Interview with Arturo Lopez-Levy
OnCuba insists on going over the Foreign Investment Law. This time, ProfessorArturo Lopez-Levy, from the University of Denver, and renowned political analyst and economist and Co-director of the Cuban Americans for Engagement (CAFE) answered our questions and gave us a critical reflection on the Law recently passed.
The certified guarantees in the Law theoretically suffice to attract investments to Cuba, so OnCuba asked him if he considered this was attractive and trustworthyenough for possible investors and he answered:
“It is too early tosay. The guarantees of the new ForeignInvestment Law are a significant step forward in contrast with the previous one that dates back from 1995 but the challenge is not only to offer guarantees for capital but also to compete with other markets to attract important long term projects. In that sense, the most significant advantages when compared with the previous law are not the fiscal grace period or the new exemptions per incomes and use of work force, or the reduction from 30 to 15% of taxes over revenues. The most significant advantage is the attitude proclaimed as policy towards private property, the market and foreign investment.
The debates on the new law revealed a better understanding by the government of the existing worldwide competence for attracting capital and increase reinvestment rates with the profits generated from that capital. It is important to keep in mind that the advantages of the 1995 law were never fully used. Nowadays, the challenge is to put the new law into practice with a competitive attitude that does not favor corruption and bureaucratic resistance to change, and to encourage every investment possible for the sake of the national interest of registering growth rates from 5-7% in the medium term.
A means for measuring that new attitude would be the progress of special economic fieldsin view that self-control, free from bottlenecks inherited from economy of command, allows institutionally speeding up industrial investment opportunities with less red tape. Another means is agriculture, a sector for which the government proclaimed the public priority of rapid reanimation as an urgent matter for survival. The question is: how much flexible will the government be in terms of investments in this field, creation of joint companies with the self-employment sector, hiring or agreeing to import machinery, etc.?
“Experiences from other economies in transition show that politicians and analysts underestimate the issue of uncertainty. It is necessary to approach objectively the starting point of the implementation of the Law. There is high uncertainty linked to the risk-country relation. In addition to mistakes, lack of transparency, deviation from international standards inherited from the past economy of command, there is the fact that Cuba and its economic partners are victims of disinformation campaigns and harassment by the first world power, the United States.
In a year or two, perhaps we will be able to assess how much of the statements on the need for foreign investments made in the National Assembly have actually resulted in a more efficient public sector, better use of laws, promotion and protection of new non-state sectors and their property rights. By then we will also be able to know how much of the guarantees and incentives of the Law have had an effect on the USunjust economic and financial blockade against Cubaand encouraged other economic sector and governments from other nations to fight it back.”
It is obvious that one of the deficiencies of the Law is the limitations to invest in small businesses and in the self-employment sector. Many analysts note that developing economies must boost micro investments as a tool for creating local economy and generating jobs. Do you consider investments should be expanded to this sector?
“The prevention of investing in small private businesses and criticisms on the concentration of property dealt with in the Guidelines approved during the Sixth Congress of the Party have damaged the economic reform not only because of the businesses that haven’t been made but also because of the message it conveys.
It is evident that considering the discretion the law grants to the councils of State and Ministers, opening investments for small businesses could overload that bottleneck. Nor the Council of Ministers, nor its officials can take care of small businesses. It is necessary to allow foreign investment for small businesses but the Cuban government needs to create legal, regulatory and political structures so that each province, municipality and sectorial organizations make those decisions. The biggest promoters of this kind of business are local actors, and this area also demands organized decentralization, with clear limits on their functions and competence opportunities between local authorities in a way that best practices are identified but for the sake of results rather than ideological reaffirmation. At this point it is essential that the central government let the competition play its part and that bureaucrats and inefficient companies be left in the past.
It is unfortunate that while the government takes significant actions, it repeats mistakes such as discrimination of investments for Cuban residents. Such behavior damages citizens not only in terms of their rights but also in terms of limiting national development. Such backward attitude (as the closing down of stores selling imported clothes when there isn’t a national textile industry to protect is another example), sends the message that authorities are not sure still about the lack of viability of an economy of command. The government prioritizes its monopolized incomes by means of foreign currency shopsover the creation of economic competence and business initiatives.
The regulatory delimitation between small and large businesses is useful for an anticorruption strategy, an essential element of reforms, when dealing with state contracts, privatizations of companies of the government, estimation of assets, and other rental activities. The bad handling of large investments might lead to an environment like that of Russia during Yeltsin, where the oligarchs froze further reforms and discredited the legitimacy of required processes of de-collectivization. In Cuba there are many officials who would like to embark on market economy, they would act as capitalists and the rest of the population as proletarians. They should not be given that opportunity.
However, focusing our regulatory and fiscaleffortsin large investments doesn’t mean to underestimate the role of small and medium-size businesses. Unfortunately, that has been a reiterated trait not only in the new Law but also in statements by high officials like ministers Rodrigo Malmiercaand Bruno Rodriguez. These are expressions of an old-fashioned way of thinking to make amends for the purpose of moving towards a mixed economy. There are considerable synergies between the boom of small and medium-size businesses and the general atmosphere of the economy large investors take into account when deciding what to invest in.”
Even though the Law implicitly admits there will be no limitations as to nationality so that Cubans living abroad are able to invest, there is still some reticence in this regard. Do you think that the Cuban government will fluidly allow the investments of Cubans?
“I’m still skeptical about this point. The Law and the debatesabout it revealed that the attitude towards émigrés is much more open than that of 1995 but the statement by Minister Rodrigo Malmierca: “the law approves it but policies don’t encourage it” on possible investments from Miami came as a shock. It seems that the purpose of his statement is to comfort more conservative and rigid sectors at the expense of sending the worst signal for business sectors in the US, particularly in Miami, which are against the blockade; a signal conveying the message that their capital is not as welcomed as the rest. I have to disagree with the minister, the Law should encourage investments from Cubans living abroad and politics should constantly boost it.
Cuba is competing with other markets for investments from anyone with legally obtained capital. From a nationalist point of view, apart from the protection of the national security, there are no valid reasons for the Cuban government not to act proactively by offering guarantees and incentives for Cubans living abroad. In the next few months we will check out how different the implementation of the new Law is regarding Cuban investors living abroad in nations not limited by the blockade. A fast repatriation, for instance, would allow them to invest in small and medium-size businesses as Cubans. Special economic fields can allow Cubans living abroad to invest as foreigners, as part of cooperation registered in other countries, if they prefer so.”
This Law is part of a process of reform and transformation Cuba is facing today. Changes in the way of functioning of the State are obvious, though there are still limitations as to citizens’ initiatives and the full functioning of the civil society. In your opinion, would economic changes bring about political changes?
“It already has. Take into account the debates on public policies and their effect on society in terms of internet access, travels, race and religion. Economic changes negatively affect the dynamics between the State and the civil society, and between Cuba and the international environment. It also boosts the development of new roles and identities within the Cuban society and in its relation with other societies such as entrepreneurs, representatives and managers. Nonetheless, let’s keep in mind that political change doesn’t mean change of government. The Cuban Communist Party (PCC by its acronym in Spanish) and the Armed Revolutionary Forces (FARby its acronym in Spanish) have already started that process of strategic adjustment to the new historic conditions, no to commit suicide but to remain in power. A mixed economy or greater opening to national and international capital is no gift for the opposing sectors. As it is to be expected, the government plans reforms by reducing its uncertainties and vulnerabilities, even when some of them are inevitable. Economic changes reduce the government’s control over the civil society and offer opportunities for greater pluralism but they don’t mean viability for a change of regime imposed from abroad and financed in accordance with the Helms-Burton Act. In fact, the greatest enemiesof the reform are the champions of the blockade because they know that if the reform succeeds, that’s their ultimate defeat.”
Potential US investors are banned from participating in the economic opening of Cuba due to the legal foundation that supports the US blockade against Cuba. However, there is confidence in that this Law, along with the economic changes in Cuba, will bring about modifications in that absurd policy as well. In addition, the blockade not only prevents US entrepreneurs from taking part, but also third nations due to its extraterritorial character. Are you of the opinion that this might generate changes in the US policy towards Cuba?
“That depends on the putting into practice of the Law. A rigid implementation will aid those in the US in presenting Cuba as resistant to change, as an economy of command, closed in the North Korean style and anchored in a cold war. A proactive implementation of the Law would incentivize businesses by large sectors of the US Cuban-American community. With or without a unique party in Cuba, those who champion the blockade cannot hold back the bulldozer of an American and Cuban-Americanbusinesscommunity motivated by trade and investment relations with Cuba. As president Calvin Coolidge used to say: The business of America is business”.