Looking back at St. Maarten’s recent history “No one wants to stay on a leaking ship in the middle of the oc ean”POSTED: 09/19/16 9:17 AM
St.maarten – More than twelve years ago, on January 28, 2004, current Minister of Finance Richard Gibson Sr. presented the Lionel B. Scott Memorial address at the Philipsburg Mutual improvement Association. Today, that speech puts the recent history of St. Maarten in perspective with a flurry of interesting data and observations.
By Richard Gibson Sr.
In his book “A Tale of Two cities” Charles Dickens opens his literary classic with the sentence: “It was the best of times, it was the worst of times”. The state of affairs of the Netherlands Antilles today, can be characterized as the “worst of times, but also the best of times.”
The financial state of affairs of our country can be characterized as the worst of times, because never before in the annals of our history have our people been bending under the yoke of so much debt. The debt burden has grown to such levels that they virtually have become unmanageable on our own strength. A degree of resignation and hopelessness can be noted amongst the best and brightest of our country who are in the know. Solutions without external assistance are no longer possible.
The outstanding debt of our country as per the end of 1993 amounts to 4.6 billion guilders, which represents 95% of our Gross Domestic Product. To put this number in perspective it should be noted that debt sustainability, according to studies conducted by the United Nations, are manageable by low income countries, if their debt quota does not exceed 35% to 40% of GDP. The European Monetary Union maintains a debt quota norm of 60% of GDP for debt sustainability for European Countries. European countries are at a higher level of development than the Netherlands Antilles. The Netherlands Antilles in terms of its present level of development, hovers between that of low income countries and that of European countries. The debt quota norm of the Netherlands Antilles for debt sustainability is therefore at approximately 50% of GDP. The existing debt quota of the Netherlands Antilles today is at 95% of GDP. Double what is required for debt sustainability. In terms of its debt quota the Netherlands Antilles is a run-away train about to crash.
Debt sustainability is the ability of a government to make principal and interest payments on debts, without having to make any incisive adjustments to its income and expenditures patterns. To attain debt sustainability level the Netherlands Antilles must reduce its debt load from 4.6 billion to 2.3 billion guilders. A hole this deep, on our own strength, now appears impossible to fill.
How did we land in this apparent bottomless financial pit? Has this financial pit accelerated the desire of the islands for a new constitutional structure? Of course it has. No one wants to stay on board a leaking ship in the middle of the ocean, especially when its captain and crew are unable or unwilling to fix the leaks.
Ten years ago the perception that reigned was completely different. Ten years ago the Netherlands Antilles still enjoyed a broad base of goodwill amongst the citizens of all the islands. Evidence of this surfaced in the referenda held in 1993 and 1994 sponsored by the Central Government on all the islands of the Netherlands Antilles. In these referenda the people of the Netherlands Antilles overwhelmingly voted in favor of remaining part of the Netherlands Antilles. 90.66% of the people of Sint Eustatius voted in favor of remaining in the Netherlands Antilles; 89.65% of the people of Bonaire; 86.28% in Saba; 73.56% in Curacao and St. Martin came in last place with 59.48%.
At the time the referenda were held in 1993/1994 very little was known about the real debt burden of the Netherlands Antilles. In the campaigns accompanying the referenda no information on the status of the debts of the Netherlands Antilles was disseminated, nor was the debt load of the Netherlands Antilles an issue in these campaigns. There is no doubt in my mind that if the people of the Netherlands Antilles knew what we know today, that the outcome of the referenda in 1994, would have been completely different.
In 1994 the Netherlands Antilles had already substantially exceeded the level of debt sustainability and it was already known that government had to raise taxes substantially and cut expenditures drastically, to be able to make ends meet. This information, regrettably was either not known or kept under wraps. It was not addressed during the referenda campaigns.
It was generally known that income from the offshore industry had fallen drastically during the period 1986 – 1990. It was also known that the oil crisis during that time caused Venezuela to devaluate its Bolivar and that this devaluation caused the lucrative trade between Venezuela and Curacao that generated millions of guilders, to disappear overnight. Shell refinery as result of the same oil crisis had to redistribute its refining capacity worldwide and closed down in Curacao during this same period. With it millions of guilders went out the window. Shell was eventually replaced by the Venezuelan oil refining company PDVSA, however
PDVSA had to be granted a full and complete tax holiday, before it decided invest and restart the refinery in Curacao. All of these events, to the residents of the other islands, were seen as remote events that affected only the island of Curacao and not any of the other islands.
The full financial impact of these events were either not known or were not made public at that time. By the end of 1990 yearly tax income to the tune of 193 million guilders had disappeared from the coffers of government. In 13 years this translates into a whopping loss of income to the tune 2.5 billion guilders. No small, median income country can absorb such a loss, without a deep recession and incisive authority measures. No significant measures were taken by the government at that time to deal with this reality.
The Central government and the government of Curacao started to develop significant budget deficits that had to be financed. Budget deficits were financed by taking loans from the pension fund, by not paying SVB premiums, by making loans from local banks and by issuing bonds. As long as there was a source from which government could attract money they went ahead and did so, until those sources were exhausted. Bonds became the favorite tool to take money from Peter to pay Paul. When government needed money they sold bonds to the public and when the bonds had to be paid, they issued new bonds to pay off the old ones.
Every housewife knows that when your income reduces, you have to take steps to reduce your expenses with an equal amount or find ways to generate additional income. If not, you will not be able to make ends meet at the end of the month. You do not have to be a financial genius to figure out that you cannot increase your expenses, at the same time that your income has reduced drastically. This basic common sense rule appears to have been too difficult a concept for our government officials in Willemstad to understand, because they did just the opposite. Instead of reducing expenditures, they decided to increase expenditures in spite of the fact that a substantial part of their income had disappeared. In 1992 government increased salaries of civil-servants and teachers by 14%. At the same time government who preached equality, but did not practice it, was forced by a decision handed down by the court to respect the principle of equal pay for equal work and eliminate discrimination based on civil status. Personnel expenditures as a result skyrocketed to 306 million guilders. The overall expenses of government climbed from 502 million to 1.5 billion guilders. Part of the increase in expenditures can be attributed to increase in subsidies government decided to make available to government owned companies such as ALM.
It did not take too long after for government to realize that the party could not continue and that drastic measures no longer could be avoided. Government had to increase its income and reduce its expenses. To increase income government decided to introduce a consumption tax called turnover tax (BBO). This occurred after the 1993/1994 referenda and at a time that St. Martin’s economy had been devastated by successive hurricanes, starting with hurricane Luis in 1995. The introduction of the turnover tax in circa 1996 planted the seed firmly for Saint Martin to review the decision it took in 1994 to remain in the Netherlands Antilles. By 2000 Saint Martin organized a referendum and the people reversed their 1994 decision and decided to step out of the Netherlands Antilles. This did not occur solely because of the fact that the turnover tax legislation was adopted, but because it highlighted the following picture.
From 1986 up to and including today 97% of all the debts of the Netherlands Antilles were debts created by Curacao and the Central Government. In other words of the 4.6 billion guilders the Netherlands Antilles owes today 97% can directly be attributed to Curacao and the Central Government. The debt load today has increased to such a level that for every guilder collected, Naf. 0.25 goes towards payment of interest only.
If the existing debt load was to be divided proportionately tomorrow between the islands of the Netherlands Antilles on a per capita basis, approximately 1 billion guilders would be for the account of Saint Martin. It has been projected that if the present trend continues that in 6 years time the debt burden of the Netherlands Antilles will grow to 10 billion guilders, representing 250% of GDP. This would have catastrophic consequences. If left uncurbed this trend will lead to destabilization of the Antillean guilder, deep recessions, emigration, capital flight and a total loss of investor’s confidence. Saint Martin’s share of the debt burden in 6 years, if it had to be divided proportionately based on population, will be approximately 3 billion guilders, or 1.5 billion guilders, if half of the debt can be ascribed strictly to Curacao. Having to pay 1, 1.5, or 3 billion guilders in debt, for which Saint Martin received little or nothing for in return, only because you form part of the Netherlands Antilles, is quite a bitter pill to swallow, even if ways could be found to do so.
Most discouraging is the fact that in spite of the spate of measures taken by the government over the past years, the debts continue to increase at alarming rates. Approximately 30% of the civil-servant corps was sent home, either through lay-offs or by privatization of government owned companies between 1996 and 2001. Additionally increases and indexing of civil servant salaries were temporary frozen, vacation allowances were eliminated and overtime and hiring of new personnel was restricted. Turnover tax legislation was adopted, rights of Parliament were temporarily suspended to give the cabinet a free hand to adopt numerous new revenue enhancing taxes. The tax burden on the people of the Netherlands Antilles was mercilessly increased at a time when the economy showed recessive tendencies and contributed to a continued downward spiral of the economy. Yet, notwithstanding all of these steps that government took aimed at increasing its revenues, its revenues decreased and its expenditures continued to skyrocket. As we speak the debt burden continues to grow. As it grows Saint Martin’s share of debts of the Netherlands Antilles increases. It means that the longer it takes for Saint Martin to extricate itself out of the present Antillean constellation the worse off it becomes.
In the meantime the effect of having to share a shrinking pie that is not enough to feed everyone, manifests itself in skirmishes between Saint Martin and the Central Government for available scarce resources. The refusal of the Central Government to provide Saint Martin with vehicles and personnel for its police department that it has a right to, is symptomatic of these scare resources. The machinations surrounding the SMMC to label it a peripheral hospital to distinguish it from SoHo’s to justify paying less to SMMC than to Sehos is nothing else than a reflection of the shrinking pie that is too small to share and a battle to divert resources from Saint Martin to Curacao with a lot of mumbo jumbo arguments. The magical illusion in making ALM disappear out of the hands of the Netherlands Antilles, only to re-appear in the hands of the island government of Curacao as DCA airlines, falls in the same category, of diverting resources to Curacao. So has the ingenious steps that were taken to transform the lucrative long-distance telephone company “Landsradio” into Antelecom and finally it too landed in the hands of and under the control of the Curacao owned company called Setel.
Given the hopelessness of the present situation and the knowledge that we are outvoted in a predominantly Curacao controlled Parliament, it is not surprising that virtually every island of the Netherlands Antilles today wants out of the Netherlands Antilles one way or another. This was not the case in 1994, but today the tables have turned around completely.
Every government of every island of the Netherlands Antilles wants out of the Netherlands Antilles. This includes Curacao, judging from the public statements made by Anthony Godet of the Fol, who stated that within six months of this year Curacao will be holding a referendum, for the purposes of extracting Curacao out of the Netherlands Antilles. Parliament of the Netherlands Antilles passed a resolution in 2000 instructing the government of the Netherlands Antilles to facilitate and accommodate the departure of Saint Martin from the Netherlands Antilles. Everyone in the Netherlands Antilles, judging from public statements made, has concluded that the Netherlands Antilles, as a structure of government for the Netherlands Antilles, has run the gamut. Curacao in particular has made it known that the two levels of government are costly and burdensome and that it too desires one level of government. It was generally accepted that the elections for the last Parliament would be the last Parliament of the Netherlands Antilles. Again it is being said that the present Parliament will be the last Parliament of the Netherlands Antilles. Holland, who initially objected against having a direct discussions with Saint Martin based on the outcome of Referendum 2000, after having consistently refused to talk to Saint Martin, under the guise that the Netherlands Antilles is its discussion partner and not the individual islands, now seems to be coming round. It has changed its tune. Today voices in Holland have also been heard stating that the Netherlands Antilles is a passed station.
Yet, constitutional change continues to be elusive. The proof of the pudding is not in the talking, but in the tasting. Politicians in the Netherlands Antilles talk the talk, but they are not walking the walk. After repeatedly having stated that constitutional change is necessary and knowing fully well that the first step to speak with authority about desired constitutional change is to host a referendum, we see that, with the exception of Saint Martin, none of the other islands of the Netherlands to date, have consulted their citizens as to the direction to take on constitutional change. I find this quite curious. They all say they want change, but they are not taking the steps to bring about the changes they say they want. They talk the talk, but they are not walking the walk. Talking without placing the question of constitutional change to the vote in a referendum, freezes the process of constitutional change. Saint Martin’s quest from this point of view is being frustrated and will continue to be frustrated until such time that the people on the other islands express their will on constitutional change through a referendum. As the process continues to be frozen a point will arrive at when we might have to face the question of the consequences of the debt of the Antilles that will have to be shared. I shudder to think about this factor, but it is a factor that has to be considered. The debts of the country could balloon to a certain level that could make stepping out of the Netherlands Antilles prohibitive. It is a tantalizing question that becomes more and more real, every day that Saint Martin’s quest for a separate status is delayed. When that moment arrives, and that moment is not too far away, no politician will have the right to make that decision on their own. A new plebiscite might be in the offing on this specific question. I trust that moment will not come and that Saint Martin will find a way long before that question will have to be faced.
Finally, I would like to mention that at the beginning of my address I quoted Charles Dickens: “it was the best of times, it was the worst of times”. We talked a lot about why it is “the worst of times”, but nothing was said about “the best of times”. It is the best of times simply because all elements seem to be converging to seriously address Saint Martin’s desire for constitutional change. Holland is an important partner and plays a significant role in bringing about constitutional change and for the first time, for many reasons, Holland is listening and beginning to understand our complaints and desire for constitutional change. Every island wants a change and Holland itself is taking note and wants certain changes itself. That makes a fertile bed for the best of times as far as opportunities are concerned for change.
I want to sincerely thank the board of Philipsburg Mutual Improvement Association for their invitation to speak to you tonight. I am humbled by the invitation and that I was given the opportunity to honor Lionel B Scott in this special way. I also would like to thank each and everyone here for coming out tonight and lending their ear. It is my fervent hope that my address tonight contributed, even if it is in a small way, to a better understanding of our plight for constitutional change.