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Cuba: Hard row to hoe for self-employed
Noticias Aliadas / October 26, 2004

By Larry Luxner

From watch repairmen in Holguín and ice-cream vendors in Sancti Spíritus to locksmiths in Matanzas and prostitutes selling themselves along Havana's Malecón, Cuba's so-called "underground economy" is evident nearly anywhere you look.

Yet trying to get a handle on its size or economic impact is extremely difficult, given the scarcity of reliable Cuban government statistics and the reluctance of those operating outside the official economy to talk about their sometimes illegal activities in detail.

"Conventional measures of the underground economy are nearly impossible, given publicly available information," Archibald Ritter, a professor of economics and international affairs at Carleton University in Ottawa, told a recent meeting of the Association for the Study of the Cuban Economy in Miami. "Only direct observation and generalization from anecdotal evidence is possible at this time."

In the United States, the "shadow economy" accounts for only 8.7% of total Gross Domestic Product (GDP) — a percentage that rises to 15.8% for Canada, 18% for Western Europe and an astounding 41% for Latin America.

"In most countries, policymakers view the underground economy negatively, but not in Cuba's case," he said.

Ritter said that Cuba "has an underground economy like other countries, but it includes enterprises that are legal everywhere else."

The underground economy also encompasses "private economic activities embedded within the state sectors, like manicurists and elevator repairmen who will provide service if you give them a bonus," as well as criminal activities such as the selling of stolen goods.

Casas particulares, private homes or rooms rented out by their owners, are one of several activities of the self-employed, or cuentapropistas, permitted by the Cuban government.

Alexis Rojas Riverón is a retired bus driver, and his wife María del Carmen doesn't work. So they decided to rent out their tiny one-bedroom house in Havana's Playa neighborhood for a few extra dollars.

Sometimes I charge $25 a night, sometimes $30," Rojas said.

According to local sources, there are an estimated 1,900 casas particulares in the Playa district alone. For the privilege of renting out his casa particular, Rojas — like the thousands of other Cubans who do likewise — is obliged to keep detailed records in a yellow, 80-page ledger in which he duly enters the name, address, nationality and passport number of every guest, the date of arrival and the date of departure. These details are reported to immigration authorities every morning.

Last year, Rojas earned a total of $2,980. Deducting 10% for expenses and the $1,041 he already paid in monthly taxes to Cuba's national tax agency, ONAT, that left net income of $1,641. His final tax was 10% of that, leaving the elderly couple with a net profit of $1,477.

The tax system is excruciating for cuentapropistas," said Ritter, lamenting the fact that "all of this entrepreneurship is being frittered away."

Many activities are limited through the refusal to grant licenses to applicants, who then must operate clandestinely if they are to exist at all, Ritter said.

Phil Peters, vice-president of the Lexington Institute, has spent several years researching Cuba's self-employment sector.

Peters carried out an informal survey of 61 cuentapropistas — 31 of whom operate in pesos and 30 in dollars. Typical cuentapropistas charging pesos for their services included a tire repairman, a watch repairman, a pedicurist and a woman who sells herbs used in santería rituals. Cuentapropistas who charge in dollars are generally taxi drivers, painters, artists, booksellers and owners of casas particulares.

Yet the government feels threatened by these self-employed Cubans, Peters said. "This sector has been weeded out. It's only the strong who are surviving," Peters said.

In 1996, according to official figures, 82.3% of the 46,248 applications for self-employment licenses were granted. By 2001, only 23,531 of the 97,687 applicants got their cuentapropista licenses, translating into an approval rate of just 23.9%.

Overall, said Peters, the conclusions he reached in 1999 are still basically true when it comes to self-employment in Cuba.

"The cuentapropia is a way for people to leave state employment and work on their own," he said. "A major problem is the lack of inputs and supply. While some can get their supplies legally, many resort to black-market supply relationships to keep themselves going."

Ted Henken, a professor at Baruch College, said that since 1990 the government of President Fidel Castro has given an unprecedented importance to the private sector as compared with the earlier phases of his administration.

Yet overshadowing everything in Cuba is the "recurring tug-of-war between radical communist ideology on one side and economic pragmatism on the other," he said. Ideological campaigns that target the private sector have often been carried out as ends in themselves, regardless of their impact on the economy, Henken said.

"If there is a hidden agenda behind the ideological justifications of anti-market campaigns, it is not economic but rather political. The growth of the private sector has correctly been seen as a threat to centralized control," Henken said.

Peters said the pendulum is swinging back and Castro is setting limits on the private initiative.

The government had promulgated a resolution and a new set of regulations that will affect a series of cuentapropia activities, most notably those of food vendors and paladares (restaurants in private homes), where the state wants to resume its role, Peters said.

In early October, a resolution in the Official Gazette suspended new authorizations for 40 types of cuentapropistas, including operators of paladares, entertainers for children's parties, video and audio operators, computer programmers and locksmiths.

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