U.S.-Cuba Trade and Economic Council

U.S. House Hearing on Cuban Private Enterprise

On January 18, the U.S. House Foreign Affairs Subcommittee on Western Hemisphere Affairs held a hearing that opened with its chair, Rep. Maria Elvira Salazar (Rep., FL), delivering a speech entitled “The Myth of the New Cuban Entrepreneurs: An Analysis of the Biden Administration’s Cuba Policy.”[1]

Salazar said, “according to information she has, the growth of private enterprises in Cuba is a ‘scheme’ by the Cuban government to violate the U.S. embargo and that only the children of Cuban leaders have an easy path to own these businesses.” That comment was echoed by Rep. Mark Green, a Tennessee Republican, saying, “the Cuban military is embedded in every single business, so the concept of a private sector is almost non-existent in the country.”

At the end of the hearing, however, after hearing about the Biden Administration’s position discussed below, Salazar “seemed to have softened her initial stance, telling the State Department officials that Republicans are ‘on the same page.’ Apparently contradicting her early views, she asked, “How can we help this administration really help those small business owners in Cuba that have no contact or connection with the regime to open up a good store if they want or to own a privately owned business? What can we do together?”

The Biden Administration’s Position on Cuban Private Enterprise

Eric Jacobstein, deputy assistant secretary of state for Western Hemisphere Affairs, testified at the hearing, “In an acute twist of irony, the island’s communist government must now rely on private enterprise to provide food and basic services for its people. We believe the organic expansion of the private sector on the island – led by the Cuban people themselves and not by any foreign government – is an opportunity that should not be wasted. Above all, we must encourage the freedom of Cuban citizens to define their economic future. Failing to engage and support Cuba’s private sector would leave space for Russia and the [People’s Republic of China] to shape the direction of the Cuban economy. We must not allow this to happen.”

Jacobstein added, “We believe the organic expansion of the private sector on the island – led by the Cuban people themselves and not by any foreign government – is an opportunity that should not be wasted. Above all, we must encourage the freedom of Cuban citizens to define their economic future. Failing to engage and support Cuba’s private sector would leave space for Russia and the [People’s Republic of China] to shape the direction of the Cuban economy. We must not allow this to happen.” Moreover, “the private businesses give some young Cubans reasons to stay on the island despite the challenges. . . . In an acute twist of irony, the island’s communist government must now rely on private enterprise to provide food and basic services for its people,”

Enrique Roig, the deputy assistant secretary in the State Department’s Bureau of Democracy, Human Rights and Labor, said that “the Biden administration is not solely focused on supporting independent private entrepreneurs but also on improving the human-rights situation on the island. In particular, the administration has pushed for the release of about 1,000 political prisoners.”

Rep. Joaquin Castro (Dem, TX), the Ranking Member of the Subcommittee, said, the U.S. should support Cuban entrepreneurial efforts, not stifle them.” He added, “Our policies of the last 60 years have not resulted in the changes we would like to see; in some cases, they have even emboldened the Cuban government and strengthened their relationship with key adversaries like China and Russia. The United States can both recognize the threat that the Cuban regime poses to regional and national security while also engaging on key priorities and supporting the Cuban people’s efforts to further their own democratic aspirations.” This includes embracing “former President Barack Obama’s engagement policies, including removing Cuba from the list of countries that sponsor terrorism,” calling it ‘a baseless, extremely harmful designation.’

California Democrat Sydney Kamlager-Dove said that the denial that the Cuban private sector truly exists was a “conspiracy theory.”

Other Comments on Cuban Private Enterprises

Before the hearing, John Kavulich, the president of the U.S.-Cuba Trade and Economic Council, a Washington-based organization tracking business with Cuba, wrote in the Cubatrade blog, “The hearing premise is established on a falsehood” and that it is “wrong” to define those who have created and manage the private enterprises “as participants in a myth, as dupes of the government … rather than instruments of change. [The Cuban government] “does not embrace the re-emerging private sector. It’s tolerated. That should not mean the United States Congress should dismiss it. Or worse, work against it. “

======================

[1] Torres, Republicans and Democrats in Congress clash over the existence of the private sector in Cuba, Miami Herald (Jan. 18, 2024),

Cuba’s Current Economic and Political Crises

Introduction[1]

At least by early December 2023, it was evident that Cuba was experiencing a horrible economic crisis. One commentator put it this way: “Cuba is going through the worst crisis it has experienced in decades, with widespread shortages of food and medicines, rolling blackouts and a sky-high 400% annual inflation rate. The calls on the communist leadership to open up the economy to the market are getting loud, even from close political allies.”

t also was a Cuban political crisis on how to respond to this economic crisis. As John Kavulich, the president of the U.S.-Cuba Trade and Economic Council based in New York City, said in early December, Cuban “bureaucrats have become more reluctant to take risks since there is uncertainty about who is really in charge.” They are “either frightened or untrusting, and certainly not risk-takers.”

The most vivid criticism of this situation came from Roberto Alvarez-Quinones, a Cuban journalist, economist and historian who after working in Cuba for Granma and Cuban television stations has been doing that work in Los Angeles, California. He said, “Never in the history of the entire West has there been such an overwhelming economic and social crisis that it has affected practically 99% of the total population of a country, without having been caused by a natural catastrophe or a war, but by the Government of the nation.”

Cuban Government’s Response[2]

At a December 20-22, 2023, meeting of Cuba’s National Assembly, the Minister of the economy and planning, Alejandro Gil Fernandez, reported that for 2023 Cuba’s GDP fell almost 2%; exports were $770 million below predictions; food production was less than that for 2022; tourism, although more than the prior year, had a yield only 69% of the 2019 figures; overall production was down; there were shortages of supplies and fuels; and health care and education sectors where harmed by loss of workers to emigration.

Fernandez attributed Cuba’s inflation to international price hikes, the government’s release of money to finance its budget deficit, fewer goods being produced, the agricultural sector being burdened by labor shortages, high costs and low yields and Cuba being forced to import over 70% of the food that [was] being consumed.

Prime Minister Manuel Marrero Cruz said the government’s lack of control over production and distribution “adversely affects production by state entities and lets currency exchanges on the illegal market determine the pricing of products from the non-state sector.”

President Diaz-Canel, of course, criticized the U.S. embargo (blockade), but admitted that the Cuban government had made some errors in the “design and implementation of currency unification,” “approving new economic actors without performance norms having been established” and “the complexity of making decisions in a context of extreme tension [and of] commitment to preserving social conquests.”

All of these “difficult realities” were summarized by W.T. Whitney, Jr. (an U.S. political journalist focusing on Latin America) as “the adverse effects of diminished tourism, inflation, and emigration; social inequalities based on varying access to resources; production stymied by shortages of resources; inadequate food production; lack of buying-power for most Cubans, and for importing necessary goods; and the near impossibility of securing foreign investment.”

To meet these problems, Whitney said, Cuba was preparing these responses: “further decentralization of political and economic administration; cutbacks on the expenditure of central government funds; reduced subsidies for the purchase of water, fuel, transport, and electricity by business entities; adjustment of import tariffs to favor the availability of resources for production; capturing more tourist dollars; protecting state-operated production entities; fixing prices; and producing more food.”

Moreover, Whitney said, the U.S. needs to cancel its embargo (blockade) of Cuba and remove Cuba from the U.S. list of countries that are sponsors of international terrorism.

Criticism of Cuban Government Responses[3]

Javier Perex Capdevila, Doctor of Economic Sciences and Professor at the University of Guantanamo, said the Government measures are based on cutting subsidies, but “there are no measures to get out of economic stagnation and . . . to reduce inflation, accompanied by a fiscal deficit that entails generating more liquid money which does not stimulate the economy, but rather inflation. The measures that have been announced in a confusing and ambiguous manner are supposed to achieve macroeconomic stabilization, but that is not a real solution . . and there is no guarantee that they will work.”

In addition. Capdevila noted that increases in long-distance transportation rates will adversely affect many people who have to use such transportation to reach competent medical personnel. He said, “You cannot save a country if you do not save the people.”

Pedro Monreal, a Cuban economist, criticized the purported justification for increasing black market prices for currencies by saying the government had not designed that market. Monreal said this was “a fig leaf to cover up the poor design of the ‘organization that made this informal market necessary.’” The Cuban State did something worse in 2020 when “it designed a defective official exchange market with an overvalued [peso].” Monreal also “predicted more inflation” this year with a government deficit of 18.5% of gross domestic product.

Cuban economist Emilio Morales commented on the continued emigration of Cubans in 2023 while there was a 3.3% decrease in remittances to those on the island due to the need for those now in other countries to pay for their outbound transportation and expenses of living in other countries on their “march for family freedom.” Morales concluded that this result shows “the systemic crisis demands radical reforms and the entrenchment of the mafia regime in its totalitarian model blocks any possibility of survival. History teaches that bayonets cannot sustain a regime for long, indefinitely without fundamental reforms.”

The most recent news about Cuba’s laws affecting private enterprises was the January 16^thannouncement of new income tax regulations. Now “private sector employees will have to pay a 20% income tax on earnings above 30,000 Cuban pesos, about $109 per month. That’s a 15% tax rate increase from the previous scale set up in 2021, which imposed a 5% income tax for earnings over 9,510 Cuban pesos. Business owners must automatically deduct the tax payments monthly, the decree says.”

This recent announcement is in addition to the tax burden on Cuban private businesses: 35% tax on profits, a 10% tax on sales or services provided, a 5% payroll tax, a one percent revenue tax to support local governments and contributions to social security equal to 14% of workers’ salaries. Owners of the [private businesses] also have to pay up to 20% taxes on dividends.

Such private businesses “cannot hire more than 100 employees, they cannot be involved in economic activities handled by the state, such as telecommunications, and must import products and supplies through state companies working as intermediaries. According to the new regulations published this week, they can also be hit with price controls at any time ‘when circumstances advise it to achieve more favorable prices for the population.’”

At about the same time as this announcement of new taxes on private enterprises, the Cuban government announced a new “’ethics code’ for government officials and members of the Communist Party and similar organizations that mandate them to ‘be faithful to socialism,’ fight against the ‘genocidal’ U.S. embargo and ‘be loyal to the Cuban Communist Party, the Revolution… and to the Revolution´s Commander in Chief, Fidel Castro.”

Conclusion[4]

This blog consistently has advocated for U.S. repeal of the embargo (blockade) of Cuba and the U.S. designation of Cuba as a state sponsor of terrorism. However, all of the blame for Cuba’s current crises cannot be attributed to these U.S. measures. Indeed, the U.S. now is the sixth largest exporter to Cuba.

Moreover, now the U.S. is preoccupied with the Israel-Hamas and the Russia-Ukraine wars, problems with Iran, North Korea, China, Yemen and the Red Sea and the problems created by large number of immigrants at our southwestern border. As a result, the U.S. does not have the time and resources to devote to Cuba’s problems and U.S. policies regarding same.

=============================

[1] Analysis of Cuba’s Current Economic Crisis, dwkcommentaries.com (Dec. 5, 2023); Almost All Cubans Suffer Worst Economic Crisis in the History of the Western Hemisphere, dwkcommentaries.com (Dec. 11, 2023);

[2] Whitney, A revolution in trouble: Cuba’s government, People’s World (Jan 8, 2024).

[3] ‘You can’t save a country if you don’t save the people.’ a Cuban economics doctor explodes in response to the package, Diario de Cuba (Jan. 13, 2024); Another rise in the price of the dollar and the euro on the Cuban black market, Diario de Cuba (Jan. 15, 2024); Emigration grows, but remittances to Cuba sink, Diario de Cuba (Jan. 16, 2024);Through resolutions, the Castro regime intends to stop the astronomical fiscal deficit that it approved, Diario de Cuba (Jan. 17, 2024); Reyes, The economic package opens a political crisis in the Government of Cuba, Diario de Cuba (Jan. 17, 2024); Torres, As the economy craters, the Cuban government hits private-sector workers with tax hike, Miami Herald (Jan. 18, 2024).

[4] E.g., posts listed in sections “Cuba: State Sponsor of Terrorism?” and “U.S. Embargo of Cuba” in List of Posts to dwkcommentaries—Topical: CUBA [as of 5/4/20]; Cuba Still on U.S. List of State Sponsors of Terrorism, dwkcommentaries.com (Dec. 2, 2023);U.S. Senators and Representatives Demand Ending of U.S. Designation of Cuba as State Sponsor of Terrorism, dwkcommentaries.com (Jan. 12, 2024); COMMENT: Another Congressman Calls for Ending Cuba as a State Sponsor of Terrorism, dwkcommentaries.com (Jan.13, 2024); U.S. Increasing Exports to Cuba, dwkcommentaries.com (Jan. 12, 2024).

Analysis of Cuba’s Current Economic Crisis

“Cuba is going through the worst crisis it has experienced in decades, with widespread shortages of food and medicines, rolling blackouts and a sky-high 400% annual inflation rate. The calls on the communist leadership to open up the economy to the market are getting loud, even from close political allies.”[1]

“But deep divisions at the top of the regime regarding how much freedom to give the new private sector, compounded by a leadership vacuum, are creating paralysis and keeping the country from adopting broader market reforms.”

“Among the people most opposed to any change that smacks of capitalism are hardliners who have the most invested in the regime that has ruled Cuba since 1959: Men in their 90s, with deep roots in the Revolution and historic ties to Castro, who still serve in high-profile positions and who enjoy a standard of living vastly superior to the average Cuban. They resist market reforms, seeing them as a betrayal of Marxist ideology and a challenge to continuing authoritarian rule.”

“Carlos Alzugaray, a former Cuban diplomat who lives in Cuba [and who participated in] an event organized by the David Rockefeller Center for Latin American Studies at Harvard University in October, said, “The country’s top leadership is made up of people who have very dogmatic views of reality and are very attached to certain things from the past. A closed ideological vision prevails in many sectors, in people from the old guard like Ramiro Valdés or in new people like Díaz-Canel.” He also criticized the island’s “immense Cuban bureaucracy that enjoys much discretionary power in implementing changes.”

This point was echoed by John Kavulich, the president of the U.S.-Cuba Trade and Economic Council, a New York group monitoring business with Cuba, who has three decades of experience dealing with Cuban government officials. He said, “bureaucrats have become more reluctant to take risks since there is uncertainty about who is really in charge.” They are “either frightened or untrusting, and certainly not risk-takers.”

Observers say that there are at least the following centers of power in Cuba:

“The administrative branch of the government, including Díaz-Canel, Prime Minister Marrero, the Council of Ministers, the individual ministries and big state-owned companies.
The Communist Party, “the superior leading political force of society and the State,” according to the country’s 2019 Constitution.
GAESA, a vast business conglomerate run by the military, which runs most of the island’s economy, especially the tourism industry.
The military itself, which manages other industries outside GAESA and has developed close relations with the Russian and Chinese military, and whose generals and other top current and former officials hold leadership positions across the government.
The Interior Ministry, which oversees the police, the state security apparatus, and intelligence and counterintelligence agencies. The intelligence services have the most to fear from a transition to a market economy that could bring demands for regime change.”

The military is believed by many to have the upper hand. “They exert notable influence not just by commanding the armed forces and security agencies but also through GAESA, whose finances are believed to be untouchable, even by the Ministry of the Economy. The generals have seats in all the major decision-making bodies, including the Communist Party’s Politburo, the Central Committee and the Council of Ministers. The country’s prime minister, Marrero, is a former army colonel who later served as tourism minister. Ultimately, the military may see the private sector as an unwelcome competitor.”

“Government officials, generals and Communist Party leaders have heavily courted traditional allies like Russia, China and Belarus, hoping for a lifeline to keep the economy afloat without giving more space to capitalism. That strategy worked well for Fidel Castro, who struck a deal with Soviet leaders in the early days of the Revolution that resulted in billions of dollars in subsidies during the Cold War.”

“’There seems to be a sort of paralysis and a lack of clear hierarchy in the decision-making process that has grown worse in the last couple of years,’ said a source who has interacted with the island’s authorities over the years to help American companies do business with Cuba and who asked to remain anonymous to speak about meetings with Cuban officials. ‘What was once a fairly clear power hierarchy is now sort of a patchwork, and it’s a guessing game as to why a proposal is getting denied and who is making this decision. And that’s a fundamental change.’”

Some people involved in the private sector “believe Díaz-Canel understands the need to expand the private sector. But he lacks the power to push reforms, despite his position at the top of the Communist Party.”

=============================

[1] Torres, As Cuba’s economy craters and private businesses grow, here’s what’s holding up change, Miami Herald (Dec. 5, 2023).

U.S. Reduces Airline Flights to Cuba

On October 25 the U.S. Department of Transportation, at the request of Secretary of State Michael Pompeo, announced that effective December 10, all U.S. airlines would be banned from flying to all destinations in Cuba except Havana.

U.S. Government’s Announcement[1]

This announcement said this action was taken to “”further the administration’s policy of strengthening the economic consequences to the Cuban regime for its ongoing repression of the Cuban people and its support for Nicolas Maduro in Venezuela.” Charter flights, however, are not affected.

The State Department said that this new restriction will “prevent revenue from reaching the Cuban regime that has been used to finance its ongoing repression of the Cuban people and its support for Nicolas Maduro in Venezuela.” It also will impede “the Cuban regime from gaining access to hard currency from U.S. travelers staying in its state-controlled resorts, visiting state-owned attractions, and otherwise contributing to the Cuban regime’s coffers near these airports.”

In addition, the State Department said the “United States continues to hold Cuba accountable for its repression of the Cuban people, and its interference in Venezuela, including its unconscionable support of the illegitimate Maduro regime. The human rights situation in Cuba remains abysmal, with state authorities harassing and arbitrarily jailing activists, dissidents, artists, and others questioning regime authority with impunity. Despite widespread international condemnation, Maduro continues to undermine his country’s institutions and subvert the Venezuelan people’s right to self-determination. Empowered by Cuba, Maduro has created a humanitarian disaster that destabilizes the region.”

Secretary of State Pompeo added in a tweet, “This action will prevent the Castro regime from profiting from U.S. air travel and using the revenues to repress the Cuban people.”

U.S. Reactions

U.S.-based Cuba Educational Travel (CET) warned that this new restriction is another counterproductive action by the Trump Administration as part of a completely failed approach to Cuba. “Travel between the United States and Cuba benefits Cuban families and entrepreneurs, and many American companies. These measures will harm many people, ”said the president of that organization, Collin Laverty. Ending flights to cities that are frequented mainly by Cubans who travel to see their loved ones “is another blow for Cuban families on both sides of the Florida Strait.” CET added that this and earlier travel restrictions imposed by the Trump Administration lead “to family separation, damage to the private sector of Cuba and the general difficulties for the Cuban people.”

The new restrictions taking effect soon before Christmas and New Year’s will adversely affect many Cuban Americans who flock to the island for family reunions over the holidays.

The president of the U.S.-Cuba Trade and Economic Council, John S, Kavulich, said the new restrictions are unlikely to significantly harm the Cuban economy.

Cuban Reactions[2]

Cuba Foreign Minister Bruno Rodriguez tweeted that Cuba strongly condemned the move as strengthening “restrictions on U.S. travel to Cuba and its citizens’ freedoms” and that it would not force Cuba to make concessions to the U.S.

Another tweet by Carlos F. de Cossío, head of Cuba’s department of U.S. affairs, said, “Eager to punish Cuba’s unbreakable defiance, imperialism is going after regular flights to various Cuban cities. It doesn’t matter that they’re affecting family relations, or the modest pocketbooks of most Cubans in both countries.”

The Cuban President Miguel Diaz-Canel’s tweet said, “”It is the height of impotence and failure in the face of the dignity of a heroic people that makes them act with viciousness, evil, evil.”

==============================

[1] State Dep’t, United States Restricts Scheduled Air Service to Cuban Airports (Oct. 25, 2019); Reuters, U.S. bars Airline Flights to All Cuban Airports except Havana From December 10, N.Y. Times (Oct. 25, 2019); Assoc. Press, Washington Banning US Flights to All Cuban Cities but Havana, N.Y. Times (Oct. 25, 2019).

[2] See also Montague, Trump Administration Cuts Flights to Most Cuban Airports, N.Y. Times (Oct. 25, 2019).

[3] See also Suspension of flights to destinations in Cuba, a blow to families, warns travel organization, Cubadebate (Oct. 26, 2019).

U.S. Announces Concrete Improvements in Relations with Cuba

Today, September 18, the United States announced new regulations to improve U.S. trade and travel with Cuba. Additional positive changes also are expected over the next several months.[1]

New Trade and Travel Regulations

The U.S. Departments of the Treasury and Commerce on Friday announced new regulations, to be effective on September 21 upon their publication in the Federal Register, that will ease restrictions on U.S. companies seeking to do business in Cuba and on U.S. citizens traveling to the island.

The new rules target travel, telecommunications, Internet-based services, business operations, banking and remittances. They also will allow U.S. companies to establish a presence in Cuba with offices, stores, warehouses and Cuban employees.

Although the new rules do not change who can travel to Cuba, the rules do ease movement of authorized travelers there by licensing transportation providers. They also lift the cap on remittances and allow U.S. travelers to open and maintain bank accounts there.

The new regulations also increase educational opportunities by allowing Internet-based courses and further expand humanitarian efforts by allowing disaster relief.

Treasury Secretary Jacob J. Lew said, “Today’s announcement underscores the Administration’s commitment to promote constructive change for the Cuban people. These regulatory changes build on the revisions implemented earlier this year and will further ease sanctions related to travel, telecommunications and internet-based services, business operations in Cuba, and remittances. A stronger, more open U.S.-Cuba relationship has the potential to create economic opportunities for both Americans and Cubans alike. By further easing these sanctions, the United States is helping to support the Cuban people in their effort to achieve the political and economic freedom necessary to build a democratic, prosperous, and stable Cuba.”

Commerce Secretary Penny Pritzker added, “The regulations published today are designed to support the emerging Cuban private sector and bring us one step closer to achieving President Obama’s historic policy goals. These actions build upon previous Commerce regulatory changes, and will ease travel restrictions, enhance the safety of Americans visiting the country, and promote more business opportunities between U.S. and Cuban companies. In addition to expanding our commercial engagement with the Cuban people, these additional adjustments have the potential to stimulate long overdue economic reform across the country.”

According to the president of the U.S.-Cuba Trade and Economic Council, the two departments have “gone farther at one time than most anyone expected. Not only are companies able to establish a physical presence in Cuba and hire Cuban workers, but . . . [the new rules] are also extending loans and lease payment terms for authorized products.

Other Future Changes

The U.S. and Cuba will open regular postal mail service. Initially it will be a “pilot program” allowing Cubans and Americans to send mail directly to one another using the Miami and Havana airports.

The two countries soon should finalize an agreement on resuming direct, commercial airline routes although the first flights will not happen until next year.

Progress before year-end is expected on counter-narcotics cooperation that will expand Coast Guard interdiction efforts to include the U.S. Drug Enforcement Agency partnering with its Cuban counterpart; joint environmental work involving the National Oceanic and Atmospheric Administration; and setting up maritime passenger routes.

===================================

[1] U.S. Dep’t of Treasury, Treasury and Commerce Announce Further Amendments to the Cuba Sanctions Regulations (Sept. 18, 2015); Davis, Restrictions on Cuba Travel and Business Lifted by U.S., N.Y. Times (Sept. 18, 2015); Reuters, U.S. Moves to Open Up Business With Cuba, Ease Embargo, N.Y. Times (Sept. 18, 2015); Davis, U.S. to Announce Loosening of Business and Travel Restrictions on Cuba, N.Y. Times (Sept. 17, 2015); Assoc. Press, US, Cuba to Resume Mail Service This Year; Other Steps Near, N.Y. Times (Sept. 17, 2015).