Journal Issue

Kingdom of the Netherlands

International Monetary Fund
Published Date:
March 2006
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I. Recent Economic Developments1

A. Introduction

1. The Netherlands Antilles has a high standard of living in regional comparison (Figure 1). As is typical for small island economies, the Antillean economy lacks natural resources and is very open and undiversified, relying mainly on exports of services such as tourism, international financial services, shipping, and oil refining. The islands benefited from their geographical position and their constitutional arrangement—a close link with the Netherlands—to achieve this level of well-being. The establishment of the oil refinery and of the international financial center can be attributed to Curaçao’s geographical location and political and legal stability in the Netherlands Antilles. These two industries have provided the islands with a substantial source of income.

Figure 1.Netherlands Antilles: Regional Perspective

(Average, 1995-2004)
(Average, 1995-2004)
(Average, 1995-2004)

Source: IMF, WEO.

Country Code: Netherlands Antilles=ANT, Antigua & Barbuda=ANB, Bahamas=BAH, Barbados=BAR, Belize=BLZ, Dominica=DOM, Grenada=GRE, Guyana=GUY, Haiti=HAI, Jamaica=JAM, St. Kitts and Nevis=SKN, St. Lucia=SLU, St. Vincent and the Grenadines=SVG, Suriname=SUR, Trinidad & Tobago=TAT, Venezuela=VEN.

2. In 1985, however, both activities shrunk, leading to persistent fiscal imbalances and high unemployment. Following the repeal of the tax treaty with the United States in 1985,2 the international financial sector has been in structural decline, and both tax and foreign exchange revenues from this sector have declined. Royal Dutch Shell closed its operations on Curaçao in 1985 and sold the refinery for a symbolic amount to the island government. The refinery was the main provider of jobs on the island, and to avoid a major increase in unemployment, the government signed a lease contract with the Venezuelan-owned oil company, PDVSA. Public finances have not adjusted completely to the structural decline in revenues stemming from the closure of the Shell refinery and the reduced importance of international financial services. In the 1990s, the central and island governments made two attempts at fiscal consolidation under programs designed with the assistance of Fund staff. Both attempts went off track due to lack of political commitment and financing constraints.

3. This paper provides a brief review of the economic developments and policies over the period 2000–05.

B. Production, Prices, and Labor Market Development

4. After a prolonged recession, the economy recovered, albeit slowly and with relative volatility. Between 2000–05, GDP growth was supported particularly by buoyant tourism activity, as reflected by increased added value in the hotel and restaurant sector and the retail trade sector (Statistical Appendix Table 1). The low rate of inflation also contributed to a favorable economic environment. Amid the slow economic recovery, unemployment remained high due to labor market rigidities. At the same time, there was an increasing net inflow of workers. Prospects for sustained higher growth in the medium term look favorable in the light of the investment projects in the tourism sector.

5. An improved world economy was conducive to the recent economic growth. Exports and domestic consumer spending—both private and public—drove the economic recovery. Economic growth in the United States and the appreciation of the euro against the national currency contributed to the strong performance in the tourism sector. However, regional instability and the closure of the national airline had a negative impact on the manufacturing (oil refinery) and the transportation sectors. Increased demand—given the lack of natural resources, the openness, and size of the economy—led to a substantial expansion in goods and services imports. Investment remained lackluster amidst increasing uncertainty linked to deteriorating public finances and unresolved issues surrounding the breakup of the federation of the Netherlands Antilles.

6. Despite the hike in oil prices, the underlying rate of inflation in the Netherlands Antilles has remained low (Figure 2). The fixed exchange rate against the U.S. dollar helped anchor inflation expectation. In addition, the government has absorbed a large part of the oil price increase. At the end of 2005, the island government of Curaçao established an energy fund to absorb further increases in the oil price. This fund was financed by the island government and the oil distribution company, CUROIL. The gradual phasing-out of economic levies in compliance with the WTO also kept the rate of consumer price inflation low.

Figure 2.Netherlands Antilles: Consumer Price Inflation, 1991-2005 1/

Sources: Data provided by the authorities; and IMF, WEO.

1/ Projections in 2005.

7. Job creation has remained weak against the increased net influx of migrants. The rate of unemployment has been fluctuating around 15 percent, and preliminary data indicate that it increased to 16.3 percent in 2005 (Statistical Appendix Table 2). In line with the economic recovery, job creation went up during this period, but not enough to accommodate for population growth. The latter has been largely the result of the turnaround in net migration. Employers’ organizations view persistent labor market rigidities as having hindered job creation. The average wage per worker has decreased in real terms, which may be the result of the increased influx of low-skilled immigrant workers from the region. There is no data on total amount of hours worked, but productivity measured by production per worker has been fluctuating without a clear trend.

8. Economic prospects look favorable in the medium term. The prospects are largely determined by ongoing infrastructure investments—the upgrading of the airports on Curaçao and St. Maarten—and large-scale investment projects in the tourism sector on both islands. The arrival of American chain hotels will expand the hotel capacity and also attract more American visitors. Some American airlines starting regular flight connections with the United States will also bring more tourists from this market to the island of Curaçao. A new tax treaty with the Netherlands is expected to contain the decline in the international financial sector.3

C. Public Finance

9. Expenditures on goods and services increased, partly driven by health care costs (Statistical Appendix Tables 35). In addition, substantial interest payments have risen as a result of the formalization of arrears and of back payments of interest due on Dutch development loans. Personnel spending increased as the payment of pension premiums to the civil servant pension fund was regularized, the wage freeze ended, and additional staff was hired.

10. Government revenues in percent of GDP have remained practically unchanged. In line with the economic recovery, taxes on goods and services recovered strongly after a reorganization of the tax administration led to a decline in tax collection in 2001. Direct tax revenues as percent of GDP have been growing. In 2001 and 2002, there were exceptional increases in direct tax revenues due to considerable efforts to clear backlogs and technical assistance from the Netherlands for the tax auditing office. In contrast, taxes on international transactions have been declining as percentage of GDP due to the gradual phasing-out of economic levies. Two large transfers of dividend tax from the international financial sector by the Dutch government contributed substantially to government revenues growth, in particular in 2005. These large swings in dividend tax transfers result from international financial companies liquidating their assets in the Netherlands Antilles and transferring these to the Netherlands.

11. The authorities revised the tax system with the intention of boosting households’ disposable income and economic growth. At the beginning of 2005, the authorities reduced the marginal tax rate by 6.4 percent, the first phase of a 12.4 percent reduction in income tax rate. The next phase of the tax reduction will be implemented in 2006. The impact of the 2005 tax reduction will be felt in 2006, when the income taxes for 2005 become due. The authorities estimate the impact of this reduction to be about 1 percent of GDP.

12. Financing of the large deficits was not a major problem thanks to the excessive liquidity in domestic financial market. Unfavorable conditions in the international financial markets, in particular the low U.S. interest rates and the bursting of the equity bubble in the United States, led to a large repatriation of maturing investment abroad by local institutional investors. Given the excess liquidity in the domestic market, the governments could borrow at a relatively low rate. The outstanding stock of public debt increased to 85.7 percent of GDP in 2005, up from 64.2 percent in 2000 (Statistical Appendix Tables 37). Large part of this accumulation of debt—approximately 15 percent of GDP—is accounted for by arrears with, among others, the pension fund (APNA) and the public health insurance company (SVB) into long-term marketable bonds (Figure 3).4 The deficit financing accounted for the remaining 7 percent of GDP.

Figure 3.Netherlands Antilles: Total Public Debt, 1996-2005

(End of period; in percent of GDP)

1/ Starting from the debt position in 1999, the consecutive budgetairy deficits are accumulated. The differences between the two lines are the stock adjustments.

D. Balance of Payments

13. The trade deficitwidened in line with the economic recovery (Statistical Appendix Table 8). Merchandise imports have grown strongly in this period, fueled by increased domestic and tourist demand, particularly in the Windward Islands. Higher oil prices have also contributed. Imports of merchandise by companies operating in the free-zone—partly for stock-building and partly to meet domestic demand—also added to the worsening of the trade balance.5

14. Increased service activities, stemming particularly from tourism, partially compensated for the widening merchandise deficit. The tourism sector recovered strongly after several hurricanes that hit the Windward Islands and the terrorist attack on the United States on September 11, 2001. The islands increased their market share in the U.S. tourism market. An improved competitive position in the European market due to the appreciation of the euro further boosted tourism growth. Large Dutch transfers of dividend taxes from the international financial sector and private transfers from households abroad also contained the current account deficit.

15. Current account deficits were in recent years largely financed by foreign borrowing, rather than by reserve depletion. Data on the outstanding stock of private sector foreign debt are not available, but the BNA estimates that the outstanding stock of total foreign debt has increased to 36.3 percent of GDP in 2005 (Statistical Appendix Table 9). This growth is largely accounted for by the amount of net trade credit received to finance the growing need for merchandise imports. In addition, the construction of the airports of St. Maarten and Curaçao and investment projects in the utilities sector were largely financed by foreign loans. Direct investments have risen, due to the takeover of the Girobank by a foreign bank, the injection of capital by a direct investor in its financial institution, and the purchase of real estate by nonresidents.

16. The stock of official net international reserves rose from 1.9 to 2.9 months of import coverage. The buildup of reserves between 2000 and 2005 was due to large amounts of development aid (Statistical Appendix Table 10), private capital inflows, and foreign borrowing. Unfavorable developments in international financial markets led to a repatriation of maturing investment funds abroad by residents in 2002–03. Portfolio investment abroad increased again in 2004, as interest rates on the international financial markets started to rise.

E. Money, Banking, and Nonbank Financial Sector

17. Money and credit growth outpaced nominal GDP during the 2000–05 period (Statistical Appendix Table 11). Strong growth in money supply stemmed from the net accumulation of foreign assets and net domestic credit—with credit expansion contributing substantially to money growth (66.1 percent). A considerable part of credit growth was due to increased demand for mortgage loans by the private sector and general government borrowing. Net foreign assets rose strongly in light of the repatriation of maturing foreign investment by local institutional investors, large transfers of dividend taxes from the international financial sector by the Dutch government, and large amounts of Dutch development aid transferred to USONA.6

18. Strong demand for time deposits contributed to the growth of monetary aggregates. Large local institutional investors—pension funds and insurance companies—have been the main investors in time deposits at banks. Local institutional investors temporarily shifted their investment portfolio from foreign securities to local securities, as a result of the noted unfavorable conditions on the international financial markets. Due to the lack of competitive investment alternative to government securities on the domestic market, domestic investors recurred to time deposits.

19. The performance of the domestic banking sector improved during 2000–04 despite weak growth. The profitability of commercial banks improved, and total assets strengthened. As a result, all but one bank met the central bank’s solvency requirement—namely, total capital over total adjusted assets7—of 10.5 percent (Statistical Appendix Table 12). Commercial banks increased their outstanding loans, investments, and interest-bearing cash holdings (in particular certificates of deposit). The sector also increased its capitalization by the end of 2004, owing to the recapitalization of the Girobank. The asset quality of the banking sector improved, as the ratio of nonperforming loans declined to 3.6 percent at the end of 2004, and the provision for loan losses was strengthened further to 97 percent. The concentration in the banking sector increased in the last two years, with three banks holding 75 percent of total assets. The international banking sector remained sound, as total assets increased in 2004 after a drop in 2003, despite the loss in market share to less-regulated or better-located competitors (Statistical Appendix Table 13). However, profits in this sector remained under pressure due to increased provisions and extraordinary losses. A new agreement was reached with the Netherlands regarding taxation of dividends earned by Dutch citizens on their investment in companies operating in the international financial sector in the Netherlands Antilles. It is expected that this new treaty will provide stability in the sector and contain the decline of the last years.

20. Developments on the international financial markets affected the investment strategies of the nonbank financial institutions. Nonbank financial institutions repatriated large part of their maturing investment abroad due to the burst of the equity bubble in the United States and the low interest rates in the United States and Europe. Reports of the BNA indicate that performance in the sector as a whole was positive but that the performance across institutions was mixed. The reports also indicate that performance in the sector was to some extent also affected by lower contributions receipts due to migration and/or early retirement. In addition, higher life expectancy has led to longer-term benefit payments, resulting in increased expenses for the industry. The insurance sector servicing the local market experienced positive results in 2003 (Statistical Appendix Table 14). The solvency requirements have been met on an aggregate basis for the life and nonlife insurance companies operating locally as well as internationally.

II. A Tale of Two Groups of Caribbean Economies8

21. As the federation of the Netherlands Antilles dissolves, crucial policy decisions on a broad range of matters that will have a lasting impact on the future of the countries to be born need to be undertaken. Those decisions are contingent, among other factors, on expected trend growth rates. It is well known that determining past trend growth rates is plagued with difficulties; even more so is projecting them into the future. However, a look at the economic performance of a set of Caribbean-region economies may shed some light into that general question and, in particular, into what is the importance of small island economies’ links to high income countries.

22. To answer those questions, this study uses a simple and partial statistical exercise applied to a reduced set of economic and social indicators of two groups of Caribbean economies. Group 1 comprises countries that, while having kept some links to the mother country in one way or another, have been independent for some time. Group 2 comprises territories that are part of a kingdom or a commonwealth and are not formal members of the IMF.9 The main conclusion is that a few key indicators are better in Group 2 than in Group 1.

23. First, some statistics on the selected economic and social indicators are presented in Table 1.10 Average GDP per capita and life expectancy are significantly larger in Group 2 than in Group 1 at the 95 percent confidence level. Inflation is significantly lower in Group 2 than in Group 1 at the 90 percent confidence level.

Table 1.Netherlands Antilles: Economic and Social Statistics 1/
AverageStandard Deviation
Group 1Group 2Group 1Group 2
GDP per capita 2/5519.815760.44625.111192.2
(7,860 - 3,179)(22,093 - 9,428)
Unemployment 3/14.713.65.38.7
(18 - 12)(19 - 8)
Inflation 4/
(14 - 3)(4 - 2)
Life expectancy 5/70.677.96.41.5
(74 - 67)(77 - 79)
Literacy rate 6/89.596.413.11.6
(97 - 82)(98 - 95)
Sources: WEO database; World Bank World Development Indicators The World Factbook, CIA (2005); and IMF staff calculations.

Confidence intervals between parentheses.

Group 1 data are for 2003 and for Group 2 range between 2002 and 2004.

Group 1 data are for 1998 and for Group 2 range between 1997 and 1998.

Group 1 data are for 2003 and for Group 2 range between 2002 and 2003.

Group 1 data are for 2003 and for Group 2 are estimates for 2005.

Group 1 data range between 2001 and 2003 and for Group 2 range between 2002 and 2003.

Sources: WEO database; World Bank World Development Indicators The World Factbook, CIA (2005); and IMF staff calculations.

Confidence intervals between parentheses.

Group 1 data are for 2003 and for Group 2 range between 2002 and 2004.

Group 1 data are for 1998 and for Group 2 range between 1997 and 1998.

Group 1 data are for 2003 and for Group 2 range between 2002 and 2003.

Group 1 data are for 2003 and for Group 2 are estimates for 2005.

Group 1 data range between 2001 and 2003 and for Group 2 range between 2002 and 2003.

24. Second, simple regression analysis largely confirms the descriptive statistics outcome. Table 2 displays the results of five cross-section regressions on a constant and each of the selected economic and social indicators.11 The dependent variable is a dummy that takes the value of zero if the macroeconomic data refer to Group 1 and the value of one if the data refer to Group 2. GDP per capita and life expectancy have statistically significant coefficients (Figure 1); inflation seems to have some statistical significance. The results suggest that GDP per capita and life expectancy are relatively higher for economies that belong to Group 2 than for economies that belong to Group 1. Some evidence of relatively lower inflation is also associated with Group 2 economies.

Table 2.Netherlands Antilles: Regression Results

Dependent variable: Group 1 and Group 2

t-statisticWhite testNobs
GDP per capita3.751.1227
Life expectancy4.002.0828
Literacy rate1.020.6515
Sources: WEO database; World Bank World Development Indicators; The World Factbook, CIA (2005), and IMF staff calculations.
Sources: WEO database; World Bank World Development Indicators; The World Factbook, CIA (2005), and IMF staff calculations.

Figure 1.Netherlands Antilles: Selected Indicators by Country Group

Sources: World Bank, World Development Indicators; CIA, World Factbook; and IMF, WEO.

Country Code: Netherlands Antilles=ANT, Antigua and Barbuda=ANB, Bahamas=BAH, Barbados=BAR, Belize=BLZ, Dominica=DOM, Grenada=GRE, Guyana=GUY, Haiti=HAI, Jamaica=JAM, St. Kitts and Nevis=SKN, St. Lucia=SLU, St. Vincent and the Grenadines=SVG, Suriname=SUR, Trinidad and Tobago=TAT, Venezuela=VEN.

25. Data limitations preclude a thorough analysis of the reasons for these results, and thus the following conclusions should be interpreted as tentative. However, speculation based on related studies is possible and, hopefully, informative. Many observers have pointed out that free labor mobility between the Antilles and the Netherlands is largely responsible for having set a floor to real wages, which albeit seemingly less binding in recent times, has made adjustment to shocks more costly in terms of output and employment. Yet, it is also possible to argue that the observed high correlation between net migration flows and real GDP growth may be just the most visible part of a mechanism by which the well-known relatively higher volatility of Antillean cycles has had a lesser impact on its trend growth (Figure 2). Interestingly, Group 1 countries have also been exposed to significant labor force flows. For instance, Mishra (2005) found that Group 1 countries lost 10–40 percent of their labor force—especially the high-skilled part of it—due to migration to OECD countries between 1965 and 2000. In addition, despite that Group 1 is the world’s largest recipient of remittances as a share of GDP, Mishra’s welfare calculations suggested that migration losses tend to outweigh remittances.

Figure 2.Net Migration Flows and Growth

26. Cashin (2004) found that the Caribbean cycles (of a subset of Group 1 countries) are more symmetric than those of major industrial countries.12 Output asymmetries—output grows most of the time close to its natural rate determined by the resources available and the institutions that organize them, and it is plucked downward occasionally—may have been smoothed out through labor force migration flows. Given that job destruction is more cyclically responsive than job creation, migration flows between the Antilles and (largely) the Netherlands may have dampened output growth and income fluctuations.

27. On the positive side, it is likely that the relatively closer links that Group 2 economies entertain with the metropoles have resulted in lower financing costs for firms and thus have propped up investment and trend growth. In contrast, it is also possible that the closer links to the metropoles, by making the financing of fiscal deficits relatively less costly, have resulted in less fiscal discipline. While there are no data on a comparable basis to study this matter in-depth, there is evidence that by 2003, 14 out of 15 Caribbean countries included in Group 1 had an average fiscal deficit of nearly 6 percent of GDP, and they ranked in the top 30 of the world’s highly indebted emerging market countries (Sahay, 2005). Therefore, the positive aspects of the close links to the metropoles may have seemingly prevailed, at least in the Antillean case. Looking forward, the evidence cited above indicates that the new countries to be born from the dissolution of the federation should assign priority to a fiscal framework that internalizes fiscal discipline and accountability.

28. This analysis, while partial and limited, suggests that the new countries would also benefit from maximizing the links that their population may maintain with the Netherlands and other countries of migration destination, even if temporary. Those links manifest themselves in several ways, for instance through remittances (mostly official in the Antillean case). There is empirical evidence that remittances can lead to more human and physical investment and thus higher trend growth.13

29. What can the new countries do to limit the attraction represented by relatively higher foreign wages? This quick tour d’horizon suggests that the best strategy consists on applying policies that set growth-enabling domestic incentives. These policies encompass growth-enhancing structural reforms and reducing the economies’ vulnerabilities to shocks. Growth-enhancing policies require increasing the flexibility of labor, to reduce the cost of doing business, to enhance competition in domestic goods and services markets, and to achieve greater regional and multilateral cooperation via freer international trade. In addition, better education, training, and well-targeted infrastructure investment are essential to improve the new countries’ attractiveness for foreign investment. Education needs to be better tailored to the needs of these economies, which are largely dependent on services (e.g., tourism and financial services). Given the importance of the financial sector for at least one of the new countries and the well-documented link between weak financial sector supervision and crises, the further strengthening of financial supervision should also be an important policy objective. Finally, while little can be done to reduce the economies’ exposure to foreign shocks, the domestic policies already outlined should contribute to reduce shocks’ welfare costs by allowing faster relative price changes and setting the ground for world-market driven diversification.

Table 1.Netherlands Antilles: Gross Domestic Product, 1997-2005(In millions of NA f.)
Real percentage change1.3-2.9-1.8-
Total consumption3,873.33,672.03,708.43,789.73,888.43,964.34,142.74,333.84,587.0
Real percentage change-7.4-6.30.2-
Private consumption2,662.52,622.32,603.72,627.72,774.62,876.42,996.43,075.23,199.1
Real percentage change-9.3-2.7-1.5-
Public consumption1,210.81,049.71,104.71,162.01,113.81,087.91,146.31,258.51,387.9
Real percentage change-3.0-
Gross fixed capital formation1,104.81,250.31,287.81,441.31,316.71,321.01,249.11,289.31,334.1
Real percentage change-
GFKF nonfinancial business486.1580.3610.7634.7554.8553.6498.4516.4508.3
Real percentage change-30.918.04.4-1.0-14.0-0.6-11.62.1-4.5
GFKF financial business317.4349.5353.0411.9402.8379.1368.7397.5417.1
Real percentage change8.
GFKF residential249.4168.4146.9171.7176.2193.8195.6217.1222.8
Real percentage change-8.0-33.3-13.511.30.99.6-1.09.3-0.5
GFKF public82.4158.6186.1201.6199.9191.8203.6158.3185.9
Real percentage change-40.990.216.43.2-2.5-4.44.2-23.413.9
Stock changes42.0-
Contribution to growth-0.4-
Total domestic demand5,020.14,912.75,004.95,240.35,235.05,288.75,394.85,627.25,920.4
Real percentage change-0.20.2-1.0-1.6-0.7-0.7-0.3-0.8-1.3
Foreign balance-19.225.8-117.1-209.7-90.2-87.3-44.7-113.1-185.7
Exports of goods and services3,640.33,633.03,596.34,131.94,276.54,172.04,451.94,743.25,170.8
Real percentage change-1.8-1.4-
Imports of goods and services3,659.53,607.23,713.44,341.64,366.74,259.34,496.64,856.35,356.5
Real percentage change-16.7-
Sources: Central Bureau of Statistics; Bank van de Nederlandse Antillen; and IMF staff projections.
Sources: Central Bureau of Statistics; Bank van de Nederlandse Antillen; and IMF staff projections.
Table 2.Netherlands Antilles: Labor Market Developments, 1998-2006
Total population194,499189,606182,746175,704172,586176,635180,726185,513188,120
Population growth (in percentage)-2.5-3.6-3.9-
Net migration-6,631-8,282-8,688-4,6082,8272,9773,842
Natural growth1,7381,4221,6461,4901,2221,114945
Labor force87,97387,52983,86381,05882,74387,68488,05990,62891,178
Labor force growth (in percentage)-0.5-4.2-
Employment growth (in percentage)2.1-2.6-
Average wage per worker40.640.841.743.843.142.941.8
Real growth (in percent)2.4-0.4-2.83.5-2.0-2.4-4.1
Productivity (measured by GDP/employed)0.0560.0540.0540.0570.0560.0540.0540.0540.054
Productivity growth (in percent)3.5-
Sources: Central Bureau of Statistics; Bank van de Nederlandse Antillen.
Sources: Central Bureau of Statistics; Bank van de Nederlandse Antillen.
Table 3.Netherlands Antilles: Operations of the General Government, 2000-05(In millions of NA f.)
Cash basis200020012002200320042005
Total revenue1,261.31,266.11,243.31,346.71,349.11,644.1
Tax revenue1,095.41,144.61,145.91,140.21,204.91,262.2
Of which: domestic1,014.01,057.31,055.91,038.81,204.91,262.2
Taxes on income and profits512.0578.8568.1555.8578.2608.0
Of which: offshore81.487.390.0101.40.00.0
Of which: GDP1.
Taxes on property45.639.932.630.633.137.0
Taxes on goods and services399.3398.0411.8427.9458.9484.6
Of which: sales and turnover tax231.8242.3250.3259.1283.5302.5
Taxes on international transactions128.1122.7127.7119.5127.0124.6
Other taxes10.
Nontax revenue117.6109.484.1129.9107.9163.1
Capital revenue1.40.62.412.11.07.1
Total expenditure1,353.01,254.01,452.21,581.61,682.41,797.8
Current expenditure1,287.21,204.31,401.11,497.51,617.71,717.7
Of which: GDP25.723.326.927.929.330.0
Current expenditure excluding wages
and salaries with respect to GDP15.015.716.918.119.430.0
Wages and salaries537.0394.7520.2527.4547.1647.3
Of which: GDP10.77.610.09.89.9
Excluding pension premiums453.0370.5411.3401.4427.2469.4
Pension premiums93.432.5116.9133.8127.7187.0
Goods and services315.4275.2304.2368.5436.5437.4
Interest payments159.7188.5245.4251.9256.8303.4
Capital expenditure65.849.751.184.164.780.1
Of which: GDP1.
Capital transfers35.516.111.844.437.245.4
Net lending3.51.717.43.3-0.8-4.8
Balance to GDP-1.80.2-4.0-4.4-6.0-2.7
Foreign amortization1.
Balance including foreign amortization-93.310.5-210.5-236.5-333.3-153.7
Memorandum items:
Balance including pension premiums due-112.5-76.5-209.2-222.2-329.9-96.0
Primary balance68.0200.636.517.0-76.5149.7
Primary spending1193.31065.51206.81329.71425.61494.4
Real primary spending1193.31047.71181.91278.01349.91372.3
Total debt3213.73364.73704.94325.04581.54914.8
Public debt (percent of GDP)
Source: Data provided by the authorities.
Source: Data provided by the authorities.
Table 4.Netherlands Antilles: Operations of the Central Government, 2000-05(In millions of NA f.)
Total revenue658.3608.8616.5671.6692.3901.5
Tax revenue519.0512.3533.6535.5577.2594.3
Taxes on property17.014.517.818.621.827.0
Inheritance and gift tax2.
Property transfer tax14.413.915.
Taxes on goods and services363.5369.9382.4391.0420.7434.7
Sales and turnover tax231.8242.3250.3259.1283.5302.5
Turnover tax33.944.143.747.160.671.5
Sales tax197.9198.2206.6212.0222.9231.0
Taxes on international transactions128.1122.7127.7119.5127.0124.6
Other taxes10.
Nontax revenue92.385.071.971.679.895.5
Enterprise and property income55.663.851.452.161.074.1
Of which: profit central bank47.252.140.342.942.658.2
Fees, charges, and sales34.720.
Other nontax revenues2.
Capital revenue0.
From abroad46.911.510.964.535.3211.7
From other levels of government0.
Total expenditure720.1639.1735.6826.6890.6986.7
Current expenditure664.8608.3696.2769.3860.3975.2
Wages and salaries239.2191.6244.4243.5285.1271.6
Social security9.
Pension premiums28.718.960.558.282.746.8
Goods and services96.182.686.2104.6107.2126.7
Other levels of government196.8178.6177.2237.6288.7359.9
Nonprofit institutions, abroad17.918.219.721.120.223.6
Interest payments77.294.8123.6133.7142.0180.4
Capital expenditure55.330.839.457.330.311.5
Capital transfers35.58.111.844.422.57.4
Net lending3.51.717.43.3-0.8-4.8
To public enterprises3.52.318.03.7-0.50.0
To financial institutions0.0-0.6-0.6-0.4-0.3-4.8
To households0.
Balance to GDP-1.2-0.6-2.3-2.9-3.6-1.5
Primary Balance15.464.54.5-21.3-56.395.2
Foreign amortization0.
Balance including foreign amortization-62.4-30.9-119.7-155.6-198.3-85.2
Source: Data provided by the authorities.
Source: Data provided by the authorities.
Table 5.Netherlands Antilles: Operations of the Island Government of Curaçao, 2000-05(In millions of NA f.)
Cash basis200020012002200320042005
Total revenue758.4775.9748.4833.0818.61,025.1
Tax revenue576.4632.3612.3604.7627.7667.9
Taxes on income and profits512.0578.8568.1555.8578.2608.0
Profit tax165.4196.3187.2173.6162.6200.0
Wage tax335.6389.8393.3392.0411.6403.0
Income tax11.0-7.3-12.4-
Taxes on property28.625.414.812.011.310.0
Land tax21.217.810.99.710.09.0
Occupancy tax7.
Taxes on goods and services35.828.129.436.938.249.9
Other taxes0.
Nontax revenue25.324.412.258.328.167.6
Enterprise and property income2.
Fees, charges, and sales13.711.49.419.721.423.2
Other nontax revenues8.
Capital revenue1.30.62.312.11.07.1
Total expenditure788.3733.5838.2912.9953.61,093.6
Current expenditure777.8714.6826.5886.1919.21,025.0
Wages and salaries297.8203.1275.8283.9262.0375.7
Excluding pension premiums233.1189.5219.4208.3217.0235.5
Pension premiums64.713.656.475.645.0140.2
Goods and services219.3192.6218.0263.9329.3310.7
Public companies51.253.258.972.942.642.7
Other levels of government14.015.016.916.822.621.6
Nonprofit institutions45.695.283.785.6112.9108.4
Interest payments82.593.7121.8118.2114.8123.0
Capital expenditure10.518.911.726.834.468.6
Capital transfers0.
Net lending0.
Balance to GDP-0.60.8-1.7-1.5-2.4-1.2
Source: Data provided by the authorities.
Source: Data provided by the authorities.
Table 6.Netherlands Antilles: Financing of the General Government, 1999-2004(In millions of NA f.)
Central government
Total balance-27.8-61.8-30.3-119.1-155.0-198.3
Domestic financing29.75.9-1.7131.087.8122.8
Monetary financing10.46.836.7121.073.194.4
Central bank11.26.749.6-41.812.256.0
Commercial banks-2.9-1.1-13.8162.459.338.2
Giro Curaçao0.
Coins and notes2.
Nonmonetary financing19.3-0.9-38.410.014.728.4
Arrears APNA46.918.5-22.0-5.2-9.1-30.0
Retroactive bonds-4.4-4.4-
Other domestic financing-23.2-15.0-
Loans with the public41.4-13.9-30.2-16.0115.075.1
Debt to SVB-64.6-
Foreign financing-0.759.0-0.6-0.7-0.7-0.7
Amortization payments-0.7-0.7-0.6-0.7-0.7-0.7
Program support0.
Curaçao government
Total balance-15.5-29.942.4-89.8-79.9-135.0
Domestic financing55.00.855.882.080.1143.0
Monetary financing43.314.118.519.032.366.9
Central bank21.055.9-3.9-23.0-28.325.7
Commercial banks22.3-41.822.442.060.641.2
Nonmonetary financing11.7-13.337.363.047.876.1
Arrears APNA38.92.3-234.618.53.230.7
Other arrears35.5-18.51.5-34.724.4-23.3
Retroactive bonds-5.6-
Other domestic financing-57.14.0270.479.220.268.7
Loans with the public-25.7-10.0-12.089.630.180.0
Debt to SVB-
Zero coupon bond-5.2-5.5-5.9-6.2-6.6-7.1
Conversion of APNA arrears in government securities0.00.0288.3-4.2-3.3-4.2
Foreign financing-
Amortization payments-1.2-1.20.1-0.4-0.4-0.4
Program support0.
General government
Total balance-43.3-91.712.1-208.9-234.9-333.3
Domestic financing84.76.754.1213.0167.9265.8
Monetary financing53.720.955.2140.0105.4161.3
Arrears APNA85.820.8-256.613.3-5.90.7
Other arrears35.5-18.51.5-34.724.4-23.3
Retroactive bonds-10.0-5.5-
Other domestic financing-80.3-11.0258.494.444.0127.1
Foreign financing-1.982.2-0.5-1.1-1.1-1.1
Amortization payments-1.9-1.9-0.5-1.1-1.1-1.1
Program support0.
Sources: Data provided by the authorities; and IMF staff estimates.
Sources: Data provided by the authorities; and IMF staff estimates.
Table 7.Netherlands Antilles: General Government Debt, 1999-2004(In millions of NA f.)
Central government
Domestic debt1,101.41,191.31,330.41,458.71,905.62,034.8
Monetary debt120.2127.0163.8284.8357.8452.3
Central bank56.062.7112.470.682.7138.8
Of which: government securities65.241.596.369.892.9142.7
Commercial banks40.639.525.7188.1247.4285.6
Of which: government securities70.674.067.5227.4282.3331.4
Coins and notes23.624.825.726.127.727.9
Nonmonetary debt981.21,064.31,166.61,173.91,547.81,582.5
Arrears APNA 2/53.569.5167.0160.1149.7118.4
Other domestic debt927.7994.8999.61,013.81,398.11,464.1
Of which: government securities854.1844.6818.8802.81,255.61,330.8
SVB 3/
Other 4/40.966.680.685.0108.8119.4
Foreign debt290.0298.9290.5343.5361.3324.6
The Netherlands195.5237.9234.8292.0314.8301.5
European Union12.214.016.820.523.223.1
Island government of Curaçao
Domestic debt1,426.61,403.01,440.71,528.21,612.81,763.8
Monetary debt120.6134.7134.9159.5196.3271.3
Central bank14.970.866.943.915.641.3
Of which: government securities15.070.889.044.517.753.0
Commercial banks105.763.968.0115.6180.7230.0
Of which: government securities126.9101.1104.4169.1199.0288.6
Nonmonetary debt1,306.01,268.31,305.81,368.71,416.51,492.5
Arrears APNA308.4322.888.2106.7110.0140.6
Zero coupon bond/annuity441.3435.8718.3707.8697.9686.6
Other domestic debt556.3509.7499.3554.2608.6665.3
Of which: government securities348.4343.0336.6426.2456.3536.3
Foreign debt337.6320.5303.1374.5445.4458.3
The Netherlands329.6313.5296.9367.0437.1450.3
European Union8.
General government
Domestic debt2,528.02,594.32,771.12,986.93,518.33,798.6
Monetary debt240.8261.7298.7444.3554.1723.6
Central bank70.9133.5179.3114.598.3180.1
Commercial banks146.3103.493.7303.7428.1515.6
Coins and notes23.624.825.726.127.727.9
Nonmonetary debt2,287.22,332.62,472.42,542.62,964.23,075.0
Arrears APNA361.9392.3255.2266.8259.7259.0
Zero coupon bond/annuity441.3435.8718.3707.8697.9686.6
Other domestic debt1,484.01,504.51,498.91,568.02,006.72,129.4
Foreign debt627.6619.4593.6718.0806.7782.9
The Netherlands525.1551.4531.7659.0751.9751.8
European Union20.
Public debt (percent of GDP)64.464.
Source: Data provided by the authorities.

APNA Regentesselaan, APNA FZOG, and Winkel Broth.

Including APNA payment arrangement 2001.

As of December 2000, all SVB debt has been assigned to the central government.

Change in definition as of December 2000.

As of December 2000, the definition has been changed to include NIO interest arrears and “overbruggingskrediet.”

Source: Data provided by the authorities.

APNA Regentesselaan, APNA FZOG, and Winkel Broth.

Including APNA payment arrangement 2001.

As of December 2000, all SVB debt has been assigned to the central government.

Change in definition as of December 2000.

As of December 2000, the definition has been changed to include NIO interest arrears and “overbruggingskrediet.”

Table 8.Netherlands Antilles: Balance of Payments, 2000-05(In millions of NA f.)
Current account-0.8-295.0-94.0-13.9-175.8-140.8
Trade balance-1,764.2-1,994.5-1,826.9-1,821.0-2,111.4-2,273.0
Services balance1,645.01,658.81,503.01,569.01,814.51,819.0
Other services572.4595.0499.9525.5586.3605.8
Of which: international financial sector447.3491.1483.3411.0434.8426.1
Of which: refining373.6345.7308.0343.2304.3321.4
Of which: international financial and business sector119.8154.2157.1157.6150.6139.3
Income balance60.439.31.3-12.8-18.8-33.5
Current transfers balance57.91.4228.6250.9139.9346.7
Incoming transfers441.4388.5646.6706.4557.3783.1
Of which: offshore tax81.587.483.7121.8100.0305.0
Transferred abroad383.5387.1418.0455.5417.4436.4
Capital and financial accounts66.4320.4100.9-70.474.3140.8
Capital account53.466.649.746.9142.0124.8
Capital transfers balance53.466.649.746.9142.0124.8
Incoming transfers56.067.252.457.9143.6126.4
Of which: development aid54.360.352.154.3142.0125.0
Transferred abroad2.61.22.911.91.61.6
Financial account13.0253.851.2-117.3-67.716.0
Direct investment balance-108.0-9.3114.033.172.356.8
Portfolio investment balance-68.1-56.8-67.17.6-1.8-78.2
Other investment balance103.5735.0129.1-71.8-72.2227.4
Change in reserves (-=increase) 1/85.5-415.1-124.8-86.2-66.0-190.0
Net errors and omissions-65.5-25.4-6.884.3101.50.0
Official reserves469.7539.8719.3668.3744.0934.0
In months of merchandise imports1.
Memorandum items:
Current account balance (in percent of GDP)0.0-5.7-1.8-0.3-3.2-2.5
Sources: Data provided by the Antillean authorities; and IMF staff estimates and projections.

Including commercial banks; excluding gold revaluation.

Sources: Data provided by the Antillean authorities; and IMF staff estimates and projections.

Including commercial banks; excluding gold revaluation.

Table 9.Netherlands Antilles: External Debt, 1999-2004(In millions of NA f.)
General government
Short term*51.064.678.495.7118.5143.2
Long term350.4346.0331.6401.1450.7448.8
Total general government401.5410.6410.0496.8569.1592.0
Private sector (excluding banks)
Short term263.0311.1547.7653.1882.71,015.9
Trade credits228.3214.1347.5346.7456.0531.9
Other liabilities31.595.7199.4306.4424.1484.0
Long term240.6236.8264.0218.3171.7244.0
Trade credits1.
Other liabilities55.949.437.744.79.745.2
Total other sectors503.6547.9811.7871.41,054.41,259.9
Total external debt905.1958.51,221.71,368.31,623.51,851.9
In percent of GDP18.519.123.726.330.233.6
Of which
Short term314.9378.8626.9751.11,002.01,159.5
Long term591.1582.8595.7619.4622.4692.8
Official reserves (including gold)365.5338.3378.7476.5505.3567.2
Official reserves/short-term debt1.
Total external debt-to-exports (ratio)23.823.429.834.638.339.0
Source: Bank van de Nederlandse Antillen.
Source: Bank van de Nederlandse Antillen.
Table 10.Netherlands Antilles: Flow of Development Aid, 1992-2004(In millions of NA f.)
Multi-year plan60.094.183.984.5112.4115.996.693.382.876.257.850.538.3
Fund for social, educational,
and cultural projects11.
European Development Fund7.
Source: Data provided by the authorities.
Source: Data provided by the authorities.
Table 11.Netherlands Antilles: Monetary Overview, 1999-2004
Central bank
Central government advances29.429.
Official reserves655.1608.7678.7855.2905.31,015.7
Banknotes issued239.2235.1256.4284.4275.6272.4
Deposits of
Required reserves216.1261.1265.5514.0426.0525.8
Excess reserves-29.6-26.1103.67.862.150.6
Central government38.
Island government of Curaçao0.
Development projects126.1162.7155.094.784.887.7
Commercial banks
Loans to private sector2,450.72,612.02,606.82,695.52,744.82,958.2
Short-term (net) foreign assets108.730.8373.6320.5456.3446.3
Central government deposits30.034.541.439.334.945.8
Island government deposits30.547.150.064.525.172.6
Private sector deposits2,694.32,766.13,162.73,541.53,855.94,211.9
Of which
Demand deposits990.1966.61,091.51,262.01,288.31,346.6
Time deposits885.6971.31,209.71,324.01,501.41,742.5
Government loans issued
Central government
Bills and notes57.316.626.4136.644.7104.9
Island government
Bills and notes57.157.132.2111.786.2144.5
Monetary survey
Factors affecting the money supply
Central government-6.6-36.48.5189.4272.4363.9
Island governments111.3124.8147.6162.2197.7257.4
Private sector2,536.22,677.42,691.52,782.52,834.43,059.7
Total domestic factors2,197.42,379.42,369.82,643.62,772.53,048.3
Net foreign assets693.9575.61,011.11,133.11,320.41,461.6
Of which: miscellaneous items68.387.486.380.782.790.5
Total money supply2,891.32,955.03,380.93,776.74,092.94,509.9
Of which
Money multiplier1,187.11,155.51,309.71,497.21,525.31,596.6
Of which: FCAs228.9200.3225.4242.4303.1314.6
Near money1,704.21,799.52,071.22,279.52,567.62,913.3
Of which: FCAs227.8248.9333.0361.0374.8438.5
Net international reserves762.2663.01,097.41,213.81,403.11,552.1
Net international reserves (BNA)693.9575.61,011.11,133.11,320.41,461.6
Reserve money460.0497.9678.6847.8796.8954.2
Money multiplier6.
Interest rates
Pledging rate7.
Treasury paper, 1 month (last issue)n.a.n.a.n.a.2.903.003.70
Treasury paper, 3 months (last issue)
Treasury paper, 6 months (last issue)6.306.306.303.505.005.00
Treasury paper, 12 months (last issue)6.766.766.764.405.355.60
Government bonds, effective yield (5 yrs)8.759.
Passbook savings3.553.773.673.593.412.77
Time deposit 12 months, NA f. 10,0004.714.825.125.464.894.14
Prime rate/current account overdrafts10.319.5510.4810.2010.7310.39
Average passbook rate3.593.653.713.643.533.05
Average government bond rate8.758.779.008.206.727.09
Source: Bank van de Nederlandse Antillen.
Source: Bank van de Nederlandse Antillen.
Table 12.Netherlands Antilles: Structure and Performance of the Banking System, 2000-04
Number of licensed banks11111099
Of which : majority state-owned11110
As a percentage of total assets5.
Majority foreign-owned (number)23233
As a percentage of total assets7.425.718.418.419.3
Number of branches of foreign banks32222
As a percentage of total assets23.
Number of banks accounting for
25 percent of total assets12266
75 percent of total assets44433
(In percent of GDP; unless stated otherwise)
Total assets98.196.599.099.3108.7
Total credit54.251.752.553.658.0
Private sector credit50.949.250.850.253.6
Total deposits excluding interbank70.480.982.285.992.9
Corporate sector credit (in percent of total credit) 1/2/55.757.159.457.757.5
Credit to households (in percent of total credit) 1/2/41.541.241.741.742.5
(In percent of total assets)
Foreign currency-denominated
Balance sheet liabilities32.934.127.827.326.9
Contingent and off-balance sheet accounts (forex)
Contingent and off-balance sheet accounts7.
Capital adequacy
Capital/adjusted-asset ratio 3/
Central bank credit to banks (in percent of GDP)
Asset quality
Nonperforming loans (in percent of total loans)
Provision for loan losses (in percent of nonperforming loans)
Loan-to-deposit ratio79.168.767.666.364.9
Liquid assets to short-term liabilities30.543.638.439.939.4
Total assets to total liabilities119.4117.3117.5114.7113.1
Earnings and profitability
Return on assets (before taxes and dividends)
Average pretax profit on total assets1.
Return on equity (before taxes and dividends)
Interest margin to gross income50.649.447.746.249.5
Noninterest expenses to gross income57.157.660.556.356.7
Sensitivity to market risk
Net foreign lending including provisions / (Tier 1+Tier 2+ Tier 3)
Net foreign lending including provisions /Tier 1 capital4.
Average lending spread (lending-deposit rate) 4/9.610.
Source: Bank van de Nederlandse Antillen.

Extended by commercial banks only.

Corporate sector: business loans + other mortgages. Households: consumer loans + individual mortgages.

Adjusted-total-assets is defined as total assets minus the asset categories that are subject to a zero risk-weighted factor.

Interest rate on working capital loans - time deposit rate. Interest rates for prime borrowers are usually about two percentage points less, but no consistent time series is available. From 12/1999, lending rate is current account overdrafts.

Source: Bank van de Nederlandse Antillen.

Extended by commercial banks only.

Corporate sector: business loans + other mortgages. Households: consumer loans + individual mortgages.

Adjusted-total-assets is defined as total assets minus the asset categories that are subject to a zero risk-weighted factor.

Interest rate on working capital loans - time deposit rate. Interest rates for prime borrowers are usually about two percentage points less, but no consistent time series is available. From 12/1999, lending rate is current account overdrafts.

Table 13.Netherlands Antilles: International Financial Sector, 1994-2004(In million of NA f.)
Demand deposits2,5218,7653,8592,9103,3983,4193,7514,6435,1799,50212,251
Time deposits8,02313,90412,80217,27816,86315,23914,58012,55712,56715,90619,206
Borrowed funds 1/36,15926,15034,21737,79538,09233,90736,84243,59047,37835,25332,084
Life insurance
Nonlife insurance
Source: Bank van de Nederlandse Antillen.
Source: Bank van de Nederlandse Antillen.
Table 14.Netherlands Antilles: Nonbank Financial Intermediation: Insurance Companies, 1994-2003(In millions of NA f.)
Life insurance
Bonds and fixed income329.9373.3347.7348.3326.4326.1375.0424.2541.8602.9
Other loans46.443.250.657.674.269.751.046.655.665.4
Deposits with banks27.222.724.517.872.987.8105.1111.5108.1171.9
Capital and reserves29.238.948.341.454.197.6102.3105.7124.1146.6
Nonlife insurance
Bonds and fixed income45.246.645.854.551.952.151.726.079.4134.1
Other loans5.
Deposits with banks24.512.013.631.342.546.741.689.7111.279.5
Capital and reserves51.146.350.450.259.172.678.470.292.0106.9
Source: Bank van de Nederlandse Antillen.
Source: Bank van de Nederlandse Antillen.

    Cashin,P., 2004,“Caribbean Business Cycles,”International Monetary Fund, WP/04/136.

    Mishra,P., 2005,“Emigration and Brain Drain: Evidence from the Caribbean,”International Monetary Fund, forthcoming.

    Nadal De Simone,F., and S.Clarke,2006,“Asymmetry in Business Fluctuations: International Evidence on Friedman’s Plucking Model,”Journal of International Money and Finance, forthcoming.

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    Sahay,R., 2005,“Stabilization, Debt, and Fiscal Policy in the Caribbean,”International Monetary Fund, WP/05/26.


Prepared by Wendly Daal.


The United States applied a withholding tax on interest payments to nonresidents, which prior to 1984, however, did not apply to the Netherlands Antilles, as they were signatory to a double tax treaty.


The Netherlands Antilles and the Netherlands signed a tax treaty in 2000, Tax Arrangement for the Kingdom, governing dividend flows between the two countries. This treaty stipulates that a tax of 8.3 percent is applicable on dividend flows between the two countries. The Netherlands Antillean authorities collect 3.3 percent, while the Dutch authorities collect 5 percent and transfer the proceeds to the Netherlands Antilles. The new treaty that becomes effective in 2006 applies a tax rate varying from 0 percent to 5 percent depending on the type of company and how the dividends are invested. It is expected that this new treaty will enable the Netherlands Antilles to compete with other financial centers on an equal footing.


The accumulation of arrears to APNA and SVB took place over a prolonged period of time, with debt conversions taking place in 2001 and 2002.


Reexporting companies operating in the free zone are allowed to sell up to 20 percent of their turnover on the local market.


Uitvoeringsorganisatie Stichting Ontwikkeling Nederlandse Antillen(USONA), the organization responsible for implementing development aid projects.


Adjusted total assets is defined as total assets minus the asset categories that are subjected to a zero risk-weighted factor.


Prepared by Francisco Nadal de Simone.


Group 1 comprises the following countries: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. Group 2 comprises the following territories: Anguilla, Aruba, British Virgin Islands, Cayman Islands, Guadaloupe, Martinique, Montserrat, Puerto Rico, St. Pierre and Miquelon, the Turks and Caicos Islands, U.S. Virgin Islands, and the Netherlands Antilles.


Data limitations are severe, especially for territories.


The White tests do not reject the null hypothesis of homoskedasticity.


See Nadal De Simone and Clarke (2006, forthcoming) for evidence of asymmetric output fluctuations in a set of industrial and emerging economies.


Cashin (2004) found close links between Eastern Caribbean (EC) business cycles and Canadian cycles, but not between EC cycles and U.S., U.K., or German cycles. The possible reasons include: first, Canada is a major provider of bilateral overseas development assistance flows to those countries. Second, Canada has been an important emigrant destination for Caribbean nationals and thus accounts for a large share of all remittance flows to the area.

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