1. (SBU) Summary: The ambitious plan put forward by the
Government of St. Vincent and the Grenadines (GOSV) to expand
two of the nation's existing airports and construct a major
new international airport will rely on substantial foreign
aid and runs the risk of miring the country in debt. These
projects are to be financed through a combination of public
funds and assistance from regular international donors
Taiwan, Cuba, and Venezuela. Malaysia may also be involved
in financing and possibly managing the new airport. Should
this strategy succeed, it could elevate St. Vincent into a
major tourist destination but also add further financial
burdens to a country that was recently warned by the IMF
against taking on new public debt. End summary.



--------------------------


New Airports to Develop Tourism


--------------------------





2. (U) St. Vincent and the Grenadines plans to expand two
existing airports and construct a new international airport
in an attempt to develop its tourism sector. Like other
Eastern Caribbean island states that have witnessed the
erosion of their once agriculture-dependent economies, St.
Vincent sees its economic future in tourism rather than
bananas. Limiting the country's ability to attract more
tourists is the diminutive size of its existing airport that
cannot accommodate large jets and receives only small
regional carriers. A lack of direct flights from North
America and Europe has restricted tourist activity to those
travelers who will take the time to transit through third
countries or can afford to fly on small, private jets
directly to exclusive resorts in the Grenadine islands.



--------------------------


Improve One Airport and Build Another


--------------------------





3. (U) In the near term, the country's main airport, the
small, outdated E.T. Joshua Airport, will be improved through
the construction of a new terminal and related facilities.
Estimated at US$10 million, this project was set to begin in
June but has been delayed by the GOSV's inability to identify
a suitable contractor. The improvement of E.T Joshua Airport
is considered a temporary fix, and St. Vincent is making
preparations to construct an international airport that can
accommodate large aircraft flying directly from North America
and Europe.



4. (U) The GOSV has made some progress since August 2005,
when Prime Minister Ralph Gonsalves first announced his
intention to build Argyle International Airport at a cost of
US$180 million (ref C). The SVG International Airport
Development Company has been established and engineers
provided by the governments of Cuba and Venezuela have
reportedly studied the airport site and drawn-up preliminary
plans. Both governments have also pledged to provide
substantial in-kind construction assistance to the project.
(Note: Cuba and Venezuela are providing similar assistance
to Dominica's airport improvement project (ref B). End
note.) Mexico and Canada have reportedly expressed an
interest in assisting St. Vincent with the project as well
(ref C).



--------------------------


Asian Assistance


--------------------------





5. (U) Taiwan will give St. Vincent a US$15 million grant and
US$10 million soft loan for construction of the new
international airport, plus another US$10 million grant for
other GOSV projects, PM Gonsalves announced following his
June trip to St. Vincent's most reliable foreign donor.
While in Asia, the PM also made his second trip of the year
to Malaysia (ref A), where the Government reportedly pledged
to assist with St. Vincent's new airport. According to
Gonsalves, Malaysian Prime Minister Datuk Seri Abdullah Ahmad
Badawi agreed in principle to provide between US$10 and US$15

BRIDGETOWN 00001165 002 OF 002


million in equity to the SVG International Airport
Development Company. The leaders also discussed a proposal
to have Malaysia Airports Holdings Berhad, the company that
manages the Malaysian airports, assist with management of St.
Vincent's new international airport.



--------------------------


Exclusive Airport in Canouan


--------------------------





6. (U) The GOSV is also set to improve and expand the
existing airport on Canouan, a high-end tourist destination
in the Grenadine island chain that is the site of the
exclusive Raffles Resort and Trump Island Villas. The
management of these resorts, plus American Airlines, which
currently flies its small American Eagle planes to Canouan,
are pressing the GOSV to make the airport capable of
receiving larger planes, a Government official explained to
Poloff. In order to keep well-heeled travelers returning to
the island, the GOSV will provide US$20 million for the
project, set to begin in September 2006, with other financing
to come from the private sector.



--------------------------


IMF Warns Against Borrowing


--------------------------





7. (U) The combined cost of St. Vincent's airport projects is
currently projected to be US$220 million, more than half of
the small, economically troubled country's annual GDP. To
complicate matters, St. Vincent already has substantial
public debt. In its June 2006 report, the International
Monetary Fund (IMF) noted that increases in public
expenditure during the 1990s led to a rise in St. Vincent's
public debt from less than 50 percent of GDP in 1997 to
almost 80 percent in 2004. The IMF recommended that the GOSV
reduce public borrowing to restore fiscal balance. "The IMF
is not running this country," was the response from PM
Gonsalves.



--------------------------


How to Pay?


--------------------------





8. (U) St. Vincent's already high public debt would appear to
preclude the Government from undertaking large public works
such as the three airport projects. The GOSV claims,
however, to have a plan to finance the Argyle International
Airport that includes, in addition to relying upon foreign
assistance, selling substantial amounts of Government owned
land. This proposal has met with an outcry from many
Vincentians who fear that they will lose much of their
country to wealthy expatriates wishing to build vacation
homes. Exactly where the money will be found to improve the
existing airports is unclear, although GOSV officials
recently assured Poloff that the funds are available.



--------------------------


Comment


--------------------------





9. (SBU) If the GOSV limited itself to upgrading the existing
airports it could, with foreign assistance, potentially make
necessary improvements without incurring substantial new
debt. The ambitious plan for a new international airport may
be one airport too many for such a small country to afford
and the project could fail to get off the ground. If it does
move forward, the GOSV will need to display extraordinary
diplomatic and managerial skills to coordinate the various
forms of aid coming from several different donors.
Considering the limited capacity of the Government, a failure
to do so could ultimately be the international airport's
undoing.
KRAMER