REPORT #288 May 2000

Produced by the Belize Development Trust

If the Belize Dollar is worth only .03 USA cents by some calculations, in May, 2000, and the official exchange rate is $2 Belize dollars for $1 USA dollar, or a Belize dollar is officially exchanged for .50 cents USA. How does the government do this magic illusion? Is there sleight of hand, some magic trick to guaranteeing .50 cents USA for a Belize Dollar, when the economic figures say it is only worth about .03 cents USA?

Don't you always wonder what the government is really saying, when they announce those complicated balance sheets and fiscal reports? Can you figure things out more simply? We know it is only human nature for politicians to lie and put the best face on things and bureaucrats are no stranger to this phenomena either. What really is the state of the economy of Belize?

One of the ways of guaranteeing an official exchange rate, is like one of those one armed bandit gambling machines. They work on percentages. They only permit a certain amount of people to get their money exchanged. In Belize, this is done by foreign exchange permits, bank commissions and a host of rationing and control regulations by Central Bank that control the flow of foreign exchange. Sort of like the machine that will only pay out a certain number of times when you gamble.

In reality, a dollar currency, in which the exchange rate is guaranteed usually also has what they call a dollar standard. A dollar standard in Argentina currency has to have as much USA dollars in foreign reserves, equal to the amount of Argentine currency in circulation. This is not the case in Belize. In Belize, the official exchange rate is done on FAITH, like your local religion. You have to believe in the exchange rate.

If the Belize dollar official exchange rate, done on religious FAITH, were backed by a dollar standard. What really would we have economically? We know the annual government revenue runs between $280 million to $380 million Belize currency. We also know that the Foreign National Debt is somewhere between $900 million and $1200 million Belize dollars. If you take an average of $330 annual revenue and an average of foreign debt of $1050 million and add them together, we get a figure of $1380 Belizean million currency. This should then be the amount of Belizean currency in circulation. We don't know actually how much money is printed in Belize and is in circulation. But that number of $1350 million Belizean sounds fairly accurate. We also know from a recent government press release of last week, that they only have $28 million USA in reserves.

At the official rate of exchange, the actual foreign reserves should be $675 USA millions. But we only have $28 million USA, so we are not using a DOLLAR STANDARD like Argentina. Even allowing for some juggling with the figures, it is still going to come out with more Belizean money being printed and in circulation than we have backed by a Dollar Standard with foreign reserves.

Normally, we would call this inflationary. That the Belize currency is severly inflated. The only real solidity in this economic picture, is that the Belizean public believe in the Government official rate and have religious FAITH in the PUP to make good on the inflated official rate. Unfortunately, foreign lenders to the government of Belize do not have the same FAITH. They insist on being paid in foreign exchange, not in Belizean currency.

What this tells us about the economy, is that the government needs to save more foreign exchange in the reserves. Belize needs another $647 USA millions in our foreign reserves.

Hence, when the Education Department is planning a 10 year program of investing, a minor trickle of money in new schools and classroom building per year at the rate of $8 million Belize dollars annually, we don't have the money ourselves. So they borrow it from the World Bank to the tune of $80 million Bz. Why would the World Bank lend money to Belize to build schools if the money is so inflated? Well, they are going to insist that the money be paid back with interest in FOREIGN EXCHANGE. They are not interested in your Belizean currency. To make sure inflation doesn't get any worse, they are putting all kinds of strings on the loans and spending. What the World Bank does and IMF does, is figure what the GROWTH RATE is for Belize. This is why Musa and Fonseca are trumpeting in international forums that Belize has a 6% GROWTH RATE and project a 10% GROWTH RATE. If you use the GROWTH RATE as an indicator, it means the total annual government revenues are going to increase each year for the foreseeable future by that same amount. So, there will theoretically be some money to meet the interest payments, if not the principal on the loans. Of course, the kicker in all this, is you keep your fingers crossed behind your back when you sign those loan agreements. You wish and pray for no hurricanes hitting Belize during the next ten years. You pray and wish for sugar prices to go up. You pray and wish for some new industry to come into Belize to provide revenue and diversificiation. Praying is a bit like working with those one armed bandit slot machines. It's a gamble!

One interesting rough calculation is that at the current average government annual revenue, just paying back the loan money now outstanding from tax revenues as they stand right now this date of late May, 2000; it will take around 24 years and more, to pay back what we currently owe as a people, the loans the government has taken in your name.

There is also the fact, that theoretically the U.K. Will write off some loans if they fit poverty program investing. Now that our famous Peer of the Realm has fled Belize for Turks and Caicos and English politics and citizenship, the U.K. Just might give some debt forgiveness this year for fighting poverty programs. I suppose the house building can be called poverty programs, since the Belizean middle class are a lot lower than those in the U.K., for services and gadgets and comforts of an industrialized temperate zoned climate country. Anyway, poverty is what they are selling in Belmopan. Of course the U.K., poverty write offs last year on the loans we owe, were cancelled by the U.K. Supposedly, because of our fancy bi-national local bigwig investor, playing in the politics in England. So again, a little praying and keep your fingers crossed.

It is not clear if Taiwan will write off any loans, but you never know? Something could happen! Theoretically, once the mortgage scheme goes into action in a year or so, the Taiwanese loans will get met by mortgage sales to Barbados, whoever buys the secondary mortgages. So, the PUP are probably on the right track here with some of the Taiwanese loan money. The catch if any, is going to be changing Belizean currency mortgage payments into U.S. Dollars. Without adequate foreign reserves that is a nitty gritty point. It is hoped increased tourism will bring in more US dollar exchange and maybe, just maybe ,somebody in the government will actually put the money in foreign reserves and not spend it on something else. We are after all fighting inflation here. Trying to make the real value of the Belizean dollar now around .03 cents USA, actually be worth the official rate of .50 USA cents.

You will know when we have arrived as a country of stability and economic strength in the world, when the foreign reserves are more than the actual Belizean currency in circulation. When the Belizean dollar is not only actually worth the .50 USA cents, but may actually be worth more than the US dollar. Like in the Bahama's, Cayman Islands and Switzerland as examples. Then Belize will have really arrived!

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