For six decades, Andorra prospered by catering to skiers, smokers and wealthy people trying to avoid taxes. With those revenues drying up, the mountain principality between France and Spain is now putting itself up for sale.
The government is opening up investment in resorts and other businesses to foreigners for the first time in seven centuries to plug a budget deficit that was financed by loans from Andorra's five commercial banks until rising defaults curbed lending.
"Everyone's talking of the global crisis, but this is purely an Andorran crisis," said Jean-Christophe Queyroux, general manager of Pyrenees, Andorra's largest retailer. "We've been living very expensive lives, had the best of everything, and now it's time to pay the bills."
Andorra's 83,000 people occupy a Pyrenees mountains region that's less than a fifth the size of Rhode Island. They rely on revenue from about 10 million visitors a year for more than two-thirds of their $4.1-billion economy, less than half the size of that of Malta, the smallest state in the European Union.
As tourist numbers dwindle and clients pull money from Andorra's banks amid tax-evasion probes by the United States and other governments, the state is facing its first recession in at least half a century, said Albert Pintat, Andorra's head of government.
Along with Monaco and Liechtenstein, the country is classified as one of three global "uncooperative tax havens" by the Organization for Economic Cooperation and Development, which is based in Paris. After Liechtenstein formally agreed to share tax information with the U.S. this month, Andorra is under pressure to crack down on people trying to hide assets.
"We need to change the image the world has of us from tax haven to investment haven," said Pintat, 65, in his office, which boasts a view of rocky peaks surrounding the capital, Andorra la Vella. "For a long time we've been closed off to the outside world. Now we need to open up."
With the slowdown threatening state spending on schools and medical centers, Pintat on Nov. 7 pushed through legislation to ease seven centuries of restrictions on outside cash.
Foreigners, previously restricted to owning no more than a third of any Andorran company, can now hold up to 49% in its main industries, including luxury clothing retailers, real estate developers and ski resorts.
