Could Cuba become the next Iceland?

Written by: Staff, on June 25th, 2009

It’s a narrow road and one that can bring about severe hardship for those living in the nation. Iceland is a good example. Icelanders are basically bound to their nation for the longer term as their currency has become relatively worthless.

 

What ‘bankrupt’ means is just that: The country cannot pay back its external debts, and their currency, becomes essentially valueless in the rest of the world. That means the country can no longer pay for imports.

 

In Cuba´s case though, their currency is already worthless as it cannot be exchanged outside of the island and simply exists to allow immediate entrance of hard currency into the government’s coffers rather than people hoarding currencies such as the USD or Euro which the government would not see. It’s a currency that no Cuban national is paid with nor uses unless he is sent money from abroad which incidentally has a mandatory conversion relieving the beneficiary of up to 20% of the funds sent as he is handed his “local use only CUC”. Unofficial figures show that up to 8% of all exchanged CUC vanish and, it’s certainly not Cuban´s who destroy the currency inadvertently but, tourists who forget to exchange remaining bills from their vacation when leaving the island turning the worthless notes into expensive souvenirs – Quite a windfall for the island nation’s revenue.

 

The point is that Cuba could easily outstrip its reserves due to the nature of its socialist system coupled with the inefficiency of its commercial model. With the world economic crisis blended into the mix, along with the aforementioned, means that bankruptcy could be a reality of the times due to the amalgamation of factors which rarely all come at once. For the first time in many years, the government is accepting that segments of the economy are more expensive to keep open than they are to close. Now, this says a lot, primarily because Cuban workers are paid 20 USD per month and any business knows that if your staff cost you just 20 USD per month, a hamper of rice, beans and other rationed essentials plus full medical insurance then you´d see profits skyrocket as your payroll descended to unbelievable levels. One asks, “How could a company be so inefficient with such low fixed costs?”  The fact is that government owned businesses are historically inefficient and much of the raw materials or services are stolen to supplement low wages making the whole process inefficient to the point that temporary closure be more economically viable than actually staying open. The socialist model also breads a subculture of passive individuals who are taught and encouraged to be part of a man power machine rather than implement personal change to obtain a better life. This has long been an inherent physiological failing of the socialist doctrine that only China has managed to counteract by making changes and offering freedoms to its people through the semi private nature of the current business structure. The Chinese have managed to allow Chinese people who wish to strive for personal gain to coexist with those who prefer an easier “socialist” life whereas, Cuba prohibits the personal gain mindset entirely creating a nation of complacency which extends to all parts of the work and business arena like the A1N1. As a famous politician once said, it is easier to implement political changes than it is to carry out economic reforms, an almost terminal affliction suffered by east European nations for over a decade after the collapse of the soviet union and until a new generation of people, uninformed of the ways of the past, took these nations forward in a brutally efficient manner while making millionaires from the under twenties who simply couldn´t fathom inefficiency but knew only how to repair it for personal gain.

 

Curiously, when individuals in a nation excel so does the nation itself if a taxation system is in place which again, Cuba is lacking because of the refusal to allow free enterprise other than in sectors that the government is not is interested in running and controlling. You can count on one hand how many such segments exist and, those initial takers who buy into the concept of pseudo free enterprise quickly learn that if they find a profitable niche and the government learns about it they´ll revoke permits, cancel laws and stall new applications in the sector until they´ve retaken control again of it.

 

Essentially, Cuba is at a historical crossroads today without really acknowledging it. There´s the option of adopting Chinas model of socialism and allowing sectors of free enterprise on a massive scale and hope it can be done in time. There´s also the “fast fix” which is to give enough away to the US to get the embargo lifted which would mean an immediate influx of massive income from the tourism sector to fill currently empty hotels in a sector severely affected by the world economic crisis in Cuba´s key markets. Conversely, today’s main stay tourism markets will need to receive the national “back turning” if Americans are to be accommodated in volume. Canadian, UK and Spanish tourists traded for Californians, Texans and New Yorkers. Nevertheless, filling those beds to the hilt will provide quick cash but will not repair inefficient industry and businesses. Neither will it miraculously turn the Cuban workforce into the new breed of go-getters the nation so desperately needs.

 

There´s also more problems attributed to the embargo than most people care to think. The lifting of the embargo would only slightly reduce the cost of Cuba´s main imports and, most of those gains would be allied to lower shipping costs than the actual goods or commodities themselves. In fact, the bigger winner from lifting the embargo would be the US because the novelty of trading with the US again would mean a mass (and possibly foolish) exodus of all national purchasing transactions to the northern neighbor, much to the chagrin of current allies and those who have gone through thick and thin to assist Cuba to obtain what it needs for decades, these nations and individuals being relegated to 6^th base overnight and, undoubtedly, creating widespread animosity in the process.

 

So what will it be – Private Enterprise, Quick fix or Iceland?