Netherlands_Antilles_and_Aruba08_tcm64-74969 by xiaopangnv

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									                      Country update
                      Netherlands Antilles and Aruba




Summary
Aruba is a semi-autonomous island, which falls under the umbrella of the Kingdom of the Netherlands
together with the Netherlands and the Netherlands Antilles. However, economically and politically,
Aruba is fully independent from the Netherlands Antilles. Therefore, Aruba should be evaluated
separately. As the political situation in Aruba is more stable than that of the Netherlands Antilles,
Aruba’s general and transfer ratings are both one notch higher than those of the Netherlands Antilles.
After years of poor growth in the beginning of the millennium, the economies of the Netherlands
Antilles and Aruba have been performing relatively well in the past years. Although the outlook for
the coming years is bright, there are some downside risks present. First of all, the Netherlands Antilles
will go through a constitutional change with large consequences in the coming years. Although some
delays are likely, the process will be completed in the short to medium term future. Inflation is rising
on the islands of the Netherlands Antilles and Aruba on the back of strong domestic demand, a weak
dollar and high international oil prices. In the short term, the weakening of the US economy presents
a problem. The islands all depend heavily on the tourism sector, especially on tourists from the US. As
less tourist visit the islands, foreign exchange levels will go down, economic activity and growth will
be harmed and government income will decline. All in all, we do not anticipate a sharp economic
downturn in neither the Netherlands Antilles nor Aruba, although 2008 will be a challenging year.

Things to watch:
•   Road to constitutional change
•   Weakening of the US economy
•   Fiscal situation
•   Inflation


Author:                   Erwin Blaauw
                          Country Risk Research
                          Economic Research Department
                          Rabobank Nederland

Contact details:          P.O.Box 17100, 3500 HG Utrecht, The Netherlands
                          +31-(0)30-21-62648
                          E.R.Blaauw@rn.rabobank.nl


February 2008              Rabobank Economic Research Department                               Page: 1/7
Country update Netherlands Antilles and Aruba


Netherlands Antilles
                                        0
National facts                                                            Social and governance indicators          rank / total
 Type of government                         Parliamentary democracy         Human Development Index (rank)              n.a.
 Capital                                    Willemstad                      Ease of doing business (rank)               n.a.
 Surface area (thousand sq km)              1                               Economic freedom index (rank)               n.a.
 Population (millions)                      0.2                             Corruption perceptions index (rank)         n.a.
 Main languages                             Papiamento (65%)                Press freedom index (rank)                  n.a.
                                            English (15%)                   Gini index (income distribution)            n.a.
  Main religions                            Roman Catholic (72%)            Population below $1 per day (PPP)           n.a.
                                            Pentecostal (5%)
                                            Protestant (4%)               Foreign trade (2006)
  Head of State (Queen))                    Beatrix of the Netherlands    Main export partners (%) Main import partners (%)
  Head of Government (prime-minister)       Emily de Jongh-ElHage           US                   28 Venezuela            71
  Monetary unit                             Antillian Guilder (NAFL)        Panama               12 US                   10
                                                                            Mexico                9 Italy                 4
Economy (2006)                                                              Haiti                 6
Economic size                                  bn USD     % world total   Main export products (%)
  Nominal GDP                                      3          0.01          Petroleum products                          n.a.
  Nominal GDP at PPP                               3          0.00
  Export value of goods and services               3          0.02
  IMF quotum (in mln SDR)                        n.a.         n.a.
Economic structure                              2006       5-year av.     Main import products (%)
  Real GDP growth                                 2.2          1.3         Crude oil                                    n.a.
  Agriculture (% of GDP)                           1          n.a.         Food                                         n.a.
  Industry (% of GDP)                             20          n.a.         Manufactures                                 n.a.
  Services (% of GDP)                             79          n.a.                                                      n.a.
Standards of living                              USD      % world av.     Openness
  Nominal GDP per head                          15490         195          Export value of G&S (% of GDP)               79
  Nominal GDP per head at PPP                   16000         146          Import value of G&S (% of GDP)               87
  Real GDP per head                              n.a.         n.a.         Inward FDI (% of GDP)                        7.6




Aruba
                                        0
National facts                                                            Social and governance indicators          rank / total
 Type of government                         Parliamentary democracy         Human Development Index (rank)              n.a.
 Capital                                    Oranjestad                      Ease of doing business (rank)               n.a.
 Surface area (thousand sq km)              0                               Economic freedom index (rank)               n.a.
 Population (millions)                      0.1                             Corruption perceptions index (rank)         n.a.
 Main languages                             Papiamento (66%)                Press freedom index (rank)                  n.a.
                                            Spanish (12%)                   Gini index (income distribution)            n.a.
  Main religions                            Roman Catholic (82%)            Population below $1 per day (PPP)           n.a.
                                            Protestant (8%)
                                            Other (10%)                   Foreign trade (2006)
  Head of State (Queen)                     Beatrix of the Netherlands    Main export partners (%) Main import partners (%)
  Head of Government (prime-minister)       Nelson Oduber                   Netherlands          27    US                53
  Monetary unit                             Aruban Guilder (AWG)            Panama               25    Netherlands       13
                                                                            Colombia             13    UK                 4
Economy (2006)                                                              Venezuela            11
Economic size                                  bn USD     % world total   Main export products (%)
  Nominal GDP                                      2          0.01          Animal products                             n.a.
  Nominal GDP at PPP                               2          0.01          art and collectables                        n.a.
  Export value of goods and services               5          0.03          machinery and equipment                     n.a.
  IMF quotum (in mln SDR)                        n.a.         n.a.          Fuel and energy
Economic structure                              2006       5-year av.     Main import products (%)
  Real GDP growth                                 2.5          1.5          Machinery and equipment                     n.a.
  Agriculture (% of GDP)                           0          n.a.          Crude oil                                   n.a.
  Industry (% of GDP)                             33          n.a.          Chemicals                                   n.a.
  Services (% of GDP)                             66          n.a.          Foodstuffs                                  n.a.
Standards of living                              USD      % world av.     Openness
  Nominal GDP per head                          23955         302           Export value of G&S (% of GDP)              201
  Nominal GDP per head at PPP                   21800         200           Import value of G&S (% of GDP)              199
  Real GDP per head                              n.a.         n.a.          Inward FDI (% of GDP)                       39.3




February 2008                    Rabobank Economic Research Department                                              Page: 2/7
Country update Netherlands Antilles and Aruba


Due to insufficient (reliable) data availability, the figures presented in this evaluation should be
interpreted with caution.

Economic performance
Netherlands Antilles: In 2007 the Antillean economy performed better than the year before. Growth
amounted to 2.4% and led the economic ascend out of the poor years in the beginning of the
millennium. The private sector remains the engine of growth in the Netherlands Antilles. Sound
performance of the tourism sector and the anticipation of debt relief have driven up investments in
the tourism sector. Second round effects of these investments have especially benefited the
construction, wholesale and retail sectors, reducing unemployment levels to 13% down from 16% in
2005. Improved credit availability and higher consumer confidence in the economy spurred
consumption. As a result, the current account has deteriorated further, as imports increased to meet
the higher consumption. The outlook for 2008 remains bright, with an estimated growth of about 3%.
However, downside risks (on which we will elaborate later on in this report) can cloud the economic
prospects.

Aruba: The tourism sector weakened in 2006, as the number of tourist staying overnight declined by
5%. Cruise tourism performed well, however, and increased by 7%. Furthermore, the housing sector
performed strong in 2006, showing 3.3% growth. In 2007 economic growth amounted to 2%, slightly
below the 2006 growth rate of 2.5%. Unfortunately, details about the underlying factors are not
available at the time of writing. The outlook for 2008 is bright, but uncertain. The container terminal
will be moved to a different location, which will stimulate growth and diversify the economy. Contacts
have been made with Brazil, China and India to use Aruba as a distribution centre. Also, a number of
tourism projects are in the pipeline which, given there are no setbacks, could come under steam in
2008. A joint venture between PetroBras and Valero Energy Corporation (the latter is currently
operating the refinery by itself) has recently been announced. The implications of the deal are unclear
at the moment but could give a boost to the operations of the refinery. However, the government of
Aruba is demanding guarantees that the Brazilian oil company will invest USD 1.5 bn and maintain
employment. Again, the economic prospects look good, but there are some downside risks.

Chart 1: Economic growth recovers                                          Chart 2: Current account volatility high
      % change p.a.                                   % change p.a.               % of GDP                                           % of GDP
 4                                                                    4     20                                                                  20
 3                                                                    3     15                                                                  15

 2                                                                    2     10                                                                  10
                                                                             5                                                                  5
 1                                                                    1
                                                                             0                                                                  0
 0                                                                    0            2000      2001   2002     2003     2004    2005     2006
                                                                             -5                                                                 -5
 -1   2000 2001 2002 2003 2004 2005 2006 2007                         -1    -10                                                                 -10
 -2                                                                   -2    -15                                                                 -15
 -3                                                                   -3    -20                                                                 -20

                      Netherlands Antilles    Aruba                                                 Netherlands Antilles   Aruba

Source: BNA/CBA                                                            Source: BNA/CBA

Bumpy road towards constitutional changes
Netherlands Antilles: In November 2006 the island council of Curacao rejected the final agreement on
the upcoming constitutional changes with 14 out of 12 votes. This rejection caused the coalition to
fall. A new coalition was quickly formed out of parties that supported the constitutional agreement.
Consequently, the agreement was accepted, although with the bare minimum of 11 out of 21 votes.
The process is now back on track, but has suffered a serious delay. At the moment the deadline for the
final split-up of the Antilles is set at end-2008. Until then we can expect a bumpy ride in the run-up
towards the final separation. One of the problems is that the Netherlands Antilles are still determined
to renegotiate certain parts of the agreement, whereas the Netherlands is refusing to do so. Moreover,


February 2008                                Rabobank Economic Research Department                                                                    Page: 3/7
Country update Netherlands Antilles and Aruba

the government of the Netherlands Antilles will have to demonstrate fiscal restraint as part of the
accepted agreement. Notwithstanding several attempts to do so in the past, the government has
failed to reign in expenses in the past decades. As revenues declined in 2006, the general government
ran a deficit of about USD 270 mln (3.1% of GDP). The primary balance was in surplus however by
1.5%. Nonetheless, the government debt increased to nearly USD 3 bn. in 2006, which is an
unsustainable 85% of GDP. Another problem is that politicians will use the big issue of the Antillean
split-up as leverage to have several small issues resolved to their benefit, causing tensions and delays.

Aruba: Aruba has gained its separate status in 1986, and no changes to its status will result from the
constitutional changes of the Netherlands Antilles. However, ever since the Dutch government has
announced that it will restructure the government debt of the other islands, the relationship between
the government of Aruba and that of the Netherlands has become more tense. Currently the
relationship between both governments is at a low-point due to a conflict about the proceeds of the
sale of a prominent hotel on Aruba. Aruba claims these proceeds — some 150 million euros — from the
Netherlands, but is requesting another EUR 50 mln of debt relief and an EUR 75 mln investment fund
meant for the development of the island before coming to any form of agreement.

Upcoming constitutional changes
The islands of the Netherlands Antilles will undergo a constitutional change end-2008 according to
the current time table. The three smaller islands; Bonaire, Saba and St. Eustatius will become
municipalities of the Netherlands. The inability of these islands to be economically independent made
it necessary for them to remain part of a larger entity. Even though the islands will become part of the
Netherlands, the social- and welfare level will not be upgraded to Dutch standards. However, the
islands will have support from the Netherlands in maintaining their current welfare level. By becoming
municipalities, the islands will have more or less the same rights and responsibilities as municipalities
in the Netherlands. The larger islands, Curacao and St. Maarten, will gain a similar status as Aruba
enjoys at the moment; a status aparte. The islands will enjoy autonomy on all fields except foreign
affairs and defence. A number of institutions will remain in place for all the islands. Among them are
the Central Bank and the legal system. The High-Court in The Hague will remain the highest judiciary
organ in the Kingdom. Another major issue is the debt burden. At the time of the split-up, the larger
part of the debt will be taken over by the Netherlands. Bonaire, Saba and St. Eustatius will adopt the
Euro as general currency while Curacao and St. Maarten will become a monetary union and keep the
Antillean guilder as their national currency.


Inflation risks
Netherlands Antilles: Risks to inflation that have been building up in the Antillean economy may
present themselves in the coming years. In 2006, inflation was slightly below 3%, which is higher than
the figure we expected a year ago. The stock of money grew rapidly, as it increased from 80% of GDP
in 2004 to 91% of GDP in mid-2007, mostly driven by credit growth. In addition, domestic demand
was stimulated by higher employment levels and relatively strong economic growth. Further pressure
comes from the currency side. The peg of the Antillean Guilder to the weakening US dollar will lower
the value of the Antillean Guilder against other currencies. As a small island community, the
Netherlands Antilles need to import nearly all the food and manufactures for domestic consumption.
The domestic prices of these items will most certainly rise. Finally, high international oil prices can
become a concern. At the moment, government-regulated prices for energy and utilities are
sheltering the consumers for the high international prices. However, this is becoming problematic for
the local oil company, Curoil, as it is forced to sell fuel at a loss of up to USD 0.35 a liter. Sooner or later
this unsustainable situation will have to end, resulting in higher costs for consumers, either through
higher fuel prices or taxes. Moreover, utility prices are facing the same scenario, as water and
electricity are produced using installations that run on oil. Even though inflation will rise in the
coming years, it is unlikely that it will reach double digits.




February 2008                Rabobank Economic Research Department                                   Page: 4/7
Country update Netherlands Antilles and Aruba

Aruba: The Prime Minister of Aruba, Nelson Oduber, emphasised that fighting inflation was the
primary objective of 2008 in his New Year’s address. Prices rose by 4% in 2007 compared to 2006. This
was partly the temporary result of a value-added-tax that the government introduced last year.
Further pressure is coming from the shortage of labour on the domestic market, which is driving up
wages. Another factor that is driving up inflation is the high international oil price that has in turn
driven up utility and energy prices. In order to counter inflation next year, the government is planning
to reduce the monopoly positions in some sectors, which should lower prices of consumer goods.
However, if these efforts will prove sufficient to counter the many inflationary pressures is doubtful.

Chart 3: Inflation poses a risk                                                      Chart 4: Public debt position
     %                                                                   %                  % of GDP                                                 % of GDP
 6                                                                               6    90                                                                          90

 5                                                                               5    75                                                                          75

 4                                                                               4    60                                                                          60
 3                                                                               3    45                                                                          45
 2                                                                               2    30                                                                          30
 1                                                                               1    15                                                                          15
 0                                                                               0     0                                                                          0
         2000     2001     2002     2003     2004         2005      2006                     2000      2001    2002       2003     2004     2005       2006
                           Netherlands Antilles    Aruba                                            N.A.domestic        N.A. external     Public debt Aruba
Source: BNA/CBA                                                                      Source: BNA/CBA

Tourism and the performance of the US economy
Netherlands Antilles: On all of the islands of the Netherlands Antilles, tourism is an important factor in
the economy. Curacao and Bonaire benefit mainly from stay-over tourism, although cruise tourism is
on the rise (320000 visits in 2006), whereas St. Maarten is a preferred destination for cruise ship
operators (1.4 million visits in 2006). Tourism supports the current account and generates foreign
exchange, allowing the islands import most of the consumer products it requires. Moreover, it
generates economic activity on the islands, both direct and indirect. Tourism as an economic pillar,
however, is a highly volatile source of income. Competition between tourist destinations is fierce. In
the case of an adverse event, such as a political crisis, a highly visible crime or a natural disaster, the
tourism sector will take an immediate hit. Furthermore, it creates a dependency on the economic
performance of the home countries of the tourists and their preferences. St. Maarten and Bonaire are
highly dependent on the US market (50% of all tourists). Curacao has a more diversified tourist mix,
with tourist coming in from the EU and Latin America as well.

Chart 5: Stay-over tourism                                                           Chart 6: Home country of visiting tourists
          *1000                                                  *1000
 800                                                                         800       100%


 600                                                                         600           75%

 400                                                                         400           50%

 200                                                                         200
                                                                                           25%
     0                                                                       0
          2000 2001 2002 2003 2004 2005 2006 up to                                         0%
                                                                                                    Bonaire    Curacao       St.Maarten     Saba        St.Eustatius
                                              mid
                                             2007                                                       US                   Canada                Venezuela
                                                                                                        Other America        Other Caribbean       Netherlands
                Bonaire   Curacao   St. Maarten    Saba    St. Eustatius
                                                                                                        Other Europe         Rest of the World
Source: Bank van de Nederlandse Antillen (BNA)                                       Source: Bank van de Nederlandse Antillen (BNA)

The US seems to be heading towards a period of poor economic performance and maybe even a
recession. This will most probably reduce the number of tourists who visit the islands and,
consequently, tourist income. If the poor performance of the US continues for a longer period,
employment and investment will also decline, reducing the growth rate.


February 2008                                     Rabobank Economic Research Department                                                                                Page: 5/7
Country update Netherlands Antilles and Aruba


Aruba: Aruba is facing a similar problem. However, the consequences for Aruba might be larger than
for the other islands, as the tourism sector of Aruba is even more centred on tourists from the US.

Netherlands Antilles
Selection of economic indicators                                  2003         2004    2005    2006     2007    2008e      2009f
Key country risk indicators
  GDP (% real change pa)                                           1.7          1.2      1.0    2.2      2.4     n.a.       n.a.
  Consumer prices (average % change pa)                            1.6          1.6      3.8    2.9      n.a     n.a.       n.a.
  Current account balance (% of GDP)                               0.1         -2.8     -2.9   -7.0      n.a.    n.a.       n.a.
  Total foreign exchange reserves (mln USD)                        760         817     9094    9902     1080     n.a.       n.a.
Economic growth
  GDP (% real change pa)                                           1.7          1.2     1.0     2.2     2.4      n.a.       n.a.
Economic policy
  Budget balance (% of GDP)                                        -4.5        -6.1    -2.6    -3.1     -2.8     n.a.       n.a.
  Public debt (% of GDP)                                          81.4         84.8    82.2    83.1     84.5     n.a.       n.a.
  Money market interest rate (%)                                   2.3          2.8     4.5     5.5     5.5      n.a.       n.a.
  Consumer prices (average % change pa)                            1.6          1.6     3.8     2.9     n.a.     n.a.       n.a.
  Exchange rate LCU to USD (average)                              1.79         1.79    1.79    1.79     1.79     n.a.       n.a.
  Recorded unemployment (%)                                       15.3         15.1    16.2    13.2     n.a.     n.a.       n.a.
Balance of payments (mln USD)
  Current account balance                                            5          -113    -148    -241    n.a.     n.a.       n.a.
    Trade balance                                                -1040         -1200   -1340   -1515    n.a.     n.a.       n.a.
      Export value of goods and services                          2610          2735    3005     n.a.   n.a.     n.a.       n.a.
      Import value of goods and services                         -1670         -1955   -2285     n.a.   n.a.     n.a.       n.a.
    Services balance                                             2510           2600    2660     n.a.   n.a.     n.a.       n.a.
    Income balance                                                 185           200     210     n.a.   n.a.     n.a.       n.a.
    Transfer balance                                               650           545     665     n.a.   n.a.     n.a.       n.a.
  Net direct investment flows                                        1            50     145     n.a.   n.a.     n.a.       n.a.
  Net portfolio investment flows                                     5           185     25      n.a.   n.a.     n.a.       n.a.
  Change in international reserves                                 -50           -35     -75     -45    n.a.     n.a.       n.a.
External position (mln USD)
  Total foreign debt                                               905         1035    1035    1050     1070     n.a.       n.a.
    Short-term debt                                                560          650     680     725      775     n.a.       n.a.
  Total foreign exchange reserves                                  760         815     9095    9900     1080     n.a.       n.a.
    Total liabilities                                              475          510     530     875      n.a.    n.a.       n.a.
Key ratios for balance of payments, external solvency and external liquidity
  Trade balance (% of GDP)                                       -37.7         -41.5   -44.2   -48.0    n.a.     n.a.       n.a.
  Current account balance (% of GDP)                               0.1          -2.8    -2.9    -7.0    n.a.     n.a.       n.a.
  Inward FDI (% of GDP)                                            0.1           0.9     2.4     0.2    n.a.     n.a.       n.a.
  Foreign debt (% of GDP)                                         32.8          35.8   34.1     33.3    n.a.     n.a.       n.a.
  Foreign debt (% of XGSIT)                                       18.9          20.9   19.3     n.a.    n.a.     n.a.       n.a.
  FX-reserves import cover (months)                                3.0           2.9     2.8     2.7    3.0      n.a.       n.a.




February 2008                              Rabobank Economic Research Department                                        Page: 6/7
Country update Netherlands Antilles and Aruba

Aruba
Selection of economic indicators                                 2003          2004    2005    2006    2007    2008e       2009f
Key country risk indicators
  GDP (% real change pa)                                            1.5        3.5      2.4    2.5     n.a.     n.a.        n.a.
  Consumer prices (average % change pa)                             3.7        2.5      3.4    3.6     n.a.     n.a.        n.a.
  Current account balance (% of GDP)                               -7.8        0.2     -9.0    8.9     n.a.     n.a.        n.a.
  Total foreign exchange reserves (mln USD)                        295         295     275     340     n.a.     n.a.        n.a.
Economic growth
  GDP (% real change pa)                                            1.5         3.5     2.4     2.5    n.a.     n.a.        n.a.
Economic policy
  Budget balance (% of GDP)                                         4.8        -9.3    -3.1    -2.8    n.a.     n.a.        n.a.
  Public debt (% of GDP)                                          41.1         44.7    46.3    46.5    n.a.     n.a.        n.a.
  Money market interest rate (%)                                   5.0          5.0     5.0     5.0    n.a.     n.a.        n.a.
  M2 growth (% change pa)                                         12.8          6.1    10.7    n.a.    n.a.     n.a.        n.a.
  Consumer prices (average % change pa)                             3.7         2.5     3.4     3.6    n.a.     n.a.        n.a.
  Exchange rate LCU to USD (average)                              1.79         1.79    1.79    1.79    n.a.     n.a.        n.a.
  Recorded unemployment (%)                                        n.a.        n.a.     6.9    n.a.    n.a.     n.a.        n.a.
Balance of payments (mln USD)
  Current account balance                                         -160           4     -205    215     n.a.     n.a.        n.a.
    Trade balance                                                 -350         -280     -10    115     n.a.     n.a.        n.a.
      Export value of goods and services                         2050          2725    3485    3950    n.a.     n.a.        n.a.
      Import value of goods and services                         2400          3005    3495    3840    n.a.     n.a.        n.a.
    Services and income and transfers balance                      190         285     -195     100    n.a.     n.a.        n.a.
  Net direct investment flows                                      640          840     945     n.a.   n.a.     n.a.        n.a.
  Net portfolio investment flows                                    -1           40     55      n.a.   n.a.     n.a.        n.a.
  Change in international reserves                                 -45           0      -20     65     n.a.     n.a.        n.a.
External position (mln USD)
  Total foreign exchange reserves                                  295          295     275    340     n.a.     n.a.        n.a.
  International investment position                               -990         -885    -1060   n.a.    n.a.     n.a.        n.a.
    Total assets                                                 1105          1320    1210    n.a.    n.a.     n.a.        n.a.
    Total liabilities                                            2095          2205    2270    n.a.    n.a.     n.a.        n.a.
Key ratios for balance of payments, external solvency and external liquidity
  Trade balance (% of GDP)                                       -17.4         -13.1    -0.4    4.8    n.a.     n.a.        n.a.
  Current account balance (% of GDP)                               -8.0         0.2     -9.1    9.0    n.a.     n.a.        n.a.
  Inward FDI (% of GDP)                                           31.8          39.4   41.9    39.3    n.a.     n.a.        n.a.
  International investment position (% of GDP)                   -49.2         -41.5   -47.0   n.a.    n.a.     n.a.        n.a.
  FX-reserves import cover (months)                                 1.5          1.5     1.4    1.7    n.a.     n.a.        n.a.




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February 2008                              Rabobank Economic Research Department                                       Page: 7/7

								
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