Castro's 'New' Reforms are an Old Scam

Friday, January 13, 2012
In The Huffington Post:

Cuba's 'New' Reforms are an Old Scam

by Mauricio Claver-Carone

Around the world, propagandists for the Castro brothers in Cuba are heralding the regime's "new economic reforms." After plundering the island's wealth during 52 years of brutal repression and totalitarian rule, the octogenarian dictators of Cuba are again introducing free-enterprise principles.

With their palms wide open, of course.

Granted 'tis the season of good will, but history suggests skepticism is warranted when dealing with the Castros. For three decades, the Castros raked in subsidies worth billions from their Soviet Union patrons. Cuba received more money from the Soviets than all of Europe received from the U.S. Marshall Plan after World War II. While taking money from the Soviets, the Castros never found anything praiseworthy about the United States or free-enterprise. To the contrary, they imposed communist economic absolutism at home and exported revolution and anti-American violence to two continents.

With the collapse of the Soviet Union in 1991, Cuba lost its subsidies, and the Castros were forced to make a series of economic "adjustments" that are nearly identical to the "reforms" taking place today. Why? Because in today's world, Cuba -- like every other nation -- needs hard currency. The "adjustments" lasted seven years until Venezuela's Hugo Chavez rose to power in 1998 and moved quickly to replace Cuba's lost Soviet subsidies. When that happened, the Castros reversed their "adjustments" and confiscated whatever small sums of wealth Cubans had accumulated. The global financial crisis of 2008, however, led to a sharp drop in oil prices, which constrained Chavez's largess. So, today, the Castros are once again in a mad-dash-for-cash. Accordingly, they dusted off their old playbook and added a few "trick" plays. They have one goal in mind: Regime survival.

Their fundamental survival strategy and oldest play in their book is still simple: Confiscate other people's money. Under the guise of an "anti-corruption campaign," some long-time business partners have now become targets, but their largest gains will doubtless come from new foreign investors.

The Cuban government has frozen hundreds of millions in European business accounts held by Cuba's banks since 2009. As Reuters reported, "the Communist-run nation failed to make some debt payments on schedule beginning in 2008, then froze up to $1 billion in the accounts of 600 foreign suppliers by the start of 2009."

The Castros' next play was to re-launch self-employment licenses that allow Cuban nationals to engage in one of 178 pre-approved trades or crafts, such as making dolls or shining shoes. Some 300,000 Cubans have leased self-employment licenses, but more than 25 percent returned their licenses because of the government's burdensome oversight and predatory taxation.

Their newest play -- and perhaps most "creative" -- was to announce Cubans could sell their homes. Cubans have supposedly owned the property where they reside since 1986, although they couldn't be sold. Cubans dealt with the no-sell edict by "swapping" homes amongst each other and setting up a black market in housing. The government routinely confiscated homes of those who left the island and in 2000 the police cracked down on the swaps and black market transfers. While the announcement last month that sales would be allowed was a surprise, the regulations that followed typify the Castro regime. The first and most notable restriction requires the transaction be made in hard currency and that it be deposited in Cuba's Central Bank, pending the government's approval of the sale and an investigation into the source of the funds. At the time of closing, the Central Bank will issue a check to the seller in non-convertible Cuban pesos.

What's afoot is simple: Because the Obama Administration lifted the caps on remittances Cuban Americans send to relatives in Cuba, the Castro regime expects large flows of new money into the island -- not just a few hundred dollars a month to help loved ones buy food or basic necessities, but tens of thousands of dollars to buy a house or otherwise "speculate" in the country's new real estate market.

By requiring those dollars be deposited in the Central Bank, the regime gets to grab nearly 30 percent in "currency-exchange fees." Sellers will want to exchange the pesos they get for dollars or other hard currency, which allows the government to grab another 30 percent (20 percent if euros or Canadian dollars) in exchange fees. On top of that, the government applies a 4 percent transaction tax and the Central Bank takes a commission.

What then will the seller do? Because the government strictly controls the export of capital, most sellers won't be able to transfer or deposit their proceeds in foreign banks. Worse, they know, whatever -- pesos, dollars or euros -- they deposit in Cuba's Central Bank is at risk of confiscation by the government whenever it wants. So many will choose to invest their proceeds in a self-employment license. Yet, if self-employment earnings exceed 50,000 pesos ($2,000) per year, the regime also requires a checking account be established with the Central Bank.

Thus, the Castros' "reforms" face an old and familiar ending: What the regime giveth, the regime will always taketh away.