Published On: Mon, Sep 1st, 2014

VBC: The performance of the Curaçao economy is cause for concern

Central Bank CuracaoWILLEMSTAD – According to the Curaçao Business Association (VBC), in 2012 there was a decline of 0.1% in the Curaçao economy. In 2013 a further decline of 0.8% was noted. In 2014 again, there is a shrinkage of 0.4% expected. This is on the basis of the calculations of the Central Bank of Curaçao and Sint Maarten (CBCS).

In the past twenty years, the average annual real economic growth was no more than 0.1%.

Compared to the region, Curacao scored well below average. Indeed, in the neighboring countries, the economic growth was between 2% and 4%. Particularly striking because unlike Curaçao these countries have had no restructuring of their debts.

The poor economic performance of Curaçao is also associated with deficits in the balance of payments which is mainly caused by large deficits in the current account, and in consequence the decrease in foreign exchange reserves.

The combination of economic decline and deficits is a worrying development. After all, the consequences are manifested for example, in the form of high unemployment, massive deficits in social security, education and safety problems, increasing poverty and very few positive perspectives. This development is not conducive to the stability and confidence. This is why the stimulation of investments will not pick up while sustainable economic growth is precisely the only way to solve these issues.

How is it that the Curaçao economy is not performing better?

It’s not because of the public finances. These have improved greatly after the remediation process. Anno August 2014, there is a balanced budget, manageable debt (the debt is reduced from 90% to about 33%) and low inflation. The requirement of macro-economic stability was met. Moreover, it appears that for several years now there has been a high degree of liquidity, so there is no shortage of capital.

Based on this, everything points to the fact that stagnation of the Curaçao economy is not so much due to direct economic factors, but rather toward indirect reasons such as the lack of business confidence. This is the result of:

  • Lack of a consistent government policy which is based on a broad macro-economic vision, which should be directed on long-term. Opportunism and ad hoc action by which (political) populism prevails is dominant. Moreover, all the attention goes to public finances while economic activities are not treated seriously;
  • Government instability. In the period 2010-2014, Curacao has been confronted with five cabinets where for each cabinet there has been a constant change of ministers (including Education and Social Affairs);
  • Suboptimal adherence to the principles of "good public and corporate governance";
  • Inadequate approaches to the bureaucracy and services of the public administration;
  • Decrease in security;
  • Decline level of education;
  • Lagging modernization and simplification of the tax system;
  • Insufficiently flexible labor markets, which is not in line with the greatly increased costs of doing business. It is noteworthy that other countries, including Aruba and St. Maarten, have demonstrated a culture of protectionism that is not in favor of the realization of (structural) economic growth.

It is clear that the course must be changed and should be aimed at restoring confidence in the local economy and structural economic growth. Investments are necessary. Not only public, but mostly private investments, as was rightly pointed out by the President of the CBCS, must be the engine of sustainable economic growth. Improving the investment and business climate (addressing the above points) is urgently needed.

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