Aurelia Butler

HAVANA (Reuters) – When Cuba in early August announced it was taking a major step towards electronic banking and a “cashless” society, the offices of fledgling small businesses across the communist-run country were left scrambling to figure out how to respond.Most alarming to many budding entrepreneurs was a new 5,000 peso ($20) daily cap on cash withdrawals for businesses, one of several measures the government said were aimed at forcing Cubans to do their transactions electronically, via transfer, online payment and bank cards.The changes were needed to stem a cash shortage, Cuban central bank officials said, as the fast-falling peso and soaring consumer prices combined to drain bank reserves and ATM machines.”The demand for cash was growing faster than what we could provide to our bank branches,” said Alberto Quinones, vice president of Cuba’s central bank. The changes are being rolled out gradually over the next six months, officials say. But concerns over their impact are already causing difficulties, said Yulieta Hernandez, founder and manager of Pilares Construction, a private, Havana-based builder that employs 60 people.”We understand there is a crisis, and the need for banking, but this is our money,” Hernandez said. Her business had already adopted electronic banking but she often needs quick access to cash to pay for emergencies on job sites, she added. Even before the new restrictions, Cuban entrepreneurs faced what might seem insurmountable hurtles anywhere else: spotty electricity and internet, widespread fuel shortages, and no practical way to legally exchange large amounts of local currency into the dollars needed to import merchandise from abroad.Just three days after the rules were put in place, Hernandez said, more bad news rolled in: Many of her suppliers, once amenable to electronic transfers, were now only accepting cash, for fear of losing access to the paper money they needed to operate – the opposite of what the law intended. That has put businesses like Pilares Construction in a bind: The company needs cash to operate but is prohibited from extracting it in sufficient quantity from its local accounts. “Right now the effect … is like paralysis,” Hernandez said, adding that many business owners were already freezing investments. “People are waiting to see … if a solution is found for the problems (the rules) have created.”Five entrepreneurs Reuters spoke with said the measures could dampen enthusiasm for investment in private businesses that sell food, fix cars, build houses and provide other goods and services where state-run enterprises have faltered.GROWING PAINS Privately incorporated enterprise re-emerged in Cuba just two years ago. Beyond renting rooms to tourists or some small-scale services, such business was effectively frozen for decades following a ban by former leader Fidel Castro. The government has since green-lighted the establishment of thousands of small companies. For many Cubans born and raised in communism after Castro’s 1959 revolution, that has represented a major cultural shift, said Leonardo Rodriguez, who runs Kaibocu, a Havana-based small business that produces processed foods.Rodriguez said he and many other entrepreneurs began using electronic banking long before the new measures were announced to comply with tax laws that have evolved with the growing private sector. But for many smaller businesses and mom-and-pop stores in Cuba, the formalities of doing business, like paying taxes, remain novel concepts, he said.”(Cubans) have been doing business on the street for years, without ever knowing what a tax system is,” Rodriguez said in an interview in Havana, noting that most operated illegally or on the fringe. “Declaring our sales, declaring our income … these concepts are very new.” Cuban officials have said the new banking measures are necessary for transparency, to assure transactions are recorded and taxes are paid.In Santiago de Cuba, the unofficial capital of the country’s eastern farm provinces, the government this week recruited members of local “computer clubs” to hit the streets and train passersby on the basics of cellphone payments.But Ronald Venero, a 34-year old Havana street vendor who sells fruit and vegetables he buys from farmers outside the city, said most farmers he meets from the countryside remain a world apart from the modern conveniences of mobile internet and electronic payments.”The farmers who come to sell us merchandise deal in cash,” he said. “You tell them that you are going to pay by card or a transfer and they tell you no.” More

The writer is a senior fellow at Yale Law School and author of ‘Accidental Conflict: America, China, and the Clash of False Narratives’Will the real Chinese economy please stand up? As China struggles to regain growth momentum, there is great confusion over the diagnosis of the problem. This matters a great deal as Chinese authorities are now rolling out a raft of efforts to jump start the world’s second-largest economy. Yet without the correct diagnosis, hopes of a cure may be dashed.Some focus on China’s debt-intensive structural imbalances. There are those, including myself, who see the Japanisation parallels of a balance-sheet recession, with depressed asset values overwhelmed by excess liabilities. Others take a political economy perspective, seeing China facing the classic impasse of autocracy. While each of these explanations rings partly true, the match is hardly perfect. The modern Chinese economy is a blended system — one that reflects bits of all these depictions. The blend has changed considerably over time. From Mao Zedong’s fascination with Soviet-style central planning to Deng Xiaoping’s market-based reforms, China’s economic dynamism has been shaped by profound transitions between these two extremes. Under Xi Jinping, the pendulum has swung back towards Mao’s approach. The reversal is far from complete. Xi’s dictum, as expressed in his initial reform proposals of 2013, sought a mix of both — for the markets to play a “decisive” role but for state ownership to remain “unswervingly” strong.The blend is the problem. Depending on the metric, the state still controls at least 30-40 per cent of the economy. That complicates the diagnosis of what ails the Chinese economy. The blend also poses a formidable challenge to policy design — choosing the right strategy is like taking a chance on a single number in a game of roulette.It follows that caution is needed in assessing the potential payback of China’s recent policy stimuli. The People’s Bank of China has started to cut interest rates by a small amount. Yet it’s hard to believe that this will achieve much traction in a floundering Chinese economy already overly reliant on interest-rate-sensitive investment in manufacturing capacity, infrastructure and construction. Meanwhile, the China Securities Regulatory Commission has signalled intent to boost investor confidence by extending trading hours, reducing transactions fees, encouraging stock buybacks and potentially cutting “stamp duties” on securities transactions. But this hardly offsets weak economic and earnings prospects in the worst performing major stock market this year.At the same time, China’s State Council is grappling with the latest problem in its property sector — liquidity pressures on Country Garden, the nation’s largest private homebuilder, and Evergrande’s US bankruptcy filing after its dollar-denominated debt default in 2021. Pan Gongsheng, China’s new central bank governor, has indicated that the PBoC would provide support for “reasonable financing demands” of developers. Yet this smacks of Japanese-like “evergreen lending”, which perpetuated state-directed support to banks and overly levered corporates, prolonging the first of Japan’s lost decades. In short, Chinese policymakers are flailing at different ingredients of their blended problem. This raises inconsistency risks — a “remedy” that may seem to address one aspect of the challenge but in doing so exacerbates another. If, for example, the State Council succeeds in protecting insolvent property developers, the resulting moral hazard encourages increased leverage elsewhere. Similarly, the CSRC’s attempts to manage the Chinese stock market may boost share prices above the intrinsic valuation of a low-growth economy, which could be a recipe for another asset bubble. And does a Chinese economy with a large overhang of excess investment really need a new round of monetary stimulus?This is what happens when a blended system is in trouble. By opting for a combination of market-based and state-directed “solutions”, Chinese policymakers are unwittingly engaging in “whack-a-mole” — an approach that creates more problems than it solves. This borrows from a timeworn countercyclical playbook that was effective when China was less developed, less leveraged, less prone to asset bubbles and less susceptible to zombie borrowers. That playbook looks increasingly challenged. With China now facing the stiff headwinds of a shrinking population and sagging productivity, it might see little option but to continue using it. Yet in the end, that might be the ultimate pitfall for China’s weak blended economy.  More