Managing fictional expectations
The Central Bank of Curacao is forecasting an economic growth of 1%, or less, for the year, 2016. Supposedly, the forecast is based on an economic model with dubious specs and outdated assumptions. Thus, governing the island economy has become management of fictional expectations. Economic growth is only possible with structural changes.
Amongst others, Curacao suffers from traditional trade barriers, TB’s, like tariffs and quotas, and non-trade barriers, NTB’s, red tape of rules and regulations. Tariffs are astronomically high with import duties often more than 30% and steep sale taxes, all in combination with quotas on foreign labour and straight-out monopolies. With NTB's in the form of complicated red tape, from licences and permits to product specifications, the authorities distorted conditions of competition, foreign and domestic, to such an extent that the island has become one of the least attractive investment opportunities in the world.
Successive Ministers of Economic Development have only added to the problems with more regulation and taxes, and thus created a race to the bottom, the bottom of economic default. Time after time, professional advice and strong recommendations by international monetary institutions, Chamber of Commerce and others have been ignored, ridiculed and waved away with Bolivarian-socialist ideological arrogance. The Ministry of Economic Development may well be re-baptized ad the Ministry of Economic Destruction.
The new Minister of Economic Development has his task cut out for him; that is if he has the courage and political leverage to change course.
“Cutting red tape” has been a promise for at least 15 years. Supposedly, a one-stop-shop licence and permit application window at the Ministry has been in the making since 2000 but remains closed till today. Regional multi-national discussions, like Caricom, are trying to address NTB-issues, but politicians treat the meetings with disdain and as if they were weekend leisure outings not to be taken seriously. The urgently needed flexibility of labour markets is totally stalled by rigid union policies. "Working hard and learning fast" are not part of the local culture and work ethics. Immigration and import of skilled labour are nearly impossible. An 80/20 law created a local preferential race with job benefits not based on merit, but on birthrights.
Island monopolies, officially abolished, but in reality continue to exist and cripple the economy, presenting an enormous premium of added cost to production and consumption. While enriching a small local elite, the charges impoverished many and made tourist industries--- the largest employer--- uncompetitive.
The recent drop in oil prices puts enormous pressure of the island's oil refinery business, presently leased to Pdvsa, and the largest foreign currency contributor to the island. A pull-out of the lessee, due to abominable non-market conform economic conditions is almost inevitable. Shipwharf and dry dock have been haemorrhaging for over two decades. The “new” tourist industry had to abandon the luxury tourist market, due to lack of qualified staff and competitive sourcing and developed into a Jack-in-the-Box mass discount market. Regulations, domestic and foreign, destroyed the financial services industry.
The island economy is in very bad shape, and it cannot afford another Minister doodling around for ten months.
By Jacob Gelt Dekker
Opinion columnist for Curaçao Chronicle