Wednesday, March 10, 2010

Taxi Drivers and Retail Changes

* Havana taxi drivers leasing vehicles

* Beauty parlors told to prepare to become cooperatives

* Experiments viewed as harbinger of retail reform

By Marc Frank

HAVANA, March 10 (Reuters) - Cuba nationalized all retail business in 1968, down to the shoe-shine shops, but in an attempt to stimulate the stagnant economy and reduce bureaucracy, it is experimenting with giving some of it back in a form of legal private enterprise.

By leasing some retail services to state employees, the government is testing cautious change in how the communist country operates small-scale business.

"We have begun experiments and are working on others to ease the burden on the state of some services it provides," Economy Minister Marino Murillo told the National Assembly at the close of 2009, without elaborating further.

Authorities have remained mum about their efforts, but a number of experiments are under way or about to be launched in Havana, a source with knowledge of local government activities, said.

The CubaTaxi office on Palatino Street in the Cerro municipality of the capital is home to one such experiment.

Thirty of the more than 2,000 state taxi drivers in the capital are leasing their vehicles rather than working for a wage, a small percentage of the tips and whatever they can pocket on the sly.

"You pay 595 convertible pesos for the car and then after a month 39 convertible pesos plus 40 pesos a day," said Elio, one of the drivers.

"You are responsible for maintaining the taxi and gas, but can buy parts and services from the state," he said.

The government pegs the convertible peso at $1.08 or 24 pesos.

"Overall the drivers are happy. There is still control over what we charge, but we are freer and earning more," Elio, who began driving a cab in 1986, said.

"I think this system is also better for the state which is guaranteed a net income with few headaches," he added.

The project will be evaluated in June, before being applied to other dispatch offices.


President Raul Castro has fostered debate on what to do with the retail sector since taking over from brother Fidel Castro two years ago, but has ruled out a shift back to capitalism.

The debate has spilled over into the official media with exposes over irregular supplies, low wages, employees jacking up prices and pocketing proceeds, all the while delivering poor service despite layers of bureaucracy designed to control such activities.

"The government is simply accepting what already exists, adopting new structures to legalize what was before viewed as theft and instead of spending a fortune on useless bureaucrats has begun collecting taxes," a local economist said, asking his name not be used.

In Central Havana and 10 de Octubre municipalities, beauty parlor employees were recently called to meetings and informed they would be leased their shops as cooperatives on an experimental basis.

"They said the hairdressers would be leased the premises without the administration and service employees," a participant said.

"You have to pay rent for the shop, costs such as water, electricity, materials and the wages of anyone you contract, for example a receptionist or to clean up," she said.

"You can charge whatever on the basis of supply and demand and have to pay taxes on your profits," she added.

The project was scheduled to begin this month but was postponed in part to consider objections and proposals put forward by the beauticians, she said.

State-subsidized materials arrive sporadically at the parlors and services cost anywhere from the equivalent of $0.20 (five pesos) for a shampoo to between $1 and $2 (25 pesos to 50 pesos) for hair-dyeing.

"We buy shampoo, conditioner, dye or what have you at state foreign exchange shops with a 240 percent mark up, or get our friends to bring it in from Miami or Madrid," another beautician, who also asked her name not be used, said.

"Then we tell our clients there are no state supplies, but we bought them ourselves and will have to charge accordingly," she said.

(Editing by Jeff Franks and Cynthia Osterman)

Monday, March 8, 2010

Economy Minister Calls for Reforms

* Economy minister says paternalistic state unaffordable

* Raul Castro aide slams resistance to retail sector reform

* Pilot projects readied in Havana in taxis, beauty salons

By Marc Frank

HAVANA, March 8 (Reuters) - Cuba's economy minister is pushing for less state intervention in one of the world's last Soviet-style economies, saying the government can no longer afford its all-encompassing control and paternalism, Communist Party sources say.

The drive by minister Marino Murillo appears aimed at overcoming resistance to new reforms under President Raul Castro, who has made extensive changes in agriculture since taking over in 2008 from ailing brother Fidel Castro and is thought to want change in other economic sectors.

Murillo told armed forces and interior ministry officials in January "the gigantic paternalistic state can no longer be, because there is no longer any way to maintain it," according to a Communist Party source who saw a video of the Jan. 16 event shown to party and government cadres.

Sensitive strategy and policy meetings are often not immediately made public in Communist-ruled Cuba, but videos of them are sometimes later shown to certain selected officials.

Cuba is grappling with a financial liquidity crisis triggered by the global recession which forced it to slash imports by 37 percent last year. Inefficiencies in the centralized economy have also reduced productivity.

Murillo said the Caribbean nation could no longer afford, for example, to pay tens of thousands of people to control state barber shops, beauty parlors and services such as appliance and watch repair shops. He suggested they could be administered differently by leasing them to workers, according to two people who also saw the video of his speech.

The economy minister, a former military officer appointed to the post a year ago, denounced those who might resist the changes, which appear to be underway in small experiments.

"I was called to a meeting last month and told the premises would be leased to employees soon as part of an experiment in the area," the administrator of a state-run beauty parlor in central Havana said, asking that her name not be cited.

A pilot project in Havana, the capital, has some state taxi drivers leasing their vehicles at a daily rate instead of receiving a wage, drivers said.


Universities in a number of provinces have been asked to draw up proposals to transform local state-run services and minor production activity into cooperatives.

Professors who attended a similar presentation by Murillo at Havana University earlier this year said he made clear that economic necessity, not ideological choice, was driving change and that reforms already underway in agriculture were a model for what would come.

"He pointed to decentralization of agriculture and the various forms of property such as cooperatives and land leasing as a model for local production and services," said one of the professors, who, like the others, asked not to be identified due to restrictions on communication with foreign journalists.

President Castro has bemoaned the state-run economy's inefficiency and called for decentralization, local initiative and new forms of property management in non-strategic sectors. He also has said numerous state subsidies are no longer sustainable, a point Murillo repeated, the sources said.

"Raul Castro has no illusions about how the all-embracing paternalism of the past has left the Cuban economy in ruins," Brian Latell, a former CIA analyst who closely follows Cuban affairs, said.

"His dilemma is in the implementation of decentralizing reforms. Doing nothing, or proceeding too quickly could both have destabilizing consequences," Latell said.


Raul Castro has appointed a number of military officers to the Economy and Planning Ministry, which insiders say is now the operational headquarters for his economic reform efforts.

When he was appointed minister, Murillo came with a new first deputy minister, General Adel Izquierdo, who was head of the military's economic department when Raul Castro served as defense minister.

Murillo quickly named Colonel Amando Perez Betancourt, the architect of efforts to make the military's state-run suppliers more efficient, as another deputy minister.

The minister, in both speeches, said the proposed solutions to Cuba's economic problems must come from the local level, and will differ from place to place and sector to sector.

"He said that while taxi drivers, beauticians and others might lease their equipment or places of work in the capital, that would not necessarily apply to other cities or state-run eateries where different solutions might prove more beneficial," one of the two people who saw the video said.

(Editing by Jeff Franks,