The Cuban authorities have triggered widespread repercussions by recently informing several foreign companies that they can no longer freely access their bank accounts holding millions of dollars in foreign currency.

In a single move, the Cuban government has prohibited these companies from withdrawing funds, forcing them to use the money solely for business operations within Cuba.

According to sources within the affected companies, this announcement was not only sudden but also delivered semi-secretly through private meetings with individual company representatives, causing widespread discontent.

While an official statement is awaited, this situation poses a critical blow to foreign investment, sparking strong opposition. Some even predict that this backlash could be significant enough to force the government to reverse its decision.

Media reports indicate that some investors have already raised their grievances with their respective governments.

The audacity of the Cuban government doesn't stop there. In addition to attempting to seize foreign currency that is not theirs, President Miguel Díaz-Canel and his inner circle are "proposing" that affected companies open new types of foreign currency accounts within Cuba. This effectively communicates that their money is not entirely their own and serves as a demand for even more foreign currency – a truly shameless act.

Previously, the Cuban government targeted its own citizens by "converting" MLC (freely convertible currency) accounts into a new "Clásica" card, disallowing the transfer of existing funds and only permitting new deposits. Now, they are demanding that foreign companies also deposit new funds into these new accounts.

Official data reveals that by the end of 2023, Cuba had approved 334 foreign investment projects from over 40 countries, mostly through international economic association contracts. Just over 100 of these are joint ventures, with the remainder being wholly foreign-owned enterprises.

This act of 'expropriation' – for lack of a better word – particularly impacts Spanish companies, which hold the largest share of foreign capital in Cuba's tourism industry. Approximately 20 foreign hotel chains, including well-known names like Meliá, Iberostar, Roc, Barceló, and Valentín, operate over 100 approved management contracts.

Representatives of the affected foreign companies recall facing restrictions for years. In reality, it has been nearly impossible to extract dollars from Cuba. This coercive measure, far from encouraging investment, extinguishes any interest in investing there.

While they hope that the new accounts will allow them to conduct international transactions or repatriate profits to their home countries, there is no reason to believe that the government, having already used such a "trick," will not do so again. Ultimately, they are dealing with a government that, as it has done to its own people for the past 65 years, specializes in taking the whole hand when given a finger.

They were sold the illusion of safety from the severe liquidity problems plaguing Cuban banks – the black market exchange rate, capital erosion, and the shortage of both Cuban pesos and foreign currency that has been rationed since August of last year. Currently, both individuals and businesses, domestic and foreign, face restrictions on all transactions.

Cuba's failed economic and monetary policies have failed to resolve the severe liquidity issues. For example, ordinary citizens may have to visit the bank for months to receive an inheritance in cash.

The Cuban state currently imports about 80% of the goods consumed on the island (especially fuel and food), and the dependence on food imports is increasingly severe due to extremely fragile domestic production. Consequently, there is a desperate need for dollars.

The heavily publicized banking reforms and the recent partial dollarization policies appear insufficient to attract more foreign currency and cover foreign debt repayments. As a result, the Cuban government is now turning its attention to foreign companies holding assets within Cuba.

Domestically, even sectors that generate foreign currency, such as healthcare (overseas services and personnel), biotechnology, tobacco, and tourism, cannot access the resources they themselves earn. All foreign currency must be handed over to the central state treasury, and the Ministry of Economy and Planning decides the amount of foreign currency needed for them to continue operating.

This type of financial blockade, known as a 'corralito' in other countries, will do nothing to resolve the situation in Cuba, which has been mired in a severe economic crisis for five years due to basic goods shortages and other issues. Instead, it will pour cold water on foreign investment.

Even before this measure, the Heritage Foundation, a conservative US think tank, ranked Cuba as the worst country in the Americas for investment in its '2024 Index of Economic Freedom'. The foundation cited an inefficient and business-unfriendly regulatory environment and a very restrictive investment climate as reasons. Now, Cuba's chances of escaping the bottom of the global rankings have become even slimmer.

Many dissidents argue that this situation should serve as a lesson to companies that insist on doing business with the dictatorial regime. These are companies that tarnish their image by standing shoulder to shoulder with the regime at official events, shamelessly indulge in luxury food while the people starve, never speak out about the human rights situation or political prisoners, and offer no help to Cubans who lack transportation to go to the hospital.

Now that the shoe is on the other foot, foreign business executives must remain silent. Their money is in the hands of the generals, and they could lose everything. They are realizing that these deals have always been like a fight between a lion and a monkey, and they regret bringing their savings to this destination. They likely do not expect a single new investor to come. Hopefully, Díaz-Canel and his inner circle can extract as much as possible now, as this may be the last dollar they see.

Corralito: Refers to a government measure, experienced in South American countries like Argentina and Uruguay during financial crises, that restricts the withdrawal of deposits. While it can be an unavoidable choice to prevent the collapse of the financial system in extreme economic instability, it severely limits the economic activities of individuals and businesses and significantly erodes trust in the government. Cuban Economic Situation: Cuba has been suffering from chronic economic hardship due to the long-standing US economic embargo and an inefficient socialist economic system. The shortage of essential goods such as food, medicine, and fuel is particularly severe, and the recent COVID-19 pandemic and the slump in the tourism industry have further exacerbated the economic situation. The government has introduced partial dollarization policies and attempted to attract foreign investment to solve the foreign currency shortage, but this deposit freeze is seen as a setback to these efforts. Importance of Foreign Investment: The introduction of foreign capital and technology is essential for the recovery of the Cuban economy. Foreign investment can supply much-needed foreign currency to Cuba, create new industries and jobs, and contribute to the improvement of outdated infrastructure. However, an unpredictable and unstable investment environment is a serious obstacle to attracting foreign investment. Dilemma of the Cuban Government: The Cuban government must solve the severe foreign currency shortage, but coercive measures can erode the trust of foreign investors and have a greater negative impact on the economy in the long term. This deposit freeze may be a desperate measure to secure short-term foreign currency, but concerns are being raised that it could further destabilize the future of the Cuban economy.