Curacao Economic Outlook 2011

Curaçao Economic Outlook 2011
En route towards the strengthening of the economic structure of new country Curaçao

Contents
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CHAPTER 1: MACROECONOMIC DEVELOPMENTS . . . . 10
1.1 International and Regional Developments
and their Consequences for Curaçao . . . . . . . . . . . . . . . . . . . . . 10
1.2 Macro Economic Indicators for Curaçao . . . . . . . . . . . . . . . . . . . 26
1.3 Labor Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1.4 Public Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
1.5 Monetary Developments in Curaçao . . . . . . . . . . . . . . . . . . . . . . 45
1.6 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
1.7 SEI Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CHAPTER 2: SECTORAL DEVELOPMENTS . . . . . . . . . . . . 58
2.1 Production Sectors: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.1.1 Agriculture, Livestock and Fisheries . . . . . . . . . . . . . . . . . . . . . . 58
2.1.2 Oil Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.1.3 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
2.1.4 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.3 Trade Sectors: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2.3.1 Wholesale and Retail Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2.3.2 Economic Zones and E-commerce . . . . . . . . . . . . . . . . . . . . . . . 83
2.4 Transportation Sector: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
2.4.1 Air Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
2.4.2 Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
2.5 Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
2.6 Financial and Business Services: . . . . . . . . . . . . . . . . . . . . . . . .106
2.6.1 Commercial Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
2.6.2 International Financial and Business Services . . . . . . . . . . . . .109
2.6.3 Insurance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
2.7 Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
CHAPTER 3: ENHANCING BUSINESS CLIMATE . . . . . . .123
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
Appendix I: Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
Appendix II: List of Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . .131
Appendix III: List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
2
Contents

Preface
The Ministry of Economic Development, on behalf of the Government
of Curaçao, is proud to present the Curaçao Economic Outlook 2011.
This publication provides an overview of Curaçao’s macroeconomic and
sectoral performance in 2010 and 2011, the latter based on the devel-
opments up to the first nine months of the year, and in addition dis-
cusses the prospects for the whole economy in 2012, underlining some
key policy intentions for the near future to strengthen Curaçao’s eco-
nomic structure.
The Curaçao Economic Outlook 2011 was prepared by a team of policy
advisors at the Ministry of Economic Development, with contributions
from several government institutions, the private sector and sector-spe-
cific associations, which shared their latest data and knowledge with
the Ministry.
Through these words, the Ministry would like to thank all who, in one
way or the other, contributed to the realization of this publication.
Ing. Luelo Girigorie, CPC, MSc.
Head of the Directorate of Economic Policy
3
Preface

Executive Summary
Macroeconomic developments
The world economy continued to recover in 2010. As fears of global re-
cession receded in 2009, businesses regained confidence and indus-
trial production and trade boomed. The extent of growth differs per
region: in the major advanced economies growth was modest while
many emerging and developing countries saw robust growth rates. Un-
employment remained high, particularly in advanced economies, while
commodity prices increased sharply in 2010.
The global economy is anticipated to continue growing, and again, ad-
vanced economies are projected to grow at a slower rate in 2011 than
emerging and developing economies.
Commodity prices continued increasing at the beginning of 2011 but
energy prices have receded. Food prices, however, have fallen to a
much lesser extent. As a consequence inflationary pressure is lower in
advanced economies than in emerging and developing economies.
According to preliminary macroeconomic indicators, Curaçao’s econ-
omy grew by a mere 0.1 percent in 2010. Growth was led by a moderate
increase in public and private consumption but was mitigated by shrin-
king public investments and exports. The consumer price index re-
mained moderate at 2.8 percent in 2010.
For 2011, an expansion of 0.3 percent of the real economy is expected.
Growth is led, mainly, by foreign demand, which stimulates local de-
mand. Inflation is estimated at approximately 2.4 percent in 2011.
Traditionally, the CBS provides the relevant labor-market statistics
through their Labor Force Survey. However, as the CBS was preparing
intensely for the Census that took place in March and April of 2011,
the Labor Force Survey was not conducted in 2010. Hence, the usual
overview on participation, employment and unemployment is not avail-
able in this edition. Some other indicators are used to describe the
latest developments.
4
ExecutiveSummary

Preliminary figures on public finances up to October 10, 2010 indicate
a surplus of NAF 32.3 million for the treasury of the Island Territory of
Curaçao.
The revenue and expenditure projections were based on a forecasted
economic growth rate higher than the rate registered in 2010. Never-
theless, the actual revenues turned out to be slightly higher than bud-
geted, at NAF 911.4 million, while total expenditures turned out lower
than budgeted, at NAF 879.1 million.
Despite the extra liquidity in the domestic money market, the Central
Bank conducted a passive monetary policy in 2010, owing to a slow-
down in economic activities. The aggregate money supply of the Nether-
lands Antilles decreased by NAF 241.7 million in 2010, while the net
foreign assets improved by NAF 582.6 million. The official lending rate
of the Central Bank remained unchanged at 1.00 percent in 2010.
As per October 10, 2010, Curaçao and St. Maarten form a monetary
union with a common currency, which at the moment is still the Nether-
lands Antilles guilder, and a common Central Bank, the Central Bank
of Curaçao and St. Maarten. The Central Bank’s monetary policy has
remained directed at the promotion of a stable external value of the
Netherlands Antilles guilder in 2011 and has been a common policy
supported by both countries.
The current account of Curaçao’s balance of payments deteriorated
during 2010, reaching a deficit of NAF 1,633.4 million, mainly because
of the worsening of the trade and the service balance and lower current
transfers received from abroad. Capital transfers increased by NAF 10.7
million, linked to increased capital inflows from Dutch development-aid
funds. The deterioration of the current account in 2010 as compared
to the year before resulted in a drop in the net foreign wealth of the
private sector.
For 2011, the current account deficit is anticipated to stay at approxi-
mately the same level as in 2010.
The execution of the SEI program reached its peak during the last quar-
ter of 2010, as the last day of the year was set as deadline to commit
5
ExecutiveSummary

the projects’ budget. By January 1, 2011, 97 percent of the budget was
committed to 85 projects. The rest of the projects’ funds should have
been committed by September 30, 2011 at the latest, to avoid under-
spending of the SEI budget. At the moment of writing, negotiations are
being prepared for a new deadline, because some projects have not
been committed yet.
The USONA approved a total of 110 projects for an amount of approxi-
mately NAF 121 million, 33 of which are economic projects. Up to the
end of 2010, not much of the budget for the economic projects had
been touched. In 2011, however, the pace of these economic projects
increased considerably, putting the execution of the projects in full
swing.
Sectoral developments
An abnormally high level of rainfall brought the agriculture sector to its
knees during the last months of 2010 and first months of 2011, result-
ing in the import of fruits and vegetables that are otherwise grown lo-
cally. Greenhouse initiatives are being tested to increase the local
supply of fruits and vegetables.
The livestock sector did not show remarkable developments.
The growing lionfish population is threatening the fisheries industry.
Policies to prevent overfishing are being prepared, while actions to com-
bat the lionfish population have already started.
Equipment malfunctions at the BOO plant resulted in a shutdown of the
oil refinery for several months in 2010. The refinery started operating
again in December 2010, but environmental groups are putting pres-
sure on the refinery to reduce pollution, which leads to uncertainties
with regard to its future.
The distribution market was also affected by the shutdown of the refin-
ery: traffic in the harbor diminished and, as a consequence, bunkering
activities for the distributor decreased. Prospects are positive, however,
and there are plans to expand the bunkering and aviation market.
6
ExecutiveSummary

During 2010, the international energy-price developments were not-
incorporated into local energy prices. In 2011, two additional players
have been allowed to enter the production market in the utilities sector.
Furthermore, policies are being prepared to reduce utility prices and
dependence on oil supply.
Besides the oil refinery and the shipyard company, business by other
players in the manufacturing sector remained the same or decreased
slightly in 2010 as compared to 2009, owing to increased competition
from imported products and high utility costs. The sector is positive
about the future due to the planned policy measures, such as a reform
of the tax structure and energy production.
Sale of important raw materials for the construction sector decreased
by between 8 and 22 percent in 2010 compared to 2009, since several
major projects were completed in the course of 2010. The number of
buildings completed in 2010 was slightly higher compared to 2009.
The number of building permits issued in 2010 decreased, however,
compared to the previous year.
There are, nevertheless, many projects being planned and prepared,
but the contracting portfolios are not known yet.
Sales in the wholesale sector remained the same or decreased slightly,
while sales in the retail sector increased slightly in 2010 compared to
the year before. Challenges for the sector lie in remaining competitive
and increasing the quality of the products supplied.
There are 10 service e-zones in operation on Curaçao and 2 free-zones
for international trading of goods. The total number of visitors to the
free-zones decreased by approximately 16 percent in 2010 compared
to 2009.
It is expected that at least two additional service e-zones will be insti-
tuted soon, but fewer e-zone license applications have been seen in
2011. The number of free-zone visitors is expected to increase.
7
ExecutiveSummary

Passenger traffic at the Hato International Airport dropped by 3.54 per-
cent in 2010 compared to 2009. The economic crisis was largely to
blame for this drop. Moreover, some airlines deleted routes to lower
costs. Passenger traffic is predicted to increase slightly in 2011 be-
cause the number of flights connected to Curaçao has increased.
Harbor activities in terms of mooring ships (freighters, tankers and
cruise ships) declined by almost 14 percent in 2010 compared to the
year before. The volume of freight also decreased accordingly, from
97,913 TEUs in 2009 to 93,603 TEUs in 2010.
Preliminary figures indicate that cruise-ship calls have increased to 249
in 2011, but will decline to 219 in 2012. The number of cruise visitors
is expected to have increased in both years, despite the decline in calls
in 2012, as bigger ships are expected to anchor.
Tourism arrivals dropped by almost 7 percent in 2010 compared to
2009. Together with the increase in the room stock during recent years,
this resulted in a 3 percentage point decline of the hotel occupancy
rate.
The number of cruise arrivals decreased to almost 390,000 in 2010,
while the number of calls fell from 234 in 2009 to 221 in 2010.
The decline in tourist arrivals is mainly caused by the substantial drop
in arrivals from Venezuela. Arrivals from other South-American countries
increased but were not enough to offset the decrease from Venezuela.
In the first eight months of 2011, arrivals from Venezuela increased
compared to the same period in 2010. Arrivals from North-America in-
creased in 2010 and continue to be extremely positive in 2011. Arrivals
from other Caribbean islands increased in 2010 and continued to in-
crease in the first eight months of 2011. The Netherlands continue to
be the largest market and contributed to the strong growth in arrivals
from Europe in 2010. Growth has declined, however, in 2011.
Lending rates at commercial banks were reduced to approximately
3 to 5 percent and saving rates were reduced to approximately 0.75 to
2 percent in 2010. Most banks experienced an increase in net income
and loan portfolios expanded, stimulated by the lower lending rates.
8
ExecutiveSummary

Increased competition on the local market will continue increasing the
volatility of interest rates while depreciation of the Euro will decrease
investments and higher imported inflation will mitigate consumer
spending.
The international financial and business services sector is considered
important for the local economy. It is perceived that this sector con-
tributed mostly to the slight economic expansion in 2010. Therefore,
concrete actions are being taken to maintain the country’s position on
the OECD white list, to take Curaçao off Brazil’s black list, sign tax
treaties with Brazil very soon and with other countries in the near future.
Local insurance companies faced increased operational costs in 2010
because of the aftermath of tropical storm Tomas, but this had a mini-
mum effect on their results.
However, falling interest rates, the new constitutional status of the BES
Islands and the anticipated introduction of a general healthcare insur-
ance are threats to insurance companies.
A number of healthcare coverage measures were proposed in 2009
which should have led to structural savings on healthcare spending.
Some have been put on hold for further analysis while others will be in-
troduced shortly. The definite location of the new hospital has been
stipulated and the construction is planned to start in the second quarter
of 2012.
9
ExecutiveSummary

1.1 International and Regional
Developments and Their
Consequences for Curaçao
Global Developments
The world economy continued to recover in 2010. World economic
growth was estimated by the IMF at 5.1 percent in 2010 after the con-
traction of 0.7 percent in 2009. As fears of global recession receded in
2009, businesses regained confidence and industrial production and
trade boomed in the first half of 2010, accelerating in the second half.
The reduced excess capacity, accommodative policies and further im-
provement in confidence and financial conditions encouraged invest-
ments and sharply reduced the rate of job destruction.
The extent of growth experienced differs per region. In the major ad-
vanced economies, growth was modest, reaching an average of 3.1 per-
cent in 2010. Many emerging and developing countries, on the other
hand, saw robust growth rates, averaging 7.3 percent in 2010.
Despite these growth rates, unemployment remained high, since the
increase in unemployment in advanced economies was very severe du-
ring the crisis years. Youth unemployment is a particular concern in
emerging and developing countries, despite the low national overall un-
employment rates.
Following the collapse during the crisis, global capital flows rebounded
sharply in 2010, but are still below pre-crisis averages of 2006/2007
in many countries. Strong growth prospects and relatively high yields
are attracting capital flows into emerging markets, while sluggish ac-
tivity and damaged financial systems continue hampering flows be-
tween advanced economies. As a consequence, stock markets and
credit have rebounded from the falls during the crisis, particularly fast
in emerging markets, reaching or surpassing average pre-crisis levels
in some of the larger markets.
The robust capital flow to emerging markets may continue, even though
10
Chapter1:MacroeconomicDevelopments

questions about macroeconomic policies and geopolitical uncertainties
could slow flows on the short run. The difference between advanced and
emerging economies is not expected to diminish significantly, however.
Furthermore, advanced economies face the challenge of preserving or
regaining fiscal credibility owing to high public deficits and debts. Most
of the advanced countries are planning to tighten fiscal policy. Most
G20 advanced economies have made it their target to halve deficits by
2013 compared to the levels in 2010. However, well-specified medium-
term measures to reduce debt remain absent in many advanced coun-
tries, putting upward pressure on interest rates and lowering potential
output and slowing economic recovery as a consequence. The eventual
increase in interest rates would affect emerging economies also by
destabilizing global bond markets, which would slow investments in
general and thus in the developing economies in particular.
Commodity prices increased sharply in 2010, especially in the second
half of the year, owing to a combination of strong increase in demand
(oil and food) and supply shocks (food), e.g. lower agricultural produc-
tion because of unfavorable weather conditions. Commodity prices con-
tinued increasing at the beginning of 2011 because of lower oil
production, owing to unrest in the Middle-East and North-Africa, which
resulted in increased overall marginal costs and thus higher costs of
production in the agricultural sector. Nevertheless, in the last months
of 2011, energy prices have receded to levels far below their peaks in
that same year. Food prices, however, have fallen to a much lesser ex-
tent. As a consequence inflationary pressure is lower in advanced
economies than in emerging and developing economies, because food
and fuel account for a higher share of consumption in the latter.
In advanced economies, inflation is projected to be approximately 2.5
percent in 2011 and then recede to approximately 1.5 percent in 2012,
while in emerging and developing countries inflation is likely to be
around 7.5 and 6 percent in 2011 and 2012 respectively. The high ex-
pected inflation in the emerging and developing economies is led by
demand pressures (core inflation)1
.
11
1
Excluding food and energy prices

The global economy is expected to continue growing. For 2011, the
world economy is expected to grow by 4.0 percent and this same growth
rate is expected in 2012. However, in advanced economies, again
growth is expected to be lower in 2011–at 1.6 percent– than in emerg-
ing and developing economies–at 6.4 percent. Output in advanced
economies remains below potential, resulting in persistent high unem-
ployment, and the situation is expected to remain so considering the
low growth rate owing to pre-crisis excesses and crisis wounds. Further-
more, consumer and business confidence has deteriorated and
stronger activities are expected to be delayed. This makes the outlook
point to low growth in 2012 also–at 1.9 percent.
In emerging economies the crisis left no lasting wounds. Hence exports
have recovered and shortfalls in external demand are compensated by
domestic demand. Capital outflows turned into capital inflows because
of better growth prospects and higher interest rates than in advanced
economies. Growth in emerging and developing economies is estimated
to decline from an average of 6.4 percent in 2011 to 6.1 percent in
2012, as capacity constraints, policy tightening and slowing foreign de-
mand are expected to dampen growth.
Latin America and the Caribbean
According to estimates of the Economic Commission for Latin America
and the Caribbean (ECLAC), the economy of the Latin American and
Caribbean region grew by an estimated 6 percent in 2010. The upturn,
however, has been uneven among the sub regions.
Growth in 2010 firmed up the recovery that began in most of the re-
gion’s economies in the second half of 2009, thanks to actions to coun-
terbalance the impacts implemented by many of the countries in the
region combined with improving conditions in the global economy. The
stronger economic growth boosted demand for labor, thanks to which
the region’s unemployment rate eased back to around 7.6 percent and
the quality of new jobs improved. Economic growth was coupled with a
slight rise in inflation, from 4.7 percent in 2009 to around 6.2 percent
in 2010, basically reflecting the behavior of prices for a number of in-
ternational commodity prices including food and fuel. Labor market per-
12

formance, more readily available credit and brightening expectations
boosted private consumption which, along with a significant increase
in investment in machinery and equipment, became the engine of de-
mand in 2010.
Commodity exporting countries (agricultural, mineral and petroleum
goods) benefited from terms-of-trade gains and higher export values.
However, most of the Central American and Caribbean countries, once
more, sustained net losses in terms of trade owing to higher import
values, which worsened the current-account position. These adverse
effects were partially offset by a slight upturn in tourism and in remit-
tances sent home from developed countries by migrant workers.
ECLAC projects a slight fall in the region’s growth rate to 4.2 percent in
2011 owing to the slightly dampened global economic outlook and the
easing off of public spending as a stimulus in many countries because
excess idle capacity has been used up.
According to the IMF, the pace of expansion in Latin America and the
Caribbean has begun to moderate because many economies have fully
recovered from the global crisis and macroeconomic policies are being
tightened. Growth remains above potential, at 4.5 percent in 2011 and
4.0 percent in 2012, with indicators suggesting that mainly exporting
economies (in South America) may be overheating. Economic growth is
projected to slow as domestic demand growth moderates, in response
to less accommodative macroeconomic policies, and external demand
weakens.
The outlook for commodity exporting countries (e.g. Argentina, Chile,
Paraguay, Peru and Uruguay) is positive with growth rates of approxi-
mately 6 percent in 2011. Growth in South America is projected average
4.9 and 4.1 percent in 2011 and 2012 respectively.
In Central America and the Caribbean, economic activity remains
subdued, reflecting stronger trade linkages with the U.S. and other
advanced economies and, in some cases, high levels of public debt.
Growth will continue to be constrained by slow recovery of remittances
and tourism at between 3.3 and 3.9 percent in 2011 and increase to
between 4.0 and 4.3 percent in 2012.
13

Inflation is projected to increase from 6 percent in 2010 to 6.7 percent
in 2011, because of the overheating and as commodity prices in-
creased in 2011, but to recede to 6 percent in 2012 as activity moder-
ates and commodity prices stabilize.
The region faces some downside risks, however: sharper slowdown in
advanced economies would dampen growth, especially in economies
dependent on trade, tourism spending and remittances. Moreover, the
strong presence of Spanish banks in the region could raise some risks
while potential spillovers from China could show up through trade
dampening the outlook for the commodity exporting countries. However,
domestic demand growth could exceed expectations if global risks un-
wind quickly, resuming the strong wave of capital flows to the region,
which is an upside risk. The risk pattern is reinforced by the region’s in-
ternal and external integration. An eventual slowdown in global growth
would cause a drop in the region’s commodity export.
Furthermore, many neighboring countries are profiting from strong
growth in Brazil. Consequently, an abrupt slowdown in activities in Brazil
would adversely affect the region. The challenge that lies ahead is to
maintain the region’s resilience to potential problems.
North America
According to the IMF, the US economy grew in 2010 by almost 3 percent
in real terms, after contracting by 2.6 percent in 2009. This recovery
was mainly supported by private demand. By the last quarter of 2010,
consumer demand was rising at its fastest pace in five years. Low cor-
porate borrowing rates and the easing tightness of lending conditions
reflected improved financial conditions resulting in a pickup of eco-
nomic activities. This has helped to rebuild consumer confidence
despite poor performing labor and housing markets.
After shredding more than 8.5 million jobs during crisis years, the labor
market has managed to add 1.5 million jobs, which was barely suffi-
cient to keep up with growth of the work-age population. A large part of
the decline in the unemployment rate is attributable to a decline in par-
ticipation. The unemployment rate reached 9.6 percent in 2010.
14

According to forecasts of the IMF, the real GDP of the US will increase
by 1.5 percent in 2011 and in 2012 by 1.8 percent with a large number
of unsold properties and high mortgages repressing consumption.
House prices in the US have been declining, with harmful effects on
household and financial balance sheets, deteriorating household and
business confidence. Unemployment is high at approximately 9.1 per-
cent in 2011 and is expected to remain so in 2012, holding back wages.
The fiscal deficit and debt have resulted in a decreased solvency rating
for the US, and financial turmoil in the Euro area has tightened financial
conditions and weakened global demand with consequences for the
US also.
Inflation is moderate at 3 percent in 2011, but up from 1.6 percent in
2010. In 2012, the inflation rate is predicted to drop back to 1.3 per-
cent, in line with the pullback of commodity prices.
There are, however, some downside risks to the projected economic
growth in the US: growth will suffer if the temporary payroll tax cuts and
increased unemployment insurance are discontinued in 2012 and if
political consensus on the design of debt reduction is not reached soon.
Furthermore, prolonged delay in recovery of house prices, sustained
losses in equity markets and upside risks on commodity prices would
further repress consumer spending.
Sooner-than-expected restored financial stability and consumer and
business confidence could strengthen growth on the short run.
The main challenge for the US lies in reducing the structural deficit and
public debt in an environment of weak growth and high unemployment.
Economic developments in Canada in 2010 mirrored developments in
the U.S.A. The deceleration reflected the drag on Canadian export from
weak US activity, strong import growth from investment spending and
cooling of domestic activities.
Canada’s GDP is estimated to have increased by 3.3 percent in 2010
and is projected to expand by 2.1 percent in 2011 and by 1.9 percent
in 2012, with domestic demand being the force behind the growth. Job
creation has rebounded at a faster pace compared to the U.S.A., but a
slower pace of recovery over the near term is expected to keep unem-
15

ployment at approximately 7.5 percent in 2011 and 2012.
US risks are expected to shape Canada’s outlook through real and
financial spillovers.
Europe
The IMF estimates that GDP in Europe grew by 2.2 percent in 2010,
despite financial turbulence in peripheral countries of the Euro area
during the last quarter of 2010. Concerns about banking sector losses
and fiscal sustainability caused sovereign spreads to widen in the Euro
area. The situation was controlled by strong policy responses at national
and EU level with measures to improve fiscal balances and to push for-
ward with structural reforms in the affected areas, liquidity support and
security purchases by the ECB. Therefore, the damage to economic
activity was limited to affected areas only and did not spread to the rest
of Europe.
Nevertheless, the ongoing fiscal tightening and the effect of the crisis
on consumer and business confidence are repressing growth this year,
especially after the first quarter. The year 2011 is predicted to show a
real expansion of 2.0 percent in Europe while for 2012 a 1.5 percent
growth is estimated.
Growth in emerging countries was higher in 2010 at 4.5 percent, com-
pared to 1.8 percent in the advanced economies, and is predicted to
be higher at 4.3 percent in 2011. In 2012, however, growth in emerging
countries is expected to decline to 2.7 percent as domestic and external
demand moderates. In advanced countries, GDP growth of 1.6 and 1.1
percent in 2011 and 2012 respectively is expected. Prospects across
regions are likewise divergent, reflecting differences in the state of
public and private balance sheets and the stance of macroeconomic
policies.
Germany for instance, which has been the continent’s growth locomo-
tive, grew by 3.6 percent in 2010, but growth is expected to slow down
to 2.7 percent in 2011 and to 1.3 percent in 2012. The expected slow-
down is due to the withdrawal of fiscal support and an expected slow-
down in external demand growth.
16

Retrenchment of fiscal stimulus, which is expected to reduce consump-
tion growth and weaken export growth as consequence of slower exter-
nal demand, will cause France’s growth rate in 2011 and 2012 to be
in line with the 1.5-percent growth rate of 2010.
In advanced economies outside the Euro area, activity growth is like-
wise differentiated. The UK’s economy, for instance, grew by 1.4 per-
cent in 2010 and is projected to grow by 1.1 percent in 2011 and 1.6
percent in 2012 as fiscal consolidation dampens domestic demand.
In Sweden, real activity grew by 5.7 percent in 2010, but the growth
rate is expected to decelerate to 4.4 and 3.8 percent in 2011 and 2012
respectively amid improving financial conditions and signs of over-
heating in the real-estate sector.
In emerging Europe, recovery is expected to continue, boosted by inter-
nal demand, owing to credit growth accompanied by accommodative
macroeconomic policies. Growth is expected to remain more subdued
in countries that experienced unsustainable domestic booms.
In general, countries that avoided major imbalances and have benefit-
ted from the strong rebound in global manufacturing are close to pre-
crisis growth rates in 2011. Some others are below pre-crisis rates
because of sharp economic adjustments as consequence of the finan-
cial crises while others are recuperating from recent crises while ad-
dressing a number of challenges, such as weak banking systems and
high unemployment. The rest of the European countries are likely to
grow at less than pre-crisis averages as some are shaken by contagion
from the Euro area periphery while others are less affected.
Inflation has remained subdued in advanced Europe at 1.9 and at 2.5
percent in 2010 and 2011 respectively, and is expected to remain low
at 1.5 percent in 2012 in the absence of inflation expectations and be-
cause there is still excess capacity. In emerging Europe, inflation has
been higher at 5.3 percent in 2010 and 2011 but is expected to decline
to 4.5 percent in 2012.
17

The uncertain environment dominated by tension from the euro area
debt crisis imply downside risks to growth in Europe, as well as negative
spillovers from slower US growth. Securing debt sustainability and
strengthening the financial systems remain a priority for most European
countries. The largest economies are already implementing measures
to reduce their deficits.
Commonwealth and Independent States
Recovery in CIS has been proceeding at a steady pace, supported by
higher commodity prices that have been boosting production and em-
ployment in the region’s exporting countries. The rebound in real activity
in Russia is also benefiting other countries through trade, remittances
and investment. On the other hand, dependence on external financing
and lingering banking sector vulnerabilities are holding back growth in
several CIS economies.
Real activity in CIS increased by 4.6 percent in 2010 and is projected
to expand by 4.6 percent in 2011 and by 4.4 percent in 2012, but
growth prospects differ within the region.
In Russia and other energy exporters, growth is estimated to pick up
modestly with growth rates at approximately 4.5 percent in 2011 and
2012. Growth is expected to slow down slightly in 2012 compared to
2011 as energy prices decline somewhat. Energy importers are ex-
pected to benefit from the rebound in remittances from Russia and oth-
ers from the return of financial stability.
Inflation in the region has been on the rise, led by higher commodity
prices, especially in the first half of 2011, the high share of food in the
consumption basket and demand pressure.
For most countries in the region, prospects depend highly on the economic
development in Russia, the rest of the world and commodity prices. Higher
commodity prices represent an upside risk to commodity exporting coun-
tries. But global slowdown would reduce commodity prices, dampening
the prospects for the region. Furthermore, lower external demand from
advanced economies represents a downside risk.
The key challenge is to abort crisis-related macroeconomic and financial
18

policies in a way that provides sufficient support to the incomplete re-
covery without jeopardizing price stability, reduce external vulnerability
and raise potential growth through a more diversified pattern of eco-
nomic development.
Asia
Real GDP growth in Asia is moderating after a sharp rebound from the
global crisis, with a GDP growth of 8.2 percent in 2010 and a projected
growth of 6.2 and 6.6 percent in 2011 and 2012 respectively. The strong
rebound is supported by a strong export performance, private domestic
demand and in some cases rapid credit growth. Asia continues to outpace
other regions but external demand in emerging Asia has dampened
recently because of slowdown in the US and the Euro area.
Inflation in Asia averaged 4.1 percent in 2010 and is projected to average
5.3 and 4.0 in 2011 and 2012 respectively. Inflation was higher in
developing Asia than in advanced Asia in 2010, and the difference is
likely to remain. Inflation pressures are higher in economies with
sustained credit growth, positive output gaps, and/or relatively accom-
modative policies.
China, today the world’s second largest economy and its leading ex-
porter and manufacturer, will remain a powerful source of external de-
mand for Asian producers in the foreseeable future. Growth in China is
projected to remain robust at 9.5 percent in 2011 and 9.0 percent in
2012 after growing by 10.3 percent in 2010, driven by private demand
caused by rapid investment growth, favorable labor market conditions
and continued policies to increase disposable income of households.
Inflation pressure in China remains, but efforts to withdraw credit stimu-
lus and to restrain property price inflation have been gaining ground.
India’s economic growth slowed down in the last quarter of 2010 as the
manufacturing sector was held back in the wake of multiple interest-rate
increases by the central bank amid rising prices. The Reserve Bank of India
raised its benchmark lending rates in seven equal installments of 0.25
percentage points since the beginning of 2010 to control rising prices.
19

The Indian economy grew by 10.1 percent in 2010, led by infrastructural
investments, and is forecasted to grow by 7.8 and 7.5 percent in 2011
and 2012 respectively, driven by private consumption.
After a rapid growth at 8.4 percent in 2010, growth in the newly indus-
trialized Asian economies is projected to moderate at 4.7 percent in
2011 and 4.5 percent in 2012 as activity moderates to close positive
output gaps. Both the internal and external private demand remain
important drivers behind growth.
ASEAN economies grew by 6.9 percent in 2010 and are projected to
grow by 5.3 and 5.6 percent in 2011 and 2012 respectively, driven by
domestic demand. ASEAN economies are led by Indonesia, where
strong consumption and recovery in investments are projected to raise
growth to 6.4 percent in 2011 and 6.3 percent in 2012.
Japan, the third largest economy in the world after the US and China,
grew by 3.9 percent in 2010 and was one of the highest among the
advanced economies. Japan’s growth was driven by significant fiscal
stimulus and a rebound in exports. Forecasts for 2011 are somewhat
pessimistic, because of damages caused by the Tohuku earthquake.
Japan’s economy is projected to contract by 0.5 percent in 2011, de-
spite an expected vigorous expansion in the second half of 2011.
Growth is projected to increase to 2.3 percent in 2012, with activity
sharply rebounding on reconstruction investment. Japan experienced
deflation of 0.7 percent in 2010 and further deflation is projected of
approximately 0.5 percent in 2011 and 2012.
In Australia, flooding in key mining and agricultural regions subtracted
from growth in 2010. The economy grew by 2.7 percent in 2010 and
for 2011 and 2012 the economy is projected to grow by 1.8 and
percent respectively.
In New Zealand, despite the recent earthquakes, growth is projected to
pick up. In 2011 a 2.0-percent growth rate is projected after already
increased economic activities of 1.7 percent in 2010. In 2012 growth
is expected to rise to 3.8 percent supported by strong terms of trade
and positive trade spillovers from the region.
20

The financial turbulence in the Euro area and the US pose downside
risks for the region, since these would affect export in Asia through
trade linkages. Despite increase in intraregional trade in Asia, two-third
of the final demand comes from outside the region.
The Middle East and North Africa
According to the Economist Intelligence Unit (EIU), economic growth in
the Middle East and North Africa (MENA) picked up in 2010, boosted
by the increase in oil prices, a stronger global economy and loose do-
mestic policy conditions. According to estimates of the IMF, GDP in
MENA grew by 4.4 percent in 2010.
Production in many countries in the region has been boosted by higher
commodity prices and external demand. In addition, government spend-
ing programs have been fostering recovery in many oil-exporting coun-
tries.
In contrast, political discontent and high unemployment are causing
social unrest in a number of countries, which might dampen short-term
economic growth as these factors weigh heavily on tourism receipts,
capital flows and investment. Based on the above mentioned factors,
the IMF forecasts that economic activities in the region will increase by
4 percent in 2011 and by 3.6 percent in 2012.
Growth in oil-exporting countries is projected to pick up to almost 5 per-
cent in 2011, slightly higher than the 4.4 percent in 2010. In Qatar, for
instance, economic activity is projected to increase by 18.7 percent
boosted by continued expansion in natural gas production and large in-
vestment expenditures. In Saudi Arabia, growth is forecasted to be 6.5
percent, supported by public infrastructural investments. In the Repub-
lic of Iran, growth is anticipated to stall temporarily as subsidies for en-
ergy and other products are phased out. This reform is expected to yield
benefits on the longer run. Disruptions of oil production in Libya in-
creased oil supply by other OPEC suppliers.
In oil-importing countries, growth in economic activity is more subdued,
down to 1.4 percent in 2011 compared to 2010 (4.5 percent).
21

Activity in some countries will be constrained by domestic social unrest
and an associated slow recovery in tourism receipts and remittances.
Growth in oil-importing countries is projected at 2.6 percent in 2012,
harmed by a slow recovery in investment.
Inflation is high in the MENA region, reaching almost 10 percent in 2011,
but is expected to decline somewhat in 2012, reflecting receding
commodity prices. For oil-exporters, inflation is forecasted to fall from 10.8
percent in 2011 to 7.6 percent in 2012 while for oil-importing countries,
inflation is anticipated to stay below 8 percent during 2011 and 2012.
Downside risks are the domestic effects of political and social unrest
that could be larger than expected, especially if unrest spills over to
additional countries in the region. In addition, financial markets have
not stayed immune, and as these developments on the financial market
continue, higher funding costs for governments and firms could be the
result. Moreover, weak performance of advanced economies, mainly
the US and Europe, could adversely affect the region’s export earnings,
fiscal and external imbalances and growth.
The MENA region is challenged to raise growth and tackle high unem-
ployment, mainly among young people. Oil exporters should strengthen
or develop financial systems and promote economic diversification.
Sub-Saharan Africa
Sub-Saharan Africa has recovered well from the financial crisis. The
region grew rapidly in 2010 by 5.4 percent. Growth in domestic demand
remained robust, trade and commodity prices rebounded and macro-
economic policies remained accommodative.
Terms of trade gains are supporting the region’s external balances and
gradual reorientation of export towards fast-growing regions such as
Asia is being sustained. As a consequence, according to the IMF, real
activity in Sub-Saharan Africa is projected to expand by 5.2 and 5.8
percent in 2011 and 2012 respectively.
22

However, prospects differ considerably within the region. Growth is
being led by the low-income countries which are projected to grow by
approximately 6 percent in 2011 and by 6.5 percent in 2012, stimu-
lated by launching of oil production (Ghana) and infrastructural invest-
ment and improved agricultural production (Kenya and Ethiopia).
The prospect of oil-exporting countries is likewise positive, with a fore-
casted growth rate of almost 6 percent in 2011 and over 7 percent in
2012, sustained by continued strength in domestic public investment
spending and strong rebound in oil production in Angola following the
disruption in 2011.
Middle-income countries are more vulnerable to the crisis as they are
more integrated with the global market, hence recovery is delayed. In
South Africa, the region’s largest economy, recovery is projected to remain
relatively modest at approximately 3.5 percent in 2011 and 2012,
because of an increase in unemployment, high household debt, low
capacity utilization, the slow down in advanced countries and substantial
real exchange rate appreciation. Growth is driven by private consumption
and investment supported by a low interest rate environment.
The region is vulnerable to some external forces, however. Europe is
the main trading partner for the region’s non-oil exporting countries.
Consequently a slowdown in Europe hurts manufacturing exporters in
the region.
Implications for Curaçao
After contracting by 0.5 percent in 2009, activities in Curaçao increased
by 0.1 percent in 2010, lagging far behind the Latin American and
Caribbean region in general and the Caribbean in particular. The slight
increase in economic activities is attributable to increased public
consumption of goods and services with regards to the dismantling
activities and the SEI program and increased private consumption.
These increases were offset by decreased public and private invest-
ments and export.
23

Curaçao is largely dependent on the import of goods from its main
trading partners, Venezuela, the U.S.A. and the Netherlands. Hence,
inflationary pressure in these regions leads to increased inflation in
Curaçao. Inflation remained subdued in the main trading countries and
as a consequence inflation in Curaçao remained moderate at 2.8
percent.
For 2011, the economy is expected to expand by 0.3 percent and inflation
to be slightly lower than the year before.
However, since Curaçao’s export of principally (tourism) services is largely
to the main trading countries, the risks of decreased growth in these coun-
tries pose risks to the island’s medium-term macroeconomic perfor-
mance. Any slowdown in growth in these countries would negatively affect
demand for the island’s tourism services.
Curaçao has achieved a sustainable level of public debt and this poses
prospects for stable long-term economic growth in general where
investments in infrastructure and socio-economic projects can be
improved. A compulsory balanced budget rule has been set, aimed at
avoiding the unrestrained buildup of public debt in the future.
On the downside, development aid from the Netherlands is planned to
stop by 2013, threatening the infrastructural and socioeconomic invest-
ments.
Sources:
Deloitte: 4th Quarter 2010: Global Economic Outlook. Multi Speed Recovery.
Economist Intelligence Unit, (The Economist) May 2011
International Monetary Fund: World Economic Outlook, April 2011
International Monetary Fund: World Economic Outlook Update, June 2011
International Monetary Fund: World Economic Outlook, September 2011
United Nations: Economic Development in Africa 2010 south – south Coopera-
tion: Africa and the new forms of Development Partnership
World Bank: East Asia and Pacific Economic Update 2011, Vol.1
World Bank: Global Economic Prospects; Crisis, Finance and Growth 2010.
24

Websites:
http://www.unctad.org
http://www.nytimes.com
http://www.blogjaviervega.blogspot.com
http://www.cfr.org/refugees-and-the-displaced/eu-concerns-over-mideast-mi-
grants/p24672
http://www.eclac.org/cgi-
bin/getProd.asp?xml=/publicaciones/xml/4/41974/P41974.xml&xsl=/de/tpl-
i/p9f.xsl&base=/tpl-i/top-bottom.xslt
25

1.2 Macroeconomic
Indicators for Curaçao
Introduction
This section presents preliminary figures on Curaçao’s macroeconomic
performance in 2010, and a macroeconomic analysis for a short-term
forecast. The figures presented for past years are actual figures com-
piled by Curaçao’s Central Bureau of Statistics (CBS). The macroeco-
nomic analysis of the forecast is carried out with the help of the
macroeconomic model Curalyse and is based on expected develop-
ments in the main sectors and implementation of planned economic
reforms.
Macroeconomic review 2010
In 2010, Curaçao’s economy grew by a mere 0.1 percent. Growth was
led by a moderate increase in public and private consumption but was
mitigated by shrinking public investments and exports. The consumer
price index remained moderate in 2010, despite increased interna-
tional prices for food and oil. Table 1.1 presents the main macroeco-
nomic indicators. The figures for 2008 are actual, while those for 2009
and 2010 are based on preliminary analysis by the CBS.
Table 1.1 Macroeconomic indicators 2008-2010
Nominal Figures (in millions NAF) 2008 2009* 2010*
Private consumption 3662.0 3560.2 4127.2
Private investment 1905.7 1921.3 1965.7
Public consumption 812.2 797.7 856.3
Public investment 70.4 70.5 70.4
Export of goods and services 3547.9 3100.5 2934.2
Import of goods and services 4926.4 4315.1 4669.7
Gross Domestic Product 5071.8 5135.2 5284.1
26

Volume Mutation (in %)
Private consumption 2.6 -4.5 12.8
Private investment 14.8 -0.9 -0.4
Public consumption 0.0 3.2 6.3
Public investment 2.3 -1.6 -2.8
Export of goods and services 15.5 -14.1 -7.9
Import of goods and services 16.1 -13.9 5.3
Gross Domestic Product 2.2 -0.5 0.1
Price mutation (in %)
Inflation 6.9 1.8 2.8
Source: Central Bureau of Statistics
*Preliminary figures
Macroeconomic Outlook
for 2011 and beyond
This section presents the macroeconomic outlook for 2011 and 2012
based on expected developments in the main sectors and implemen-
tation of planned economic reforms such as those mentioned in the
SEI policy program, reforms of the process to obtain business permits
and the tax reform.
The macroeconomic outlook for 2011 is based on the local and interna-
tional, macroeconomic and sectoral developments for the first six to nine
months. This trend has been extended for the remainder of the year.
Due to uncertainties with regard to Curaçao’s economic development,
e.g. the implementation of economic reforms, the elimination of red
tape within the government and the macroeconomic development of
Curaçao’s main trading partners, the outlook for 2012 is based on two
possible scenarios, an optimistic and a cautious one.
For 2012, a baseline reference path is given, on the assumption of an
unchanged policy. This baseline scenario is used to measure the eco-
nomic impact of the assumptions made in the two other scenarios. The
assumptions made in the baseline scenario do not reflect policy
assumptions of neither the government nor other experts on the island.
27

Outlook 2011
This section presents the assumptions which are used to forecast the
macroeconomic developments in 2011. The assumptions mentioned
below occur autonomously and, as mentioned previously, are based on
indications of the developments in the first six to nine months of 2011:
· An increase in the number of stay-over arrivals, especially from the
North-American and South-American market, mitigated by a slow-
down of arrivals from the European market. This is reflected by a
7-percent increase in stay-over nights in 2011 compared to 2010;
· A 1-percent decline in private investments. The incentives to invest
remain withheld owing to, among other factors, the lower occupancy
rate of hotels in the past years and international economic and
financial turmoil. The previous decline in occupancy rates resulted
in postponement of planned investments in room inventory to 2012;
· NAF 20 million in total investments related to SEI projects;
· Public finances show no deficit, in accordance with the agreements
with College financieel toezicht (Cft). Real public consumption
declines by approximately 10 percent, as it picks up in the third and
the fourth quarter of 2011. Public investments increase by 20
percent in 2011 compared to 2010 as they slow down in the second
half; and
· Non-tourism exports show no real growth in 2011 compared to
2010.
The results based on the abovementioned assumptions are presented
in table 1.2. The increase in exports in the form of tourism services
results in a higher demand for local products and services. No invest-
ments to handle the increased demand are shown, because there
already is sufficient inventory to deal with the increased demand of the
tourism sector. As business production increases to accommodate the
higher local demand, employment by enterprises grows. However, this
growth in employment is not sufficient to stimulate a decrease in the
number of unemployed. The increased employment of businesses,
combined with the increased wage rate, results in an increased con-
sumption of 0.2 percent. This increased consumption can be derived
28

from the 1.4-percent increase in the number of 210-feet containers en-
tering in the first nine months of 2011 compared to the same period of
20102
and from the slight increase in the amount of consumer loans
and mortgages in the first nine months3
of 2011 compared to the same
period in 2010.
The real economy grows by 0.3 percent in 2011 compared to 2010. In-
flation is estimated at 2.4 percent.
Table 1.2 Macro economic outlook for 2011
Changes (compared to 2010) 2011
Prices in %
Wage rate businesses 3.1
Consumption price 2.4
Volumes in %
Tourist days 7.0
Exports 3.7
Imports 0.0
Private consumption 0.2
Business investments -4.0
Business production 0.3
Real GDP growth 0.3
Number *1000
Unemployment 0.2
Source: Curalyse
Outlook 2012
This section presents a forecast of the macroeconomic developments
in 2012 and is based on expected developments in the main sectors
and planned reforms, such as the introduction of a Competition Author-
ity, elimination of red tape and the introduction of a new tax structure.
The current tax structure is perceived as complicated and uncompeti-
tive because of its high tariffs. Hence, a reform of the structure is
needed to improve Curaçao’s competitive position compared to the
region and other countries of the Dutch Kingdom.
29
2
Source: Curaçao Ports Authority
3
Source: Central Bank of Curaçao and St. Maarten

Baseline scenario
For the purpose of measuring the impact of the possible scenarios, first
the baseline scenario is given. The assumptions of the baseline
scenario are:
· A 2-percent increase in stay-over nights, which is the average over
the past 15 years;
· The amount of private and public consumption and investment will
remain at the same level in 2012 as in 2011;
· The investments and reforms within the framework of the SEI will
be neglected; and
· Exports in the non-tourism sectors show zero growth in 2012
compared to 2011.
The macroeconomic effect of the baseline scenario is presented in
table 1.3. In this scenario, growth in 2012 is led by the increase in
tourism arrivals which manifests itself in a 2-percent increase in the
number of stay-over nights. This slight increase in tourism demand
encourages a slight (0.1%) increase in business production and, as a
consequence, in real GDP also of 0.1 percent. The increased demand
is not enough to increase the number of jobs available and accommo-
date citizens that are entering the labor market. Hence, the number of
unemployed persons increases by 300.
Inflation is estimated to follow the trend in 2011 at 2.3 percent.
Optimistic scenario
For the optimistic scenario, the following assumptions are made:
· Stay-over nights will increase by 10 percent in 2012 compared to
2011 owing to intensified marketing efforts in existing markets and
the tapping of new markets such as Canada and Germany;
· The new fiscal structure is introduced as of January 1, 2012 and
includes:
o a decrease in profit tax, from 34.5 percent to 27.5 percent;
o a reform of the structure of wage and income taxation;
o an increase of turnover tax from 5 to 6 percent; and
o a decrease of the excise duty on gasoline of NAF 15.75 per
100 liter and on Low Sulfur Diesel of NAF 8.50 per 100 liter.
30

· Private investments increase by NAF 38 million as investments in
room inventory are continued. The hotel occupancy rate reaches
the level of 75 percent, which will encourage new investments in
the tourism sector;
· Investments within the framework of the SEI amount to
NAF 40 million in 2012; and
· The Competition Authority and Red Carpet instead of Red Tape are
fully introduced implying an increase of labor productivity of
0.25 percent.
· Other assumptions remain the same as in the baseline scenario.
The macroeconomic impact of the optimistic scenario is given in table
1.3. In the optimistic scenario, growth in 2012 is led by an increase in
the number of stay-over nights, increased private investments and
increased labor productivity. Stay-over nights increase by 10 percent in
2012 owing to, among other factors, increased marketing efforts in the
North-American market, especially in the North-Eastern part of North
America and the new air connection established with Air Berlin in the
last quarter of 2011.
The higher number of tourists in 2011 and the first months of 2012
gives a boost to private investments in 2012 with a NAF 38-million
expansion of the room inventory as planned, according to the Curaçao
Tourist Board (CTB).
Most of the remaining SEI budget is used. Hence, SEI investments are
for an amount of NAF 40 million. The SEI investments accelerate public
consumption and investment as several SEI projects are co-financed
by the government.
The higher tourism demand, public consumption and public and private
investments boost economic growth by increasing business production,
which on its turn boosts job creation. Unemployment is reduced by 200
persons, contributing to an increased real private consumption of 0.2
percent. The growth of private consumption is mitigated by the higher
turnover tax, which causes an increase in prices. The interaction
between increased local demand and supply results in an increased
real GDP of 0.9 percent.
The wage rate is increased because of the increase in productivity.
31

The increase in turnover tax and wages results in an inflation of 3.4
percent in 2012.
Cautious scenario
The cautious scenario is based on the following assumptions:
· The marketing efforts are less intense compared to the optimistic
scenario, resulting in a 6-percent increase in stay-over nights in
2012 compared to 2011;
· The new fiscal structure is introduced per January 1, 2012 as men-
tioned in the optimistic scenario;
· Private investments increase by NAF 20 million compared to 2011;
· Investments within the framework of the SEI are for NAF 20 million;
and
· The introduction of the Competition Authority and Red Carpet in-
stead of Red Tape is delayed, implying an increase in labor produc-
tivity of only 0.1 percent.
· Other assumptions remain the same as in the baseline scenario.
For the cautious scenario, a 6-percent increase in stay-over nights is
considered in 2012. The increase in tourism demand of the previous
and current year induces investments in room inventory by NAF 20 mil-
lion. SEI investments are for another NAF 20 million, boosting public
consumption and investments.
The higher tourism demand, public consumption and private and public
investments give a boost to economic growth through an increase in
demand for local products and services. However, due to increased
labor productivity, the demand for labor remains idle. The lack of job
creation has a negative impact on consumption as the purchasing
power of households decrease because of the increased consumption
prices and is not compensated by an increase in wages.
Business production and real GDP increase by 0.3 percent each, lack-
ing force to increase employment. Unemployment increases by 200 per-
sons due to migration and demographic developments. Inflation is at
3.3 percent, as the turnover tax is raised and wage rates are increased.
32

Table 1.3 Macroeconomic impact scenarios 2012
Changes (compared to 2011) Baseline Optimistic Cautious
Prices in %
Wage rate businesses 2.9 3.7 3.3
Consumption price 2.3 3.4 3.3
Quantities in %
Tourist days 2.0 10.0 6.0
Exports 1.0 3.8 1.9
Imports -0.4 3.2 1.5
Private consumption -0.1 0.2 -0.6
Business investments -0.2 3.8 1.9
Business production 0.1 0.9 0.3
Real GDP growth 0.1 0.9 0.3
Number *1000
Unemployment 0.3 -0.2 0.2
Source: Curalyse
33

1.3 Labor-Market Developments
Introduction
This section will give a summary of important developments regarding
the labor market in Curaçao. Unfortunately, the labor market statistics4
for 2010 are not available because the CBS did not conduct the Labor
Force Survey. As a consequence, a different approach is used this time.
Based on some other useful indicators, an approximation of the
developments is discussed. These indicators are:
o the number of requests for dismissal;
o the number of new registrations for assistance in finding a job; and
o the number of vacancies and placements into these vacancies.
The statistics were collected from the Ministry of Social Affairs, Labor
and Welfare (the former DirAZ and DWI).
An overview from 2006 on is given for the purpose of comparing the
developments in 2010 to those of previous years.
Local Developments
Dismissal Requests
Table 1.4 provides an overview of different developments related to dis-
missals in Curaçao.
In certain cases, when an employer wants to terminate a contract with
an employee, the approval of the former Directorate of Labor Affairs
(DirAZ, now a section of the Ministry of Social Affairs, Labor and Wel-
fare) is needed. The dismissal legislation is primarily meant to protect
the weaker party of the labor market, the employee, from unreasonable
and arbitrary dismissal, but also keeps the interests of the employer in
mind. Since proper functioning of the business comes first to the
employer, the possibility should exist to discharge employees within a
relatively short period of time depending on the business results.
34
4
Traditionally, the Central Bureau of Statistics (CBS) provides the relevant statistics through their
Labor Force Survey. However, CBS was preparing intensely for the Census that took place in March
and April 2011.

A dysfunctional employee may also hamper the company’s operation,
so in such cases too it should be possible for the employer to terminate
the work relation with such an employee.
The dismissal ordinance is not applicable to:
· employees of public corporations (civil servants, as well as laborers
and employees working for the government on labor contracts);
· educational personnel and teachers;
· clergymen (priests and ministers, for example);
· employees that perform domestic labor in private households (do-
mestic personnel);
· directors’ labor contracts;
· fixed-term labor contracts, except fixed-term contracts that are di-
rectly or indirectly preceded by a contract without a fixed term or
contracts in which the same worker has successively worked for dif-
ferent employers, who can reasonably be considered to be each
other’s successors with regard to the work performed; and
· in cases of bankruptcy.
In some other cases approval from the Directorate is not required, e.g.
dismissal “on the spot” (in case of theft, gross neglect of duties, drunk-
enness or debauchery during work by the employee), dismissal by mu-
tual consent, the expiring of a fixed-term labor contract, dismissal within
the trial period or dissolution of the labor contract by court.
As can be seen in table 1.4, a total of 128 collective requests for dis-
missal were made in 2010 involving a total of 319 employees. The Di-
rectorate approved 230 of these individual dismissal requests. These
employees lost their jobs. An additional 24 employees also lost their
jobs when they agreed to terminate the labor agreement without going
through the dismissal evaluation process (mutual consent). A total of
24 individual requests were declined by the Directorate.
The number of submitted requests for dismissal was higher in 2010
compared to the previous years. The number of employees involved in
the requests almost doubled compared to 2009 and the number of re-
quests consented was more than double the number in 2009. A total
35

of 254 employees went through the evaluation process at the Direc-
torate and lost their job (requests consented and mutual consent) in
2010, compared to 114 in 20095
.
Of all the requests submitted in 2010, 39 were for business/economic
reasons, involving 221 employees, of which 168 were approved by the
Directorate and 10 employees agreed to leave by mutual consent (com-
pared to 26 requests based on business/economic reasons, involving
86 employees, 48 of which were approved and 4 left by mutual consent
in 2009)6
.
Table 1.4 Dismissal Requests
Dismissal Requests 2006 2007 2008 2009 2010
Number of requests submitted 97 96 88 94 128
Number of employees involved 310 470 350 162 319
in requests submitted
Number of requests approved 238 398 248 99 230
Number of requests declined 27 14 10 26 24
Mutual consents/request withdrawn 33 58 92 37 60
*mutual consents n.a. n.a. n.a. 15 24
*requests withdrawn n.a. n.a. n.a. 22 36
Source: Ministry of Social Affairs, Labor and Welfare
(the former Directorate of Labor Affairs, DirAZ)
Employment mediation and placement
According to figures provided by the Ministry of Social Affairs, Labor and
Welfare (table 1.5), a total of 1203 persons applied for employment
mediation in 2010. This is significantly less than in 2009. It is moreover
remarkable that the number of new registrations has been decreasing
over the years, in line with the decrease in the unemployment rate.
The number of vacancies in 2010 decreased compared to 2009, and
so did the number of placements in these vacancies. Simple calcula-
tions reveal moreover that the ratio of placements per vacancy deteri-
orated in 2010 compared to 2009. In 2010, 35.9 percent of the
36
5
Source: Ministry of Social Affairs, Labor and Welfare (former Directorate of Labor Affairs)
6
Source: Ministry of Social Affairs, Labor and Welfare (former Directorate of Labor Affairs)

vacancies was filled by jobseekers registered at the Ministry of Social
Affairs, Labor and Welfare, while 40.6 percent of the vacancies was
filled in 2009. Over the past five years, the ratio of placements per va-
cancy was the highest in 2007, with 45.8 percent of vacancies filled by
jobseekers registered at the Ministry of Social Affairs, Labor and Wel-
fare.
Table 1.5 Mobility in the Search for Employment
Year New registrations Vacancies Placements Placement
per vacancy
2006 2,269 797 281 0.353
2007 1,658 633 290 0.458
2008 1,868 953 343 0.360
2009 1,568 652 265 0.406
2010 1,203 537 193 0.359
Source: Ministry of Social Affairs, Labor and Welfare (the former DWI)
Minimum wage
Per September 1, 2008, the minimum wage had been set at NAF 7.30
per hour and was adapted again per 2011. Per January 1, 2011, the
minimum wage was indexed for inflation and has been set at NAF 7.53
per hour.
‘Rumbo pa trabou’ Project
It is the objective of the government to help as many people as possible
to enter the labor market. The tourism and construction sectors have
been identified as potential sectors to easily accommodate employees
on different levels, but especially on the less skilled level, which is the
bottleneck in Curaçao. Therefore, a project has been started to guide
potential employees into jobs in these two sectors. ‘Rumbo pa Trabou’,
which literally means ‘heading towards employment’ in Papiamentu (Cu-
raçao’s native language), is a project financed with SEI funding. The
project is planned to last for three years and cater to approximately 450
persons. Not only unemployed persons are eligible to participate, but
also people who are currently working but want to upgrade their
knowledge/competency. The program will focus on training and place-
37

ment of people on the local labor market. Participants are guaranteed
a job after finishing the program and will be assisted during the first six
months of their new job.
Outlook
Currently, citizens are allowed to retire at the age of 60. At this age,
each legal citizen is entitled to a social pension (AOV). The amount of
the pension varies according to the number of years a person has been
in Curaçao during his/her adult life (from age 15 to 60)7
. The pension
structure is based on a social system in which the active working pop-
ulation pays a premium according to their salary to support the fund
that pays the current retired population.
According to calculations from the Central Bureau of Statistics, Curaçao
is also facing the phenomenon of an aging population. The ratio of the
working age population over the number of citizens 60 years of age or
older has been decreasing and is expected to decrease further in the
future (table 1.6). Considering this expected development, the current
general pension fund system is unsustainable. Furthermore, it is
important to mention that some citizens depend totally on the govern-
ment pension at reaching the retirement age. Possibilities to alleviate
the problem with the pension fund are being discussed. A possible
decision is to increase the retirement age.
Table 1.6 Development of the Population
Age group 2005 2010 2020* 2030*
0-19 39,721 40,739 36,057 31,371
20-59 71,760 76,348 82,298 77,287
60+ 21,366 25,093 33,941 43,129
Total 132,847 142,180 152,296 151,787
Ratio 20-59 to 60+ 3.36 3.04 2.42 1.79
Source: Central Bureau of Statistics Curaçao (www.cbs.an)
* Forecasted figures
38
7
For each year the person spends abroad, the pension is reduced. The reduction varies over time.
According to information from the SVB, the entity charged with the general pension fund (AOV),
over the period of September 1, 1960 to January 1, 1975 a reduction of 2 percent per year would
apply. Over the period of January 1, 1975 to January 1, 1991, a reduction of 2 1/8 percent per
year would apply. Per January 1, 1991, a reduction of 2 2/9 percent applies.

Considering the pool of unemployed and in an effort to stimulate
among locals, a new act has been proposed to the Executive Council.
This proposal sets a quota on the number of foreigners working in the
firms in Curaçao. A ratio of 1 foreigner per 5 locals (20% foreigners and
80% locals) in each firm has been proposed. In the proposal, locals are
defined as persons born in Curaçao or whose mother or father, with
Dutch citizenship, was born in Curaçao, or persons born on one of the
other islands of the former Netherlands Antilles and living in Curaçao
by October 10, 2010.
The proposal has been approved by the Council and is awaiting legisla-
tion. It can be expected that some businesses will have difficulty to with
this act.
39

1.4 Public Finances
Introduction
The year 2010 marked a transition year for Curaçao and the public
finances of Curaçao. On October 10, 2010, Curaçao became an
autonomous country within the Dutch Kingdom and the two govern-
ment levels (the government of the Netherlands Antilles and of the
Territory Curaçao) were merged into one for the government of Curaçao,
including the civil servants and ongoing projects.
Preliminary figures on actual revenues and expenditures up to October
10, 2010 indicate a surplus for the treasury of the Island Territory of
Curaçao. The differences between the budgeted and actual amounts
will be analyzed based on the financial report of the Government of the
Island Territory of Curaçao. In addition, the debt position at the end of
2010 and the future fiscal policy will be discussed.
Financial Report
Table 1.7 provides an overview of the revenues and expenditures for
2010, up to October 10. All actual figures included in the financial report
are on cash basis and all projected figures are on transaction basis. The
projection of the revenues and expenditures were based on a forecasted
economic growth of 1.5 percent in 2010, while a lower growth rate has
been registered. Nevertheless, the actual revenues turned out slightly
higher than budgeted while total expenditures turned out lower than
budgeted. A total of NAF 908.9 million was budgeted in revenues, whereas
actual revenues amounted to NAF 911.4 million. Total expenditures were
estimated at NAF 893.4 million but only a total of NAF 879.1 was actually
spent. This resulted in an operational balance of NAF 32.3 million, higher
than the NAF 15.5 initially estimated.
The slight increase in revenues is owed to improved profit-tax revenues,
but disappointing non-tax revenues compared to the amounts initially
budgeted. Up to October 10, 2010, the government collected NAF 193
40

million in profit tax, which is NAF 25.6 million more than the amount
initially estimated. This improvement in the amount collected in profit
tax indicates a fortunate 2009, especially for local businesses, but also
improved compliance to remittance.
Up to October 10, 2010, non-tax revenues amounted to NAF 152.1
million, which is more than NAF 30 million lower than estimated. The
disappointing items were the dividends and other income from govern-
ment-owned limited liability companies.
With regard to the expenditures, mainly the lower expenditures on per-
sonnel costs, goods and services and interest payments contributed to
the lower than estimated total expenditures, as can be seen in the
table. The lower expenditure on personnel costs is partly because the
amount to be paid in wages, especially to teachers, was overestimated.
Moreover, the payments to the pension fund of public employees
(APNA) lagged behind the amount initially estimated due to payments
in connection with early retirements. It is expected that APNA will charge
these costs in a later stage.
With regard to the goods and services, there was less money spent on
temporary personnel and housing. Consultancy costs were invoiced for
less than budgeted, but more invoices over this period are expected in
a later stage. On the other hand, the amount spent on medical costs
turned out higher than the amount budgeted. It is important to mention
that medical costs is the largest category of goods and services and
consists mainly of medical costs of pro-pauper patients and civil
servants. Medical costs were underestimated because of pending
measures with regard to the costs of medication. However because the
measures were not executed, the expected reduction in costs of
medication was not effectuated.
Interest payments were NAF 3.5 million lower than estimated because
of payments received from the Netherlands in connection with the debt-
relief program.
41

Table 1.7 Financial Report for the Island Government of Curaçao, January 1
to October 10, 2010 (in millions NAF)
Projection Actual
Total Revenues 908.9 911.4
Tax revenues
Profit tax 167.4 193.0
Wage tax 382.2 392.9
Income tax 0.7 3.0
Taxes on property 23.2 22.0
Taxes on goods and services, including road tax 57.2 71.5
Other taxes 19.4 11.2
Non-tax revenues 186.1 152.1
Capital revenues 0.8 0.0
Grants 72.0 65.7
Total Expenditures 893.4 879.1
Personnel costs 303.0 295.6
Goods and services 288.0 278.6
Subsidies, including to public companies 38.2 43.5
Transfers 151.1 152.2
Interest payments 105.9 102.4
Capital expenditures 6.9 6.9
Operational Balance 15.5 32.3
Source: Ministry of Finance
Debt position
During the preparations towards getting the new constitutional status,
it was agreed between the government of the former Netherlands
Antilles and the Netherlands that the country of the Netherlands
Antilles (including the individual islands) would receive debt relief. This
debt relief is a partial debt forgiveness combined with a slowing down
of debt accumulation. The Netherlands took over an amount of
outstanding loans and future accumulation of debt has been restricted
by the Cft.
42

Figures received from the Ministry of Finance indicate that Curaçao’s
debt position was approximately NAF 2,190 million per October 10,
2010.
Fiscal Policy
In order to remain competitive compared to other countries in the
region and other countries of the Kingdom in terms of business climate,
an adjustment of the fiscal policy has been prepared. The basis of this
plan was a shift from direct to indirect taxation. It is imperative for this
shift to remain neutral for the government budget. That requires that
the shift should not decrease the government revenues. This plan was
proposed to the Council and has been approved.
The proposed adjustments are:
· A decrease of the profit-tax tariff from 34.5 to 27.5 percent;
· A decrease of the wage and income-tax burden according to table
1.8, accompanied by an increase of the rebate to NAF 1,700;
· An increase of the turnover tax from 5 to 6 percent;
· A decrease of the excise duty on gasoline and Low Sulfur Diesel of
NAF 15.75 and NAF 8.50 respectively per 100 liter in 2012.
Table 1.8 Current and proposed wage and income taxation
Current Proposed
Income Tariff Income Tariff
up to NAF in % up to NAF in %
26,601 13.0 27,200 12.0
39,902 20.8 41,000 20.0
55,419 27.3 57,000 27.0
83,128 35.1 85,600 33.0
117,487 41.6 121,000 40.0
Higher 49.4 Higher 49.0
Source: Ministry of Finance
These adjustments will be accompanied by measures to increase the
compliance with tax remittance by businesses.
The budget neutrality is realistic, based on the fact that a reduction in
43

profit and income tax will lead to increased expenditures by households
and businesses while the increased turnover tax will mitigate the spend-
ing pattern. Based on calculations made by the Ministry of Economic
Development, the proposed fiscal policy will have a positive economic
effect.
44

1.5 Monetary Developments in
Curaçao
Introduction8
The new constitutional relations within the Dutch Kingdom became
effective on October 10, 2010. In this respect, the Netherlands Antilles
was dismantled and the islands that were parts of this constitutional struc-
ture obtained a new status. Curaçao and St. Maarten became auton-
omous countries within the Dutch Kingdom while Bonaire, St. Eustatius
and Saba opted for direct ties with the Netherlands.
The new constitutional setting had its effects on the monetary policy
framework. As of October 10, 2010, Curaçao and St. Maarten formed
a monetary union with a common currency and a common central
bank. The common central bank is the Central Bank of Curaçao and
St. Maarten, which is the legal successor of the former Central Bank of
the Netherlands Antilles. For the time being, the Netherlands Antilles
guilder will remain legal tender in both Curaçao and St. Maarten.
A monetary union with one common currency and one central bank
requires a synchronized monetary policy and budget policy, sound
finances and uniform legislation. Therefore, close policy coordination
between Curaçao and St. Maarten is a precondition for the monetary
union between Curaçao and St. Maarten.
The main objectives of the new monetary authority, the Central Bank
of Curaçao and St. Maarten, are:
· to promote a stable external value of the legal currency of Curaçao
and St. Maarten;
· to promote a sound financial system in Curaçao and St. Maarten;
and
· to promote safe and efficient money transfer in the monetary union.
45
8
Source: Press Release 2010-010, Central Bank of Curaçao and St. Maarten, 2010

To realize the abovementioned objectives, the Central Bank of Curaçao
and St. Maarten (hereafter: the Central bank) is in charge of among
other things:
· safeguarding the soundness of the financial system;
· managing the foreign exchange reserves;
· formulating and implementing the monetary policy;
and advising the government on financial and economic matters.
Monetary developments in 20109
Monetary policy
The objective of the monetary policy is to safeguard the stability of the
external value of the Netherlands Antilles guilder at a fixed exchange
rate of NAF 1.79 for 1 USD. To preserve the confidence in the exchange
rate, the Central Bank aims at maintaining a level of official reserves
(excluding gold) worth three months of merchandise imports. Conse-
quently, the developments in the aggregate money supply, the private
credit extension and the foreign asset position of all commercial banks
are the most important indicators for the Central Bank in considering
policy adjustments.
The Central Bank’s most important instruments to conduct monetary
policy are the reserve requirement on the domestic liabilities, combined
with a bi-weekly tender system of Certificates of Deposit (CDs) and the
requirement of a positive Net Foreign Assets position of all commercial
banks. These monetary instruments influence the domestic money
market.
In 2010, the Central Bank conducted a passive monetary policy as a
consequence of the extra liquidity in the domestic money market and
a slowdown in economic activities in that year. The surplus of liquidity
in the domestic money market during 2010 was mainly attributed to
the inflow of debt relief funds by the Dutch government and the risk
46
9
Source: Quarterly Bulletin, Central Bank of Curaçao and St. Maarten, 2010

aversion of investors10
. Under normal conditions, a surplus of liquidity
in the domestic money market will lead to excessive credit expansion
by commercial banks. However, the slowdown in economic activities
impeded an excessive credit expansion by the commercial banks. Con-
sequently, the official reserves exceeded the adequate level and the
domestic credit expansion remained at an adequate level.
Based on the abovementioned developments in the domestic money
market, the Central Bank deployed only one of the monetary instru-
ments, in this case the reserve requirement combined with a bi-weekly
tender system of CDs. During 2010, the Central Bank lowered the per-
centage of the reserve requirement by 2.5 percent, reaching a percent-
age of 7.75 percent in December 2010. In addition, the Central Bank
offered only the amount of maturing CDs at the biweekly auctions, im-
plying that no extra CDs were offered in 2010.
Monetary indicators11
The aggregate money supply decreased by NAF 241.7 million (3.2%) in
2010. This was attributable to a substantial drop in net domestic assets
(36.2%) mitigated by an increase in net foreign assets.
The significant decline in net domestic assets can be ascribed to the
decrease in the domestic assets (debt) of the government as a conse-
quence of the implementation of the debt relief program, through which
the Dutch government acquired the outstanding government paper of
the former central government.
Net foreign assets12
improved by NAF 582.6 million (18.0%) in 2010 as
a result of the increase in the official reserves. The increase in the
official reserves was mostly due to the transfer of dividend tax by the
Netherlands related to the Kingdom tax arrangement (BRK).
47
10
Investors prefer to keep their funds domestically as a result of the risks of international securities
markets.
11
Due to the constitutional changes per October 10, 2010, the figures of the last quarter of 2010 do
not lend themselves to a comparison with the figures of the previous year. Therefore, the figures
of the last quarter have been excluded from the comparison with the figures of year 2009.
12
The net foreign assets comprise the official reserves and the commercial banks’ net foreign as-
sets.

This dividend tax is from subsidiaries of Dutch companies on the island.
The central bank’s net foreign assets increased by 21 percent and the
net foreign assets of commercial banks increased by 11.5 percent.
Developments in domestic interest rates
The Official lending rate of the Central Bank remained unchanged
at 1.00 percent in 2010. During 2010, interest rates related to the
treasury papers and government bonds increased slightly.
The interest rates of the domestic commercial banks, with the exception
of the average interest rate on current-account overdrafts, declined
further during 2010. The average interest rate on mortgages dropped
to 6.69 percent. In addition, the average interest rate on passbook
savings and 12- month time deposit declined to 1.11 and 1.65 percent
respectively.
Outlook
The Central Bank’s monetary policy will remain directed at the promo-
tion of a stable external value of the Netherlands Antilles guilder. In this
regard, the monetary policy will also be a common policy supported by
Curaçao and St. Maarten.
In the first half of 2011, for instance, the Central Bank saw a strong
decrease in foreign reserves. Despite this decrease, the reserves
remained well above the norm of at least three months’ worth of
imports. However, to prevent further decreases to dangerous levels that
could put pressure on the Netherlands Antilles guilder, the Central Bank
increased the reserve requirement for commercial banks from 7.75 to
9.75 percent.
48

1.6 Balance of Payments
Curaçao’s Balance of Payments in 2010
Table 1.9 shows the Balance of Payments (BOP) developments for Cu-
raçao from 2007 to 201013
. As per October 10, 2010, the Central Bank
of Curaçao and St. Maarten compiled and published a separate BOP
for Curaçao. The figures presented in table 1.9 are therefore related to
Curaçao, contrary to the figures presented in the previous editions of
the Curaçao Economic Outlook. Nevertheless, if necessary, develop-
ments particular to other Caribbean part of the Dutch Kingdom will be
mentioned.
Table 1.9 Curaçao’s Balance of Payments
Millions NAF 2007 2008 2009 2010**
Current Account -975.3 -1,336.4 -859.3 -1,633.4
Trade Balance -2,030.9 -2,178.3 -1,901.6 -2,181.9
Service Balance 900.7 768.3 703.2 446.2
Income Balance 88.7 -12.5 -86.5 -19.1
Current Transfers 66.2 86.1 425.6 121.4
Capital Transfers 32.2 44.3 40.7 51.4
External financing 728.2 1,242.6 410.5 1,030.1
of the private sector
Direct investments 202.3 264.6 89.3 133.1
Loans and credits 697.9 1,013.1 435.4 1,513.7
Portfolio investments* -172 -35.1 -114.2 -616.7
Change in reserves* 5.8 -45.9 324.3 382.4
** Preliminary figures
* Negative numbers indicate an increase
Data are derived from the statistics of the Central Bank of Curaçao
and St. Maarten
Compared to the last three years, Curaçao’s balance of payments’ cur-
rent-account deteriorated significantly during 2010, reaching a deficit
of NAF 1,633.4 million (30% of GDP). Curaçao has, as do other islands
in the Caribbean area, a small scale and open economy which is to a
49
13
Preliminary figures

large extent dependent on imported goods, which is generally reflected
in a deficit in the current account balance.
The current account’s deterioration was due mainly to the worsening
of the trade balance, service balance and lower current transfers re-
ceived from abroad. According to the developments on the current ac-
count, the capital and financial account worsened in 2010.
Current account
Developments in the trade and service balance will usually determine
developments in the current account. These are basically the main com-
ponents and have a significant effect on the current account. In con-
trast with the traditional surplus on the service balance, the trade
balance of Curaçao has been deteriorating continuously due to increas-
ing imports over exports. Compared to 2007, the trade balance deficit
expanded reaching 40 percent of the GDP in 2010.
Both the import and export of merchandise grew slightly in 2010 com-
pared to 2009. The higher import is related to higher commodities im-
port bills, surging demand for imported goods driven by tourism
spending, increased domestic spending and imports from e-zone com-
panies to stock up inventory. In 2010, the import of goods was valued
at NAF 3,404.6 million, up 10 percent from NAF 3,109.8 million in
2009. The higher export of goods can be ascribed to, among other
things, higher income received from bunkering activities at the airport.
Compared to 2009, the service balance earnings received from the ex-
port of services shrank by 10 percent in 2010, mainly as a conse-
quence of the 56-percent decline in the refining fee. The lower refining
fee was a result of the shutdown of the Isla refinery due to power fail-
ures at the Build Own and Operate (BOO) power plant from March 2010
up to December. Contrary to the decline in the refining fee, revenues
from the tourism sector rose slightly (7%) in 2010 compared to 2009.
While overall stay-over arrivals declined by 6.8 percent, stay-over nights
grew by 5 percent reflecting the higher average spending in 2010 com-
pared to 2009.
50

Furthermore, the income balance improved slightly in contrast to the cur-
rent transfers balance, which deteriorated by more than NAF 300 million
due to less debt relief grants transferred by the Dutch government.
Capital and Financial Account
In 2010, capital transfer increased by NAF 10.7 million. This increase
is related to an increased capital inflow received from Dutch govern-
ment development aid.
The deterioration of the current account deficit in 2010 as compared
to the year before resulted in a drop in the net foreign wealth of the pri-
vate sector. The change in the financing of the private sector was due to
a deterioration of the direct investments balance (NAF 133.1 million) and
the loans and credits balance (NAF 1,513.7 million), partially mitigated by
the improvement in the portfolio investment balance (NAF 616.7 million,
see table 1.9). The worsening of the direct investment balance is due to
increased foreign direct investments in Curaçao. Regarding the loans and
credits balance, the net trade credit balance worsened because trade
credits received on imports exceeded repayments on trade credits.
Foreign Currency Reserve in 2010
Deterioration of the current account resulted in a decline of NAF 433.1
million in net foreign assets held by the commercial banks, which was
offset by NAF 50.7 million in net foreign assets held by the central bank.
Balance of Payments in 2011
For 2011, it is expected that the current account deficit will stay at
approximately the same level as in 2010. The expected slower
economic activities, in the construction sector for instance, is expected
to partially offset the higher import expenses, reflecting both fluctuating
commodities prices on the international market as well as the increase
in the volume of imported goods related to the expected growth in
tourism14
and private spending.
51
14
In the first quarter of 2011 stay over arrivals to Curaçao grew by 16 percent compared to the same
period in 2010.

Furthermore, the service balance surplus is expected to grow slightly
as a result of the expected growth of the export of services and the con-
tinuation of the activities of the Isla Refinery.
Regarding exports of goods, a small decrease in volume is expected,
driven by lower demand due to the expected economic performance of
the main trading partners.
Furthermore, capital inflow related to Dutch development aid funds is
expected, resulting partially in upward pressure on the foreign reserves.
Considering the investments in the tourism sector (Tourism Master Plan
2010-2014), the direct investment balance is expected to worsen in
2011. The loans and credits balance is expected to worsen in 2011
due to, among other things, a decline in net trade credits.
Sources:
Quarterly Bulletin 2010-III, Bank of Curaçao and St. Maarten
Statistical tables, Balance of Payments Curaçao, Bank of Curaçao and
St. Maarten
Strategic Tourism Master plan for the Island of Curaçao 2010 – 2014,
December 2009
Historic Overview, Stay-over Arrivals, Curaçao Tourist Board, July 2011
Overview , Visitor Nights Overview, Curaçao Tourist Board, July 2011
52

1.7 SEI Program
Introduction
The long-term objective of the Social Economic Initiative (SEI) program
is to provide Curaçao with a sustainably improved social and economic
perspective by creating:
· A sound government finance;
· A reformed economic structure;
· A reorganized public administration;
· An investment program; and
· A social safety net.
After a slow start in drafting and submitting financial proposals by
project owners in 2008, a sharp increase was seen in 2009 and 2010,
in proposals being submitted to USONA for review, approval and signing
of the financial agreements. Very ambitious goals were set at the start
of this process, as the government believed that it was possible to have
all the project proposals drafted and submitted to USONA by November
2009. Later this target date was extended to June 2010 and more pro-
longations followed. During this period, some critics identified some
serious hurdles in reaching this ambitious goal, e.g. capacity issues,
different priorities and limited number of contractors for the infrastruc-
tural projects.
In the final report on the progress of the SEI projects for 2010, USONA
was positive with regard to the number of project proposals being
signed into financial agreements. The execution of the SEI program
reached its peak during the last quarter of 2010, particularly in Decem-
ber, as December 31 was set as deadline to commit to the budget by
awarding the project to a consultancy firm/contractor for execution. The
result was an approval of 97 percent of the SEI fund in projects.
In the annual consultation round held at the end of 2010, it was decided
that an addendum would be attached to the proposal of May 23, 2008
53

that expired on December 31, 2010. This consultation round resulted
in an agreement in January 2011 between the government of Curaçao
and the Dutch government to guarantee spending of the total budget
and a new deadline to commit the projects. Three objectives were
agreed on:
1. All development aid will be terminated by 2012.
2. Projects and reforms important to reach SEI objectives that had en-
countered delays will be addressed with high priority
3. The future of the oil refinery must be analyzed in accordance with
an agreed planning.
The new deadline to commit all resources for the pending projects had
been set on September 30, 2011. The expected result was that all pro-
jects on the Ministry of Economic Development’s list would be commit-
ted. Reaching this goal is very important to avoid underspending of the
SEI funds.
The following section gives an overview of the status of selected
projects submitted to USONA by the former Island Territory of Curaçao,
now the government of Curaçao. The focus will be on economic and in-
frastructural projects.
Status of selected economic and
infrastructural SEI projects15
During the period of 2008 to 2010, there were a total of 110 projects for
which an agreement has been signed between the government of Cu-
raçao and the government of the Netherlands through USONA. Of these
110 projects, 33 belong to the economic sector of the government. The
remaining projects belong to the educational and social sector.
The contribution of the Dutch government to these 110 projects has
been estimated at NAF 121 million. A total of 85 projects have been
committed by USONA, for an amount of NAF 118.5 million.
The government of Curaçao contributes with NAF 68,664,831 to 13
54
15
Source: PMU Progress Report, March 2011; USONA Progress Report, December 2010.

projects, seven of which are economic projects. These seven projects
are mentioned below in table 1.10.
Table 1.10 The Contribution of the Local Government in the Economic
SEI Projects
Project Contribution of the
of Curaçao
Curaçao Economic Development Board 1,100,000
Klein Hofje 19,070,000
Tourism Marketing Plan 15,300,000
Hospitality Training for the Unemployed 2,274,725
Upgrading of the EEG weg 2,350,000
Renovation of Urban Area Sewerage 2,164,500
Signposts 3,545,000
Total 45,804,225
The ministry of Economic Development has identified a few projects
based on their major macroeconomic impact, by means of the size of
the investment and the proposed measures intended to improve the
economic performance and structure.
These projects are “Small and Medium Entrepreneurship” (SME), up-
date of the business establishment policy, “Red Tape”16
, Competition
Policy, Long-Term Economic Policy, infrastructural projects, “Research
on Dutch and European Subsidy Arrangements” and the “Tourism Mar-
keting Plan”.
Small and Medium Entrepreneurship
NAF 100,000 has been reserved to prepare an SME policy. Although
by the end of 2010 not much progress had been registered, the pace
was increased in 2011 and, at the moment this publication is being
prepared, the policy is ready to be implemented.
55
16
Additional information about the “SME policy”, the update of the establishment policy and
“Red Tape” is found in chapter 3 of this publication

Update of the business establishment policy
An amount of NAF 150,000 has been reserved for this project. The
policy is being prepared in order for the implementation to start by
January 2012. Considering the importance of this policy for the island,
the project is being closely monitored by USONA.
Red Tape
An amount of NAF 90,000 has been reserved for this project. Up to
December 31, 2010, this amount had not been drawn on. The financial
agreement with USONA was signed in March 2011, and at the moment
of preparing this publication the project has been committed and
tendered and ready to be executed.
Competition Policy
Although the budgeted amount of NAF 750,000 had not been touched
yet by the end of 2010, the project is in full execution and in its last
phase. It is expected that the policy will be ready by the beginning of
2012. This project also gets extra attention from USONA, considering
the expected impact.
Long-term Economic Policy
An amount of NAF 1,000,000 has been reserved for the preparation of
a long-term economic policy. Because of the delay in the preparations,
this project is being intensively monitored by USONA. The execution of
the project has been entrusted to the Ministry of General Affairs. At the
time of this writing, the project is about to be committed.
Infrastructural Projects
The selected projects are “Weg naar Fuik” (the Road to Fuik), “Weg naar
Rondeklip” (the Road to Rondeklip), Caracasbaaiweg, signposts,
upgrading of the EEG weg, improvement of the Rif area, renovation of
the sewage system in the urban area and Piscadera. Several of these
infrastructural projects have been undergoing scrutiny due to proce-
dural errors that were detected.
56

Curacao Economic Outlook 2011

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