Financial supervisor limits 2014 loans to 60 million

POSTED: 04/28/14 10:43 PM

St. Maarten – Financial supervisor Cft has given a positive advice on a loan request for capital investments to Finance Minister Martin Hassink, but it has set the ceiling for these loans at 60 million guilders (about $33.5 million). On March 18, Hassink submitted a request for loans totaling 88.7 million guilders ($49.5 million).

In a letter dated April 2, that the Cft published on its website just before the weekend, the financial supervisor notes that the intended capital investments are part of the capital account of the approved 2014 budget. They meet the definition of the System of National Accounts – with the exception of two projects: investments at the tax inspectorate and the maintenance of subsidized schools.

“The loan cannot be used for these two projects because the Cft (for now) finds that they do not meet the SNA-requirement,” the letter addressed to Finance Minister Hassink states.

The Cft found that a concrete investment plan for the tax inspectorate is lacking and that it is therefore unable to determine whether these investments meet the SNA-standard. The SNA defines capital investments as expenditures for non-financial assets. Furthermore, the Cft found that the loan request for maintenance of subsidized schools is for “regular and/or overdue maintenance. “These are not capital investments, but they have to be absorbed in the regular account.”

The Cft expressed its doubts about the loan-amount Hassink wanted, “related to St. Maarten’s absorption power.” This was a topic of discussion during the Cft’s visit to the country in January. The 2014 budget states boldly that St. Maarten will invest 200 million guilders this year, but the Cft found the plans for 89 million in investments already a bridge too far.

“Not only the total amount, but also the time of the year makes it unrealistic to spent such an investment amount within this year,” the letter states, adding that the preparations for planned investments will also take some time. “This would mean that these investments have to be done in half a year.”

Most of the investments are for new building and renovation (like the prison) or for infrastructure. “It is very disadvantageous for St. Maarten to contract loans of which a large part cannot be used. This results in unnecessary interest charges. Therefore the Cft sticks to an investment amount of 60 million guilders.”

The Cft adds that this investment ceiling takes into consideration “the purchase of the Emilio Wilson Este (about 30 million guilders) that is planned for this year and that will be absorbed in the budget shortly. All in all this puts the total amount of loans for St. Maarten in 2014 at 90 million.”

The Cft notes in its letter that the loan request also refers to investments planned for 2015 and 2016 and emphasizes that it is now only reacting to the loan request for 2014 and not to that for subsequent years.

A day after this advice, the Cft also reported to Minister Hassink about his request for a loan of 47.8 million guilders for investments the government pre-financed in previous years, especially 2011 and 2012. The Cft agreed with these loans up to 45.4 million guilders “on the condition that the funds from these loans are used to improve the country’s liquidity position and its resistance. The Cft found investments for a total of 2.4 million that either did not meet the SNA-standard, that related to 2013, or that were insufficiently substantiated.

For good measure, the financial supervisor adds that pre-financing from liquid assets “does not fit within proper financial management.”

In 2011, the government applied for three loans – one to refinance lease-to-own projects (26 million guilders) and two for the new government administration building. While the Cft gave a positive advice for all three requests, St. Maarten only took out the 26-million loan, and not the other two for the new government administration building.

In 2012, the country did not ask for any loans, yet it invested for 57 million guilders and financed the projects from its liquid assets. “As a result the country’s liquidity position has deteriorated seriously and the payment arrears at (pension fund) APS and (social health care insurer) SZV have increased. This has resulted in a problematic liquidity position per the end of 2013 and significant arrears in the execution of large investment projects.”

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