Aruba’s Standard of Living is Going Down … Aruba Hit Harder than Many Countries Because Nothing is Produced There

Aruba is suffering the same economic slow down that is affecting many countries these days. Their standard of living is decreasing. However, in Aruba its worse due to the fact that nothing is actually produced in Aruba. Since Aruba is limited to the manner in how to deal with price shifting, Aruba may have to increase its hotel rates. If they make these increases, Aruba may not be able to compete with other islands in the region. Talk about a catch 22.

Mehran concluded that just like the rest of the world, our country is coping with ‘a fundamental shifting’ in the prices of oil, food, and metals.  He compares the current situation with the oil crisis in 1973.  He says that the price shifting is fundamental, because the prices will never go back to the old level.  This hits Aruba harder, because nothing is being produced here.  To maintain the same quality of life and pay for it, Aruba will have to increasing the rates of the hotel rooms; that’s the only way.  But this is at the same time a risk, because the island must also be able to continue competing in the region.  

Standard of living is going down (Amigoe: 6/1/2008)

Parliamentarians have listened very attentively to the explanation of the Central Bank on the financial future of Aruba last Wednesday.  

ORANJESTAD – The standards of living will drop within the foreseeable future, now that the inflation remains unprecedentedly high and there are no solutions.  Even the Central Bank of Aruba (CBA), whose main duty is watching the stability of the prices, can not do much.

That’s the message that the president of the Central Bank, Hassanali Mehran delivered to the Finance Standing Committee last Wednesday.  Mehran emphasized that several factors are impelling the inflation up and the monetary policy – the package of measures that a Central Bank can take to keep the florin stable – is of little use.  That can also be noticed in the trailing credit growth, which was only 4 percent in 2007.

Mehran concluded that just like the rest of the world, our country is coping with ‘a fundamental shifting’ in the prices of oil, food, and metals.  He compares the current situation with the oil crisis in 1973.  He says that the price shifting is fundamental, because the prices will never go back to the old level.  This hits Aruba harder, because nothing is being produced here.  To maintain the same quality of life and pay for it, Aruba will have to increasing the rates of the hotel rooms; that’s the only way.  But this is at the same time a risk, because the island must also be able to continue competing in the region.  

Mehran anticipates that it won’t be long before the population will have to settle for a lower standard of life.  That development is ‘irreversible’. 

Another development we are going to cope with is the effect on the crisis on the international financial market.  “Several financial institutions have lost a lot of money and are now extra careful with the granting of loans.”

Aruba will also experience this when she wants to take out a loan abroad.  Another important development that “fortunately had no effect yet”, is the threatening recession in the United States and its effect on our tourism.  “From the figures of the past high season it appears that there are no differences yet, but we must be very watchful of what the rest of the year may bring.”

ALTERNATIVE

Due to these developments, CBA expects the inflation to structurally stay high and now that monetary intervention has no effect, we must look for long term out of the box solutions.  Indexing the salaries to keep the standard of life up to level is just a temporary solution, emphasizes the Bank, all the more because it jacks up the prices and our country gets in a price-wage spiral.  Mehran is of the opinion that the time has come for the government and utility companies to seriously start thinking about alternative energy sources, like wind and sun and be less dependent of petroleum.

“A lot of investments make sense with the current prices.  Some utility companies said in the past that they will do something about it when one barrel of oil starts costing 30 dollars.  One barrel costs 135 dollars now and nothing is done yet.”

Mehran emphasizes that we do not need to totally abandon the petroleum as source of energy, but set off when the demand for oil becomes too big.  He is at the same time of the opinion that something needs to be done to stimulate people to use less energy.  “I see those huge cars that consume a lot of fuel.  How many hills do we actually have here in Aruba that we need SUV’s for climbing them”, said Mehran jokingly and then added seriously: “If they want to do that, fine, then they must pay.  There must be incentives for those that want to be environment-conscious.  There are currently several hybrid cars on the market and consumers must be stimulated to buy these.”