Cft Chairman Bakker’s lecture in series

POSTED: 01/22/14 1:25 PM

Cft Chairman Professor Age Bakker delivered an interesting and informative lecture Monday night at the University of St. Martin. There is something in his lecture that we can all learn from, and gain a better insight into how the Kingdom functions, as well as putting each of the constituent countries in a comparative context economically and politically. Today will run his lecture in a 4 part series, beginning with part 1. Here is the chairman’s lecture unabridged and unedited:

 

Part1
The last time I was in this arena we spoke about the need to raise economic growth, which was during a seminar titled, towards a strong economy for Country St. Maarten, organized by the University of St Martin and the Ministry of Economic Affairs. Tonight I have the privilege to stand before you again and we will again talk about economic growth, but this time from a completely different angle, namely sound public finances. We will look back on five years of financial supervision within the Kingdom and we will also look forward to 2015, an important and special year. This presentation is partly based on my contribution to the celebration of 200 year Kingdom. The Kingdom is what connects us. If you want to do business with each other or jointly want to conquer the world, it helps if there is something as tangible and visible as the Kingdom.

All countries within the Kingdom are facing the challenge to get their budget balanced. Within the Kingdom especially Curaçao and the Netherlands have implemented sizeable budgetary measures, sometimes with painful consequences. Also Sint Maarten had to take painful measures to balance the budget for this year. Aruba is acutely aware that action is needed and has announced the first steps to that effect at the end of last year.
We are not alone in this. Fiscal challenges are a global phenomenon, from which virtually no country can escape. In the United States it takes the greatest difficulty to find a majority in Congress to increase the debt ceiling. The debt crisis in Europe has shaken the Euro area. Enforcement of fiscal discipline from Brussels has now been established in the European context.

Obviously it is difficult to maintain sound public finances on your own.

 

The challenges facing the different budgets within the Kingdom are even more significant because they go hand in hand with low economic growth. It sometimes seems that we are in a vicious circle of low growth, rising deficits, budget cuts, leading in turn to lower growth. How can we escape from this vicious circle?

Where do these budget problems come from? First of all, we all suffer from the aftermath of the economic crisis. What also adds to the predicament: life expectancy is increasing everywhere and the population is aging. This was not taken into account, back then when we set up our pension plans and schemes. Finally, due to the aging population and the increased cost of medical care through technological progress, the costs of health care are increasing everywhere.

What makes countries within the Kingdom special is that they all have small and open economies. Of course, the Dutch economy is by far the largest, but in Europe, the Netherlands has nevertheless a relatively small economy. Being small and open means that a fiscal stimulus will quickly leak abroad in the form of increased imports.

Fiscal policy within the Kingdom is thus not a good instrument to stimulate growth. To create jobs, investments in the private sector need to be encouraged. And this can only be done when a prudent fiscal policy is being implemented.

We, the Kingdom, therefore appear more alike than we sometimes realize.
In the two years that I am the chairman of the Cft, I often encounter wrong perceptions.

 

The black and white images that are sometimes heard in the Netherlands about Sint Maarten and Curaçao relate to the misconception that the money from the debt relief has already evaporated and that money is still being sent to these countries. On the other side of the ocean we hear in Sint Maarten and Curaçao that the promised healthy starting position has not been adhered to, and that there are such stringent budget requirements in the Kingdom law, that the fragile island economy is being destroyed. Both images are not correct.

Actually, we know too little of each other and we like to think in patterns that we hardly let go off.

I therefore thought; let’s begin with a short quiz just to see if we have the right image of each other. I have eight questions for you to answer.

I begin with two easy general questions, followed by six questions on the subject of this lecture. Here are the questions:

 

1. Where is the highest point of the Kingdom?
2. How many official languages ​​does the Kingdom have?
3. Which country in the Kingdom grew the fastest since the new millennium?
4. Which country in the Kingdom grew the fastest since 10-10-10?
5. Which country has the most expenditures on health care as a percentage of its GDP?
6. Which country has the highest government debt as a percentage of its GDP?
7. Which country saw its credit rating improve in 2013?
8. Which public entity (BES islands) ended 2012 with a budget surplus?

 

You will get the answers at the end of my lecture.

Back to fiscal policy. Sound public finances are the raison d’être of the Board of financial supervision: the reasoning of the debt relief program was to perpetuate the sound public finances. We not only act as a regulator but mainly as a trusted advisor. An important part of that task is to give advices that are clear and transparent with regard to the actual situation.

All countries within the Kingdom are under financial supervision, with one exception: Aruba.

The Netherlands is under scrutiny of European supervision, enshrined in the Maastricht Treaty. The European Commission has an advisory right, embodied in early warnings if the government finances threaten to derail and may issue sanctions if countries do not comply with the agreements. The European Council of Ministers can only in very rare circumstances prevent this from happening. So an important part of the budget sovereignty lies in Brussels.

The financial supervision of Curaçao and Sint Maarten shows many similarities. The supervision is governed by a Kingdom law. The Cft has similar instruments as the Commission, with the big difference that the Cft can recommend to give an instruction, but it is the Kingdom Council of Ministers that decides ultimately. An interesting innovation laid down in the Kingdom law, states that deficits must be compensated within three years.

Part 2 to be continued in tomorrow’s edition…

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