IMF encourages slashing “relatively high wages”

POSTED: 09/19/11 1:39 PM

St. Maarten – Prime Minister Sarah Wescot-Williams and Finance Minister Hiro Shigemoto flew to Curacao on Sunday to meet with officials from the International Monetary Fund (IMF), the Central Bank of Curacao and St. Maarten (CBCS) and the private sector. The IMF team is expected to present its final report on the Article IV consultation at a meeting today.

In a preview to today’s report Shigemoto has announced that all parties who spoke with the IMF have agreed that the economy will not grow in 2012. The report will also advise the country to diversify the economy over time, while stressing that marketing efforts to attract more tourists to the island as this would mean additional foreign exchange. The IMF has also pointed out that St. Maarten has relatively high wages that need to be lowered, and that high crime and high youth unemployment rates need to be dealt with.

Re-vamping the tax system by lowering the tax rates for Income and Profit tax and possibly introducing a Value Added Tax (VAT) were also part of the IMF’s recommendations. During his meeting with the team Shigemoto told them that while revamping the tax system is paramount, he believes increased compliance is one of the ways he sees the government raising more money.

“I cannot accept that we have had an estimated Gross Domestic Product (GDP) of 1.6 billion guilders and we cannot even get 500 million guilders, or less than a third out of this. That means there is some leakage taking place and we need to work on getting those monies into the public treasury which can then go to finance the necessary investments that need to be made in education, health care, tourism, social community development, youth, senior citizens, sports development, public infrastructure and law enforcement,” Shigemoto stated in a press release.

The IMF will also urge Curacao and St. Maarten to synchronize policies on the joint currency. Shigemoto says that while the Government of St. Maarten has taken heed of the recommendation, the Cabinet is placing it in a political reality.

“We need to decide what we are going to do with dollarization versus a common currency.  The IMF did advise that we first take care of the majority of the issues they presented before going over to dollarization. So in essence they think we can dollarize but not just yet,” Shigemoto explained

Another major IMF concern is the increasing current account deficit which is seemingly being caused by Curacao. That is part of the reason the IMF has advocated joint policies because both countries are basically importing more than they are producing and exporting and makes revitalization of the economy essential. Taking that course will help avoid the devaluation of the guilder.

“What the IMF found encouraging and comforting is that the issues as presented were not a surprise to anyone they spoke with and each Minister and Ministry could elucidate on plans to address most of the issues. This demonstrates that the government is on the right track,” the Minister added.

The Council of Ministers, through the Prime Minister, informed the IMF that government has a governing program and that this was going to be presented to the nation via the opening of the new parliamentary year. This was done and copies will be provided to the IMF during the working visit to Curacao.

 

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