The Cuban Government Approves Guidelines to Reform Cuba's Economic Model and Develops an Implementation Strategy

Law and Business Review of the Americas Volume 17 Number 4 Article 7 2011 The Cuban Government Approves Guidelines to Reform Cuba's Economic Model and Develops an Implementation Strategy Lina Forero-Nino Follow this and additional works at: https://scholar.smu.edu/lbra Recommended Citation Lina Forero-Nino, The Cuban Government Approves Guidelines to Reform Cuba's Economic Model and Develops an Implementation Strategy, 17 LAW & BUS. REV. AM. 761 (2011) https://scholar.smu.edu/lbra/vol17/iss4/7 This Update is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Law and Business Review of the Americas by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. THE CUBAN GOVERNMENT APPROVES GUIDELINES TO REFORM CUBA'S ECONOMIC MODEL AND DEVELOPS AN IMPLEMENTATION STRATEGY Lina Forero-Nifio* 1. BACKGROUND IN April 2011, Cuba's Communist Party ("the Party") held a congress for the first time since 1997 to discuss reforms to Cuba's economic model.' During this congress, the Party approved 313 economic and social policy guidelines (the "guidelines") proposed by President Ratil Castro to stimulate Cuba's economy. 2 In a resolution following the congress, the Party said it would guide the government in creating the Imple- mentation and Development Permanent Commission (the "Commission"). 3 The Commission is described as an independent government body charged with "the important task of developing and pro- posing the conceptualization of Cuba's economic model." 4 The Commission will oversee the implementation of the guidelines, propose new guidelines when necessary, and ensure that new laws are created to implement the guidelines.5 In May 2011, Cuban authorities published the guidelines and sold them to Cubans eager to learn more details about the guidelines. 6 *Lina Forero-Niflo received her B.A. in Communication from the University of Texas at San Antonio. She is currently a J.D. Candidate at Southern Methodist University Dedman School of Law and will be graduating in May 2012. 1. Marc Frank, In Cuba, Reforms Bring Cheers but Also Jeers, Riutriis (July 13, 2011), http://www.reuters.com/article/2011/07/13/us-cuba-reform-idUSTRE76C4M F20110713; Reform in Cuba, Trying to Make the Sums Add Up, Ti. EcoNOMIST (Nov. 11, 2010), available at http://www.economist.com/node/17463421. 2. Jeff Franks & Nelson Acosta, Cuba Publishes Reform Guidelines, but Details Short, RiJurrit:s (May 9, 2011), http://www.reuters.com/article/2011/05/09/us-cuba- reforms-idUSTRE7485D720110509. 3. Partido Comunista de Cuba [Cuban Communist Party], Resoluci6n Sobre los Lineamientos de la Politica Econ6mica y Social del Partidoy la Revoluci6n [Reso- lution Regarding the Party's Economic and Social Policy Guidelines and the Revolution], CUBA DicAeii (Apr. 18, 2011), http://www.cubadebate.cu/especiales/ 2011/04/1 8/resol ucion-sobre-los-lineamientos-de-la-politica-economica-y-social-del -partido-y-la-revolucion/. 4. Anneris Ivette Leyva, Our Proposals Should Approximate the Future to Which We Aspire, GRANMA INTERNATIONAi,, Aug. 4, 2011, available at http://www.granma. cu/ingles/cuba-i/4agosto-32futuro.html. 5. Id. 6. Franks & Acosta, supra note 2. 761 762 LAW AND BUSINESS REVIEW OF THE AMERICAS [Vol. 17 Through the guidelines, the government will reduce government employment, loosen the grip of government control, and develop a private sector.7 Even though the guidelines tend to reduce the government's role, this does not mean that Cuba is moving away from socialism. In fact, the main motivating factor for these guidelines is to preserve socialism.8 Cuban government officials believe that strengthening Cuba's struggling economy is necessary to ensure that the socialist movement continues, especially now as their leaders are unable to sustain the movement, largely due to their advanced age.9 Cuba faces several economic challenges. First, the state can no longer afford to guarantee government employment for life, "workplace perks, free healthcare and education."10 Also, the state cannot afford to con- tinue to heavily subsidize housing and transportation." Second, several factors further intensify Cuba's economic woes. These factors include the fall in the price of nickel, Cuba's main export; the decrease in tourism; unproductive farming land; and the costs of importing food.12 Until now economic reforms introduced by President Castro have been insignifi- cant.' 3 But the new guidelines are expected to change the economy in ways that were not imaginable when Fidel Castro was in power.14 In this report I will first discuss some of the guidelines that may have the greatest impact on the economy. Then I will also explain the government's strategy to implement these guidelines. To conclude, I will discuss the public's response to these guidelines. II. THE GUIDELINES A. SMALL BUSINESS A new guideline allows Cubans to apply for licenses to become self- employed or to run small businesses.15 The new guideline permits the self-employed, for the first time, to legally hire employees outside of fam- ily.1 6 Also, the self-employed will be able to "do business with the state, open bank accounts, receive credits and rent space."' 7 As part of the guideline, the government created a list of 178 specific trades that the 7. See id. 8. Michael Voss, Cuba Gives Space to Small Businesses, BBC Ni~ws (Dec. 4, 2010), http://www.bbc.co.uk/news/world-latin-america-1 1910281. 9. Id. 10. Reform in Cuba, Trying to Make the Sums Add Up, supra note 1. 11. Id. 12. Reform in Cuba, Towards a Mixed Economy, THE ECONOMIST, Sept. 16, 2010, available at http://www.economist.com/node/17043051. 13. Id. 14. Tracy Wilkinson, Cuba Opening to Private Enterprise Spurs Service Sector Start- ups, L.A. TIMES, Aug. 6, 2011, available at http://www.latimes.com/news/na- tionworld/world/la-fg-cuba-entrepreneurs-20110807,0,7604565.story. 15. Voss, supra note 8. 16. Wilkinson, supra note 14; Marc Frank, Cuba Unveils New Tax Code for Small Bus- iness, REuTERs (Oct. 22, 2010), http://www.reuters.com/article/2010/10/22/us-cuba- reform-taxes-idUSTRE69L3WY20101022. 17. Frank, supra note 16. 2011]1 CUBAN GOVERNMENT APPROVES 763 government will license.' 8 Some of the trades in the list include carpenters, plumbers, accountants, party clowns, park attendants, and parking wardens.19 The application process for obtaining a license only takes a few hours.20 Until now, small businesses have been in the minority because 85 to 90 percent of the economy is state-owned. 21 But now, more than ever, small businesses are desperately needed to develop a private sector capable of creating jobs for the approximately one million government workers that will be laid off in the coming years. 22 The legalization of small businesses is a strategy to develop the private sector.23 The goal is for 1.8 million of Cuba's five million workers to find employment in the private sector by 2015.24 By January 2011, Cuban authorities issued more than 75,000 new self- employment licenses. 25 The government encourages the public to seek licenses to become self-employed because "self-employment should from now on be considered an acceptable way of life, and those that choose it will no longer be 'stigmatized.' 2 6 One of the benefits of self-employment, as opposed to government work, is the potential to earn double what one would have earned in a government job. 2 7 By July 2011, authorities issued more than 325,900 licenses to "open, run or work at private businesses involving nearly 200 designated activities, including hairstyling, carpentry, shoemaking and dance instruction." 2 8 The restau- rant business has grown because roughly one hundred new restaurants have opened in recent months. 29 The self-employed are subject to Cuba's tax laws for the self-employed sector. These tax laws, adopted in 2010, were created to encourage growth in the private sector.30 Under the tax laws, a self-employed indi- vidual can deduct up to 40 percent from income for certain business ex- penses.31 But he or she must pay a 10 percent income tax and an 18. Nick Miroff, Cuba Issues Thousands of Self-Employment Licenses, NPR (Jan. 18, 2011), http://www.npr.org/2011/01/18/133020988/cuba-issues-thousands-of-self-employment-licenses. 19. Voss, supra note 8. 20. Miroff, supra note 18. 21. Voss, supra note 8. 22. Michael Voss, How Cuba's Economic Reforms are Taking Root, BBC News (June 3, 2011), http://www.bbc.co.uk/news/world-latin-america-13628854. 23. Id. 24. Andrea Rodriguez, For Cuba's New Entrepreneurs, the Tax Man Cometh, ABC Ni ws (Aug. 12, 2011), http://abcnews.go.com/Business/wireStory?id=14292342& singlePage=true. 25. Miroff, supra note 18. 26. Reform in Cuba, Trying to Make the Sums Add Up, supra note 1. 27. Voss, supra note 8. 28. Wilkinson, supra note 14. 29. Id. 30. Frank, supra note 16. 31. Leticia Martinez Hernindez & Yaima Puig Meneses, Tax Matters: The Importance of Clear Accounting, GRANMA INTIRNATIONAL (Oct. 22, 2010), http://www. granma.cu/ingles/cuba-i/22octubre-43trib.html. 764 LAW AND BUSINESS REVIEW OF THE AMERICAS [Vol. 17 additional 25 percent in social security payments.32 Both of these payments are deductible at the end of the year.33 If the self-employed indi- vidual hires workers, then he must pay a 25 percent social security tax for each worker, which is deductible, and an undefined labor tax.3 4 Despite these costs, Cubans embrace the ability to become self-employed or to run a small business under this new system.

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