THE ECONOMY OF BELIZE HOLDS STEADY IN 2009

THE ECONOMY OF BELIZE HOLDS STEADY IN 2009

By Ray Auxillou

The economic outlook for Belize and the past year of 2008 continues firm. While tourism from the USA and Canada has dropped drastically, the losses have been replaced by oil exports. BNE the only oil company pumping oil, has increased output from three wells to seven wells. About 4500 barrels a day. The whole country now has oil exploration blocks sold out. So far, oil is mostly found in smaller pools, not in large scale lakes of oil. BNE introduced new technology to find oil and struck oil on their first drilling. The drop in world oil prices caused a slump, which was replaced by more output.
Construction is up, new homes and businesses are up. Standard of living is rising rapidly and becoming more diversified to a constantly expanding middle class. Government tax revenues from the General Sales Tax are up, showing increased economic activity from $244 million in 2007, to $251 million for 2008. There is a steady trickle of immigrants coming into Belize, mostly from the USA, as they flee that debt ridden, bureaucratic ridden country. Many are coming also for better medical services at lower costs in Belize, than available in the USA and the more desirable tropical climate.
Unemployment went down just slightly in 2008, but still is around 8%, plus a small percentage. Unemployment in Belize is a strange number in Belize, because a large part of the people are self employed, and grow their own subsistence food. Experiments over the past years, have confirmed that the two rainy season, seasonal fruits and native crops can now be supplemented by temperate zone type vegetables and grown on a bi-monthly basis, provided one irrigates with water, and selects varieties of seeds for winter crops and summer type seeds for the hot season. The ability to grow food has thus increased by 34% and perhaps higher. Hydroponic commercial greenhouse growing has shown promise and has now been practiced for five years successfully.
The overall debt of Belize inherited from the past government mistakes is now 78% of GDP. This is very large and an uncomfortable figure. Efforts are being made to reduce this debt. In the meantime, the interest payments are consuming a significant portion of annual government revenues. The foreign debt alone is 71.3% of GDP. Most of this is in the Belize Bonds. The interest rates on these bonds will increase in 2010 and again in 2012. Consuming about $100 million of a current $713 million annual revenue flow. Economic growth, or expansion is not expected to do much until the cycle swings upward again, probably in 2011. Restricting the size and cost of government has reduced services and many government departments are not doing well for public service. This is a necessary penalty to pay, in order to reduce the national debt. Should tourism resume as the North Americans sort out their own economy and settle down from their current bad news and panic ridden government, the Belize economy will continue expanding, which in turn means that the interest cost of the debt can be absorbed, probably over the next ten years. The only economic effect from the world financial panic has been a drop in our major source of overnight USA tourism, the Europeans are still traveling here.
GRANT AID from donor organizations and countries, have enabled Belize to maintain growth. The biggest donors and friends of Belize have been Venezuela and Taiwan. Lesser GRANT amounts have come for specific small projects from the U.K., the European Union, some other places and the USA.
In the past, the Belize economy had averaged a 10% rate of increase. For the past year of 2008, this figure shrank to 3.8%, in a short term, down cycle phase, but the economy of Belize is still humming along, like a well oiled machine. The economy is expected to rebound more robustly in the winter of 2010-11 when USA tourism should recover. Most of this success is due to the previous PUP government, that went on a severe austerity spending squeeze, for six long years. This cost them the election among other things. The new UDP government is now tackling re-building of infra-structure, that had been ignored for those six years.
The new UDP government is re-starting the foreign loan borrowing and has increased the seeking of needed GRANT aid, to pay for infra-structure repair and keep the economy running. The numbers for government tax revenues have risen, in comparison to population growth, to reach what we call the brink of economic and fiscal self sufficiency. As a small country with a small population, it has been difficult to grow enough to pay the necessary costs of government. This point of fiscal self sufficiency, should be reached in about five or six years, when no more foreign loans will be needed, if the current foreign loan borrowing is strictly curtailed. The challenge facing this new UDP government is to continue infra-structure building and repairs, while attempting to reduce the national debt on a slightly less than available annual government tax revenues. More GRANTS for infra-structure have to be the method of freeing tax revenues for growth. Total DEBT PAYMENT COSTS for the coming fiscal year total $170 million, versus an expected income of $717 million tax revenues. Government size and costs are being maintained with difficulty at slightly less than $500 million.
The country is getting big enough in population, to switch to an increased technical savvy, better educated, more cosmopolitan, newer generations of young people, from being an agrarian orientated society for exports, to step over into newer realms of light manufacturing. The government and the newer youth generation are seeking to understand and get immigrants and businesses started, for some sort of incubator type export orientated light manufacturing endeavors. Lacking are skills and ideas. Diversification is believed to be the key to economic stability for the future. So far, the government is busy dealing with recurring political problems and has had no time to set any policy to encourage the growth of incoming immigrant investors with light manufacturing ideas. Incentives are lacking in this field, or too cumbersome as they now operate.
Education has improved tremendously under the past PUP administration. Foremost was a switch from exporting the brain drain educated type academic students, through Commonwealth and British orientated education systems, to a newer USA style, fledgling community college type DEMAND system of educational training via short courses. This is working out very well. In fact, many of the newer generations of youth are more savvy than their USA counterparts as skilled small entrepreneurs, being self employed. They certainly are superior to the systems of education in Europe and the U.K., showing their adaptability to newer technologies and business ideas. We no longer lose our youth to an export brain drain educational system effect. They are staying in Belize and building the country and very well too, for the population size, which is around 300,000 people. Belize is a great place to live and the people are very proud of our growing success.
The public debate, the media openness, the robust and wild and wooly talk shows, newer methods of communication are more free in Belize than industrialized countries. Things you can say in Belize in open debate, or for your opinion, would put you instantly on TERRORIST, POLITICAL, or DANGEROUS FBI watch lists in the USA, or the equivalent in European countries. In many countries, you would get shot or jailed, for the free debates enjoyed by Belizean society. Belize is a far more democratic society than the industrialized countries of the world. Your opinions do not brand you, or put you in some bureaucratic pigeon hole, watch list slot, like more industrialized countries. There is a sense of freedom here in Belize, that has not been experienced in the USA, or the UK, or Germany and Israel, or the Muslim countries, for a hundred years in those foreign parts. It is great to be part of building a new nation. These are heady times in Belize for sure.
There has been tremendous growth in culture and sports on a competitive and national sports basis. There are National Band Competitions, Chess Olympiads, Math Olympiads, art shows, soccer eliminations, bicycle races, long and short distance canoe racing, horse racing, sailboat racing, wind surf racing, spear fishing competition, trophy fish competitions, mountain climbing expeditions, karate, ballet and judo competitions. The youth of today in Belize are living a FULL life to maximum potentials. Many of these things are carried into the International level. Most Belize middle class people in their 20’s and 30’s have been to foreign countries. Places like China, Europe, Africa, and the local USA, which is more or less considered a suburb of Belize and is a frequent shopping place for hard to find items for our small market. Things like cement mixers, newest computers, bed sheets of 200 count, nylon hammock making string, artist supplies and specialized machinery, both second hand used and new. The Central and South Americas are getting more Belizean tourist visits. Our newer middle class generation are young and cosmopolitan, and very well traveled. They bring back new ideas to try out in our environment.

DRAFT BELIZE BUDGET POSTPONED SPECULATION

Dean Barrow, Finance Minister and wife.
FEB 27 DRAFT BUDGET POSTPONED UNTIL AFTER TOWN BOARD ELECTIONS

It is widely believed that the DRAFT BUDGET is not very encouraging and thus in order to not effect the outcome of the TOWN BOARD elections around the Nation of Belize, which have become partisan and political party orientated, in imitation of the National Elections, the DRAFT BUDGET has been postponed, so say a new announcement by the government. The UDP wish to win the TOWN BOARD elections nationwide. It seems the proposed draft budget originally announced for Feb. 27, might have had an effect on the Town Board Elections?
Government watchers are looking at the DRAFT ANNUAL NATIONAL BUDGET keenly and expectantly. What reserves are allocated for a HURRICANE, or FLOOD disasters is a curiosity. A minimum of $150 million is expected to be held in reserve through November this year, for the unexpected environmental disasters outside of the ability of government to predict.
Another big item to watch is the National Debt to GDP ratio. The National DEBT rose during 2008 and the GDP fell during 2008, but by how much, is the question and what effect this will have on the many GDP ratios used to judge the economy of Belize? This ratio is a government management skill indicator. When it drops, the government is doing the correct things and when it rises the government is making bad mistakes. Confusing things, is the mix between the CALENDAR YEAR ending Dec. 31st and the FISCAL year which runs from APRIL to APRIL. The new UDP government has cancelled monthly, quarterly and annual calendar year reporting of economic statistics during 2008. This new UDP government has been keeping SECRET the monthly reporting of GDP ratios of the economy, used by the private sector business people, as done by the previous PUP administration. This has caused consternation and much complications in private sector bank transfers, planning for foreign exchange purchases and set asides and other re-investment factors. Private Sector planning has reverted to the old Colonial systems of uncertainties and inability to do quarterly and short term planning for lack of statistical information.
Projections for the 2008 Calendar year were about $800 million in government revenues. Due to two floods and various bulk commodity industry losses during 2008, the new estimates are about $40 million lower for government revenues, estimated at $760 million. The private sector awaits the actual figures with interest? Mainly because no change in annual revenues is expected now that a WORLD DEPRESSION is under way through 2009 and probably part of 2010. The future forecast for government revenues is expected to level off at $760 million thereabouts, annually, for the remaining 4 years of the UDP term in office. We are in a down phase of the average cycle of government revenue averages.
The cost of government is of special interest. Government will have to run around $430 million in total annually, during this world depression for 2009; so efficiencies in the budget are expected to be announced. 2010 forecasts project increased cuts in government size and spending needed. The new UDP government is not yet prepared to implement a monthly departmental grant system, tied to GST collections as a ratio, for various government departments and units. ZERO budget balancing is still but a dream under this UDP. This means a continuation of wild politically created swings in the economic projections and money management by the Finance department. The $200 million expected inputs from new foreign loan borrowing spending will keep the economy flowing for taxation revenue through 2009, but will not really foster any expansion in government size and costs. Should the UDP expand the government size and costs, then this is going to wreck any future economic projections.
The amount of government revenues and foreign exchange circulating in the system is going to put hardship on the private sector it is believed. During 2010 next year, the interest rate on the National Debt in foreign exchange is going to increase by 30%, due to a balloon payment interest schedule from 4 ¼ % to 6% interest. The actual amounts of interest and foreign exchange to be needed by the government, is of great interest to the private sector business community. This will effect private sector business decisions for 2009 through 2010 government fiscal year. What the actual interest payment amount will be is of paramount interest to the private sector, as the fallout from these payments indicate the fluidity of the foreign exchange availability on the black market, foreign exchange currency system, to pay for private sector imports. The probability is that for the balance of the next four years of the UDP term, there will be a savage tussle to control foreign exchange availability. The government to pay the political foreign debts, against the need by the private sector to keep the economy running.
Inflation figures monthly are needed and whether or not we can get these is going to be a curiosity? The danger of a DEFAULT on the foreign debt will become more clear by late April, after the final budget is reached. A first minor crisis point will be reached somewhat in 2010, but expected to escalate in 2012, to a complete DEFAULT on foreign bond obligations, or a new restructuring, to bring interest rates on the 20 year bonds down to 2% to 3% interest. An amount the country can handle. Projecting out mid term for 2010, 2011 and 2012 will thus effect private sector business expansion planning. Mostly to see if the UDP react with fiscal panic and start increased taxation in desperation. This can be counter productive. The struggle to control foreign exchange, is also going to be bigger than before, going back similar to the 2005 period.
The problem facing the new government is not tax collections, which are relatively big and efficient already, but fiscal management skills. During the world depression now unfolding, what could be glossed over as amateur night, can no longer be ignored and the level of fiscal management skills is becoming increasingly dominant and important.

BELIZE BOND HOLDERS - an offer to buy at .20 cents

BELIZE BOND HOLDERS OUTLOOK DISMAL

In the next few years, the current Belize BOND HOLDERS have a scheduled increase of 50% increase in interest payments. About two years after that, the interest rate is scheduled to BALLOON again another 100%. Belize is earning around $750 million a year, from which currently $250 million thereabouts goes to BOND HOLDERS as low interest payments on around $2 billion in BONDS. When the final interest rate BALLOONING comes into effect, ALL OF the Government Revenues would have to go to paying BOND HOLDERS their interest. The Government of Belize currently costs around $550 million a year to maintain. The Government Revenues of $750 million and in what the DAVOS economists of Switzerland predict, a deep downturn for 2009 and 2010 in the world economy, followed by a flat world economic outlook, indicate that Belize Government tax revenues are unlikely to grow very much for ten years. Therefore one can see with a $750 million revenue base for the government and over $700 million required in a few years to pay just the interest on the BELIZE BOND, something will have to give. My bet personally, is that current Belize Bond holders are going to lose their shirts.
That said; We have a request for $25,000 USA purchase of Belize Bonds by someone bid at .20 cents on the dollar. Local newspapers said the last average sale of Belize Bonds was at .32 cents on the dollar. Do any BELIZE BONDHOLDERS wish to sell this JUNK BOND? Contact Ray: Belize telephone 663 5580 if so? Perhaps we can facilitate a trade in this BOND.
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QUOTE FROM CARIBBEAN NET NEWS IN 2006

"I am happy to say we do not own any of their bonds," said Daniel Hewitt, an economist with New York-based Alliance Capital Management LP, which manages about $163 billion in fixed income securities and has about $9 billion in emerging market debt. "We sold out because we realized they were going to default."

Alliance Capital owned an "awful lot" of Belize's international bonds and sold them all earlier this year before the bond price dropped, Hewitt said.

Belize's debt represents more than 90 percent of gross domestic product. Negotiations with creditors may be difficult, according to New York-based S&P.