REPORT #395 September 2000
ECONOMY TRADE DEFICIT WIDENS AS SPENDING SOARS ON GOVERNMENT BORROW AND SPEND PROSPERITY BUBBLE!


Produced by the Belize Development Trust

The Reporter --- Page 24 --- Sunday, September 10, 2000
By Economic Correspondent
Belize's ballooning trade deficit is running at about $317 million dollars, the trade deficit for 1999 was huge, and substantially more than the already large $265 million of 1998. This compares to the $200m deficit seen on average between 1994-97. You might ask yourself what kind of problem or problems, actual or potential, does a large trade deficit present?

A country runs a merchandise trade deficit when the value of the goods it imports is greater than the value of the goods it exports. Funds flow out of the country to pay for the imported goods and services, and funds flow in to pay for the exports.

The country of Belize however, runs a surplus on the services and transfer accounts because of tourism and remittances from abroad. It is these activities that cause a net flow of f≥nds into BeIize. In 1999, these inflows were around $200m.

The broadest measure of a country's consumption of goods and services with the rest of the world, is termed the current account. A country runs a current account deficit when the value of the goods and services it imports is greater than the value of the goods and ser-vices it exports.

This means that in 1999 Belize's current account deficit was $1l7m, because the $200m surplus in services could not erase the $317 deficit in goods.

Where do the funds come from to pay for this mismatch on the current account?

They come mainly from the sale of assets to foreigners, foreign borrowings and foreign companies and individuals who bring money into Belize to invest. In 1999, these financial and capital funds coming in were unusually large, offsetting the burgeoning current account deficit. The government engineered all these massive foreign inflows; by the selling of BEL, which raised $35m, and the sale of mortgages that raised $68m in foreign receipts. These two actions accounted for almost 80% of the net inflows amounting to $130m.

Finally, tho last pieces of the picture are currency reserves or funds accumulated in the banking system from earlier international transactions. If there is a deficit on the external account even after accounting for financial and capital flows, then the country must dip into its currency reserves. Thus our reserves act as a buffer, creating liquidity for us to carry on business with the rest of the world.

However, if these reserves are overdrawn, liquidity dries up and we have what is termed as a balance of payments crisis.

However one explains the situation, it comes down to this. For the last three years, we in Belize have been living increasingly beyond our means.

And the trend seems to be one of even more excesses. We have been borrowing from or selling assets to the rest of the world to finance purchases of goods and services from other nations far in excess of what we sell to them.

That is, we are inexorably liquidating wealth created by previous generations of Belizeans and also taking on today, commitments that future generations of Belizeans will have to sacrifice to pay for.


Development Issues Editor commentary!
The above article appearing in a local newspaper is alarmist! But for as long as I can remember, Belize has run a trade deficit. There is a very large underground economy that avoids the politicians and their regulations. The black market, barter systems and other methods are used regularly in Belize. Indeed, most business people and most of the little people have to live this way. The paper work and Government regulations make it impossible to do otherwise.

This distorts the economists reporting and statistical baselines when they are trying to figure how things work in Belize. I've never seen accurate reporting out of the government in Belize yet. Either intentionally with what they do know, or in the data they compile. So much is left out, so much is political party creative accounting. Who can tell what is the truth? One thing for sure, you can't import without cash! If the people have the cash, then economic reports like this are worthless garbage.

Maybe one day our Finance Minister will actually publish a list of the international loans that our PUP government owes, with the amount of interest to be paid, and what is being paid on an annual basis. Till then, don't hold your breath! The moon is probably going to turn blue before miracles like that happen up in Belmopan. If the Minister won't go public and keeps his secrets, then what hope does any economic figures and reports have on Belize? It's all guesswork! So much for PUP party rhetoric on transparency!

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