Part I of Ben Marapin’s article from Antillean Dagblad

The visit of the corona virus to Aruba.
The economy of Aruba turned almost entirely on tourism until mid-March 2020, but the island was not spared from the worldwide pandemic caused by the coronavirus.

Since March 16th, 2020, there has been a “lockdown” and as a result the tourist sector has come to a complete standstill.

A small consolation is the contribution of the timeshare industry, which still receives maintenance fees in foreign currency.

Public finances, which for more than 10 years (although declining but still strong) demonstrated major structural deficits, were threatened by the sharp drop in income, are now no longer able to pay even the most essential things, including salaries.

Moreover, due to the precarious financial situation, it was also impossible to obtain a loan on the international capital market. The Netherlands was approached of necessity for Awg. 1.3 billion in budget support, more than half of which as a gift.

The Netherlands judged the request to be insufficiently substantiated. Given the seriousness of the situation, the Netherlands has made €20 million available fairly quickly, with which Aruba was able to deal with the worst emergency for six weeks, with a condition that it must come up with a detailed action plan before May 1st, 2020, which can serve as a basis for further support from the Netherlands.

The economic downturn in 2020
According to the Central Bank of Aruba Annual Statistical Digest 2018, the country’s GDP was Awg 5,734 billion. Concrete quantitative analyzes of the current crisis is not yet available. The department of Economic Affairs, Trade and Industry (DEZHI) has made an analysis of the impact of Covid19 on the GDP of 2020 and estimated it to fall between 30% – 40%.

The main problem, however, is that due to the stagnation of the tourist sector, foreign exchange earnings have largely disappeared. Local production, with water and electricity as main products, also have a large import component. (importing the fuel, required to run our energy plant.)

The major part of all income, and thus also GOA’s income is generated (directly and indirectly) by the tourist sector. This largely disappeared for now, and the near future. The recently approved budget with more than Awg 1.5 billion in both income and expenditure, required a drastic revision.

The private sector

The entire private sector was hit hard by the crisis. Companies that were completely dependent on tourism for their turnover have seen it drop to almost zero, resulting in mass layoffs.

Companies that depend on purchasing power are also hit hard by the decline in the GDP and therefore have to make substantial cutbacks, and lay off staff.

Action plan
In the short term, GOA  needs at least several hundreds million for the social safety net, to support the fired masses. The local capital market is unable to finance this.

Due to the direct impact of a local loan of this size on the foreign exchange reserve, this should be avoided for now, and because borrowing on the international capital market is not an option, the Netherlands had to assume its responsibility as a “lender of last resort,” within the kingdom.

The Netherlands has asked Aruba for more far-reaching measures as a condition for follow-up support.
These measures were prepared in time for the deadline. One of the most important measures is to significantly reduce GOA’s personnel costs. State-owned companies also have to significantly reduce their personnel costs.

GOA must also make every effort to ensure that income of other stakeholders such as the medical and financial sectors, is also affected in more than symbolic sacrifices, so that the crisis is spread around fairly, and that Sacrificio cu Solidaridad should be the guiding principle.

Wage subsidy
This measure was subsequently added to the action plan, after the Aruba Board of financial supervision, CAFT, had “recommended” it.  CAft has not provided any substantiated reasoning for this recommendation.

There are several arguments AGAINST a wage subsidy in Aruba.

The Aruban economy mainly revolves around tourism, which is a service industry. The workforce in this industry can be adapted to turnover without major technical consequences for the infrastructure. Because Aruba has no unemployment benefits, except for a one-time cessantia benefit, a very modest social assistance benefit, a wage subsidy means (unnecessarily) extra high expenditure for the government.

Companies that had hardly any raison-d’être before the crisis will certainly use the wage subsidy to muddle on, which is de facto an expensive reprieve.

A large proportion of foreign workers need a work and residence permit. Without a wage subsidy, a large part will become unemployed and will therefore have to return to their country as soon as possible. Their (temporary) return to their country will not only save the public treasury, but also the AZV directly, because their premium contribution is often not cost-effective.

Aruba does not have an optimal control system for fraud and corruption. Wage subsidy will therefore encourage both fraud and corruption.

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May 08, 2020
Rona Coster