(FORTUNE Magazine) – In the Caribbean, hope is a big white boat. With the banana market in free fall, sugar prices soft, and industrialization as unlikely as ever, the islanders have been looking to companies with names like Carnival, Princess, and Disney to bail them out of their malaise. As it turns out, they might as well put their money on Tinker Bell. For the islands, it seems that cruise ships are a money-losing proposition.

The American cruise industry is in its heyday, and the Caribbean is its undisputed capital. Over the past 20 years the industry has grown at an average of 8% a year, making it the fastest-growing segment of the leisure market. In 1998, 12 ships--and a new cruise line, Disney--were launched. Carnival Corp., parent of market-share leader Carnival and six other lines, has seen its stock rise as high as $49 in recent weeks, up from $28.50 a year ago. "We're in such an embryonic stage that it's silly," says Bob Dickinson, president and COO of Carnival Cruise Lines, which took in some $2 billion on Caribbean cruises last year. "I can't see the end. I can't even see the end of the beginning."

By rights, then, money should be pouring into the islands. But it's not. "Sixty-five percent of the cruise industry's profit comes from the Caribbean," says Allen Chastanet, a former director of the tourist board for the Windward island of St. Lucia. "But only 7% of their employees come from the Caribbean, and only 1% of the taxes they pay go to the region."

Likewise, cruise ship passengers eat onboard, gamble onboard, shop duty-free onboard--do everything onboard, just about, except sightsee. When they do go ashore, the cruise lines still get their cut. Carnival, for instance, buys up tour slots from operators in St. Lucia, then resells them to passengers at markup. An independent St. Lucia taxi driver typically charges $20 a head for a daylong island tour; Carnival's cheapest full-day tour is $64.

In fact, once the associated costs of their visits are factored in, cruise ships appear to cost the islands more than they bring in. Crowding, garbage, and extra traffic all strain local government. "Every destination has its carrying capacity," says John Bell, executive vice president of the Caribbean Hotel Association. "And if you overload that capacity, it's tough on the residents, and it's tough on the long-staying visitors." (And if you dump oily bilge water in the surrounding waters--Royal Caribbean agreed to pay a fine of $9 million last year for doing just that--you make it even tougher.)

So money has to be spent. St. Lucia's government has undertaken a $14 million cruise-terminal expansion; it also spent $14 million last year on tourism promotion. Meanwhile, the $6.50-per-passenger tax the cruise lines pay the island added up to just $1.9 million last year.

As the basis for a tourist economy, this may sound like a pretty flawed model. But there is an explanation: The islands are gambling that enough cruise visitors will be so enchanted by their trip that they'll return as hotel guests. According to a study conducted in the early '90s, stay-ashore guests spend, on average, 30 times as much as their waterborne counterparts do. "What we have to tap into is the cruise passenger's becoming a stay-over visitor," says Philip Pierre, St. Lucia's Minister of Tourism.

It's a plausible idea, but while the number of cruise-ship visitors has doubled in the past two years, the number of hotel rooms has actually shrunk. That's no coincidence: "I have to pay hotel occupancy tax, income tax, social security--all those taxes," says Craig Bernard, managing director of three hotels in Grenada and St. Lucia. "So the reality is that...you've got a land-based tourism industry that is being taxed to death competing with a sea-based tourism that is virtually tax-free. I see very clearly that I'm losing market share."

St. Lucia and its neighbors would like to raise taxes on cruise passengers, but the cruise lines have fought every attempt to do so. In 1993, for instance, 13 Caribbean islands banded together to impose a $15-per-head tax on cruise passengers. "The cruise lines went one-on-one with the governments and said, 'If you impose the head tax, we will no longer come to your island,'" says Bell. "Within a week the islands started breaking ranks, and then they all fell apart."

For their part, industry advocates scoff at the notion they're doing more harm than good. "I think it's ludicrous," says Michele Paige, executive director of the Florida-Caribbean Cruise Association. "The ships bring a wealth of benefits, and destinations that don't have cruise visits are clamoring to get them. I think this is an example of the old syndrome: You don't appreciate what you have until you lose it."

Everyone agrees on one thing: Roads to prosperity in the region are few. As to whether the cruise boom will actually spur growth, a skeptical Caribbean awaits the evidence.

--Jeff Wise

JEFF WISE is a freelance writer who lives in New York City.