Cuba: Reform and Change in the Cuban Political Economy in 2013

By Mauricio Claver-Carone

alongthemalecon.blogspot.com

Puerto Rico Manufacturers Association (PRMA)

San Juan, Puerto Rico

August 2nd, 2013

Thank you so much for the kind invitation.  It’s a real pleasure to be here in San Juan.

Puerto Rico has always stood in solidarity with the courageous advocates fighting for freedom in Cuba. Its people -- each of you -- have opened your arms with generosity to Cubans fleeing repression.  For this, we thank you.

I pray this doesn't change -- for you are currently on the right side of history.

Frankly, I wish the topic of today’s discussion was how Puerto Rico can continue to help Cuba’s democracy movement, but I don’t get to choose the format.

Cuba and U.S. policy towards Cuba -- particularly the issue of trade -- are topics of great passion, comment, reflection and debate.  And that’s a good thing.

Unfortunately though, too many times at these events, speakers tend to hype and cherry-coat business opportunities in Cuba, disregarding the unpleasant economic and political realities involved.

They are going to try to sell you some elusive “beach-side property” in Cuba.  I suggest you sell them some real beach-side property right here in Puerto Rico instead.

You’ve already gotten a taste of this.

In August 2011, direct charter flights from Puerto Rico to Cuba were announced with great fanfare.

Yet, only three months later -- as reality settled -- they were cancelled due to weak demand.

Similarly, Cuba charter service planned from Baltimore-Washington, Atlanta, New York and other U.S. cities was also halted.

Hopefully, those travelers are opting to visit Puerto Rico.

Others will point to European and Canadian investors, and argue that they are getting a "head-start" on business opportunities in Cuba.

How have these European and Canadian investors fared?

You tell me.

In 2000, there were 400 foreign companies operating in Cuba through minority joint ventures with the Castro regime, which is sadly the only permissible legal vehicle for foreign companies to invest in Cuba.  Today, there are only 190 left.

In the last few years, European investors have seen over $1 billion arbitrarily frozen in Cuban banks by the government.

As Reuters reported, "the Communist-run nation failed to make some debt payments on schedule beginning in 2008, and then froze up to $1 billion in the accounts of foreign suppliers by the start of 2009."

Moreover, during this time, the CEOs of various foreign companies with extensive business dealings with the Cuban government have been arrested.  Some are still sitting in jail -- without charges.

Cy Tokmakjian of Canada’s Tokmakjian Group was arrested in September 2011, when his Havana office was unexpectedly raided and its assets confiscated.  Nearly two years later, Tokmakjian has yet to be charged with anything.

Sarkis Yacoubian of Canada’s Tri-Star Caribbean was given a 9-year sentence despite months of interrogations in which he admitted to everything his interrogators desired – and then some.

Amado Fahkre and Stephen Purvis of Britain’s Coral Capital fared a bit better. Fahkre was arrested in October 2011 and Purvis in March 2012. Just last month, they were sentenced to time served and allowed to return to London.

Let me stress that these were not casual investors. They these were some of Cuba's biggest business partners, having each invested hundreds of millions, with direct access to the highest officials.  This has all been confiscated now.

The U.K.’s Telegraph tells it best:

“Mr. Purvis, 52, spoke out last week to warn other British entrepreneurs of the risks in Cuba, which has courted foreign investors in recent years to revamp its moribund command economy. They were risks, though, that he himself thought he no longer had to worry about, given that his own firm, financed by private European backers, was among the best-established on the island. Since setting up there in 2000, it has invested in everything from tourism through to factories and docks, and even financed El Benny, a Cuban film about the country’s most famous singer, Benny Moré.

Mr. Purvis was also a pillar of Havana’s expatriate community, working as vice-chair of Havana’s international school, where diplomats sent their children, and producing ‘Havana Rakatan,’ a Cuban dance show which has toured London’s West End.

What followed was a first-hand insight into Cuba’s darker side - and confirmation that for all its attempts at reform, its security services remain as repressive as ever.

‘At first I was taken to a run-down villa in the middle of nowhere, where I was interrogated for two hours every morning, afternoon and night,’ said Mr. Purvis. ‘They accused me of passing information to a foreign state, but never said who, where or how. At the end of each day they would make me write up a summary of events, even though they kept their own notes too. Then, after five days, they put me in ‘pre-emptive detention’ in Villa Marista.’”

Villa Marista is the infamous high-security prison of the Ministry of the Interior -- a torture-chamber for Cuba’s political prisoners.

Let’s hope that doesn’t ever happen to any of you.

Just last week, the International Chamber of Commerce's Court of Arbitration ("ICC"), based in Paris, ruled that the Cuban government must compensate a Chilean businessman, Max Marambio, $17.5 million for the confiscation of his company in 2010.

Marambio was a bodyguard of former Chilean President Salvador Allende, who fled to Cuba after the 1973 coup and made a fortune doing dirty deeds and business deals for the Castro brothers.

This came to an abrupt end in 2010, pursuant to a dispute between Marambio and the Castros.

Soon thereafter, Marambio's half in his joint venture with the Cuban government, a food company known as "Rio Zaza," was confiscated and its Chilean General Manager was mysteriously found dead in a Havana apartment.

Marambio will likely fare no better in collecting this $17.5 million than Cuba’s Paris Club and London Club debtors, who are owed tens of billions by Castro (more details later).

While my presentation may sound somber for the short-term -- I promise it is optimistic in the long-term.

In full disclosure, I am a free-trader.  I believe and advocate for the principles of free trade.  However, I do so without the distortions that some would like for us to accept under the guise of trade.

I believe in the principles of free trade as were envisioned by its original thinkers.

In The Wealth of Nations, a book considered to be the foundation of free trade, Adam Smith held that trade, when freely initiated, benefits both parties.

Smith did so in criticism of the mercantilist policies of the 17th and 18th centuries, whereby commerce was simply a tool to benefit and strengthen the authoritarian nation-states of the time.  Puerto Rico was itself a victim of mercantilism during colonial times.

I believe -- as did Smith -- that free trade requires property rights and the rule of law as pre-conditions. If no such rights exist, then there is no real opportunity to trade, for the government could just take from you what they want, when they want, wherever they want -- for their sole benefit.

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