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S&P Has Some Bad Economic News For Aruba

It isn’t often that I read about Aruba in the Wall Street Journal, but I did last week. Unfortunately, the news wasn’t good. Probably as a direct result of the IMF report I posted about recently, Standard & Poor’s(S&P) lowered its outlook on the credit-worthiness of Aruba’s government debt to negative. The rating agency cited many of the concerns that the IMF expressed, including the following:

  • The recession
  • Suspension of production at the oil refinery
  • Cut in the turnover tax

These factors are expected to add to the government’s deficit this year, and anticipated tax revenues will not cover the shortfall. S&P ratings are important because they affect a government’s ability to borrow money at low interest rates.

The news wasn’t all negative. The new government led by the Arubanse Volkspartij (AVP) which came into power in 2009 was credited with having “taken important steps to tackle weaknesses in Aruba’s civil service pension plan and medical insurance scheme,” problems the current government inherited. The report also noted that “planned new investments in tourism projects, as well as recent positive data on tourism arrivals, sustain Aruba’s long-term growth prospects.”

The report ended with this warning:

“Failure to take corrective steps to enhance government revenue sufficiently to stabilize the rising debt burden would result in a downgrade,”Mr. Mukherji added. “Success in reaching political consensus in 2011 in favor of added revenue measures–such as a possible new value added tax–would send an important signal to the market as well as potentially stabilize the government’s debt burden, preventing a downgrade.”
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