From Lan:

CURRENCY SITUATION WORSENS: Belize's currency crisis appears to be getting
worse. The demand for U.S. dollars in Belize exceeds the supply, resulting in
a weakening Belize dollar and concern among business owners that they will
not be able to get U.S. currency to pay for imported items or for freight
costs. There is renewed talk of devaluation of the Belize dollar which has
been pegged to the U.S. dollar at 2 to 1 for many years.


In the last week of January, reportedly Continental Airlines and several sea
shipping companies have complained to the Belize government that the shortage
of U.S. dollars is hurting business. Some freight and shipping companies will
now accept payment only in U.S. dollars. Belize businesses face difficulty in
finding Belize dollars, however.


On the gray market in Belize and border areas, currency traders are giving up
to 2.30 to 2.40 Belize dollars for 1 U.S. dollar. Unconfirmed reports are
that wealthier Belizeans who cannot convert their Belize dollars to hard
currency are buying real estate, believing that the value of Belize property
will track the value of the U.S. dollars, regardless of any declines in the
value of the Belize dollar.


The Belize government seemingly has no clear plan to resolve the crisis. It
has announced only that it will license casas de cambio, or currency exchange
offices, to control the currency flows. Representatives of Belize's Central
Bank, who occupy one of the fanciest new buildings in all of Belize, say that
not all sectors of the Belize economy will have equal access to U.S. dollars.
Those businesses involved in earning hard foreign currency may find it easier
to legally get U.S. dollars than those more involved in "mere consumption,"
in the words of Central Bank Governor Keith Arnold.


The government also has asked hotel operators, a major source of hard
currency receipts in Belize, to report monthly on foreign currency income.


So far, the currency exchange problem has not affected tourists directly.
Hotels, tour operators and others in the tourist industry continue to do
business at the 2 to 1 rate. Thanks to imported products already in the
pipeline, the shelves at most retail shops are well-stocked. Most visitors to
Belize are unaware of the crisis.

I would not imagine that there would be an immediate impact on tourism. In fact, if devaluation or devaluation/dollarization were
to come about it would create an immediate boom to the economy of Belize in increased tourism.

How many times have we read tourists posts to the Belize boards that complain that the costs were too high or that the costs in Belize are the highest in the caribbean???

Many of our posts in reply to tourists questions admit that the prices are "somewhat higher" than other places in the Caribbean.

Since the tourist dollar (USD) is of such value to the economy and provides the currency for importation of needed goods why in the world doesn't the government take some action to reverse the situation.

If a collapse of the BZD is really in the cards I think it would be a sin for the government not to take the necessary actions to prevent this failure....does Belize we want to look like Argentina and be known as a failure??

I am sure that it is a difficult situation to master but the Belize Governemnt can contact the IMF at ANY TIME to request an immediate consultation...I realize that some people in government don't like the IMF because of their demanding ways but THEY ARE THE EXPERTS. They work with these types of matters on a daily basis and they have the finances to back their recommendations.

bywarren

Thanks for posting the link to the article which pegged the Belize Dollar at 0.03 cents.

However, the link does not work. Could you repost??? Thanks

Bobby I have to disagree with you there.

The IMF is known for promoting mega-projects (like the Challillo Dam)in developing countries, funded by debt, and then imposing "austerity" programs on the countries so they can pay back the debt. The big capital-intensive programs the IMF likes usually have little relevance to the real economy of ordinary people, but they provide big contracts for multi nationals like Bechtel and these corporations show their gratitude by spreading mordida among the government honchos.

But it is the middle class and poor who pay the tab when the loans for these projects come due and "austerity" (meaning cut all human capital investment programs, like education and health care) spending regimes are put in place.

Better to refrain from incurring massive debt for large capital projects (like the dam) and instead, avoid debt. The best investments for developing countries are small micro enterprises, low interest loans to cooperative and small enterprises that will help communities become self sufficient.

IMF = big boondoggles = big debt = gifts of public funds to corrupt governments and their multi-national corporate buddies = kick in the ass to the middle class and poor.

In my opinion, the Belizean people would do well to force its government to stop
borrowing money to build boondoggles,cut duties and confiscatory taxes, end all
utility and other monopolies, and replace party dictatorship rule with real representative democracy, with local control over decision making and local say in how $$
is spent, replace "minister's discretion" with the rule of law (with strict conflict of interest laws).

More than taking orders from the IMF, I think these things would ease the financial crisis both in the short and the long run and build a stabler and fairer economy.

Susan

You may well be right that the IMF is not the right answer BUT....if the guys who are supposed to be the experts in solving world financial crisis cannot be depended on WHO CAN.

In my optimism and perhaps ignorance I guessed that the pro's would be the answer.

BUT, is there anyone in the Belize Government (Central Bank) who has the experience and cujone's (?) necessary to take the economy by the hand and lead it out of its pending doom??? The stabs at answers we have seen so far tell me that the answer to that question is negative.

And even if there were such a person / persons do you think that they could go and do their thing without interference from others, both government and non-government ??

I think not.

The situation being what it is has far too short a fuse. Any actions that can be taken will probably be too late anyway regardless of whether or not the IMF is invited.

It is going to hurt the lower and middle income families much worse than any of us and I truly feel for them but something has to happen one way or another and we are powerless to prevent it.

Sorry, Divein. I forgot to put the .com in Try www.ambergriscaye.com/bzlibrary/trust287.html As Lan mentioned, this is just one persons opinion based on his theories of valuing one currency against another. I have not checked the accuracy of the figures he quotes, but based on his theory, he makes some valid points. I don't think he goes far enough in discussing in a more positive way what options Belize has to help overcome this problem. A number of people have mentioned some of the things Belize could do if the Government were so inclined. Without going into the whole list, I would offer one example that I think shows the problem and exposes the flaws in their thinking. The banking system charges a prime rate of 14.5% and the normal lending rate to individuals is around 16%. These kind of rates allow the main banker, Lord Aschroft, to fly in and out of the country in his private jet and be descirbed as a "billionair" while preventing the kind of ecomomic growth ie. buying homes that are needed by much of the people thus employing carpenters, electricians and plumbers. In other words, creating economic growth from within the country where the people earn and spend their money in Belize. Much of the tourism dollar also creates the need for construction and service jobs, but in too many cases the monies generated from that does not stay in the country. It goes to purchase goods from outside the country thus creating this shortage of US funds and in too many cases the profits from tourism are not retained and circulated in the country but, are sent out of the country to the foreign owned companies. Now, don't get all over me as being opposed to tourism. Tourism is good. But, a country needs diversification. Especially when it creates growth from within utilizing the countries internal assets.

In my opinion, the IMF is a tool used by the rich to bail themselves out of bad investments in foriegn countries and to steal the wealth from smaller less powerful countries. If the IMF were to get involved with Belize, it would be because some people see something to be gained by holding power over Belize. If the IMF gave them a loan, it would just be another loan that Belize can not pay back. The IMF would hold the loan over Belize using it to force the Belizean government to serve their cause.

There is no easy fix for a economy that has spent more than it makes for too long. Fixing an economy that has taken on too much debt requires making immediate sacrifices that in the long term are rewarded.

Unfortunately, it is political suicide for a politician to force his/her constituents to sacrifice for the future. Thus, the politicians typically put a patch on the economy instead of fixing it. The patch only delays and worsens the inevitable, but the citizens remain content and politics can continue as usual at least for a time...

The way to really fix an economy is the same way one would fix their own finances if they got into debt trouble -- spend less than you make and use the difference to pay down your debts. Typically this is not a politically viable solution. So most governments continue spend and grow and accumulate debt until as in the case of Argentina they dramatically implode.

An email from Jorge Varela, to the Belize Culture listserv this morning....

Belize Economy

All the ranting and raving about devaluation in the media and even more so on the Belize Culture list has prompted me to make a few comments.

First, the call for intervention by the IMF in Belize's affair is foolhardy. The IMF has proven time and again that the measures they recommend (usually increased debt and social programs) to the recipient country has proven nothing but fatal. A good case in point is Argentina. Argentina followed the IMF's every dictum to the letter for over 3 years finally ending in the fiasco they are in today. The IMF has never "saved" a country's economy! Look it up folks.

Second, the floating dollar has always existed. The black market is the true measure of the value of the Belize dollar. The perceived worth is the reality, as it has been in the U.S. ever since they came off the gold standard. The perception of the value of the U.S. dollar being greater than it has historically been was caused by the Government of Belize. How? The Government of Belize needs more U.S. dollars to pay the debt of the country. A debt, which has doubled in three years thanks to the free spending of the current administration. The concept was simple and historically functional - borrow, spend, wait for the loans to be forgiven and repeat. But this time the loans were not forgiven yet the cycle was repeated. Some of the debt was not forgiven due in part to politics in the U.K. and Belize's association with Lord Michael Ashcroft. Mr. Ashcroft's political opponents in the U.K. refused to forgive Belize's loans because in their minds it was feeding their opponents political and personal war chest.

In a desperate act to increase the amount of U.S. dollars in the Belize Treasury, the government called on the people to save U.S. dollars by buying at home and to deposit what US dollar they receive in the bank. This was the fatal and foolish mistake since the bulk of the items on the shelves are not Belizean and in reality required the retailer to obtain U.S. dollar from the Belize Treasury. The marketing should have focused on Belizean products instead, highlighting items that were of Belizean manufacture or produce. Marketing in that way would have increased the purchase of Belizean products and reduced the money spent on U.S. dollar goods while at the same time improving consumer confidence in the economy. There also would have been an increase in revenues because of the sales tax on goods.

Regardless, the people's perception changed based on what GOB was telling them - therefore, the U.S. dollar became more valuable. Although the U.S. dollars circulating on the streets is almost as much as prior years, the perception is changing and the reality of devaluation in the streets, the real market, is setting in.

That the country is experiencing a shortage of U.S. dollars is true. That it was caused by the current administration is undeniable. To think that it is unreversable in the short term is ignorant.

Has there been less dollars than in previous years? No official survey can be taken as the black market does not track such numbers but deductive reasoning can partially answer the question. If tourism has declined only slightly and sugar has increased or at worst stabilized, then it follows that the dollar on the street likewise has declined slightly. But the hoarding of U.S. dollars in response to the governments marketing is exacerbating the problem of shortage of U.S. dollars. The review of the effects of the U.S. dollars in three major business segments - tourism, sugar, and retail - will help to shed further light on this discussion.

The tourism industry has seen a small slow down in business following the terrorists attack in the U.S. but there was a favorable last minute turn out over the Christmas and New Years holiday. Bookings for the month of January were down for most operators with visitors being mostly Europeans who traditionally have been more conservative in their spending than Americans. Overall the tourism industry takes in the bulk of U.S. dollars and spends the least. The slow down may cause some reduction in dollars on the streets and in the Treasury but it should be minimal. Tourism should fare well if the government does nothing to affect it - meaning, no increase in gas taxes, sales tax, tourist tax, etc. GOB has already shown their willingness to tax their most lucrative industry by increasing taxes to certain tourist attractions, the logic being that tourists will not complain. GOB needs to do the exact opposite and reduce taxes to make travel to and in Belize cheaper in order to increase the influx of U.S. dollars.

The sugar industry over the last 12 months has faired well compared to the previous three years due in large part to the increase of the sugar importation quota of the U.S. This has brought some relief to farmers but many are struggling to reduce the debt that they amassed trying to survive over the last three years. GOB has basically ignored the problems of the farmers and that seems to have helped - better they leave it alone instead of attempting to tax it or manage it into success. The U.S. dollar is important to the sugar industry because much of the fertilizer and equipment bought by the farmers come from the U.S. or from countries that require payment in U.S. dollars. The sugar industry generated sufficient U.S. income to pay for its needs with sufficient "change" left over to be sent to the coffers of the Belize Treasury. All GOB needs to do to improve the sugar industry is to find other markets and uses for sugar cane. The use of bagasse as an energy source is one example of such market and it serves a dual purpose by reducing the country's need for more U.S. dollars to purchase fossil fuel or electricity from Mexico. GOB should take its' blinders off - the foreign owners of the electric utility sees no need for bagasse because it reduces their claim to the need of more U.S. dollars which is never entirely spent on the purchase of fossil fuel or electricity but instead it is paid to the foreign parent company as a dividend.

The retail industry is being hit the hardest because most of the goods on their shelves are foreign and most are from the U.S. or are bought through the U.S. requiring payment in U.S. dollars. The retail industry has traditionally depended on the Belize Treasury for its U.S. dollars with the black market serving only as a means to obtain discounted funds. That has changed - the black market is now the primary source of U.S. dollars and the Treasury merely a last, futile resort. GOB has brought the country full circle by saying buy local. Consumers will have to buy local if the dollars do not exist to buy elsewhere. This normally is not a bad thing as farmers will need only compete with limited products from the international market and local farmers will be able to produce more profits. But farmers will need some U.S. dollars to purchase fertilizer and farming equipment. Of course, if the farmers don't have the U.S. dollars from the Treasury or has to pay a premium for the U.S. dollar the supply of local produce will dwindle. This could lead to dire straits.

The Government of Belize, in a few words, is killing its own economy.

So what should Belize do? Is the privatization of government assets the answer? That appears to be the belief of the current administration. The person in control, Mr. Ralph Fonseca, has stated in not so few words that by bridging the short term debt obligations by privatization, that the economy will eventually emerge in some master plan.One can only guess at what that plan is since at this time he has failed to share it with the people, and apparently even others in his administration. Hopefully it is not to passively wait for debt forgiveness. To bridge the gap until his master plan kicks in he's selling the country's assets. (In the case of the postal service he has chosen to increase rates so as to increase the selling price causing the citizens double pains). Privatization is not a bad thing but the terms of such privatization can sometimes hurt more than it can help. The Government of Belize has proven time and again that they have negotiated contracts that hurt instead of help the country often leaving its citizens to wonder if perhaps the politicians in power at the time may not have benefited personally from the privatization.

Obviously, privatization is not the long term answer. Mr. Fonseca's other idea, Money Exchanges, is equally futile. What does he hope to accomplish, a deposit of the U.S. dollar cash in the Treasury? Does anyone really expect these people to put money in a bank they can't control. NOT! Maybe it's a means to tax the money changers and increase income - but at what cost? There must be legislation, administrators, etc. hired to monitor this process. This is foolish - it solves nothing and increases cost of government.

To solve the problem the country must reduce debt but it needs to do so without increasing taxes which would definitely send the country into a tailspin. It needs to curb spending and lobby foreign governments not for more loans but for a market for our products which in the long term is more profitable. It needs to create bilateral agreements and encourage foreign manufactures to base their plants in Belize so that Belizeans will benefit not only from jobs but also in a reduction of cost on products used daily and of course a reduction in need for foreign dollars to pay for the goods that used to be imported. It needs to reign in the foreign held corporations which pilfer the people of what is rightfully theirs. It needs to cease monopolies across the board but especially in telecommunications which is not only a drain of US dollars but a detriment to the economy. Two monopolistic telecommunication companies does not a free market make.

GOB, more than nothing else, needs to stop allowing the likes of Mr. Ashcroft from unscrupulously taking U.S. dollars out of the country. We need to police the covert banking activities of the multinational organizations that keep abusing of the country's goodwill. We need to police the politicians who pilfer the country. We need to prosecute corrupt politicians to the full extent of the law.

Not to say that Mr. Ashcroft isn't himself concerned about the economy - he has been spending considerable amount of time in the country as evidenced by his personal jet sitting at the International Airport. But the question must be asked of Mr. Ashcroft, "Are you here to ensure that your business interests and therefore the economy remain intact or are you merely here to pilfer what remains of a fragile economy?" As the largest individual shareholder of both the largest bank and the largest non-banking business in the country, Mr. Ashcroft holds one of the keys to the country's success and thereby even more personal financial success. However he does not have the only key and actions by GOB could in essence exclude Mr. Ashcroft from further success in Belize. These are interesting times, especially for Mr. Ashcroft.

Jorge I. Varela

another comment on the culture group, followed by jorge's response...

That is all very nice but where does the money come from today and tomorrow,
if the Belize Government is using most of the hard currency to pay their
debts and everybody is stacking the US under the bed, where is the US coming
from to pay for the Imports. Most of the black market on the border is to
buy US for BH spend (like in Chetumal and Melchor) to buy Pesos and
Quetzales, if you stop that, who wants to take BH? Everybody will need to
have US to buy, so the demand for BH will decrease. If they buy in Belize
instead, the goods need to be paid for in US as well.
Devaluation is not an option because it will not resolve the shortage of US
and prices will raise in proportion, hitting all salary recipients, making
them poor.
The government needs money, must earn US $, they have sold what they can,
and now what.....the problem is getting worse, but you still have to resolve
it, many of the comments I read are interesting and the critiques right,
but it will not resolve the problem, it is obvious that big mistakes have
been and are made, but you still have to resolve the problem or Belize as a
country and the majority of Belizeans will suffer.
The government must learn to spent less. The country needs money for the
Centralbank to stabilize the exchange rate, you can only get money from the
ones who have some like the IMF and other financial institutions or Mr
Ashcroft and many other businessmen, so I think it is a bad moment to enter
in conflict with them.
Saludos Marco


From Jorge:
Marco,


Basically your post agrees with my statements:
1. Asking consumers to buy local achieves nothing.
2. Devaluation is not an option, although the black market defines the value so this in reality is out of the direct control of the government.
3. Casas de cambios serve no purpose.
4. The government needs US dollars.
5. The government spends too much and is the cause of the problem.


Where we defer is in the assumption that the solution lies completely out of GOB's control and instead in the hands of the IMF, or Mr. Ashcroft, or some other organization or individual. With those solutions you are merely digging yourself into a deeper hole of debt or reduction of assets. Remember that the IMF will lend you money with conditions on spending and Mr. Ashcroft does nothing for free (and rightfully so). GOB needs to both borrow and spend LESS, not more. There is a way to get out of this mess with no (or extremely little) increase in national debt.


GOB should be working with the creditors to defer payment for 12 to 18 months in order to leave the US dollars it receives in its Treasury for use by businesses. It is much better for the creditor to accept the deferment than default. If GOB can show a workable plan, most creditors will accept the deferral as it will earn them more dollars in the long term. Deferral is a lot easier than one would think and since the dollar is not floated, it would cause no great harm to its value except in the international monetary community. Such a plan, by the way, should include no further borrowing until such time as the debt is reduced by one half. Why one half? Simple, history has shown that given our GDP we can sustain a national debt of one half of where it currently stands with little to no effect on the value of the Belize dollar in relation to foreign dollars.


Next, eliminate even the talk of devaluation or shortage of US dollars by the administration. Remember, perception is reality. Instead, allow retailers free access to the U.S. dollars that was flowing to the creditors. I know this flies in the face of what IMF and what simple logic will suggest but the reality is that by flooding the market with US dollars we make the value of the US dollar weaker - it is readily available. What happens then, the hoarding slows then eventually stops, no need to hoard US dollars. The U.S. dollar starts flowing, people start spending, the economy starts to move.


We still have the problem of the national debt and excessive spending but this buys us short term relief and stops the problem from escalating. Now we can focus on the long term scenario - increased output. My suggestions in the previous brief included a summary of ideas that would help both the tourism and sugar industries, the two greatest producers of foreign income to the country.

Jorge I. Varela

From Jorge...

Took a pop over to the message board to see what the discussion was about. The gentleman that quoted the $.03 effective exchange rate may have misread the IMF document. In 1999 the effective exchange rate decreased .03 percent. Nowhere in the 2001 Article IV Consultation does the IMF state the real exchange rate as being .03. The real exchange rate is what the black market is paying - which according to my personal experience is $2.18BZ/$1.00US for US cash in large bills ($50 or $100) and $2.10BZ/$1.00US for US checks. On San Pedro you are more likely to get $2.12BZ/$1.00US for US cash and $2.04BZ/$1.00US for checks.


BTW, it's not 2.13


Jorge Varela

[This message has been edited by Marty (edited 01-30-2002).]