Identifier
Created
Classification
Origin
08BRIDGETOWN726
2008-12-12 19:48:00
CONFIDENTIAL
Embassy Bridgetown
Cable title:  

ANTIGUAN AUTHORITIES BRACING FOR RECESSION

Tags:  PGOV PREL EFIN CVIS EINV OFDP PINR XL 
pdf how-to read a cable
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RR RUEHWEB

DE RUEHWN #0726/01 3471948
ZNY CCCCC ZZH
R 121948Z DEC 08
FM AMEMBASSY BRIDGETOWN
TO RUEHC/SECSTATE WASHDC 6943
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUMIAAA/HQ USSOUTHCOM J2 MIAMI FL
RUMIAAA/HQ USSOUTHCOM J5 MIAMI FL
C O N F I D E N T I A L BRIDGETOWN 000726 

SIPDIS

E.O. 12958: DECL: 12/11/2020
TAGS: PGOV PREL EFIN CVIS EINV OFDP PINR XL
SUBJECT: ANTIGUAN AUTHORITIES BRACING FOR RECESSION

C O N F I D E N T I A L BRIDGETOWN 000726

SIPDIS

E.O. 12958: DECL: 12/11/2020
TAGS: PGOV PREL EFIN CVIS EINV OFDP PINR XL
SUBJECT: ANTIGUAN AUTHORITIES BRACING FOR RECESSION


1. (C) Summary: Despite the current global economic crisis,
the Antiguan government remains bullish on tourism, and
several large tourism real estate development projects
continue to move forward. The effect of the global crisis
has yet to affect the real estate market, largely due to the
ongoing shortage of housing on the island. The conservative
nature of the offshore banking system and the preponderance
of Canadian-owned banks has shielded the country from the
worst of the global downturn. In an attempt to address
slumping growth prospects, the government unveiled a 2009
budget heavy on capital spending. Opposition party officials
blasted the projected budget deficit as an irresponsible
attempt to curry favor among voters during an election year
at the expense of the country's future economic health. End
summary.

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Tourism is Still King
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2. (C) Tourism is the fundamental driver of the Antiguan
economy. According to Permanent Secretary of Finance and
Economy Doleen Lee, government estimates indicate that
tourism is responsible for 40 percent of all employment, 85
percent of the foreign exchange, 60 percent of the nation's
GDP, and 52 percent of total investment. Despite the global
financial crisis and the ensuing world-wide recession,
Antiguan tourism authorities remain hopeful that the
country's economy will weather the storm. Although Antigua
accounts for only two percent of total Caribbean tourism,
that number has been increasing lately, Lee told EconOff in a
recent meeting. Visits were up roughly three percent in 2007
and the first half of 2008; however, bookings are off
significantly for the start of 2009. This was expected, she
noted, but no one is certain how bad things are going to get
before they get better. There is some concern among local
authorities because the rate of decline has been steep and is
only beginning to show up in the visit numbers. Antigua has

a diversified tourism economy, which caters to all segments
of the tourism trade from the ultra high-end luxury yachting
community to budget all-inclusive travelers from Europe.
Moreover, Lee added, Antigua's position as a regional air hub
provides significant air links to its source markets, which
should help the country hold up better than its regional
rivals.

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Offshore Banking and Internet Gaming
--------------


3. (C) The offshore banking industry and internet gaming
industry have grown significantly over the last 10 years and
now account for a significant portion of the national
economy, bringing in 10 percent of foreign exchange earnings,
Lestroy Stevens CEO of the Antigua Investment Authority
explained during a recent meeting with EconOff. Solid
economic growth, new laws to ease and simplify the
establishment of trusts and limited liability companies, and
an investment-friendly government make Antigua an ideal place
for foreign investment banks, captive insurance companies and
offshore gaming companies, Samuel added. After years of
lobbying by the Ministry of Finance, Antiguan internet gaming
companies were recently given "white list" status by the UK
government, which gives them the ability legally to advertise
their services there. This is a big win for the industry and
should lead to increased revenues. However, it is still not
enough to make up for the lost revenue from the United
States, Stevens commented, alluding to the internet gaming
case against the United States won by Antigua at the WTO.


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An Investor's Eye View
--------------


4. (C) Local and foreign investors remain guardedly confident
in Antigua's ability to weather the current economic
downturn. American real estate investor Bruce Baxter told
EconOff that local bankers believe Antigua has thus far not
been significantly affected by the global financial crunch.
That said, Baxter noted, the number of construction starts
and new project loans is off significantly from the previous
year. However, the limited supply of real estate product on
the local market, coupled with the conservative lending
practices of the major Canadian banks that dominate the
Antigua lending market, provides a shield against the bottom
falling out of the local market.


5. (SBU) The greatest area of concern for local bankers and
government officials is the relative strength of the Euro and
the Pound. Antigua's currency, the Eastern Caribbean Dollar,
has been pegged to the U.S. Dollar since 1976, and any
strengthening of the U.S. Dollar will alter the economics of
visits from the U.K. and Europe. This is very concerning, he
noted, as the majority of Antigua's tourists come from the UK
and Canada. Baxter and other
investors told EconOff that they have recently been
approached by multiple foreign investors seeking to invest in
tourism-related real estate projects on the Island. Of the
11 ongoing new developments and redevelopment projects, only
one has had to halt construction due to the global financial
crisis -- construction of the Hodges Bay Club had to be
halted because the Icelandic Government took over the
project's primary lender, Kaupthing, Singer and Friedlander,
and new financing is now being sought to complete the
project.

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2009 Budget Gets a Little Stimulus
--------------


6. (C) In his annual budget speech on December 1, Finance
Minister Errol Cort outlined spending priorities for the 2009
budget. In his speech, FinMin Cort announced a security
budget of 8.2 million USD, reflecting an increased emphasis
by the government on crime fighting and security. The FinMin
also highlighted the Ministry of Public Works, annual
budget, saying that it underscored the government's
commitment to provide basic services to all Antiguans. Some
commentators have questioned the government's profligate
spending plans heading into a period of revenue instability.
Embassy contacts argue that the new budget, which adds
almost 150 million USD in new debt, is merely an election
year ploy to drum up votes. (Note: New elections must be
held no later than March, 2009. End note.) However, the
Government has argued that increased spending is important at
this time to shield Antiguans from the effects of the global
financial crisis.

--------------
Comment
--------------


7. (C) While Antigua has lowered its debt ratio from 120
percent to just under 90 percent since 2005, many people
question the prudence of a micro-state such as Antigua taking
on 150 million USD in new debt in one year. The government
has argued that it is necessary given the current
macro-economic environment in order to maintain low
unemployment. By focusing much of the spending on
infrastructure investments and increasing the number of
people working for the government, their spending goals
appear to be Keynesian in nature and therefore correlate
strongly with their rhetoric. Thus, countering the
opposition's argument that the decision to run a large
deficit this year is simply election year pandering to
voters. However, as a country with a history of not paying
its debts, continued increases in national debt over the next
few budget cycles warrant close scrutiny.
HARDT