Cuban Entrepreneurs Feel the Leash Tighten

Moving into a spacious apartment a block from the waterfront confirmed Maria Teresa’s faith that the Cuban Revolution rewarded hard work, talent and loyalty. The well-known writer never expected that 15 years later she would be living out her retirement in the unit’s maid’s quarters. Even less did she suspect that the government that had nurtured her would take away her last recourse to survive in retirement.

But last year, at age 60, she crammed her books and favorite mementos into the maid’s room so she could rent the rest of her flat to tourists: $15 a room for one night’s lodging, almost twice her monthly pension. And then last month, the Cuban government deprived her of that income by imposing a tax so high--$200 a room per month, lodgers or no--that renting has become a risky business.

For many of Cuba’s budding entrepreneurs--the 200,000 or so people who accepted the government’s invitation in the early 1990s to try self-employment--the new rental law is just the latest in a series of tax and regulatory steps by the Fidel Castro regime to halt Cuba’s experiment with economic reform.

Tens of thousands of families started cafes, bicycle repair shops and bridal trousseau rental stores. But in the 18 months since the government began imposing taxes and stepping up regulations on the fledgling enterprises, one-tenth of those family businesses have shut voluntarily or been closed by inspectors.

The entrepreneurs see the latest government acts as helping to push them out of the middle class. They say they cannot exist without enterprises that pay them in foreign currency when shoes, milk and cooking oil can be bought only with dollars, and fresh vegetables are sold only in farmer’s markets at prices so high that a pound of carrots can cost a day’s wages.

The government, however, argues that it is simply imposing order and discipline now to correct problems in the reforms it undertook to ease the crisis that followed the collapse of the Soviet Union, Cuba’s most important trading partner.

“These tax laws are part of a fiscal policy that has been developing over the past year and a half and has become necessary as the country’s economy has diversified,” said Julio Carranza, director of the Center for the Study of the Cuban Economy, a quasi-governmental think tank. The private sector “has increased its presence in the Cuban economy, and this obviously demands putting the fiscal house in order and trying to regulate different activities.”

Still, the government’s actions have lent credence to skeptics who predicted that last year’s modest economic recovery--7% growth after six years of a downward spiral--would give hard-liners room to backtrack on reforms.

To be sure, many important reforms remain. The government still welcomes foreign investment and foreign tourists.

But the opportunities are over for Cubans, say many family business owners.

Officials, for example, this summer shut a popular family-run restaurant on Maria Teresa’s block that was known for its ample terrace, fresh food and welcoming owner. Maria Teresa had often recommended the restaurant to her lodgers. The restaurateur, Maite, said she got into trouble because she tried to please her customers.

Paladares, as such family-owned eateries are called, are strictly regulated: They may have only 12 chairs, serve only seated customers, employ only family members and cannot offer beef or shellfish on the menu. Their operators must have receipts to prove that everything they serve was purchased in markets without price controls; no direct purchases from farmers or fishermen or government-subsidized products are permitted.

Maite said she had her license suspended for a week last year because she provided takeout lunches for some regular customers in a hurry. Shortly after she reopened, an inspector found lobster shells in her trash. She resolved that problem by offering him a free weekly lunch.

Then her inspector was switched. One morning this spring, Maite found only tiny red snapper at the legal market. She bought one so she would have a receipt. Then, on the way home, she stopped by the beach to buy several big snapper from a fisherman she knows. At lunch, when the inspector saw her serving the fish, she showed him her receipt.

“He told me, ‘There were no fish this size at the market today,’ ” she recalled, still flabbergasted. “He had gone by the market to check the size of the fish before he started inspecting!”

He pulled her license. She is appealing but is pessimistic.

“The president of the Committee to Defend the Revolution [the Communist Party neighborhood group] has it in for me,” Maite said. “She is jealous that I have money to buy my kids drums and speakers, so she watches everything and calls the inspector.” Maite has exacted a small measure of revenge, allowing her sons’ rock band to rehearse in her apartment while the restaurant is closed.

After watching what regulation and taxation have done to the paladares, the 10,000 or so families who rent rooms at $10 to $50 a night--about one-fifth what hotels charge--fear they may be the government’s next target. The uncertainty and what they see as government harassment has left many Cubans feeling as if there is no way out of their personal economic crises.

“I was not renting rooms to get ahead but to survive,” said Maria Teresa, who otherwise must support herself and two unemployed sons in their 20s on a pension of $9 a month and sporadic freelance writing. Her sons, like many young people, cannot find work now as government industries have been idled by the lack of raw materials and money to repair broken machinery, most of which is obsolete.

While Maria Teresa is not a big spender--she cuts her own gray hair and wears ethnic clothes she bought over years of international travel, often representing her government--she still feels the pinch of the economic crisis. She received permission to work abroad for a year, which allowed her to put some money aside. But rising costs quickly consumed her modest savings. Then she tried to sell her artwork but found she could not part with them. “This is what I have worked for all my life,” she said.

While she was working outside the country, her sons began renting the apartment to tourists and staying with friends. When Maria Teresa found out, she was angry, then fearful that her home would be confiscated, because it was not clear at that time whether such rentals were legal.

Finally, she conceded that renting to tourists was her only solution. Unwilling to become a nomad like her sons, she reopened the servants’ entrance, fixed up the maid’s room--which had been used for storage--and moved in. When the bedrooms now are not rented, at least she can still enjoy her living room and dining room. And when the rooms are occupied, she has enough money to buy necessities like cooking oil, which sells for $2 a quart. Additional income sometimes comes from renters who hire her sons as drivers or messengers.

The new law lets her and other homeowners rent out rooms, but it imposes such tough conditions that they no longer can earn money, they claim. Her sons, for example, cannot do odd jobs for lodgers because the law, seeking to bar the creation of what could become diversified private tourism corporations, prohibits homeowners from creating related businesses.

While Maria Teresa objects to regulations--including recording the passport numbers of her paying guests--her biggest concern is the room tax. She would have to rent each room two weeks a month just to pay the tax, and she cannot guarantee such occupancy levels. Increasing her fees is not an option; even at current prices, potential customers try to haggle, she said.

“Let’s face it, those of us affected are people with homes nice enough to rent to tourists--the middle class,” she said, in a once-rare acknowledgment of class differences in Cuba.

This emerging recognition of these differences--and changes in who will be in which class--is part of the reason behind the new regulations, observers said. Officials have repeatedly expressed indignation that taxi drivers hauling foreign tourists can earn $20 in two days, as much as a doctor earns in a month.

“The difference in levels of income in Cuba is going to be an inevitable characteristic in the economic future, and this obviously has an impact in a society that for more than 30 years maintained high levels of egalitarianism,” Carranza said, offering a favorable view of the economic equality in this Communist nation.

But many Cubans like Maria Teresa, who were the bulwark of the revolution for decades, already feel as if they have been shoved to the margins of society. They resent the taxes and regulations that they see as punishing them for staying here rather than moving away as many professionals have done.

“It’s not just the material things--it’s the failure of an ideal,” she said. “This was a project that we all believed in, and it has failed. We need to find a solution. I cannot survive here, but I cannot bear the thought of leaving.”