I. R ecent E conomic D evelopments 1
1. The Netherlands Antilles has a high standard of living in regional comparison ( Figure 1 ). As is typical for small island economies, the Antilleaneconomy lacks natural resources and is very open and undiversified, relying mainly on exports of services such as tourism, international financial services, shipping, and oil refining. The islands benefited from their geographical position and their constitutional arrangement—a close link with the Netherlands—to achieve this level of well-being. The
This Selected Issues paper for the Kingdom of the Netherlands reports the Antillean economy lacks natural resources and is open and undiversified, relying mainly on exports of services such as tourism, international financial services, shipping, and oil refining. Exports and domestic consumer spending, both private and public, drove the economic recovery. Economic growth in the United States and the appreciation of the euro against the national currency contributed to the strong performance in the tourism sector.
V. labor market performance 26
96. Labor market flexibility is essential to generate sufficient employment in the Antilleaneconomy, given its narrow domestic resource base and limited diversification, which makes it particularly vulnerable to external shocks . Flexibility is all the more important since the exchange rate has been pegged to the U.S. dollar to provide nominal A05app01tab0ility, and therefore, cannot be used to absorb part of these shocks. As most small island economies, the Netherlands Antilles is heavily dependent for its economic
The past decade has witnessed a progressive weakening of the Antillean economy, and prospects for a recovery depend on reinvigorating and sustaining adjustment. There is a need for more vigorous reforms, well coordinated across governments and supported by building social consensus. Fiscal policy can support growth over the medium term by reforming the tax system and lowering the tax and administrative burden on the private sector. Continuing progress with structural reforms is critical to improve the prospects for job creation and economic growth.
Antilleaneconomy is undiversified and has suffered severely from the decline of these inflows during the past 15 years and from the high incidence of hurricanes in the 1990s. Policy adjustment has been hesitant, and the past decade has been marked by intermittent fiscal crises and attempts to adjust.
2. In concluding the last Article IV consultation discussions on June 7, 1999 (SM/99/106, 5/10/99), Executive Directors urged the authorities to take immediate deficit-reducing measures to avert an impending fiscal crisis. They commended the authorities for keeping
undermined the economy’s flexibility to adjust to adverse real shocks. Given the undiversified nature of the economy and the adherence to a fixed exchange rate regime, this turned out to be detrimental to economic growth.
2. This paper explores four policy issues which are crucial for understanding the recent performance of the Antilleaneconomy and which will need to be addressed to restore the prospect of durable economic growth:
Fiscal policy . By the mid-1990s, fiscal policy had become quite expansionary, accommodating wage pressures in the budgetary sector
2. Fiscal Policy 1986-2000
3. International Financial Sector
I. Fund Relations
II. World Bank Relations
III. Statistical Issues
IV. Selected Social Indicators
E xecutive S ummary
Background: The past decade has witnessed a progressive weakening of the Antilleaneconomy. Inadequate adjustment to declining offshore and oil refining inflows and high incidence of hurricanes in recent years have led to a prolonged recession, high unemployment, a tide of emigration, and a weakening of the financial system. The peg to the
This 2003 Article IV Consultation highlights that after a prolonged recession through the second half of the 1990s, the Netherlands Antilles economy has recently shown some important resilience. With the exchange rate pegged to the U.S. dollar, the Netherlands Antilles has enjoyed low inflation. With waning cost-push pressures related to higher energy costs and indirect tax increases, inflation has moderated to 0.5 percent in 2002. For 2003, inflation is projected to reach 2 percent in line with developments projected for the United States.
The paper provides a brief review of economic developments and policies in the Netherlands Antilles. The government’s current adjustment initiative provides a much needed opportunity for restoring growth prospects for the Netherlands Antilles. The paper has looked into issues pertaining to the development and prospects of the Antillean offshore sector. The picture emerging is one of a sector that, after initial spectacular growth, has encountered a number of obstacles. Nevertheless, it has been able to continue to register positive, albeit more moderate, growth.