Tuesday, April 26, 2011

Trading with Money Suckers

dinero quemado

Some Cubans, including Castro, blame the island’s economic turmoil on the US embargo. There is a great irony built into this complaint.

Castro’s revolution was built on the foundation that trade with the imperialists was responsible for Cuba’s economic turmoil. Now, it is the supposed lack of such trade that is paralyzing the Cuban economy.

History can be glossed over at politically opportune times, but it cannot so easily be forgotten.

For decades, his method of maintaining power has been to monopolize the island’s sources of wealth. All foreign direct investment in Cuba must be authorized by the government, the most important sectors of the economy are off-limits to investors, foreign investors cannot actually own the land or facilities in which they invest, the state has the right to seize foreign assets at any time and foreign investors must turn to the government for decisions on hiring, firing and paying workers.

Under such conditions, the Cuban leadership has the ultimate say on the social welfare of its citizens and has used that control to secure loyalty and, more important, neutralize political dissent.

But that control has come at a cost: For the revolution to survive — and maintain both a large security apparatus and an expensive and inefficient social welfare system — it must have sufficient private investment that the state can control.

That private investment has not been forthcoming, and so the state, unable to cope with the stresses of the economy, has had to increasingly concern itself with the viability of the regime. Since Soviet subsidies for Cuba (roughly $5 billion per year) expired in the early 1990s, Cuba has been seeking an injection of capital to generate income while still trying to leave the capitalists out of the equation in order to maintain control.

There is no easy way to resolve this paradox, and the problem for Castro in his advanced age is that he is running out of time.

There is also something that many seem to overlook and it is how Cuba, in spite of the embargo, is still able to receive goods from Europe, Canada, Latin America and elsewhere. It is the state-run system at home that remains crippled and unable to supply the island’s 11 million inhabitants. The roots of Cuba’s economic troubles lie in Cuba, not the United States.

But even though, there is another problem with those who, at risk, invest in Castro's land and that is that Cuba’s government has a long history of trampling on foreign investors, including many Canadians. Mr Clarence Boudreau, chairman of Mississauga-based FirstKey Project Technologies Inc., is one of them.

Clarence Boudreau underscored Cuba's desperate need for electricity and augured well for the $500 million agreement his engineering company was negotiating to upgrade the island's power grid in 1997. Today, Mr Boudreau is very sorry.

The Cuban government, these same folks nowadays, reneged on the contract and FirstKey lost about $9 million spent developing the proposal. Havana used Boudreau’s plans to lure some European firms to the same project. Sound familiar?

Well, very often happen with those folks. Havana owes more than 25 billion of dollars to Russia from the old Soviet Union’s era. And since 1986, Castro’s government hadn’t pay a penny of his debts to western investors. Enough?

Not really. Canadians and western naive businessmen need more than one disappointment to be shocked and understand they are trading with money suckers. As simple as that.