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PostPosted: Wed Oct 08, 2008 7:18 pm 
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Economic Situation Under Control, No Panic Yet


October 8th 2008, Aruba.


Image
Palm Beach's skyline in the background at sunrise,
Aruba's main tourism corridor


ORANJESTAD-The Aruban economy is beginning to
feel the affects of the credit crisis. Restaurants are
complaining that their guests are spending on
average less money on dinner than previously. Many
guests are only paying for appetizers and are skipping
the main course. In addition, many hotels have
started to lower their room rates.

The number of arrivals to Aruba remains steady, at
least for the remaining months of the year. That is
because Americans traditionally book their travels far
in advance in so to take advantage of good deals.
That is not true for other markets such as that of
Brazil. Stay-over arrivals from Brazil fell by 20 percent
during the summer, and this attributed to the credit
crisis. Many wealthy Brazilians have lost some or
most of their money in the stock exchange.

Most Americans arriving in the following months have
booked their travels prior to the worsening credit
crisis. An expected sharp drop in arrivals is therefore
not expected in Aruba in the short run. However
tourists will spend less money in the economy once
they are on the island.

Local economist, Ben Marapin says that Aruba should
be prepared for what is to be a likely economic
recession in 2009. The Minister of Finance, Nilo Swaen
has also expressed concern of a recession for next
year. The Aruban economy is largely dependent on
tourism, having tourists spending substantially less
money on services and goods provided will lead to a
contraction of the island's Gross Domestic Product
(GDP). The last economic recession in Aruba was in
2002 as a direct result of the September 11th terrorist
attacks on the United States.

Government investments on projects such as the
infrastructure, in addition to maintaining or increasing
the purchasing power of the population could soften
the recession or even lead to a light economic growth
in 2009.

The introduction of the turn-over tax on January 1st
2007 and the skyrocketing rise in the price for a barrel
of oil lead to a substantial increase in the island's
inflation rate, approaching 10 percent per year. The
decline of oil prices in recent months, in combination
with a decline in consumer and tourist spending lead
to a stagnant consumer price index for the last three
months. Aruba could experience deflation in the next
months, says Marapin.


Prices will adjust according to demand, reason why
many hotels have lowered their room rates to at least
break even. In addition, many consumer products
have become cheaper in recent months, says Marapin.
It is very likely hotels will adjust their room rates
even lower if tourism demand for Aruba lowers
substantially. The longer the credit crisis lasts the
greater the chances are for less demand to travel.


With the decline in economic activity, comes a rise in
the unemployment rate. The unemployment rate in
Aruba is very low, practically non existent. That may
change if hotels begin to lay-over employees as a
consequence of consecutive months of low to very low
occupancy rates. Usually immigrants on a permit will
be the hardest hit group, as they are the first to get
lay-over. The island's labor laws strongly favor and
protect Aruban nationals over immigrants with a
temporary working permit.













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