Gray area in financial supervision law – Cft struggles with disguised loans

POSTED: 07/8/13 12:25 PM

St. Maarten – The Board for financial supervision Cft struggles with the limitations the consensus Kingdom law financial supervision imposes on its work. In a letter to Kingdom Relations Minister Ronald Plasterk dated May 8 that was only recently published on the Cft web site, chairman prof. dr. Age Bakker points out that the limited scope of the financial supervision “in some cases leads to risks.”

In assessing the budgets of St. Maarten (and also Curacao) loans play an important role, especially when they are so-called disguised loans. The Cft already expressed its concerns about “possible funding and policy plans outside of the national budget. Examples thereof are the financing of free education in Curacao through the Refineria di Kòrsou and the financing of the bridge across the lagoon in St. Maarten by the Harbor group of Companies.

“In the period after this it has become clear that both in Curacao and St. Maarten attempts have been made to finance projects or investments outside of the budget and thereby beyond the supervision by the Cft,” Bakker wrote.

The chairman added that other ways of financing without Cft-advice, are to choose a construction whereby formally it is no longer a loan. The Cft has expressed its concerns about these disguised loans already last year. The supervisor pointed out that it disapproves of these constructions “but that it is limited in its legal tasks based on the Kingdom law.”

The Cft does everything within its authority to make sure that loans are accounted for correctly in the budget. “The Kingdom law requires that the budget must be complete; therefore loans outside of the budget are not permitted,” Bakker wrote. “But there always remains a gray area.”

The Cft notes that the strict limits of the Kingdom law combined with the explicit order not to make statements about the content of government policies make it possible “to choose constructions that are from the point of view of sustainable government finances not sensible. An example is the Justice Park in St. Maarten.”

Prof. Bakker notes that the financing construction former Justice Minister Duncan chose is in fact a lease-to-purchase contract. “This means that it is a loan in the sense of the Kingdom law. Only when the government opts for a, possibly expensive, rent-agreement does it fall outside of the scope of the Kingdom law.”

The Cft-chair notes that the Kingdom law offers little support when the financing of projects or investments is designed so that it cannot be considered a loan. “In that case the assessment has to be based on the multi-annual risks for the budget and on the question up to what point a construction goes against the intention and the spirit of the Kingdom law.”

When parties do not reach an agreement, the Kingdom Council of Ministers could be asked for a judgment. In the case of the Justice Park, the dispute over the financing construction was still raging full throttle in May.

The Cft furthermore pointed out in its letter to Plasterk that strictly from a financial-economic point of view there is nothing wrong with loans contracted by government-owned companies and foundations. Government-owned companies are supposed to take part in the economy in a sensible way and for this reason they are not a part of the government apparatus. “They ought to function outside direct political influence,” Bakker notes.

The Cft’s supervision over government-owned companies is limited to the possible risks the companies pose to the national budget. “The government cannot afford to let them go bankrupt so implicitly it is always the guarantor.” But the Kingdom law Financial Supervision offers again little support.

Bakker refers in his letter to the intention to establish a foundation in Curacao for the financing of the construction of a new hospital. This way Curacao would evade the instruction the Kingdom Council of Ministers issued last year.

The Cft notes that judging the financing for the bridge across the lagoon in St. Maarten is also not simple. “One could argue that building infrastructure is not a matter for a private enterprise, but there are also precedents in the Netherlands where this was done. The financial position of the port is not so, that building the bridge forms a threat to the government finances,” the Cft wrote.

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