Published On: Thu, Apr 2nd, 2020

Report: use World Bank Trust Fund money for emergency economic response

PHILIPSBURG – Use the balance of the World Bank Trust Fund to finance a $200 million emergency economic response to support the local economy. That is the focus of a proposal by a private sector task force to the Ministry of Tourism and Economic Affairs (TEATT). The business community will need support for a period of seven to eight months, its report states.

The suggested measures include 90 percent payroll subsidy for a period of three months and a 75 percent subsidy for the next five months. Fixed expenditures should be fully covered according to the proposal. It furthermore suggests soft loans for 12 to 18 months against zero interest. Businesses that fully comply with the conditions (which include keeping staff on the payroll) will not have to pay back the loan. For sole proprietors and self-employed people, the plan suggests a payment of $1,500 for several months.

According to the World Bank the local economy will reach pre-Irma levels by 2025; but that projections stems from before the outbreak of the corona-virus crisis. The impact of the pandemic will be “devastating unless immediate action is taken” the Emergency Economic Response-proposal warns.

Using the remaining $245 million balance of the World Bank Trust Fund is one option to finance a rapid response, but St. Maarten would still need additional external funding.

The impact of the corona-virus pandemic finds its roots not just at home. Donald Taylor, president of the American-Canadian union United Here predicted earlier in March that 80 to 90 percent of hospitality workers in the USA are going to lose their jobs. Major cruise lines suspended operations for 30 to 60 days on March 14; the St. Maarten Hospitality and Trade Association (SHTA) announced a 40 percent decline in stay-over bookings and a 141 percent increase in cancellations.

The travel ban imposed by the government on March 14 will cause a decline in hotel occupancy to zero, the Emergency Economic Response-proposal states. “There will be zero to very low tourism until late in the fourth quarter of 2020.”

The economic impact of the corona-crisis – an estimated downturn of 14 to 25 percent – represents “more than two to three times the economic downturn after Hurricane Irma.” However, financial support could limit the economic retraction to below 3 percent.

The authors of the proposal underline the need to a rapid response with a dire warning: “The unrest after Irma may provide a clue as to what could happen on St. Maarten.”

The drop in tourism will in turn result in a “sharp drop in consumer spending at local businesses,” the report states. Covering fixed business expenditures and keeping employees on the payroll will support domestic consumption.

The report suggests three options for the disbursement of financial aid to the business community, emphasizing that it “should not be tied to a bureaucratic process.”

The first option is to have the Netherlands release the remaining tranches of the Trust Fund for the financing of soft loans. The World Bank Trust Fund could handle this process or (option 2) this could be done by commercial banks.

The third option is the creation of a new foundation with four members on its supervisory board. Three of these members should be appointed by the Netherlands and one by St. Maarten. One of the Dutch-appointed members could be the Dutch representative, Chris Johnson.

Whatever happens next, the conclusion of the report is clear: “Time is of the essence; the pace and size of the economic stimulus package will be a critical success factor.”

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