Seychelles: Rich and Famous to Heavily Indebted

♠ Posted by Emmanuel in , at 3/27/2009 05:45:00 AM
You can easily picture Robin Leach of "Lifestyles of the Rich and Famous" fame yukking it up with the great and the good in Seychelles, the idyllic island playground for the uber-wealthy. The official website purports that is a travel destination for romance, sailing, diving, and fishing--a potent mix for sure. Unfortunately, the current economic crisis has not favored the Seychelles as revenues from tourism and fishing have dried up. This is rather unfortunate as the country has borrowed big in expectation that the good times would continue to roll. This Fortune article suggests "think again," although it's a little too late as they country has already sought IMF emergency financing:
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."
Debt relief from large Western lenders is a usual plea, although these lenders may not look favorably on some of the Seychelles' efforts to generate revenue by talking up its status as a tax haven when those lenders are cracking down on tax havens to increase their own revenue take. Moreover, isn't there something jarring about a champagne-and-caviar destination with oodles of five-star resorts asking for debt relief? Still, its efforts at increasing its UNCLOS waters for fishing may be more plausible:
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.