Monday, December 20, 2010

Government will let loss-making state companies falter

Government will let loss-making state companies falter

During a frank, four-day exchange with deputies of the national
parliament about economic reform projects, Raúl Castro and Marino
Murillo, Cuba's point man of the reform, said that loss-making state
companies are running out of time and will be gradually stripped of

"We have companies in Cuba that have had 10 years of losses," Murillo
told the deputies. "Either they get out of their losses or we shut them
down. It's not possible to have four or five consecutive years of a
company making losses and the state subsidizing the losses. This makes
no sense."

The discussions in the run-up of a rank-and-file congress of the
Communist Party April 16-19 were unusual. The year-end session of the
Asamblea Nacional del Poder Popular included four days of plenary
sessions, compared to typically one or two days. Also, in contrast to
its typically ceremonial meetings, the parliament had a true working
session, with Murillo giving an extended PowerPoint presentation about
the outlines of the reform, and deputies asking questions, challenging
and making proposals.

The Asamblea Nacional de Poder Popular discussed the five-year plan
using the 291 points of an "outline" that had been previously approved
by the Politburo of the Communist Party and the Council of Ministers.
According to Murillo, beginning in May, the outline was prepared by Raúl
Castro and Politburo member Julio Casas Regueiro and 11 work groups
consisting of Central Committee staff, Economy Ministry staff, and other
economic experts, coordinated by Murillo. The groups came up with four
work versions. On Sept. 29, the Executive Committee and Politburo of the
party approved the current version.

In addition to Murillo and Finance Minister Lina Pedraza, Raúl Castro
himself threw his whole weight behind the session, confronting
resistance, providing hands-on economic information, speaking frankly,
telling anecdotes and even making jokes. Granma published verbatim
transcripts of the session.

In one instance, Castro told the joke that just after its war with the
United States, an impoverished Vietnam asked Cuban coffee experts to
help set up coffee production. Three decades later, Vietnam has become a
coffee exporter while Cuba has become a coffee importer. So a Vietnamese
expert asks a Cuban colleague what happened. "What did the Cuban expert
respond?", Castro asked. "The blockade."

Other reform outlines mentioned during the session:

•State companies will gain more autonomy, Murillo explained, by
curtailing the involvement of government ministries and city or
provincial councils. State companies will be allowed to use part of
their profits to set up funds aimed at company development, investment
and providing stimulus payments, performance-oriented salaries and other
benefits to employees. At the same time, Murillo emphasized that the
"socialist state enterprises" will continue to be central to the economy
and still be subject to central planning.

"The socialist state enterprise will determine the economy," Murillo
said. "What happens is that we must put it to work within a planning
process and an economic management model that won't tie it down, and
that gives it all the possibilities to be efficient." High value-added
state companies, he said, will be given special treatment within the new
economic arrangement. He probably referred to tourism-related, nickel,
oil or biotech companies.

•In another significant announcement, Murillo and Castro said that the
government will not regulate prices private businesses will charge their
clients. "Regulating the relations between state and individuals" will
continue to be a mainstay, President Raúl Castro told deputies of the
National Assembly during the year-end session. "But the state doesn't
have to interfere in the relations between individuals; neither the
government nor anyone else," he added, to the applause of the parliament.

•Another reform cluster is aiming at empowering municipalities. The
largest share of the new income taxes generated by the new private
companies will be collected by cities, not the national government, the
economy minister said.

•For the first time, the government publicly discussed details about the
future role of member-owned cooperatives. Five points of the outline
concern cooperatives, Murillo said, suggesting that they will be
expanding beyond agriculture, be allowed to join forces to form
coop-owned cooperatives that offer services, enjoy income tax breaks,
and not be allowed to lease their property to third parties. He said the
idea behind allowing second-grade cooperatives is not to create
large-scale entities but to allow agricultural co-ops to take advantage
of economies of scale, for example in servicing machines and vehicles.
Non-agriculture co-ops will be allowed to become active in "all
activities that are needed," Murillo said, adding that gastronomy and
retail services are first priority.

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