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Robust growth despite high inflation

Despite a negative impact by the global trend of rising energy and food prices, the economy of the Netherlands Antilles and of Curaçao performs quite well. In the fi rst quarter of 2008 the real gross domestic product of the Antilles grew 1.7 percent compared to 2.6 percent in the fi rst quarter of last year and following growth 3.7 percent for the full year 2007.

The figures are in line with expectations by the Central Bureau of Statistics, the Curaçao Chamber of Commerce and Industry and the Central Bank. They concluded that tourism related industries and the fi nancial services sector remain the main engines for the economy. ‘Construction activities continued to perform robustly as a result of the ongoing hotel and other investment projects’, Central Bank president
Emsley Tromp said in the quarterly bulletin of the Central Bank. ‘The rise in domestic demand and more tourism activities led to a further growth in the wholesale & retail trade sector, although the pace was dampened by fewer activities in the free zone. The hotels & restaurants sector registered the strongest expansion, owing to the signifi cant increase in stay-over tourism. All islands contributed to the expansion, but Curaçao’s growth was most pronounced, backed by the Dutch and Venezuelan markets. The number of cruise visitors increased also, owing to the growth in Curaçao and Bonaire.’

The growth in the fi nancial services sector was the result of more activities by local banks and by financial services companies on the international market.

In line with the growth of the economy, employment grew as well. In 2007 11.1 percent of the labor force was unemployed down from 13.2 percent in 2006. A decline in unemployment among the youth was welcomed in particular. In addition, as a result of the economic growth, the cash balance of the Antillean government ended in a small surplus in the first quarter of 2007, due to a higher income from taxes.

Inflation concerns
‘Team Curaçao did a good job in 2007 and expectations for 2008 are positive as well’, said Francis Vierbergen, director of the Central Bureau of Statistics during the presentation of the results for 2007. ‘But there are some uncertainties and risks’, he added, referring to the rising prices for food and energy
and unpredictable currency developments. In 2007 consumer prices in the Antilles increased by 2.8 percent, the same rate as in 2006 because the increase in oil prices slowed down. But the fi rst quarter of 2008 infl ation accelerated, up 3.4 percent on an annual basis. ‘The acceleration of the infl ation rate can be attributed to the impact of the rising world oil and food prices, the decision by the government of Curaçao to increase domestic gasoline and utility prices, and the stronger euro’, Bank president Tromp said. The picture gets worse considering a government decision to increase the minimum wages by 15 percent as a compensation for a decline in their purchasing power. ‘Although socially fully justifi ed, we must proceed with caution not to bring about a wage-price spiral that ultimately could undermine the current economic revival.

Therefore, simultaneous with the increase in minimum wages, a package of supporting measures should become effective to enable the private sector to reduce costs and improve productivity’, Tromp said.

Apart from inflation, the balance of trade is also a concern. Due to the high prices of food and energy, the strong euro and a high domestic demand, imports still outbalance exports although both showed growth. In the fi rst three months of 2008 exports grew nearly 11 percent, but imports grew more than
15 percent, resulting in a trade deficit.

Debt relief
The Central Bank and the Curaçao Chamber of Commerce and Industry closely monitor the financial health of the government. In a sharp contrast to the private sector, the public sector did not contribute to growth at all. Both government consumption and investment declined slightly and the debt
of the government increased. Tromp: ‘The initial favorable budgetary outlook for 2008, projecting a NAf 15 million surplus for the general government as a result of interest savings related to the anticipated debt relief by the Dutch government, has deteriorated significantly. This deterioration occurred because
the relief was postponed when the entities did not meet the conditions in time. As a result, the projected budget outcome has been revised to a defi cit of NAf 183 million.’’ On the plus side, negotiations are continuing and it is reasonable to assume that debt relief will actually start by the end of 2008, Tromp added.

Entrepreneurs in the Netherlands Antilles and Curaçao are also positive about the future. A survey by the Central Bureau of Statistics, conducted by the end of June, revealed that three quarters of all businesses expect their pretax profi ts for 2008 to be higher than in 2007, the largest percentage ever
measured by the CBS. Five years ago, this percentage was 48 percent; 50 percent of all entrepreneurs describe the climate for investments as moderately positive and 40 percent as good. It is no surprise that most businesses are also positive about the future, some 68 percent, slightly less than the 73 percent according to a survey in December 2007.