Published On: Wed, Jan 30th, 2013

CBCS granting loans is not ‘common practice’

WILLEMSTAD – The policy of the Central Bank of Curaçao and St. Maarten (CBCS) to grant loans to government nv’s, such as Aqualectra and the harbor of St. Maarten, and as regards the latter even stand surety for repayment, is not ‘common practice’ in the rest of the world when it comes to monetary policy. Age Bakker, professor with the Open University of Amsterdam and chairman of the Council financial supervision (Cft), stated this in reply to questions from the Dutch newspaper Amigoe. Bakker did say he understood that the policy pursued by CBCS on granting loans is permitted. In any case it’s not allowed in Europe, he said. On being asked, CBCS-director Emsley Tromp contradicted Bakker’s remarks today.

Tromp referred to the national regulation of 1985 on a new statute from the then Bank of the Netherlands Antilles (BNA). Article 13 states the bank is authorized to issue debenture stocks by artificial persons in private and public law who are established in the Netherlands Antilles. The new articles of association of the bank also state the CBCS is authorized to issue debenture stocks by artificial persons in private and public law who are established in one of the countries, on security of sufficient collateral.

However, the explanatory memorandum on the law mentions that this article regards situations in which the bank acts as ‘lender of last resort’. The bank could for example be obliged to give a guarantee to small savers if a finance company met with difficulties.

Critics of Tromp’s policy state there is no question of acting as ‘lender of last resort’ with Aqualectra (which is actually bankrupt) or with the loan and guarantee for ‘repurchase’ for the harbor of St. Maarten. These critics also query why the CBCS hadn’t granted FKP a loan to advance the housing-construction.

However, the CBCS-director stated ‘repurchase agreements’ have been the policy of the Central Bank for 21 years and that there are several examples for similar guarantees. He further said Bakker is correct in stating it is not common practice in the Netherlands, but the Netherlands is not the rest of the world, is it?

It is common practice in the United States and the region though, said Tromp. He referred to the Federal Reserve, which as part of the monetary policy, purchased 40 billion dollars on ‘mortgage backed securities’ last year to boost the American economy.

Although the bank’s articles of association don’t mention boosting the economy as one of CBCS’ tasks, there is most certainly a role for the Central Bank to advance the capital market, according to Tromp. This also eliminates the uncertainty and fear to invest locally, which is good for the economy. As an example he mentioned the pension funds and insurance companies on Curaçao preferably investing in ‘uncertain’ American financial products on which they incurred a loss with the international financial crisis. These institutional investors hadn’t lost a penny on local investments. Why not encourage them to invest their capital, which consists of premium payments from the entire community, locally, Tromp asked.

 

Hope

Bakker, who was a director with the Bank of the Netherlands for thirty years and director with the International Monetary Fund (IMF) for the last five of those years, held a lecture yesterday at the UNA on financial supervision on Curaçao compared with that in Europe.

In his lecture, Bakker stated that Curaçao is facing the same fiscal problems as the rest of the world. The financial crisis has a negative impact on economic growth and employment, thus putting the public finances under pressure. Like the rest of the world, Curaçao also contends with the ageing problem and the increasing costs in the national health service.

A deficit in the balance of payments is also a warning sign. “This sign must be taken seriously because the linking of Curaçao to the American dollar is an important asset to maintain the confidence of investors.”

Measures are therefore a ‘must’, according to Bakker. He believes the transition-cabinet of Hodge will take the necessary measures and reorganize matters and that this will help to restore the fiscal stability and to realize the economic growth. “I realize these are difficult measures because they affect the entire community. However, a delay is not an option. To maintain support for the measures the government must take care that the broad shoulders carry the heaviest measures.”

Let’s not forget that fiscal stability is also a mentality. Within this framework, Bakker hopes the Parliament will adopt ‘best practice’ whereby the new policy will undoubtedly present proposals to cover and compensate this new policy in the budget. Curaçao has two big advantages. The financial sector is sound, the banks have liquid assets and owing to the debt reconstruction in 2010, Curaçao doesn’t have any astronomic indebtedness, said Bakker.

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