Private sector financial support
Despite layoffs, many healthy companies found themselves in need of urgent cash to survive the temporary crisis. This crucial aspect of speed, was not included in the action plan.
The expected liquidity needs are so great that the local banking system cannot be considered capable of providing it, also because the risks are excessive. One solution could be to set up a corona crisis fund, which may provide bridge loans under favorable conditions to companies that are considered capable of operating successfully again after the crisis.
Corona Crisis Fund
This fund can be set up with the participation of the Netherlands, Aruba and the Aruban financial sector. The Aruban Investment bank, AIB bank, which was set up to combat the 1985 crisis, has extensive experience and expertise and will be able to manage this fund well. Because the loans must be granted to companies under favorable conditions, though some may still be in danger of folding, the fund will have to be managed independently from the regular banking affairs of the AIB bank.
Extent of the financial support
It is not possible to determine objectively the size of the financial support. Perhaps the financial support given in 1985 in the form of a soft loan, could serve as a guideline.
Aruba then received, under the condition of carrying out the adjustment program drawn up by the IMF, more than Awg 100 million in a budget loan. That was almost 15% of the Aruban GDP of 1986. Assuming a decrease of GDP in 2020 at 35% to ± Awg 3.9 billion, this means a corresponding budget support of ± Awg 585 million.
There are important differences between the two crises involved in the above analogy.
The 1985 crisis was of a structural nature. The biggest challenge was to (further) develop sectors that could replace the oil sector.
The tourist sector proved to be the savior for this. Major hotel projects, including Golden Tulip and Hyatt Regency, had already started in 1985, which immediately led to employment and foreign exchange inflow. The extremely high unemployment that threatened was tempered by the departure of many Arubans, mainly to the Netherlands.
In addition, substantial profit tax receipts from the refinery, received by the government were not fully spent and therefore added some financial backing. Together with the budget loan of more than 100 million Awg and giving guarantees to large projects in the hotel sector, Aruba managed to quickly not only overcome the crisis, but ultimately make Aruba one of the most prosperous islands in the Caribbean area with a GDP per capita of over Awg 52,000.00 (US $29,000.00).
The current crisis is temporary in nature. The point now is to keep the economic infrastructure, especially that of the tourist sector, intact, and to make the necessary sacrifices in a solidarity-based manner.
The chances that projects that generate employment and foreign exchange will be started up in the very short term are virtually nil.
Moreover, the government currently does not have any buffers and / or lending capacity to provide a costly social safety net and to provide much needed support to the private sector.
The current crisis is therefore more serious than that of 1985.
The size of the social safety net and support to the private sector will therefore depend on how much support the Netherlands is willing to provide. Comparing to budget support in 1985, this will now exceed Awg 585 million
Dealing with the crisis: A task for all of us
This national crisis can only be overcome well if every stakeholder takes responsibility. This period of economic silence is ideally suited for remediation at individual, sectoral and government level. In addition to GOA, it is often the tourist sector that has exhibited excesses for quite some time, which have proved to be quite disadvantageous.
The private sector: Corporate Social Responsibility.
A large number of companies can, in principle, suffer less from the crisis, including the medical and financial sector, because of their economic and social power. The medical sector, which is paid by AZV, could / should agree through negotiations, to lower prices and rates. The financial sector that has the strongest economic position must now show its social entrepreneurship to the fullest, something that it has hardly shown, to date.
The Unions: Critical Reasonableness
Until now, unions in the private sector have taken a reasonable stance, which was also the case during the crisis of 1985. The letter recently sent to the Netherlands by trade unions for GOA and state-owned personnel uses financial blackmail, attempting to force GOA to negotiate further with unions which created the impression that these unions are not (yet) reasonable.
This was also the case during the crisis of 1985. An ironic detail is that these unions represent employees, who, together with employees in the financial sector, are among the best-paid in our market.
GOA: Consider before you start
This is as mentioned a temporary crisis (the severity of which cannot be estimated in advance) and the action plan must be as clear-headed as possible. If GOA fails to react, there will be many avoidable expenses that will place an additional burden on the already heavily taxed future. Especially now, it is important for GOA to acquire foresight, and attempt to look into the future.
The arguments AGAINST wage subsidies have been sufficiently explained above, and should therefore be considered.
Another conclusion is the commitment to agriculture, that is seen as a weapon against the crisis. In the past, various ministers, including the late Daniel Leo and former-minister Robertico Croes, have made agriculture one of the priorities of their policy.
Despite these efforts, the contribution of agriculture to the GDP is negligible, namely less than 0.2%. Even if the proposed policy is successful, and the contribution of agriculture is increased tenfold, the contribution would remain marginal towards the GDP, which suffered a ± 35% loss recently, barely ¼%.
However, at GOA’s invitation, many individuals have volunteered to obtain rented land to practice agriculture on it, sacrificing extremely scarce space.
Many people, whether or not with dependent family members, are forced to live with their parents or in rental apartments due to a shortage of affordable owner-occupied homes. A large part has requested a leasehold lot, but the question is whether, given the scarcity of land, everyone will be able to get a leasehold lot at all. The (accelerated) issue of rental land for agriculture will only exacerbate this major social problem.
Netherlands: Two points of view
The Netherlands has always promoted its international economic interests in a social guise. It was the business person who put economic interests first, while the pastor or priest called attention to local social issues.
However, the current crisis calls for both to be equally involved
One of the core pillars of the Kingdom of the Netherlands is mutual solidarity. The help offered Aruba so far is perfunctory, and certainly not a sign of solidarity.
The main argument is that under the watchful but apparently indifferent eye of the Netherlands, supposed to oversee Aruba’s loans on the international capital market, the Netherlands turned a blind eye to the island’s increasing debt from less than 50% of the GDP to ± 90% of the GDP, disqualifying it from getting any loans on the international capital market.
Seeing the recent credit ratings of Fitch and Standard & Poor’s, we can clearly see that the Netherlands is partly responsible for the de-facto financial bankruptcy of present-day Aruba.
The Netherlands must therefore be prepared to assist Aruba with at least 15% of the expected GDP in 2020. In order to avoid a significant currency loss, similar to the one that occurred with the assistance loan in 1985; It is necessary that the loan part of the assistance is provided in US$ or that the currency risk is immediately hedged.
The business person can play an important role as the purse-holder and critically monitor the financial assistance and make sure it complies with the financial assistance conditions. Responsible use of the financial assistance is in the interest of Aruba, and must therefore be fully embraced.