anticipating the new regulations, they had hoped to hand off extra licenses to relatives or trusted friends.

But the new rules take direct aim at them, allowing homes only one license to operate a restaurant, cafeteria or bar, thus capping the number of seats per establishment at 50.

The regulations, published in the official gazette, seek to address issues that the government has denounced over the past year such as small businesses using the black market and evading taxes.

For example, private taxi drivers must demonstrate they are paying for fuel at gas stations, to prevent them from buying it at a discount from public sector workers who have an allocated quota.

The regulations reduce the number of categories of self-employment to 123 from 201. The government said no job types were being eliminated, they were simply being grouped together to cut down on bureaucracy.

2018-07-16T03:47:24+00:00