The Dutch Caribbean’s Treading Treat

A year after gaining fiscal independence from the Netherlands and launching a joint stock exchange Dutch Caribbean members Curacao and Saint Maarten were urged in the IMF’s latest review to tackle chronic growth, unemployment, aging and current account deficit problems that may stifle bourse ambitions. The former Antilles maintains a currency union and guilder-dollar peg and international reserves cover 5 months of imports as of end-2010. GDP expansion has been flat on tourism and services earnings on 2 percent inflation. Bank capital adequacy and liquidity are good, but non-performing loans approach one-tenth the total. The islands received debt relief under the separation terms and run small budget deficits as overall public obligations average 30 percent of output. The balance of payments gap exceeds 20 percent of GDP on commodity import dependence and credit demand with “substantial adjustment” in order to see medium-run sustainability, the Fund believes. Dollarization may be a future option, but “anemic competitiveness” must first be addressed with greater cost flexibility and the banking system must be prepared for the conversion. A deposit guarantee scheme and binding fiscal rules should be introduced under autonomy, and tax changes should aim at lower labor and profit levies, according to the analysis. The Willemstad-based exchange has listed Latin-domiciled and Canadian Scotiabank funds, and its first IPO was a gold financing company that may also soon issue Nasdaq ADRs. Outstanding government bonds are also traded, and Aruba, which recently had its high sovereign rating reaffirmed on record visitor numbers, could enter the mix.

Formal business development plans envision offshore center diversification to rival neighbors like Barbados and Panama, while proximity to Venezuela affords a steady stream of wealth management accounts. Panama’s financial flows were up 15 percent this year to $2.5 billion, with a comparable performance predicted in 2012.  Barbados has lagged with 1 percent economic growth, while government debt at 100 percent of GDP has brought warnings from multilateral lenders. Among second-tier Caribbean destinations elsewhere the Dutch-speakers may spot further openings. In high-yield Belize, electricity and phone company nationalizations have raised international criticism over property rights, while widening the budget deficit. FDI is off one-third this year, and municipal elections are scheduled early in 2012. In the Dominican Republic the presidential contest for next May is in full swing with both major candidates in a tight race. Future relations with the IMF beyond the current standby are an issue as better remittance and tourism revenue propel 4 percent growth. Continued migration from Haiti as it marks the second anniversary of the epic earthquake with modest cleanup and reconstruction results is another factor as trouble-free visitor slogans are often lost in translation.