Castro freezes private sector

Two years after taking office, President Raul Castro widened the niche for private enterprise in Cuba's state-dominated economy. Capitalism came pouring in.

Slowly at first, then gaining speed, spare rooms for rent became rental homes, which became boutique hotels. Backyard cafes became elegant restaurants and bustling nightclubs, backed with millions in capital from the prosperous Cuban diaspora in Miami, Latin America and Spain. English tutors started citywide private after-school programs. And the booming private economy reached into the Communist-led bureaucracy — paying off inspectors, buying stolen state goods and recruiting talented employees with salaries dwarfing those in the public sector.

Eight years later, on the verge of leaving office, Castro has thrown the brakes on private enterprise in Cuba again, warning of the rapid pace of change and criminal activity. The decision has raised fundamental questions about the nation's economic path.

The Cuban government proclaimed in August that it was putting a temporary halt on new licenses for bed-and-breakfasts, restaurants and other businesses until it could issue new regulations to control illegality. Entrepreneurs whispered about new regulations coming in a month, maybe two. But summer stretched into fall, fall into the new year, and six months later, Cuba's private economy remains frozen.

The state-run economy responsible for 70 per cent to 80 per cent of GDP is stagnant. A once-promising worker-owned co-operative sector has shown little recent growth. Cubans are increasingly wondering when the private economy will be allowed to grow again, and, more broadly, how their government intends to deliver on promises of a sustainable, prosperous socialist system.

"We've already been this way several times before," economist and Communist Party member Esteban Morales wrote on his blog last week. "Many of us think that these measures aren't just to organize private enterprise better, as they've said, but to restrict it. Self-employment generates jobs that the state can't. That's something that hasn't been taken advantage of before, and would be very smart to do."

The freeze has led to a slowdown in private investment in Cuba at a time of economic fragility and uncertainty. The flow of subsidized oil from Venezuela is dropping as its economy collapses. In 2016 Cuba had its first recession in 20 years and growth last year was 1.6 per cent, meaning the economy has remained essentially flat for two years. U.S. tourism, a bright spot, is dropping in the wake of new U.S. restrictions.

The number of self-employed Cubans has grown from 157,000 in 2010, the year of Castro's reforms, to 567,000 at the start of last year, roughly 12 per cent of the workforce.

"Self-employed workers aren't asking for neoliberalism or political change, just that they let us work," said Camilo Condis, a 32-year-old industrial engineer who rents out an apartment and has a license to work in a restaurant.

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