Published On: Sat, Dec 22nd, 2012

“Cold Turkey” approach – Interim Government chooses to eliminate deficit at once

WILLEMSTAD – The interim Government chooses for the hard cold turkey variant for the necessary restructuring of public finances, in which the deficit in the public sector will be eliminated at once, while being supplemented by economic incentives.

This is stated in the Memorandum of Finances associated with the 2013 draft  budget, as recently presented to Parliament. Since 2010 the public sector has been closing with a negative balance. A deficit is expected again in 2012 and the balance – if policies remains unchanged – will further deteriorate.

The deficit of the public sector in 2013 is approximately 5.5 percent of the gross domestic product (GDP), if policies go unchanged, and grows in 2016 to around 8.4 percent of GDP. The paper: “The annual growth, with underlying stronger growth of expenses than the benefits”, indicates that the current budget dynamics is not sustainable.

The Government indicates that two scenarios are examined: the aforementioned cold turkey approach and the 'gradualist policy variant. 'The term 'cold turkey' is used to provide a way of rehabilitation. This is to stop the use of the agent (often drug), which the patient is addicted to, at once.

The gradualist policy variant is an improvement method whereby the deficit in the public sector is gradually reduced. This gradual approach policy means that the deficit in the public sector will take a ‘step by step converge to an equilibrium situation.’ The advantage of this is that the effect on the economy and hence the social effect, in the first instance, is smaller,” says the paper. 'This policy however, involves risks of fatigue as the remediation process lasts too long and gradually is faced with setbacks."

Furthermore, this does not lead to a strong recovery of confidence in the economy and public finances, partly because of uncertainty about the continuation of the process. “This slows the economic recovery.” In the specific case of Curacao, this gradual variation moreover must be in consultation with the Kingdom Council of Ministers in The Netherlands, because it deviates from the financial standards set forth in the Financial Supervision Law.

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