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Country Commercial Guides for FY 2000: Belize Report prepared by U.S. Embassy Belize City, released July 1999 Note*

II. ECONOMIC TRENDS AND OUTLOOK

MAJOR TRENDS AND OUTLOOK:

WITH A CHANGE OF GOVERNMENT IN AUGUST 1998, THE PEOPLE'S UNITED PARTY (PUP) ADMINISTRATION, LED BY PRIME MINISTER SAID MUSA, RESUMED EXPANSIONARY FISCAL AND MONETARY POLICIES SIMILAR TO THOSE THE PUP ADMINISTRATION HAD IMPLEMENTED DURING ITS PREVIOUS TERM IN OFFICE DURING 1990-93. BY THE END OF 1998, THE GOVERNMENT HAD ALREADY TAKEN SEVERAL BOLD STEPS TO JUMP-START THE ECONOMY, INCLUDING: 1) LOWERING THE LIQUIDITY AND CASH RESERVE REQUIREMENTS OF COMMERCIAL BANKS, 2) INCREASING GOVERNMENT SPENDING ON CAPITAL PROJECTS ACROSS THE COUNTRY, AND 3) CREATING A SMALL FARMERS AND BUSINESS BANK. ON APRIL 1999, THE GOVERNMENT CONTINUED WITH ITS EXPANSIONARY POLICIES BY INTRODUCING NEW ECONOMIC SCHEMES, INCLUDING: 1) REPLACING THE VALUE ADDED TAX WITH A SALES TAX, 2) AMENDING THE BUSINESS TAX, 3) ABOLISHING THE TAX ON SAVINGS, AND 4) LOWERING IMPORT DUTY ON NUMEROUS ITEMS.

HOWEVER, BECAUSE THESE NEW POLICIES WERE IMPLEMENTED IN LATE 1998 AND EARLY 1999, THEY HAD LITTLE IMPACT ON THE OVER ALL ECONOMIC PERFORMANCE OF BELIZE IN 1998. IN EFFECT, THEN, THE 1998 ECONOMIC PERFORMANCE OF THE COUNTRY WAS LARGELY THE RESULT OF THE ECONOMIC POLICIES OF THE UNITED DEMOCRATIC PARTY ADMINISTRATION.

THE PERFORMANCE OF THE BELIZEAN ECONOMY IN 1998 CAN THUS BE CHARACTERIZED AS SLUGGISH. THE GROSS DOMESTIC PRODUCT (GDP) LAST YEAR IS ESTIMATED AT $630 MILLION, GIVING BELIZE A PER CAPITA INCOME OF APPROXIMATELY $2,647 -- HIGHER THAN MOST OF ITS CENTRAL AMERICAN NEIGHBORS. REAL GDP GROWTH IN 1998 STOOD AT 1.4 PERCENT, COMPARED TO 4 PERCENT IN 1997. THIS TREND WAS LARGELY DUE TO A DECLINE IN TOTAL OUTPUT OF BELIZE'S THREE MAIN AGRICULTURAL CROPS -- SUGAR, CITRUS, AND BANANAS -- WHICH ARE CONSIDERED TO BE THE BACKBONE OF THE BELIZEAN ECONOMY.

THE CONSUMER PRICE INDEX, AFTER CLIMBING TO AN ALL TIME HIGH OF 6.4 PERCENT IN 1996 AND THEN FALLING TO 1 PERCENT IN 1997, CONTINUED ITS DECLINING TREND LAST YEAR TO A NEGATIVE 0.8 PERCENT. HOWEVER, WITH THE INTRODUCTION OF AN 8 AND 12 PERCENT SALES TAX TO REPLACE THE 15 PERCENT VAT, IT IS EXPECTED THAT THE RATE OF INFLATION WILL GO UP IN 1999, AS THE NEW SALES TAX IS MORE BROAD BASED THAN THE VALUE ADDED TAX.

BECAUSE BELIZE IS HEAVILY DEPENDENT UPON IMPORTS, INTERNATIONAL BORROWING, AND FOREIGN INVESTMENT WHICH REQUIRES REPATRIATION OF PROFITS, THE AVAILABILITY OF HARD CURRENCY IS WATCHED CLOSELY. THE NET FOREIGN ASSETS (NFA) OF THE BANKING SYSTEM CONTINUED TO DECLINE LAST YEAR, FROM A HIGH OF $71.4 MILLION IN 1996, $64.6 MILLION IN 1997 TO $50.9 MILLION IN 1998.

AT THE END OF 1998, EXTERNAL PUBLIC DEBT STOOD AT $256.9 MILLION, OF WHICH MULTILATERAL DEBT ACCOUNTED FOR 44.7 PERCENT AND BILATERAL DEBT SOME 33.3 PERCENT. COMMERCIAL AND SUPPLIERS' CREDIT ACCOUNTED FOR 18.8 PERCENT AND 3.2 PERCENT RESPECTIVELY. LAST YEAR'S PUBLIC DEBT INCREASED BY $15.8 MILLION OVER 1997 FIGURE.

THE BELIZEAN ECONOMY IS UNLIKELY TO SOON REGAIN THE HIGH GROWTH RATES OF THE MID-1980'S. ECONOMIC GROWTH IN 1999 IS PROJECTED TO BE IN THE RANGE OF 3 TO 4 PERCENT. THIS PROJECTION IS LARGELY DEPENDENT UPON STABLE WORLD PRICES FOR BELIZE'S MAJOR AGRICULTURAL EXPORTS, CONTINUED GROWTH IN THE NORTH AMERICAN ECONOMY, AND PREFERENTIAL TRADING AGREEMENTS SUCH AS THE CARIBBEAN BASIN INITIATIVE (CBI) AND THE LOME CONVENTION.

THE CITRUS INDUSTRY DID NOT PERFORM AS EXPECTED, AS ORANGE AND GRAPEFRUIT PRODUCTION DECLINED SHARPLY BY 17.3 AND 18.9 PERCENT, RESPECTIVELY, COMPARED TO 1997 PRODUCTION FIGURES OF 6 MILLION BOXES OF ORANGE AND 4.6 MILLION BOXES OF GRAPEFRUIT. UNFAVORABLE WEATHER CONDITIONS, LOW FRUIT PRICES, AND LABOR SHORTAGE ARE THE THREE MAJOR FACTORS THAT CONTRIBUTED TO A DOWNTURN IN CITRUS PRODUCTION LAST YEAR. TOTAL ACREAGE UNDER CITRUS CULTIVATION IN BELIZE HAS REMAINED STABLE AT ABOUT 57,000 ACRES OVER THE PAST TWO YEARS, OF WHICH 8,500 ACRES ARE GRAPEFRUIT ORCHARDS AND THE REMAINING 48,500 ACRES ARE ORANGE. OF THE TOTAL ACRES UNDER CULTIVATION, 20,000 ACRES HAVE TREES FOUR YEARS OR YOUNGER. WITH SO MANY YOUNG TREES MATURING, AND ASSUMING THAT WORLD PRICES FOR CITRUS CONCENTRATE REMAIN ATTRACTIVE, INDUSTRY EXPERTS PREDICT THAT CITRUS PRODUCTION WILL INCREASE CONSIDERABLY BEFORE 2002.

IT IS ALSO EXPECTED THAT THE CITRUS INDUSTRY WILL BE MORE COMPETITIVE AND EFFICIENT IN THE FUTURE, NOW THAT THE COUNTRY'S ONLY TWO CITRUS PROCESSING PLANTS, ALONG WITH A SUBSTANTIAL AMOUNT OF AGREAGE OF CITRUS ORCHARDS, HAVE BEEN PURCHASED BY THE COMMONWEALTH DEVELOPMENT CORPORATION (CDC).

A TOTAL OF 118,111 TONS OF SUGAR WERE PROCESSED IN 1998, REPRESENTING A DECLINE OF 4.6 PERCENT OVER 1997 OUTPUT. THIS DOWNTURN IN PROCESSING EFFICIENCY WAS DUE TO LOWER CANE QUALITY, INSPITE OF CANE PURITY INCREASING MARGINALLY. SUGAR EXPORTS DECREASED BY 3.1 PERCENT OVER 1997 EXPORT FIGURE. LIKEWISE, EXPORT EARNINGS DECLINED FROM $46 MILLION IN 1997 TO $44.5 MILLION IN 1998, A DECLINE OF 3.2 PERCENT. NO MAJOR EXPANSION OR UPGRADE OF THE SUGAR CANE MILL IS PLANNED FOR THE SHORT-TERM THAT CAN INCREASE THE QUANTITY OF PROCESSED CANE SUGAR IN 1999. PROVIDED THAT AGRONOMIC AND CLIMATIC CONDITIONS AND WORLD AND PREFERENTIAL PRICES ARE THE SAME IN 1999 AS IN 1998, TOTAL OUTPUT AND FOREIGN EXCHANGE EARNINGS WILL REMAIN AT CONSTANT LEVELS THIS YEAR AS IN THE PREVIOUS CROP.

TOTAL BANANA OUTPUT IN 1998 STOOD AT 50,904 METRIC TONS, A DECLINE OF ABOUT 20,000 METRIC TONS OVER 1997 PRODUCTION OUTPUT. THIS TREND WAS DUE TO THE INDUSTRY'S DECISION TO REDUCE THE TOTAL PRODUCTIVE ACREAGE FROM 5,388 TO 3,623 SO THAT THE TOTAL OUTPUT NEEDED TO SUPPLY THE EUROPEAN QUOTA CAN BE ACHIEVED MORE EFFICIENTLY. IN 1998, 50,580 METRIC TONS OF BANANAS WERE EXPORTED TO EUROPE, BRINGING IN $24.6 MILLION IN FOREIGN EXCHANGE EARNINGS -- $1.4 MILLION LESS THAN IN 1997. DESPITE THE FINAL OUTCOME OF THE EU/US BANANA DISPUTE, THE LOCAL INDUSTRY EXPECTS TO CONTINUE TO MEET ITS EU BANANA QUOTA OF 55,000 METRIC TONS IN 1999. AGAIN, THE FINAL QUANTITY PRODUCED IN 1999 IS DEPENDENT ON AGRONOMIC AND CLIMATIC CONDITIONS.

THE FISHERIES INDUSTRY IS THE ONLY INDUSTRY THAT DID EXCEPTIONALLY WELL FOR THREE CONSECUTIVE YEARS. FOREIGN EXCHANGE EARNINGS OF MARINE PRODUCTS WENT UP FROM $12.2 MILLION IN 1996, $17.8 MILLION IN 1997 TO $21.7 MILLION LAST YEAR. LOCAL FISHERIES OFFICIALS ATTRIBUTE THIS TREND TO AN INCREASE OF ACREAGE OF SHRIMP FARMS. EXPORTS OF FARMED SHRIMPS ALMOST TRIPLED DURING THIS PERIOD, FROM 1.1 MILLION POUNDS IN 1996 TO 3 MILLION IN 1998. ALSO, FOREIGN EXCHANGE EARNINGS FROM FARMED SHRIMP EXPORTS REPRESENTED CLOSE TO 55 PERCENT OF TOTAL EARNINGS FROM ALL MARINE PRODUCTS LAST YEAR. THE INDUSTRY EXPECTS TO DO WELL AGAIN IN 1999, WITH FARMED SHRIMP PRODUCTION TO CONTINUE TO BE THE MAJOR FOREIGN EXCHANGE EARNER OF ALL THE OTHER MARINE PRODUCTS.

TOURIST ARRIVALS CONTINUED TO INCREASE, FROM 112,2OO VISITORS IN 1997 TO 119,400 IN 1998. THIS INCREASE REPRESENTS ALSO AN INCREASE IN EARNINGS FOR THE INDUSTRY, FROM $95 MILLION IN 1997 TO $105.3 MILLION LAST YEAR. THIS POSITIVE TREND IS EXPECTED TO CONTINUE AS A RESULT OF THE AGGRESSIVE MARKETING AND PROMOTION CAMPAIGNS STARTED IN 1995 AND NEW EFFORTS BY THE RE-STRUCTURED BELIZE TOURIST BOARD.

PRINCIPAL GROWTH SECTORS:

PRIMARY ACTIVITIES: IN 1998, THE COMBINATION OF AGRICULTURE, FORESTRY, FISHING, AND MINING ACCOUNTED FOR 20.7 PERCENT OF TOTAL GDP, A TREND THAT HAS BEEN STABLE FOR THE PAST DECADE. AGRICULTURE ALONE CONTRIBUTED 15.3 PERCENT OF TOTAL GDP. EXPORTS EARNINGS FROM SUGAR, CITRUS CONCENTRATE, BANANAS -- BELIZE'S THREE MAJOR AGRICULTURAL PRODUCTS -- HAVE BEEN DECLINING FOR THREE CONSECUTIVE YEARS: $109.9 MILLION IN 1997, $107.9 MILLION IN 1997, AND $98.6 MILLION IN 1998. IN CONTRAST, EXPORT EARNINGS FROM MARINE PRODUCTS WENT UP FROM 7.9 PERCENT OF TOTAL DOMESTIC EXPORT EARNINGS IN 1996, 11.2 PERCENT IN 1997 TO 14 PERCENT LAST YEAR.

IN THE LONG-TERM, THE GROWING MOVE TOWARD FREER TRADE COULD ERODE SOME OF THE PREFERENTIAL MARKET ARRANGEMENTS BELIZE CURRENTLY ENJOYS. IN EFFECT, THE FUTURE OF BELIZE'S AGRICULTURE SECTOR -- THE BANANA INDUSTRY, IN PARTICULAR -- PROMISES TO BE QUITE TURBULENT, UNLESS IT FINDS WAYS TO BECOME MORE EFFICIENT IN A HIGHLY-COMPETITIVE AND INCREASINGLY LIBERALIZED INTERNATIONAL MARKET.

SERVICE ACTIVITIES: TOURISM CONTINUES TO TAKE ON INCREASING ECONOMIC IMPORTANCE FOR BELIZE. REVENUES FROM TOURISM INCREASED BY $10.3 MILLION, FROM $95 MILLION IN 1997 TO $105.3 MILLION LAST YEAR. THIS GROWTH MAKES TOURISM SECOND ONLY TO AGRICULTURE IN TERMS OF FOREIGN EXCHANGE EARNINGS. AS IN THE PAST, THE MAJORITY OF THE TOURISTS LAST YEAR CAME FROM THE U.S., FOLLOWED BY CANADA AND THE UNITED KINGDOM.

OFFSHORE SERVICES ARE RELATIVELY NEW TO BELIZE, BUT SHOW A SIGNIFICANT POTENTIAL FOR GROWTH. SINCE 1990, OVER 10,000 OFFSHORE BUSINESSES AND TRUSTS HAVE BEEN REGISTERED IN BELIZE. IN AUGUST 1996, THE OFFSHORE BANKING ACT WAS ADDED TO THE GROWING LEGAL INFRASTRUCTURE FOR OFFSHORE SERVICES. AT THE SAME TIME, A MONEY-LAUNDERING (PREVENTION) ACT WAS PASSED TO ENHANCE THE REPUTATION AND VIABILITY OF BELIZE'S OFFSHORE SERVICES SECTOR. THE CENTRAL BANK OF BELIZE HAS SO FAR GRANTED LICENCE TO ONLY ONE OFFSHORE BANK TO OPERATE IN BELIZE.

SECONDARY ACTIVITY: FOR THREE CONSECUTIVE YEARS, THE GARMENT INDUSTRY HAS RECORDED POSITIVE GROWTH. IN 1996, TOTAL EXPORT EARNINGS STOOD AT $17.8 MILLION, INCREASING TO $18.8 MILLION IN 1997 AND $19.6 MILLION LAST YEAR. IN 1998, THE GARMENT MANUFACTURING SECTOR RANKED SIXTH IN TOTAL FOREIGN EXCHANGE EARNINGS OF ALL SECTORS OF THE BELIZEAN ECONOMY AFTER TOURISM ($105.3 MILLION), CANE SUGAR ($44.5 MILLION), CITRUS ($29.5 MILLION), BANANAS ($24.6 MILLION), AND MARINE PRODUCTS ($21.7 MILLION).

GOVERNMENT ROLE IN THE ECONOMY:

THE PEOPLE'S UNITED PARTY (PUP) ADMINISTRATION OF PRIME MINISTER SAID MUSA CAME TO POWER IN AUGUST 1998 WITH THE PROMISE OF IMPLEMENTING BOLD ECONOMIC CHANGES IN ORDER TO JUMP-START THE BELIZEAN ECONOMY. THE PUP ADMINISTRATION REFERS TO THIS ALTERNATIVE ECONOMIC STRATEGY AS GROWTH ECONOMICS, WHOSE MAJOR ECONOMIC CHARACTERISTIC ENTAILS LOWERING TAXES SO AS TO STIMULATE CONSUMPTION AND INVESTMENT AND INCREASING GOVERNMENT SPENDING TO ACHIEVE FULL EMPLOYMENT AND ALLEVIATE POVERTY.

TO THIS END, THE GOB HAS IMPLEMENTED SEVERAL CHANGES, THE BOLDEST ONE BEING THE REPLACEMENT OF THE 15 PERCENT VALUE ADDED TAX (VAT) -- IMPLEMENTED IN APRIL 1996 -- WITH TWO SALES TAX RATES OF 12 PERCENT FOR PETROLEUM PRODUCTS, ALCOHOL AND TOBACCO, AND 8 PERCENT FOR ALL OTHER COMMODITIES. STAPLE FOOD ITEMS SUCH AS RICE, BEANS, CORN, FRESH MEAT, FLOUR, SUGAR, EGGS, BREAD AND TORTILLA ARE SALES TAX EXEMPTED. THE GOB ALSO AMENDED THE BUSINESS TAX -- WHICH HAD JUST BEEN IMPLEMENTED IN JULY 1998 -- BY REDUCING MOST RATES AND INCREASING THE RATE ONLY ON PROFESSIONAL SERVICE PROVIDERS, SUCH AS LAWYERS, ACCOUNTANTS AND DOCTORS. THE BUSINESS TAX AMENDMENT ALSO ALLOWED FOREIGN INVESTORS IN BELIZE TO MEET TAX OFFSET REQUIREMENTS IN THEIR RESPECTIVE COUNTRIES.

IN ORDER TO BOOST THE PRODUCTIVE SECTOR OF THE ECONOMY, THE GOB LOWERED THE LIQUIDITY AND CASH RESERVE REQUIREMENTS OF COMMERCIAL BANKS IN NOVEMBER 1998. THE LIQUIDITY REQUIREMENTS WENT DOWN FROM 26 TO 24 PERCENT, WHILE THE CASH RESERVE REQUIREMENT WAS REDUCED FROM 7 TO 5 PERCENT. THE NET EFFECT OF THIS EXPANSIONARY MONETARY POLICY IS AN INCREASE OF FUNDS THAT BANKS CAN LEND TO THEIR CUSTOMERS. SIMILARLY, IN AN EFFORT TO EXPAND CREDIT AT A LOW-INTEREST RATE TO MICRO-ENTERPRISES, THE GOB ESTABLISHED THE SMALL FARMERS AND BUSINESS BANK IN NOVEMBER 1998 AND HAS ALREADY ALLOCATED $4 MILLION TO THE BANK, COURTESY OF A SOFT LOAN FROM THE GOVERNMENT OF TAIWAN. GOVERNMENT HOPES TO ENCOURAGE SMALL ENTREPRENEURS, ESPECIALLY WOMEN, TO INVEST IN NON-TRADITIONAL SECTORS OF THE ECONOMY, THUS CREATING EMPLOYMENT OPPORTUNITIES FOR MINORITIES.

THE GOVERNMENT HAS SECURED A $50 MILLION SOFT LOAN ALSO FROM THE TAIWANESE GOVERNMENT TO BUILD HOUSES AS PART OF THE ADMINISTRATION'S COMMITMENT TO BUILD 10,000 HOUSES DURING ITS 1998/2003 TERM IN OFFICE. IN AN EFFORT TO RAISE THE FINANCE TO FUND ITS MULTI-MILLION HOUSING PROJECT, THE GOB HAS CREATED A SECONDARY MARKET FOR BELIZEAN MORTGAGES THROUGH A MORTGAGE SECURITIZATION PROGRAM. THE FIRST OF THIS INITIATIVE HAS BROUGHT $23.5 MILLION TO THE GOVERNMENT TREASURY FOR HOUSE CONSTRUCTION.

THE GOVERNMENT PLANS TO CARRY OUT OTHER SHORT-TERM INITIATIVES TO IMPROVE THE STANDARD OF LIVING OF BELIZEANS. THESE ARE: 1) IMPROVING THE LEVEL OF PRIMARY EDUCATION BY BUILDING NEW CLASSROOMS, 2) ASSISTING RURAL COMMUNITIES IN SOUTHERN BELIZE TO EMPLOY PRODUCTIVE AND SUSTAINABLE LAND USE SYSTEMS, 3) INITIATING A LAND ADJUDICATION SYSTEM FOR GRANTING SECURE LAND TENURE, AND 4) ELIMINATING POVERTY IN RURAL AREAS.

THE GOB ALSO RECOGNIZES THAT IMPROVING THE PHYSICAL INFRASTRUCTURE OF THE COUNTRY IS IMPORTANT FOR ATTRACTING FOREIGN INVESTORS TO BELIZE. WITH THIS IN MIND, THE GOB IS MOVING FORWARD WITH THE REHABILITATION OF THE ENTIRE SOUTHERN HIGHWAY AND OTHER MAJOR ROADS ACROSS BELIZE. IT WILL ALSO IMPROVE UPON THE PRESENT HEALTH SYSTEM, ENSURING THAT QUALITY AND AFFORDABLE HEALTH SERVICES ARE AVAILABLE TO ITS CITIZENS.

THE MINISTRY OF COMMERCE AND INDUSTRY (MCI) IS WORKING ON A PROPOSAL TO ESTABLISH AN INDUSTRIAL DEVELOPMENT OFFICE AS PART OF THE MINISTRY'S PLANS TO ENCOURAGE AND PROMOTE INDUSTRIAL DEVELOPMENT OF NON-TRADITIONAL INDUSTRIES OF THE PRODUCTIVE SECTOR. THE PROPOSAL CALLS FOR THE OFFICE TO BE RUN BY AN INDUSTRIAL DEVELOPMENT BOARD. THE OFFICE WILL ALSO HAVE THE MANDATE TO ENSURE THE GRADUAL REMOVAL OF QUANTITATIVE IMPORT RESTRICTIONS ON THE 27 CATEGORIES OF PRODUCTS THAT PRESENTLY REQUIRE LICENSES PRIOR TO IMPORTATION.

FORMERLY WITHIN THE MINISTRY OF INDUSTRY, THE TRADE AND INVESTMENT PROMOTION SERVICE (TIPS) AND THE TRADE POLICY UNIT (TPU) HAVE NOW BEEN MOVED TO THE MINISTRY OF TRADE AND INVESTMENT. THEIR FUNCTIONS, HOWEVER, REMAIN THE SAME. TIPS SERVES AS A ONE-STOP SHOP FOR INVESTORS AND ASSISTS LOCAL EXPORTERS, WHILE TPU HANDLES TRADE POLICY ISSUES RESULTING FROM ON-GOING DELIBERATIONS ON GLOBAL TRADE LIBERALIZATION (E.G., U.S./EU/ACP BANANA ISSUE, FREE TRADE AREA OF THE AMERICAS, AND BELIZE/MEXICO BILATERAL TRADE AGREEMENT).

LIKEWISE, THE INTERNATIONALLY-FINANCED SOCIAL INVESTMENT FUND (SIF), OFFICIALLY LAUNCHED IN 1997, CONTINUES TO ADDRESS THE BASIC HUMAN NEEDS OF BELIZE'S POOREST CITIZENS. IT IS BUILT ON THE IDEA OF COMMUNITY PARTICIPATION THROUGH COLLABORATIVE EFFORTS BETWEEN THE GOB AND COMMUNITY, REGIONAL, NATIONAL, AND INTERNATIONAL ORGANIZATIONS. THE MAIN GOAL OF SIF IS TO PROVIDE COMMUNITY-BASED SUSTAINABLE SOLUTIONS TO THE SOCIAL AND ECONOMIC PROBLEMS OF THE POOR WITH CONSIDERATION FOR THE SPECIAL NEEDS OF WOMEN, CHILDREN, AND YOUTH.

SOON TO BE ESTABLISHED IS THE PUBLIC UTILITIES COMMISSION, WHOSE FUNCTION WILL BE TO REGULATE THE PROVISION OF PUBLIC UTILITIES IN BELIZE WITH THE VIEW OF REDUCING UTILITY RATES. THE COMMISSION WILL BE AN AUTONOMOUS BODY WITH ONE REPRESENTATIVE EACH FROM THE PUBLIC UTILITIES (WATER, TELEPHONE, AND ELECTRICITY), TRADE UNION CONGRESS, CIVIL SOCIETY AND TIPS.

PRIOR TO JULY 1996, BELIZE'S LEGAL INFRASTRUCTURE OF THE OFFSHORE FINANCIAL SERVICES SECTOR INCLUDED ONLY THE REGISTRATION OF MERCHANT SHIPS ACT (1989), INTERNATIONAL BUSINESS COMPANY ACT (1990), AND THE TRUST ACT (1992). IN AUGUST 1996, HOWEVER, THE GOB ENACTED THE OFFSHORE BANKING ACT IN ORDER FOR THE COUNTRY TO REMAIN COMPETITIVE IN THE GLOBAL OFFSHORE FINANCIAL BUSINESS. TO COMPLEMENT THE OFFSHORE BANKING ACT AND TO AVOID THE SPIN-OFFS OF ILLEGAL ACTIVITIES OCCURRING IN BELIZE, THE GOB IMPLEMENTED, ALSO IN AUGUST 1996, THE MONEY LAUNDERING (PREVENTION) ACT.

ADDITIONALLY, IN AN EFFORT TO ATTRACT ADDITIONAL CAPITAL INTO THE COUNTRY, THE GOVERNMENT HAS RECENTLY PASSED SEVERAL PIECES OF LEGISLATION. EXAMPLES OF THESE STATUTES INCLUDE: 1) THE RETIRED PERSONS ACT, WHICH SEEKS TO ENCOURAGE FOREIGN RETIREES TO COME TO RETIRE IN BELIZE BY PROVIDING THEM TAX EXEMPTIONS, 2) THE GAMING CONTROL ACT, WHICH SEEKS TO REGULATE AND ENCOURAGE GAMING IN BELIZE, 3) THE INTERNATIONAL INSURANCE ACT, WHICH SEEKS TO PROMOTE INTERNATIONAL INSURANCE BUSINESS BY BELIZE-BASED COMPANIES TO PERSONS OR BUSINESSES NOT DOMICILED IN BELIZE, AND 4) THE MUTUAL FUNDS ACT, WHICH SEEKS TO ATTRACT COMPANIES TO BELIZE TO MANAGE MUTUAL FUNDS FOR COLLECTIVE INVESTMENT.

SO THAT BELIZE'S OFFSHORE FINANCIAL SECTOR CAN BE DEVELOPED AS A REPUTABLE AND VIABLE INDUSTRY WITH AN APPROPRIATE OVERSIGHT AND REGULATORY AUTHORITY IN PLACE, THE GOB HAS PASSED THE INTERNATIONAL FINANCIAL SERVICES COMMISSION ACT. ITS FUNCTION IS TO PROMOTE, PROTECT AND ENHANCE BELIZE AS AN OFFSHORE FINANCIAL SERVICES CENTER AND TO SUPERVISE THE PROVISION OF INTERNATIONAL FINANCIAL SERVICES WITHIN BELIZE.

BALANCE OF PAYMENTS:

FOR THE PAST THREE CONSECUTIVE YEARS, BELIZE'S CURRENT ACCOUNT DETERIORATED DUE MOSTLY TO A CORRESPONDING DETERIORATION OF ITS TRADE BALANCE. IN 1998, BELIZE RECORDED A CURRENT ACCOUNT DEFICIT OF $53.5 MILLION, $21.6 MILLION AND $49.3 MILLION MORE THAN IN 1997 AND 1996, RESPECTIVELY. ON THE IMPORT AND EXPORT SIDE OF THE CURRENT ACCOUNT ITEM, BELIZE'S 1998 TRADE DEFICIT INCREASED BY $47.7 MILLION OVER 1996 TRADE DEFICIT OF $88 MILLION. THE WIDENING OF THE TRADE DEFICIT SINCE 1996 IS LARGELY DUE TO AN INCREASE IN PURCHASES OF MANUFACTURED GOODS FOR THE INDUSTRIAL AND CONSTRUCTION SECTORS.

THE CAPITAL ACCOUNT ALSO RECORDED DEFICITS FOR THE PAST THREE YEARS. STARTING IN 1996 WITH A CAPITAL ACCOUNT DEFICIT OF $2.2 MILLION AND THEN WORSENING IN 1997 TO $3.4 MILLION, BELIZE MANAGED TO BRING THIS FIGURE DOWN IN 1998 TO A DEFICIT OF $1.3 MILLION. THE FINANCIAL ACCOUNT, ON THE OTHER HAND, HAS SEEN SURPLUSES: $11.5 MILLION IN 1996, $30.2 MILLION IN 1997, AND $25.4 MILLION IN 1998. UNLIKE 1996 AND 1997 WHEN THE ECONOMY RECORDED OVERALL BALANCE OF PAYMENTS SURPLUSES OF $20.9 MILLION AND $1.0 MILLION, RESPECTIVELY, BELIZE ENDED LAST YEAR WITH A DEFICIT OF $15.4 MILLION.

INFRASTRUCTURE:

WORK CONTINUES ON THE REHABILITATION OF THE ENTIRE SOUTHERN HIGHWAY AND THE PAVING OF THE LAST 17 MILES OF THE HUMMINGBIRD HIGHWAY NEAR BELMOPAN. WHEN BOTH PROJECTS ARE COMPLETED, THE ENTIRE COUNTRY WILL THEN BE CONNECTED BY A TWO-LANE PAVED HIGHWAY. IN MID-1998, A 12-MILLION EXPANSION PROJECT AT THE COUNTRY'S ONLY INTERNATIONAL AIRPORT WAS ALSO COMPLETED. IN SPITE OF ALL THESE MAJOR INFRASTRUCTURE IMPROVEMENTS, THE GENERAL CONDITION OF BELIZE'S PHYSICAL INFRASTRUCTURE CONTINUES TO BE A MAJOR CONSTRAINT ON THE ECONOMIC DEVELOPMENT OF THE COUNTRY.

FOR INSTANCE, LARGE TRACTS OF LAND WHICH WOULD BE SUITABLE FOR DEVELOPMENT ARE INACCESSIBLE DUE TO LACK OF ROADS, AND MANY EXISTING ROADS ARE IMPASSABLE DURING THE RAINY SEASON. DESPITE BELIZE'S RELATIVELY HIGH PER CAPITA INCOME, ITS SMALL ECONOMY HAS DIFFICULTY GENERATING SUFFICIENT CAPITAL AND INVESTMENT FOR INFRASTRUCTURE DEVELOPMENT. THAT IS WHY BELIZE CONTINUES TO RELY EITHER ON HIGH-COST FINANCING FROM FOREIGN FINANCIAL INSTITUTIONS OR THE GENEROSITY OF DONORS SUCH AS THE U.S., THE UNITED KINGDOM, THE EUROPEAN UNION, THE REPUBLIC OF CHINA (TAIWAN), KUWAIT, AND THE INTER-AMERICAN DEVELOPMENT BANK (IDB). THESE DONORS HAVE ALL CONTRIBUTED TO RECENT AND ON-GOING INTERNAL ROAD IMPROVEMENTS.

ON THE OTHER HAND, INTERNATIONAL TRANSPORTATION IS RELATIVELY GOOD. PORTS IN BELIZE CITY AND BIG CREEK HANDLE REGULARLY SCHEDULED SHIPPING FROM THE U.S. AND THE UNITED KINGDOM, ALTHOUGH DRAFT IS LIMITED TO A MAXIMUM OF 15 FEET IN BELIZE CITY AND 22 FEET IN BIG CREEK. INTERNATIONAL AIR SERVICE IS PROVIDED BY AMERICAN AIRLINES, CONTINENTAL AIRLINES, AND TACA.