Leaked audio: Cuban government halts food price caps after backlash from private sector

The Cuban government halted a proposed price cap on chicken and other food staples after Cuban private entrepreneurs pushed back against the measure and warned officials the population would go hungry. It’s a rare instance revealing the influence of an emergent private sector that has flourished despite strict government control.

A group of private entrepreneurs harshly questioned the measure and pushed back against government controls and high taxation on their businesses in surprising candid terms during a June 28 meeting with government officials, according to a secret recording of the meeting obtained by the Miami Herald.

The vice minister of Finance and Prices, Lourdes Rodríguez, and the head of imports at the Ministry of Foreign Trade, Roberto Fulton, had summoned owners of small- and medium-sized private businesses that import food to inform them that the government decided to cap six of the most popular products —chicken legs and thighs, cooking oil, powdered milk, pasta, sausages and detergent–in an effort to contain skyrocketing inflation.

But the meeting took an unexpected turn when several entrepreneurs pushed back, arguing that the new prices were too low, did not account for their costs and would force them to stop importing food at a time when the population is shouldering the brunt of a severe economic crisis and widespread shortages.

“Let the people eat,” said one exasperated business owner, who said during the meeting that he was a former lieutenant colonel with the Cuban Revolutionary Armed Forces

Another gave a stern warning: “There won’t be chicken nor powdered milk. As a revolutionary, I want you to convey to the highest levels of the government that they should know there will be a complex supply problem in the middle of the summer.”

The warning seems to have worked.

On July 1, when the cap was supposed to kick in, some local governments published a note on social media informing that the measure was suspended pending negotiations between the government and the private sector to establish “fair prices.” Vice minister Rodríguez gave a similar explanation on state television later that day.

It was a rare, if temporary, win in a country with a leadership accustomed to a top-down approach when making decisions.

The exchange revealed the dynamics of an emergent private sector subjected to the whims of a communist government that merely tolerates it out of necessity but is ready to squash it at any moment. But unexpectedly, it also shows that private entrepreneurs are becoming more vocal in confronting officials over policies and can wield their limited power to try to shape them, especially when the government is bankrupt.

Cuba’s centrally planned economy is in such poor shape that the government had to reduce the subsidized rations distributed to Cuban families severely. It increasingly depends on donations from abroad and the private sector to feed the population. Last week, Granma, the Communist Party newspaper, reported that the government was adjusting this year’s budget for the conditions of “a war economy.”

In the meantime, small and medium enterprises have been buying millions of dollars in food, other essential goods and even cars from the United States and other countries since they were first authorized in 2021. But the Cuban leadership has been uncomfortable about the expansion of the private sector and has recently arrested some private business owners under accusations of tax evasion and corruption.

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The Biden administration has eased some embargo restrictions to allow Cuban independent private entrepreneurs to open bank accounts in the United States and has issued a few authorizations to American companies to invest in private companies in Cuba. However, the Cuban government has yet to allow any foreign investment in the private sector.

Government restrictions fueling high prices

Cuban authorities have also taken other measures to stymie the growth of these companies, which were much questioned by the entrepreneurs in their meeting with government officials.

The business owners complained that the government had forced the private companies to put their money in Cuban banks, restricting the daily cash they could withdraw from their accounts. They also questioned the calculations behind beyond the price caps, arguing they were distorted because they used a “fictitious” dollar exchange rate.

The government does not sell dollars to private companies at the official rate of one dollar for 120 Cuban pesos — nor at any other rate, for that matter. That leaves the business owners with no option but to buy dollars in the informal market — where the dollar is three times that price — so they can pay providers abroad.

“You are forcing us to commit illegal acts and invent stuff,” said the former lieutenant colonel.

Cuban authorities also required private companies to use the official exchange rate for accounting and tax purposes, forcing them to put “fictitious costs” in their books, one accountant working for a private business added during the discussions.

A whopping 55 percent effective tax rate, increasing costs of transportation in a country where gas is scarce, and other fees charged by state importing agencies, port facilities and warehouses also add up, resulting in high prices, said the private business owners who asked the officials for the suspension of a 10% sales tax that went into effect this year.

Higher food costs in the United States, where many in the meeting said they buy their supplies, also resulted in higher prices, they argued. None of these factors were taken into account when calculating the price caps, they said.

The officials insisted the prices were calculated using real data and “real costs” and met the barrage of complaints with silence and acknowledgment that their arguments would be studied further by the government.

‘Nothing works well here’

Ultimately, the exchange laid bare the government’s crisis of legitimacy.

The former lieutenant colonel with the Cuban Revolutionary Armed Forces said he had a successful business, involving the import, distribution and sale of food products, and had paid $132 million Cuban pesos in taxes. At one point, he mentioned that he had a fleet of about 30 vehicles for distribution.

The fact that a former military official has built such a large-scale business is the kind of example that has fueled so much anxiety among human rights activists and Cuban American politicians regarding the private sector in Cuba. But he was also the fiercest critic of the government during the exchange, illustrating why the Biden administration believes supporting capitalism on the island might be the shortest path to change minds in Cuba.

“They are always hunting us to see where they can catch us,” he said, speaking of the government. “And who are the ones solving the people’s hunger? The mipymes,” he said, using the Spanish shorthand word for these private companies.

“If we don’t tell the truth, we will continue to be soaked in this big lie in which we are living,” he said. “Nobody here believes in anyone anymore, because it’s a lie. Nothing works well here.”