Baseline Study Economic Development Netherlands Antilles
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Introduction / Background:
Recently there has been an international debate about the optimal form
of development co-operation with developing countries. This debate has
revolved around two possibilities, funding on a project-basis and
budget support. The practice until now has mainly been the funding on a
project basis. Using this approach the recipient country is obliged to
formulate precise project proposals and after examining these proposals
the donor decides for each project individually whether it will be
sponsored.
Lately people have argued for an approach in which the donor will
provide money to a local development fund out of which the recipient
country can pay for the projects they want to implement. However, the
projects have to contribute to the realization of development goals
that are agreed on by donor and recipient in advance. Afterwards the
donor can assess whether the development goals were indeed realized. In
this way the responsibility for the detailed development policy shifts
to the recipient country and a less involved role for the donor becomes
possible while increasing the efficiency.
A first step in this approach between donor and recipient would be the
selection of certain socio-economic variables as indicators of
successful development. The next step would be to make a reasonable
estimate of the development of these variables in the agreed period
assuming no implementation of development policy (reference scenario).
After that the donor and recipient have to agree on the extra
development of the indicators on top of the reference scenario that may
be expected after the implementation of the development policy, a
package of measures concerning government investments (partly financed
by the donor) and measures targeted at strengthening the functioning of
the economy. Using this approach it is of course essential that at the
end of the period the agreed indicators will be measured by an
independent Statistical Office. A complication in this approach is that
it is impossible to predict the future exactly. Donor and beneficiary
might have different views and interests. In that case it might help
that an independent bureau calculates the scenarios using models in
such a way that the calculations can be reproduced later. In the
Netherlands this job is done by the CPB Netherlands Bureau for Public
Policy Analysis.
Baseline Study Netherlands Antilles
Principal: Economic Affairs Netherlands Antilles
Sponsor: Ministry of Internal Affairs the Netherlands
The governments of the Netherlands and the Netherlands Antilles have
recently agreed to start using this budget support approach to
development aid. The Netherlands Antilles are an autonomous part of the
Kingdom of the Netherlands, actually a federation of five Caribbean
islands which each autonomous economic policy. Consequently there was a
need for the estimation of a reference and a policy scenario for each
island, as well as the total. After a tender the ministry of Economic
Affairs of the Netherlands Antilles granted the task of making these
scenarios in cooperation with the different island governments in a
period of only four months to Micromacro Consultants (MMC).
MMC is an independent bureau that operates in four different continents
building and advising government agencies about macro-models. One of
it’s projects was the construction of a macro-model for the island of
Curaçao. For the baseline study of the Netherlands Antilles this model
was expanded with separate models for the five different islands and
the sum of these models as model for the Netherlands Antilles as a
whole. The total of these models is called Antillyse which also
contains poverty modules for the different islands. With the help of
these poverty modules it is possible to calculate the number of adult
persons under a given income line (for example a net income of 1000 NAF
per month) for as well the reference as the policy scenario.
Project structure
During the baseline study for the Netherlands Antilles MMC, in
cooperation with the entities (the island governments of Saba, St.
Eustatius, Bonaire, St. Maarten and the country government of the
Netherlands Antilles), has improved where necessary the already
existing Sustainable Economic Development Programs (SEDP) and
determined the socio-economic indicators. These indicators were agreed
upon: number of tourists divided into cruise tourists and stay-over
tourists, other export, GDP, employment, unemployment, purchasing power
development and the number of persons below a certain income line. With
the help of the Antillyse model figures were produced for these
variables for the present situation and the expected development
without financial means for development policy (the reference scenario,
or baseline) as well as an estimation of the effects of development
policy (policy scenario). With the help of these calculation results it
will be possible to monitor the SEDP’s output next years: comparison of
the scenario figures with the realized figures that will be provided by
the independent Central Bureau of Statistics of the Netherlands
Antilles.
The construction of the rapports on the SEDP’s for the different
islands and the Netherlands Antilles as a whole consisted of the
following steps:
- The first step was the collection and study of relevant statistical
and other documents per island to update the available databases up
till the year 2003. On the basis of these databases the Antillyse model
was used to calculate the reference scenario’s.
- Next to the planned development projects financed with donor money
from the Netherlands the SEDP’s also took into account the funding the
island governments could do with own means or by changing project
priorities. Moreover, additional investment by enterprises, induced by
a combination of relevant economic government investment as well as a
market oriented development policy leading to a higher labour
productivity and, using wage moderation, higher profit rates, is also
taken into account here.
- In the next step the initial policies formulated by the island
governments were assessed and on each island MMC discussed with the
government how the long list of possible projects could be reduced to
fit the financial possibilities. After this for every island and for
every year the following variables were calculated:
- The size of the extra government investments financed with donor money,
- The additional investments by the island government,
- The expected additional rise of investment by enterprises
- The direct effect on exports (tourism and other export separately)
- The additional rise in productivity.
Intensive discussion between MMC and the entities was necessary
concerning c, e and d, because the results of this step are a
combination of on the one hand the output of micro-economic
calculations and on the other hand expert opinion about what level of
the indicator targets is possible according to the experts and in light
of the available funding. In a later stage the board of the Development
Fund will only finance those projects that contribute a certain minimum
per invested guilder to the targets (for example additional number of
tourists).
- Then these figures were used as input for the macro-economic model
and the macro model was used to estimate the policy effects on GDP,
labour market and poverty.
- The calculations were initially made preliminary. The preliminary
results were later discussed and improved during several meetings with
experts on the different islands.
Thanks to the baseline study it is easier for the different entities
involved (island government and country government) and the Development
Fund to monitor and measure the effects of development policy. This
also holds for the donors, in this case The Netherlands, that can use
the economic indicators in the different SEDP’s to assess the results
of development aid and can leave the responsibility for individual
project decision making to the newly formed Development Fund.
Output of the Baseline Study
During this project MMC did not only construct and use a macro-economic
model. It also improved and finished Sustainable Economic Development
Programs for 4 islands and the country as a whole. This was all done in
close cooperation with officials and experts on the different islands.
Within the SEDP’s there is now consensus between the recipient and the
donor on the amount of funds provided and on with what goals in mind
these funds will be spend in the coming four years. There is also
agreement on the economic indicators of development policy and on the
target levels of these indicators after the implementation of the
development policy.
The Baseline Study MMC team
For the approach that was followed in during the baseline study it was
necessary to form a team containing various forms of expertise,
international experience with economic monitoring and baseline studies,
detailed knowledge of the economic situation on the Netherlands
Antilles and up-to-date knowledge of and experience with the relevant
Dutch policy practice.
The team consisted of:
- Dr. Marein van Schaaijk, director of MMC,
- Drs. Koos van Dijken, expert government expenditure analysis,
- Drs. Jeroen Reijnen, former acting head DEZ Curaçao, Projectleader,
- Drs. Bas van Tuijl (economist),
- Drs. Candice Henriquez (October/November 2003, economist)
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