Belize PM Insists Dollar Will Not Be Devalued

Hardbeatnews, NEW YORK, N.Y., Fri. Aug. 18, 2006: Belize Prime Minister, Said Musa, is insisting that country’s dollar will not be devalued in spite of nearly US$1 billion debt that’s owed to external creditors.

Musa, in an interview with Belize’s Love FM’s morning show, said a devaluation “does not make sense(and) it will not assist Belize in any way(but) it will put our debt burden in a an even worst position …”
The PM, whose country is also part of the CARICOM grouping, added, “Devaluation will just increase the cost of living which will make the situation worst because we are spending more on what we import than what we export.”

“So how will it help the situation?” he questioned. Musa also insisted that the country will meet its debt obligations despite being practically bankrupt. “We have never defaulted and we will continue to pay our debt so long as the cash flow allows us to,” he told the radio hosts.

The PM, facing a general election in 2008, however, agreed that his administration has to work harder in order to restore credibility. But he insists that despite all the adversity, that the People’s United Party still offers the best hope for moving the country forward.

Musa’s comments come as the international credit bureau, S&P, cut the country’s credit rating to CC, or just above default status. And as the Belize dollar stood at about 50 US cents and 39 cents on the Euro.

Exactly why you devalue....makes imports more expensive and exports cheaper....

The flip side of that is...Devaluation could stimulate the economy. Tourism/investment would increase when the word goes out that you can get more BANG for your BUCK in good ole' Belize.

Not so, BelTex, the Bze $$ is pegged at a fixed rate to the U.S. $$....all that would happen is BZE $$ prices on EVERYTHING would go "up" by exactly the percentage rate that the U.S. $$ went up with the devaluation. In U.S. dollar terms nothing would change for visitors.

Devaluation would achieve nothing except perhaps to destroy the savings of Belizeans who have their holdings in Bze $$'s.

The reason why prices will go up proportionally in case of devaluation is that most goods in Belize are imported, and paid for in foreign currency.

Also:

Belize debts are in US$. Taxes to pay back those debts are raised in BZ$.
When you devaluate the BZ$, you will increase your debt in the short term, and make the situation worse.

The problem is short term versus long term.

Need to stimulate/change the economic climate...need more exports.

Best solution personally is to plan on a devaluation, even if it doesn't happen. You'll be sorry if you hadn't when there is a devaluation.

Been there, done that.

GBZ39, not so. It would take businesses, merchants, importers and exporters in Belize about 30 minutes after the announcement of devaluation to adjust their prices accordingly. There would be NO stimulous to the economy because all that would happen is exports would cost the same in U.S. dollars (which is the effective currency of Belize due the pegged rate).

In fact, devaluation would cause a downturn in the economy...Belizeans with savings in Belize dollars would find their net worth severely dented and would "tighten their belts" in order to survive.

Although I do agree, plan for it, get your holdings in U.S. dollars, real estate etc....don't hold huge sums of Belize dollars.

The bright side of this is when the economic crisis happens, and it will happen, is the country will be forced to go to a currency that is accepted internationally. Yes, this will be a huge hardship on the people of Belize who have savings in Belize dollars. But, once the country has a currency that is actually worth something to people outside of Belize, it will stimulate foreign investment. Investment that will generate additional exports thru the products that Belize produces. Dollars brought in from tourism will have the incentive to remain in Belize as opposed to being used only to purchase items for import or be stashed in foreign banks
The only thing that would prevent the collapse of the Belize economy would have been fiscal reforms that were needed long ago. Now the corrupt and inefficient government has drained the country of assets needed to accomplish this. Now they are attempting a last resort effort to gain additional revenues thru added taxes. That is only going to make matters worse and depress the incentive for investment, trade and increase the costs to vacation in Belize thus bringing in less money thru tourism.
The bottom line is that the Belize people will have to suffer substantially before the needed reforms can become effective. If the needed fiscal policies were initiated that would have prevented a crisis, the Belize people would have had to suffer thru those. A “tightening of the belt” would have effected everyone. Unfortunately it is too late for that. A total collapse, or in other words, the country going bankrupt is inevitable.
The real important question is, Will the people be able to find and elect competent people to run the country and lead it to prosperity after the collapse?

If a devaluation...there will be price controls and a restriction on buying foreign currency to pay for imports.

Short term will be very hard on the local economy during conversion to an export mode.

International monetary stuff is over my head. But,if the $1BZE is at .50USD, Why wouldn't I pay the bank charges to purchase BZE before I come down? Beats the hell out of using a cc, then paying a conversion surcharge. Yeah, I know I'm limited to what, $5000 in BZE on entry? But didn't I just save $2500 on my vacation?