The lights are going out in Havana, both literally and figuratively. As rolling blackouts grip the island, residents of high-rise blocks are left stranded in the dark, unsure when the next meal will be cooked or the next lift will run. This is not just an inconvenience. It is a signal that Cuba's centrally planned economy is breaking down at a fundamental level.
For decades, Cuba relied on subsidised oil from Venezuela to keep its power plants running. With that supply now choked off, the government has resorted to scheduled cuts, but the schedules are rarely kept. In the Vedado district, a 20-storey block stands silent, its lifts motionless, its corridors pitch black after sunset. Residents climb stairwells with torches, carrying water jugs and rationed food. The uncertainty is as corrosive as the economic collapse itself.
From a financial perspective, this is a textbook case of capital flight without borders. When a country cannot guarantee the basic input of electricity, it cannot guarantee production, tax revenue, or currency stability. The Cuban peso is effectively worthless on the black market. Hard currency is hoarded. Remittances from abroad are increasingly diverted to essentials that the state can no longer provide.
Market efficiency has been abandoned. The government controls prices, but without electricity, goods cannot be manufactured or refrigerated. The result is shortages and a thriving informal economy. This is the death spiral of a command economy: central planning fails to allocate resources, black markets fill the gap, and the state loses both control and legitimacy.
Gilt yields are not directly in play here, but the parallel is clear. When a sovereign cannot meet its obligations to its own citizens, international investors take note. Cuba's default on its external debt is already history, but the current crisis suggests that any future restructuring would require a complete overhaul of the economic model.
Fiscal responsibility is a joke when the state's primary currency is political loyalty rather than capital. The government prints money to cover deficits, fuelling inflation that is not officially reported but is evident in the soaring black market exchange rate. The official exchange rate is 24 CUP to 1 USD; the black market rate exceeds 200. That is a 90% devaluation, requiring visitors to carry bricks of pesos for basic expenses.
Central bank policy? There is none that resembles orthodox monetary discipline. The Cuban central bank is an arm of the state, issuing currency to meet payrolls for jobs that produce nothing. The result is the same as in any hyperinflationary environment: savings are destroyed, and the economy goes cashless in favour of barter or foreign currency.
The human cost is staggering. Elderly residents in high-rises cannot get dialysis because the machines need power. Students study by candlelight. Refrigerators become cabinets. The blackouts are not an act of God. They are a direct consequence of economic mismanagement and the inability to adapt to the loss of external subsidies.
For investors, Cuba remains a cautionary tale. The promise of a market opening after détente with the US has faded. The embargo remains, but even if it were lifted, the infrastructure is so degraded that recovery would take a decade or more. Capital flight is not just a figure of speech; it is the deliberate movement of wealth out of a sinking asset.
The bottom line is simple: without reliable power, there is no production, no trade, and no future. Cuba’s blackouts are not a temporary inconvenience. They are the final chapter of a failed experiment in economic isolation. The uncertainty for high-rise residents is just a metaphor for the country itself: stranded in the dark, waiting for a light that may never come.
