The global economy is an ever shifting, ever changing ‘organism’. Always changing its form and reinventing itself, it derives its power from a constantly changing source. On a smaller scale, the same can be said of Curaçao’s economy. Different factors cause the local economy to take on a different form, and the local economy needs to be constantly reinventing itself to keep abreast of global developments.
TEXT HELEN GRIFFITH
I sat down with Rinke Karman, an economist at the Curaçao Chamber of Commerce, to discuss how and why the economy changes, and the importance of collectively working towards an organized conduit of growth.
Rinke first elaborates on the unique nature of the Curaçao economy by stating that, “In the long run, the economy of Curaçao can only survive by diversifying its exports.” The dynamics of the global economy cause certain sectors to become inefficient and obsolete. If a country becomes relatively expensive, adaption takes places by means of devaluation of the currency. On a long-term basis, this determines the pattern of diversification of exports of the country. In our case, Curaçao has a fixed currency rate, whereby the guilder is tied to the U.S. dollar, therefore adaptation by devaluation is not an option. So when Curaçao’s export becomes expensive relative to foreign competitors, an important mechanism to protect against loosing production and employment while simultaneously attracting investors is to adapt by lowering wage costs. As wages adapt slowly there emerges an alternative option of stimulating diversification and innovation in the economy, especially in exporting industries.
Initiative for National Dialogue
In response to these fluctuations in the local economy, a group of representatives from the Ministry of Economic Affairs, the Labor Unions and the Chamber of Commerce (representing local business owners and employers) focused on this alternative fully recognizing that Government must play an important role in this strategy in order for it to be successful. This important initiative took place during 2015, whereby a policy of economic advice was drafted with the intention to initiate a national dialogue on collectively organizing economic growth for the Curaçao economy.
To understand the momentum for this initiative one must look back to 2013 and 2014, when there was a considerable shift in the consumption patterns of private households due to a change in government spending on healthcare. With the implementation of the new S.V.B. (Basis Ziektekosten Verzekering) program, which incurred a higher cost to households, there was a resulting decline in expenditure on other consumer goods. As a result, demand for other consumption items and services decreased due to this increase in healthcare costs. The need therefore arose for a change in economic policy in order to ease the economic shock, in an effort to shift the economic development to a different phase.
It was the intention of the government to simultaneously introduce budgetary discipline within the government and increase public investment, (specifically the new hospital), and to stimulate the economy by increasing consumer spending by the beginning of 2015. This was envisioned in order to instill a feeling of trust in the government amongst investors and to trigger additional private investment to boost the economy on a sustained higher level.
The Chamber however, foresaw a risk that this policy wasn’t enough to stimulate neither local nor foreign investment. There still remained two major obstacles that would discourage investors. The first is the inflexible labor market on the island with well-protected labor contracts and very influential labor unions. This constraint to economic growth has been diagnosed more than once in the last twenty to thirty years and seems hard to solve in the medium term. Thus, the reality is that, Curaçao, with the guilder tied to the US dollar, lacks the most important mechanism to adapt to international economic development. The second obstacle is the role of government when bottlenecks arise for private investors. The idea that was proposed during the national dialogue was to modernize economic policy and to implement an effective industrial policy.
The group initiative also advised an industrial policy that was targeted towards two largely separate groups of economic activities. Firstly, the policy should be aimed at the improvement of performance in existing industries. This is done by solving binding constraints through the assessment of specific problems within investment projects – not necessarily in pre-targeted industries – and working towards specific solutions. This would involve a gradual improvement of the capacities of industries with a relatively small amount of support from the government to qualifying investors, and would incur a small risk to government. The intention was to execute this policy on a caseby- case basis.
The second aspect of this policy was a more ambitious instrument targeted at new exporting industries. These ‘strategic investment bets’ might involve substantial financial risk and subsequent coordination of complementary public and private investments in government services, in order to meet international standards. It goes without saying that the government must do its due diligence and conduct all necessary cost analyses in order to make a rational decision on whether or not to invest in any such venture. And as such, the institutional capacity to perform due diligence must be in place.
The organization of the above industrial policy should be based on a set of principles, which should serve to build trust. To achieve this objective, private-public strategic partnerships should be the central focus of the policy. Equally important, is the transparency of the process and accessibility for all investors. At the same time, government should prioritize their efforts in order to select those private investments that deliver productivity gains in order to avoid subsidizing non-sustainable economic activity. Furthermore, government should limit its financial risk through the use of ‘sunset clauses’, whereby agreements always contain an exit strategy clause for the government to end its involvement in investment projects that fail. Although this demands a certain level of financial control, failures cannot always be avoided, and these are precisely the opportunities for us to learn from our mistakes.
Karman commented that the key to entire initiative’s success is that the characteristics of the plan need to be organic. He advised, “Start small, build and learn from your experiences, and that is what builds trust.”
The collective proposal put forth in 2015 was merely intended to trigger discussion on the need for diversification and how to organize it. Curaçao’s lack of diversification will only serve to stagnate growth and economic development. It is vital to the survival of the local economy that we as a people, adopt a mindset of diversification in order to keep up with the rapidly changing world economy. With new innovations taking place at breakneck speed, we constantly need to be reinventing ourselves in order to survive. Karman notes that many administrative jobs, especially in banks and financial institutions, will become obsolete in the next 10-15 years due to robotizing. Retail jobs also face great risk with the onslaught of online purchases. This accounts for the jobs of a very large sector of the local population. However through diversification, opportunities in technology can be the architects for re-invention in many of the existing sectors. In anticipation of this inevitable change, Curaçao must find ways to reinvent its economic drivers. And the best way to encourage new ideas on how to accomplish this is to encourage foreign investment. But in order to encourage foreign business owners to the Curaçao market, we need to incubate an attractive investment environment. Karman sums it up perfectly by saying, “The momentum to think about re-organizing industrial policy must start now.”