~ A StMaartenNews.com review of the open letter of the SHTA to the Prime Minister of St. Maarten ~
PHILIPSBURG – That St. Maarten is in dire financial straits does not need further explanation. The COVID-19 pandemic has killed the local economy and at the moment of this writing, there is no end in sight to the economic misery. If nothing changes, the country will soon run out of money and then the National Alliance-led government will no longer be able to pay its civil servants. Is there a way out of this doomsday scenario? According to the St. Maarten Hospitality and Trade Association (SHTA), there is.
An open letter from the SHTA to Prime Minister Silveria Jacobs provides a clear insight into our countries immediate and future financial needs. Arriving at a conclusion from those numbers does not even require a high school diploma: St. Maarten cannot overcome this crisis without outside help.
According to the SHTA, St. Maarten needs at least 263.2 million guilders ($147 million) to cover the 2020 budget the parliament approved back in May. “That is if, and only if, the revenues of government do not deteriorate further than was anticipated prior to April 2020,” the letter states.
And if nothing changes, the association warns, St. Maarten will need at least a similar amount of money for 2021, “again assuming that government revenue stays around 347 million guilders ($193.8 million).”
That is not even the end of it; the letter describes the total of the sums for this year and for 2021 (525 million or $293.2 million) as “an absolute minimum.” It leaves no room for sorely needed investments in education, the prison, the social security system and the economy.
The SHTA notes that the local economy only manages to stay afloat artificially with the help from banks, insurance companies and private pension funds. “Payroll support ended with support for June.”
The letter provides more data that paint a pitch-black picture of the state of the economy: cruise arrivals stay at zero, and hotel occupancy is below 20 percent in the second quarter. “Approximately 3,000 families, close to 25 percent of the official population, depend on food support provided by local non-governmental organizations (NGOs) and funded by the Netherlands. The SHTA points out that the collapsed tourism industry contributes 85 percent to the country’s gross domestic product GDP) – art least that was the situation before the pandemic.
The SHTA acknowledges the need for economic diversification, but it notes at the same time that the tourism segment is here to stay. “It offers an option for at least some commercial activity, and with that an upturn in government revenue.”
Economic recovery is currently anything but certain, but even when – or if – there are improvements, things will not be the same anymore. “Cruise lines are extending their return dates far into the second quarter of 2021, and major fleet reductions may negatively impact cruise traffic for years to come. Cruise lines may also consider adapting their schedules to domestic-only to overcome travel restrictions.”
Airlift is also a big issue – with or without a reconstructed airport. “IATA indicates that full air traffic recovery may not be possible for years to come, with 2024 now being anticipated.” This casts serious doubts over a possible recovery of the stay-over segment. “In truth, St. Maarten has had difficulty ever reaching pre-Luis numbers.”
While SHTA’s letter delivers an apt description of the enormous challenges St. Maarten is facing, it also offers suggestions for what politicians like to call “the way forward.”
“It is high time to re-think the current strategy and execute a repositioning within the new tourism market and target the higher income tourist that represents perhaps less volume but a higher yield per guest. A strategy that’s also more naturally in line with the limitations of finite space on a small island and – considering we are bound to have a lot less guests in the very near future – what better time to reposition and upgrade now.”
Alas, this approach requires “substantial investments and reforms” – exactly what State Secretary Knops wants to achieve with the Caribbean Reform Entity. The SHTA notes that investments are needed in the economy but also in education, social security, healthcare, the constitutional status, and the government apparatus.
“A constitutional state that performs optimally contributes to social trust, which leads to lower transaction costs, more investments, more innovation, reduction of inefficient withdrawal of resources from the economy. By approaching the situation at hand, from a broad perspective, the aim is to increase the resiliency of both society as well as the economy simultaneously.”
The SHTA concludes in its letter that the country needs to borrow “an enormous amount of funds” if it wants to prevent the closure of the government and be able to pay its employees and finance its programs.
“We have options,” Prime Minister Silveria Jacobs said during a press briefing in October, but according to the SHTA, those options are limited. Selling shares in government-owned companies to SZV “isn’t very likely to yield the revenue in time to prevent a government close-down. It is a limited one-time stop-gap measure at most.”
Besides, the association points out, selling shares to SZV to get funds to be able to pay SZV (for instance, for the old age pension fund) is like “borrowing from Peter to pay Peter.” This will result in “a never-ending merry-go-round of tax increases as there is no other way to raise the capital to repurchase these shares.”
The required return on investment to keep the AOV-fund healthy is between 6 and 8 percent, while the government can borrow from the Netherlands at 2 percent, the letter states. (Actually, if St. Maarten accepted the Dutch conditions for liquidity support, it would obtain loans at zero percent).
The SHTA writes in its letter that, according to the Central Bank, St. Maarten will be unable to achieve fiscal sustainability of its public sector finances in the next twenty years if nothing changes. “Their conclusion is that, only if the government were to cut its annual expenditures by 50 million guilders for a period of five years, starting in 2021, a sustainable fiscal path would be achieved. Otherwise, the fiscal path will not be sustainable.”
Such a cut in expenditures is most likely not feasible, and therefore, the SHTA states, “the current situation demands an integrated approach that includes broad and sustainable economic reforms, a reduction in public expenditures and increased revenue through improved compliance.” Annual salary-increases are not sustainable, the letter states.
The association is supportive of the Dutch offer for liquidity support and its accompanying conditions, including the establishment of the Caribbean Reform Entity. “When the plans are completed successfully, St. Maarten will emerge reborn. It will emerge with a thriving society and economy and be in a much better position to take care of its citizens and ensure their wellbeing by securing fundamental human rights and freedoms, legal security and good governance.”
The letter contains a list of six “brutal facts.” Among them are the following statements: 1. Tourism will not “just” bounce back, 2. The country package contains many projects that have been agreed upon as needed for the improvement of country St. Maarten and 3. In the very near future, we will need additional liquidity support for both the public and the private sector.
The SHTA urges the government to spring into action – and in the right direction: “We continue complaining while doing little, all while a Kingdom instruction looms. When will we take collective responsibility for our shortcomings, grab the bull by the horns and start planning our revival with the help being offered through the reform entity? We can be as autonomous as we want to be by showing that we have a grip on reality and are willing to do what is necessary to ensure the best possible future for our population.”
