VZCZCXRO5500
RR RUEHGR
DE RUEHBE #0343/01 2062059
ZNR UUUUU ZZH
R 242059Z JUL 08
FM AMEMBASSY BELMOPAN
TO RUEHC/SECSTATE WASHDC 1392
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCNCOM/EC CARICOM COLLECTIVE
RUEHIN/AIT TAIPEI 0011

UNCLAS SECTION 01 OF 02 BELMOPAN 000343 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/CEN (ROIS BEAL) 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ETRD PGOV
SUBJECT:  GOB STILL "IMAGINING THE POSSIBILITIES" IN THE BUDGET 
 
REF: BELMOPAN 336 
 
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SUMMARY 
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¶1. (U) On July 14 2008, Prime Minister Dean Barrow presented the 
national budget for FY 2008/2009 budget.  It is a relatively 
balanced budget of US$412.4 million, up by 12.2% over last year's 
revised figure of US$367.7 million.  Much of the increase results 
from capital III expenditures aimed at projects such as paving the 
Placencia Road and the Southern Highway with funding sourced mainly 
through grant receipts and soft loans - much of it from ROC/Taiwan 
and Venezuela. End Summary. 
 
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BUDGET HIGHLIGHTS 
------------------ 
 
¶2. (U) At a meeting of the House of Representatives on July 14, 
Prime Minister and Minister of Finance Dean Barrow introduced the 
delayed national budget for FY 2007/2008.  In his opening remarks 
the Prime Minister pointed out that, "not even in the face of the 
moral, political, and economic wasteland bequeathed to us by those 
that for ten years plundered our resources, do we give any talk of 
despair, any contemplation of the slough of despond." 
 
¶3. (U) The PM reported that the economy slowed with the Gross 
Domestic Product (GDP) growth rate falling from 5.3% in 2006 to 1.6% 
in 2007.  The GDP growth rate is forecast at 2.0% for 2008. 
Notwithstanding higher world prices, inflation slowed to 2.3% for 
the year, though the first quarter of 2008 has already showed a 
sharp 4.7% increase.  Exports grew by only 0.3% while imports rose 
by 4.9% resulting in a widening of the trade deficit and a more than 
doubling of the external current account deficit to 3.4% of GDP. 
Outstanding external debt at the end of 2007 stood at US$971.8 
million, while gross international reserves were US$108.5 million -- 
about 2.3 months of export coverage.  It is a relatively balanced 
budget of US$412.4 million, up by 12.2% over last year's revised 
figure of US$367.7 million and reflects a small deficit (.31%). 
 
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A CLOSER LOOK 
-------------- 
 
¶4. (SBU) Income.  Increases in expected revenues are derived largely 
from petroleum taxes (reftel) and foreign sourced grants and loans. 
ROC/Taiwan has already provided a US$25 million grant to support the 
budget.  Venezuela's recently sweetened Petrocaribe deal is likely 
to cover at least that much this year.  The Caribbean Development 
Bank (CDB) has indicated it would provide over US$12 million in 
small loans to spur business development and Mexico, OPEC, Kuwait, 
the European Union, the International Development Bank, and the 
United Kingdom are included in the revenue lines as major 
contributors - several million US each.  Note: Last week, the GOB 
was issued a notice to pay an arbitration judgment resulting from 
the former government's improper dealings for nearly US$5 million. 
When Poloff met with the Finance Director to discuss the budget, he 
stated that the money would come from the Petrocaribe deal and that 
he was specifically instructed not to include this potential payment 
in the budget because the GOB is likely to appeal it.  End Note. 
 
¶5. (SBU) Domestic financing for the budget is expected to come from 
increased economic activity "imagining the possibilities" as the 
UDP's election campaign slogan states.  However, already this year 
two sizeable companies  - Maya Papaya and Eagle Produce -- announced 
they will be closing down and laying off hundreds. 
 
¶6. (U) The GOB announced several tax breaks including the removal of 
the General Sales Tax (GST) on a wide range of over-the-counter and 
prescription medicines and medical supplies and from certain food 
items such as powdered milk, chicken, vienna sausage, cooking oil, 
coffee and tea.  This is a direct effort, in the PM's words, to 
assist the poor.  The GOB also announced the provisions of import 
duty exemptions for agricultural machinery. 
 
¶7. (U) Expenditures.  As previously mentioned, the PM is interested 
in starting a small loan program to encourage the development of 
small businesses by year end through the CDB.  The PM allocated 
several million dollars in educational subsidies for tuition and 
books as well as a food subsidy program.  The largest expenses, 
however, are associated with infrastructure improvements - 
specifically the paving of the Placencia Road and the Southern 
Highway in addition to the permanent bridge at the Kendal crossing 
of the Sittee River to replace the one washed away by Tropical Storm 
Arthur. 
 
 
BELMOPAN 00000343  002 OF 002 
 
 
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THE OPPOSITION'S RESPONSE 
-------------------------- 
 
¶8. (U) The budget debate is taking place over the next few days but 
the leader of the opposition party (People's United Party (PUP)) has 
already publicly commented that the budget is 'hollow'.  He 
maintains that several of the projects in the budget reflect the 
fruition of projects the PUP already had in the pipeline. 
 
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COMMENT 
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¶9. (SBU) The budget does not reflect a significant deviation from 
the past.  Grants and soft loans will still represent a significant 
component of financing.  Apart from reopening the Development 
Finance Corporation there are no new initiatives that will allow the 
government to address its long-term financial difficulties.  The GOB 
continues to impose price ceilings on staple food items like flour 
and rice and provide agricultural subsidies using funds from the 
petroleum industry.  Over the long run these subsidies/ceilings will 
only create more market inefficiencies.  Consequently, the increase 
in fuel costs and commodity prices coupled with a tight fiscal 
position will continue to place pressure on the budget.  The current 
situation presents a major challenge for the GOB to reduce its 
outstanding debt.  And although self-reliance is not often a primary 
goal in Belize, the GOB will need to focus on serious economic 
development and investment opportunities in order to "realize the 
imagined possibilities."  End Comment. 
 
HILL