The Seychelles, the idyllic archipelago in the Indian Ocean off the coast of Africa, is best known as an island paradise playground for celebrities, royalty and the ultra-wealthy. These days, it's better known for something else: bankruptcy.The tiny country's debt burden may be tiny compared to Iceland, which needed a $2.1 billion bailout from the International Monetary Fund last fall, but the Seychelles' problems illustrate the degree to which the global economic crisis has leveled some economies altogether.
And because of its small size, with just 87,000 people, the Seychelles now has the unenviable stature of being perhaps the most indebted country in the world. Public and private debt totals $800 million - roughly the size of the country's entire economy.Last year, as tourism and fishing revenue began slowing, the Seychelles defaulted on a $230 million, euro-denominated bond that had been arranged by Lehman Brothers before its own bankruptcy. The IMF came in in November with a two-year, $26 million rescue package, and the country has since taken a series of emergency steps: It laid off 12.5% of government workers (1,800 people), floated its currency (the Seychelles rupee, which has fallen from eight to the U.S. dollar to 16, effectively doubling the prices of imports), lifted foreign exchange controls and agreed to sell state assets.
The IMF has given a thumbs-up to the initial progress, but it warned that the economy would contract 9.5% this year. The government of Australia is sending tax experts to help overhaul the revenue collection system and audit local companies.Now the Seychelles is negotiating with the governments of Britain, France and other Western countries including the U.S. - the so-called Paris Club - to reschedule $250 million in debt it owes them. It is asking for 50% of it to be forgiven - a rate it hopes its commercial creditors will then apply to its remaining $550 million outstanding.
"We borrowed more than we can repay," complains Ralph Volcere, the editor of Le Nouveau Seychelles Weekly and a vocal government critic. "This was wholly irresponsible
Heavily reliant on tourism, the Seychelles is desperately searching for ways to raise capital - at a time when tourism is forecast to drop precipitously this year. In early March, Seychelles Vice President Joseph Belmont told a meeting of local tourism industry business owners that the country has already seen a drop of 15% in visitor arrivals from the start of 2009; tourism revenue for the year, he said, could drop by some 25% more as a result of the global recession.Seychelles officials have another idea though: to promote the country's longstanding virtue of being an off-shore business haven, with no corporate tax, no minimum capital requirements, only one shareholder or director required, and an annual licensing fee of just $100.
It also hopes to grow revenue from fishing licenses in its territorial waters, and on March 26 it will present a proposal to the United Nations to expand its exclusive rights to the surrounding seabed, potentially increasing prospects of revenue from underwater minerals, oil and gas.
Courtesy: Yahoo..
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