Financing, beyond solidarity
With the traditional remittances - in dollars and euros - many Cubans have helped their family and friends to start up small businesses on the island, which is witnessing a rare struggle between the transgressive efforts of entrepreneurs and the Communist elite, fearful that even minor reform measures will end up unseating them.
Remittances are a form of funding provided by family members and/or friends, seldom recovered, but which have effectively promoted the foundation of new businesses, though within the confines of the limited plan to sanction self-employment.
Except for restaurants and holiday accommodations, most of the new businesses require limited initial investments, always calculated based on real world fees.
But this gesture of solidarity has also revealed the absence of a legal body and domestic financial support capable of establishing a scenario of economic reform more dynamic than that today.
Going from an economy of slapdash roadside stands and medieval licenses to the possibility of establishing, for example, a hotel, a pharmacy, a cinema, a distributor of imported products, or a sausage factory, poses the entrepreneur with a pressing question: How do I finance my business?
In free economies there is a broad spectrum of financing channels, ranging from the traditional to the most modern, from banks loans to crowdfunding. However, the implementation of these methods in Cuba will require at least three classes of reform: first, reform of the property system, allowing citizens to own, use and dispose of both their movable and immovable property, and other economic rights acquired in the context of civil and commercial relations, entailing, among other consequences, the capacity to establish contractual guarantees affecting them.
Second, reform of all the legislation governing companies and commercial contracts, updating it with new contractual instruments, such as leasing, renting, factoring, franchising and joint accounts, allowing citizens to benefit from fair, modern and flexible trade legislation. And laws that enables citizens to operate through trading companies.
Finally, reform of the financial system, to allow state and private financial institutions and banks to freely back entrepreneurs, without bureaucratic red tape.
These are three kinds of reform that will boost the Cuban economy.
Decree Law 289 (2011) and the Banco Central de Cuba’s Resolutions 99 and 88 (2013) address important aspects of loans to individuals, including the self-employed; and Resolution 100 (2011) allows for the opening of current accounts, authorizing the flows of said accounts to be used as backing for loans. However, even the most fervent supporters of Raúl's economic measures recognize that these regulations are paltry (limited to the banking sector) and devoid of stimuli.
As the Cuban government has enacted some measures, and Obama has made Cuba an “in” topic, a misperception has been generated that everything is going swimmingly. In reality, however, the lack of political freedom and comprehensive, structural reform torpedo any serious attempt to establish free economic initiative, which is precisely how the Communist Party of Cuba wants it; at its recent congress the PCC condemned the accumulation of property and wealth.