Country Report Aruba June 2009

Outlook for 2009-10

An election is due in September 2009. With the economy falling into recession, the government of the prime minister, Nelson Oduber of the Movimento Electoral di Pueblo (MEP), will struggle to retain power for a third four-year term. The opposition Arubaanse Volks Partij (AVP) will seek to take electoral advantage of the worsening economic climate. Economic growth is set to turn negative in 2009 from its solid rates of recent years, as US tourism demand falls off in the context of a US recession in 2009 and only a weak recovery in 2010. The Economist Intelligence Unit forecasts a contraction of 3% this year, below the official forecast of a contraction of 1.2%. Consumer price inflation will be negative in 2009, with prices rising only modestly in 2010.

The political scene

Aruba's strained relations with the Netherlands have deteriorated further since March. The ruling MEP has sought to gain voter sympathy by emphasising its nationalist credentials in the run-up to elections. Talks in Amsterdam in March failed to diminish tensions. Further discord erupted in April when Dutch members of parliament (MPs) decided not to take part in a planned June meeting with MPs from Aruba.

Economic policy

Data from the Centrale Bank van Aruba (the Central Bank) show that tax income fell by 7.5% year on year in the first quarter of 2009. However, the fiscal accounts were supported by a more than doubling of non-tax revenue for the period with a large Afl26.9m (US$15m) grant disbursement in January helping to offset the decline in current revenue. Fiscal constraints and high public debt levels give the government little scope to implement any significant countercyclical fiscal policy.

The domestic economy

Aruba recorded barely positive real GDP growth in 2008 of 0.8% and we expect the island's economy to contract in 2009. The number of stopover visitors declined by 8% in the first quarter. Annual consumer price inflation has fallen sharply since the fourth quarter of 2008, in line with falling global commodity prices and shrinking domestic demand. In March Aruba's price index showed an annual decline in prices of 2.9% year on year.

Foreign trade and payments

A decline in tourism flows, falling demand for free-zone exports and weaker inflows from the financial services sector will keep Aruba's current-account balance firmly in deficit in 2009.

This report covers the following industry codes:
SIC Code: 10;60;70;49
NAICS Code: 212;52;72;22;11