Cuba to embark on deregulation of state companies

Cuba to embark on deregulation of state companies
By Marc Frank
HAVANA | Mon Jul 8, 2013 2:37pm EDT

(Reuters) - Cuba will begin deregulating state-run companies in 2014 as
reform of the Soviet-style command economy moves from retail services
and farming into its biggest enterprises, the head of the Communist
Party's reform efforts said.

Politburo member and reform czar Marino Murillo said the 2014 economic
plan included dozens of changes in how the companies, accountable for
most economic activity in the country, did business. He made the
comments in a closed-door speech to parliament deputies on Saturday, and
some of his remarks were published by official media on Monday.

"The plan for the coming year has to be different," Murillo was quoted
as saying by Communist Party daily newspaper Granma. He said that of 136
directives for next year "51 impact directly on the transformation of
the companies."

The reforms will affect big state enterprises like nickel producer
Cubaniquel and oil company Cubapetroleo and entail changes like allowing
the firms to retain half of their profits for investment and wage
increases and giving managers more authority. The plan also threatens
nonprofitable concerns with closure if they fail to turn themselves around.

"Murillo's empowerment of state-run companies is a milestone on the road
toward a new Cuban model of state capitalism, where senior managers of
government-owned firms become market-driven entrepreneurs," said Richard
Feinberg of the Washington-based Brookings Institution and an expert on
Cuba's economy.

"But only time will tell whether the government is willing to truly
submit the big firms to market discipline - to let the inefficient ones
go bankrupt," he said.

Murillo cited the Communist Party's reform plan, adopted in 2011, which
he said called for freeing productive forces to increase efficiency and
reducing how companies' performance was measured to a few indicators
such as profit and productivity.

Already this month, 124 small to medium state businesses, from produce
markets to minor transportation and construction concerns, were leased
to private cooperatives which, with few exceptions, operate on the basis
of supply and demand and share profits.

Hundreds more were expected to follow in the coming years as the state
moves out of secondary economic activity such as retailing and farming
in favor of individual initiative and open markets under reforms
orchestrated by President Raul Castro, who took over for his ailing
brother Fidel in 2008.

Cuba's economy was more than 90 percent in state hands up until 2008 and
almost all of the its labor force of 5 million workers were state employees.

Cuba began laying off hundreds of thousands of state workers and
deregulated small retail services in 2010, simultaneously creating a
"non-state" sector of more than 430,000 private businesses and their
employees as of July and leasing land to 180,000 would-be farmers.

Now larger enterprises, from communications, energy and mining to metal
works, shipping, foreign and domestic trade, are being tweaked as the
country strives to avoid bankruptcy and boost growth, which has averaged
around 2 percent annually since the reforms began.

John Kirk, one of Canada's leading academic experts on Latin America and
author of a number of books on Cuba, summed up the changes announced by
Murillo: "Cuba maintains its path towards a mixed economy."

"It appears as if government determination to modernize the economy is
slowly overcoming the profoundly rooted inertia of the bureaucracy," he
said.

ELIMINATING BARRIERS

Murillo said companies would keep 50 percent of profits for
recapitalization, minor investments, wage raises and other activities,
instead of handing over all profits to the state and then waiting for
permission to spend the money.

"The plan is designed so that a businessman from whatever sector does
not have to ask permission to make minor investments to ensure
production does not stop," Murillo was quoted as saying.

"It eliminates administrative barriers to salary payments, which
directors of companies can decide on, always and when they have
sufficient profits to cover them," he said.

Companies, which in the past were assigned hard currency for imports,
will now be able to use the money to purchase local products.

"If an institution has … $200 million to import, and a local producer
can produce what it plans to import, this body can directly pay that
local producer with the approved funds," Murillo said.

At the same time state firms that have reported losses for two years or
more will be expected to turn a profit or they will be downsized, merged
with others or closed.

"We can't make a plan that includes companies like these … because the
phenomena of having to finance these losses will persist," Murillo said.

Cuba has already implemented some measures to set the stage for state
company reform.

Most companies have been moved out of government ministries in favor of
operating as "independent" holding companies and in some cases, such as
in tourism, allowed to keep a percentage of revenues.

(Reporting by Marc Frank)

Source: "Cuba to embark on deregulation of state companies | Reuters" -
http://www.reuters.com/article/2013/07/08/us-cuba-reform-companies-idUSBRE9670WV20130708