Loans and taxes may prove daunting for Cuba economic reforms

Ernesto is a 26-year-old mechanical engineer turned entrepreneur.

Laid off, he chose a new profession among the list of nearly 200 new private businesses legalized by the Cuban government. He decided to become a locksmith, because a relative recently brought the required machine from Italy. But he still needed cash to buy blank keys.

“When you start a business, you need money,” said Ernesto, who spoke by phone from Havana and asked that his last name not be published. “Money is something not too many people in Cuba have.”

Ernesto borrowed $50 from two friends, tapping into an informal credit economy that is surging as the backbone of massive new reforms the Cuban government hopes will help it shed 1.8 million workers in the next three years.

But experts say there’s only so far fundamental changes to the Cuban economy can go as long as small business owners have to rely on friends and family to finance their endeavors. A lack of access to capital, crushing taxes and improvisation from the government on a system it has little experience testing are among the daunting list of challenges that test Cuba’s economic future.

“The Cuban government started off with a bomb by saying ‘we have to lay off 500,000 people,’” said economist Carmelo Mesa-Lago, a professor at the University of Pittsburgh. “They should have begun by saying, ‘we are going to create 500,000 new private jobs,’ then, once successful, announce the layoffs. They put the solution before the problem.”

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