Aruba

Politics:

• Analysis

  Aruba politics: Opposition attacks government on co-operation proposals

  FROM THE ECONOMIST INTELLIGENCE UNIT

  The Aruban government is pushing for closer economic and social co-operation between other Caribbean members of the Kingdom and the Netherlands. However, the opposition has sought to attack the government for having a covert agenda to dismantle the island's autonomous status.

  The drawing up of firm policy proposals regarding co-operation among the members of the Kingdom is advancing in four working groups set up following a Kingdom Conference, with participation from Aruba, Sint Maarten, Curaçao and the Netherlands, held in December. Proposals will be presented at a second round of talks due to be hosted by Aruba in late August.

  One area of almost universal agreement is to pursue the free movement of persons and goods within the Caribbean part of the Kingdom. The idea has received widespread cross-party support from the Dutch parliament. The proposal also calls for the prevention of double taxation on in-transit goods, the installation of a joint customs service, the harmonisation of airport taxes on flights between the islands, priority handling for Dutch passport holders at airports, the possibility of travelling between the islands using an identity card or a pre-clearance system, and the possibility of launching a ferry connection between Aruba, Bonaire and Curaçao. In tandem with this is a proposal to create a Kingdom Secretariat, which would administer all such agreements. In a move to ease travel restrictions further, Aruba is considering joining the other Dutch Caribbean Islands in a 90-day visa programme that would be administered centrally and be valid for all islands.

  Opposition seeks to stir nationalist sentiments

  However, Aruba's main opposition party, the Movimento Electoral di Pueblo (MEP), and the minor Partido Democracia Real (PDR) party, have sought to attack the government. They have tried to portray efforts to create a more harmonious relationship between Aruba and the Netherlands by the government of the centre-right Arubaanse Volks Partij (AVP), led by the prime minister, Michael Eman, as a betrayal of the country. The row has gained force in 2012 following the signing of a collaboration protocol with the Netherlands in late 2011.

  The opposition claims the protocol is the first step in handing more control over Aruba to the Dutch. In its defence, the government has called on the opposition to abandon its negative campaign and put forward positive proposals of its own on how relations could be better managed. The government points out that the opposition had no objection to similar protocols signed with other countries such as the USA  and Canada, but in the case of the Netherlands is engaged in nationalist scaremongering to undermine the government.

  June 11, 2012

• Background

  Aruba: Key figures

  Nelson Oduber

  The leader of the Movimiento Electoral di Pueblo (MEP), Mr Oduber was first elected prime minister in 1989, leading a coalition government until elections in 1993. Following these elections he was again chosen to lead a coalition government, but this one proved unstable and he stood down in 1994. He has been prime minister since 2001 in Aruba's first one-party governments and has a mandate until 2009.

  Mike Eman

  Leader of the main opposition party, the Arubaanse Volks Partij (AVP), since 2003, Mr Eman is the grandson of the party's founder, Henny Eman, and the brother of Aruba's first prime minister as an independent state (1986-89 and two spells between 1994 and 2001), also called Henny Eman. Mr Eman is a lawyer and businessman who returned to politics as a candidate for the AVP in the 2001 elections.

  Fredis Refunjol

  Mr Refunjol was appointed governor-general (the official representative of the Dutch government) in 2004, with unanimous support from the Staten (parliament). He has previously served as deputy prime minister and as a minister of education and administrative affairs.

  The judiciary

  Judges are appointed for life by the Dutch crown in consultation with the Council of Ministers. Trial is by one judge in the Court of First Instance in Aruba. First appeals are heard at the Common Courts of Appeal of the Netherlands Antilles and Aruba, and final appeals at the Supreme Court in The Hague, Netherlands.

  The legislature

  The head of state is the queen of the Netherlands, currently Beatrix Wilhelmina Armgard van Oranje-Nassau, represented by a governor-general, currently Fredis Refunjol. Executive power rests with the governor, while the prime minister and the eight-member cabinet carry out executive responsibilities. The 21-seat Staten is elected every four years. The electoral system, based on proportional representation, has traditionally resulted in unstable coalition governments, but since 2001 Mr Oduber's MEP has held a majority of seats.

  Media services

  Aruba has a free press, published in Papiamento, Dutch and English. There are 19 radio stations, three local television stations and five print newspapers, in addition to around a dozen internet news media outlets. There is strong demand for satellite and cable television.

  July 31, 2008

• Structure

  Aruba: Political structure

  Official name

  Aruba

  Form of government

  Parliamentary democracy with control over internal affairs, including aviation, customs, communications and immigration; the Netherlands is responsible for external affairs, such as citizenship, defence and foreign affairs

  The executive

  Council of Ministers responsible to the Staten (parliament)

  Head of state

  Queen Beatrix Wilhelmina Armgard van Oranje-Nassau of the Netherlands, represented by a governor; responsibility in the Netherlands lies with the Home Office

  National legislature

  The Staten has 21 members, elected by adult suffrage every four years under a system of proportional representation

  Legal system

  Court of first instance on the island, appealing to a High Court of Justice operated jointly with the Netherlands Antilles; High Court justices are appointed by the Dutch crown in consultation with the Council of Ministers

  National elections

  September 2013

  National government

  The Arubaanse Volks Partij (AVP), holds a majority of seats in the Staten

  Main political organisations

  Government: Arubaanse Volks Partij (AVP)-12 seats

  Opposition: Movimento Electoral di Pueblo (MEP)-five seats; Partido Democracia Real (PDR)-one seat

  Other parties: Movimento Patriótico Arubano (MPA); Red Electoral Democratico (RED); Partido Patriótico Arubano (PPA)

  Key ministers

  Governor-general: Fredis Refunjol

  Prime minister & minister of general affairs: Michael Eman

  Economic, social affairs & culture: Michele Winklaar

  Finance, communications & energy: Mike de Meza

  Infrastructure & environment: Benny Sevinger

  Justice & education: Arthur Dowers

  Minister plenipotentiary of Aruba in the Netherlands: Edwin Abath

  Public health & sports: Richard Visse

  Tourism, labour & transport: Otmar Oduber

  Central Bank president

  Jane Semeleer

  March 04, 2013

Economy:

• Background

  Aruba: Economic background

  Gross domestic product
  	2003	2004	2005	2006	2007
  GDP at market prices (Afl m)	3,617	3,984	4,159	4,334	4,696
  Real GDP growth (%)	0.5	7.4	1.0	0.6	2.1
  GDP per head (US$)	21,253	22,791	23,089	23,549	24,894
  Source: Centrale Bank van Aruba.

  Download text file (csv format)

  July 31, 2008

• Structure

  Aruba: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (US$ m)	2,745.8	2,501.7	2,410.1	2,677.1	2,639.0
  Real GDP growth (%)	0.2	-11.0	-3.2	8.9	-2.0
  Consumer price inflation (av; %)	9.0	-2.1	2.1	4.4	0.6a
  Population (‘000)	101.6	102.1	102.1	102.4	103.6
  Exports fob (US$ m)	3,705.0	1,951.8	264.4	5,179.4	2,745.1
  Imports fob (US$ m)	-4,200.8	-2,448.7	-1,378.3	-5,891.5	-3,299.2
  Current-account balance (US$ m)	-151.5	194.0	-426.1	-234.8	-15.4
  Current-account balance (% of GDP)	-5.5	7.8	-17.7	-8.8	-0.6
  Reserves excl gold (US$ m)	604.9	578.2	568.2	536.7	657.4
  Exchange rate (Afl:US$)	1.79	1.79	1.79	1.79	1.79a
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Tourists by origin, 2011	% of total	Components of GDP 2011	% of total
  North America	65.7	Private consumption	58.9
  US	61.0	Government consumption	26.4
  Latin America	21.2	Private investmenta	27.4
  Venezuela	13.6	Public investment	1.3
  Europe	9.4	Exports of goods & services	68.8
  Netherlands	4.7	Imports of goods & services	82.8
  Other	3.8
  Main exports 2011b	% of total	Main imports 2011b	% of total
  Art objects & collectors' items	10.0	Machinery and electric equipment	19.5
  Transport equipment	10.4	Chemical products	10.6
  Machinery and electric equipment	15.8	Food Products	11.4
  Live animals & other animal products	1.3	Live animals & other animal products	7.6
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  US	32.8	US	54.9
  Netherlands Antilles	1.5	Netherlands	12.8
  Netherlands	19.5	Panama	3.2
  Venezuela	21.5	Venezuela	1.2
  a Includes stockbuilding. b Excludes mineral fuels and the free zone.

  Download the numbers in Excel

  Download text file (csv format)

  March 04, 2013

• Outlook

  Aruba: Country outlook

  Aruba: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: The prime minister, Michael Eman of the center-right Arubaanse Volks Partij (AVP), will continue to enjoy widespread popular support despite a fragile economy. A weak and divided opposition will facilitate governability. In the 2013-14 forecast period the government will focus on improving relations with the private sector and with the Netherlands, although the opposition will use the latter to drum up nationalist support. The economy will remain dependent on the fate of the Valero oil refinery, which was shut down in March. In the absence of a buyer, the refinery is in the process of being converted into a refined products terminal. Because of the refinery's shutdown, the Economist Intelligence Unit has downgraded our GDP forecast to a contraction of 3.5% in 2012, followed by average growth of 3.1% in 2013-14. An uptick in tourism will be supportive of growth. The monetary authorities will keep rates low while the economy remains weak. The fixed exchange rate will help to keep inflation low in 2012, before it rises to an average of 3.8% in 2013-14. Foreign reserves rose to US$707.4m in September and are strongly supportive of the fixed peg (set at Afl1.79:US$1). The import dependence of the Valero refinery will boost import coverage while it is shut down.

  DOMESTIC POLITICS: The government, led by Mr Eman, enjoys solid popular support, but is currently facing a severely deteriorated economic environment which could erode his popularity with just one year left before the end of his term. On a more positive note, a weak and divided opposition will facilitate broad political stability and governability. The AVP, in power for the first time in a decade, currently holds a slim but stable legislative majority of 12 out of 21 seats in the Staten (parliament), which will enable Mr Eman to govern without the need to form political pacts with minority parties until late 2013, when the next election is scheduled. In the short run, the government will focus on improving relations with the Netherlands, which deteriorated sharply under the previous centre-left Movimento Electoral di Pueblo government (2001-09), and with the private sector. This will, however, come at a certain political cost, as the opposition will take advantage of these efforts in order to drum up nationalist support-many oppose the government's efforts to improve relations with the Netherlands as eroding the country's sovereignty. The country's most pressing issue remains the closure of the Valero oil refinery, which was shut down earlier in the year (the second time since 2010). The economy's excessive dependence on the Valero refinery-which was Aruba's single largest private employer, accounting for around 5% of total employment-has been compounded by an already deteriorated global outlook since the 2008-09 financial crisis. In the absence of a buyer, plans are under way to convert it into a refined products terminal (with a reduced workforce), but our baseline scenario continues to envision that the plant will be sold off eventually-Venezuela's state-run oil company, Petróleos de Venezuela, has expressed interest after earlier talks with PetroChina broke down. Aside from the refinery dilemma, the government will be broadly pro-business. Efforts to increase the efficiency and transparency of public administration and reduce the potential for corruption could help Aruba to reduce revenue dependency on tourism and the Valero refinery by promoting other sectors, such as offshore finance and sustainable energy. The government will also seek to improve the country's fiscal profile through a series of tax arrangements which have been recently negotiated with various social actors such as unions and other workers' organisations. These will involve new taxes or tax increases in certain areas, or both, as well as tax cuts in others. A special tax zone for Sint Nicolaas (Aruba's second-largest city) has also been established and will be effective in March 2013.

  INTERNATIONAL RELATIONS: The Netherlands retains political control over Aruba's diplomatic relations and defence, but commercial and economic matters are handled by the local government. After years of diplomatic setbacks, Mr Eman's administration is seeking to improve relations with the Netherlands, including setting up a new framework for aid, co-operation and increased independence in foreign policy affairs. Some progress has been made in the past year and we expect this rapprochement to continue in 2013-14. Aruba will maintain close relations with the recently established states of Curaçao and Sint Maarten (formerly part of the Netherlands Antilles) and will attempt to establish a common policy agenda with the Dutch government. Strong ties will also be maintained with the US, Aruba's most important trading partner and source of tourism revenue, with both countries also focusing on financing the fight against organised crime, human-trafficking and terrorism.

  POLICY TRENDS: Aruba's public-sector finances will once again feel the pinch from the interruption of production at the Valero refinery, which ceased operations in March 2012, just months after coming back online from an earlier shutdown. The previous interruption led to a deterioration of the fiscal deficit, to 6.5% of GDP in 2011, and hopes of it narrowing significantly have now been dashed. As a result, our baseline scenario now assumes that the deficit will reach 5.4% of GDP in 2014, given the unlikelihood that the plant will return to refining activity any time soon. There is a commitment to continue with the controversial Belasting op Bedrijfsomzetten tax (a turnover tax for businesses, originally implemented in 2007), as well as other policies intended to restrict fiscal expenditure, including a hiring freeze for public employees. The main risk to our forecast remains the status of the Valero refinery, given that output as a refined products terminal will not provide the same level of tax income. The government has partly responded to this situation by setting up a series of tax measures in the hopes of raising income in areas that were previously not taxed, as well as by promoting international business activities through tax benefits on housing and tuition. Because of the difficult fiscal situation, the government has restated its commitment to financing numerous projects focused on infrastructure, energy saving and green technology. Among these is the Aruba Development Fund, originally funded by both Aruba and the Netherlands, which the government has maintained despite the loss of financing from the Netherlands after 2011. In addition to the Valero refinery issue, Aruba's fiscal position in the medium term faces other risks, including the rising costs of public provision, social security and pensions. There are planned reforms on these matters, but failure to implement them could lead to a pronounced deterioration in the public finances. Moreover, large amortisations on debt incurred in recent years will be due from late 2012, making it more urgent to free up sufficient fiscal resources for the government to meet its repayment schedule. However, Aruba's record on debt service, access to the Dutch government for financing, and investment grade status by two major credit rating agencies are likely to be sufficient to prevent significant financing issues from emerging during the outlook period. Most of the government's maturing debt in the short term is owed in the local market, where liquidity remains high, and it will remain relatively easy for the public sector to roll over debt. A sustained higher deficit above our current forecast may, however, require the government to access international capital markets or seek additional loans from the Dutch government. The Centrale Bank van Aruba (CBA) will maintain an accommodative stance in order to support the economic recovery. However, weak monetary policy transmission mechanisms mean that the CBA will find it difficult to stimulate economic activity with the instruments at its disposal. The CBA cut its main lending rate from 3% to 1% in October 2010 and recent statements suggest that it will keep it on hold for 2013-14, owing, in part, to continued loose monetary policy in OECD countries, as well as anaemic domestic growth. The CBA will also defend Aruba's currency peg to the US dollar (set at Afl1.79:US$1), a strategy that boosts investor confidence and maintains Aruba's ability to compete in the highly congested Caribbean tourism market. Foreign reserves rose by over US$200m in September alone, to a record US$707.4m. This is over twice the pre-crisis averages of around US$300m and supportive of the fixed peg.

  ECONOMIC GROWTH: Real GDP growth has been extremely volatile in recent years, owing to a series of downturns and recoveries that have highlighted the fragility of the domestic economy in the face of external and domestic shocks. On the domestic side, the economy has been severely affected by the Valero oil refinery's two recent shutdowns. With the refinery being converted into a refined products terminal, the loss of output since March has forced us to downgrade our 2012 GDP estimate, to a contraction of 3.5% (from modest growth of 0.5% in our previous report). The likelihood that the refinery will remain operational as a terminal in 2013 has also resulted in a forecast of a weak growth of 2.3% in 2013, even though our baseline scenario envisions the refinery eventually being sold to a foreign buyer during the forecast period. On the positive side, the economy will be supported by a slight uptick in tourism and tourism-related investment in 2013 (tourism growth in Aruba in 2012 has been outpacing that of the Caribbean market as a whole). More stable global conditions and stronger domestic demand as planned investments come on stream will contribute to real GDP growth of 4% in 2014, by which time the future of the refinery is expected to be decided and some diversification of economic activity beyond the refinery is likely to have been achieved. Furthermore, although external conditions have improved in the past few months, there is a lingering risk of a pronounced deterioration in the external environment, which would again hit the labour-intensive tourism sector, which accounts for as much as one-third of total output and a significant share of total employment. In the longer term, investment in renewable energy could present an additional driver of growth. During the recent UN Conference on Sustainable Development (Rio+20), Mr Eman announced that the country would seek an eventual transition towards 100% of energy consumption based on renewables.

  EXTERNAL ACCOUNT: Aruba's external balance will improve in 2013-14, following two years in which the current-account deficit reached colossal proportions (17% of GDP in 2010 and 8.8% in 2011). We have made a significant revision to our forecast in light of the new status of the Valero refinery. Without its large import requirements (mainly crude oil), we now expect the current-account deficit to narrow to just 0.6% this year (from 6.5% in our previous forecast), after which it should widen to an average of 3% in 2013-14. Risks are to the downside, as Aruba has a high dependence on a limited number of key sectors (mainly oil and tourism), which means that the current-account balance could experience a pronounced deterioration should external conditions sour. Overall, however, Aruba's current-account deficits tend to fluctuate heavily (as is the case with most small Caribbean economies), often going from double-digit deficits to large surpluses in consecutive years. Aruba is highly dependent on tourism revenue and will continue to suffer from weak demand in 2013-14 from its main source of visitors, the US, as well as from Europe, which is burdened by an ongoing sovereign debt crisis. However, tourism growth should still manage to outpace the regional mean. In particular, the number of North American arrivals is expected to recover slightly in the medium term, as new air routes to the US and Canada are established. On the positive side, there will be an increase in visitors from Latin America, in particular Brazil and Venezuela. Meanwhile, business service exports, mainly in the financial sector, are relatively small but should make gains as Aruba improves its attractiveness as an offshore centre. In 2013-14 the services balance will register an ample surplus, helping to offset the large trade deficit and the smaller income and transfer deficits, which will average 8.1% and 4.2% of GDP, respectively. The current-account deficit will be matched by capital inflows, much of which will be in the form of direct investment to the tourism and energy sectors. Foreign reserves should show a modest build-up in 2012-13, with import coverage improving significantly while the Valero plant remains offline.

  December 18, 2012

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Country Briefing

Land area

193 sq km; Aruba lies 30 km to the north of Venezuela and 68 km west of Curaçao, outside the hurricane belt; it is 31.5 km long and 10 km across at its widest point

Population

106,698 (2009 estimate; population growth, 1.9% year on year)

Main town

Oranjestad, capital, population 33,000 (2008 estimate)

Climate

Sub-tropical

Weather in Oranjestad

Hottest month, September, 26-32°C; coldest months, January-March, 27°C (average daily minimum and maximum); driest month, June, 1 mm average rainfall; wettest months, July-August, 90-113 mm average rainfall

Language

Dutch and Papiamento; Spanish and English are also spoken

Measures

Metric system

Currency

The Aruban florin (Afl) is fixed at an exchange rate with the US dollar of Afl1.79:US$1; the US dollar is also in free circulation

Time

4 hours behind GMT

Public holidays

January 1st; GF (Betico) Croes Day (January 25th); Carnival Monday (mid- to late February; National Anthem and Flag Day (March 18th); Good Friday; Easter Monday; Queen's Day (April 30th); Labour Day (May 1st); Ascension Day (a Thursday, usually in May); December 25th-26th

March 14, 2012