Published On: Mon, Sep 14th, 2020

Aruba’s decision to borrow locally is “the same as printing money”

PHILIPSBURG – Aruba has reportedly a deal with a consortium of local banks for a loan in an attempt to get away from the conditions the kingdom has attached to the provision of liquidity support. Prime Minister Evelyn Wever-Croes said last Thursday that she has found a party that is interested in extending the loan – reportedly 100 million guilders against an interest rate of 5.25 percent. But Aruba cannot get this loan without approval from The Hague.

State Secretary Drs. Raymond Knops said after the Kingdom Council of Ministers meeting last Friday that Aruba needs permission from the Netherlands for a loan on the international financial market. “That will possibly also have consequences for the package of conditions we have already discussed,” he warned.

Whether borrowing on the local market changes anything is unclear, but according to economist Arjen Alberts this is an approach that won’t work out well either. In a reaction to a report about the 100 million loan Alberts wrote on Facebook: “This will not work. Borrowing locally is basically the same as printing money. Generating more purchasing power locally will create more demand for imports. This is to be paid for with dollars. Dollars Aruba does not have. So they will really quickly deplete their foreign currency reserve, then their peg to the dollar will become untenable.”

Alberts concludes that this way the government will sink the Aruban guilder, “unless they get foreign exchange somewhere.”

The economist still sees a glimmer of hope somewhere: “Perhaps the same banks who lend this money to the Aruban government, themselves borrow in the overseas market. Possible, since most of them are subsidiaries of international banks. I kind of hope that is the case, otherwise this solution will be VERY short lived.”

Aruba’s focus on milder conditions is a waste of time, if there is any truth in a statement Prime Minister Mark Rutte made last Friday: “We do not negotiate about our proposal.”

In other words, the kingdom’s position remains what it has always been: take it or leave it. This does not only apply to Aruba, but also to St. Maarten and Curacao.

Aruba learned last Friday that it would have to make do for five months with a Dutch emergency loan of 95 million euro, while it was under the impression that this loan was to cover expenditures for a period of only three months.

Caribisch Netwerk reported however that State Secretary Knops is “extremely surprised” that Aruba disagrees with the condition for this loan. “We have spoken for two months, also during my vacation. If you wait for a very long time then those terms do not remain the same.”