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SER: Dollarisation advice doesn’t criticise work of the Central Bank Curaçao & St. Maarten


PHILIPSBURG–The Social Economic Council SER says its advice, titled “St. Maarten stepping out of the monetary union,” does not state “in any way” that the Central Bank of Curaçao and St. Maarten “would be dysfunctional or broken.” This was in response to Finance Minister Roland Tuitt’s comments in Parliament Thursday that the bank is functioning well and there is no need to fix it if it is not broken.

Advice SXM stepping out of the monetary union 28.02.13

SER, which is headed by Chairman Rene Richardson, views the Central Bank as “a highly professional, well-functioning institution.”

Also, information provided by the Central Bank “contributed greatly” to SER’s advice. “Furthermore, beefing up the St. Maarten branch of the Central Bank is a desirable development, whatever the future of the monetary union may be. If it would come to dissolving the monetary union, St. Maarten will at the very least need a regulatory body for supervision of the banking sector, and certainly a research and statistics division to monitor the new financial system.”

“What is broken,” according to the SER advice, “or at least at great risk, is the monetary union, the situation of Curaçao and St. Maarten sharing the same currency.”

The common currency – the Netherlands Antilles guilder – is underpinned by a common foreign exchange reserve. This is the amount of dollars and other foreign currency the bank keeps to ensure that a Netherlands Antilles guilder at all times can be exchanged for a dollar at the official rate of NAf. 1.79 to the US dollar, even if the countries temporarily spend more dollars than they earn as a union.

The foreign exchange reserve is permanently fed by the dollars the two countries earn from export, their tourism sectors and other earnings, while it is depleted at almost the same rate by their imports and other dollar spending.

According to the IMF and other expert organisations, the structural problem between St. Maarten and Curaçao is that their economies do not operate at the same wavelength.

“On balance, St. Maarten consistently adds to the foreign exchange reserve, while Curaçao tends to draw from it. It is the worrisome financial situation in Curaçao that undermines our monetary union, as government budget deficits tend to lead to balance of payments or foreign exchange deficits as well,” the SER stated.

SER added in its press statement, “If the foreign exchange reserve consistently runs low, the Central Bank, however well-functioning and well-equipped, in the long run will not be able to maintain our pegged rate to the dollar and the value of our currency would be at risk. This negative trend in the foreign exchange reserve has been camouflaged for years by debt relief and by Dutch aid monies flowing in. The Dutch aid has come to an end, while debt relief was a one-time windfall.”

Compounding the problem of unbalance between the two countries is that their economies are of unequal size. This makes the risk of unfavourable financial policies in Curaçao far greater than the other way around. “Simply put, Curaçao is able to drag St. Maarten down monetarily, but we would not easily be able to put Curaçao at risk.”

The minimum safe level for the foreign exchange reserve is internationally recognised as the sum needed for three months’ worth of imports. This level has been maintained safely for decades. However, the foreign exchange reserves dipped below this level in 2012 for the first time in many years. This and other factors prompted the SER to initiate an unsolicited advice on the future of the monetary union.

SER concluded that maintaining the monetary union would be too risky. Once it is decided to dissolve the union, the next choice would be between either creating a “St. Maarten dollar” for the 30 per cent of the economy that is not dollarised yet, or to introduce the US dollar as the sole legal tender. For practical reasons, the majority of SER advised to generally introduce the US dollar.

Finance Minister Tuitt’s view that “no country in the world that has dollarised has been successful” must be refuted, as next-door neighbours the British Virgin Islands introduced the US dollar in 1959 without a glitch since then, while many Latin American countries have used temporary or permanent circulation of the US dollar as a means to combat hyperinflation successfully, noted SER.

“St. Maarten, however, if dollarising, would not do so from a position of weakness, but from strength, as our country – taken separately from Curaçao – does not have structural balance of payment problems and it is already 70 per cent dollarised.”

SER wishes to support Tuitt’s view that any individual in the community can give advice to the government and it certainly encourages every citizen to do so. At the same time, SER has a specific advisory obligation anchored in the law and provides advice from the tripartite background of business, labour and independent experts.

A SER advice is a reflection of a broad array of social economic partners in civil society who bring forward joint advice, often unanimous and always with majority support among members. It is noteworthy, however, that so far no official reply or feedback has been given by government on any of the advices – solicited or unsolicited – brought forward by the SER.

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