THURSDAY, 04 APRIL 2013
~ And opt to dollarize ~
PHILIPSBURG–The Social Economic Council SER has “strongly” advised government “to step out of the monetary union” with Curaçao and opt for dollarization based on an advice dated February 28. Although SER suggests dollarization in the advice, it also gives government the pros and cons of choosing for a new legal tender: the St. Maarten dollar.
“St. Maarten should set a realistic date, make a time schedule and start working with a professional taskforce on a strategic plan towards this goal. This professional task force can be installed with the help of The Netherlands and Bonaire, St. Eustatius and Saba (BES) who have recently gone through the process of dollarization.”
However, whatever alternative St. Maarten chooses financial supervision, whether exercised through a Central Bank or an outsourced supervisory authority, will still play an important role in promoting monetary and financial stability, SER stated.
To ensure that St. Maarten’s financial supervision continues to occur in an optimal manner, that adoption and execution of the country’s budgets are balanced within the agreed limitations, and that there is control of the government budget, SER also advised that the Committee for Financial Supervision CFT should continue its independent supervision indefinitely, even after December 31, 2015, when this supervisory body’s (first) term will come to an end.
This advice comes because of “the worsening of the current account imbalance on the part of Curaçao. A balance of payments crisis may take place, which consequently may lead to a sudden devaluation and inflation of the Netherlands Antillean guilder for the entire monetary union.” The advice was published in the National Gazette on March 28.
Government needs “a definite budget” to realise the transition to formally dollarize St. Maarten. SER added that there should be a significant shift in areas of responsibility of the Central Bank and government. The Central Bank’s role “will be limited, if not nil … while that of the government conversely will become even more prominent. As a result it will become even more critical that fiscal rules and benchmarks are legally embedded.”
As for the supervision of the financial sector, which is an ongoing process, even if St. Maarten dollarizes SER recommends that it would be “much more efficient and effective” if the financial supervision be outsourced. “This is easy to establish, considering that most financial institutions on St. Maarten are subsidiaries or branches of foreign-based companies.”
Government needs to retain “an adequate level of reserves” to help mitigate the effects of economic shocks or aims towards Kingdom support in case of catastrophes.
Government also has to find a way to compensate the loss of seigniorage and the licence fee revenues, in total estimated at some NAf. 29 million annually.
Seven of the nine SER board members voted in favour of this advice thus “a majority advice” was established.
Board member William Reed, representing WICSU/ PSU stated his (minority) position as follows: “This sensitive issue evokes emotions and we must try to react with reason and less with emotions in the Caribbean. The separation from the Antilles still plays an important role and is troublesome. A further monetary separation might end up hurting us more.”
SER Board member Arthur Bute, representing the Chamber of Commerce said: “Although the private sector might favour dollarization, those wishes are based on emotions and not led by numbers and reason. The current state of the Central Bank is caused by mismanagement and political problems. We have an old Central Bank which has served us well throughout the years.”
SER board member Joseph Lake Jr., also representing the Chamber of Commerce, voted in favour of stepping out of the monetary union, but does not support the option of dollarization. His reasons included that dollarization for the BES led to a higher cost of living, and that dollarization here would lead to inflation, increased taxation and ultimately into a recession. He is also of the opinion that the CFT control should discontinue after 2015 as CFT is “an undemocratic institution” which was not elected by the people.
Dollarization is such “a delicate subject” that it should be decided in a referendum where the people can decide whether this option is best for the country.