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Cuba, Stuck in the past

PETER O’CONNOR
Staff Columnist
oconnor@lbknews.com

Tourists like new shiny automobiles.  We see them on our island’s few roads – more in Season.  Convertibles are the favorites; you’ll see them contributing to our traffic.  Other islands like cars also.

(Cuba, Stuck in the past,  The Economist, April 1st 2017)

 

Havana

“Tourists whizz along the Malec’on, Havana’s grand seaside boulevard, in bright-red open-topped cars.  Their selfi sticks wobble as they try to film themselves.  They move fast, for there are no traffic jams.  Cars are costly in Cuba ($50,000 for a low-range Chinese import) and most people are poor (a typical state employee makes $25 a month).  So hardly anyone can afford wheels, except the tourists who hire them.  And there are far fewer tourists than there ought to be.

Few places are as naturally alluring as Cuba.  The island is bathed in sunlight and lapped by warm blue waters.  The people are friendly; the rum is light and crisp; the music is a delicious blend of African and Latin rhythms.  And the biggest pool of free-spending holidaymakers in the western hemisphere is just a hop away.

There is just one problem today: Cuba is a communist dictatorship in a time warp. For some, that lends it a rebellious allure.  They talk id seeing old Havana before its charm is ‘spoiled’ by visible signs of prosperity, such as anike and Starbucks.  But for other tourists, Cuba’s revolutionary economy ia s drag.  The big hotels, majority-owned by the state and often controlled by the army, charge five-star prices for mediocre service.  Showers are unreliable.  Wi-Fi is atrocious.  Lifts and rooms are ill-maintained.”

The Economist continues:  “Despite this the number of visitors from the United States has jumped since Barack Obama restored diplomatic ties in 2015.  So many airlines started flying to Havana that supply outstripped demand; this year some have cut back.  Overall, arrivals have soared since the 1990s, when Fidel Castro faced with the loss of subsidies from the Soviet Union, decided to spruce up some beach resorts for foreigners.

But Cuba still earns less than half as many tourist dollars as the Dominican Republic, a similar sized but less famous tropical neighbor.”

The Economist gets tougher:  “With better policies, Cuba could attract three times as many tourists by 2030, estimates the Brookings Institution, a think-tank.  That would generate $10bn a year in foreign exchange, twice as much as  the island earns now from merchandise exports.  Given the colossal budget deficit, expected to hit 12% of GDP this year, that would come in handy.  Whether it will happen depends on two embargoes:  the one the United States imposes on Cuba and the one the Castro regime (now Fidel’s brother Rau’l) imposes on its own people.

The United States embargo is a nuisance.  American credit cards don’t work in Cuba, and Americans are not technically allowed to visit  the island as tourists. (They have to pretend they are going for a family visit or a ‘people-to-people exchange’.   Mr. Obama allowed American hotel chains to dip a toe into Cuba; one, Starwood, has signed an agreement to manage three state-owned properties.”

More on the locals:  “Cubans with spare cash (typically those who have relatives in Miami or do business with tourists) are rushing to revamp rooms and rent them out.  But no one is allowed to own more than two properties, so ambitious hoteliers register extra ones in the names of relatives.  This works only if there is trust.

Taxes are confiscatory.  Turnover above $2,000 a year is taxed at 50%, with only some expenses deductible.  A beer sold at a 100% markup therefore   yields no profit.  Almost no one can afford to follow the letter of the law.  For many entrepreneurs ‘the effective tax burden is very much a function of the veracity of their reporting of revenues,’ observes Brookings tactfully.”

On the currency system:  “The currency system is o use a technical term, bonkers.  One American dollar is worth one convertible peso (CUC), which is worth 24 ordinary pesos (CUP).  But in transactions involving the government, the two kinds of peso are often valued equally.  Government accounts are therefore nonsensical.  A few officials with access to ultra-cheap hard currency make a killing.  Inefficient state firms appear to be profitable when they are not.  Local workers are stiffed.  Foreign firms pay an employment agency, in CUC, for the services of Cuban staff.  These workers are then paid in CUP at one to one.  That is, the agency and the government take 95% of their wages.

Fortunately, tourists tip in cash.”

On the future:  “Cubans doubt that there will be any big reforms before February 2018, when Rau’l Castro, who is 86, is expected to hand over power to Miguel Diaz-Canal, his much younger vice-president.  Mr Diaz-Canal is said to favor better internet access and a bit more openness”.

Let’s hope so.  We’ll see, I guess.

 

 

 

 

 

 

 

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