Observers and analysts have been discussing the Castro regime's decision to temporarily ban new licenses to open small restaurants (paladares) in Havana, run by entrepreneurs. At the same time a warning has been issued to those already operating that they will be subject to stricter controls, with the initiation of a process of summons that will instruct violators regarding regulation violations, including "evading taxes, buying supplies on the black market or operating illegal clubs and bars. "
Limiting supply on any market is a public policy measure with very negative effects on the population, with results that are just the opposite of those it pursues, even in economies like Cuba's under Castro in which the market delivers only a portion of goods and services, with the State playing a major role in the their provisioning.
This absolutely unexpected decision by the regime flies in the face of information indicating an increase in tourists and travellers, constituting a market with a growing need for dining services. The Castro regime's war against Cuba's paladares is nothing new. Whenever any type of private economic activity flourishes on the Island, reactionary Stalin-like measures are adopted to show who is in control of the economy. What has happened with the paladares is just more of the same.
Its immediate effects will be:
- Stifling one of the possible channels for economic emancipation, supposedly opened up by the "Guidelines."
- Limiting the supply of popular food offerings, which will increase the prices of those that continue to operate on the market.
- Directly benefitting suppliers (State and hotels) that were struggling to compete with small restaurants.
- Curtailing growth in the supply of agricultural products for entrepreneurs, thereby raising consumer prices.
- Reducing the entry of "mules" with intermediate goods for small restaurants that were having trouble obtaining supplies on domestic markets.
- Frustrating expectations and personal projects.
- Bolstering administrative/political control over economic activity.
- Cutting job creation at these establishments.
- Hampering the sector's evolution towards specialization, diversification and improved productivity.
- Producing a decline in tax revenues.
The main difference between the current campaign against the paladares and previous efforts is that the regime's initiative against private enterprise in Cuba is becoming increasingly sophisticated. Thus, the meetings to which owners of paladares are summoned are attended by “Popular Power” representatives from Havana and various State institutions, such as the National Tax Administration Office (ONAT) and the ubiquitous State Security. And, as stated by some of those called to these meetings, they are told that the paladares are important to the economy, and that the irregularities are not only found at private businesses, but also State operations too. To date, however, the bulk of the administrative pressure has fallen on the former.
Let us take a look at what these serious problems are, according to the regime. For example, the use of public parking areas to accommodate paladar customers (which could be resolved by renting them); the purchasing of goods on the black market (an activity that is necessary because there are constant shortages on the official ones); and other more serious infractions, such as tax evasion, money laundering, and even prostitution and drugs. There are also aspects that date all the way back to the "Special Period," and that have become structural due to the dynamics of the regime.
Castro's laws limit private restaurants to 50 seats or fewer, and they are required to buy their supplies at State stores, despite the permanent shortages at them and the high prices of their products. Despite the obstacles these establishments face, Havana has seen a great number of paladares appear and succeed recent years. These are businesses that have competed with State restaurants and those located in hotels thanks to their ability to offer customers good values.
Some analysts believe that the toughening of the regime's policy towards the paladares is an example of how Raúl Castro is prioritizing certain expenditures to the detriment of others. And, unlike during the "Special Period," when blackouts and restrictions wrought widespread suffering among the population, now the aims is for economic activity, private and State, to pay for the adjustment to the very difficult scenario the Castroist economy is suffering through today, as oil from Venezuela wanes, loans are not paid back, and cash and liquidity are scarce.
And yet, impervious to discouragement, they are quick to announce the fusion of currencies by 2017. Unbelievable.