A Framework for Cuba Privatization:Foundation and Flexibility

The Goal of Privatization

How to Transform this:

Into THIS….

The Goal of Privatization

Ok, Not Really

Privatization is not an attempt to:

Usurp the sovereignty of the Cuban government Sell off all Cuban resources to outsiders Promote Capitalism and win a final cold war battle Turn Cuba into the 51st State

Privatization is part of an attempt to:

Modernize the Cuban economy by making it more efficient Empower everyday Cubans by allowing them to own and enjoy the

fruits of their labors Promote democratic value Fully integrate Cuba into the global community

Privatization will only likely come to Cuba after the following occurs:

The Cuban Economy Gets Worse- efforts at privatization since 1991 have failed to spur growth

Regime Change - political and economic

Resolution of Expropriations Claims- by Restitution, Vouchers, Negotiated Settlement

Ending of U.S. Trade Embargo

It’s a Mix of Law and Politics

But it won’t be easy

Privatization of the Cuban Economy The Basic Structure

Step 1. Set up an independent government agency- staffed by locals (first-hand) and internationals (anti-corruption)

Step 2. Give it jurisdiction over all formerly state-owned enterprises- applies to almost all. Joint ventures should be negotiated

Step 3. Empower it to act as if it were the managers of the enterprise- They can sell, merge, liquidate the SOE, etc.

Step 4. Prepare an enterprise/assets for privatization- Get its books in order

Step 5. Sell, sell, sell- Tender the new corporations in open bidding

Transparency and Marketing will be critical throughout

Functional and Focused Oversight

Competent Judicial Body

Temporary and of Limited Jurisdiction

Only hears cases regarding Privatization

Applies new Cuban law and int’l standards

Staffed by Internationals

Whatever the structure and jurisdiction of a Privatization Court, it must be aware of its place in the process.

Shepherding and validating privatization is its first priority. Establishing rule of law comes second.

But to ultimately be successful,Privatization needs a Foundation

Legal changes are needed:

The Basics: A new Constitution – first step of Transition PeriodDecentralize power away from the ExecutiveEmpowering local officials, the legislature and judiciary

Modernizing Commerce: Commercial Code, Business Organizations, Foreign Investment Law

Financial Restructuring: Reformed Central Bank, New Tax Code, Stricter Accounting Standards

But to ultimately be successful,Privatization needs a Foundation (cont’d)

Institutional changes are needed:

Government: Encourage local involvement in government and accountability of government officials

Business: Change the management practices of business leaders, labor unions, and individuals

Law: Educate more lawyers and retrain current lawyers to operate effectively in new system

Reform the judicial branch – empowerment and objectivity

Establishing an independent prosecutor

But to ultimately be successful,Privatization needs a Foundation (cont’d)

Ideological changes are needed:

Strip Socialist doctrine from all the laws

Clearly embrace the free market and democratic principles

Eliminate bureaucratic thinking

Encourage Entrepreneurship, risk-taking

Promote Chambers of Commerce

Investment by Cubans in Cuba

A tough road: A respected partner is needed

This Foundation will be laid concurrent with Privatization.

A whopper of a task…

PowerPoint doesn’t = Reality

Privatization Only Works in Context: The Agency and Institutional Partners Leading Privatization Must Plan for the Real World

Make Privatization Acceptable to the Public Local leadership promoting in the agency Transparency to limit claims of corruption

Stop the American Anti-Privatization Tide Perhaps limit potential bidders in key industries Require 51% ownership to be domestic Cuban

Benefits beyond the Upper Class Win over the Cuban masses by involving them Issue vouchers to terminated SOE employees

1. Take advantage of what Cuba has to offer - tourism, educated workforce

2. Create a local/int’l team to run Privatization- a transparent agency and court

3. Build a Foundation for Privatization- legal, institutional, ideological- work with other institutions and NGOs

4. Anticipate Problems- Market to the Masses- Maintain Flexibility if situation demands

No matter the method of Cuban Privatization its architects must do the following:

Privatization operates at the intersection of law and politics.

Understand this and plan accordingly Win the long term battle and successfully transform the economy.

Gracias por su atención.