Dr. Emsley Tromp: “Split in monetary union is ill-advised”POSTED: 07/21/15 6:58 PM
Dr. Emsley Tromp, President of the Central Bank of Curacao and Sint Maarten. Photo Today / Hilbert Haar
St. Maarten – “It is of course a political decision, but at this moment it is ill-advised to have a split in the monetary union,” said Dr. Emsley Tromp, President of the Central Bank of Curacao and Sint Maarten yesterday at a press conference about the bank’s 2014 annual report. Earlier this week, Curacao’s Finance Minister Jose Jardim reiterated his country’s commitment to get out of the union. “Fragmentation will make the countries more susceptible to external shocks,” Tromp said.
St. Maarten is also bent on dismantling the monetary union. In the governing program that the cabinet released yesterday, the ministry of finance mentions as one of its objectives “start to dismantle the monetary union with Curacao.”
The bank will conclude an agreement with a new contractor for the renovation of the bank building on the Pondfill by the end of this month, Tromp said. He had no information about the status of the lawsuit the previous contractor, Taliesin, has initiated against the bank.
While Tromp gave a detailed overview of the state of affairs (see excerpts from his report starting on page 5), the president focused during a brief question and answer session on a few specific points.
One of them flows from the fact that the net profit of commercial banks in St. Maarten dropped from 247 million guilders in 2013 to 193 million last year – a decrease of 21.8 percent. According to Tromp clients have moved away from traditional banks for loans and turned to credit unions, but in some cases also to what he called “loan sharks.”
As an example, he mentioned a woman in Curacao who had borrowed 100 guilders which she did not manage to repay. With impounded interest this little loan ballooned to a debt of 4,000 guilders.
“”Unfortunately, our supervisory laws do not give us enough possibilities to deal with this,” Tromp said. “However, when these situations come to our attention, we report them to the prosecutor’s office.”
Tromp noted that tax revenue as a percentage of gross domestic products are low in St. Maarten – 18 percent versus the Caribbean average of 21 percent.
Tromp warned to read the increase of the gross official reserves of the monetary union with caution. “The balance of payment appears to have improved substantially,” he said. “However, this was related largely to bonds issued by the governments of Curacao and St. Maarten that were bought by the Dutch government. Based on our economic performance alone, the balance of payments would not have improved.”
Currently, the two countries borrow on the wings of the AAA credit rating of the Netherlands. St. Maarten’s credit rating is B-, a status that would not allow the country to borrow on its own at such favorable rates.
Tromp said that the interest burden rule (whereby St. Maarten’s interest on loans is not allowed to exceed 5 percent of the average government revenue over the past three years) is “not a prudent benchmark” to assess whether the country will be able to sustain its debts, because “the current low cost of borrowing will not be permanent.”
Tromp said that the authority of St. Maarten and Curacao to borrow ought to be reconsidered. “When governments can no longer borrow, capital investments should be financed by surpluses on the current account of the budget.”
Tromp suggests the establishment of an insurance-type stabilization fund. “Instead of burdening future generations with unsustainable debts, the standing subscription rule (that obliges the Netherlands to give St. Maarten access to cheap loans – ed.) can be used to provide the initial resources for this fund.”
When this so-called standing subscription expires in the future, Tromp warned, we will be faced with at least four times higher interest rates.”
The annual report also shows that St. Maarten’s dependency for revenue on tourism stands at 73 percent, down from 79 percent in 2000.