Today examines Jeff Berger’s claims Flying to St. Maarten is cheap, dollarization a no-brainer

POSTED: 06/10/13 1:38 PM

By Jason Lista , St. Maarten – Jeff Berger, editor of the online St. Maarten Weekly News, identified last week 12 problem areas on St. Maarten he hopes to see addressed by the government in order to improve the economy and the vacation experience. His online newsletter, with over 3.5 million hits, is widely read so it’s worth looking into what he is writing about the island. Last Saturday Today printed his story. He makes a lot of claims in it, but claims need to be backed by facts. We take a look at three vital areas he highlights in his plan, holding his claims up to a critical eye.

Is St. Maarten expensive to fly to?

Berger writes that “fares to SXM from key gateways are among the highest in the Caribbean”. Assuming that the “key gateways” he mentions are cities like New York, Philadelphia, Chicago, and Newark, we compared the price of travelling to St. Maarten from these destinations with direct competitors like Jamaica, Aruba, Antigua, St. Kitts, St. Lucia, the Dominican Republic, and Martinique. We did not include the US Virgin Islands as they have built in advantages by being an American territory. Using a popular travel website like Expedia, which collects and compares fares from all major carriers and lists every fare from cheapest to most expensive, and plugging in the same travel dates for all destinations from the same US cities to the different islands, the results disprove his claim. In fact, contrary to Berger’s claim, St. Maarten almost always comes in cheaper than most, only being marginally more expensive to travel to than Aruba on occasion. By far the most expensive islands to travel to from the US are St. Lucia, St. Kitts, Antigua, and Martinique. For example, a week in July would cost New Yorkers $ 531 to fly to St. Maarten, $516 to fly to Aruba, and nearly double to Antigua at $927. This pattern remains consistent – even for flights in December – when comparing travel from most major US cities to the various islands, with St. Maarten always coming out as one of the cheaper destinations to fly to. The reason for this may be economies of scale, with airlines being able to spread out fixed costs when there is more volume of travel to a particular destination. Aruba and St. Maarten have busy airports relative to other islands.

Berger’s claim that “St. Maarten is nowhere near as busy as Aruba” is also not accurate, based on the officially available data. St. Maarten receives about 2.5 million visitors annually, not including those on yachts, compared to Aruba’s roughly 1.5 million. And of the total visitors, over one million of them go through St. Maarten’s airport, compared to slightly less than a million for Aruba. On the other hand, Aruba’s stay over tourism is higher since it is a larger island with a greater number of available rooms. Still, given those numbers, it is incorrect for Berger to state that St. Maarten doesn’t “compete with anybody”. The numbers prove otherwise.

Should St. Maarten dollarize?

“Just dollarize and be done with it,” writes Berger. And he is right, according to most experts in the field. The pros and cons of dollarization have been discussed ad infinitum, and the pros outweigh the cons. For example, the former Central Bank of the Netherlands Antilles concluded in a 2009 report that “in choosing the most suitable exchange rate regime for the future countries in the Kingdom, dollarization seems to be a viable option, given our vulnerabilities in the present world economic order”. The arguments against dollarization are that St. Maarten will lose control over its monetary policy and be at the mercy of decisions made by the Federal Reserve of the United States. But the island is small. Caribbean islands are already at the mercy of shocks in the global economy and are virtually irrelevant on matters of global finance. In reality, even with their own currency and central banks, they have little influence on international economic policy. The truth is that small islands like St. Maarten will always be vulnerable to international market forces, regardless of local monetary and fiscal policy.

Last year, after much discussion on the subject, Prime Minister Sarah Wescot-Williams said her government was in favor of dollarization. To date, however, no decision has been taken by the government to dollarize and see it through to the end. All that is lacking is political leadership.

Should St. Maarten diversify?

“The SXM economy is a one trick pony, and tourism is the trick,” writes Berger. The dangers of a one pillar economy are a stark reality for places like St. Maarten and it is worthwhile for the island to diversify the economy, safeguarding itself against the whims of a fickle tourism market. Berger further claims that “the US is taking call centers home” from places like India, for example, and “it could easily transfer some of that to SXM where people are smart, techno-savvy, and teachable”. While some US companies are in fact returning their call and service centers back to US soil, they are doing so for specific reasons. According to the NPR, “High inflation and double-digit annual raises in some sectors are pushing up the cost of labor in India” making it less attractive to do business there compared to ten years ago. Also, American consumers simply feel more comfortable dealing with their fellow Americans than with foreigners whose accents and cultural norms make communication difficult, based on findings by the CFI Group, a research organization in the US.

Diversifying an economy in an age of increased global competition requires playing to your strengths and highlighting your competitive advantage, not diversifying simply for the sake of it. It’s unlikely that US companies will want to outsource call centers to St. Maarten, where our labor costs are much higher than India’s and the fact that Americans generally prefer American customer service reps who understand them better.

Conclusions

Berger’s claims on airfare to St. Maarten simply do not fit with the facts. St. Maarten is not the most expensive destination to fly to in the Caribbean, but rather one of the cheapest. He is on sound footing, though, on dollarization. Based on a majority of expert opinion, dollarization is the way to go. It’s merely lacking the political will to carry out. Diversifying an economy, however, is almost always easier said than done. Market forces largely determine what will work and what will fail, and policy mistakes can be costly for a small island like St. Maarten. Ten years ago, as economies opened up across the world, the low cost of labor coupled with high skilled, educated workers made India a good place for American companies to outsource IT services. Now, that is changing as Indian labor costs rise, and Americans show a marked preference for domestic customer service reps. It’s not a question of whether St. Maarten  should diversify, but rather how it should diversify. That requires properly understanding the global market and the island’s strengths and weaknesses within it.

 

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