Wednesday, July 31, 2013

Visa news

The State Department announced today that for certain Cubans who qualify, the United States will issue five-year multiple entry visas rather than six-month single-entry visas, as has been the custom until now.  The spokeswoman was asked in today’s briefing if this step was the result of the recent migration discussions with Cuban officials, and didn’t answer directly. She said it is part of the Administration’s broader policy of increasing people to people contacts.  AP Spanish here, English here.

The hard part

“Now comes the hardest stage” of Cuba’s economic reform process, Vice President Diaz-Canel recently said in Havana.  Others of higher and lower rank have been saying the same thing.  What do they mean?

State enterprises may be the toughest nut to crack.  Many are not profitable, and if the government proceeds with its plan to shutter those that lose money, it will realize fiscal savings but also put people out of work.  Easy for an accountant, tough for a politician.

In recent National Assembly sessions (see coverage in Reuters, Granma, Juventud Rebelde), reform czar Marino Murillo indicated that the government will proceed along these lines in 2014.  Enterprises will receive greater autonomy, he said, by being permitted to use half of their after-tax profits either for investment or to increase worker pay, and through other measures.  As for the unprofitable companies, he said, “We can’t make a plan that includes companies like these.  Either they downsize, or they merge with another enterprise, or they undergo a process of investment to improve them, because otherwise the phenomenon of having to finance these losses will persist.”

As the government downsizes its bureaucracy and its enterprises, it needs a strong private sector that generates jobs for excess state sector workers.  In that connection, it’s good news that the entrepreneurial sector, now triple its size in 2010, continues to grow. 

But more is needed, larger-scale enterprises that can employ professionals and others in larger numbers, including in production of high-value-added goods and services.

The new law on private non-farm cooperatives is in effect, moving slowly in its pilot project phase.  197 have been authorized, according to a labor ministry official; in the Artemisa province there are 15 – 12 farmers markets plus a bus cooperative, another that recycles and sells construction materials, and a construction cooperative.

Most of these new cooperatives are converted state enterprises.  An official told state media that if the government decides to convert a state enterprise into a cooperative and the workers are not interested, then “the building and the equipment are put out to public bidding.”

But Presna Latina reported July 8 that the new cooperatives include 12 start-ups from the “non-state sector,” these consist “of self-employed workers mainly.”  (See coverage from AFP, Juventud Rebelde, and the Economist.)

Another way to generate jobs is through foreign investment, an issue that introduces a tension between the benefits of using foreign capital and know-how, and the risk – from the Cuban socialist perspective – of ceding a little bit of economic sovereignty in every joint venture.  This conflict surely explains, to take one small example, the decade-long wait between the tourism ministry’s identification of the need to build new golf courses and the recent approval of the first project.

The economic policy guidelines approved by the Communist Party in 2011 call for increasing foreign investment by adding new criteria by which projects may be approved, by seeking partners from new countries, and by shortening the time the government takes to make decisions on projects.

Recently there has been lots of talk in Havana about updating the 1995 foreign investment law.  But a vice minister told AP this month that a new law is not in the cards; instead, Cuba is likely to “update certain regulations” to accomplish the job.  Projects are being prepared in mining, tourism, renewable energy, and the food industry, he said.

Finally, in his July 7 speech to the National Assembly, Raul Castro called Cuba’s dual-currency system “one of the most important obstacles to the progress of the nation,” causing an “inverted pyramid” where people with greater responsibility are paid less.  It also means that Cuba lacks a functioning price system, which means distortions in both the state and private sectors that impede efficiency, competitiveness, and rational allocation of resources.

Unification of the currency, Raul said, will allow “more far-reaching and deeper transformations in questions of salaries and pensions, prices and fees, subsidies and payments.”  The result will be that “all able citizens feel an inventive to work legally once the law of socialist distribution is re-established: from each according to his capacity, to each according to his work.”

The problem is how to get there.  A sudden unification of the currency would create winners and losers – for instance, if the convertible peso were to become the new currency at the rate of ten Cuban pesos per convertible peso, those earning state salaries would gain and those earning convertible pesos would lose.  Someday, the government will have to manage the politics of that. 

Then there is the problem of state enterprises, which use a 1:1 exchange rate instead of the 25:1 rate in currency exchange houses.  In recent briefings for foreign journalists, Cuban officials told the Economist that the first step toward currency reform is about to take place, where state enterprises will have new exchange rates for their foreign trade.  They will be, a Cuban economist speculated, 12:1 for exports and 7:1 for imports.

So this is the hard part, not least because these and other changes are being pushed through a bureaucracy steeped in 50 years of centralization.  But these changes can also put the Cuban economy on a stronger footing than before, ending the policy patchwork that has held things together since Soviet support ended two decades ago.

Tuesday, July 30, 2013

Odds and ends

  • Your tax dollars at work: American Express pays a $5.2 million fine because its offices overseas sold airline tickets from third countries to Cuba – 14,000 tickets over six years.  AP notes that the Cuban government has complained about this and other fines, including one against an Italian bank for transactions it made between 2004 and 2008, before President Obama took office.

  • Former players for the Industriales, the Havana baseball club, plan to play two games in Miami to celebrate the team’s 50th anniversary.  The games will be part of a reunion celebration, with former players from Cuba coming to join others who now live in the United States.  Florida International University agreed to allow the use of its ballfield, but cancelled meekly at the last minute due to “contractual” reasons.  Pathetic.  The U.S. organizers are determined to find another venue but the dates and the event itself are in doubt.  (AP, El Nuevo Herald)  Attorney Jose Palli sums it all up in Diario las Americas.

  • Dissident Oscar Elias Biscet, in El Nuevo, argues that Cuba should join NATO someday.

  • In Juventud Rebelde, Fidel Castro writes a letter to the foreign delegations visiting Cuba for the celebration of the 60th anniversary of the attack on the Moncada Barracks.  He gives a long account of the events of 60 years ago.  He also makes brief reference to the North Korean ship detained in Panama: “In recent days slander has been attempted against our Revolution, trying to present the chief of state and government of Cuba as tricking the United Nations and other chiefs of state, imputing two-faced conduct.”

  • The International Court of Arbitration issued a $17 million judgment in favor of Chilean businessman Max Marambio, who ran a food company in Cuba, was accused of corruption in 2010, and was convicted in absentia in a Cuban court.

  • For the record, here are the statements issued at the end of the U.S.-Cuba migration talks that took place in Washington earlier this month: the Cuban and the U.S. statement.  The migration accords provide for periodic talks to discuss migration issues and the functioning of the accords.

  • Reuters: Just-published data on 2012 farm production show mixed results that are not enough to reduce food import costs significantly.  Looking at the data, production of root vegetables was up 4.5 percent over 2009, plantains up 32 percent, garden vegetables down 17 percent, grains up 15 percent, beans up 15 percent, citrus down 51 percent.  Sugar production remains low by historical standards at 1.4 million tons, but that amount is grown on one third the land in sugar production a decade ago and the yield per acre, while lower than that of the 1980’s, is higher than at any time in the past 20 years.

Sancti Spiritus

Wednesday, July 17, 2013

Havana's blunder

If it was a chess move, there would be two question marks after it, the annotation for “blunder.”

There seems little doubt that Cuba’s shipment of anti-aircraft systems, or elements of them, plus two MiG-21 fighters, violates a United Nations Security Council resolution against sending arms to North Korea. 

That’s a political black eye that Cuba would surely rather avoid. 

So why choose North Korea to repair the equipment?  Perhaps, among the few places that do that work, Pyongyang offered the best deal, such as a brown sugar barter arrangement.  Why would Cuba entrust a North Korean freighter crew to smuggle the goods, somewhat carelessly in light of the political and diplomatic risk?  I doubt we’ll ever know.

Cuba asserts, and no one questions, its right to self-defense.  Refurbished planes and anti-aircraft systems are part of that.

As for the military impact of this materiel, it is negligible to zero.

If it were repaired, retained, and deployed by the North Koreans, it would not change the correlation of forces on the Korean peninsula.

If it were repaired and returned to Cuba, its deployment would not threaten the United States.  A boost in radar and anti-aircraft missile capability would serve Cuba’s defense capability, and that plus two refurbished MiGs would enhance Cuba’s ability to monitor its airspace and territorial waters.

These systems would not affect a modern adversary as they are several generations old, first produced in the 1950’s.  (Google “MiG-21,” and you find a story about an Indian Air Force pilot who is suing his government, alleging that to fly that plane violates his “fundamental right to life.”)

And they have nothing to do with the international community’s concern about North Korea, which has to do with the development of nuclear warheads and ballistic missiles. 

But legally speaking, none of that matters in that the mere sending of those kinds of arms seems to constitute a clear violation of the UN resolution regarding North Korea. 

If Cuba were developing nuclear weapons and ballistic missiles, the United States might be treating Cuba as it did North Korea during the previous Administration – dialogue, visits by high-level State Department envoys, a respectful letter from President Bush to the Dear Leader in 2007, removal from the U.S. list of state sponsors of terrorism, and an offer of full diplomatic relations (with no political conditions attached) upon abandonment of nuclear weapons programs (see here, here, and here).

The Obama Administration seems to be waiting for the evidence fully to come in before it confronts Cuba with it.  The ship search will take a week or so as Panamanians hand-carry all the bags of brown sugar out of the hull, the North Korean sailors having disabled the winches that would have made the job easy. 

Whether the UN takes up the matter, and what it would mean for Cuba, is anyone’s guess. 

For now, Calle Ocho is enjoying an opportunity to revive the Cuban Military Threat.  It is also in the process of falling in love with the United Nations and international law, something we never see when the General Assembly condemns the U.S. embargo nearly unanimously, year after year.

Tuesday, July 16, 2013

North Korean freighter seized in Panama (Updated)

Well, this is interesting. 

A North Korean freighter that departed the Russian far east in April and visited Cuba was seized and searched in Panama, and military equipment was found.  (See update below.)

The search was prompted by an intelligence tip (source unspecified) that there were drugs on board, according to Panama’s President Ricardo Martinelli.

Martinelli called the cargo “sophisticated missile equipment” and says friendly nations who know about this kind of equipment are going to evaluate it.  If you look around, you can find stories saying there were ballistic missiles or ballistic missile parts on board.

Martinelli himself tweeted this photo.

Sky News, and later the New York Times, contacted Jane’s in London, which identified the equipment as the fire control radar for the SA-2 surface-to-air missile system, an antiaircraft system developed by the Soviets in the 1950’s.  (Report here.)

If the equipment originated in Cuba, we don’t know if Cuba was selling it to North Korea, or was sending it to North Korea to be upgraded and returned.  The Jane’s analyst spoke to the Telegraph about these possibilities and noted, “it’s not clear how they [Cuba] expected to come out well of this.”

No kidding.  Maybe we’ll learn more when “friendly nations” have inspected the cargo.

The ship’s route, according to the BBC:

17 April: Departs port of Vostochnyy, Nakhodka in Russian Far East (200km east of North Korean border)
31 May: Arrives at Pacific side of Panama Canal
1 June: Passes through Panama Canal
11 July: Arrives back at Panamanian port of Manzanillo
12 July: Ship searched
16 July: Panama announces its discovery


Cuba’s foreign ministry issued a statement describing the cargo: “240 metric tons of obsolete defensive weapons – two Volga and Pechora anti-aircraft missile complexes, nine missiles in parts and spares, two Mig-21B’s and 15 motors for this type of airplane, all of it manufactured in the mid-twentieth century – to be repaired and returned to Cuba.”  There was also 10,000 tons of sugar.