THE CUBAN ECONOMIC RECOVERY FUND FOR CUBA IN TRANSITION
To obtain monetary reserves for Cuba in the post marxist period a private and totally individually owned Fund for the Economic Recovery of Cuba must be launched now. Its objective is to generate well preserved capital through yield-producing equities prior to the transition period and then transfer its assets to the Cuban Currency Board once the new Cuban Government has fully recognized private ownership, has established the Rule of Law (Estado de Derecho) and has accepted legally the Cuban Currency Board as the guardian of the Peso stability and convertibility.
To illustrate that this goal is realizable it would be helpful to review some demographic data obtained from the 1990 US Census and from other sources indicating that there are between 250,000 and 300,000 Cuban families with a median annual income of $30,000 to $40,000 and 100,000 businesses in the hands of Cubans that manage a commercial volume close to $10 billion per year.
If each of these families and businesses would contribute to the Cuban Economic Recovery Fund $1000 to $2000/year commencing now then the total amount could easily surpass $300 million annually.
But this Fund is not a charitable organization and should not be considered to become an instrument of profit for anyone in particular but rather a vehicle to start investing NOW in the future of Cuba.
A clear goal of this Fund is to preserve the integrity of every capital contributed by each participant and the interest accrued at all times by placing it in the hands of U.S. financial institutions preceding the transition period in Cuba.
The contributions to the Cuban Recovery Fund can augment its assets by investing in several well established mutual funds without links to Cuba in the form of stock and/or bonds that could provide between 5 to 10% per annum. If compounded, the Fund could reach the previously mentioned goal of $ 1.0 billion in approximately 3 years or less -- especially if the investments were to be tax exempt by the U.S. Government if not withdrawn -- similar to the other widely held retirement plans in effect already in this country.
The total or partial return of capital and earnings would be available if so desired to every individual investor at any time upon demand. Any withdrawals would defeat the purpose of achieving the advantageous long-term effects of compound interest.
The risk of investing in this Fund is not any different from the risk anybody runs while investing in yielding producing equities individually held or owned through institutional investments.
Once the new Cuban Government enforces a legal system and is willing to recognize fully the Cuban Currency Board, the existing share holders of the Recovery Fund will have the opportunity to approve the transfer of existing resources to become the reserves of the Currency Board and receive in return proof of their individual ownership from such institution.
At that time the Cuban Currency Board would become a legal government independent entity with its own ruling constitution (see Appendix) investing its assets provided by the Fund into high-quality, interest-bearing securities (such as US Treasury Bonds) of different maturities issued by countries with credible economic stability such as the US or the European Union. The Currency Board will reimburse the seigniorage to its shareholders or the government, as the case may be.
To further strengthen its credibility as a monetary institution the Cuban Currency Board would be incorporated in a foreign neutral country such as Switzerland, where it could hold its assets. It will also ensure that all its notes contain a statement that they are convertible into a reserve currency at a fixed rate at any of the Currency Board offices at home or at abroad. Holders of its notes and coins should have the right to sue the Cuban Currency Board for breach of contract in extremely unlikely event that it fails to redeem them at the set rate on demand.
Undoubtedly there will be countless questions concerning the constituency of the Board of Directors at the helm of such institution whose mission is quite ambitious in the mind of many. The Board of Directors should be composed by foreign and Cuban nationals to be appointed by private commercial banks in conjunction with the Federal Reserve Board of the US, the Bank of Japan, the Bundesbank of Germany and the Cuban Government. To reduce the influence of the Cuban Government, the national members must not be government officials and the foreigners should not be employed by any international banking institution. It is of interest to note that such unsettling but well justified concerns are NOT raised frequently enough with respect to most Cbanks.
One of the last resort arguments of many facing the creation of a Currency Board is to invoke the national pride in perpetuating the Central Bank, and claim that Cuba could become a colony again if we adopt such a monetary institution -- a country does not surrender its sovereignty by ensuring that its currency is properly backed and fully convertible. Sovereignty should not be considered to be a license for any government to do whatever it pleases with the monetary resources of the nation.
As Cuba recovers economically and the reserves of the Currency Board increase, it will be possible to return eventually to each of its initial investors or their heirs, in Cuba or overseas, the original capital and interests if so desired in a short time.
Any sharing in the initiation and continuity of the Fund may augment its value by investing in the U.S. financial markets up to the time when investors and the transition government agree on the terms for the recognition of the Cuban Currency Board to become fully operational. The assets of the Fund then become the initial reserves of the Currency Board and the Cuban Peso becomes one more a completed trusted and convertible currency in the world markets.
At no time will those who offered some of their own resources lose ownership of them. If the initial Fund and its conversion into becoming the initial reserves of the new nation becomes a reality, the participation by citizens outside the Cuban population must be considered to be an important realization of valuable additional resources.
The investment in the Fund and later in the Currency Board would provide to all Cuban and willing foreigner participants the unparalleled opportunity to be an active contributor to the recovery phase of the island and to safeguard the national currency and the fiscal policy of the new government officials.
The Cuban Currency Board will maintain monetary stability with low inflation in the transition period and provide future national and international entrepreneurs with the necessary confidence to invest in Cuba.
It will also reduce the possibility of incurring debts with the International Monetary Fund (IMF) the World Bank and/or the Interamerican Development Bank( IDB) as a result of monetary problems.
The creation of the Cuban Currency Board will facilitate the necessary confidence in the Cuban economy for the Cuban Government in transition to issue high-grade, long-term bonds to obtain the necessary liquidity badly needed to meet its future obligations and expenses.
The economies of countries previously in the grip of socialism have required a sweeping and profound structural transformation: freeing prices from state regulations, privatizing completely productive assets, create capital markets, instituting effective forms of taxation, opening the markets to international trade and capital flow, while offering and maintaining solid currency stability.
Correct economic decisions will be in great demand and their implementations must work within the context of new political structures and institutions that will have to become fully effective. Economic reforms require the existence of legal safeguards and well defined programs with wide base support.
Let us not forget that although communist rule will come to an end, the remains of the communist party and its sympathizers will continue to exert great influence and will certainly hamper or obstruct the implementation of economic reforms. It will denounce relentlessly the slightest " inefficiencies and failures " of the free market operations and the pain they undoubtedly will produce in the mass public whose habits and thoughts have been the product of 40 years of Marxism.
The initiation of a serious economic reform program requires a set of government leaders committed to basic structural reforms -- not mere palliative measures -- and the political determination for that leadership to break radically with the socialist past.
The quicker the distortions created by the communists are removed from the economy the sooner the reform will begin to show positive results that will become self reinforcing to replace the old statism and socialist disincentives.
Radical and fast-moving reforms will give investors, savers and entrepreneurs confidence that the new system is here to stay, not allowing rent seeking forces and corruption to flourish. We must be guard against slow-moving changes to avoid creeping inflation, a further decline in gross domestic product, poorer consumption, increased unemployment and new economic inequalities which could result in outright retreat from economic liberalization.
The costs of economic reform are immediate, certain, and many times concentrated on specific groups, while the benefits are usually deferred, diffused, and uncertain. The reformers will face inevitable massive problems in obtaining consent and consensus from the public.
In dealing with the end of communism we must be obliged to warn against simplistic approaches and unfounded expectations that could lead us into wrong and painful directions.
The period of Marxism has been a human tragedy but equally tragic is the failure to expect that after the end of it a new system will begin to function efficiently as if nothing had happened.
The world has in the past faced and Cuba will in the future face the fundamental disputes between faith in the unrestricted interplay of free citizens and faith in the delegation of power to the politicians, between faith in free and protected trade, between free internal markets and government directed industrial policies.
The reformer will have to dismantle the old institutions and the resulting vacuum to many must be quickly filled with a non-threatening alternative order.
It is imperative to realize that will be asking the Cuban people to leave behind long years of Marxism and shake out nonviable economic activities for others which are unknown to most. The fact that these will be bring rapid political and economic changes should be clear--we can not afford false promises one more time and we must be prepared to offer a continuos and intense educating campaign to establish, maintain and strengthen a national consent.
Long years of communism and exile have provided us with the unique opportunity of learning from prosperous democratic nations and from the transition of the former Marxist countries to adopt their positive and successful measures and reject their inefficient steps so that with the unique strong resources that we already own today we can march forward, together with those in the island, to reclaim what is our only and real home: CUBA.
Ricardo E. Calvo