Ensuring stability by CentralBankCuracao

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Ensuring stability

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Ensuring stability dr. Emsley D. Tromp Speeches and presentations by dr. Emsley D. Tromp, president of the Central Bank of Curaรงao and Sint Maarten

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Ensuring stability Speeches and presentations by dr. Emsley D. Tromp, president of the Central Bank of CuraĂ§ao and Sint Maarten Dr. Emsley D. Tromp ISBN 978 90 8850 311 5 NUR 793

ÂŠ 2012 Caribpublishing / B.V. Uitgeverij SWP Amsterdam All rights reserved. No part of this publication may be reproduced in any form without the written permission of SWP Publishers, Amsterdam, The Netherlands. Any person who does any unauthorised act in relation to this publication may be liable to prosecution and civil claims for damages.

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Foreword

his book contains the speeches of Dr. Emsley Tromp as President of the Central Bank of CuraĂ§ao and Sint Maarten (former Bank van de Nederlandse Antillen) covering the years 1999 up to and including 2011. One would in general expect the President of a Central Bank to dealing in his speeches with only financialeconomic matters. But knowing Dr. Tromp, who is so much concerned with social and human development of our societies at large, unsurprisingly his speeches frequently also openly or implicitly relate to matters like good governance, educational and ethical values and certain values of human welfare and social justice which traditionally have received little attention from the governmental and financial sector. He strives for a real, that is all-embracing development of our societies and peoples as an identifiable phenomenon essential to the realization of the mentioned values. Part of the speeches also deals with the acceleration taking place in the globalization of the nations and their economies. Although autonomy is very important for every country and society, both in spirit and letter it ought not to be understood as a withdrawal or entrenchment behind the walls of naĂŻve self-sufficiency or impossible autarky. Good governance is a theme which has been included in many of the speeches of Dr. Tromp. Without good governance there is no real rule of law and thus no real democracy. The financial and economic market and the social society in general depend to a very great extent on good governance. Without adherence to good governance the society at large is not capable of reasonably satisfying the demands of its citizens. That Dr. Tromp would stress in his speeches on the good reputation and credibility of the Central Bank, could be expected. For over 180 years the Central Bank has played and is still playing a very important and crucial role. He particularly mentions the most

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important objectives of the Bank: maintaining the external stability of the guilder and promoting a sound and efficient financial system in the Netherlands Antilles, now CuraĂ§ao and Sint Maarten. This requires a high degree of autonomy for the Bank from the governments in order to guarantee that its monetary and supervisory policy decisions are made without political interference. In this context it is of paramount importance that the board of directors and the supervisory board consist of real professionally and personally qualified persons with a high degree of integrity and autonomy. I am sure that reading the speeches of Dr. Tromp, who is now for 20 years President of the Central Bank, will not only give a tremendous view on the excellent contribution of the Central Bank to the stability of our guilder and financial system, but also on the very important role Dr. Tromp personally has played in maintaining worldwide the credibility of the Bank, which should not be underestimated. Prof. Mr. J.M. Saleh Minister of State Former Governor of the Netherlands Antilles

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Contents

Macroeconomic Developments

Voorwoord van het Rapport van de Commissie Nationaal Herstelplan 13 19 What are the implications for the OCTs in floating issues in Euros The current economic situation: Working toward a common future 25 Structural Adjustment in the Netherlands Antilles: The need for broad-based tax reform 29 The Caribbean Capital Markets: Unlocking the potential from within the region 35 39 De Nederlandse Antillen op weg uit de crisis The economic situation of the Netherlands Antilles in the aftermath of the terrorist attacks in the United 45 States: Looking ahead The Netherlands Antilles after six years of adjustment efforts with the IMF: A critical evaluation 49 The need for Caribbean cooperation in a globalizing world 53 General economic equilibrium: The case of the Netherlands Antilles 59 The Netherlands Antilles and the Netherlands’ economic partnership: Bedfellows, hostages or perfect 65 strangers Fiscal Policy: Rules versus Discretion 71 FATUM is one of the major players in the insurance market in the Netherlands Antilles 77 Recent Economic Developments in the Netherlands Antilles in a Regional Perspective: Risks and Opportunities 81 Recent financial-economic developments in the Netherlands Antilles in general and in St. Maarten in particular 87 Toward a comprehensive solution of the debt problem of the Netherlands Antilles 91 The Grand Hyatt project 99 Investment opportunities in the Netherlands Antilles 103 Afscheid van de Nederlandse Minister van Financiën dhr. Gerrit Zalm 109 Een eerste reactie op presentatie Commissie Financiële Perspectieven Land Curaçao 115 Economic Perspectives of Curaçao 117 The Caribbean Marketplace; Succeeding in a Globalizing World 121 Small and Medium-sized Enterprises in Curaçao: Challenges and Opportunities 127 Developmental Challenges in a Small Economy: The Case of St. Maarten 133 Threats and Opportunities for the Economy of Curaçao in a Period of International Financial Turbulence 139 Regional integration: A policy agenda towards prosperity 145 Towards a Country Status for Curaçao: Financial and social-economic implications 149 The Financial Crisis and its impact on St. Maartens economy 155 Economic developments in 2008 and outlook 2009 161 169 Recent Economic Developments and their Repercussions for Small and Medium Enterprises Recent Economic Developments and their Implications for the Sint Maarten Hospitality and Trade Industry 173

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Financieel-economische ontwikkelingen in de Nederlandse Antillen 181 Pasku 187 The state of Curaçao’s economy: Developments & vulnerabilities 189

Sectoral Developments

197

Capital market stability 199 203 Recent developments in the life insurance industry in the Netherlands Antilles Er is een win-win situatie mogelijk voor de institutionele beleggers en de Antilliaanse samenleving 207 Challenges and Opportunities in the International Financial Services Industry 211 215 The Caribbean Hotel & Tourism Investment Conference Fortis Conference: Curaçao, fiscale traditie 217 221 Tourism in the Netherlands Antilles from a macroeconomic perspective Insurance regulation in a globalizing world: Challenges and opportunities 229 235 To Comply or Not to Comply 239 International and local challenges for financial institutions in the Netherlands Antilles Bancaribe 30 años de relaciones Curazoleñas-Venezolanas en un medio ambiente dinámico y desafiante 245 ICT as a driver of growth in the Caribbean: Policies to improve the Caribbean’s competitiveness in a knowledge-based economy 249 The local petroleum industry: Its viability and stability 253 Towards a regulatory framework for the utility sector of Curaçao: Lessons from international experiences 257

Financial Sector Supervision

281

Challenges facing pension plans: A regulator’s viewpoint 267 De rol van financiële integriteit in het bedrijfseconomisch toezicht van de Bank van de Nederlandse Antillen 271 275 Regulashon finansiero den tempu di crisis Opening of the 7th Annual Meeting of the Offshore Group of Collective Investment Schemes (OGCISS) 279 281 Recent international economic developments and related challenges for the Netherlands Antilles De uitdagingen van de financiële crisis en de staatkundige veranderingen voor het toezicht op de financiële sector 285 Opening 2011 CFATF assessment 291

Central Banking The role of the Central Bank Banko Sentral di Antia Hulandes: Logronan den 2001 i retonan pa futuro The role of central banks in promoting sustainable growth In 175 years the Bank has evolved from a near dormant institution in the nineteenth century to a vibrant organization able to adapt to the ever changing financial world in the twenty-first century Monetary policy and financial sector supervision: Options for the islands of the Netherlands Antilles

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293 295 299 303 309 313

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Dollarization 319 Balance of payments vulnerabilities caused by a widening current account deficit: A way forward 321 Dollarisashon komo alternativa pa e sistema di tipo di kambio pa e futuro paisnan Kòrsou i Sint Maarten 327 Balance of payment vulnerabilities caused by a widening current account deficit: A way forward 331

Corporate and Public Governance Corporate Governance The importance of integrity for the development of a country

Worlds of Appreciation Plenchi Ronchi Isa ta simbolisá e fundeshi ku Ronchi Isa a pone pa nos tur Het premierschap van Miguel Pourier Haiku den lus di animal Politiek heeft een prijs Roald “Ati” Schotborgh: Artista multifasétiko ku un amor grandi pa Kòrsou

335 337 341

345 347 349 351 353 357

Other 359 It is in times of crises that we look to the church for guidance

361

Overzicht kunstwerken

363

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Macroeconomic Developments

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Voorwoord van het Rapport van de Commissie Nationaal Herstelplan

Juni 1999

uraçao and Eustatia, the two principal islands belonging to the Dutch, are free ports open to the ships of all nation; and this freedom, in the midst of better colonies whose ports are open to those of one nation only, has been the great cause of the prosperity of those two barren islands.” “

Adam Smith: “An inquiry into the Nature and Causes of The Wealth Of Nations.” - 1776 -

Introductie De Regering van de Nederlandse Antillen heeft de Commissie Nationaal Herstelplan opgedragen een financieel, economisch en sociaal herstelplan op te stellen met als einddoel het herstel van het vertrouwen in de Nederlandse Antillen. Dit Plan dient als de fundering voor een duurzame economische ontwikkeling. Onderzoeken wijzen uit dat de Nederlandse Antillen over een aanzienlijk potentieel beschikken. Duurzame economische groei is derhalve al op de korte termijn te realiseren. De Commissie heeft in het vervullen van haar taak zich ingespannen om een plan te ontwikkelen dat kan rekenen op een breed draagvlak in de samenleving. Het plan is gericht op het herstel van discipline in de openbare financiën gepaard gaand met een adequaat investeringsbeleid, arbeidsmarktbeleid en handelsbeleid. Het doel van het investeringsbeleid is om de economische groei te bevorderen. De neveneffecten van het voorgestelde beleid op het sociale vlak hebben hierbij ook de nodige aandacht gekregen in het rapport. Zo denkt de Commissie dat het noodzakelijk is dringend correctieve maatregelen te nemen om de bestaande sociale situatie, die het resultaat is van jarenlange verwaarlozing, aan te pakken.

Verder dient te worden opgemerkt dat dit rapport een pakket aan maatregelen omvat welk moet zorgdragen voor het saneren van de openbare financiën en het bevorderen van economische groei. Binnen dit kader dienen de maatregelen te worden gezien als een samenhangend geheel. Dit betekent dat het slechts gedeeltelijk uitvoeren van de voorgestelde maatregelenset ertoe zal leiden dat het einddoel, welk met de maatregelen was beoogd, niet zal worden bereikt. De Commissie wil dan ook benadrukken dat het belangrijk is dat de maatregelen snel, daadkrachtig en integraal worden geïmplementeerd om het voorgenomen einddoel te kunnen realiseren. Om te garanderen dat de maatregelen snel worden aanvaard beveelt de Commissie aan om een kaderlandsverordening door de Staten te laten sanctioneren die de Regering het mandaat geeft om de benodigde maatregelen zonder vertraging te kunnen nemen. In het verleden zijn verschillende plannen ontwikkeld om de randvoorwaarden te creëren voor een duurzame economische ontwikkeling. Om verschillende redenen zijn die plannen nimmer integraal geïmplementeerd. Dit heeft geleid tot een situatie waarin de geloofwaardigheid van de bestuurders zwaar op de proef is gesteld in die zin dat het niet duidelijk is in welke mate een plan, bedoeld om het vertrouwen te herstellen, integraal kan worden uitgevoerd. De verantwoordelijke bestuurders worden derhalve niet alleen geconfronteerd met de uitdaging om dit plan te adopteren, doch ook om het succesvol te implementeren. Slechts dan kan er sprake zijn van een geloofwaardig beleid. Er is rekening gehouden met de programma’s die het eilandgebied Curaçao en de Centrale Overheid aan het uitvoeren zijn. Naast het feit dat de huidige situ-

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atie sterk verschilt van de situatie waarin die plannen destijds zijn ontwikkeld, hebben de voorgenoemde programma’s onvoldoende rekening gehouden met de wisselwerking tussen het beleid van de overheden. Deze omissie en het gebrek aan coördinatie tussen de bestuurslagen heeft ertoe geleid dat deze programma’s inconsistent zijn met de macro-economische doelstellingen die ze voor ogen hadden. Het resultaat is dat het beleid dat in die programma’s wordt voorgesteld geen oplossing biedt voor de bestaande problematiek.

Analyse Het macro-economische panorama is thans als slecht aan te merken doordat de situatie in de openbare financiën instabiel is en daardoor er extra druk wordt uitgeoefend op de economie als een geheel. Het begrotingstekort is dermate hoog dat het niet meer binnenlands te financieren is. Dit heeft ertoe geleid dat de overheden in de opbouw van betalingsachterstanden oneigenlijke financieringsbronnen moesten aanboren om hun tekorten te financieren. Deze buitensporige tekorten oefenen een opwaartse druk uit op de rente, terwijl de opbouw van betalingsachterstanden een deel van de problemen afwentelt op de private sector. Het vertrouwen in de overheden is dermate geslonken dat zelfs het herfinancieren van vervallende leningen niet meer geheel lukt. Dit betekent dat de publieke sector van de Nederlandse Antillen dringend toe is aan structurele aanpassingen. De Regering heeft de staatsrechtelijk vastgestelde regels betreffende de financiële relatie met de eilandgebieden losgelaten door de ERNA-bepalingen niet na te leven, die de financiering van de tekorten van de eilandgebieden regelen. Dit heeft politieke spanning en instabiliteit veroorzaakt en heeft een situatie doen ontstaan waarin het opbouwen van betalingsachterstanden door de eilandgebieden wordt getolereerd als een instrument om hun financiële problemen het hoofd te bieden. De samenstelling van de overheidsuitgaven is thans dat, bij ongewijzigd beleid, elk jaar NAf. 200 mln. worden geabsorbeerd door rentelasten over een schuld die in de laatste tien jaar is gegroeid van NAf. 1.500 mln. naar NAf. 3.200 mln. (Elke inwoner van de Nederlandse Antillen heeft een schuld van NAf. 16.000 en betaalt per jaar NAf. 1.000 aan rente op die schuld.) Daarnaast gaan van de gegenereerde overheidsontvangsten NAf. 660 mln. op aan personeels-

lasten en NAf. 350 mln. om de operationele lasten van de overheden te dekken. Dit betekent dat van elke gulden aan belastingen, 95 centen worden uitgegeven om voorgenoemde uitgavencategorieën te dekken. Deze ontwikkeling heeft haar oorsprong in het verleden en is het resultaat van de excessief gebruikte uitdrukking: “semper nan ta bisa ku kos ta malu na Korsou y tòg sen ta sali”. De uitdrukking “semper tin sen” heeft geleid tot een situatie die de belastingbetaler jaarlijks NAf. 200 mln. kost. Hetzelfde geldt voor de jaarlijkse personeelslasten ad NAf. 660 mln. Nadat uitgavenverlagende maatregelen gedurende enkele jaren succesvol zijn doorgevoerd, heeft een opwaartse druk van de personeelslasten, door o.a. indexering en gelijktrekking, de beleidsruimte nagenoeg opgemaakt waardoor er geen ruimte bestaat om geld te steken in andere zorggebieden zoals onderwijs, infrastructuur en andere sociale zorggebieden. Ondanks maatregelen en een rekruteringsstop stijgt het aantal ambtenaren gestadig. De twee bestuurslagen hebben geleid tot doublures in de uitvoering en is thans niet langer te financieren. Uit hoofde van haar structuur en kwaliteit zitten we met een bureaucratische overheid die gekenmerkt wordt door “red tape”, passieve opstelling en beslissingen die genomen worden zonder dat er een weldoordacht advies aan ten grondslag ligt. Voor wat betreft de overheidsontvangsten is er een geleidelijke en consistente versmalling van het draagvlak van de directe belastingen en de invoerrechten geweest. Het streven om het fiscaal beleid zodanig in te richten dat er een verschuiving plaatsvindt van directe naar indirecte belastingen is een stap in de goede richting. Het verlenen van vrijstellingen wat thans gebeurt, maakt dit streven echter ineffectief. Ook al omdat de controle hierop moeizaam is. Indien het streven is om het fiscale beleid als een volwaardig beleidsinstrument in te zetten, dienen vrijstellingen in belastingheffing te worden geëlimineerd. De sociale en fysieke infrastructuur van de eilanden van de Nederlandse Antillen hebben onvoldoende aandacht gekregen. Door dit beleid van verwaarlozing zijn nu significante investeringen nodig om een inhaalslag te plegen. Gezien de huidige situatie van de openbare financiën is daar echter geen financiële ruimte voor. De Commissie heeft de mogelijkheden en oplossingen geanalyseerd om deze situatie te sa-

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neren. Aan de implicaties op het sociale vlak van de voorgenomen maatregelen is de nodige aandacht besteed bij het formuleren van de aanbevelingen. De integrale en consistente implementatie van de aanbevelingen zal de benodigde financiële ruimte creëren om in deze zorggebieden te investeren. Binnen dit kader dient nogmaals te worden benadrukt dat het integraal adopteren en implementeren van de aanbevelingen een randvoorwaarde is om het voorgenomen einddoel te realiseren. Een adequaat geëquipeerd apparaat is een randvoorwaarde voor de succesvolle implementatie van dit herstelprogramma. Externe technische assistentie is, gezien de capaciteit van het huidige apparaat, een belangrijk instrument om een programma van de omvang, zoals in dit rapport wordt uiteengezet, te kunnen implementeren. Het programma dient te worden vertaald naar de begroting, de benchmarks dienen te worden vastgesteld en de tijdige en accurate productie van informatie dient te worden gewaarborgd opdat een effectieve monitoring van het plan mogelijk is. Het is ook essentieel dat de aanwezige infrastructuur efficiënt wordt gebruikt opdat de institutionele zwakheden kunnen worden verholpen. Bijvoorbeeld de instelling van sommige nieuwe organisaties veroorzaakt niet alleen verspilling, maar verschuilt ook de noodzaak om de bestaande zwaktes in het apparaat te elimineren. Op het economisch vlak is bewezen dat excessieve regulering in de verschillende sectoren heeft geleid tot een niet concurrerende economie. Bovendien maakt de kosten/productie verhouding in verschillende bedrijfstakken de Nederlandse Antillen steeds minder concurrerend. Omdat we een open economie hebben moeten we snel kunnen reageren op de veranderende omgeving waarin wij opereren. De inflexibiliteit in de verschillende sectoren heeft er echter toe geleid dat in de Nederlandse Antillen hieraan niet wordt voldaan. Het is overduidelijk dat de economische activiteiten op het eiland sterk bepaald worden door economisch leiderschap. Een groot aantal projecten – zoals de restauratie van het historisch gedeelte van Willemstad, het bouwen van het WTC en de grootste hotels en het Sociaal Vangnet – zijn succesvol verlopen door het leiderschap die eraan ten grondslag lag. Andere projecten vorderen niet door gebrek aan leiderschap.

Projecten van grote economische betekenis die zijn aangekondigd liggen stil door de (gebrekkig) leiderschap en/of het uitblijven van een overtuigend overheidsoptreden. Het doen herleven van de economie – de jumpstart van de economie – , een kreet die dezer dagen frequent wordt gehoord, is afhankelijk van het toevertrouwen van onze economische ontwikkeling aan capabele leiders. Maar een belangrijke factor voor economisch herstel is een aantrekkelijk investeringsklimaat. Dit houdt in dat we in staat moeten zijn te concurreren in een globaliserende omgeving. Onze markten dienen flexibel te zijn, onze openbare financiën dienen gezond te zijn, onze beroepsbevolking dient hoog opgeleid en gedisciplineerd te zijn en we moeten over goede infrastructuur beschikken. We moeten naar buiten gericht zijn. Of zoals Adam Smith 200 jaar geleden stelde: we moeten open en vrij zijn.

Beleidsoverwegingen De Nederlandse Antillen staan op het cruciale punt waarop invulling dient te worden gegeven aan haar economische ontwikkeling. We moeten nu beslissen of de huidige situatie van passieve houding en het jarenlang kiezen voor de verkeerde beleidsopties zullen worden gecontinueerd en ons zullen leiden naar een totale financiële instorting dan wel dat we de noodzakelijke maatregelen zullen treffen om economisch herstel te realiseren. De weg naar economisch herstel kan weliswaar pijnlijk lijken maar het is de enige manier om economische groei te realiseren en banen op een duurzame manier te scheppen. Het scheppen van banen met een duurzaam karakter is het beste sociale beleid. We moeten streven naar een overheid waarin duidelijkheid bestaat over de taken, verantwoordelijkheden en doelen. Het proces om het beleid te formuleren en daarover te rapporteren dienen transparant te zijn. De informatie dient openbaar te zijn en de beleidsmakers dienen verantwoordelijk te worden gesteld voor hun beleid en er moet zicht zijn op de duurzaamheid van het gevoerde financiële beleid. We hebben een overheid nodig waarbinnen geen corruptie wordt getolereerd; een overheid die het adequate sociale beleid implementeert om armoede en sociale achterstanden te bestrijden. Inderdaad de geloofwaardigheid van het economische beleid wordt bepaald door de aanwezigheid van voldoende draagvlak om de hervormingen door te voeren zodat de marktpartijen voldoende ver-

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trouwen kunnen hebben dat aan de voorwaarden voor economische stabiliteit en duurzame economische groei zal worden voldaan. Het is overduidelijk dat in de huidige globaliserende wereld de marktperceptie bepalend is voor de kapitaalstromen. Daarom moeten we een klimaat scheppen van vertrouwen in de economie leidend tot besparingen, investeringen en productie. We moeten ook de economische actoren, binnen- en buitenlands, ervan zien te overtuigen dat dit klimaat overeind zal blijven staan. Om dit te bereiken moet er een consistent en evenwichtig macro-economisch beleid worden gevoerd en een integraal pakket structurele hervormingen worden doorgevoerd. Om onze openbare financiën gezond te maken en te houden is het noodzakelijk dat de begrotingstekorten gebonden worden aan wettelijke bepalingen. De Commissie beveelt aan de omvang van het overheidsapparaat af te stemmen op onze economie. Dit dient echter vergezeld te gaan van een erop toegesneden sociaal vangnet. Aan de ontvangstenzijde dient de belastingelasticiteit te worden vergroot voor het land als geheel te laten mee profiteren van economische groei. Het economische beleid dient naar buiten gericht te zijn en bestaande handelsbarrières dienen te worden geëlimineerd. We moeten de economische sectoren ontwikkelen waar wij een comparatief voordeel in hebben. Het is bijvoorbeeld noodzakelijk dat de belastingverdragen van de Nederlandse Antillen worden uitgebreid en versterkt. Om dit te realiseren dient een speciaal orgaan binnen de overheid te worden ingesteld die samen met de private sector een wereldwijd karakter aan ons verdragennetwerk zal dienen te geven. Om een effectieve monitoring van het Herstelprogramma te garanderen dienen kwartaaltargets te worden vastgesteld waaraan de realisatie dient te worden getoetst. De Commissie beveelt aan een financieeleconomisch deskundige met duidelijk “managerial capacities” en ervaring op kabinetsniveau te benoemen met de opdracht de tijdige implementatie van het programma te garanderen. De taak van deze Tsaar is specifiek de begrotingsdiscipline en de integrale uitvoering van het programma te garanderen. Zodra een beleidsbeslissing wordt genomen met mogelijk budgettaire implicaties moet op ministerieel niveau duidelijk worden gemaakt dat die beleidsbeslissing slechts budgetneutraal kan worden genomen.

Een andere belangrijke taak van betrokkene is om te garanderen dat de maatregelen worden doorgevoerd die noodzakelijk zijn voor de opleving van de economie. De Commissie beveelt aan dat op ambtelijk niveau zonder vertraging de functie van begrotingsinspecteur wordt ingesteld met als taak de budgettaire implicaties van de beleidsbeslissingen ten behoeve van de Raad van Ministers voor te bereiden en te evalueren. Zo een structuur wordt ook aanbevolen voor het Eilandgebied Curaçao. Ook op de andere eilanden moet op een gepaste wijze inhoud worden gegeven aan deze aanbeveling. De Commissie beveelt tevens aan dat het inkomen uit arbeid, gezinssubsidies en pensioenen tot een maximum van NAf. 1.500 per maand worden verhoogd met 2%. Dit is bedoeld om de sociaal zwakkeren te beschermen tegen een verdere inkomstenderving ten gevolge van het saneringsproces. Om een loonprijsspiraal te voorkomen is het echter essentieel dat het geschoonde prijsindexcijfer weer wordt gebruikt in de Cao-onderhandelingen voor de duur van het saneringsprogramma. Bovendien dient het budget voor sociale doelen te worden gedoteerd met additionele middelen om deze groeperingen te beschermen in het saneringsproces. De private sector dient internationaal aanvaarde normen in de bedrijfsvoering te adopteren. Thans leunt ze excessief op overheidsgaranties voor commerciële projecten met een minimale eigen inspanning wat heeft geleid tot problemen van “moral hazard” en “adverse selection”. Van de private sector wordt verwacht dat zij een bijdrage levert in het herstel van de economie door marktconform meer risicodragend te opereren in plaats van een verstorende overheidsinterventie die het marktmechanisme ontregelt. Het programma zoals uiteengezet in dit rapport dient te worden geflankeerd door een monetair beleid dat als doel heeft de pariteit tussen de Nederlands Antilliaanse gulden en de Amerikaanse dollar te handhaven. Hiermee wordt bedoeld dat ernaar moet worden gestreefd om het externe evenwicht op de middellange termijn te handhaven. De verhoudingen binnen het Koninkrijk hebben zich bewezen als een goede indicator van het investeringsklimaat in de Nederlandse Antillen. Indien de Regering het programma zoals gepresenteerd adopteert, zou een verstorende factor in de Koninkrijksverhoudingen

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moeten zijn geëlimineerd. De Commissie beveelt aan dat spoedig het reguliere “Financieel Economische Overleg” zoals voorgesteld door de commissie van Lennep wordt hervat. Dit brengt het volledig heractiveren van de Nieuwe Samenwerkingsrelatie tussen de Nederlandse Antillen en Nederland met zich mee. Om de beoogde sanering van de openbare financiën en de creatie van banen te realiseren, dient het draagvlak bij de sociale partners te worden gecreëerd. Dit betekent dat de vakbonden hun aanpak dienen aan te passen bij het onderhandelen over de lonen en dat de overheid in haar streven om de openbare financiën te saneren de juiste prikkels dient te geven om de productiviteit en de investeringen te bevorderen. Slechts met een harmoniemodel zullen we onze problemen kunnen oplossen en welvaart bewerkstelligen voor alle burgers van de Nederlandse Antillen.

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What are the implications for the OCTs in floating issues in Euros? Address on the occasion of the “Euro Awareness Seminar” organized by the Caribbean Association of Industry and Commerce, Port-of-Spain, Trinidad October 8, 1999

Dear ladies and gentlemen,

t is with a great deal of pleasure that I have accepted the invitation to share my thoughts with you on the impact of the Euro on financial-economic developments in our countries. The introduction of the Euro nine months ago marked a significant milestone in the process of European integration and will have a profound impact on the Euro area as well as on the world economy. The Euro has the potential to challenge the hegemony of the US dollar as an international currency and will, therefore, trigger structural changes in world financial markets, world trade and central banks’ monetary policies. These changes will not come overnight and they depend heavily on the economic, monetary, and political developments in the Euro area. Nevertheless, everybody seems to be convinced that the introduction of the Euro will have a profound impact on the world economy, so we must be prepared. Seminars, like the one today, are excellent opportunities to discuss the likely impact of the Euro on our countries and to think about possible policy responses so that we can maximize the benefits from this new challenge. In my address to you this morning, I will first discuss recent developments regarding the Euro, and I’ll share my views on its potential as an international currency. Next, I will go into more detail on the use of the Euro as a financing and investment currency, with specific reference to the Caribbean OCT countries. As the title of my address suggests, I will shed some light on the opportunities and limitations for our countries of floating issues in Euros. Finally, I will offer some closing remarks. On January 1, 1999, eleven member countries of the European Community joined the Economic and Monetary Union (EMU) and launched the new currency, the Euro. The participating countries are Germany,

France, Italy, Spain, Portugal, Austria, the Netherlands, Belgium, Luxembourg, Ireland and Finland. The introductory exchange rate of the Euro was set at US $ 1.17 per Euro. The emergence of the EMU and its single currency, the Euro, goes back to the end of the Second World War. After the devastation caused by the war, a number of European countries agreed that it was in their best interest to work together in close cooperation on economic, financial, and monetary matters with the ultimate goal of achieving financial stability, a large and competitive European market, and the use of one currency. The first plan for the introduction of the EMU was born in the early 1970s and came to be known as the Werner Plan, named after its chairman. This plan resulted in the establishment of the European Monetary System (EMS) in 1979 and the creation of the European Currency Unit (ECU) from a basket of European currencies. An economic and monetary union can be defined as a strong form of economic and monetary integration among a group of countries. Economic integration includes basically two steps. The first is to form one common market in which goods, services, labor, and capital can move freely. This step began with the completion of the Customs Union in 1969, continued with the full removal of exchange controls in 1990, and finally concluded with the suppression of internal border controls in 1993. The second step is close coordination and fine-tuning of economic policies among the participating countries of the union. This second step was concluded with adherence to the strict convergence criteria fixed in the 1992 Maastricht Treaty. Once the economic integration was in place, the process of monetary integration began on January 1, 1999, with the implementation of a com-

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mon monetary policy conducted by an independent European Central Bank (ECB) and the formation of a single currency area. The launching of the Euro heralded the first stage for the completion of the monetary union. This stage is characterized by the coexistence of national currencies besides the Euro for bank transfers. The stock exchanges of the Euro zone already list, trade and process stocks and securities entirely in Euros and banks of member countries effectuate their settlements in Euros. The first stage ends on December 31, 2001. The second stage in the process of monetary integration covers the period January 1 to July 1, 2002, and entails the introduction of Euro coins and notes, while simultaneously removing the national currencies from circulation. On July 1, 2002, the third and final stage of the monetary union will be completed when the Euro becomes mandatory. After the introduction of the Euro at US $1.17 per Euro, the exchange rate of the Euro has dropped steadily to its current US $1.06. This drop can be attributed to two main factors. The first is the diverging growth trends between the United States and the Euro area. Economic activity in the United States is still robust, while the Euro area has incurred a slowdown. The resultant trends in interest rates have not failed to impact on the relationship between the Euro and the dollar. The second explanation for the drop in the exchange rate is the Kosovo crisis, which weakened the Euro as the dollar established itself as a safe haven. These developments in the Euro/dollar exchange rate do not undermine its potential to become an important international currency. The US dollar has dominated the international financial system for nearly a century. Because of its extensive use by third world countries in the settlement of international trade and financial transactions, the importance of the US dollar far exceeds the United States’ share of world output. Furthermore, the value of world exports settled in US dollar is nearly four times as high as that of US exports. This is attributable to the combined and reinforcing effects of network externalities and economies of scale in the use of a predominant international currency.

International use of the Euro The Euro is already the second most widely used currency. Its development as an international currency will mainly be a market-driven process. The economic factors likely to affect the international role of the Euro are the size factors (e.g. the volume of cross-border transactions) and the risk factors (e.g. inflation). Its implications for the OCT countries can be reviewed by looking at the various functions of the Euro in the international trade and financial transactions as store of value, unit of account and medium of exchange both for private and public use. The international role of the Euro depends on several factors. First is the matter of size. The larger the foreign exchange market in a given currency, the lower the transaction costs in that market. This will engender a trend towards centralisation. The 11 EMU members have a combined gross domestic product (GDP) of US $6,300 billion against $8,100 billion for the United States. Furthermore, the Euro area will become the world’s largest importer and exporter, excluding the intra-EMU trade. Therefore, the Euro is likely to be used more by traders and to become more important as a unit of account and a medium of exchange. Second, the issuing country should possess broad and deep financial markets that are substantially free of controls – that is, financial markets with an efficient technical infrastructure. This characteristic will contribute to the international demand for the country’s currency, reflecting central banks’ and other investors’ preferences for safe, liquid financial instruments. As I will discuss later, the Euro area’s financial market is developing rapidly to meet these criteria. Third, the risk characteristics will continue to be a major factor in determining its international role. The currency should have a stable value, which is linked closely to the issuing country’s ability to maintain price stability. The independent European Central Bank with price stability as its main objective and the Growth and Stability Pact agreed among the Euro countries provide a solid foundation for stable prices. Fourth, there needs to be confidence in the political stability of the issuing country. The political unity among the Euro members is an area that still needs improvement. This is particularly true with respect to the efforts directed at the further convergence of the economies and the reduction of the persistent high unemployment. Finally, to become an international currency, it should play a significant role as an international store of value. Given the increasing significance of the Euro in international

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trade and finance, many of the worldâ&#x20AC;&#x2122;s central banks are likely to diversify their currency portfolios in favor of the Euro. The factors that determine the Euroâ&#x20AC;&#x2122;s role as an international currency indicate that several criteria have already been met, while the remainder are expected to be met in the near future. Therefore, the use of the Euro as a vehicle currency in the international markets is likely to expand rapidly and to challenge the hegemony of the US dollar. The establishment of a single, non-segmented European capital market is developing rapidly. The monetary union has created one of the three largest financial markets in the world, offering a considerably broader range of investment and financing instruments than is currently available in Europeâ&#x20AC;&#x2122;s still fragmented financial marketplace. The greater depth and breadth of markets in financial assets denominated in Euros will lower transaction costs, narrow interest spreads, and, as a result, attract an increasing number of borrowers to tap into the expanded European financial system. These borrowers also are located outside the Euro area. For instance, the first Hong Kong corporate issue in Euros generated good demand, primarily from European investors, but also with significant interest from local buyers. Furthermore, Brazil, Argentina, South Africa, Canada, and the Philippines rescheduled their international debts in favor of the Euro. These transactions served to illustrate that the Euro is gaining ground in the international financial markets as an investment and financing currency.

The implications of the international use of the Euro for the Caribbean OCT countries As mentioned, the implications of the increasing international role of the Euro for the Caribbean can best be analysed in light of the various functions of the Euro in the international financial and trade transactions. In terms of the private use of the Euro as an investment and financing currency, the following can be noted. The Caribbean OCT countries share some common characteristics, which have implications for borrowing in Euros. First, most of our countries are very small with an extremely open economies and are therefore very vulnerable to external shocks. Second, most of our economies have a low degree of diversification with tourism as the main economic activity. Third, being located in the backyard of the United States, economic and social ties with the U.S. are

much stronger than with Europe. Due to the close financial and trade links with the United States, the majority of our foreign exchange transactions are denominated in US dollars. Consequently, many of us have pegged our currencies to the US dollar. In the area of social ties, the United States also dominates. We watch American television, spend our vacations there, send our children to study at American universities, and probably all of us have family or friends in the United States who went there in hope of a better future. The fourth common characteristic of the Caribbean OCT countries is that we share our colonial past with Europe, and this is still reflected in relatively large aid flows and preferential trade relations. Although the dominance of the United States in our international economic and social relations is evident, the introduction of the Euro may mark significant changes. Since the Euro is a very young phenomenon, discussing its significance for our countries is still speculative. Nevertheless, I dare to give some insight in its likely impact on trade, aid, and borrowing. As far as the Caribbean OCT countries are concerned, the Euro will probably affect our trade with Europe only slightly; it will have a greater impact on our financial markets and debt management policies over the short and medium terms. The impact of the Euro on trade with Europe will be mainly indirect. If European economic growth picks up as a consequence of increased efficiency and competition in Europe, demand in the Euro area for imports from our countries will increase. On the other hand, an improvement in Euro area competitiveness through the elimination of exchange rate risk and lowering of transaction costs could result in trade diversion and a reduction of imports from the Caribbean OCT countries. This accounts, however, for only a small number of goods that compete directly with goods produced in the Euro area. Therefore, the Euro is likely to have only a slight, albeit positive, impact on trade with our countries. With respect to aid flows from Europe to the Caribbean OCT countries, not much change is expected. Traditionally, our countries receive significant amounts of aid from the European Union. These aid flows were denominated in the main European currencies and the ECU and are now denominated in Euros. The main question is whether the Euro will increase or reduce exchange rate volatility between the main

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international currencies, which in our case is the US dollar. There is, however, no reason to expect that the Euro will be either too strong or too weak against any other currency. When we consider capital flows, we have experienced a considerable increase in European foreign direct investment in our countries over the past decade. It is believed that the introduction of the Euro will enhance these investment flows further. Institutional investors in the Euro area may shift a larger share of their portfolios into developing countries once investments within the Euro area are no longer classified as foreign investments for exchange risk management purposes and currency exposure limits cease to apply to them. In addition to an increase in European foreign direct investment, debt issues denominated in Euros may gain importance in the medium term. The currency composition of foreign debt should be related to the composition of earnings from foreign trade. As trade between the Euro area and the Caribbean OCT countries grows, Euro-denominated debt may well account for a larger share of our total foreign debt. In light of this, we need to reassess our hedging strategies. In the longer term, a shift in Euro interest rates will have an effect on the foreign debt service of our countries, because part of our debt will be denominated in Euros. In the near term, however, the impact will be minor because only a small part of our external debt is currently denominated in the national currencies of the Euro area countries or in the Euro. Whether the emergence of the Euro and major European capital markets will greatly change our access to capital, depends on several factors which are partly determined domestically. I will discuss these factors in relation to the opportunities and limitations for the Caribbean OCT countries concerning floating issues in Euros. Floating issues belong to the more sophisticated debt instruments in the financial markets. The main immediate advantage of floating issues in Euros is the low Euro interest rate. Yesterday, the average 3-month money market rate in the Euro area amounted to 3.29%, compared to 6.16% in the United States. Twoyear government bonds rated at 3.68%, compared to 5.77% in the United States. Thus, interest rates in the Euro area are currently roughly 50% lower than in the United States. Current developments, like the rising oil prices and the stronger growth in the Euro area, could eventually lead to higher interest rates.

However, the favorable differential vis-Ă -vis interest rates in the United States is expected to remain large enough to make it worthwhile for the Caribbean OCT countries to explore the possibilities of issuing debt denominated in Euros. In the medium term, two other advantages of floating issues in Euros can be mentioned. First, the creation of a large, liquid, and integrated capital market as a result of the introduction of the Euro will improve market efficiency and, therefore, lower transaction costs. Second, the funds available for non-Euro countries on the Euro capital market are expected to increase because of the reduced borrowing of the public sector, given the Euro area governments commitment to reduce their public debt to more sustainable levels as agreed in the Stability and Growth Pact. This also creates prospects for interest rates to remain low in the long run. There are, however, also limitations for the Caribbean OCT countries to entering the Euro capital market. One limitation is the interest rate risk, which is paramount in floating rate debt instruments. Short-term interest rates tend to have a higher volatility than longer-term interest rates. This risk can be controlled however, by various hedging strategies and by building in special features. Another limitation is the country risk rating of the region. International lenders analyze the financial standing and capacity to pay of countries before providing finance. The result of such an analysis is translated into a mark-up, i.e. a risk premium, on top of the basic interest rate. For instance, the long-term Moodyâ&#x20AC;&#x2122;s rating of the OCT countries indicates a non-investment grading for a majority of these countries. This rating causes the risk element in the final interest rate offering to become prohibitively high. To improve our access to the Euro capital market will require a comprehensive medium-term-oriented path of structural reforms and fiscal consolidation. Building a good reputation requires time and perseverance of our policymakers, but a good reputation will eventually contribute to better country risk ratings and, consequently, lower risk premiums and hence interest rates at which we can borrow. A third limitation of floating issues in Euros is currency risk, since most of our countries have pegged our currencies to the US dollar. We can minimize this

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risk, however, by gearing the Euro share of our total foreign debt with the Euro earnings from our exports to the Euro area. This should be reflected in the currency composition of our foreign exchange holdings. Such an approach could be supported by appropriate hedging strategies in the foreign exchange markets.

rate. We can minimize these risk premiums and, therefore, reduce our financing costs through appropriate risk-control strategies, the implementation of sound financial-economic policies, and maintenance of a strong and healthy financial sector. Thank you for your attention.

A final limitation I would like to mention is the soundness of our financial sectors. The banking industry and the non-bank financial sector in our countries should be subject to adequate supervision by an independent supervisory authority to assess continuously the solvency and liquidity positions of the institutions operating in our jurisdictions. Since these institutions are intermediaries in foreign debt issues, they must have a good reputation to be taken seriously in international consortia that structure these issues. Such a reputation is not only related to financial soundness, but also to the adherence to the internationally accepted guidelines on money-laundering practices. Countries that do not show sufficient efforts to combat money laundering, run the risk of being excluded from the main international financial markets.

Closing remarks In conclusion, it can be noted that the introduction of the Euro will have a profound impact on the world economy and on the Caribbean OCT countries, especially in the beginning of the new millennium. In this seminar, we focus particularly on the Euroâ&#x20AC;&#x2122;s impact on our countries. This impact consists of challenges as well as threats. The Euro is expected to have a small positive effect on our trade with the Euro zone, but little impact for the flows of aid. In contrast, capital inflows, including foreign direct investment, portfolio investment, and foreign borrowing are likely to grow significantly. With respect to the latter, I discussed the opportunities and limitations associated with floating issues in Euros. The availability of funds in the Euro capital market is expected to increase substantially in light of, among other things, the decreasing role of the public sector in the Euro area. Together with lower interest rates compared to the United States, our countries should continue to explore the possibilities to tap the Euro capital market. The funds raised should be used to finance productive investments aimed at enhancing our foreign exchange generating capacity. However, floating issues in Euros have various risk elements, which translate into mark-ups on the basic interest

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The current economic situation: Working toward a common future Speech on the occasion of the presentation of Jan Thiel Bay Destination Resort in Curaçao January 16, 2001

Ladies and gentlemen, good afternoon,

et me first thank Eduardo for putting together this presentation and for the opportunity to speak to you this afternoon. The topic of my speech is: “The Current Economic Situation: Working toward a common future.” It is fitting that we, at this juncture of our adjustment efforts, are discussing investment projects like “The Jan Thiel Bay Destination Resort”. Investments like this are crucial for the future development of our economy. Ladies and gentlemen, I think it is fair to say that we have passed the point of no return on the journey towards adjustments. Praise is well deserved for the progresses that have been achieved so far, the endurance, patience and courage of the authorities. But ladies and gentlemen, dramatization is not productive. Any serious assessment would recognize that considerable work still remains to be done. Let me first review with you where we stand in the critical process of economic adjustment. The adjustment effort as envisioned in the Memorandum of Economic Policies concluded with the International Monetary Fund on September 15, 2000 took place against a background of a strong global economic upturn. The outlook has since then been affected by rising oil prices. There are clearly risks, which are now coming mainly from the advanced industrial countries. They include the volatility in the US stock markets, and the large US current account deficit; the fragility of the economic recovery in Japan; and, of course, misalignments among the major currencies. But, ladies and gentlemen, with good policy management, these risks should not materialize. Turning our attention back home, what have been some of the progresses I alluded to? As you all know,

our economy suffered a severe recession during the last few years. Triggered by unsustainable high budget deficits, the financial crisis of the government has spread throughout our society, creating a social and economic crisis accompanied by increasing poverty and a migrating population. During the year 2000, the Antillean economy shrunk by an estimated 4.4% due to weak domestic demand, migration, tax measures, and reduced private consumption. Private investment also declined due to lack of confidence and uncertainty surrounding the government’s commitment to adjustment. In addition, the financial situation of the government constrained domestic public expenditures. The inflation rate accelerated from 0.8% in 1999 to 5.1% in 2000, mainly due to the increase in turnover tax rates, the sharp increase in oil prices and the increase in inflation rates of our main trading partners. The first area where good progress has been achieved, ladies and gentlemen, is in the field of fiscal consolidation. The recently approved budgets by the respective parliaments indicate that the budget deficits of the general government have been reduced from NAf. 160 million in 2000 to NAf. 80 million in 2001. A reduction of 50 percent. If the progress achieved is preserved, fiscal balance should be achievable in the not so distant future. Substantial progress has also been made in reducing the number of civil servants, fiscal transparency, tax administration, budgetary control, governance and financial discipline. The second area of progress is in laying the groundwork for future sustainable growth. While the past few years have been characterized by economic contrac-

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tions, the trend is definitely pointing toward resumption in economic growth. In addition to local efforts, several international organizations are also working in a complementary fashion in assessing our business climate. The Foreign Investment Advisory Service, a subsidiary of the Worldbank, is looking at the attractiveness of the Netherlands Antilles as a location to invest, while the OECD has evaluated the legislation for the international financial and business services sector. The Worldbank is also developing a long-term growth strategy for the Netherlands Antilles. All these efforts are directed to promote sustainable economic growth for the benefits of all. There has also been progress in many other areas of structural reforms. Several measures related to the labor market directed at increasing the flexibility and the functioning of the market have been implemented. The procedures for obtaining a permit for establishing a business are being streamlined, and more flexibility in regulations on shop opening hours will be introduced. Legislation on e-commerce has been adopted by parliament and draft legislation on the establishment of economic zones (E-zones) has been sent to parliament in order to promote business development. The phased elimination of market barriers has been put in place by a gradual reduction of market protection. At the same time ladies and gentlemen, there have been disappointments. Some key sectors are still in decline whereas decline in output associated with the adjustment has also brought with it an increase in marginalization in certain sectors of our society. It is critically important for the reversal of this downward trend that we concentrate on investment projects like the one we will be discussing today. Little progress has also been achieved in the area of privatization. Privatization must be at the fore of the national agenda. This is essential, but must be done with care. It is critically important that the process be transparent and competitive and that appropriate regulatory structures be in place. From this experience, what lessons can be drawn? As a result of these ongoing adjustments, we should already be better placed today to prevent a crisis. But there is no room for complacency. There is a risk that reforms could lose momentum. Implementation is only beginning, and much remains to be done.

Most fundamentally, commitment to both structural reform and macroeconomic stability is decisive. We have to pursue both if we are to be successful. Second, the highest attention must be paid to building sound institutions, strong governance, at all stages of the adjustments. Poor governance and weak institutions create too many opportunities for corruption, undermining investor confidence and eroding public support for reform. Third, in formulating policy, close attention should be paid to the social implications of the adjustment process. A certain minimum level of social security, healthcare, and education are essential to ensure that the benefits are shared by all. Otherwise there will be no sustained political support for reform. Fourth, the reform process is most likely to take root when the policy agenda reflects the preferences of the various sectors of our country. We have to find our own path toward economic prosperity. Where financial support is provided, conditionality is necessary. But it must be done in a way that enhances ownership of the program. In this regard the ongoing dialogue with the various sectors of our society is necessary to meet their varying needs and we have to focus on the measures needed to achieve macroeconomic stability and growth. Effective coordination among the various international agencies that are involved in this process becomes indispensable. Taking these lessons into account, what are the main challenges ahead? I see two main areas: preserving the hard-won macroeconomic adjustment efforts and financing the economic growth. As we increasingly move into the growth phase of this adjustment and â&#x20AC;&#x153;adjustment fatigueâ&#x20AC;? comes to the fore, it will be very important to preserve progress made so far. To this end, maintaining macroeconomic stability calls for action in a number of areas: â&#x20AC;˘ Designing sound medium-term fiscal plans. This will involve difficult choices, as it requires balancing necessary expenditures and tight financial constraints. On the expenditure side, these include strengthening social safety nets, improvements in public infrastructure and education and taking into account the implications of the aging

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•

populations. These need to be weighed, however, in a context where tax burdens and debt ratios are already on the high side. Much work needs to be done to strengthen institutions to make them effective for the development of the country. Government should be a facilitator not a player in the market. As we are making successful progress, we may receive large capital inflows. As a consequence, new challenges for managing the economy will arise. Sound fiscal policy will therefore be essential, to reduce the risks of a disruptive reversal.

Ladies and gentlemen, on another occasion some years ago I tried my hands at suggesting that the issue of constitutional reform be removed from the national agenda. I went on by saying that the political debate should concentrate on accelerating the agenda of fiscal consolidation and structural reforms to achieve sustainable economic growth. Ladies and gentlemen, growth is not everything, but without growth we get nowhere. The responsibility lies with us to mobilize the energies and talents of our citizens and take advantage of the opportunities of the global market place. I view with apprehension the attention being given today to the issue of constitutional reform. Placing the issue of constitutional reform on the political agenda may divert the much-needed scarce resources – both human and financial – away from economic reform. I hope time will prove me wrong. Ladies and gentlemen, this brings me to my concluding remarks, which deals with the main challenge of the day. How can we finance this growth? To put it more succinctly, how are we going to finance projects like the one Eduardo is about to present to us, i.e., The Jan Thiel Bay Destination Resort, the Santa Barbara projects, the Caracasbaai projects and the like? Will they be realized or will they be relegated to the historical footnote of “too good to be true?”

ments, which is essential for our long-term growth. This Fund can provide long-term loans to private investors be it subordinated or at concessionary terms or can take equity stakes when it concerns projects that can be earmarked as infrastructural or contain infrastructural elements which cannot profitably be embedded in those projects. Given the large number of projects on stream, this calls for a Fund of the size of NAf 300 to NAf 400 million. The question becomes, given the current state of our economy, how are we going to fund such a Fund. I suggest the following. The new Tax Arrangement of the Kingdom which is about to be concluded calls for the dividend profit which is now being levied by the Netherlands on the dividend flows from the Netherlands to the Netherlands Antilles be transferred to the Netherlands Antilles. This represents an annual windfall, as long as it lasts, to the amount of NAf 50 to NAf 60 million. Over a period of five to eight years we may have accumulated sufficient funds to achieve most of our growth objectives since not all those projects can be executed simultaneously. This windfall should be transferred immediately to the Fund. This with an initial capital – being the loss incurred due to the protracted NFR negotiations and the ensuing uncertainty – should provide sufficient financing for all the viable projects that have been presented so far. Ladies and gentlemen, we should not be tempted to use this windfall to finance unsustainable entitlement programs as we so often did in the past. Let us use this windfall to lay a solid foundation for a better future for the generations to come. Let this be the start toward a common future. This strategy together with sound policies, strong institutions, and good governance should become a permanent feature of our society. To a remarkable extent – and notwithstanding severe strains and hardships – we have already embraced this challenge. Eduardo and Curaçao good luck with your endeavor and I thank you all for your attention.

Ladies and gentlemen, I believe that those projects and more are financeable if first and foremost they are realistic. They have to be economically viable and provide prospects for sufficient profitability for the prospective investors at market related financing. In order to accelerate this process, ladies and gentlemen, I envision the establishment of a Development Fund with the sole mandate to finance private sector invest-

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Structural Adjustment in the Netherlands Antilles: The Need for Broad-based Tax Reform Speech on the occasion of the luncheon fundraising of the Female Junior Chamber Curaçao March 30, 2001

Ladies and gentlemen, good afternoon,

join the chairperson in welcoming everyone to this luncheon. I have had the pleasure of speaking here on different occasions, and it is indeed a privilege. Madame chairperson, you asked me to talk about the tax system in the new millennium. I should note at the outset that the topic of taxes cannot be seen in isolation. Taxes are a major source of revenue for the government budget. Therefore, any discussion of taxes has to be carried out in the broader context of overall fiscal policy and its impact on the current economic situation. Ladies and gentlemen, this is the third time I have been a keynote speaker at a Junior Chamber function. I hope my speech today will enrich your discussion of the likely impact of tax reform on this whole process of economic adjustment. Madame chairperson, you indicated in your invitation that the objective of the speech is to create an environment conducive to positive change because of the strong need for positive change. I agree with you! However, creating positive change is dependent largely on motivating our young professionals to use their talents to contribute to economic recovery. We must convince them that we are serious in addressing the current crisis and that their help is needed during the restructuring process to create a better place for generations to come. The current financial-economic crisis is the result of some serious external shocks during the past decade and a half. The combined effect of those external shocks is estimated at approximately 20 to 25% of GDP. Those shocks eroded government revenues resulting in major imbalances in the public finances. Since we

did not go far enough in adjusting expenditures to the lower revenue base, deficits increased rapidly. Those deficits were financed by borrowing. The result has been unsustainably high government debt. The government’s growing financing needs reduced the availability of funds for the private sector in the domestic capital market. This “crowding-out” effect resulted in a decline in investments, thereby eroding near-term growth prospects. It became evident that only a major restructuring of the economy would create a basis for sustainable growth. At the end of 1995, the authorities approached the IMF to help the Netherlands Antilles formulate and implement a structural adjustment program. Since an IMF program is concentrated mainly on restoring financial health, the Inter-American Development Bank was approached in 1997 for proposals to revitalize the economy. In June 1999, this two-tiered approach was consolidated into the comprehensive adjustment program drafted by the National Plan Commission, which I chaired. The recommendations of the IMF, the IADB, and the National Plan Commission focus on a variety of policy areas. These areas include the elimination of fiscal deficits through revenue-enhancing and expenditure-reducing measures, tax reform, pension and health care reform, improving financial management in the public sector, privatization, the liberalization of trade, product and labor markets, and improvement of the business climate. Considerable progress has been made in a number of areas. The government apparatus has been reduced by approximately 30% through dismissals and the spin-off of government departments into autonomous entities. The wage bill has been contained by a temporary freeze of periodic salary increases and indexation and the elimination of the vacation allowance.

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The severance pay scheme has been made less generous, while the civil servants’ pension system has been partially reformed. These measures have contributed to a substantial reduction of personnel costs. Ladies and gentlemen if in 1986, 68% of all tax revenues of General Government were earmarked for personnel costs, this percentage has declined to 42% in 2001. In addition, subsidies have been reduced steadily. On the revenue side, a shift from direct to indirect taxes has been initiated with the introduction of consumption taxes, the base of which has been gradually broadened. Tax enforcement and collection have been improved, and backlogs have been reduced. Furthermore, user fees for government services have become more widespread. Moreover, the financial administration and reporting in the public sector have been strengthened, and arrears have been regularized. In the field of structural reform, various measures have been implemented to foster competition and create a more flexible business climate. The labor market legislation has been modernized through the abolishment of the individual dismissal permit, the easier use of part-time and temporary labor, and more freedom in the organization of the workweek, reducing the need for overtime. Concerning product market reform, the authorities have started to phase out the market protection regime by gradually reducing the economic levy, and import bans and exclusive import rights on nonagricultural products have been lifted. Moreover, the authorities are being assisted by the FIAS (Foreign Investment Advisory Services) to develop a plan to improve the investment climate, and by the World Bank to develop a long-term growth strategy. This overview illustrates that a broad adjustment process has been set in motion. While considerable progress has been achieved, implementation of the measures to support this process has not always been as vigorous as envisaged. Special attention should be given to areas in which progress has been slow, like privatization and health care reform. Another important area of reform is the current tax regime, the topic of my speech today. Before I elaborate on our tax system and the need for reform, I would like to elaborate on the adjustment process that is underway. I would like to stress that considerable challenges lie ahead, many of them inextricably linked with the recently negotiated IMF

program. I am aware that the IMF has been criticized for its obsession on fiscal consolidation. Allow me to elaborate on what I would like to call the “adjustment paradox.” It has been empirically established that the most successful adjustments in terms of sustainable growth are those that emphasize the reduction of expenditures rather than the enhancement of revenues. Yet at the same time, we know that expenditure-reduction measures are characterized by downward rigidity due to social and political constraints. Those constraints often make such measures far less palatable to domestic policymakers. Given that downward rigidity, inaction leads to increasing fiscal deficits, which have consequences for the investment climate and ultimately for growth and employment. The short-term reaction paradoxically is to look to revenue-enhancing measures to bring the deficit under control. After the deficits have been reduced to amounts that can be financed and progress has been achieved on the expenditure side, the distortionary effects of the increase in taxes will be dealt with. The temporary increases in taxes should then be eliminated or, as in the Netherlands Antilles, the entire tax structure should be revised. Ladies and gentlemen, the new tax structure we come up with must be a “good” tax structure for the Netherlands Antilles. We need a system under which (i) the distribution of the tax burden is equitable, (ii) interference with the economic system is minimized, (iii) the use of fiscal policy for stabilization and growth objectives is facilitated, (iv) fair and non arbitrary administration is permitted and understandable to the taxpayer, and (v) the administration and compliance cost is as low as is compatible with the structure’s other objectives. These and other requirements may be used to appraise the quality of a tax structure. The various objectives are not necessarily compatible, and where they conflict, tradeoffs are needed. The current tax structure of the Netherlands Antilles has some peculiar characteristics. The economic crisis that has beset our nation during the last decade and a half has led authorities to recur to the introduction, modification, and/or increases of existing taxes. This approach has led to the current tax structure, which is complex and overly dependent on technical assistance to administer. The current tax system

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discourages investors from investing, workers from working, and the government from governing. Ladies and gentlemen, while the tax-to-GDP ratio has remained fairly stable internationally during the past decade and a half, this ratio has dropped in the Netherlands Antilles from 39% in 1986 to 28% in 2000. This drop is explained by the sharp drop in tax revenues from the international financial and business services sector as a result of the external shocks alluded to earlier. In 1986, tax revenues from the international financial and business services sector comprised 47% of total tax revenues in the Netherlands Antilles, compared to only 6% in 2000. However, if we correct for the precipitous drop in tax revenues from the international financial and business services sector, the Antillean tax-to-GDP ratio increased from 21% in 1986 to 27% in 2000. This development also deviates from international trends, indicating that our tax burden has increased. The main explanation for the increase in the tax burden is the introduction of the sales tax (ABB) on CuraĂ§ao and Bonaire, later replaced by the turnover tax (OB), and the turnover tax (BBO) on the Windward Islands. Our current tax burden (27% in 2000) lies between that of the developed countries (approximately 38% of GDP), and that of the developing countries (approximately 18%). The composition of our tax structure also is a mix of tax structures typically found in developed and developing countries. Taxes on income and profits have been stable in the Netherlands Antilles during the last 15 years at approximately 13% of GDP. This percentage is about the same as in the developed countries, where this ratio is 14%, compared to 5% in the developing countries. Consumption taxes, defined as the sum of sales and turnover taxes, excises, and import duties, increased in the Netherlands Antilles from 6% of GDP in 1986 to 11% in 2000, reaching the international average. The income-to-consumption tax ratio nearly halved from 1.9 in 1986 to 1.0 in 2000, more in line with the 1.2 ratio in the developed countries than the 0.5 ratio in the developing countries. The decline of this ratio in the Netherlands Antilles reflects a shift from direct to indirect taxes. Another way of expressing this shift is that in 1986, two-thirds of total tax revenues consisted of direct taxes and one-third of indirect taxes, while in 2000 this ratio became approximately fifty-fifty.

Another characteristic of our tax system is its high elasticity. Measured by the â&#x20AC;&#x153;buoyancy coefficient,â&#x20AC;? that is, the responsiveness of tax revenues to changes in the GDP, the elasticity in the Netherlands Antilles amounts to 1.66 for the period 1986-2000. The average of the Eastern Caribbean States amounts to 1.09. The high elasticity in the Netherlands Antilles indicates that tax revenues are rising proportionally much faster than economic activities. This outcome can be attributed to discretionary tax changes, such as the introduction of the sales and turnover taxes, and the increase in import tariffs during this period. The elasticity of taxes on income and profits is 0.96, indicating that tax revenues are rising proportionally to income. However, one would expect an elasticity greater than one, since this tax category has a progressive rate structure. This deviation can be explained by, among other things, exemptions, tax evasion, and backlogs in assessment and collection. Ladies and gentlemen, it can be concluded that our tax burden has increased significantly and that corporate and personal income taxes are still the largest source of tax revenues for the Netherlands Antilles. Given its complexity, this system is more appropriate for advanced industrial economies than for our small, middle-income economy. This is clearly a major weakness of our present tax system. As mentioned, the current tax system relies on technical assistance to assess income tax liabilities, and collection costs and evasion are high. In addition, exemptions are numerous and business-reporting standards are not always adequate. Furthermore, our tax system includes numerous small taxes, all of which require an assessment and collection apparatus despite their marginal contribution to total revenues. The structure of import tariffs also is complex with highly detailed descriptions of goods categories, more than 10 basic tariffs, and various economic and other special levies. The turnover tax still generates less revenue than anticipated due to a lack of control on compliance. If we are to create an environment conducive to sustainable economic growth and durables jobs, we have to reform the current tax system in line with the criteria I outlined above. The tax reform that I envisage should include a major simplification of our tax structure. In its initial phase,

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the reform should be budget-neutral because the current weak public finances do not permit a decline in revenues. Once we reach balanced budgets, the second phase of reform should be aimed at lowering the tax burden. What should be the main features of a reformed tax system? I believe tax reform should be developed along the following six lines: 1. Eliminate the majority of taxes that contribute only marginally to overall tax revenues. 2. Increase reliance on a broad-based consumption tax, preferably with a single rate and minimal exemptions. 3. Import tariffs should have a moderate to low average rate and, most important, limited dispersion of rates. 4. Personal income tax should be characterized by a few brackets with a moderate top marginal rate comparable to the corporate income tax, limited personal exemptions and deductions, an overall exemption limit that excludes persons with modest incomes from paying taxes, and extensive use of final withholding at source. 5. Corporate income tax should be levied at one moderate rate. Provisions, such as depreciation allowances, should be uniform across sectors, and recourse to tax incentive schemes should be minimal. 6. Tax administration should be designed to enhance the accuracy and fairness of assessment, increase the efficiency of collection, and improve taxpayer registration procedures as well as collection enforcement and audit. Given these main features of tax reform, I shall now try to relate each of them to concrete changes in our tax system. First, the elimination of taxes that contribute little to total revenues. Currently, 90% of our tax revenues are generated by taxes on income and profits, excises, turnover tax, and import duties. The remaining 10% consist of a large number of small taxes that, in my view, can be reduced substantially to a few taxes administered effectively and efficiently. I will give you a few examples. The motor vehicle tax contributes only 2% to total tax revenues. The collection of this twiceyearly tax entails long queues of taxpayers at the collection offices, and a significant number of vehicle

owners pay late or not at all. A much more effective and efficient way to raise revenues for road construction and maintenance would be a special excise built into the price of gasoline. Since every vehicle owner needs gasoline, evasion is ruled out, and the tax burden is closely related to the use of the road network, a more equitable approach. Hotel room tax, car rental tax, and stamp duties each contribute 1% or less to total tax revenues. Abolishing these taxes and compensating the revenue loss in the turnover tax would be an important simplification. Furthermore, numerous activities require licenses for which the government collects a fee. Many of these fees are marginal, and together they contribute only 3% to total tax revenues. Since licenses exist not only to raise revenues but also to exert some control on the licensed activities, simplification could be realized by reducing the number of licenses to a few broad-based licenses. Second, I mentioned an increased reliance on a broadbased consumption tax. In this area we have already made some progress. A sales tax (ABB) of 6% was introduced on Curaรงao and Bonaire in July 1996, and it lasted until December 1998. In March 1999, a 2% turnover tax was introduced, the tariff of which was increased to 5% in October 1999. The Windward Islands have had a 3% turnover tax since January 1997, the tariff of which was temporary reduced to 2% from January 1999 through April 2000. The turnover tax now contributes 19% to total tax revenues. A major drawback of the turnover tax is its cascading effect, which creates uncertainty as to the final tax burden of different goods and services. Therefore, a major reform would be to transition to a general consumption tax comparable to the former ABB, which is levied on the final user of a good or service and imports of individuals. Only one tariff should be applied, and exemptions should be minimal. The tariff should be higher than the current turnover tax rates to compensate for the revenue foregone by the elimination of cascading and some small taxes as I proposed earlier. To reduce its regressive nature, exemptions should be limited in principle to necessities. The proposal that has been drafted for a new sales tax that would eliminate the cascading effects of the current system is a major step in this direction. The replacement of the turnover tax by a general consumption tax should be seen as a stepping-stone to the eventual introduction of a value-added tax (VAT). The VAT is considered the least distorting form of consumption tax, but also the

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most demanding. It requires not only properly trained tax administrators but also more stringent bookkeeping practices by businesses and the compilation of a comprehensive list of taxpayers. We are not yet ready for the VAT, but should begin planning for a smooth introduction in the near future. Ladies and gentlemen, the objective is to simplify the current tax system. Let us not use this opportunity to introduce new taxes while maintaining the old ones! Third, our complex system of import duties needs reforming. This reform has two objectives. The first objective is a major simplification aimed at reducing the number of tariffs and replacing the detailed description of a large number of goods categories by a limited number of broad categories. This simplification would contribute to a system much easier for both customs and importers to administer. The result would be faster import procedures. The second objective is to reduce import tariffs as part of an overall program of trade liberalization. A first step has recently been taken with the gradual phasing-out of the economic levies on imported goods with locally manufactured substitutes. The revenue loss associated with this policy could be compensated with an adjustment in the rate of the general consumption tax. Fourth, our personal income tax, better known as the wage and income tax, is characterized by complex tax tables, many deductions, relatively high tariffs, and large arrears in back levies and refunds. Evasion is especially widespread for the income tax. Presently, a reform package has been sent to Parliament entailing the introduction of tax brackets, a standard tax deduction, and a reduction or elimination of deductible expenses. Although this reform proposal is a step in the right direction, I think the changes should be bolder. For instance, in the new system, six tax brackets will be introduced with tariffs ranging from 15.6% to 57.2%. The new marginal rate is not much lower than the current 60% and is high in an international context. In addition to promoting evasion, a top marginal rate that exceeds the corporate income tax rate by a significant margin creates a distortion that provides strong incentives for taxpayers to choose the corporate form of doing business purely for tax reasons. I propose a tax structure with two brackets, and social insurance premiums could be incorporated in the rates. Initially, the width of the brackets and the corresponding rates should be designed to compensate the gain in revenues from the reduction or elimination of deduct-

ible expenses to prevent a higher tax burden. When progress has been made with the restructuring of the public finances, the rate should be no higher than 25 percent. Fifth, the corporate income tax, better known as the profit tax, has recently undergone a major change. Until 1999, the tax rate ranged from 32% to 39%. With the introduction of the New Fiscal Framework (NFR) and the agreement on the Tax Arrangement of the Kingdom (BRK), an internationally competitive 30% flat rate was introduced. Further reform should focus on tax incentives. While granting tax incentives to promote investments is a common practice around the world, available evidence suggests that their effectiveness in attracting incremental investments is often questionable, and their revenue cost could be high. For foreign investors â&#x20AC;&#x201C; the primary target of most tax incentives â&#x20AC;&#x201C; the decision to invest in a country would normally depend on a host of factors. A flexible labor market, liberalized trade, a minimum of red tape, well-developed financial, transportation, communication, and other infrastructure facilities, and transparent legal and regulatory systems play a much more important role than incentives. Therefore, I propose a critical review of our current tax-incentives scheme with the aim of arriving at a system with only a few rules-based incentives. Last, but not least, our reform efforts should focus on creating a strong and well-functioning tax administration. Unfortunately, we are still far away from this goal. Our tax administration is chronically understaffed, and the ill-prepared decentralization is a complicating factor. The restructuring of the tax administration should be finalized as soon as possible, before even considering the various reform proposals that I mentioned. However, a restructuring process also creates challenges. In the new structure, the separation of assessment and collection will be ended, reducing inefficiencies, evasion, and the buildup of arrears. Furthermore, the time is right to modernize the organization along functional lines, to simplify and modernize systems and procedures, and to expand computerization. In addition, greater autonomy should be considered for attracting and developing quality staff resources. Although a few steps on the road of tax reform have already been taken, much remains to be done. Ladies and gentlemen, to a large extent, economics is the

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study of getting incentives right. I have tried to place some issues on the political agenda of tax reform to get the incentives in the direction of sustainable growth and durable jobs. Policies intended to create large economic benefits frequently create large social and economic costs. The law of unintended consequences appears when we do not take a comprehensive approach to dealing with the issues. I, therefore, continue to call on our social partners to remain engaged in this process of getting a â&#x20AC;&#x153;goodâ&#x20AC;? tax structure. I hope I have convinced you of the importance of tax reform as part of a total reforms package for our economy. A simplified tax structure with lower rates has many advantages. It is easier to administer by both the taxpayers and the tax administration, saving costs and freeing resources to strengthen audit and enforcement. Lower rates could reduce the incentive for tax evasion, eventually generating more revenues than with the higher rates. Furthermore, tax reform will improve resource allocation and potentially contribute to the achievement of higher rates of sustainable growth over the long term. I would like to conclude my address with an appeal to you, young Antillean professionals. Our country is in the midst of a major restructuring process, but progress is slow due to capacity constraints. Although we are thankful for the technical assistance from abroad, we need our own people to create a foundation for lasting economic progress. Therefore, I ask you and particularly our professionals abroad to consider actively participating in this process. Your participation includes specifically accepting positions in the government apparatus, where the need for our own professionals is most urgent. Admittedly, the working conditions in the government sector must be improved, and I hope this will be done in the near future â&#x20AC;&#x201C; especially for the professionals. It is in the public sector that you can best make a contribution to the current economic situation.

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The Caribbean Capital Markets: Unlocking the potential from within the region Address during the 5th Caribbean Hotel & Tourism Investment Conference April 19, 2001

Introduction

ood morning chairman, members of the panel, ladies and gentlemen. I am pleased for the invitation extended to me to address you at this Fifth Caribbean Hotel and Tourism Investment Conference here in Curaçao. Considering the recent developments in the tourism industry in the Netherlands Antilles, I believe that the timing of this conference is excellent, as we currently have more tourism related investment projects on stream than ever before. These investments require, of course, a substantial amount of capital, both foreign and local, in the form of equity and loans. However, this poses a significant challenge for us here in the Netherlands Antilles, since our capital market, just like many other countries in the Caribbean, is not that well-developed. Consequently, the desired funds for the aforementioned investment projects are often times not raised in our capital market. Therefore, I would like to address the following question in my presentation: “How can we unlock the potential capital from within the region?” It must be noted that I will not attempt to cover the subject of attracting financing from outside the region this morning. I am ascertained that everyone is aware of the need to liberalize cross-border transactions, especially with regards to the capital account of the balance of payments, the need for policy coordination within the region, and the importance of international initiatives, such as the OECD Caribbean Basin Investment Initiative, which was presented earlier this month here in Curaçao. In contrast, I will specifically focus on ways to unlock the potential capital from within the region. Before going any further, I would like to give you an indication of the economic importance of the tourism

industry, which will also explain the need for sufficient capital. Furthermore, I will discuss the way in which the government influences the amount of capital available for investments. Finally, I will present several ways to mobilize savings. Although I will present these issues from the perspective of the Netherlands Antilles, I am sure that you will find most of my comments generally applicable. The importance of tourism for our economies can be appreciated by examining the contribution of the tourist sector to the balance of payments, Gross Domestic Product (GDP), government revenues, and employment. Tourism earnings play a major role in alleviating a source of fundamental disequilibrium in Caribbean economies, namely, the region’s chronic deficit on the trade balance. Without tourism, these deficits would be unmanageable. In the Netherlands Antilles, tourism has generated almost USD 840 million in foreign exchange in the year 2000. This amount equals 28% of our total foreign exchange revenues and approximately 84% of the deficit on our trade balance. The contribution of the tourist sector to GDP is measured by both direct and indirect value added. Estimates show that travel and tourism activities account for over 30 percent of GDP in the Caribbean region. In terms of government revenues, many Caribbean governments have become increasingly dependent on tourism and tourism-related economic activities as sources of direct and indirect tax revenues. The sector’s average contribution to total government revenues ranges from 15 to 20 percent in the Caribbean region. As for job creation, it is well-known that the tourist industry is a labor-intensive industry. For the Caribbean as a whole, the total number of people

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employed in this sector is estimated to be 2.4 million or 20% of the employed population. With tourism having such a broadly established impact on Caribbean economies, at the moment, the importance of this sector is very clear. But what about future prospects? Will tourism continue to play such a dominant role in our economies? In fact, it is believed that tourism is one of the three industries which will drive the services led economy of the 21st century, thereby increasing its impact on our economies. Since tourism has such a significant growth potential, investments in the tourism industry are very much needed to tap in on this potential. However, the financing of these investments requires the availability and supply of capital, which is often times limited in most Caribbean countries. Although one could look at the international financial markets as a way of financing, I would like to focus on the potential domestic or regional sources for investments while attempting to answer the question I posted at the beginning of my speech: â&#x20AC;&#x153;How can we unlock the potential capital from within the region?â&#x20AC;? Let me now discuss the impact of the government on the availability of capital. A government can either increase or decrease the amount of capital available for investments. It can increase the amount of funds available by concluding loans and using the proceeds to invest in tourism projects, such as hotel construction. Once proven profitable, the hotels can be sold to the highest bidder, enabling the government to repay its loans. This approach has been used by several governments in the Caribbean, with varying degrees of success. The rationale behind this approach is that the social benefits of increased activity in the tourism industry are not taken into account by a project developer, and therefore he might reject a project, which is in fact beneficial to the economy as a whole. By incorporating these social benefits and providing the needed capital, the government is eliminating this market imperfection. Another reason why the government may want to borrow funds and invest the proceeds in investment projects is because the perceived risks of the tourism project might discourage potential investors or induce them to charge unrealistic high-risk premiums. The intermediating role of the government reduces the risk premium, making more and cheaper capital

available for investments. This could also be attained by extending capital guarantees to the investors. In both cases, however, the government runs the risk of failure, and may end up with large claims. Again, there are various examples where governments received claims on the guarantees they extended. Therefore, a government guarantee should, in my opinion, never cover the whole financing requirement. The government should always try to find developers who are willing to participate in the project. If not, the viability of the project should be seriously questioned. Furthermore, the government may increase the amount of funds available for investment by earmarking a portion of its revenues to a development fund, created with the purpose to invest in the tourism industry. These earmarked revenues might be financed out of the normal budget, implicitly swapping government consumption for government investment, or through new taxes. An example of the latter could be the tax revenues from the international financial and business services sector in the case of the Netherlands Antilles. Instead of treating these tax revenues as a regular source of income, the government could treat them as a temporary windfall and earmark them to finance a special purpose fund geared towards investing in the tourism sector. For the Netherlands Antilles, I advocate this approach, as the new tax treaty within the Kingdom (BRK), will result in higher tax revenues, at least temporarily. Another possibility for the government to increase the amount of capital available for investments is providing tax benefits to investors. Tax benefits often include tax holidays, but these have several drawbacks. It would be better to introduce a limited set of rulesbased tax incentives. In that case, investors will be able to evaluate up front what the financial impact will be on their investment. The rules-based incentives, should, in my opinion, link the size of the tax incentive to the actual investment made in the local economy and the number of persons employed in the project. So far we have discussed the possibilities for the government to increase the amount of capital available for investment. Let me now turn to the case where the government is actually reducing the amount of capital available for productive investments.

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First, if a government runs large budget deficits, these may eventually crowd-out private investments. Second, and perhaps more important, the government may reduce the amount of both foreign and local funds if market perceptions on the sustainability of economic policies are negative. To prevent this, governments should pursue policies that the market believes will result in growth and stability. This means that we have to pursue: (1) consistent and stable macroeconomic policies, (2) comprehensive structural reform and (3) good governance. On all three counts the Netherlands Antilles is recently improving its track record. The agreement reached with the IMF in September 2000 provides a basis for financial reform in the government sector, which will gradually restore confidence. In addition, efforts are under way by the Foreign Investment Advisory Service and the World Bank to increase the attractiveness of the Netherlands Antilles for foreign investors and to provide a comprehensive long-term growth strategy for the economy. Therefore, I believe that the perception of the Netherlands Antilles in the international financial community will further improve, which will lead to increased investments in the Netherlands Antilles by the international financial community. So far I have discussed the impact of the government on the availability of capital. Let me now turn to the promotion of savings in our economies. Savings may take many forms, but in the Caribbean financial sectors, where banks are by far the most dominant players, bank deposits are still an important investment instrument. Economic theory on financial development tells us that we should increase the deposit rate in order to increase the attractiveness of savings over consumption. However, a general increase in interest rates might be unfavorable in light of the economic recession in the Netherlands Antilles. Therefore, I will focus on reducing the interest rate spread, which would make it possible to increase deposit rates without a simultaneous increase in lending rates. The magnitude of the interest rate margins is explained largely by two factors: the costs of financial intermediation and the degree of competition. In the Netherlands Antilles, we plan to reduce the costs of intermediation in three ways. First, the introduction of a financial statement law will oblige every registered company to file audited financial statements with the Chamber of Commerce. This will provide the banks

with accurate and timely financial data on companies, which apply for a loan. To increase the amount of information available on individual debtors, we are discussing the creation of a bureau for credit registration, where banks can inform if a client has other loans outstanding, or if any of his loans are non-performing. Therefore, banks will be better capable of assessing the risks involved in a loan, thus reducing uncertainty and the costs of intermediation. Furthermore, the recent elimination of the reserve requirement on longterm deposits and interbank deposits is aimed specifically at reducing the costs of financial intermediation for commercial banks. The second element influencing the size of the interest rate margin is the degree of competition in the financial sector. Competition asserts pressure on commercial banks to increase efficiency, reduce overhead, and shrink interest rate margins. The change in monetary policy a few years ago from direct credit controls to indirect policy instruments has undoubtedly increased competition. As an indication, the number of commercial banks active in the local market has dropped by 20%, creating a smaller number of bigger banks, better able to compete in this oligopolistic market. In addition, the interest rate margin declined significantly. Another way to increase savings is educating the public. In the Netherlands Antilles and numerous other islands and countries in the world, the turn-over in the gambling industry is considerable compared to the size of the economies. Which means that lotteries and casinoâ&#x20AC;&#x2122;s count on a disproportionately high level of private sector spending. The risk return profile of these activities does not justify this, as lotteries or gambling games have a negative expected return. In contrast, every single financial asset will present a positive expected return on investment. So why is so much money being spent on gambling and lotteries, instead of being invested? The answer, in my view, is one of timing. Lotteries give the â&#x20AC;&#x2DC;investorâ&#x20AC;&#x2122; the chance of winning a relatively large amount of money in a relatively short period of time. Investments in bonds, equities, or even time deposits, however, require a much longer time horizon. As it is not a financial matter (the money is available) it is more a matter of education to show the man in the street that he will be better off investing his money instead of throwing it away in a casino.

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Therefore, the man in the street needs to be educated about the proâ&#x20AC;&#x2122;s and conâ&#x20AC;&#x2122;s of investing in either risk capital or debt securities. It should be made clear that ultimately, not only the small investor himself would benefit, but the country as a whole too. Even small amounts could be mobilized if investment funds would be created. One could even think of the possibility where the government enables investors to participate in the special purpose fund I discussed earlier. If the contributions to investment funds by local individuals are tax deductible, this might just provide the financial incentive needed to persuade the average person to invest. Tax deductibility could also be used to increase contractual savings. Although employee pension premiums are fully tax deductible in the Netherlands Antilles, the problem is that only about 30% of the working population participates in a pension scheme. For the other 70%, tax incentives to save for their postretirement age are very limited. A broadening of tax incentives would almost certainly lead to increased contractual savings, providing long-term capital for investments. Ladies and gentlemen, I discussed with you this morning the impact of the government on the availability of capital and I have illustrated that this impact can either be positive or negative. To prevent a negative impact, governments should adhere to sound macroeconomic policies. Next, I elaborated on the reduction of the interest rate margin, the education of the public and the introduction of tax incentives as ways to promote domestic savings. All these measures have a significant local content. Therefore, I would like to stress again: notwithstanding the importance of international initiatives to stimulate investments in the region, a lot can be done within the region to unlock potential capital. Thank you for your attention.

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De Nederlandse Antillen op weg uit de crisis Inleiding ter gelegenheid van het Brainstorm weekend “Samenwerking binnen het Koninkrijk” 23 april 2001

Dames en heren, goedemorgen,

e Nederlandse Antillen mogen zich de laatste tijd in een ruime belangstelling verheugen van conferenties met als thema de bevordering van investeringen. Begin deze maand hield de OESO een workshop over directe buitenlandse investeringen in het Caribische gebied en Latijns Amerika. Vorige week werd de jaarlijkse Caribbean Hotel & Tourism Investment Conference op Curaçao gehouden en nu gaan we de laatste dag in van het Brainstorm-weekend “Samenwerking binnen het Koninkrijk,” waarin óók het aantrekken van investeringen centraal staat. Deze concentratie van conferenties over investeren is geen toeval, maar het resultaat van hard werken om de Nederlandse Antillen op de wereldkaart te zetten. Immers, onbekend maakt onbemind. Investeringen zijn de motor van economische groei en dat hebben wij de laatste jaren helaas moeten ontberen. Dit jaar zal de economie naar verwachting nog enigszins krimpen, waarmee we het vijfde jaar van de recessie ingaan. Dat de recessie in nauw verband staat met het gebrek aan investeringen kan worden geïllustreerd door de daling in de particuliere investeringen met ongeveer 20% en de daling in de overheidsinvesteringen met bijna 50% gedurende de periode 1996-2000. Voor dit jaar wordt voor het eerst na 5 jaar een toename in investeringen verwacht, wat samenhangt met onder meer de bouw van een energiecentrale op het terrein van de raffinaderij en verschillende hotel- en andere toeristische projecten. Het is nu zaak om deze opleving te consolideren en een solide fundament te creëren waarop investeringen goed gedijen. Mijn inleiding is als volgt gestructureerd. Ik geef u eerst een beknopt overzicht van de oorzaken van de huidige crisis en van de inspanningen die zijn verricht om de crisis op te lossen. Vervolgens ga ik in op de sterke en zwakke punten van de Nederlandse Antil-

len als investeringslocatie en het beleid om het investeringsklimaat te verbeteren. Ik besteed daarbij ook kort aandacht aan de financiering van investeringen. Tenslotte sluit ik af met enkele concluderende opmerkingen. De oorzaken van de huidige financieel-economische crisis vonden plaats gedurende de laatste decennia toen onze economie door diverse zware externe schokken werd getroffen. De eerste schok kwam door de afschaffing van de bronbelasting in de Verenigde Staten, wat voor de Antillen het einde betekende van een aantal zeer winstgevende activiteiten in de internationale financiële en zakelijke dienstverlening. Hierdoor droogde een belangrijke bron van belastingen deviezeninkomsten op. De tweede zware schok hield verband met de wereld-oliecrisis. Ten eerste kwam Venezuela door genoemde crisis in de problemen, waardoor het land zich genoodzaakt zag haar nationale munt, de Bolivar te devalueren. Met de Bolivardevaluatie kwam een einde aan een bloeiend kooptoerisme op onze eilanden, met name op Curaçao, vanuit ons buurland. Het kooptoerisme genereerde een aanzienlijke deviezeninstroom, welke praktisch ophield te bestaan. De wereld-oliecrisis leidde echter ook via een andere weg tot een schok voor onze economie. De crisis vormde voor Shell mede de aanleiding tot herverdeling van haar raffinagecapaciteit over de wereld, hetgeen uiteindelijk resulteerde in sluiting van de Shell raffinaderij in 1985. Alhoewel de exploitatie van de raffinaderij werd overgenomen door de Venezolaanse oliemaatschappij PDVSA, verminderde de bijdrage van de raffinaderij aan onze economie aanmerkelijk door een radicale terugdringing van het kostenniveau en als gevolg van belastingvrijstellingen. De gevolgen van deze zware schokken werden verergerd door een aantal kleinere schokken, zoals de vernietigende orkanen op de Bovenwindse eilanden,

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de intrekking van verschillende handelsprivileges met de Europese Unie en de onzekerheid rond de verandering van de Belastingregeling voor het Koninkrijk (BRK). Het gecombineerde effect van deze externe schokken beliep ongeveer 20 tot 25% van het Bruto Binnenlands Product. Deze schokken hadden een forse verlaging van de overheidsinkomsten tot gevolg. In eerste instantie reageerden de overheden met een neerwaartse aanpassing van hun uitgaven. Deze correcte reactie werd naderhand echter teniet gedaan door andere factoren, met name forse aanpassingen van ambtenarensalarissen met 14% en de door het gerecht opgelegde gelijktrekking van salarisverschillen tussen mannelijke en vrouwelijke, en gehuwde en ongehuwde ambtenaren. Aangezien de overheid er uiteindelijk niet in slaagde haar uitgavenniveau aan te passen aan de lagere inkomsten, namen de tekorten snel toe, hetgeen resulteerde in een substantiële groei van de overheidsschuld. De toegenomen financieringsbehoefte van de overheid beperkte de beschikbaarheid van financiering voor de particuliere sector op de lokale kapitaalmarkt. Dit verdringingseffect droeg bij aan een afname van de investeringen. Maar ook investeringen met buitenlands kapitaal ondervonden de negatieve gevolgen van deze gebeurtenissen. Buitenlandse investeerders bleken weinig geneigd tot het doen van directe investeringen in de Antillen. Dit had zijn oorzaak in het afnemend vertrouwen van buitenlandse investeerders in de wijze waarop de overheid inspeelde op de problematiek van de overheidsfinanciën. De afnemende binnenlandse en buitenlandse investeringen hadden een negatieve uitwerking op de economische groei. Het werd duidelijk dat alleen een ingrijpende herstructurering van de economie weer een basis voor duurzame groei kon creëren. Eind 1995 benaderden de autoriteiten het IMF om de Nederlandse Antillen bij te staan met de opstelling en uitvoering van een structureel aanpassingsprogramma. Aangezien een IMF-programma vooral is gericht op herstel van de financiële gezondheid van een land, werd de InterAmerikaanse Ontwikkelingsbank in 1997 benaderd om aanbevelingen te doen voor de stimulering van de economie. Deze tweeledige aanpak werd geconsolideerd in een breed aanpassingsprogramma, opgesteld door de Commissie Nationaal Herstelplan in juni 1999. De aanbevelingen van het IMF, de InterAmerikaanse Ontwikkelingsbank en de Commissie

Nationaal Herstelplan richtten zich op verschillende beleidsterreinen, zoals het elimineren van de begrotingstekorten door opbrengstenverhogende en uitgavenverlagende maatregelen, belastinghervorming, hervormingen in het pensioenstelsel en de gezondheidszorg en verbetering van het financiële beheer in de overheidssector. Verder werden voorstellen gedaan over privatisering, liberalisering van de handel, producten arbeidsmarkten en verbetering van het investeringsklimaat. Ondanks de tegenslagen die bij de uitvoering van de maatregelen werd ondervonden, is grote vooruitgang geboekt op verschillende terreinen. Het ambtenarenapparaat is met ongeveer 30% teruggebracht door ontslagen en verzelfstandiging van overheidsdiensten. De loonkosten werden beheerst door de tijdelijke bevriezing van periodieken en indexering, terwijl de vakantietoelage werd afgeschaft. De wachtgeldregeling is versoberd en het ambtenarenpensioenstelsel is gedeeltelijk hervormd. Deze maatregelen hebben de personeelskosten van de overheid substantieel verlaagd. In 1986 maakten personeelskosten 68% van de belastinginkomsten uit. Dit jaar zal dat percentage dalen tot ongeveer 42%. Daarnaast zijn de overheidssubsidies steeds verder teruggedrongen. Aan de inkomstenkant is een verschuiving van directe naar indirecte belastingen in gang gezet door de introductie van belastingen op consumptie, waarvan de belastingbasis geleidelijk is verbreed. De oplegging en inning van belastingen zijn verbeterd en achterstanden zijn verminderd. Verder wordt het profijtbeginsel op grotere schaal toegepast voor diensten verleend door de overheid. Daarnaast is de financiële administratie en rapportage in de publieke sector versterkt en zijn betalingsachterstanden geformaliseerd. Op het gebied van structurele hervormingen zijn verscheidene maatregelen genomen, gericht op bevordering van de concurrentie en het scheppen van een flexibeler investeringsklimaat. De arbeidsmarktwetgeving is gemoderniseerd, waaronder de afschaffing van de vereiste vergunning voor individueel ontslag, vereenvoudiging van de inzet van parttime en tijdelijke krachten en flexibilisering van het arbeidstijdenrecht, waardoor minder snel sprake is van overwerk, zodat dure toeslagen kunnen worden geminimaliseerd. Verder is een begin gemaakt met de afbouw van het marktbeschermingregiem door de geleidelijke verlaging van de economische heffing op importen waar-

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voor lokale substituten bestaan, welke per 1 januari 2005 geheel zal zijn afgebouwd; voorts zijn invoerverboden en exclusieve rechten op de invoer van nietagrarische producten opgeheven. Daarnaast worden de autoriteiten bijgestaan door de Foreign Investment Advisory Services (FIAS) voor de ontwikkeling van een plan gericht op de verbetering van het investeringsklimaat en door de Wereldbank voor de ontwikkeling van een lange termijn groeistrategie. Ik wil met dit overzicht aantonen dat de Nederlandse Antillen flinke vooruitgang hebben geboekt op de weg van een brede hervorming van de economie na het incasseren van een aantal zware schokken. Het aanpassingsproces is echter zeer ingrijpend voor onze kleine economie en verloopt daarom minder snel dan gewenst. Niettemin ben ik van mening dat wij een heel eind op de goede weg zijn. Om de vorderingen die zijn gemaakt met het creëren van een aantrekkelijk investeringsklimaat te onderstrepen, wil ik even terugblikken op de inleiding die ik in 1999 heb gegeven voor een gezelschap van Nederlandse investeerders in de Beurs van Berlage in Amsterdam. Ik refereerde toen aan een onderzoek onder Nederlandse bedrijven over het imago van de Nederlandse Antillen als investeringslocatie. Uit dat onderzoek kwamen als sterke punten naar voren de solide politieke en democratische verhoudingen en een rechtsstaat naar Nederlands model. Voorts werden de sterke band met Nederland in het Koninkrijk en de beheersing van Engels en Spaans naast het Nederlands genoemd. Samen met onze strategische ligging maakt dit de Nederlandse Antillen een aantrekkelijke locatie als bruggenhoofd voor de Latijns-Amerikaanse regio. Tot slot werd onze goed ontwikkelde internationale financiële en zakelijke dienstverleningssector genoemd. Wat deze sector betreft is in december vorig jaar met de overeenstemming tussen de Nederlandse Antillen en Nederland over de nieuwe Belastingregeling voor het Koninkrijk (BRK) een einde gekomen aan een periode van onzekerheid. Samen met het Nieuw Fiscaal Raamwerk luidt deze regeling een nieuw tijdperk voor de internationale financiële en zakelijke dienstverlening in. De nieuwe regelingen openen de weg voor het afsluiten van belastingverdragen met andere landen, waardoor aantrekkelijke nieuwe producten ontwikkeld kunnen worden. Naast deze sterke punten werden in het onderzoek onder Nederlandse bedrijven ook een aantal knelpunten

genoemd. Met name met de Antilliaanse bureaucratie had men minder goede ervaringen. Het verkrijgen van een werken verblijfsvergunning duurde gemiddeld ongeveer 6 maanden, terwijl deze doorlooptijd ook voor andere vergunningen en belastingvrijstellingen eerder regel dan uitzondering was. Verder vond men de luchtverbindingen met de Nederlandse Antillen, in het bijzonder met Latijns Amerika, onvoldoende. Tenslotte werden de kosten van telecommunicatie te hoog genoemd, terwijl de betrouwbaarheid daarvan werd betwijfeld. Ik kan constateren dat wij in de 3 jaar na dit onderzoek onze sterke punten hebben weten te handhaven en onze zwakke punten voor een groot deel hebben kunnen elimineren. Zo wordt de terugdringing van de bureaucratie voortvarend aangepakt. Recentelijk is een wetgeving aangenomen waardoor Nederlanders en Arubanen geen werken verblijfsvergunning meer nodig hebben. Binnenkort worden de openingstijden van winkels verruimd in een nieuwe winkelsluitingstijdenwet wat de noodzaak tot het aanvragen van een vergunning voor een afwijkende openingstijd grotendeels elimineert. Het Eilandgebied Curaçao is een proefproject begonnen voor het aanvragen van een vestigingsvergunning via Internet en heeft een Bureau voor Economische Ontwikkeling opgericht waarin de krachten worden gebundeld voor de promotie, acquisitie en ondersteuning van investeerders. Dit betekent dat investeerders maar bij één loket hoeven aan te kloppen voor het aanvragen van de benodigde vergunningen. Verder wordt gewerkt aan vereenvoudiging van de invoerprocedures en modernisering van de douaneverordening, waardoor importeurs sneller over hun goederen kunnen beschikken. De luchtverbindingen met de Nederlandse Antillen zijn de laatste tijd aanzienlijk uitgebreid. Tegenwoordig vliegen 4 maatschappijen tussen de Nederlandse Antillen en Nederland, waaronder onze nationale luchtvaartmaatschappij Air ALM. Ook de regionale verbindingen zijn verbeterd, onder meer door de recent gestarte vluchten van American Eagle op Curaçao en Bonaire waarmee via de ‘hub’ in Puerto Rico goede aansluitingen worden geboden op Latijn-Amerikaanse bestemmingen. Op het gebied van de telecommunicatie is een forse inhaalslag gepleegd. De internationale en lokale tarieven zijn aanzienlijk gedaald. De Nederlandse Antillen zijn aangesloten op internationale glasvezelkabels,

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terwijl het glasvezelnet op de eilanden gestaag wordt uitgebreid. Verder zijn verschillende ondernemers begonnen met de aanbieding van Internettelefonie, wat de tarieven verder onder druk zet. Daarnaast staat het telecommunicatiebedrijf van Curaçao, United Telecommunication Services, boven aan de lijst van te privatiseren overheidsbedrijven. Overname door een grote internationale partner zal bijdragen aan een “state of the art” telecommunicatie infrastructuur tegen internationaal concurrerende tarieven. Met deze ontwikkelingen is een basis gecreëerd voor de ontwikkeling van e-commerce, waarvoor eind vorig jaar een wettelijk kader is aangenomen. Voorts wil ik niet onvermeld laten dat regelgeving in voorbereiding is waarmee lagere kosten en prijzen van utiliteitsbedrijven bewerkstelligd worden. Hierop vooruitlopend heeft het water- en elektriciteitsbedrijf van Curaçao, Aqualectra, vorige maand een “saleleaseback” overeenkomst gesloten met Delta Nutsbedrijven voor een deel van haar opwekkingscapaciteit. Hiermee komen middelen vrij voor investeringen ter verbetering van de efficiëntie waardoor onder andere de tarieven kunnen dalen. Verder is in februari een wetgeving voor de Economische Zone aangenomen waardoor exportgerichte bedrijven aantrekkelijke belastingen andere faciliteiten kunnen worden geboden. Het voorgaande toont aan dat wij hard werken aan een aantrekkelijker investeringsklimaat. Dit proces is nog niet ten einde en wordt in nauwe samenwerking met de Foreign Investment Advisory Services verder uitgewerkt. Hiermee wordt een solide basis gelegd voor de verdere ontwikkeling van sectoren, waarin wij een comparatief voordeel hebben of kunnen verwerven, zoals toerisme, internationale distributie, internationale financiële en zakelijke dienstverlening en e-commerce. Dames en heren, bij velen in onze gemeenschap bestaat het besef dat er iets ondernomen moet worden om de economie weer op gang te brengen. Dit besef heeft geleid tot de lancering van verschillende ideeën hiertoe. En ongetwijfeld hebben al deze ideeën hun merites. Zelf heb ik bij diverse gelegenheden voorstellen gedaan teneinde reeds op korte termijn te komen tot verlichting van onze economische malaise. Nu de Wereldbank zich verdiept in het uitwerken van een plan voor een economische opleving op lange termijn, is het wenselijk om de aandacht ook te

richten op korte termijn programma’s. Alhoewel een duurzame ontwikkeling van de economie vraagt om implementatie van plannen welke vanwege hun aard aansturen op economische opleving op lange termijn, dringt zich namelijk geleidelijk doch nadrukkelijk de noodzaak op om daarnaast ook voor korte termijn met oplossingen ter stimulering van de economie te komen. Niet in de laatste plaats vanwege het risico van een verdergaande terugval van het vertrouwen in de economie is het van het grootste belang dat reeds op korte termijn effecten zichtbaar worden. Ik moge hierbij in herinnering brengen dat de overheid een drie-sporen beleid voert teneinde economische groei te bewerkstelligen. Het eerste spoor behelst sanering, hervormingen en consolidatie op het vlak van de overheidsfinanciën. Het tweede spoor houdt structurele aanpassingen in met het doel onze economie concurrerend te maken op de wereldmarkt. Het derde spoor is dat van de economische groei, waarbij de resultaten vanwege de aard van de inspanningen meer op de lange termijn zichtbaar zullen worden. Het welslagen van ons aanpassingsprogramma vereist een simultane implementatie van al deze drie onderdelen. Het is immers nu zaak om de reeds geboekte vooruitgang te consolideren en het vertrouwen in onze economie verder aan te wakkeren. Niettegenstaande het belang van het drie-sporen beleid, zou ik er toch voor willen pleiten om daarnaast, middels specifieke projecten trachten te bewerkstelligen dat reeds op korte termijn resultaten zichtbaar worden van de inspanningen die gedaan worden om weer groei in de economie te brengen. Waar ik op doel zijn korte termijn resultaten ter overbrugging van de tijd die nodig is ter realisering van de meer lange-termijn gerichte doelen. De noden in onze gemeenschap zijn van dien aard dat niet gewacht kan worden totdat de eerste resultaten van het lange-termijn beleid tastbaar worden. Om de economie, met name op Curaçao op korte termijn te stimuleren zou het aan te raden zijn enkele specifieke projecten op te zetten en te implementeren. Ter wille van de efficiëntie zouden deze projecten buiten de bestaande administratieve procedures moeten vallen. De koers die met deze projecten wordt uitgezet moet reeds op korte termijn leiden tot een eerste begin van gezonde groei van onze economie, maar dient tegelijkertijd ook te sporen met de inspanningen die meer gericht zijn op het bereiken van lange-termijn resultaten.

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Een fonds zoals eerder door mij voorgesteld is daarentegen een geschikter vehikel voor de financiering van de lange-termijn gerichte investeringen. Zo’n fonds zou ondergebracht kunnen worden in een nieuw op te richten entiteit die de belangen van de overheid en het bedrijfsleven zou kunnen dienen door investeringen en projecten op bancair gangbare wijze te structureren en beheren middels daartoe beschikbare fondsen. Deze entiteit kan de coördinatie op zich nemen van de op de langere termijn gerichte initiatieven op economisch gebied. De personen die zitting hebben in deze entiteit dienen de expertise te bezitten om aangedragen plannen op een degelijke wijze te kunnen evalueren. Het moeten personen zijn met een zakelijk inzicht en liefst met een gevestigde ‘track record’ op dit gebied. Hierbij hoort ook de capaciteit om begeleiding te kunnen geven aan kleine groepen experts die voor specialistische projecten op een tijdelijke basis worden aangetrokken. Dit houdt het instituut klein en stelt het in staat om telkens “state of art” kennis te kunnen inhuren.

derlandse Antillen het vertrouwen van investeerders kunnen terugwinnen en we samen een positieve toekomst tegemoet gaan. Een toekomst van duurzame economische groei, een toenemende werkgelegenheid en een hoger welvaartsniveau voor ons allen. Ik dank u voor uw aandacht!

In dit verband zou het ook aan te raden zijn een verdere uitwerking van onze “expats” regeling te overwegen. Onze groeisectoren zijn steeds in hoge mate afhankelijk van buitenlandse experts die ons bij moeten staan deze sectoren uit te bouwen. De reeds doorgevoerde flexibilisering van onze toelatingseisen dragen er in belangrijke mate bij aan een gemakkelijkere toestroom van deze groep. Een vriendelijker belastingklimaat ten behoeve van deze groep zal ook zeker bijdragen tot een verdere professionalisering van onze arbeidsmarkt en kan aldus een gunstige invloed hebben op onze economie. Dames en heren, concluderend kan ik vaststellen dat de Nederlandse Antillen goed op weg zijn om uit de huidige crisis te geraken. Omvangrijke en ingrijpende maatregelen zijn genomen om de overheidsfinanciën weer gezond te maken. De regering zet zich in om nog deze maand aan de “prior actions” te voldoen die het IMF heeft gesteld om het aanpassingsprogramma weer te activeren. Hiermee komen zowel de liquiditeitssteun die Nederland beschikbaar heeft gesteld vrij als steun voor het economische programma, indien het IMF-programma volledig en conform de afgesproken targets wordt uitgevoerd. Deze steun geeft mijns inziens overtuigend inhoud aan het thema van dit weekend: “Samenwerking binnen het Koninkrijk.” Samen met het beleid gericht op een aantrekkelijker investeringsklimaat, ben ik ervan overtuigd dat de Ne-

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The economic situation of the Netherlands Antilles in the aftermath of the terrorist attacks in the United States: Looking ahead Speech on the occasion of the Fundraising Lunch of Mesora N.V. 2001 Ladies and gentlemen, good afternoon,

would like to thank the organizing committee of this fundraising event for inviting me as the keynote speaker at this Luncheon. Mesora N.V. is an organization established with the needs of people uppermost in mind. Our standards of living, ladies and gentlemen, depend largely on the productive use of the available resources in our society – be they human, capital, or natural resources. The suboptimal use of our limited resources – whether the result of unfortunate addiction to drugs or otherwise – implies underutilization of our productive capacity. Mesora N.V. attempts to meet this challenge by rehabilitating drug addicts. This effort, it is hoped, will enable former drug addicts to make a valuable contribution to the economic process of our country. The Central Bank, in the conduct of monetary policy, also strives to create an environment conducive to economic growth and, hence, better standards of living. Given our objectives, I think it is fair to say that both Mesora N.V. and the Central Bank are working toward a common future. Ladies and gentlemen, this brings me to the topic of my speech: “The Economic Situation of the Netherlands Antilles in the Aftermath of the Terrorist Attacks in the United States: Looking Ahead.” This is the fifth year that our economy is in a recession and the sixth year since we initiated a traumatic struggle to restore balance in the government’s budgets and economic growth. As our adjustment efforts seem to be bearing fruits, we are confronted with the nagging impact of the terrorist acts of September 11 on our economic situation, the consequences of which may be large and prolonged. Recent events have served to remind us that the economic well-being of a small open economy is largely

determined by external shocks. The current financial-economic crisis, for example, has its roots in a number of external shocks, dating back more than 15 years ago. I do not need to dwell on these; suffice it to remind you of the repeal of the US withholding tax, the closure of the Shell refinery in 1985, a number of devastating hurricanes on the Windward Islands, the discontinuation of certain trade privileges on the European market, and the long period of uncertainty surrounding the change of the tax arrangement within the Kingdom. The combined effect of these external shocks was estimated at 20 to 25% of GDP. Because these shocks were not addressed adequately, macroeconomic disequilibria increased, and it became evident that only a major restructuring of the economy would create a basis for sustainable growth. At the end of 1995, the Netherlands Antilles began a structural adjustment of the economy in close cooperation with international organizations, such as the IMF, the IDB, the FIAS, and the World Bank. Our structural adjustment process is characterized by a three-pronged approach: (i) restructuring of the public finances, (ii) structural reform, and (iii) a growth strategy. During the past five years, we have made considerable progress in the restructuring of the public finances and the implementation of structural reform. The government bureaucracy has been reduced, wage costs have been brought under control, and the civil servants pension scheme has been partially reformed. These measures have reduced personnel costs substantially. Expenditures have been reduced further by health care reforms and the improvement of cost efficiency in the government apparatus. Finally, the government has started with the regularization of arrears and intergovernmental claims.

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On the revenue side, a shift from direct to indirect taxes was initiated with the introduction of the turnover tax, the base of which has been broadened gradually. Tax assessment and collection have been improved, while arrears have been reduced. Furthermore, user fees for government services are applied more broadly. In addition, public sector financial administration and reporting has been enhanced. In the field of structural reform, various measures have been implemented to foster competition and to create a business climate conducive to more investments. Labor legislation has been modernized, and the product market is being made much more competitive. Progress also has been made in the capital market: disclosures have improved, and the level of the rate of interest has declined. The privatization process also has started. All of this has been done with the objective of improving our business climate and, hence, restoring economic growth. The third prong of the structural adjustment process, the development and implementation of a long-term investment program, is being undertaken in close cooperation with the World Bank. During a workshop last month, the various islands presented their medium-term development plans, which will be consolidated into a long-term growth strategy for the Netherlands Antilles. On various occasions I have expressed my views on the financing of this growth strategy. I am an advocate of the establishment of a local institution â&#x20AC;&#x201C; a so-called Development and Reconstruction Bank â&#x20AC;&#x201C; with good governance to channel the funds, that will become available. A local institution will create local ownership of the program and the needed local expertise. Projects should be evaluated on the basis of sound business principles and their contribution to the overall development of our economy. The funding of this agency should come primarily from Dutch development aid, but additional funds could be raised on the capital market. The financing of projects should be tailored to specific needs and circumstances, ranging from grants to near-commercial terms. In my opinion, such an institutional framework is the best guarantee for the successful implementation of long-term investment projects to support a sustainable growth of our economy.

The above discussion serves to illustrate that a broad adjustment process has been set in motion. Unfortunately, the terrorist attacks in the United States on September 11, ladies and gentlemen, have created a different policy environment within which we now must analyze our adjustment efforts. The attacks will have severe implications for the world economy. Growth estimates are being revised downward worldwide, and a recession in the second half of this year seems very likely. The length of this recession is difficult to forecast and will depend on the nature and duration of the U.S. response and its aftermath. In my opinion, two scenarios should be considered. According to the optimistic scenario, the international war against terrorism will not escalate. Confidence will return gradually, and the world economy may recover in 2002. According to the pessimistic scenario, the international campaign against terrorism will escalate into a large-scale conflict, uncertainty will increase further, and the world economy will fall into a deep recession. Whatever the actual scenario, the economy of the Netherlands Antilles will not escape the repercussions. This external shock, ladies and gentlemen, resembles to a certain extent the disaster of hurricanes Lewis and Marilyn that hit the Windward Islands in September 1995. These hurricanes destroyed a major part of the tourism infrastructure on these islands. In the fourth quarter of 1995, the number of stay-over tourists and the number of cruise tourists visiting the island had dropped by 75% and 66%, respectively, compared to the fourth quarter of 1994. Foreign-exchange revenues from tourism had declined by approximately NAf 100 million, while total foreign exchange reserve were down about NAf 150 million, excluding the inflow from insurance companies and the reconstruction aid from the Netherlands. By the first and second quarters of 1996, a recovery was noticeable. Stay-over and cruise tourism increased to 50% and 65%, respectively, of their levels in the corresponding quarters of 1995. Cruise tourism recovered fully in the second quarter of 1996, while the first quarter registered 90% of the number of visitors in 1995. In the first half of 1996, foreign-exchange income from tourism was still NAf 75 million less than in the same period of 1995. From a broader macroeconomic perspective, the hurricane disaster caused real GDP growth to slow by 0.4% in 1995. The Windward Islands suffered a 2% decline in real GDP in 2001 guilders. Moreover, unemploy-

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ment increased from 11.5% in 1994 to 13.6% in 1995. This shock was largely a supply shock with important demand ramifications. The subsequent inflows from the insurance companies and the Netherlands helped to mitigate the impact of the decline in aggregate demand. Contrary to the hurricane disasters, the recent terrorist-related shock affects us mainly on the demand side. Again, our tourism sector incurs the strongest hit. Based on the assumption of no escalation of the conflict, the economic impact under the optimistic scenario corresponds roughly with the impact of the hurricane disaster. However, the two shocks have major differences. First, the present shock affects all islands, while the hurricanes were limited to the Windward Islands. Second, after the hurricanes, a substantial amount of funds became available from insurance companies and the Dutch government for the reconstruction of the islands, not the case now. Third, the impact of the attacks affects more sectors of our economy than the hurricane disaster: the increased international pressure on our international financial sector to investigate whether terrorists had access to our financial system, the effect of the drop in travel demand on the air transportation sector, and its impact on the already sorry state of Air ALM, the harbor, and the ship repair sector. In addition, the uncertain outlook for the tourism industry will cast some dark clouds on this sector, which has been identified as having the most growth potential for the Netherlands Antilles. Consequently, all the investment projects, which have been in the final stage of preparation, will have to be revisited. Finally, the present shock is surrounded by uncertainties about its duration and intensity, while the passing of a hurricane is a short-term event after which the recovery process can start. Therefore, the attacks in the United States have the potential for a longer and deeper impact on our economy than the hurricane disaster. Looking ahead, the question becomes, given the changing domestic and international policy environment, how should we proceed with the IMF-supported program, now being negotiated? As is evident from the analysis, we are entering a period of great economic uncertainty while still facing medium-term economic problems. This situation may call for significant additional shortterm external financing without compromising medi-

um-term objectives. The impact of the terrorist attack on the economy is extremely uncertain and could produce a large decline in government revenues, hence throwing the economic recovery program off track. A fiscal stimulus also may be required. Therefore it is only prudent that we prepare to implement appropriate measures to cope with this situation. Fiscal stimulus must be temporary and combined with credible commitment to adhere to the program objectives. I, therefore, call for the swift implementation of the IMF-suggested private-led foundation to raise public and private expenditures to moderate the impact of this shock. The current policy environment is clouded by enormous uncertainty, yet at the same time it presents new challenges for us: it helps unmask the vulnerability we are subjecting ourselves to if we do not diversify our economy. While tourism has the most growth potential, it increases our susceptibility to outside shocks. We must use this opportunity to define carefully our long-term economic objectives and to pursue policies to achieve those objectives. Our long-term economic strengths depend on how we manage this crisis. As mentioned, the response to previous shocks was inadequate.Â Let us not repeat this mistake. To meet our medium-term objectives, we must restore economic growth. This will continue to require further fiscal consolidation, structural reforms, and a monetary policy supportive of these policy objectives. In this new policy environment, inevitably we will have to accelerate the negotiations with the Fund, but at the same time we will have to undertake a thorough re-examination of our medium-term policies. We should not only examine our budget priorities and the effectiveness of many expenditure programs as recently done by Answer Think, but we also must examine our revenue policies as they affect investment and growth. This review has to be coupled with additional external financing in the context of program financing. Ladies and gentlemen, in this regard I am pleased to take note of the encouraging progress made in the context of the IMF-supported program. After the progress has been evaluated by the IMF staff, I expect negotiations to finalize the agreement to start soon. I like to clarify one issue though. When I talk about finalizing negotiations, I am alluding to the following: (i) after the basis has been established for a Fund supported program as seems to be the case

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now, we will have to negotiate the quarterly quantitative targets and the policy bench marks against which progress in the implementation of the program will be evaluated; (ii) some of the policies on which the program are based will have to be implemented prior to the initiation of the program – the so-called prior actions such as the approval of the respective budgets by parliament; (iii) the financing requirement of the program will have to be recalculated. We are no longer talking about a program for 2001. Rather, we are talking about the fiscal year 2002. This means that the amount of NAf 238.0 million which was the envisaged program financing for 2001, no longer applies. The new financing requirement becomes the sum of the following components: the budget deficits of 2002, the partial refinancing of maturing debt in 2002 and the elimination of the 2001 arrears. I am saying this to have expectations set in the proper context. It does not serve any purpose and certainly not the one we are trying to achieve with the program to harbor unrealistic expectations.

recovery from which all groups in our society benefit. Therefore, our medium-term objective should not be merely balancing in some measure the budget deficits but also vigorous and sustainable economic growth. I wish Mesora N.V. success with their important work to create a brighter future for some of our less fortunate fellow citizens. Thank you very much.

As soon as we have reached an agreement, ladies and gentlemen, the necessary financial resources should become available. This financial support will not only alleviate the liquidity constraints of the government and, hence, its creditors, but also will be used to start a number of much-needed investment projects that will help mitigate the impact of the current economic downturn. In this respect, we can consolidate our structural adjustment efforts and provide the stimulus for the gradual restoration of confidence in our economy. Regaining confidence is essential for an increase in investments and the creation of muchneeded jobs. Let me return briefly to the activities of Mesora N.V. As I mentioned in the introduction of my address, a close relation exists between our two institutions as far as our objectives are concerned. But ladies and gentlemen, there also exists a close relationship between the economic situation and drug addiction. I believe that a lasting economic recovery will provide the economic resources to enhance our standards of living and hopefully create an environment that discourages the misuse of illegal substances. Not only will fewer people be misguided to use drugs as a solution to their problems, but also the chance of lasting rehabilitation will increase as more financial resources become available. However, this relationship is valid only under the condition of a broad-based economic

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The Netherlands Antilles after six years of adjustment efforts with the IMF: A critical evaluation Speech at the Annual Gala Diner of DHL December 12, 2001

n 1995 the Minister of Finance of the Netherlands Antilles obtained a commitment from the Netherlands for budgetary assistance in the context of an IMF-supported program. That commitment was widely credited as the beginning of a new era or a breakthrough in Dutch â&#x20AC;&#x201C; Antillean relations. It created a much-needed platform from which to negotiate objectively.

With this commitment, the Netherlands Antilles embarked on an adjustment program designed to restore confidence in the government and, hence, obtain the necessary financing for the budget. The adjustment strategy entailed a three-pronged approach: 1. financial soundness; 2. structural reform / sustainable economic growth, and 3. social policy.

After six years of adjustment efforts based on this commitment, what is the truly enduring lesson we have learned? Though it may be too early to provide a definitive answer, it is certainly not too early to ask the question. During the past five years, we have made considerable progress in restructuring the public finances and implementing structural reform. The government bureaucracy has been reduced, wage costs have been brought under control, and the civil servants pension scheme has been partially reformed. These measures have reduced personnel costs substantially. Expenditures have been reduced further by health care reforms and the improvement of cost efficiency in the government apparatus. Finally, the government has begun regularizing arrears and intergovernmental claims.

The second prong of the structural adjustment process, the development and implementation of a long-term investment program, is being undertaken in close cooperation with the World Bank. During a workshop a few months ago, the various islands presented their medium-term development plans, which will be consolidated into a long-term growth strategy for the Netherlands Antilles. The above discussion serves to illustrate that a broadbased and unprecedented adjustment process has been set in motion. Unfortunately, ladies and gentlemen, I have to note that despite the progress achieved so far in the budgetary field, no financial assistance has been secured to make progress in the two other areas. As you may recall, the government of the Netherlands Antilles embarked on the adjustment process

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with the firm commitment that a substantial amount of financing would be forthcoming to finance the budget and revitalize the declining social-economic situation to cushion the adjustment costs. Unfortunately this commitment so far has been limited to financing the first prong of the program. A full and complete honoring of this commitment would have guaranteed the implementation of the other two areas of this adjustment program.

• Ladies and gentlemen, a careful analysis indicates that this partial fulfilment of the commitment is largely because both the Netherlands and the Netherlands Antilles act as interlocutors in the negotiations with the IMF, leading at times to confusion and indecision. The following examples are illustrative of this point. • In a letter dated February 23, 2001, the IMF stated: “While budgetary and financial discipline is essential to build confidence it is not likely by itself to be sufficient to generate an economic recovery. Rapid and unwavering progress in other areas is equally needed and feasible. These include … initiating public investment projects with Dutch financial assistance, …” • This recommendation was further elaborated on during the IMF’s visit to the Netherlands Antilles in March. The IMF stated that: “to stimulate the economy, especially on the island of Curaçao, it would be useful to implement a few well-targeted investment projects to create up to five hundred jobs during the second half of the year. For efficiency, these projects should be handled outside the existing administrative procedures and medium term investment programs. A small private sector-led foundation could be established to implement the projects. They should be selected to twin with existing private sector projects and to help boost the export potential of the economy.” Despite this recommendation, the foundation has not been established nor has Dutch financial assistance been forthcoming. • The World Bank in its preliminary report identified a number of projects that could be earmarked as projects to jump-start the economy and, hence, should qualify for official assistance. This proposal has not been implemented either. • In a recent seminar organized in Curaçao, the World Bank began a process to come up with recommendations for channeling Dutch development funds. The Dutch government is funding

this process. In the meantime, however, another track is being followed. The Dutch government has called for a committee to advise the government about the setting up and channeling of development funds in the wake of the growth strategy being devised by the World Bank. It is not difficult to imagine the political consequences of this proposal. Therefore, it is recommended that this matter be revisited to determine which track should be followed. Ladies and gentlemen, the KABNA nostalgia dies slowly, and it certainly lingers in the principal ministries of Dutch power, notably in the BZK.

The question now is whether we should continue with this IMF-supported program in light of this less-thanfull compliance by the Netherlands; or whether the preoccupation with the election campaign on both sides of the Atlantic will, in fact, dilute the political cohesion that made the commitment of budgetary support possible. Continuation with the Fund-supported program is desirable and even inevitable. If we are to regain the confidence of the investors, then the IMF seal of approval is indispensable. But the terms under which we will continue will determine the success of our adjustment efforts. Our sudden epiphany may make us no longer wish to separate Holland from the IMF/WB axis, nor construct a partnership with IMF/WB to gain Holland finances, nor create a union with Holland to gain the IMF seal of approval for our program – all of which we have been actively pursuing. If we are to continue on this adjustment path, the enduring lesson is that the objectives of the adjustment process remain clear. All parties must conduct themselves in keeping with the objectives of the program, even under difficult circumstances. Restructuring of the pension scheme is necessary, yet it should not be done at the expense of legal security of civil servants. The ALM problem has to be addressed to avoid undesirable consequences for the budget. Yet it should not be used to pursue other noneconomic objectives. The way the different islands are being played out against each other is not conducive to a harmonious environment to discuss future constitutional arrangements. The public health care system and educational system need change – yet they should not be used

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as pressure to gain adjustments in other fields of the budget.

of this program must be put at the forefront of the national agenda.

Are there any relevant lessons to be drawn here? For example, the recent initiative to create a committee to come up with suggestions for channeling Dutch development funds runs the risk of “fuzzying” procedurally what needs to remain clear. The World Bank under the coordinating leadership of the Antillean Minister of Economic Affairs has already initiated a process for coming up with suggestions for channeling Dutch development funds. Yet the recently announced Dutch proposal calls for the creation of a committee in which Holland and an Antillean counterpart will deliberate regarding possible arrangements. Unlike the already existing consultative approach taken by the Minister of Economic Affairs under the auspices of the World Bank, the Dutch proposal does not allow for this participatory approach.

I, therefore, would like to propose the following adjustment strategy. The current debt-to-GDP ratio of the Netherlands Antilles is approximately 75%, which represents an annual interest expenditure of almost NAf. 230 million. This debt service is the result of past policy mistakes. In its 1986 report on the Netherlands Antilles, the World Bank stated that because of the large Antillean investment abroad, namely, in the United States, in the amount of NAf. 3.2 billion, the government of the Netherlands Antilles should finance its deficit domestically to encourage the repatriation of those funds. The Netherlands, following this advice, conditioned budgetary assistance to the Netherlands Antilles on the issuance of domestic government bonds. This was the beginning of the domestic debt explosion, the consequences of which are now placing an undue burden on the adjustment process. Therefore, I call for a refinancing of the outstanding domestic debt at concessionary terms, that is, the terms under which current development funds are being extended to the Netherlands Antilles. To avoid this refinancing being used to encourage the misallocation of budgetary funds, it has to be coupled with a legal requirement that the budget of the general government be balanced. Thus the current discussion of extending the possibilities of capital market access to the other islands should be discontinued. The additional room created by the reduction in interest expense should be earmarked to improve the productive capacity of our economy and pursue the above-mentioned social policy. Since restoration in economic growth will imply budget surpluses, and hence, reduction of the domestic debt, the Dutch financial commitment to the Netherlands Antilles will decline over time. The Netherlands Antilles should use the surplus to create a revolving fund, hence reducing its reliance on Dutch development assistance. This plan is consistent with the stated Dutch policy of self-reliance.

Ladies and gentlemen, the truly important lesson is much more prosaic. The IMF approach is an “all or nothing approach.” It does not reward partial success. The necessary financing is obtained only after establishing the basis for an agreement with the Fund. The actual disbursement of the funds is based on progress in the implementation of the program. No impartial third party resolves differences between the adjusting country and the Fund. We have to move forward with an iron triad of Holland, IMF, and the Antilles. We cannot and should not split ourselves into blocs with competing objectives in which traditional differences could be exploited. Engaging the IMF has to be pursued by the Netherlands Antilles and Holland on the basis of a long-term strategy to restore economic growth in the Netherlands Antilles, not for the sake of quick tactical benefits. Looking ahead, the adjustment process will be constrained by our economic growth. Because of the various speeds that the different areas have been dealt with, a certain degree of adjustment fatigue has beset the nation. To continue making progress in the budgetary field, for example, we must address the burden being placed on the economy by our national debt. We also have to move forward with our growth strategy to lay the foundation for sustainable growth and, hence, create jobs. And finally, the social dimension

Ladies and gentlemen, I recently made a proposal counter to the proposal I am making right now. This development in my thinking has been triggered by the recurrent annual discussion of the underutilization of the available funds at the end of the year and the never-ending discussion of future re-orientation of Dutch development aid assistance. With this proposal, the

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consequent political friction will be relegated to a historical footnote. This proposal will lead to a much more mature discussion among the various partners of the Kingdom, promote local institution building, and a sense of ownership.

remain clear. Economic arguments should not be used to achieve political objectives or vice versa. I thank you for your attention and wish you a Merry Christmas and a Happy New Year.

As I have stated already, both the European and Caribbean part of the Kingdom are at the moment preoccupied with the election campaign. As a consequence, this proposal may be ill-timed. But I think that by putting it forward now, it may serve as a useful guide to determine the agenda for future discussions between the two partners of the Kingdom after the elections. In concluding, ladies and gentlemen, what can be said of six years of adjustment efforts without a viable IMF program or the generous budgetary assistance of the Dutch? Does this mean that not enough has been done? The answer is clearly negative as illustrated above. The next logical question then is whether we should continue to work toward achieving a Fundsupported program. And again, ladies and gentlemen, I think I made it abundantly clear that if we want to enhance our attractiveness for investors, then an IMF program is necessary. However, these efforts to reach an agreement with the Fund should be guided by the following: 1. The program should not be too ambitious. An adjustment program cannot and should not be too long either in its preparation or in its implementation. Too much will then be demanded of a nation. Results, however limited, should be quickly visible to maintain broad social support. 2. A further postponement of the budgetary assistance from the Netherlands will erode the credibility of the Antillean leaders, Holland, and the International Monetary Fund. To be effective, our leaders have to remain credible. Lack of credibility leads to lack of confidence in the resumption of economic growth of the country in the foreseeable future. People are willing to make sacrifices, but not for six years as evidenced by the growing migration. This migration, or should I say braindrain, will make the necessary adjustment much more difficult to realize and is detrimental to the development potential of the country. Migration disrupts society and will lead to an accelerated erosion of our most important assets: confidence and the human capital. 3. And finally, ladies and gentlemen, the objectives of the much-needed adjustment program should

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The need for Caribbean cooperation in a globalizing world Address on the occasion of the Multi-National Business Conference Maho Beach Resort St. Maarten St. Maarten, November 8, 2002

Ladies and gentlemen,

Introduction

t was with a great deal of pleasure that I accepted the invitation to speak at this conference. I think the organization of this conference, attended by government leaders, ministers, members of the American Congress, CEOs of the Caribbean and American companies, and other distinguished guests, provides a unique opportunity to fulfill the themes of the conference: “Working together for expansion and growth,” “Exploring creative investment opportunities,” and “Building synergistic partnerships.” As I see it, Mr. Chairman, the objective of this conference is to look for ways and means to improve the lives of our citizens. By focusing on partnership – both inter and intra islands and with our main trading partner, the United States – we hope to create an environment conducive to growth and, hence, alleviate poverty. Ladies and gentlemen, against the background of an ever globalizing world, it is fitting to portray the road ahead of us as a journey into the future. Historically our countries have served as a way station for weary seafarers who had weathered many storms but not yet reached their final destination. I think choosing Saint Martin as our meeting place provides a unique opportunity for us to reflect on the challenges we face as a region and to chart a common course for the future. In this ever increasing globalizing world, a tri-polar world economy seems to be emerging: (1) the EU with its ambitious agenda of enlargement; (2) the NAFTA heading south with the Free Trade Area of the Americas; and (3) the Asian market. Given our geographical location, our natural partner is the Americas. Therefore we have to pursue policies that enable us to benefit primarily from this expanding market. Given the nature and size of our economies, I think our ap-

proach has to be collaborative. I will elaborate on this point later in my address. I gave my address the title: “The Need for Caribbean Cooperation in a Globalizing World.” Allow me to start by saying that most countries in the Caribbean are constrained by the size and openness of their economies. On the one hand, we are highly susceptible to external shocks because of the openness of our economies. On the other hand, the smallness of our economies provides us with the opportunity to respond quickly to international developments if the right policies are pursued. Examples of recent international developments and shocks that adversely impacted our economies include the erosion of preferential market access to the European Union; the establishment of NAFTA; the terrorist attacks on the United States; the non transparent adverse classification of supervisory structures of most Caribbean jurisdictions by the G-10 countries in the wake of the Asian crisis; and, of course, the recurrent natural disasters. To reduce our vulnerability, we need to broaden our economic base and pursue the appropriate policies. By that, I mean, we have to (i) pursue sound macroeconomic policies, (ii) have a safe and sound financial system, (iii) promote good governance, and (iv) promote educational achievements. These policies are consistent with sustainable development. They also form a basis for cooperation among countries in the Caribbean. Ladies and gentlemen, I would like to elaborate on the implications of the size of our economies in a globalizing world environment. Then I will try to shed some light on the inter-relationship between the size and nature of our economies and their ensuing vulnerability.

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I will then conclude with some remarks about the need for broader and deeper cooperation and partnerships in the region if we are to achieve the goals of sustainable economic growth and the alleviation of poverty.

Is smallness deleterious to growth? It has long been clear to policymakers in the Caribbean region that our economic development is constrained by our size. The smaller the home markets, holding other things constant, the smaller the business operations. Given the nature of the production process, the result is diseconomies of scale, leading to higher production costs and an unfavorable competitive position. Both the public and private sectors are affected by these diseconomies of scale. The provision of public goods and infrastructure is usually characterized by indivisibility. This has two implications for small economies. First, the costs of public services per capita are higher than in larger economies, and second, the government may be forced to provide various goods and services – often at subsidized rates – that would typically be offered by the private sector in larger economies. Private sector activities may also be hindered by the smallness of domestic markets. This is particularly the case for non-tradable goods and services that depend entirely on the domestic market. However, the production of tradable goods and services also is affected by smallness to the extent that it relies on inputs from the non-tradable sector. In addition, the tradable sector could realize economies of scale in the export of a narrow range of products, but this will become highly susceptible to external shocks. It becomes therefore imperative to pursue the right policies to reduce this vulnerability. Because small economies are more susceptible to shocks, financial institutions will demand higher risk premiums, thereby raising the cost of borrowing for the private sector. Moreover, the small size of the labor market limits the range of available skills, pushing up the price of scarce skills. On the supply side, employment alternatives are limited, which promotes a brain drain of highly-skilled workers and causes high social costs for low-skilled workers when industries have to restructure.

Although the size of the economy does not impede growth, size becomes a constraining factor to growth. In a globalizing world with blurring markets, the size issue should be relegated to a footnote. But this is true only when firms established in small countries have access to markets beyond their borders. If this is not the case, then the reverse is true. The traditional response was to erect trade barriers to correct for the size problem. Those trade restrictions tended to protect capital-intensive importables, reduce returns to labor, lead to overvalued exchange rates, and reduce profitability of tradables and turn terms of trade against the poor. It is now clear that those inward looking policies only led to allocative inefficiencies and adversely affected the general welfare. This overview serves to demonstrate that the Caribbean nations with small economies and imperfect access to the world markets must create economies of scale to reduce cost levels and increase competitiveness. We must pursue pro-growth policies such as openness to trade, institution building and prudent fiscal and monetary policies. Clearly, this can be attained only through closer cooperation and collaboration among the Caribbean nations.

The interrelationship between size and openness In addition to diseconomies of scale, our countries are highly susceptible to external shocks. Various factors contribute to this vulnerability. First, our geographical location makes us prone to natural disasters, particularly to hurricanes and volcanic activity. These disasters are recurrent, and they affect a large portion of our population and infrastructures. In some cases, economic damages have exceeded annual GDP. Clearly, the capacity of national authorities to cope with the costs of reconstruction of such catastrophes is limited. Second, the openness of our economies – as defined by imports and exports of goods and services as a percentage of GDP which averaged 85% in the 1990s – entails a high degree of vulnerability to external shocks. This is aggravated by the concentration of exports in a narrow range of products and markets. The impact that the terrorist attacks on the United States had on our tourism industry serves as a clear example.

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Third, many Caribbean countries have pegged their exchange rate to that of our main trading partner the United States. The benefit of this policy regime has outweighed its cost. Nonetheless, the burden of adjustment to external shocks under this regime falls on domestic income, which may translate into prolonged recession and unemployment. Fourth, fiscal policy in small economies also is very vulnerable to external shocks, especially when the country is dependent on trade tax revenues and official assistance. During the last decade, official capital flows and development assistance showed a declining trend in the Caribbean. This development has created particular difficulties for the smaller and poorer Caribbean countries not able to attract compensating private capital flows. To mitigate the effects of diseconomies of scale and the high degree of vulnerability to external shocks, broader and deeper cooperation between the countries in the Caribbean region is a viable and indeed an inevitable strategy. This strategy is not new to the region. Various forms of cooperation already exist. Of particular importance are the Caribbean Community (CARICOM), the Association of Caribbean States (ACS), and the Organization of Eastern Caribbean States (OECS). CARICOM is the most ambitious form of cooperation in the Caribbean. Established in 1973 CARICOM aims to deepen the cooperation in the Caribbean Free Trade Association into a Caribbean Common Market with a common external tariff. The ultimate objective is to develop CARICOM into a Caribbean Union. In this respect, the development of CARICOM has similarities with the European Union. Presently, CARICOM consists of 15 member countries, predominantly of the English-speaking Caribbean. ACS is a more recent and broader form of cooperation between Caribbean countries. Established in 1994, ACS focuses on cooperation in trade, tourism, and transportation. Full members are the countries forming CARICOM and the Spanish-speaking countries in the Caribbean region, for a total of 25 countries. Associate members are the Dutch and French territories in the Caribbean, while the British and American territories are eligible to apply for associate membership. Thus, the ACS potentially encompasses the entire Caribbean region.

Finally, the OECS consists of seven small Englishspeaking island states in the Eastern Caribbean forming a successful monetary union with a common currency that has a fixed peg to the US dollar. All members of the OECS are also members of CARICOM. Given the overlap of these three main organizations of cooperation in the Caribbean, I think one of our future challenges will be the gradual amalgamation of the three into one umbrella organization. Within certain limits, member countries should be free to choose in which forms of cooperation they want to participate, given their specific interests and circumstances. This approach is followed by the European Union, where not all member countries participate in the monetary union with a single currency. Usually, when cooperation in a certain area proves successful, more members will join, thus gradually deepening integration. In my opinion, one coordinating body with different groups of members cooperating in specific areas of interest should be the ultimate objective of regional cooperation and will serve best to strengthen the Caribbean’s position in a globalizing world. We have covered quite a bit of territory. Therefore I want to leave the organizational aspects of closer cooperation with these observations behind, and turn to the potential benefits of further integration and the efforts to be made for realizing these objectives.

Toward closer cooperation in the Caribbean There is a Chinese saying that: “The journey of a thousand miles begins with the first step.” I suppose that the wisdom of that proverb is borne out by the tasks ahead of us. One of the most important benefits of closer cooperation in the Caribbean region is market expansion through the elimination of trade barriers. The creation of a common Caribbean market for goods, services, labor, and capital will significantly reduce the diseconomies of scale that companies face in our individual countries. Under these conditions, successful domestic companies can expand their activities in the region through mergers, acquisitions, and strategic alliances, thereby creating strong and competitive regional companies. In this respect, the region can be a stepping stone to global activities. As an added benefit, a common Caribbean market will be more attractive for foreign investors, thus creating employment and strengthening economic growth. The creation

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of regional companies in combination with the free movement of labor can also help to reduce the discrepancies between demand and supply in our labor markets. In particular, it will be easier to keep and attract high-skilled workers given the wider career opportunities in a regional market. Closer regional cooperation in such areas as transportation, telecommunication, and financial services will greatly facilitate regional business development and economic growth. In the area of transportation, we need more intraregional shipping routes to support the growth and expansion of intraregional trade and business links. Furthermore, the Caribbean region still lacks sufficient intraregional air connections, and many Caribbean airlines are losing money and struggling for survival. Closer cooperation between our regional airlines through strategic alliances and, ultimately, the establishment of one Caribbean carrier can contribute to significant cost savings and improve air connections in our region. Better connections at competitive rates also will support tourism. In the area of telecommunication, our regulatory authorities need to collaborate closely to promote the further liberalization of the telecommunication services markets and adequately regulate the market monopolies that tend to develop in this sector. This approach will stimulate the provision of state-of-theart services at competitive prices, something that is especially important for the development of ICT services such as e-commerce, which is a promising sector for further diversify our economies. Finally, more intensive collaboration is needed in promoting the free flow of capital in the Caribbean region. This will contribute to broader and deeper financial markets and to the development of regional financial institutions, resulting in a wider range of financial instruments at lower costs. Some financial institutions already are implementing regional strategies. An example is the expansion of the Royal Bank of Trinidad and Tobago in various Caribbean countries. Free flow of capital also will facilitate the development of a Caribbean stock exchange through the integration of national stock markets. A regional stock exchange will (i) promote the movement of capital across the region, (ii) increase investment opportunities for regional as well as non regional investors, (ii) provide

alternative sources of credits to regional firms, and (iv) ultimately contribute to the development of a single Caribbean market and economy. Some progress has been made within CARICOM to integrate the stock markets of member countries, but we have to persist in our efforts across the entire region in order to be successful. Ladies and Gentlemen, the road to Caribbean integration is marred by many obstacles, among them the large differences in per capita income and the various stages of development of our countries, which hamper the deepening of regional cooperation and integration. To overcome these obstacles, we need a strategy with four goals: 1. Macroeconomic convergence. This convergence should be attained through the coordination of our individual macroeconomic policies directed at meeting common agreed-upon targets. These targets should include import coverage ratios, ratios of budget deficits and public debt, inflation rate, interest rate and exchange rate stability. 2. Harmonization of regulatory frameworks and good governance. This harmonization comprises a wide range of policy areas such as standards for prudential regulation and supervision of the financial sector, foreign investment regulations, labor standards, product and professional standards, and tax harmonization to mention just a few. Tax harmonization should include a regional code on tax competition and limiting the extension of tax holidays to attract foreign direct investment to prevent the erosion of our tax bases. 3. Human capital development. A well-educated and skilled labor force is a critical success factor for regional integration and effective competition in a globalizing world. Regional cooperation between universities and training and research institutes can create economies of scale and attract high-quality staff to produce a labor force that meets the skills demanded by the business sector and the government.

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4. Close cooperation between the public and private sectors. Regional integration must be a joint effort of the public and private sectors. The public sector should develop and implement policies that stimulate strategic change and promote alliances between private firms that will lead to the formation of dynamic and competitive productive linkages in the Caribbean region. Ladies and gentlemen, globalization is an irreversible process. It is a reality we must learn to deal with. It provides opportunities as well as threats to our economies. The most effective way to deal with globalization is to pursue policies that reduce our vulnerabilities. This can be achieved by acting as an effective and competitive trading bloc. With this approach, we can reduce the threats and risks of globalization and benefit from its challenges and opportunities. Globalization compels us to unite, to integrate our domestic markets and economies into one competitive regional market and economy. Moreover, by acting as a bloc, we will be able to better promote our interests in international forums, such as the Free Trade Area of the Americas and the World Trade Organization. Looking ahead and making use of the presence here of distinguished members of the US Congress I would like to make the following point. The Caribbean has always been an important market for the United States and conversely, the US for the Caribbean. If the United States is to make good on its promises to open its markets to the Caribbean, US policies have to recognize our unique characteristics. Equating policies designed for more advanced economies to our small economies ignores critical aspects of our island economies. Recognizing our unique characteristics admittedly may make the rules more complicated. Nevertheless, I believe that such treatment will help to align US policies more closely with our opportunities. Ladies and gentlemen, this conference provides an excellent opportunity to make further progress toward the integration of the Caribbean region and, hence, toward seizing the opportunities of globalization. I hope this will be the beginning of a lasting and fruitful cooperation among Caribbean nations that will lead to strong partnerships, creative investment opportunities, and sustainable economic growth for the region.

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General economic equilibrium: The case of the Netherlands Antilles Article by Dr. Emsley D. Tromp and Drs. Alberto G. Romero, published in the Liber Amicorum of former prime minister Mr. Miguel Pourier May 29, 2002

Introduction

ith the departure of Miguel Pourier from the political scene, the Netherlands Antilles will miss one of its greatest minds in the area of Public Finance. Prime Minister Pourier has come to symbolize the continuous and persistent efforts to bring our fiscal house in order. Our fiscal ills are the consequences of a series of external shocks that beset our nation in the early eighties. Mr. Pourier played a pivotal role in raising our awareness of the necessity of a sound fiscal policy as a necessary condition to create a climate conducive to sustainable economic growth to ultimately improve the welfare of all the inhabitants of the Netherlands Antilles. His tenure as Prime Minister has been characterized by the colossal operation to restructure the government bureaucracy, overhauling our tax system and the initiation of the privatization effort. This operation has been initiated with the support of the International Monetary Fund. As members of the Managing Board of Directors of the Central Bank, we have worked closely with Prime Minister Pourier in the design and implementation of this program. We can confidently say that this adjustment effort initiated by Mr. Pourier has gone a long way in addressing our macro-economic imbalances. For example, when Mr. Pourier assumed office in 1994, the primary balance was in deficit. Since 1997 the primary balance has been showing an increasing surplus. Not all the structural imbalances could have been effectively addressed. As we will contend later on, this is due to the imperfections in one of our most import inputs market, namely the labor market. In this article, we want to reflect on the labor-market imperfections in the Netherlands Antilles and analyze some reasons for the high structural unemployment

on the islands. The (un)employment problem can be singled out as perhaps the most important cause of social difficulties on the islands. In designing and implementing any adjustment program, particular attention therefore has to be given to this nagging problem. In the classical general economic equilibrium theory of LĂŠon Walras, a pioneer in mathematical economy, unemployment and overproduction cannot exist because the efficient working of the price and wage mechanism automatically will produce the necessary changes and shifts in demand and supply to bring about equilibrium in the labor and product markets. The crucial element in the Walrasian long-term equilibrium theory is that the price flexibility in all markets results in a continuous equilibrium situation in the long-term. How can this classical macroeconomic equilibrium theory explain the structural unemployment situation in the Netherlands Antilles? Or to put it differently, does this general theory apply to the case of the Netherlands Antilles or do we have to resort to other competing theories to explain the prevailing case of the Netherlands Antilles?

Labor market imperfections in the Netherlands Antilles In analyzing the average unemployment rate and economic growth rate for the last two decades, one can deduce that the unemployment rate for the entire Netherlands Antilles remains high despite periods of rapid economic growth. As we operate under a regime of fixed exchange rates, we already know that one channel of adjustment (i.e., exchange rate adjustment) is no longer a policy variable. Given the downward rigidity of wages, the question then becomes

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how can we correct the high structural unemployment in a way that will lead to lower unemployment? Table 1 Unemployment Economic growth

19811985

19861990

19911995

19962000

17.7% 3.5%

21.4% 8.1%

13.4% 2.9%

14.3% -2.1%

One of the main causes of the increase in the unemployment rate was the external shocks that beset the Antillean economy in the mid-80s and 90s. Because of the downward rigidity of wages, private sector reacted by reducing the work force through a series of rationalization and streamlining processes in the main sector of the economy: ship-repair, refinery, transshipment, and harbor activities. The above served to illustrate that the absence of price adjustment resulted in a quantity adjustment in the labor market to restore equilibrium. Aside from that imperfection, the labor-market in the Netherlands Antilles is further complicated by the island-specific dynamics in the wage-and price-formation process. An important methodology used in economic theory to assess the performance of the labor market is to study the relation between economic growth and unemployment. In an economy where responsiveness in the labor market is slow, economic growth scenarios typically result in a reduction in unemployment, but at a very slow pace. For the Netherlands Antilles, an IMF study conducted during the period 1990-98 supports this weak responsiveness of the labor market to economic growth. Equation (I) shows the degree of flexibility of the labor markets due to changes in economic growth. (I)μt - μt-1 = - 0.33 (уt + уt-1 )/2 + 0.42 where: μt = the unemployment rate at time t, уt= the GDP growth at time t. This formula shows that for every percentage point increase in economic growth (GDP growth), the unemployment rate will decrease by one-third of one percentage point. The coefficient of 0.33 reflects the labor market rigidity coefficient, which in comparison to other countries is relatively low.

Given this fact, a reduction in the unemployment rate from the current 14% to, say, 4% would take a sustainable annual average growth in the real GDP of 3% for a period of 10 years. If we are to design a program to reduce the unemployment rate as suggested, only high rates of economic growth or further improvements in the functioning of the labor market will bring this about. This implies that a solution to the problem of unemployment is a medium term objective since the rigidities in the labor market are structural in nature, requiring well-conceived and targeted employment programs. To resolve the (un)employment problem that faces our country structurally is to focus on resolving the various factors that affect labor-market rigidity. Therefore, policy efforts should be directed toward increasing the responsiveness of the market by augmenting the rigidity parameter (0.33). Besides the relatively slow responsiveness of the wage-and price-adjustment mechanism in the labor market, another factor that contributed to the structural high unemployment during the last decade is average compensation per employee in relation to the labor productivity gains. According to the classical Walrasian general equilibrium model, an essential element in maintaining the equilibrium in all markets is the flexibility in wages and prices. All growth in real wages over and above the productivity of labor will result in higher cost to the business sector, and as a consequence, to a reduction in employment opportunities. Table 2 outlines the major development in these variables during the period 1993-98. From table 2 one can conclude that average wage compensation for the entire economy has been in line with labor-productivity gains. Thus, wide changes in the unemployment rate could not be explained solely from the discrepancies between wage compensation and labor-productivity growth. If we break down the wage compensation by sectors and use the compensation in the public enterprises to the value-added per worker (an indicator of labor productivity), we can conclude that wage compensation consistently has overshot productivity. This situation, combined with the fact that wage formation in public enterprises has exerted an upward pressure on wages in all markets, has resulted in a less competitive economy in general.

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Table 2 Netherlands Antilles, Curacao: Compensation per employee and Productivity 1993-98 (Index 1993=100) 1993 1994 1995 1996 1997 1998

Average Monthly Compensation per Employee Economy Public General Tourism Wide enter- governsector prises ment 100 100 100 100 100 105 98 96 101 123 97 100 103 124 102 102 125 108 108 111 108 129 112 109

Real value added per worker 100 103 98 101 102 111

Aside from the rigidities brought about by the lack of responsiveness in the labor market, there are other factors mainly institutional in nature that led to high levels of unemployment. The recent overhaul in the labor legislation has addressed some of these issues and should result in a much more flexible market. Another factor that affected the level of unemployment in the Netherlands Antilles is the fact that the fiscal consolidation process was not complemented with a timely growth strategy. The drag on the fiscal consolidation process created an uncertain environment that affected the investment climate and hence employment decisions negatively.

Graph 1 Graph 1 illustrates graphically the structural nature of unemployment on the islands. The demand for labor is shifting downward whereas the supply of labor is moving in the same direction. Given a stable level of real wages, the same outcome for unemployment will result. Thus, the unemployment rate more or less re-

mained at the same high structural level. The reasons for the shift in demand downward in the past two decades were associated with the growing uncertainty with regard to the government’s actions to reduce its fiscal deficits. Uncertainty in the private sector also led to postponement in investments and the relatively low labor productivity in specific sectors. The shift in the supply could be explained by the massive migration to the Netherlands by Antillean residents in pursuit of a better future. In a growing economy both these development should be reversed to bring about equilibrium in the labor market.

Developments in the USA, Europe (the Netherlands), and Japan Developments in the labor-market can best be evaluated by using ‘simple’ models of the economy that relate various economic- and social variables to the unemployment situation or to job creation in a country during a certain period of time. For this purpose, we can provide an overview of the basic elements of the labor-market situation in the USA, Europe, and Japan and show the results as measured by employment in these countries during the recent decade. This exercise is intended to create a similar ‘modelistic’ thinking for our own situation in the Netherlands Antilles and to compare the results of the last few years with the aforementioned countries. The US model1: The labor-market model in the USA 1) contains several basic elements. • Labor-market mobility and wage flexibility are relatively high; i.e., the participants in the market are very mobile in moving from one area to another of the country to take advantage of higher relative wages or will accept wage-cuts during a recession or if a company is experiencing financial difficulties. • The market functions with little regulation; i.e., government intervention, particularly in the distribution of income is relatively minimal. • Negotiations on labor conditions take place at the company level, and few impediments exist to dismissing employees. The Japanese model2: • Negotiations on labor conditions take place at the company level whereas agreements on income compensation are related directly to the company’s future.

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• Economic setbacks are dealt with by reducing the time of work; i.e., adapting daily work hours constitutes an important element in reducing the wage bill when the economy moves in a downward trend. • The labor relations are that of ‘life-time employment’; e.g., 20 percent of the workforce works for more than 20 years in the same company.3 The European model4: • Negotiations on labor conditions take place at a relatively central level. • Labor mobility and wage flexibility are less pronounced than in the US model. • Institutional arrangements are focused on protecting the labor force against dismissal and income loss. • Governments are more inclined to influence income distribution through policy actions at any time.

What are the lessons to be drawn in dealing with the unemployment problem? The study of the major characteristics of labor market models in the world has given us some tools to develop solutions for (un)employment here on the islands. Experiences in Japan and the USA suggest that flexibility in prices and wages and less restrictive labor laws give a better perspective for the solutions of problems. Particular attention should be given to: Increase in productivity. We should pursue policies directed at enhancing labor flexibility in general. A Central Bureau of Statistics (CBS) study5 shows that during the period 1986-96, labor productivity in the Netherlands Antilles consistently dropped while, in contrast, labor productivity in the Netherlands, Germany, and Taiwan grew (see graph 2). This study indicates that not only was our productivity low and declining, but our competitive position vis-à-vis some important markets in Europe and the Far East deteriorated substantially.

Graph 2. Labor productivity (Index 1986=100) Allocate more resources on education to reduce unemployment. One important area of neglect on the islands has been expenditures on education. World Bank studies in recent years in the Caribbean area have shown that those countries that have invested heavily in education, e.g., Barbados, St. Kitts, and Nevis, have reduced their unemployment rate and poverty levels considerably. Therefore, one of the main elements for a successful employment program is to invest heavily and consistently in the coming years in education. Furthermore studies in recent years have consistently indicated that there is demand for skilled labor, while the oversupply of unskilled labor continues to rise. This is a typical problem of mismatch in the labor market. Create possibilities for part-time work. In the Japanese labor-market model, an important instrument used to alleviate the unemployment situation there is the reduction of working hours. In this Japan scenario, the employees will work fewer hours in a day to compensate for a drop in workflow in their company. In Holland a somewhat similar policy of reduction of working hours in combination with lower wages has driven down the unemployment rate considerably during the last decade. By sharing the available jobs in times of economic recession, an equitable distribution of jobs between the employed and unemployed have resulted in lower unemployment. We have to study this possibility in the immediate future and analyze whether this can be part of a solution to the persistent unemployment in the Netherlands Antilles.

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The attractiveness of migration to the Netherlands. Another peculiarity of the domestic labor market that affects the wage flexibility is the â&#x20AC;&#x2DC;escape routeâ&#x20AC;&#x2122; to the Netherlands. Migration to Holland during the last decade has grown steadily due to the higher wages, better social benefits, and the steady economic expansion there. This situation has led to a shift of the better-educated and skilled labor to Holland. The education and health sectors have attracted many of the Antillean middle-class to Holland. In addition, 80 percent of the well-educated younger professionals of the Antilleans remain in Holland after completing their higher education. This situation provides an additional challenge for policy makers to create a domestic environment to attract young professionals now living and working in Holland.

Notes 1. Werk boven inkomen: wensdroom of werkelijkheid? C.J.A. van Lede, Economische Statistische Berichten October 1995. 2. Werk boven inkomen: wensdroom of werkelijkheid? C.J.A. van Lede, Economische Statistische Berichten October 1995. 3. OECD, Employment outlook, Paris 1993. 4. OECD, Employment outlook, Paris 1993. 5. De sociaal-economische situatie in de Nederlandse Antillen; MODUS CBD of December 1998.

Concluding remarks One can conclude that two of the major impediments in the labor market are (1) the downward rigidities of wages despite the structural high unemployment, and (2) the lack of mobility. The low mobility factor within the Netherlands Antilles may be due to the lack of educational training of the unemployed. A significant number of the unemployed (63%) has an educational level of mavo/lbo or lower. Another impediment to Antillean labor-market has to do with the better job opportunities and better welfare benefits in the Netherlands. These factors generated a constant flow of both well-educated and skilled Antillean labors and those with low education level to immigrate to the Netherlands. In the last decade alone (1992-2001), the number of Antillean residents that migrated to Holland totaled approximately 16.700. During 1992-1996 the number of people migrating from Holland to the Netherlands Antilles was positive, this number changed dramatically between 19972001. During this period over 22.000 Antilleans migrated to Holland. Mr. Pourier efforts to restore macro-economic equilibrium entailed more than just fiscal consolidation. It contained an important structural element directed at improving the functioning of our markets. As is evident from the above, the current constitutional arrangement also brought its pressure to bear on his adjustment efforts. Given this fact, the current situation in the Netherlands Antilles cannot be earmarked as a recession but rather a typical case of a depressed area!

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The Netherlands Antilles and the Netherlandsâ&#x20AC;&#x2122; economic partnership: Bedfellows, hostages or perfect strangers Recent financial-economic developments in the Netherlands Antilles and the outlook for 2003 Speech on the occasion of the Christmas Dinner of the Willemstad Junior Chamber December 14, 2002 Ladies and gentlemen, good evening,

t has become a tradition in the month of December to reflect on the developments of the current year and look ahead at the prospects for the year to come. It is, therefore, with a great deal of pleasure that I accepted your invitation to look back to the financial-economic developments in 2002 and share with you my views on the prospects for the year 2003. A year ago, about this time in an address to a similar audience I argued for a continuation of a Fund supported program, albeit less ambitious, to put us back on the path of sustainable growth. This proposal was based on the considerable progress made in restoring fiscal order and the pro-growth structural measures implemented. The IMF seal of approval, I contended, complemented with Dutch budgetary assistance would strengthen investorsâ&#x20AC;&#x2122; confidence and would lead to increased investments and hence economic growth, thereby reducing the adjustment burden. Ladies and gentlemen, regrettably I have to note that no agreement was reached with the Fund and the consequent frequent rhetoric coming from the other side of the Atlantic Ocean has introduced a new and destabilizing factor on the path to restore economic growth. Based on the available information to date, no growth is projected for the year 2002 in terms of real Gross Domestic Product. The main internal factors that contributed to this result were, first, doubts surrounding the budgetary projections for 2002 and the financial unwinding of the transition of Air ALM into Dutch Caribbean Airline which held back the IMFâ&#x20AC;&#x2122;s approval of the program. Consequently, the financial support to facilitate the further restructuring of the public finances and the implementation of a growth strategy failed to materialize. Second, the long formation period for a new

central government after the January elections, and the absence of a credible government program to effectively deal with our economic problems, perpetuated the uncertainty in the market, thereby clouding the investment climate. The resumption of growth was also undermined by external factors. First and foremost were the impact of the aftermath of the September 11 terrorist attacks on the United States, the slowing of the world economy, and the threat of a war on Iraq. In addition, like the thirteenth chime of a clock, a new and unanticipated source of risk emanated from the frequent political squabbling on both side of the Atlantic casting doubts on all the efforts made to restore economic growth. Ladies and gentlemen, both these internal and external factors contributed to the prolongation of uncertainty with investors and consumers, resulting in the postponement of investment decisions and a decline in consumer spending due to job and income insecurity and continued migration abroad. The weak development in private spending was mitigated by a strong increase in government spending, facilitated by the abundance of domestic financing against the backdrop of the continued decline in stock markets and interest rates abroad. If we shed some light on our main economic sectors, the following picture emerges. The impact of the September 11 attack on the United States, the continued threat of terrorist attacks, and the slowdown in the world economy muted the overall performance of our main generator of foreign exchange, the tourist sector. These factors affected particularly stay-over tourism in St. Martin and Bonaire, which relies heavily on the North American market. However, during the course of the year a gradual recovery was noticeable.

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By contrast, Curaçao’s tourist sector performed well as a result of its relatively more diversified markets for tourism, an increase in airlift, and enhanced marketing. Overall, we expect a small growth in stay-over tourism, strengthened by a strong growth in cruise tourism for 2002. Our second economic pillar, the international financial and business services sector, recorded a marked growth in activities, after a period of weak performance. This surge in activities is attributable to the conclusion of the new tax arrangement for the Kingdom (BRK), which became effective on January 1 of this year, together with the new fiscal framework (NFR), ending a period of uncertainty for the sector. Developments in the transportation sector were mixed. The regional operations of our national carrier suffered from the complex transition into a new airline, which was partly compensated by its successful transatlantic flights. The airport of Curaçao recorded a decline in the number of passengers handled, due entirely to a sharp decline in transit passengers, while the opposite occurred at the airport of Bonaire. This development was related to the rerouting of the intermediate stop on the Amsterdam-Quito flights of the Dutch carrier KLM from Curaçao to Bonaire. The harbor of Curaçao recorded a small growth in the amount of cargo handled, as the decline in transshipment mitigated this growth. Excluding the ferry service to Bonaire, the number of ships that entered the harbor of Curaçao declined. The harbor of Bonaire also recorded a decline in the number of ships, dominated by a sharp decline in the number of tankers. The ship repair sector performed well during the first three quarters of the year. Moreover, the activities in oil transshipment and oil storage declined. The oil refinery was plagued by various plant shutdowns, which suppressed the growth in the amount of oil refined. On the other hand, the construction of the “build-own-operate” energy plant at the refinery made considerable progress and is expected to be fully operational in 2003. Curaçao’s free zone showed mixed developments. While the number of visits recorded a steady growth, re-exports declined significantly. Finally, the construction sector in Curaçao noted a decrease in activities, measured by the value of completed projects as well as the value of licenses granted.

Ladies and gentlemen, our balance of payments is expected to show a surplus of NAf 109 million this year after a record surplus of NAf 420 million in 2001, which was dominated by transitory capital and financial transactions. The surplus in 2002 is attributable to improvements in the current account and the capital and financial account. The improvement of the current account is accounted for by a smaller trade deficit and improvements in the services and current transfers balance. The smaller trade deficit is due mainly to lower imports resulting from weak domestic demand, while the improvement of the services balance stemmed from the growth in earnings from tourism and international financial and business services. The improvement of the current transfers balance can be attributed to the dividend tax transfers by the Dutch government as agreed in the new BRK and to the increase in transfers from abroad by individuals. These improvements were mitigated by a deterioration of the income balance due, among other things, to fewer investment income from abroad related to the decline in foreign interest rates and stock markets. In the monetary field, we experienced a notable decline in interest rates particularly in government securities. The factor underlying this development is the decline in investment returns in foreign financial markets, which increased investors’ preference for local government securities. The introduction of regular certificates of deposit and treasury paper auctions by the Bank, led to increased competition among banks and institutional investors exerting thereby a downward pressure on interest rates. Commercial bank rates, especially mortgage rates, are gradually following, contributing to a broad-based decline in interest rates. In line with this development, the Bank reduced its official lending rate – the pledging rate – in five steps from 7% by the end December 2001 to 3.5% by November 4, 2002. In the area of public finances, the deficit on a cash basis of the General Government is estimated to reach NAf 190 million this year, compared to a cash surplus of NAf 3 million in 2001. This deterioration in government finances is mainly the result of increased availability of domestic financing. In 2001, severe liquidity constraint, caused by the partial redemption of maturing debt, forced the government to reduce cash expenditures considerably. As a result, arrears to creditors increased substantially. During 2002, domestic financing became abundantly available. This is

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the result of: (i) the over liquidity in the market and investors preference for domestic government securities because of attractive returns relative to foreign instruments; and (ii) the concurrent lifting of the ceiling on government loans extended by the commercial banks as a consequence of balance of payments surplus. The improved access to domestic finance facilitated the governments’ budget spending. In addition, the deficit increased as a consequence of a number of shortfalls, related to the financial winding-up of Air ALM, liquidity support to the smaller islands, financial support to Winair, and higher interest costs due to increased short-term financing. The government debt is expected to rise considerably in 2002 by approximately NAf 700 million to reach a record NAf 4.1 billion. This is equal to a debt-to-GDP ratio of 93%. As I mentioned, this is not only the consequence of the financing of the cash deficit. The rising debt is caused by the formalization of various existing claims by the SVB, APNA, creditors of Air ALM, and Post NA. The debt increase is likely to raise interest costs by NAf 50 million in 2003, crowding-out funds for policy areas such as the much needed investments in education, crime reduction, poverty alleviation, and infrastructure. Clearly, this increase in the outstanding domestic debt will substantially constrain the debt-raising capacity of the country and hence our ability to grow. The consequent debt burden is unsustainable for our small open economy prone to external shocks. It must therefore be clear that fiscal consolidation and sustainable growth cannot be achieved without addressing this daunting problem. It is imperative that immediate actions be undertaken to effectively address this issue. Ladies and gentlemen, in my address last year I argued for a reorientation of the Dutch development assistance as a debt relief strategy. Obviously, no progress was made on this score. A competing alternative to address our debt and interest burden is to follow the approach taken by our South American neighbors: the so called Brady bonds approach. In its most rudimentary form it entails the following:

(1) The government of the Netherlands Antilles buys US Treasury zero coupon bonds to the amount of, say, half of the projected domestic debt at the end of this year of NAf 3.5 billion with a term to maturity of, say, 20 years. This is equal to NAf 1.75 billion or approximately US$ 1 billion. The market price US Treasury 0% bonds with a face-value of US$ 1 billion is currently about US$ 200 million. (2) The government in turn issues special “debt relief bonds” to the amount of US$ 1 billion using the zero coupon bonds as collateral. By doing this, the bonds holder will run a US government market risk and a Netherlands Antilles interest rate risk. As a consequence, the interest rate on the debt relief bonds will be substantially less that the current rate on the Netherlands Antilles bonds. This should lead to a substantial reduction of our interest rate outlays. This is estimated to be approximately NAf 60 million. (3) Due to the quality of the collateral we can issue the “debt relief bonds” on the international capital market. By listing these bonds on an international Stock exchange, we create a secondary market and, hence, increase their liquidity. (4) The funds raised with the issue of “debt relief bonds” will be used to redeem domestic debt. This will result in the mentioned savings in the interest outlays in the government budget. Ladies and gentlemen, let me now turn to the issue of sustainable public finances and our renewed efforts to attain balanced budgets. Debt reduction alone is not sufficient. In order to achieve sustainable economic growth, we have to place fiscal consolidation on the forefront of the national agenda. As I mentioned last year, too much will be demanded of this nation if the fiscal consolidation is not complemented with a growth strategy and an appropriately tailored social policy. Beyond the simple fact of a higher standard of living, economic growth reduces the adjustment burden. It also helps create a better society by distributing its gains equitably. During the past five years, the Central Government and the Island Government of Curaçao have made considerable progress in restructuring the public finances. The government bureaucracy has been reduced and

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wage costs have been brought under control, which resulted in a substantial reduction in personnel costs. Improvement of cost efficiency in the government apparatus has reduced expenditures further. In addition, tax assessment and collection have been improved and user fees for government services are applied more broadly. Moreover, the financial administration and reporting have been enhanced.

I would like to conclude my address with an outlook for 2003. Ladies and gentlemen, today is the birthday of Nostradamous. Getting up to deliver this speech on his birthday is a powerful temptation to try to be a prophet. If I could be as vague or ambiguous as some of the prophets of the past, I would take that chance. But being a central banker I will have to settle for the present truths as I understand them.

Unfortunately, the absence of a credible fiscal consolidation program this year halted the further restructuring of the public finances and even caused it to backtrack in certain areas. Therefore, a renewed effort is urgently needed to consolidate the progress achieved so far. This effort should focus on areas such as health care reform, tax reform, government enterprises reform, privatization, and further pension reform. In addition, personnel costs and operational expenditures should be kept in check.

I am optimistic that the recovery envisioned this year will materialize next year. However, this is conditional upon the following factors. The international environment is expected to strengthen gradually in the absence of a protracted war with Iraq and major terrorist attacks. Investments are expected to increase, supported by among other the effectuation of the Special Economic Fund, the so-called Jaime Saleh Fund, set up to implement the growth strategy.

In contrast to the Central government and Island government of Curaรงao, the island governments of St. Martin, Bonaire, Statia and Saba to date have made little progress in restructuring their public finances. As a result, deficits and arrears accumulated, causing increasing liquidity constraints and, hence, more frequent calls on the Central Government for financial support. It is clear that those island governments must embark on a major restructuring of their public finances, similar to the measures taken by the Central Government and the Island Government of Curaรงao if they are to achieve sustainable public finances. In this respect, I welcome the protocols signed between the Central Government and the island governments of St. Martin and Bonaire in November this year, which conditioned financial support to measures directed at a structural reduction of the budget deficits and ultimately balancing their budgets. Ladies and gentlemen, our public finances are still an area of concern. Credible measures must therefore be taken without further delay to prevent a return to the days of unfinancable deficits. The current situation will put us further away from creating institutions and policies to support economic growth unless credible measures are taken to achieve fiscal consolidation. Strong commitment by the authorities to these measures is also a necessary condition for the successful implementation of a debt relief strategy.

Ladies and gentlemen, advocates of this Fund contend that this Fund is necessary to finance the much needed growth strategy as designed by the World Bank, to alleviate poverty and to combat crime. Opponents of this Fund, prominent among which the Dutch government, argue that the funding of the Fund by the government in the absence of a IMF supported program will lead to an increase of the already high debt-to-GDP ratio pushing the country to the brink of insolvency. Ladies and gentlemen, as I mentioned a further increase in our debt-to-GDP ratio is deleterious to our economic growth. However, the lessons drawn from our adjustment efforts must serve to drive home the fact that the envisioned catalytic effect of a Fund supported program did not materialize. Be it due to an over-ambitious program or due to the peculiar nature of our economy as part of the Kingdom (see Tromp and Romero [2002]). Indeed, it led to a further contraction of our economy and ultimately to an increase in debt-to-GDP ratio even in the absence of a further increase in outstanding domestic debt. The myopic policy of subordinating a growth strategy to fiscal consolidation therefore overlooks the long term nature of the growth strategy and the fact that a growing economy will also lead to a reduction to the debt-to-GDP ratio as was the case with the Dutch debt-to-GDP ratio. I therefore argue for an unfettered effectuation of the Jaime Saleh Fund, coupled with a credible fiscal

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consolidation plan to underpin our commitment to growth. It is only through this strategy that we will be able to break this contractionary spiral in the economy and set the stage for a sustainable economic growth. The accompanying creation of jobs will improve employment and income prospects, contributing to a gradual recovery of private consumption. Growth of our main economic pillars, tourism and international financial and business services, will gain momentum. Furthermore, our balance of payments is expected to improve further and inflation will remain low. This positive outlook depends, however, on successful government policy efforts in various areas. I mentioned already the further restructuring of the public finances, but we must also continue with structural reforms such as the further liberalization of our labor and product markets, the reduction of â&#x20AC;&#x153;red tapeâ&#x20AC;?, and effective investment promotion and further improvement of our investment climate. Therefore, to lay a foundation for sustainable economic recovery, we must continue unabatedly with the structural adjustment of our economy through the full and timely implementation of a comprehensive and credible program focused on fiscal consolidation, structural reform and the promotion of growth. Ladies and gentlemen, the abovementioned policy prescription is predicated on a medium term scenario. It is therefore essential for the authorities to be unrelenting in their efforts to implement such a strategy to underpin their commitment. This calls for an effective and decisive leadership the garner the necessary support for this program to be successful. With this message in mind, I wish you all a Merry Christmas and a Prosperous 2003!!!

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Fiscal Policy: Rules versus Discretion Introduction of Dr. Willem Duisenberg, president of the European Central Bank on the occasion of the Fundraising Lecture, celebrating the 175th anniversary of the Bank van de Nederlandse Antillen February 4, 2003

Ladies and gentlemen, good morning,

t is for me a great pleasure to introduce to you Dr. Willem Duisenberg, president of the European Central Bank who is our keynote speaker today. Wim, we are very grateful that, despite your very busy schedule, you agreed to deliver todayâ&#x20AC;&#x2122;s keynote address on this very important milestone in the Bankâ&#x20AC;&#x2122;s existence. Ladies and gentlemen, Dr. Duisenberg will share with us his views and experiences on fiscal policy, a topic that has been on the forefront of national agenda both in Europe and here in the Netherlands Antilles. I think that there is no one more qualified than Dr. Duisenberg to elaborate on this important topic. As Minister of Finance of the Netherlands, President of De Nederlandsche Bank and now as President of the European Central Bank he has always shown a keen interest in and has followed very closely the economic and financial development in the Netherlands Antilles. And I also have to add, just like on this occasion, we could always count on his wise counsel, support and assistance. Wim, I would like to thank you once more for your support and assistance. Ladies and gentlemen, the interrelationship between monetary policy and fiscal policy is well established. They both affect key macroeconomic variables. Lack of coordination between fiscal and monetary authorities in the conduct of their respective policies can place an undue burden on the other thereby rendering the other less effective.

The Netherlands Antilles during the past six years has embarked on an ambitious structural program aimed at restoring order in its public finances with mixed results. On the one hand, considerable progress has been made in reducing the government bureaucracy, improving cost efficiency, enhancing tax compliance and collection, and strengthening the financial administration and reporting. On the other hand, our public finances are still characterized by large disequilibria. The total government debt is estimated at 3.7 billion guilders at the end of 2002, equivalent to 82% of GDP and the general government deficit is projected at 175 million guilders in 2003, equivalent to 4% of GDP. To deal with these daunting challenges, the government of the Netherlands Antilles recently announced the implementation of rules based fiscal policy and the establishment of a committee to come up with recommendations to effectively deal with the increasing debt to GDP ratio. Dr. Duisenberg will share with us the experiences and the wisdom of rules based fiscal policy and the importance of a sustainable level of debt to GDP ratio. Wim, I certainly hope that your views and experiences will help us in the design and implementation of a credible fiscal program and hence to the resumption of economic growth. Ladies and gentlemen, I would like now to invite Dr. Duisenberg to deliver his address.

Dr Duisenberg as Minister of Finance, President of De Nederlandsche Bank, President of the EMI and now in his current position as President of the ECB has had a great deal of exposure to this topic.

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Speech by Dr. Willem F. Duisenberg, President of the European Central Bank, on the occasion of the 175 anniversary of the Bank van de Nederlandse Antillen in Willemstad, Curaçao, Netherlands Antilles Introduction Your Excellencies, Mr. Tromp, ladies and gentlemen. It is a great honour and pleasure for me to speak to you here just two days before the actual day 175 years ago, on which Johannes van den Bosch, the Dutch Commissioner-General for the Dutch West-Indian Possessions, signed the Proclamation on a Statute for the Curaçao Bank, as the Bank van de Nederlandse Antillen was initially called. The history of this Bank and that of the central bank I presided over for 16 years, namely De Nederlandsche Bank, are largely comparable. The Charter of De Nederlandsche Bank was used as the basis for the Statute of the Curaçao Bank, as there was no comparable financial institution anywhere in the Caribbean region or Latin America at that time. Thus, the Curaçao Bank could truly be considered a pioneer in this part of the world. Both banks were founded with the active support of King William I, with the aim of promoting trade and of reforming the fragmented currency system prevailing in the Netherlands and in Curaçao and Dependencies, as the Netherlands Antilles and Aruba were called at the time. Also, both were set up as commercial credit banks, a function that they have maintained until the middle of the 20th century, when they were formally transformed into central banks with sole responsibility for monetary policy and banking supervision as well as other central bank-related tasks. For a very long time now, and from the different positions I have held, I have closely followed economic and financial developments in the Netherlands Antilles and the key role played by the Bank van de Nederlandse Antillen in this regard. Please allow me to use this opportunity to underscore that this is also the case, albeit from a somewhat different perspective, in my current position. For a major central bank like the European Central Bank (ECB), the broad trends in economic and financial developments in Latin America and the Caribbean do matter and are, therefore, followed closely. In its short history, several initiatives have thus been taken by the ECB to build up relations with this region. Among these were a seminar held last year for Eurosystem and Latin American central banks to discuss selected policy issues of common interest. And just last week, the Executive Board of the ECB decided to initiate

the procedure for the ECB to become a collaborating member of Centre for Latin American Monetary Studies (CEMLA). Over the past few years, ECB officials have already participated in CEMLA Governors’ meetings on a regular basis. We felt, however, that a collaborating membership would enhance our possibilities for building up relations with the central banking community in Latin America and the Caribbean. Close relations between the euro area and the Latin American and Caribbean region provide a platform for an exchange of views and experience in the field of – in our case – economic and financial policies. Topical issues for both the euro area and Latin America and the Caribbean are fiscal policies and debt sustainability. In the euro area, as in other economic and monetary unions, fiscal policies are enshrined in rules or pacts. Whereas the use of clear strategic frameworks for the conduct of monetary policy is already broadly accepted, this appears to be less so in the case for fiscal policy rules. Against this background, I should like to discuss today the benefits of fiscal rules compared with discretionary fiscal policies.

The rationale for fiscal policy rules When referring to fiscal rules, I mean a rule-based framework for the adoption of fiscal policy decisions. In practice, almost all such rules take the form of a medium-term target for the government budget balance, but the debt ratio is often also the subject of a fiscal rule. Setting fiscal policy in a rule-based framework contrasts with an ad hoc, discretionary approach to fiscal policy-making. Under an ad hoc approach, the decision on the budgetary target is made without having to adhere to explicit criteria when determining the size of the budget balance in a particular year, or over the medium-term. Conducting budgetary policy on the basis of disciplining rules has become increasingly popular, following disappointing experience with discretionary fiscal policies. One of the main problems of discretionary policies is to be found in the long time-lag between the preparation of, the decision on and the implementation of discretionary measures, in particular those aimed at stabilizing the business cycle. Consequently, policy measures frequently only become effective

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when the economic cycle has already changed, often resulting in a pro-cyclical policy stance. This may destabilize economic developments. Furthermore, discretionary policies are often conducted asymmetrically, driven by short-term electoral considerations. While governments show little hesitation in increasing expenditure or decreasing taxes in periods of economic slowdown, there is reluctance to initiate unpopular consolidation measures once prosperous times return. As a result, a ratchet effect occurs: deficits only go up, not down. Appropriate fiscal policy rules add to macroeconomic stabilization. While discouraging discretionary finetuning, they allow a full operation of automatic stabilizers. These automatic stabilizers result in lower tax receipts and higher unemployment-related government expenditure in the event of an economic downturn, thus supporting aggregate demand and income. An appropriate medium-term reference value for the government budget balance also prevents the sustainability of fiscal policies from becoming a problem, a subject on which I will say more in a few moments. More generally, a rule-based system for fiscal policy provides clear yardsticks against which other policymakers and the public can measure the current and future course of policies. It sets up a stable and predictable environment, which allows markets to operate more efficiently, and supports longer-term decision-making by the public and by corporations. Moreover, fiscal rules regarding budget deficits have the advantage of promoting an efficiency analysis of government plans. If a government wants to increase certain expenditure when the route to deficit-financing is blocked, it has to weigh the benefits of such expenditure against the cost of increasing taxes or decreasing other expenditure. The case for fiscal rules is even stronger in a monetary union like the euro area. With a centralised monetary policy and decentralized fiscal policies, there could be a temptation to have higher deficits. This is because part of the consequences of lax fiscal policies, in the form of higher real interest rates, will be borne by all the other participants in the monetary union. Thus, in order to avoid such spillovers to countries pursuing sound fiscal policies, a fiscal framework is required, even more so than in the case of an individual country.

While there are thus many advantages to fiscal rules from a fiscal and general macroeconomic angle, I also support the conduct of fiscal policy on the basis of predetermined rules from a monetary policy point of view. Monetary and fiscal policy are interacting, as they both have an impact on key macroeconomic variables. Fiscal policy, for one thing, affects prices via its effects on aggregate demand, or via changes in indirect taxes. Monetary policy, on the other hand, affects short-term interest rates, which influences the government budget and the economic environment in which governments operate. This implies that actions by one authority have an impact on the variables underlying the policy objectives of the other. Given these linkages and spillovers, it is crucial to have a clear institutional framework, which governs the interactions between monetary policy and fiscal policy. Important in this context is the issue of the division of responsibilities. Those taking macroeconomic action should be given clear mandates which they can fulfill and for which they can be held accountable. Monetary policy-makers should be responsible for price stability and fiscal policy-makers should keep public finances sound with a view to providing the best contribution to enlarging the growth potential of the economy. Such a clear separation of mandates avoids problems with regard to implementation and incentives that would otherwise be bound to occur if monetary and fiscal policies had constantly to be coordinated on an ad hoc or a discretionary basis.

The euro area experience Having elaborated on the need for a clear institutional framework, let me now turn specifically to the euro area, and discuss how these insights have found their way to the policy framework of the European Union (EU). The introduction of the euro posed a unique challenge to devise principles reflecting the considerations I have just highlighted. As to the common monetary policy, the Treaty establishing the European Community unambiguously identifies price stability as the primary objective for the ECB, as this is the only objective monetary policy can be expected to deliver in the long run. The ECB and the national central banks of the Eurosystem are granted independence in the pursuit of this objective, so that they are shielded from possible short-term political interference by governments.

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At the same time, fiscal policies remain the exclusive responsibility of national governments, although they are subject to EU-wide rules. The Maastricht Treaty states that countries should avoid excessive deficits. Important reference values for this assessment are a government deficit level of 3% of GDP and a debt-toGDP ratio of 60%. In addition, countries have committed themselves in the Stability and Growth Pact to respect the medium-term objective of a budgetary position of “close to balance or in surplus”. Attaining this position implies that automatic stabilizers can operate freely over the cycle without running the risk of exceeding the 3% reference value. Additional elements in the EU policy framework that have an impact on fiscal policies are the prohibition of any monetary financing of government deficits, which implies that governments cannot resort to central banks for the financing of their budgets, and the no-bail-out clause. Under the latter provision, none of the participating countries can be held responsible for the debt of any other governments. This provision provides an additional incentive for governments to “keep their own house in order”. As to the monetary side of the EU policy framework, the ECB has announced a medium-term-oriented monetary policy strategy setting out how it goes about fulfilling its mandate under the Treaty. In order, in particular, to enhance clarity, to anchor expectations and to offer a yardstick against which the ECB can be held accountable, a quantitative definition of price stability has been provided. Longer-term inflation expectations indicate that the ECB’s definition of price stability over the medium term, an annual rate of inflation of less than 2%, is perceived to be credible, both by market participants and the general public. Furthermore, on the basis of its strategy, the ECB regularly explains its monetary policy decisions and its assessment of economic developments. With this high degree of transparency, the ECB provides the public and the fiscal authorities with extensive information on how to understand, and thus to anticipate, responses of monetary policy to economic developments, including those concerning fiscal variables. Current experience with this policy framework in the EU is satisfactory. The Maastricht Treaty provides for a clear and consistent allocation of mandates and objectives to the policy-makers. It includes transparent frameworks and procedures. Monetary and fiscal

policy are offered steady guidance for action, while short-sighted behaviour is discouraged. Fiscal policy developments in the euro area have been somewhat mixed recently. Many euro area countries had undertaken major efforts to reach budget deficits of less than 3% of GDP by 1997, which was a precondition for adopting the euro. Later on, a majority of countries reached the required medium-term positions of budgets close to balance or in surplus. However, some euro area countries still face very high deficit levels that sometimes even exceed the reference value of 3% of GDP. This reflects the fact that these countries did not use the strong economic upturn in 1999 and 2000 to bring their structural fiscal deficits down. As I have already outlined, budgetary discipline is indispensable for the proper functioning of Economic and Monetary Union (EMU). The rules are not the problem, but failing to comply with them is.

Debt sustainability One of the reasons, perhaps the most important one, for adopting a fiscal rule-based system such as the Stability and Growth Pact is the need to reduce the risk of building up unsustainable fiscal positions. In most euro area countries, the debt-to-GDP ratios have been falling over recent years, but they still remain at high levels. Certainly, the current high debt to GDP ratios need to be reduced. However, even low debt levels today are no guarantee that sustainability is secured in the future. Many economies, yours not excluded, will be confronted with a gradual but steady ageing of the population. In Europe, there are currently about four persons in the work force supporting one person of pensionable age. This ratio will deteriorate substantially in the future – it is estimated to go to two workers for every pensioner in 2050. Such a huge increase has many macroeconomic consequences, including fiscal ones. Conservative projections indicate that annual government expenditure on pensions and health care in the EU could increase in the order of 4 to 8 percentage points of GDP. Unless there is further policy action, public expenditure would rise significantly, resulting in increases in the public deficit and debt ratios. There is every reason to prevent such a scenario from occurring. High deficits and unsustainable public debt levels have serious adverse macroeconomic con-

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sequences. First, public debt crowds out private investment, thereby hampering economic growth in the medium term. Unsustainable fiscal positions have a negative impact on market interest rates, because of the high additional demand for funds and because of the ensuing negative development of inflation expectations. Ultimately, if risks regarding the future course of fiscal policy are substantial, and if its credibility is undermined, unsustainable fiscal policies will have an impact on the creditworthiness of the government. In the extreme, this may lead to reduced access to capital markets for funding debt. But even more moderate debt levels are problematic. They impair the operation of automatic stabilisers. In addition, the effectiveness of fiscal policy measures could decrease as awareness increases among the public that the fiscal policy course is not sustainable, so that countervailing measures in the future are anticipated. Furthermore, increasing debt ratios lead to rising tax burdens, either now or in the future. This exacerbates current tax distortions and reduces work incentives, thus leading to less economic growth. The adverse consequences of high and unsustainable debt point to the need to prevent such situations. There is an urgent need for policy adjustments in many EU countries. Measures should be sought in three complementary areas. First, fostering productivity and economic growth broadens the economic basis for financing ageing-related costs. Second, reforming the social security systems should reduce expenditure pressures. Finally, a swift and decisive reduction of current debt levels should contribute to alleviating fiscal burdens and to preparing financially for upcoming ageing. Low debt levels reduce the interest burden on the budget, thus creating more room for growth-enhancing tax cuts or for financing expenditure relating to ageing populations. Although the ageing of populations is a gradual process, this should not induce us to regard it as less urgent. In Europe, a major acceleration of the ageing process is expected to set in around 2010. Postponing the implementation of the required policy response would, over time, further increase the extent of necessary adjustments, and may shift a larger part of the debt burden to future generations.

thing about the use of fiscal rules in other monetary unions of interest, notably the West African Economic and Monetary Union (WAEMU), the Central African Economic and Monetary Community (CEMAC) and – closer to the Netherlands Antilles – the Eastern Caribbean Monetary Union (ECCU). The programmes agreed upon by the two African monetary unions – the name of one of which has even been based on arrangements in the EU, namely the WAEMU’s Convergence, Stability, Growth, and Solidarity Pact – require annual fiscal balances to be in surplus or in balance, a limitation of the domestic and foreign debt ratio to 70% of GDP and a reduction of the inflation rate to 3%. The Monetary Council of the Eastern Caribbean Central Bank, which comprises the finance ministers of its eight member states, has adopted so-called benchmarks, limiting budget deficits to 3% of GDP, outstanding public sector debt to no more than 60% of GDP and debt service revenues to no more than 15% of current revenue. It may be useful to assess the institutional set-up of these agreements on the basis of EU experience, in particular with regard to the required monitoring, the incentive structure and the time frame. As regards monitoring, on the basis of EU experience, a regular and frank regional surveillance of all participating countries forms an important incentive to compliance. The same applies to the obligation for countries that fail, or that are expected not to comply with the rules, to define a programme of corrective measures. Finally, sanctions in the form of public reprimands and fines should complete this framework. While the West African Treaty includes rather detailed provisions and procedures for monitoring, corrective policy programmes and sanctions, none of these have been put in place in the Eastern Caribbean Currency Union. Furthermore, as is the case in the EU fiscal policy framework, fiscal rules will be more effective when linked to a realistic time frame. In contrast to the two African monetary unions, the Caribbean Union has not explicitly specified such a time path. EU experience confirms the importance of a strong institutional set-up for stability programmes. Against that background, I am convinced that the success of such programmes in other monetary unions will to a large extent also depend on their frameworks for monitoring, incentives and sanctions.

Fiscal policy frameworks in other monetary unions Before addressing the relevance of fiscal rules for Latin America and the Caribbean, let me first say some-

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The need for enhanced fiscal discipline in Latin America and the Caribbean Let me close my presentation by now discussing the need of more fiscal discipline in this region. Both in Latin America and in the Caribbean, fiscal discipline has been low in a large number of countries. On average, public debt-to-GDP ratios in Latin America are not out of tune with those in other emerging market regions, but – overall – vulnerabilities are comparatively larger. These vulnerabilities stem from the fact that a larger share of public debt is financed externally as a result of, inter alia, relatively low savings ratios, while the region’s ability to service the associated external debt obligations is hampered by a relatively low level of exports. There are positive exceptions to this general trend of weak fiscal positions, one of which is Chile. Such countries do, indeed, perform much better in terms of national savings and trade openness.

tions for stable economic growth in many countries in Latin America and the Caribbean. Like other central banks in this region, the Bank van de Nederlandse Antillen plays an important role as advisor to the government, also in the field of fiscal policy. Against this background, too, I hold the view that the Bank’s main assets are not, as many may think, its foreign reserve holdings, but rather its human capital. My main wish for the future of the Bank van de Nederlandse Antillen is, therefore, that it will be successful in maintaining its position as a centre of excellence in this part of the Kingdom of the Netherlands, to the benefit of the beauty of the islands of the Netherlands Antilles and of all its people.

In many countries in the Caribbean, public debt-toGDP ratios are much higher than in Latin America, although public debt there is not financed externally. Domestic financing of public debt, however, creates a different source of vulnerability. Due to the absence of broad and deep financial markets, government debt is often held by a relatively small number of financial institutions, which creates risks to financial sector stability. The different factors behind debt vulnerability in Latin America and the Caribbean are often interlinked and mutually reinforcing. In particular, this applies to low savings ratios. The relatively low national savings ratios in Latin America and the Caribbean are largely a reflection of higher public sector deficits. Higher public savings are needed not only to reduce the vulnerabilities associated with high public debt positions, but also to fund public investment and to create reserves for emergency situations. Indeed, in the absence of natural resources and a limited availability of the usual mechanisms for increasing competitiveness, enhancing the public infrastructure is considered crucial for economic growth in this region. In that sense, higher public savings to help funding increased public investment should be considered a necessary complement to a pegged exchange rate, which is also often the rule in this region. Against this background, I am of the view that increased fiscal discipline is needed to reduce vulnerabilities or, to put it more positively, in setting condi-

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FATUM is one of the major players in the insurance market in the Netherlands Antilles Speech on the acquisition of the majority shares of FATUM in the Netherlands Antilles by the Guardian Group May 14, 2003

Ladies and gentlemen good evening,

Introduction

et me first take the opportunity to congratulate the Guardian Group on the acquisition of the majority shares of FATUM in the Netherlands Antilles. The Guardian Group is not new in this market. Since 1993, Guardian has been active in the Netherlands Antilles through its branch office after taking over the domestic activities of Crown Life. In 2001, another member of the group, namely RBTT, also entered our market. During the last decade, the Guardian/RBTT Group has shown remarkable growth in assets and earnings both in their home market and elsewhere in the Caribbean. The Bank is confident that with this acquisition of FATUM, the Guardian will be an important and strong player in our insurance and banking market, one that certainly enhance competition and ultimately should benefit consumers. Next year, FATUM will commemorate its centennial on the island of Curaçao. FATUM started operation as a branch office of the Nationale Nederlanden, was last year licensed as a subsidiary of the ING Group, and now has become a member of the Guardian Group. We view this change in ownership with optimism and hope that it will continue to safeguard the rights and benefits of the policyholders of FATUM as well as the jobs of the 190 employees in the Netherlands Antilles. The new owner of FATUM – Guardian Holding group – is a public company whose shares are listed on the Trinidad and Tobago Stock Exchange Market. In 1990, the Guardian Life group and RBTT Financial Holding Limited formed the first banc-assurance combination in the Caribbean, indicating the Group’s commitment to expand its investments in the areas of banking, insurance, and financial services in the region. FATUM is one of the major players in the insurance market in the Netherlands Antilles with a market

share of approximately 40% based on the 2002 net premium income. As of the end of 2002, the number of institutional investors, i.e., insurance companies and pension funds, operating in the Netherlands Antilles was 85. Despite its dominant position in the market and its financial soundness, FATUM and indeed the industry in general have experienced during the last few years a depressed business environment caused by major catastrophes like the hurricanes Luis, Marilyn and Lenny in the Windward Islands, the domestic economic downturn, and adverse developments in stock exchange markets around the world. These developments have affected the performance of the insurance industry worldwide. This general picture, however, should not obscure the fact that our insurance industry has shown significant resilience to those adversities. The adverse developments in the international stock exchanges have impacted negatively the returns on investment of the insurance industry. This negative impact led to a re-allocation of the industry’s portfolio decisions in favor of higher-yielding domestic government bonds, giving the government easy access to financing at historically low rates.

Current economic environment The general government, which has been experiencing rising indebtedness, has relied heavily on this windfall situation to finance its fiscal deficits, thereby increasing our vulnerability to changes in the market. Ladies and gentlemen, the problems facing our country are not new. They predate this development. Despite years of fiscal consolidation, the government budgetary situation remains worrisome. The general

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government deficit stands at NAf 314 million (6.5% of GDP). Domestic outstanding debt has been rising and stands now at more than 80% of our GDP. As a consequence, interest expenditures are 25% of all tax revenues. These expenditures represent an annual outlay of NAf 280 million. If the current fiscal situation is not addressed, it will threaten the fragile recovery that seems to be emerging. The need to correct this situation is urgent. Our problem is not one of taking the right measures, but rather, of keeping the good policies on track. We are too quick to declare victory and roll back the needed measures. Despite the difficult economic situation, recent polls seem to suggest little popular support for the needed fiscal consolidation measures. But ladies and gentlemen, if we are to restore sustainable growth, create durable jobs, and, hence, eradicate poverty, we have to address our fiscal ills. Many risks and vulnerabilities are looming on the horizon: (i) reversal of the recent financing flows will not only render the current deficits not financable but also will make the refinancing of maturing debt very difficult; (ii) building social consensus for reform in the current environment will be very difficult; and (iii) the crowding-out effect of the current deficit will threaten the current recovery. Therefore, the deficits have to be brought into financable proportions. To achieve this, we must pursue the right policies and implement and maintain fiscal responsibility laws designed to increase transparency and accountability in the public finances. We have to continue to pursue structural reforms to raise economic growth potential on a sustained basis. Recent attempts to roll back important progress in this area only will reduce our growth potential. And finally, we must reduce poverty and address governance issues. We have to invest in the quality of our human capital by giving priority to education. We have to make progress in the alleviation of poverty by restoring sustainable growth and creating durable jobs. Good government policies should go hand in hand with renewed input into social economic growth. That is to say, that governmentâ&#x20AC;&#x2122;s accountability also should be increased with respect to its social policies.

Implication for government debt and budget discipline Ladies and gentlemen, our growing fiscal problems have made us increasingly vulnerable to mood swings

of investors. During the remainder of the current year and in 2004, approximately 27% of the total outstanding government securities, that is, NAf. 601.3 million, will mature. Under a scenario of a decreasing spread between local and international rates, the re-financing of these maturing securities will become more difficult. Fiscal year 2003 alone will add an additional NAf.314 million (6.5% of GDP) to our debt. This situation clearly is not sustainable. Given the worrisome fiscal situation and the urgent need to restore sustainable growth and address social equity issues, institutional investors, as the largest pool of savings and investment can play a pivotal role. The government should address our fiscal situation with urgency. A further deterioration in our fiscal situation ultimately will threaten the fragile recovery and worsen our poverty. Insurance companies and pension funds should direct their resources to investment projects that will enhance growth and create jobs. The government, with the assistance of the World Bank, has for some time utilized a growth strategy that identifies important investment projects. Those investment projects are in sectors with the best growth potential. However, the implementation of those projects has been stalled by the excessive reliance on external finances that have not been forthcoming, the lack of long-term and/or risk capital, and the lack of funding for the government-established Foundation for Economic Development. As long as institutional investors, as the largest pool of domestic savings, continue to prefer government bonds over private-sector investments, the recovery underway will not gain momentum. Supporting this nascent recovery ultimately will facilitate fiscal consolidation and reduce the adjustment costs to society. In a recent speech on a similar occasion, I mentioned that strict adherence to the so-called 40-60 investment rule would produce NAf. 180 million for domestic financing. By allocating these funds to those important investments projects that will enhance our growth prospects, the institutional investors will make an important contribution toward sustainable growth, creation of durable jobs, and alleviation of poverty. In the period ahead, the Bankâ&#x20AC;&#x2122;s policies will be geared toward enhancing the efficiency and transparency of capital markets and improving the allocation of funds

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to productive investments in the private sectors. I call upon the financial sector to join hands with us and continue to work toward a better Netherlands Antilles. I thank you for your attention and again wish FATUM and Guardian Holding the best of luck in their future endeavors in the Netherlands Antilles and the region.

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Recent Economic Developments in the Netherlands Antilles in a Regional Perspective: Risks and Opportunities Speech at the Annual Strategic Meeting of the KPMG Dutch Antilles La Romana, Dominican Republic, June 20, 2003

Introduction

t is a pleasure for me to join you this evening on the occasion of your Annual Strategic Meeting. Next week, the Central Bank of the Netherlands Antilles will be presenting its 2002 Annual Report. I therefore think that it is a timely occasion to discuss with you the most pressing issue on my mind: the need to rebuild confidence in the Netherlands Antilles economy. Allow me to thank Mr. Ralph Palm for the invitation and congratulate him on the initiative to bring policymakers to discuss with you the environment you are likely to be operating in. The Netherlands Antillean economy is currently at a critical juncture. In a recent Staff Report for the 2003 Article IV Consultation Discussions, the IMF staff concurs that the balance of risks for the Netherlands Antilles economy has improved lately. But in order for us to seize the upside potential, the overriding priority must be “the expeditious and sizable fiscal adjustment to reverse the unsustainable accumulation of public debt and the sustained implementation of a well-considered structural reform agenda to raise productivity and improve employment prospects.” But ladies and gentlemen, the issues that the IMF staff is referring to are not new. Over the past two decades, the economy of the Netherlands Antilles has experienced several adverse shocks from which it is only now beginning to recover. The repeal of withholding taxes in the US in the 80s was perhaps the biggest shock, which caused the collapse of several highly profitable international financial services in the Netherlands Antilles. An important source of foreign exchange income and tax revenue had faded away. The second major shock was the withdrawal of Shell Oil Company from Curaçao and the temporary closure of the oil refinery. This refinery has been a mainstay of the

Curaçao economy for almost three quarters of a century. Another set of shocks occurred in the 90s, when the Windward Islands were hit by several devastating hurricanes. Much of the economic infrastructure on the islands was destroyed, including about half the number of available hotel rooms. The accumulated effect of these shocks is estimated at the equivalent of at least 20 percent of GDP. For most developing countries this would have been sufficient to cause an acute economic crisis requiring sharp adjustment in terms of exchange rate, reductions in domestic factor prices (including wages), and/or adjustment in net public spending. We were able to maintain our peg to the US dollar, without large scale internal economic disruption thanks to our comfortable level of international reserves, a nominal wage cut in various sectors of the economy, payments of indemnities by the insurance industry, an increase in domestic public debt, and Dutch development aid. I have to add though that we never fully adjusted from those shocks. The various adjustments programs made to address these imbalances were never fully implemented or were abandoned prematurely. As a consequence, since the mid90s, the Netherlands Antillean economy has recorded low growth rates, followed by a double-dip recession, which has been accompanied by large-scale emigration.

The Current State of the Economy The last two years, the Antillean economy has shown signs of economic recovery. The gross domestic product (GDP) grew by 0.6 and 0.2 percentages, respectively in 2001 and 2002. This modest growth has been recorded under quite unfavorable external conditions: the September 11 attacks, economic slowdown in the USA, and the political turmoil in Venezuela. To a con-

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siderable degree, this recovery was led by the exportoriented private-sector. Buoyant tourism and international financial and business services in Curaçao were the main contributor to the GDP growth. In contrast to foreign demand, domestic demand took a down turn in 2002, with an overall decline in consumer and business investment spending. In addition, public consumption and investment declined significantly during this period. Against that background, unemployment rate decreased marginally to 14.2 percent and inflationary pressure abated sharply with consumer prices up only half a percentage against 1.7 percent in 2001. Concomitant with the developments in economic activities, the current account of our balance of payments recorded a significant improvement. This, combined with the improvement in the financial account, resulted in a balance of payments surplus. After two years of positive developments in our balance of payments, our official foreign exchange reserves have exceeded our targeted international benchmark of three months of import coverage for the first time since 1988. While the Antillean economy has shown significant resilience despite a difficult external environment, the sustainability of this recovery is being threatened by the sharp deterioration in the public finances. Increased personnel cost and interest expenditures combined with falling tax revenue collection raised the government deficit to 5½ percent of GDP. A related concern is the consequent, increasing debt-to-GDP ratio. Our debt-to-GDP ratio has reached a level that requires immediate and sustained bold actions in the fiscal field if we are to avert a significant deterioration of the already uncertain macro-economic environment. Looking ahead, the continued growth in the export oriented service industries is expected to further sustain the economic recovery this year. However, the geopolitical uncertainty, as a result of the Venezuelan crisis and terrorism threat in the US, may affect tourist services in Curaçao. Given the relatively favorable financing conditions for the government, a slight rebound in consumer spending is projected leading the way for a modest ½ percentage point economic growth this year – slightly better than last year. Noteworthy is that the expected growth in consumer spending is further supported by a modest improvement in employ-

ment possibilities and wages. Inflation, as measured by changes in the consumer price index (CPI), will accelerate to two percent, in line with developments in the US. I do not expect inflation to be a source of uncertainty for businesses and consumers in 2003.

Regional Economic Developments Ladies and gentlemen, before elaborating on the future prospects of the Antillean economy, allow me to place the recent economic developments in the Netherlands Antilles in a regional context. Regional economic activity is estimated to have decreased by 0.5 percent in 2002. Among the economies most affected by the economic slowdown are Venezuela, Aruba, Barbados and Jamaica. Venezuela’s economic situation became more vulnerable in 2002 due to domestic problems, a sharp deterioration of the fiscal position, and external factors. As a result, private sector confidence weakened accompanied by large outflows of private capital. In addition, the government has experienced serious difficulties in rolling over maturing domestic debt and gaining access to the international capital markets. All these factors – together with cuts in oil production – have led to a substantial contraction in economic activity in 2002 and the rate of inflation accelerated to 31.2 percent on an annual basis. Projections for 2003 range from a 15 to 20 percent drop in economic activity, while inflation is expected to soar to 50 percent on an annual basis. Underlying these projections are the recent general strike and the political uncertainty. Once domestic uncertainties have been settled, it is expected that economic activities will rebound by three percent. After growing at over four percent per year during 1996-2000, the Aruban economy experienced two years of retrenchment, with GDP falling with an estimated 1.2 and 3.8 percent in respectively, 2001 en 2002. This downturn reflects a sharp reversal in private sector investment activity caused by especially weak tourism activity following the U.S. recession and the September 11 attack. It is expected that higher private and public investment and a modest revival in tourism should boost economic growth in 2003 to over four percent. With higher tourism capacity and continued sustained investment, economic growth is expected to remain around three percent in the medium-term.

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After eight years of consecutive economic growth, real GDP in Barbados contracted in 2001 and 2002, respectively, by 2.7 and 1.8 percent. The main cause for this turnaround lies in the adverse impact on tourism of the September 11 attack and the global economic slowdown. Inflation fluctuated around two percent and unemployment reached 10.5 percent of the labor force. The overall public sector deficit widened sharply from 0.7 to 5.1 percent of GDP, mainly due to civil servant wage increases, fiscal stimulus, and deterioration in the finances of public enterprises. It appears that the Barbadian economy will revert to a positive growth path, but its prospects hinge largely on resurgence in global tourism demand.

shocks experienced during the last two decades. Another key indicator of the state of the economy, in terms of net export capacity or net national savings, is the current account of the balance of payments as a percentage of gross domestic product. In this respect we are among the first five countries in the region, with a current account deficit of about 5.5 percent of GDP. Like most Caribbean countries, our main source of foreign exchange income is tourism. Developments in public finances however, are in sharp contrast with regional developments. With a fiscal deficit of more than four percent of GDP, we are among the five regional countries with the worst fiscal performance.

In contrast to these developments, some regional countries manage the adverse international environment quite well: like for example, the Dominican Republic, Trinidad & Tobago, Guyana, and Jamaica. Preliminary data showed that economic activity in the Dominican Republic accelerated from 2.7 percent in 2001 to 4.0 percent in 2002. This growth was supported by rising investment, including substantial increase in foreign direct investment in the electricity, telecommunications, free-trade-zone, and tourism sectors. The rate of inflation accelerated from 4.4 percent in 2001 to 10.5 percent in 2002. The economic prospects are that the economy will continue to grow at an average rate of 2.5 percent. Inflation will decline gradually.

Economic Prospects for the Netherlands Antilles

Jamaicaâ&#x20AC;&#x2122;s economy was hit by a series of shocks including the outbreak of violence, the impact of September 11 on tourism, and heavy floods. Government response to these shocks was to cushion the impact on the economy. However, public finances worsened significantly and the reduction in public debt was not fully realized. As a consequence the economy grew by 1.2 percent over the fiscal year 2002. The rate of inflation drop from seven percent in 2001 to six percent in 2002. Unemployment remained at 15.5 percent of the labor force. If we return back home and place our recent economic development against this regional background, the following picture emerges. With an annual per capita of approximately US$ 16,000.00, the Netherlands Antilles rank as the third in the Caribbean Region, after Aruba and the Bahamas. Our high level of per capita income is a good indicator of the level of economic development we have achieved, despite the adverse

Ladies and gentlemen, despite the favorable growth prospect this year, I have to note that the medium term growth prospects are less certain. Our long term growth prospects are continued to be overshadowed by the unsustainably high budget deficits, increasing debt-to-GDP ratio, and high debt servicing cost. The broad and pervasive uncertainties that these unresolved issues in the public sector are casting on our economy have been holding back a more vigorous recovery in the short term. Despite our best efforts, there will always be risk. It is an inherent characteristic of a small open economy as ours. But the risk we are facing today is of our own creation. It is unusually large and difficult to quantify: uncertainty associated with the prolonged budget deficits, the high level of the public debt, and the increasingly large burden of the debt service. The financing of the budget deficit and the refinancing of maturing government bonds are increasingly putting pressure on the local financial markets. The relatively high interest rates we observe on the domestic financial markets, despite historically low international rates, are a direct result of the increasing public demand for funds. This pressure has not only resulted in relatively high rates for governments, but the costs of doing business for the private sector are increasingly high. An inherent feature of corporate financing in developing countries is the prevalence of bank-based financing. Because of the size and lack of well-developed secondary market there is very limited scope for equitybased financing.

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High cost of capital and uncertainties lead to postponement of business investment decisions. As a result, financial resources are being misallocated and our growth potential will not be fully exploited. The lack of equity-financing presents some opportunities to develop venture capital schemes to foster further growth of our economies. KPMG as a leading company in the field of tax and management consulting and accountancy can play a pivotal role in this area. A related concern to me is that the so-called “political”-uncertainties, and its implications for economic recovery, has made executives gun-shy about taking risks. As a central banker I am not advocating imprudent decision-making. But the functioning of our market-based economy depends on sound risktaking. And one kind of risk – a critically important one – is business investment. It is therefore important to work towards the elimination of those impediments to create an environment conducive to more investments and hence economic growth. At this point, you may be wondering why the expansion hinges in large measure on business investment. After all, business investment accounts for only around 25 percent of GDP. Why does future growth depend on business investment? The answer is that business investment in productive capacity, especially in the export sector, and new technology generates new economic activity and productivity growth. This will lead to higher foreign exchange inflows, cash flow and profitability which in turn support wage growth and/or employment. The ensuing growth in disposable income supports consumer spending growth and sustained economic development. Another risk is the uncertainty associated with developments in our main trading partners: Venezuela, the USA, and the Netherlands. The interdependence of a globalizing world means that in the design of a country’s policies, due considerations must be given to developments in other countries. Given our size, developments in any one of our major trading partners have the potential to deliver large shocks to our economy. The foreign exchange crisis in Venezuela and the terrorism threat in the US for example, are affecting tourism development in this country and indeed in the whole Caribbean region.

Conclusion Against this backdrop, the question becomes how can we address these uncertainties to underpin this fragile recovery and foster sustained economic growth over the medium and long term? Moving forward, we must focus on a strategy to create a sound macroeconomic environment. That is, if we are to exploit the opportunities and at the same time limit the risks, we must have good governance, sound institutions, sound fiscal policies including fiscal discipline, sustainable public debt, further structural reforms, flexible markets, privatization and poverty alleviation. (i) First and foremost ladies and gentlemen, we have to address public sector imbalances and restore business confidence. Toward that end, we must restore balance in the public finances and reduce the cost the government bureaucracy is imposing on the economy as a whole. Once we move beyond the uncertainties associated with the public finances, I think the economic recovery is bound to regain momentum. Given our past track record, we need to convince the market that our fiscal policies are credible and sustainable in the medium term. Our fiscal problems are structural in nature and it will require sustained actions to overcome them. Any fiscal consolidation is bound to weigh heavily on the poor. It is therefore essential in the design of a fiscal consolidation program to take due consideration of this by strengthening the social safety nets. (ii) We have to promote new investment, particularly in export-oriented industries, that will create employment, foreign exchange income, and growth. We must raise the productivity level in existing enterprises, by investing in new technology. Rising worker output reduces unit costs and improves private sector profitability. Over time, this also allows businesses to raise workers’ wages without affecting our competitiveness. Several studies, among which a recent World Bank study, has identified some key projects in our growth industries to jump-start the economy. It is generally accepted that service industries, especially those not connected with retail and wholesale trade, are less affected than manufacturing and construction industries by changes in aggregate demand and supply conditions. This is the rationale for the argument that service industries bring stability to an economy. As we all know, and also underscored by these studies, the longterm comparative advantage of the Netherlands

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Antilles lies in tourism and other labor-intensive service industries. I like to stress in this context that the authorities and business community in the Netherlands Antilles fully recognized the need to focus on the tourist industry. Full advantage should be taken of the island’s deep-water port and maritime service facilities. I also like to emphasize that we have, or can create, comparative advantage and growth potential in such activities as international distribution and transshipment through our port, international financial services, other niche service industries, light manufacturing, and artisan crafts. (iii) Finally, for well over a year now, monetary policy has been appropriately accommodative to underpin this recovery. Foreign exchange reserves are at an all time high and interest rate are at a historical low. Even though we have not yet seen an expansion in demand for credit from businesses, they have at least been able to refinance existing debt at lower rates. Again, I think this is a positive development for business investment. Monetary policy however, affects only the price and the aggregate amount of credit in the economy: allocation of credit is carried out by financial markets. And it is my strong belief that markets – imperfect as they may be – make better decisions about resource allocation than bureaucrats. I do think, though, that business demand for capital will grow as soon as the current political uncertainty is resolved.

lize the debt-to-GDP ratio, restore confidence, and exploit the investment opportunities in key growth sector. By placing the fiscal policy back on track and accelerating the structural reforms, we project an average economic growth of 2 - 3 percent over the coming years. The main growth sectors will be tourism, international financial and business services, and the transportation industries. In line with the increased economic activity, we expect consumer spending to pick up again due to a further drop in unemployment and wage advancements. The rate of inflation will remain more or less constant around this year’s level, and our external position will remain stable. This restore confidence in our economy again and foreign direct investment will return to the islands in search of profitable opportunities. The challenges for you as leaders of the business community, in devising a strategy for the period ahead, are to seize the opportunities by reinforcing a culture of good governance, sound risk taking, and entrepreneurship. After all, it is only through growth that real progress can be made in creating durable jobs and hence alleviating poverty and ultimately improves the welfare of all of us. I wish you a productive and fruitful session and thank you for your attention.

In concluding ladies and gentlemen, the difficult macroeconomic environment forces us to focus increasingly on the financial sector. I take pride in noting that our local financial sector has shown tremendous resiliency by weathering the various economic shocks we have experienced in the past decades. In addition, it withstood the adverse developments in the international financial markets and domestic uncertainties associated with the public finance. This performance is in no small part attributable to the soundness of the regulatory framework and policies, which resulted in healthy balance sheets. The IMF as part of their Financial Sector Assessment Program underscores this view. The medium and long term economic prospects for the Netherlands Antilles to a large extent are determined by how well we deal with the risks and economic opportunities that are facing us. This requires bold leadership to balance the government budget, stabi-

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Recent financial-economic developments in the Netherlands Antilles in general and in St. Maarten in particular Address on the occasion of the start of Phase II of Princess Juliana International Airport’s Expansion Project St. Maarten, July 20, 2004 Ladies and gentlemen, good morning,

would like to start by congratulating St. Maarten and, in particular, my former colleague at the central bank and current president of Princess Juliana International Airport, Eugene Holiday, on the financial conclusion of phase II of the airport’s expansion. A great deal of skill and perseverance is required to conclude the financing of such a multi-million dollar project, whose size is large compared with St. Maarten’s economy. The total investment of approximately US$ 100 million comprises about 18% of the island’s GDP. I am convinced that Eugene’s experiences during his career at the central bank and at Winair contributed significantly to this achievement. Let me also congratulate RBTT Merchant Bank for its decision to finance this important investment project. That decision underscores the success of RBTT Financial Group in expanding its presence in the financial sector of the Netherlands Antilles. This expansion, ladies and gentlemen, should contribute to a more competitive domestic financial market. More competition will lead to lower cost of borrowing, lower prices for banking services, and a wider range of financial products, contributing positively to economic growth. Moreover, the financing of this project in the form of negotiable bonds offers a welcome domestic investment alternative for banks, institutional investors, and private investors. The expansion of St. Maarten’s airport is a welcome impetus to the strengthening of its economy and the economy of the Netherlands Antilles in general. This project along with some large investment projects in Curaçao, such as the expansion of the airport there, the construction of a utility plant, and the expansion of the economic zone, suggest an encouraging outlook for further economic growth.

Let me give you a brief overview of the financialeconomic developments in the Netherlands Antilles in 2003 and the prospects for 2004. Since we are here together to launch an important project for St. Maarten, I shall include some references specifically to developments in St. Maarten’s economy. The Netherlands Antillean economy recorded its third consecutive year of economic growth in 2003, reflected by an expansion of 1.4% in real Gross Domestic Product. St. Maarten’s economy showed the largest growth rate, 4.3%, while the economies of Curaçao and Bonaire grew by 0.5% and 3.4%, respectively. St. Maarten’s economy represents approximately 17% of the Antillean economy, second to Curaçao whose share is 75%. The expansion in net exports and higher private and government consumption were the main contributors to the overall growth in 2003. In contrast, investment declined because private investors put investment decisions on hold due to growing uncertainty surrounding the sustainability of the economic recovery. The inflation rate increased from 0.4% in 2002 to 1.9% in 2003, due mainly to a rise in world oil prices, the appreciation of the euro, and higher inflation rates of our main trading partners, the United States and Venezuela. St. Maarten’s inflation accelerated to a lesser extent from 0.5% to 1.5% during this period. The improvement in exports in 2003 was attributable primarily to the tourism and transportation sectors. Tourism showed healthy growth within creases of 10% in the number of stay-over visitors, 6% in the number of cruise visitors, and 8% in the foreign exchange income generated. St. Maarten’s corresponding growth rates of 12%, 11%, and 7%, respectively, were a major contributor to the overall tourism performance. The importance of St. Maarten for the tourist

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sector in the Netherlands Antilles is well established: the island generated 60% of stay-over tourism, 75% of cruise tourism, and 63% of tourism-related foreign exchange earnings in 2003. The transportation sector also performed well in 2003. The Antillean carrier, Dutch Caribbean Airlines (DCA), registered a substantial growth in both the number of passengers and the amount of freight transported. In line with the growth in stay-over tourism, activities at the airports in the Netherlands Antilles also expanded. St. Maarten’s airport was the busiest in 2003 with 1.5 million passengers,12% more than in 2002. This number exceeds the current maximum capacity of the airport facilities by 300,000 passengers, illustrating that the expansion is urgently needed. After the expansion, the airport will be able to handle 2.5 million passengers, 67% more than currently. The airport of Curaçao handled 1.2 million passengers in 2003, an increase of only 1.5%. Bonaire’s airport handled 0.6 million passengers, but this number implied a growth of 54% because the number of transit passengers doubled. A shift in transit passengers from Curaçao to Bonaire, resulted from the rerouting of the intermediate stops on KLM’s flights between Amsterdam and Latin America from Curaçao and Aruba to Bonaire beginning in the summer of 2002. This development illustrates how susceptible the performance of our airports is to decisions of large carriers. This factor should be taken into account when developing and implementing big projects like the one at hand. Developments in the harbor industry were mixed. Curaçao’s harbor reported a marginal growth in the amount of freight handled, but the number of ship calls, especially tankers, declined. In contrast, Bonaire’s harbor registered a marked increase in the number of ship calls, particularly in the tankers category. The development in tanker calls was related to the general strike in Venezuela at the end of 2002, which also affected the Venezuelan state oil company, PDVSA, which leases the refinery from the Curaçao government. Because the refined products could no longer be exported, they were transshipped primarily to Bonaire’s oil terminal. As a result, oil storage and transshipment activities expanded considerably. Unfortunately, no data were available on the performance of St. Maarten’s harbor. However, the new container facilities strengthened the island’s comparative advantage as a regional hub for cargo handling. In addi-

tion, information gathered by staff of our research department during a recent visit to St. Maarten revealed that cruise tourism is the main source of revenues for the harbor with a share of 60%. The remaining 40% is earned from cargo handling. Two other important pillars of the Netherlands Antillean economy, but less relevant for St. Maarten – the oil refining industry and the international financial and business services industry – did not perform well in 2003. The production of the oil refinery did not fully recover from the impact of the temporary shutdown at the end of 2002 related to the general strike in Venezuela. In addition, receipts for services rendered in the international financial and business services sector declined. This decline is related to the elimination of the distinction between onshore and offshore activities, effectuated with the introduction of the new fiscal framework (NFR), which ended the low tax regime for offshore activities. This disadvantage would be more than compensated for by the improved competitive position of the Netherlands Antilles in negotiating new tax treaties, supported also by the new tax arrangement for the Kingdom of the Netherlands (BRK). However, progress in this area has been slow, affecting the creation of new business in the sector. On the other hand, the new BRK resulted in higher tax revenues for the government because the withholding tax on dividends from the Netherlands to the Netherlands Antilles collected by the Dutch tax office is transferred entirely to the Antillean government. The balance of payments of the Netherlands Antilles improved for the third consecutive year in 2003. A significant part of this result was due to the improvement of the current account, which recorded a small surplus, because of higher exports related to bunker sales and tourism, the transfer of the dividend tax by the Netherlands, and higher transfers by individuals from abroad. The public finances remained an area of major concern, reflected by a further deterioration of the cash deficit of the general government in 2003 to 5% of GDP. Noteworthy is that the general government is defined here as the central government and the island government of Curaçao only because the other island governments, including St. Maarten, do not have a regular reporting framework. I welcome the recently drafted legislation stipulating regular reporting on the

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government finances of St. Maarten as a condition for the islands government’s permission to borrow. The deterioration of the general government’s deficit was attributable entirely to the rise in expenditures, facilitated by the ample availability of finance on the local capital market since domestic government securities continued to offer more attractive yields compared to alternatives abroad. Consumptive expenditures, domestic interest payments, and the settlement of loan guarantees accounted mainly for the rise in total expenditures. The financing of the cash deficit, the formalization of accumulated funds deficits of the social security bank, SVB, and the appreciation of the euro contributed to the further accumulation of government debt in 2003, reaching 90% of GDP. Since St. Maarten does not submit data on its government finances to the Bank on a regular basis, assessing outright the island’s current financial state remains difficult. However, the island government has not approached the central government for support since the last quarter of 2003, indicating that the finances must have improved or at least not deteriorated further. The financial situation of the island government seems stable, supported by the collection of back taxes and expenditure control. I welcome this development and hope that the authorities persevere with their fiscal consolidation efforts, an important condition for making viable the desired transition towards more autonomy. Let me state, however, that the lack of transparency in the government finances in terms of the delay in regular and complete publication of budget and actual figures will stand in the way of transactions like the one we are celebrating today. A more autonomous St. Maarten means that the current indebtedness of the island government will take a more prominent position in the evaluation of transactions like this one. The current constitutional arrangement masks the indebtedness of the various island territories giving them a false sense of security. With a share of 17 percent of the Antillean economy, an eventual division and distribution of assets and liabilities means that St. Maarten’s share in the nation’s outstanding stock of debt will be well over NAf 500 million. Ladies and gentlemen, to a great extent this debt stems from arrears built by the St. Maarten government to the Civil Servant Pension Fund and the Social Security Bank.

If this important macro-economic aggregate is taken into account, a completely different macro-economic picture will emerge after St. Maarten obtains its autonomous status. I, therefore, encourage the local authorities to continue with their efforts towards institutional capacity building to create the necessary institutional infrastructure to make the dissemination of financial and macro-economic information possible. Collecting and disseminating this information is critical for ambitious investment decisions like the current one and for macro-economic policymaking. Ladies and gentlemen, the monetary aggregates expanded further in 2003, albeit at a slightly slower pace than in 2002. The surplus on the balance of payments and the expansionary impact of the government, particularly the central government, contributed primarily to the monetary expansion in 2003. In addition, credit extension to the private sector grew moderately by 2%, but the developments on the two island groups diverged considerably with stagnation on the Leeward Islands and a growth of 9% on the Windward Islands. Based on this overview, we can conclude that St. Maarten’s economy performed better than the Antillean average, and I expect this to continue in 2004. For example, first-quarter tourism data indicate a growth of approximately 20% each in the number of stay-over tourists, the number of cruise tourists, and the amount of tourism earnings in St. Maarten. Given the dominance of tourism in the island’s economy, buoyant growth in the tourist sector will translate into buoyant growth of the entire economy, supported further by the start of the airport expansion project. The strong growth prospects for St. Maarten’s economy will contribute significantly to the projected further expansion of the Netherlands Antillean economy by 1% in 2004. This growth is, however, a slowdown compared to the 1.4% growth rate in 2003 because of lower growth of net exports, private consumption, and the need for fiscal consolidation. The lower growth of net export is due mainly to the expected decline in bunker sales, while the slowing of private consumption growth can be attributed to the projected decline in private transfers from abroad. In contrast, private investment is expected to improve because of the implementation of various projects in the oil, utilities, tourism, and transportation sectors. Moreover, inflation is projected to moderate to 1.5%, but this outcome depends heavily on developments in world

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oil prices. Developments in bunker sales and private transfers from abroad, together with higher imports related to the growth in private investment, will result in a lower balance-of-payments surplus than in 2003. In concluding, ladies and gentlemen, I would like to state that while the growth prospects for St. Maarten are promising, we should not overlook the susceptibility of the tourism industry to exogenous factors. Since the terrorist attacks of 9/11 in the United States and the passage of hurricanes like Luis and Lenny, we have to realize that these outside forces can render our predictions useless. The authorities must take those exogenous factors into account when devising macro-economic policy and must build the necessary absorption capacity to withstand eventual adversities. A critical look at our sister island, Aruba, should illustrate that with similar conditions and growth prospects, outside forces have clouded the economics of an otherwise important investment project, there. Finally, let me wish Eugene and all stakeholders success with the timely completion of the airport expansion project. This project will make a significant contribution to the long-term growth prospects of the economy of St. Maarten.

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Toward a comprehensive solution of the debt problem of the Netherlands Antilles Address on the occasion of the Conference on Integral Development of the islands of the Netherlands Antilles, organized by the University of the Netherlands Antilles November 12, 2005

Ladies and gentlemen, good morning,

llow me to express my appreciation to the University of the Netherlands Antilles, which in collaboration with the “Nationaal Comite” and the “Oranje Comite” organized this series of seminars culminating in a conference whose central theme is “The Comprehensive Development of the Islands of the Netherlands Antilles.” In particular, the social dimension of the seminars’ sub-themes and the link with the universal reference point for poverty reduction, the Millennium Development Goals (MDG)1 of the United Nations is a welcome addition toward better understanding of the financial-economic challenges of our country. While this seminar was organized to commemorate the 25th anniversary of the ascension to the throne by Her Majesty the Queen of the Netherlands, important constitutional changes within the Kingdom also are about to take place. On the 26th of this month a Round Table Conference will be held to set the stage for implementing the results of the various referenda recently held in the Netherlands Antilles. Those constitutional changes will certainly bring their pressure to bear on the economies of the various islands. Ladies and gentlemen, I have been asked to provide you with an overview of one of our most nagging problems, namely, the outstanding public debt within the context of sustainable development. Unless actions are taken, our debt problem poses serious risk to our sustained growth and, hence, to the goal of improving the standards of living for us all. Sustainable development has both an economic and a social dimension. The field of economics that studies this – not surprisingly – is welfare economics. An important tool in welfare economics is the social welfare function, which describes the relationship between

the welfare of society as a whole and all the variables affecting the state of the economy and the quality of life. As such, this function describes the level of social-economic development of a society and includes issues like income distribution, public health, education, housing, the environment, political freedom, civil rights, and good governance to mention a few examples. The United Nations has developed an indicator of welfare, namely, the Human Development Index, which measures the level of social-economic development of a country. By comparing the actual level of welfare with a desired level, policy makers can formulate objectives and policies to achieve those objectives. Since my field of expertise is in the economic dimension of welfare, I will focus mainly on the public debt problem of the Netherlands Antilles and its impact on the realization of social objectives. However, I will, not discuss these objectives themselves. My presentation is structured as follows. First, I will provide you with an overview of the main developments with respect to our public debt and point out the consequences of the high level of debt for our welfare. Next, I will elaborate on the policies needed to reduce the debt to a sustainable level and will discuss the issues arising from eventual constitutional changes. This discussion will lead to a specific proposal that would significantly reduce the debt thereby creating financial room to address the challenges of the new constitutional arrangement for the islands and to improve the welfare of their people. Finally, I will conclude by summarizing the major findings of my presentation and formulating some policy recommendations. Ladies and gentlemen, attention to the rising level of public debt is not a recent phenomenon. Rather, it

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dates back to the mid-nineties, beginning with a 1994 report by dr. Kees Goudswaard in 1994 titled “Towards controlling the Antillean Public Debt,” and followed by the report “Debt or Future” in 1996 prepared by a Kingdom committee chaired by the late Emile van Lennep. In addition, the commission “National Recovery Plan,” better known as the “Commission of Wise Men,” paid attention to the debt problem in its report issued in 1999. The latest report on the debt issue appeared in 2003, prepared by a debt committee that I chaired. Much has been achieved since these reports were issued. But more is still needed to achieve broadly shared prosperity. Widespread poverty still stands in sharp contrast with the enormous potential of this country. Therefore, I believe that this seminar is quite timely. Now is the time to seize the opportunities and pave the way for sustained growth and rising the standards of living for all. Consolidating and extending reforms requires ambition and perseverance. Evidence tells us that the pursuit of market-oriented policies, that is, fostering competition and innovation, remains the best path toward economic and social progress. But experience also teaches us that markets alone without regard to the social issues are no panacea. It is not an issue of choosing between market and State, but as the Mexican President Fox has put it: “… We need more market and better State.” Irrespective of the path we choose to reach our potential, sound public finances is indispensable for sustained growth, job creation, and social progress. I am indeed concerned that our high level of debt can still imperil what has been achieved. Fiscal discipline is needed not only for macroeconomic stability, but also to preserve space for essential public investment, especially in education, infrastructure, and social safety nets. I am aware that there are pressing needs that must be tackled. But I also have to say that there are no magic formulas, and governments have to make tough choices. Ladies and gentlemen, this brings me to the main topic of my address this morning – namely, our unsustainable level of public debt. I would suggest that the three main causes of our high level of debt are: external shocks, lack of fiscal discipline, and external pressure.

The Netherlands Antilles has a very small and open economy, which is by definition highly susceptible to external shocks. Since the 1980s, we have incurred some major shocks, including the repeal of the withholding tax in the United States, which caused a major reduction in activities in the international financial services industry; a sharp devaluation of the Bolivar, which ended shopping tourism from Venezuela in Curaçao; the closing of the refinery in Curaçao by Shell, various destructive hurricanes in the Windward Islands, and the phasing-out of trade privileges with the European Union. The combined impact of these shocks has been estimated at 20-25% of GDP. The authorities have developed various adjustment programs in cooperation with private consultants as well as the World Bank, and the IMF, to turn around the rising deficit and debt levels resulting from these shocks. However, incomplete and/or delay in the implementation of the programs, lack of fiscal discipline, and changing political winds resulted in the derailment of the program, and the necessary external support remained at bay. The lack of support has led to rising debt, lackluster growth and increasing marginalization. A situation resulting in a deterioration of public support for the adjustment program and weakened resolve by the authorities to continue on the path of reforms. External pressure also contributed to the current debt problem. One of the recommendations of the World Bank study in 1986 was for the Netherlands Antilles government to pursue policies to encourage the repatriation of foreign investments of Antillean residents by issuing bonds with attractive returns. This policy was aimed at financing the budget deficits resulting from the reduction in tax revenue as a consequence of the decline in offshore activities. This recommendation, supported by the Dutch government, provided Antillean authorities with the justification to finance themselves out of the deficits. The result of this policy recommendation has been a debt build up to date of close to NAf 5 billion. If we take a closer look at the developments of this debt over the last 20 years, we can say the following: •

The total public debt increased more than fourfold – from NAf 1.1 billion to NAf 4.7 billion.

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• • • •

The debt ratio increased from 48% to 84% of GDP. The domestic debt component rose from 51% to 85%. The interest-bearing part of the debt increased from 72% to 90%. The interest burden of the debt increased more than six-fold – from NAf 44 million to NAf 280 million; the share of tax revenues absorbed by interest payments rose from 5% to 23%; and the share of interest payments in total expenditures increased from 4% to 16%.

These figures are quite impressive and they illustrate clearly the size and magnitude of our debt problem. However, some further explanation of these figures is in order. First, those who have read our latest annual report before this presentation may have noticed that the current June 2005 debt ratio of 84% is considerably lower than the 96% at the end of 2004. This difference resulted from the use of the new GDP series of the CBS, compiled according to the 1993 System of National Accounts. This change in calculation resulted in an average increase in GDP of NAf 450 million annually, contributing to a 9 percentage points decline in the debt ratio in 2004. While this decrease is significant, it does not make our debt problem anymore sustainable. The level of our outstanding debt remains a cause for concern. Based on an IMF study, the Debt Committee estimated a sustainable debt ratio for the Netherlands Antilles on the order of magnitude of 40%-50% of GDP. This ratio is about half the current value. Second, our domestic debt component has increased to 85%, illustrating that our debt problem is primarily a domestic one. This situation contrasts sharply with most indebted countries in the world that have been coping with a foreign debt problem. Moreover, 96% of the current Antillean foreign debt is owed to the Netherlands as a result of development aid provided partly in the form of soft loans in the past, budget support, and payment arrears. So, our “real” foreign debt – due to creditors outside the Kingdom – is, in fact, negligible. Third, the increase in the interest-bearing part of the debt resulted from the change in composition from largely concessional debt to the Netherlands to primarily local debt at market-based interest rates. The increasing interest-bearing component can be ex-

plained by the formalization of payment arrears to the government pension fund, APNA, and the social security bank, SVB. While these formalizations resulted in a higher interest burden for the government, they were necessary to prevent a further weakening of the financial position of these public institutions. Finally, the continued rise in the interest burden caused by the rapid accumulation of debt is exerting increasing pressure on the government budget. As a result, the room for discretionary spending is declining, which is a major hindrance for the funding of essential public investment, especially for education, infrastructure, and social safety nets. The longer this process continues the more difficult and expensive it becomes to reverse. Therefore, action is urgently needed, but our social-economic and fiscal problems have reached proportions that can no longer be solved without a credible strategy to reduce our outstanding public debt to sustainable levels. If we are to achieve a balanced budget in 2010, for example, additional measures have to be taken to generate an accumulated NAf 450 million in 5 years. This figure corresponds with average additional savings of NAf 90 million per year. Even with bold and far-reaching austerity measures, the debt ratio will grow further to 90% of GDP in 2007 before it starts to decline, reaching 86% in 2010. Given our already high tax burden and the diminishing marginal return of actions to improve compliance, there will not be much room for raising more revenues except from higher economic growth. Although, in my opinion, there is still room for further savings on the expenditure side of the budget, these savings will not generate NAf 90 million annually. Without a commensurate increase in income, our welfare will surely continue to decline. Fiscal consolidation alone therefore will not go far enough to reach our fiscal goals of a balanced budget and certainly not within the context of the Millennium Development Goal. Swifter and bolder actions are needed to achieve those goals. As I already mentioned, the current talks regarding our future constitutional arrangements provide a unique opportunity to pave the way for sustained growth and rising standards of living for all.

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Ladies and gentlemen, to complement the MDG, the European Union leaders at their summit in June this year proposed to double the EU bloc’s aid over the next decade. The Group of Eight’s proposal for debt relief was also recently accepted. Therefore, it is fitting to state that if the Kingdom is to rid itself of the debt problem and, hence, poverty in the Caribbean part, then consistent with its stance in the EU and Group of Eight proposal the Kingdom must consider, some debt relief. To realize these objectives, I shall present a proposal for broad debt relief. Before I go into more detail, however, allow me to shed some light on a complicating factor in the whole debt issue, namely the upcoming constitutional changes. Although the discussions on the future constitutional structure of the Kingdom have just started, the results of the referenda on the islands leave no doubts about the direction of the changes. Curaçao and St. Maarten chose for more autonomy, Bonaire, and Saba opted for more direct ties with the Netherlands while Statia opted for the current status. The role of the central government in this constellation will at best be small or may even disappear. This issue was also raised by the “Commission of Wise Men,” which stated that the central government bureaucracy had created a wasteful duplication of tasks and become prohibitively expensive. Apart from issues like the distribution of assets and liabilities and the transfer of tasks and staff, the central government debt poses serious problems both for the viability of future constitutional arrangements as well for the further development of our capital market, and hence, our investment climate. One could reason that the central government debt should be distributed among the various islands because they all benefited from the expenditures financed by this debt. To see what a distribution of the central government debt would imply, let us assume the following: (i) let us separate those components of the central government debt that can be uniquely allocated to the islands, such as the formalization of payment arrears of the specific islands to the APNA and the SVB, and Curaçao’s share in the development aid loans by the Netherlands; (ii) let us distribute the remaining development aid loans among the other islands based on their relative share in the spending on development projects; and (iii) let us distribute the unallocated domestic loans based on each islands’

shares in GDP. Worth mentioning is that a distribution based on the shares in total population gives a similar result. At the end of 2004, the central government’s debt amounted to NAf 2.4 billion comprising 44% of the total unconsolidated debt of the Netherlands Antilles. Based on the criteria mentioned earlier, 62% of this debt would be allocated to Curaçao, 23% to St. Maarten, 10% to Bonaire, 3% to Statia, and 2% to Saba. This distribution will result in a drastic deterioration of the debt ratios of the islands. Curaçao’s debt ratio will increase from 65% of GDP to 102%, St. Maarten’s from 18% to 76%, Bonaire’s from 44% to 127%, Statia’s from 11% to 71 %, and Saba’s from 52% to 204%. Since the debt ratio of most of the islands is already unsustainable, the situation becomes daunting after the distribution of the central government debt. Clearly, this outlook will cast a dark shadow on the viability of any future constitutional arrangement. Distribution of this debt without the prior consent of the creditors may also inflict serious credibility problems on the government and may hamper the further development of the government bonds’ market. Therefore, I would like to propose the following seven point debt relief plan for the Netherlands Antilles. 1. The Netherlands will take over the entire debt of the Netherlands Antilles through the establishment of a special foundation. 2. The debt will be refinanced by the Netherlands under more favorable conditions as it matures. 3. The Netherlands Antilles will forgo the annual funds provided by the Netherlands for the financing of development projects. 4. The funds that become available will be transferred to the special foundation to service the debt that has been taken over. 5. The authority of Curaçao and St. Maarten to borrow, will be eliminated while they will be legally bound to balanced budgets. 6. A budget chamber will be established to safeguard the integrity of the budgetary process (i.e., preparation, compilation, and implementation of the islands’ budgets according to the budget legislation and rules). 7. The establishment and functioning of the special

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foundation and the budget chamber will be anchored in a Kingdom’s act. If carried out, this proposal will go a long way toward creating real prospects for a balanced budget and for the successful introduction of budgetary discipline, because the islands get a chance to start with a clean slate. The elimination of the debt will help the islands escape the heavy interest burden. As a result, the projected deficit will be eliminated since the islands budgets already have equilibrium on the primary balance. Once the Antillean debt has been taken over, it must be managed in a way that is conducive to the further development of our local capital market. This will provide the authorities with the opportunities to pursue sound economic policies to create alternative investments opportunities because the debt will be either refinanced or retires as they become due. In exchange for the debt relief financed by the Dutch government, the Netherlands Antilles should be prepared to forego the annual Dutch aid available for development projects as its contribution to the costs incurred. This aid amounts to approximately NAf 170 million annually. The net financial impact for the Netherlands Antilles remains positive, however, because of the elimination of the interest burden of approximately NAf 300 million. Moreover, the cancellation of development aid supports the desire of Curaçao and St. Maarten for more autonomy because it reduces their dependency on aid. I want to note here that, this proposal does not imply that we will not or cannot receive any development aid form the Netherlands in the future. However, such aid will be of an incidental nature for specific projects and/or in case of natural disasters, external shocks, or periods of severe crises. The elimination of the debt must be accompanied by several safeguards to prevent a new build-up of debts to unsustainable proportions. First, the authority to borrow by the island governments of Curaçao and St. Maarten should be eliminated except for extraordinary situations. The current account of the budget should be at least in equilibrium, also known as the “golden rule of financing.” During the fiscal year, revenues as well as expenditures fluctuate. These fluctuations can cause temporary cash deficits. Therefore, within certain limits, current account overdrafts may be allowed if available cash is insufficient. However, the outstanding balance must be cleared at the end of the

fiscal year. Capital expenditures should be financed in the first instance by surpluses on the current account of the budget. If these surpluses are insufficient, borrowing is allowed but under strict conditions. For example, the projects financed would have to raise enough future revenues to at least cover interest payments and redemption of the loan. Second, the entire budgetary process will be monitored by an independent budget chamber. Currently, fiscal discipline is weak, reflected by substantial annual budget overruns, loose adherence to budgetary legislation and rules, incomplete draft budgets presented to Parliament, and the absence of a multiannual budgetary framework. To foster a durable turnaround to strict fiscal discipline, legislation must be effectuated that determines norms for budgetary variables, such as deficits, financing, and inter-budgetary compensations. Noncompliance with the legal norms should be penalized. The budget chamber will monitor the entire budgetary cycle from the preparation of the annual budget until the timely reporting of its realization. Deviations from legislation, rules, budgetary objectives and targets will be reported to the governments as well as to the parliaments according to a predetermined schedule. The governments are obliged to correct the reported deviations within an agreed upon period. I am convinced that this approach provides sufficient safeguards to prevent a new derailment of our public finances in the future. A joint Working Group has been established to assist and advice the governments in the discussions leading toward the Round Table conference about a debt relief proposal. Preliminary discussions with this Working Group have already taken place and details are being worked out on a technical level. This work will result in the presentation of different scenarios of debt relief to be put on the agenda of the Round Table negotiations on the new constitutional relations in the Kingdom. Assuming that the debt relief will be effectuated at the earliest in 2006, it is important that the 2006 budget of the combined governments show at the minimum an equilibrium on the primary balance. However, a primary surplus would be preferable to create financial room to address our social issues. Ladies and gentlemen, I have reviewed briefly the development of our government debt to unsustainable proportions and the main causes of this development. The resulting rise in the interest burden has crowded

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out the discretionary spending capacity of the government with detrimental effects in policy areas that determine our welfare, such as support for the poor and elderly, education, public health, public safety, and infrastructure. The sacrifices necessary for fiscal consolidation within a reasonable period of time are so large, that they cannot realistically be carried without external assistance. Moreover, the austerity measures required would contribute to a further deterioration of our welfare. In addition, the upcoming constitutional changes complicate matters because the elimination of the central government will, in principle, lead to a redistribution of its debt among the islands. The resulting rise in the debt and interest burden of each island will be an obstacle to the successful introduction of a new constitutional structure. Since our debt problems cast such a huge shadow on our constitutional future and our welfare, I have proposed an ambitious debt relief plan. This plan is designed so that it will provide a unique opportunity to re-establish fiscal discipline in the public finances of the Netherlands Antilles, free up resources to address our social needs, provide a basis to pursue a growth oriented economic strategy and at the same time introduce the necessary constitutional changes to eliminate the gridlock in the government of the Netherlands Antilles. This proposal also will not impose any undue budgetary burden on the Dutch government. Aside from re-allocating the development aid funds toward the debt servicing, part of the windfall gain resulting from the recent upward revision of the Dutch GDP figures should be considered.2 The plan is consistent with the position that the Dutch has taken both in the EU Summit and internationally.

ficient, we must continue to focus on structural measures, sound economic policies to create an environment friendly to investment and business and remove our trade barriers to provide the necessary base for us to grow out of poverty. I am convinced that with this solution of our debt problem, which can be characterized as shared responsibilities, the islands of the Netherlands Antilles will be given a fair chance to work out their new constitutional status with the ultimate goal of improving the welfare of their citizens. Thank you for your attention!!!

Notes 1. The first MDG is to halve the percentage of people living in extreme poverty, defined as less than US$1.00 a day will be achieved by 2015. 2. Recently the Dutch GDP figures have been revised upward. Given the longstanding Dutch policy of allocating 0.8% of their GDP to development aid, this upward revision represents a windfall gain for development assistance. Part of this increase may be used for debt relief within the Kingdom.

For this proposal to be successful it must be swiftly accepted and implemented. We know all too well that the “pas de deux” formula or the “carrot and stick” approach adopted before caused us to loose momentum even when draconian measures such as the “machtigingswet”, were used. We therefore, have to seize the moment and pave the way for sustainable growth and rising standards of living for us all. In turn, the islands must be prepared to anchor this proposal in a Kingdom act to provide the financing party with the assurance that the progress achieved will not be rolled back. Ladies and gentlemen, this proposal is a necessary condition for the rising economic tide. But to be suf-

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The Grand Hyatt project Address on the occasion of the groundbreaking ceremony of The Grand Hyatt project December 1, 2005

Ladies and gentlemen, good afternoon,

t is a pleasure for me to be here. After years of planning, we are here today to celebrate the groundbreaking for the construction of a luxury hotel to be run by the Hyatt chain of hotels. This large investment project is a main element of the Santa Barbara plantation development plan. As so often in the recent past, economic activities in the Santa Barbara area have been one of the main engines driving growth on the island of Curaçao – the mining of phosphate and limestone, agricultural activities, oil transportation etc …. With this project, Santa Barbara again is expected to contribute significantly to our economic revival. The Santa Barbara Plantation is one of the many projects being executed or being planned to expand the sector with the greatest potential to bring our economy on a higher sustainable growth level, namely, tourism. The simultaneous modernization and expansion of Hato airport is an important complementary project. If we are to fill the increasing numbers of rooms as a consequence of realizing those projects, then more airlift and better airport handling facilities, among other things, are needed. We are well underway to creating the necessary infrastructure to accommodate an expansion in the number of tourists to our island. Ladies and gentlemen, as you know, Curaçao’s key economic challenge, is to raise growth and employment performance. As Central Bank, we have the opportunity to get a good overview of the economy. However, through the years I have learned, that knowing what needs to be done is one thing. Actually doing it is another. Projects like the construction of this Hyatt hotel, will go a long way toward achieving our growth objective. Despite this fact, it took us an unacceptably long time to start this very important project.

I understand very well that some measures or decisions may not be very popular in an election year, but neither are high unemployment rates and social inequities. If we are prepared to undertake ambitious fiscal and structural measures, we will be in a much stronger position to take advantage of the positive environment that now exists to address weaknesses and risks. During the past seven years, various studies have been conducted with the objective of enhancing our investment climate and raising the level of growth of our economy. The 1997 Inter-American Development Bank study, the 2001 World Bank and the Foreign Investment Advisory Service studies, and currently the OECD’s Caribbean Rim Investment Initiative all identified the weaknesses as high utility and labor costs, rigid labor laws, a qualitative mismatch between labor demand and supply, complex and time-consuming licensing procedures, an underdeveloped capital market, and a complex tax system with opaque tax incentive schemes. These weaknesses are compounded by the absence of a clear and consistent investment-driven growth-oriented economic policy and a weakened government administrative apparatus. While most of these recommendations from these studies have been put high on policymakers’ agendas, very few have been translated into structural and consistent policies to attain them. Indeed, some reforms in our labor and product markets have even been reversed. Ladies and gentlemen, if we are to promote growth and employment, we have to act accordingly. Economic policy must focus on enhancing investments in physical and human capital, for these are important determinants of our long-term growth potential. In-

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vestment in our human capital, for example, improving education and training, will enhance the way that investments in physical capital are put to use. The resulting increase in productivity will have a more permanent impact on our long-term growth prospects. To enhance investment, the government has to continue investing in physical infrastructure, education, and an effective and efficient administrative apparatus, while pursuing policy measures aimed at creating an attractive investment climate. This means that we must continue liberalizing our labor and product markets and correct the reversal of past reforms. Well-functioning markets promote a better match between demand and supply and more competitive prices. The latter will strengthen our purchasing power and international competitive position. Liberalization does not mean that the government should refrain from providing support to local industries. However, this support should not distort the functioning of our markets. Examples of nondistorting support include enacting measures that reduce the cost of doing business and concluding trade treaties to facilitate exports. Furthermore, we have to continue on the path to broaden our tax base and simplify our tax system. A major simplification will make it easier and, therefore, less costly to administer for both the taxpayers and the tax administration, and will promote tax compliance, the benefits of which can be translated partly into lower tax rates. Our investment climate will benefit greatly from public investing in education and training to reduce the qualitative mismatch between labor demand and supply, strengthening and reforming the administrative apparatus to facilitate the granting of licenses and permits to investors, and promoting the development of the local capital market with equity financing. Another reason why progress has stalled in the realization of the project we are celebrating today, relates to the difficulties in arranging financing of projects of this nature and magnitude on our island. The attitude of investors toward risk-taking has been such that were it not for the direct support of the government, this project would have not been realized. This problem is not unique to Curaçao. In one way or another all major destinations in our region have supported initiatives in this sector.

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As I mentioned, the tourist sector is the sector with the highest growth potential in the short term. Therefore, if we want to continue to make major inroads in this sector, a major priority is to enact the necessary changes in the financing of these projects. Some actions to consider are: 1. Establishment of a Bank for Reconstruction and Development. Currently the financing of projects is scattered among the OBNA, KORPODEKO, and Stichting Economische Ontwikkeling. By combining all of these institutions, we will be able to pool both financial and management resources and benefit from scale economies in financing projects that will greatly contribute to our growth and employment objectives. 2. Institutional investors must adopt sensible investment policies. The current policies of institutional investors that consider only government bonds and bank deposits as safe investments hamper progress in the further development of the capital market and, hence, the financing of projects in our growth sectors. Their risk stance represents perhaps our greatest challenge in raising our growth potential since a disproportionate share of our domestic savings is being channeled toward financing foreign investments. Looking ahead, the Central Bank’s policy will be to overcome vested interests in this sector and to establish a level playing field for financial institutions to compete and innovate, to the benefit of consumers and investors. Ladies and gentlemen, the economy of Curaçao urgently needs to move to a higher level of growth to adequately address our financial-economic and social ills. The only way to realize this increased growth is through a significant expansion in investment. With the completion of the first phase of this project – including the construction of the luxury hotel – 700 direct and indirect jobs will be created, while foreign exchange earnings generated will grow to about US$ 85 million a year. The total direct and indirect economic impact of this project is estimated to reach 5% of Curaçao’s GDP. Private investment should therefore, be enhanced by creating an attractive investment climate through the elimination of its current weaknesses. This enhancement of private investment should be complemented with a higher level of public investment. We know what has to be done. Let’s not waste any more time.

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Letâ&#x20AC;&#x2122;s act so that projects like the construction of this resort will not start much later than intended or wonâ&#x20AC;&#x2122;t start at all. Let me conclude by congratulating Jack and his team for their perseverance and Chris as the driving force behind this project for his continued optimism. I also would like to welcome the Hyatt Corporation to our shores. I am convinced that this project will be a valuable addition to their chain. Last but not least I would like to thank Scotiabank for their continued confidence in our economy as evidenced by their financial support for this project. I am sure that this project will contribute greatly toward the growth of this sector and, hence, our economic performance. Thank you for your attention!!!

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Investment opportunities in the Netherlands Antilles Presentation given to a group of US-investors May 19, 2000

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Afscheid van de Nederlandse Minister van Financiën dhr. Gerrit Zalm Inleiding gepresenteerd ter gelegenheid van het afscheid van de Nederlandse Minister van Financiën, Gerrit Zalm 5 februari 2007

Dames en heren, goedemiddag,

et doet mij groot genoegen de opening te mogen verrichten van dit seminar ter ere van het afscheid uit de actieve politiek van de Nederlandse minister van Financiën, Gerrit Zalm. Het leek ons passend daarvoor de ministers van Financiën van de nu nog drie landen van het Koninkrijk bij elkaar te brengen en hun iets te laten vertellen over de grote uitdagingen waarmee ze in hun werk geconfronteerd worden. Minister van Financiën is mijns inziens de zwaarste portefeuille in een regering. De minister van Financiën is verantwoordelijk voor de bewaking van de financiële kaders van het regeerprogramma en staat onder vrijwel continue druk van de collegaministers die liever meer dan minder willen uitgeven. Het is vervelend maar waar: tegenvallers komen veel vaker voor dan meevallers. De minister van Financiën heeft dan de ondankbare taak de collega-ministers te overtuigen akkoord te gaan met impopulaire maatregelen om de gaten in de begroting te dichten en het financiële beleid van de regering op de rails te houden. In dit opzicht kunnen we veel van Gerrit Zalm leren. Voordat ik wat dieper inga op de nalatenschap van Gerrit, wil ik u een beknopt overzicht geven van zijn carrière. Gerrit Zalm studeerde in 1975 af in de algemene economie aan de Vrije Universiteit van Amsterdam. In datzelfde jaar trad hij in dienst van het ministerie van Financiën als medewerker bij het bureau Economische Aangelegenheden van de afdeling Begrotingsvoorbereiding. Vanaf 1977 was hij hoofd van dat bureau en vanaf 1978 hoofd van de gehele afdeling. In 1981 volgde de benoeming tot plaatsvervangend directeur Begrotingszaken, tevens hoofd van de afdeling Begrotingsvoorbereiding. In 1983 werd Gerrit Zalm plaatsvervangend directeur Algemene Economische Politiek op het ministerie van Economische

Zaken en in 1985 directeur van dezelfde directie. Vanaf 1988 was hij werkzaam bij het Centraal Planbureau, eerst als onderdirecteur en sinds 1989 als directeur. Sinds 1990 was hij tevens bijzonder hoogleraar economische politiek aan de Vrije Universiteit te Amsterdam. Gerrit Zalm was van 22 augustus 1994 tot 22 juli 2002 minister van Financiën in het Eerste en Tweede Kabinet Kok. In 2002-2003 was hij lid van de Tweede Kamer der Staten-Generaal en voorzitter van de fractie van de VVD. Op 27 mei 2003 werd hij benoemd tot minister van Financiën en tevens tot viceministerpresident in het Tweede Kabinet Balkenende. Op 7 juli 2006 is hij opnieuw benoemd tot minister van Financiën en tevens tot viceminister-president in het Derde Kabinet Balkenende. Gerrit Zalm is daarmee de langstzittende minister van Financiën van Nederland geweest. Als minister van Financiën werd Gerrit door vriend en vijand gerespecteerd om zijn professionalisme, visie en doorzettingsvermogen in het gezond maken van de Nederlandse overheidsfinanciën. En hij heeft zijn doel bereikt. In zijn eerste periode als minister heeft hij bereikt dat Nederland slaagde voor het EMU-examen en deel kon uitmaken van de eerste groep landen die de Europese Monetaire Unie vormden en de nationale valuta verruilden voor de Euro. In zijn tweede periode als minister heeft hij de als gevolg van de economische teruggang verslechterde overheidsfinanciën weer gezond gemaakt, wat geïllustreerd wordt door een begrotingsoverschot, dalende schuld en schuldquote vanaf 2006. Door de verbetering van de overheidsfinanciën ontstond er ruimte voor verlaging van de winstbelasting, verlaging van bepaalde sociale premies en verhoging van de AOW toeslag.

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Wat is Gerrit’s succesformule? Zijn beleid kan worden getypeerd als een op normen gebaseerd trendmatig begrotingsbeleid. Die normen zijn bekend geworden als de “Zalm-norm”. Ik laat het graag aan Gerrit zelf over om daar ons zo meteen meer over te vertellen. De ontwikkeling in de overheidsfinanciën in de Nederlandse Antillen en Aruba zijn in feite een spiegelbeeld van de ontwikkeling in Nederland. Wij hebben te maken met grote tekorten op de begroting, een oplopende schuld en stijgende schuldquote. Vooral in de Nederlandse Antillen heeft de schuld een zodanige omvang bereikt dat de rentelasten een aanzienlijk deel van de beschikbare inkomsten absorberen, waardoor steeds minder geld beschikbaar is voor de uitvoering van het overheidsbeleid op het gebied van onder meer onderwijs, gezondheidszorg, infrastructuur, criminaliteitsbestrijding en armoedebestrijding. De gevolgen hiervan voor onze samenleving ondervinden we dagelijks. Hoewel de Nederlandse Antillen en Aruba door hun kleine, zeer open economieën kwetsbaar zijn voor externe schokken met repercussies voor de begroting, zijn de structureel zwakke overheidsfinanciën voor een belangrijk deel het gevolg van een gebrek aan normering. Een stelsel van wettelijk vastgelegde begrotingsnormen in combinatie met een meerjarig begrotingskader draagt bij aan versterking van de begrotingsdiscipline en daarmee aan het realiseren van de doelstellingen met betrekking tot het begrotingstekort en de schuldquote in het regeerprogramma. Voor een succesvolle introductie van begrotingsnormering is een brede politieke ondersteuning vereist om de continuïteit van het beleid te kunnen waarborgen. Immers, de gezondmaking van de overheidsfinanciën overstijgt doorgaans de zittingsperiode van een regering. In de eind vorig jaar overeengekomen slotverklaringen over de toekomstige staatkundige positie van de eilanden van de Nederlandse Antillen is de introductie van begrotingsnormering expliciet opgenomen. Dit sluit aan op de voorbereidingen die door de minister van Financiën in gang zijn gezet en hebben geresulteerd in conceptwetgeving voor de introductie van begrotingsnormen in de Nederlandse Antillen. Op Aruba zal een gemengde Arubaans-Nederlandse werkgroep de introductie van begrotingsnormering voorbereiden. Hiermee wordt de basis gelegd voor

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een structurele aanpak van de begrotingsproblematiek die, op voorwaarde van brede politieke ondersteuning, uitzicht biedt op duurzaam gezonde overheidsfinanciën. Naast de lessen die Gerrit Zalm ons kan leren over effectief begrotingsbeleid, wil ik zijn meer directe betrokkenheid bij de Nederlandse Antillen en Aruba niet onvermeld laten. Gerrit stond altijd open voor onze voorstellen met betrekking tot het behoud en verdere uitbouw van de economisch belangrijke internationale financiële dienstensector. Hij werkte op constructieve wijze mee met het zoeken naar oplossingen die zowel voor ons als voor Nederland acceptabel waren. De verschillende aanpassingen van de BRK zijn daar een goed voorbeeld van. Verder heeft Gerrit ook een belangrijke rol gespeeld in het schuldsaneringsvoorstel dat is opgenomen in de slotverklaring van 2 november 2006. Ik wil nu graag het woord geven aan de ministers van Financiën. Gerrit Zalm zal de spits afbijten met een presentatie over de succesfactoren van zijn begrotingsbeleid, waarin uiteraard de norm die zijn naam draagt ruime aandacht krijgt. Daarna volgt Nilo Swaan, minister van Financiën van Aruba, met een uiteenzetting van zijn ervaringen met de invoering van de Belasting op Bedrijfsomzetten (BBO) in Aruba. Ersilia de Lannooy, minister van Financiën van de Nederlandse Antillen, sluit de presentaties af met een overzicht van de oorzaken van de onhoudbare begrotingssituatie, hoe de problematiek is aangepakt, wat de resultaten tot nu toe zijn en haar visie voor de toekomst. Na de presentaties volgt een paneldiscussie onder leiding van oud-gouverneur Jaime Saleh, waarbij er gelegenheid is voor het beantwoorden van vragen uit de zaal. Na afloop bent u welkom in het Atrium van de Bank voor een receptie aangeboden door de Nederlandse Vertegenwoordiging in de Nederlandse Antillen. Ik nodig nu graag Gerrit uit zijn presentatie te houden.

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Toespraak van Minister van Financiën, dhr. Gerrit Zalm Bon dia!

Economie

schokken. Daarom is het voor de Nederlandse economie erg belangrijk flexibel te zijn. Dit is ook een reden waarom we de afgelopen jaren in Nederland hard hebben gewerkt aan de hervormingsagenda en dat we onder andere de sociale zekerheid hebben aangepakt. Dit heeft ervoor gezorgd dat de arbeidsmarkt flexibeler is geworden en dat onze concurrentiepositie is verbeterd. Ik ben trots op de bereikte resultaten. De Antillen zijn ook een kleine open economie. Dat geldt voor de Antillen als ‘geheel’, als het al zinvol is daar nog over te spreken. Het geldt natuurlijk in nog veel sterkere mate voor de afzonderlijke eilanden. Net als Nederland zijn de eilanden gevoelig voor schokken in het economisch klimaat, maar daarbovenop zijn ze extra gevoelig voor specifieke schokken in bijvoorbeeld het toerisme, schommelingen in bevolkingsaantal, en voor de gevolgen van orkanen. Juist de mensen met de laagste inkomens voelen de effecten van economische schokken het hardst. Dat merk je in Nederland en geldt nog sterker op de Antillen, zo blijkt uit de grote schommelingen in werkloosheidsen migratiecijfers. Flexibiliteit en schokbestendigheid van de lokale economie is daardoor voor de eilanden van de Antillen zo mogelijk nog belangrijker dan voor Nederland. Goede overheidsfinanciën zijn dan cruciaal. En juist daar zijn nu de grootste problemen – met grote gevolgen voor de ontwikkeling van de economie. Natuurlijk zijn de verschillen tussen de eilanden groot. Sommige eilanden kennen een grote economische groei, anderen blijven daar bij achter. Ongezonde overheidsfinanciën hinderen echter iedereen, daar kan ik van meepraten. Daarmee is dit ook een groot risico voor de economische ontwikkeling, want het leidt tot een gebrek aan vertrouwen. Rentebetalingen leggen op dit moment een groot beslag op de beschikbare middelen. Dit is slecht voor het investeringsklimaat, omdat er geen ruimte meer is voor nuttige overheidsbestedingen. Zo is een vicieuze cirkel ontstaan, waar geen ontsnappen meer aan lijkt. De schuld hangt als een molensteen om de nek van alle eilanden van de Antillen.

Eerst de economie. Nederland is een kleine open economie. Het kan daardoor de vruchten plukken van toenemende globalisering, maar is tegelijk ook gevoelig voor externe

Wat zou het toch mooi zijn als de Antillen met een schone lei zouden kunnen beginnen! En dan meteen de overheidsfinanciën helemaal goed zouden kunnen

ames en heren, het zal u niet zijn ontgaan: binnenkort komt er een einde aan mijn 12 jarig ministerschap. Dat betekent dat ik veel afscheidsinterviews mag geven. Soms dringt zich dan de vraag op: als ik het allemaal opnieuw zou kunnen doen, zou ik iets anders doen? Ik zou zeker vaker naar de Antillen gaan. Het is immers alweer lang geleden dat ik hier was. Maar de kans om opnieuw te beginnen, krijg je als gewone sterveling niet. De Antillen krijgen die kans nu in feite wel. Op een presenteerblaadje. De voorgestelde aanpassing van de constitutionele verhoudingen is voor alle eilanden een gouden kans om orde op zaken te stellen voor zowel macro-economische als financiële stabiliteit. Dit met flinke steun uit Nederland – steun ter waarde van ongeveer 24.000 Antilliaanse guldens per inwoner van de Antillen! Misschien was het wat naïef om te verwachten dat die kans met beide handen zou worden aangegrepen. Het gaat immers om ingrijpende en onherroepelijke beslissingen. Maar het is wel in het belang van de Antillen en al zijn inwoners dat het Akkoord wordt uitgevoerd. Het is ook in het belang van Nederland, laat ik daar duidelijk over zijn. Ook Nederland is gebaat bij heldere constitutionele verhoudingen en orde op zaken bij de overheidsfinanciën. Maar het Akkoord is bovenal goed voor de eilanden van de Antillen. Het omhelst de meest ambitieuze plannen van de afgelopen halve eeuw en is een ‘once in a lifetime opportunity’. Een betere deal komt er niet. Daarom hoop en verwacht ik nog steeds dat het Akkoord op korte termijn volledig kan worden uitgevoerd. Vandaag wil ik met u een paar observaties delen over de situatie waarin de Antillen zich op dit moment bevinden. Dan wordt duidelijk dat de uitdagingen waar de eilanden zich nu voor gesteld zien, niet wezenlijk anders zijn dan de uitdagingen waar ik de afgelopen jaren in Nederland mee te maken had.

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aanpakken. Goede afspraken, goede normering, goed toezicht en een houdbaar niveau van de schuld. Geachte aanwezigen: dat kan!

Een nieuw begin, schone lei Met het Akkoord worden Saba, Sint Eustatius en Bonaire een soort gemeenten van Nederland, terwijl Curaçao en Sint Maarten aparte landen binnen het Koninkrijk worden. Bovendien heeft Nederland aangeboden op termijn een groot deel van de overheidschuld over te nemen, zodat écht met een schone lei kan worden begonnen en bovendien minder rente betaald hoeft te worden. Het overnemen van de schuld komt zoals gezegd neer op ongeveer 24.000 Antilliaanse guldens per inwoner van de Antillen. Alle Antillianen, rijk en arm, zullen hiervan profiteren. De hoge staatsschuld is overigens zeker niet het enige probleem van de Antillen, maar eerder een uiting van grote onderliggende problemen in de aansturing van de publieke sector. Het is dan ook een illusie te denken dat met het overnemen van het grootste deel van de schuld alles vanzelf goed komt. Mede daarom zijn ook voorwaarden verbonden aan het Nederlandse aanbod. Als niet aan die voorwaarden kan worden voldaan, heeft het overnemen van de schuld immers geen zin. Het is noodzakelijk dat alle aspecten van het begrotingsbeleid en beheer op orde komen. Alle elementen werken samen voor een effectief beleid, iets wat ik de afgelopen jaren in Nederland ook heb ervaren. Want vergis u niet: ook in Nederland is de afgelopen jaren nog veel verbeterd aan het begrotingsbeleid – en valt nog steeds meer te verbeteren.

Begrotingsnormering Als minister van Financiën durf ik te stellen dat de begroting hét sturingselement moet zijn bij de politieke besluitvorming. Via een goed en transparant begrotingsproces worden politieke afwegingen duidelijk gemaakt en geïmplementeerd. De begroting laat zien welke keuzes worden gemaakt en wie dat gaat betalen. In de woorden van Jan de Koning, in de jaren ’80 onder meer minister verantwoordelijk voor NederlandsAntilliaanse zaken: “Je moet het Rijk nooit op zijn woorden, maar alleen op zijn begroting geloven”. Alleen bij een goed begrotingsproces kan de bevolking erop vertrouwen dat de politieke keuzes zijn gebaseerd op realistische vooronderstellingen en dat deze ook daadwerkelijk worden uitgevoerd. Ook op

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de Antillen is dit een belangrijk punt. En nu is daar dus de kans het goed aan te pakken. Het begint dus bij het opstellen van een goede begroting. Gebaseerd op realistische aannames en een helder overzicht van de door de politiek gemaakte keuzes. Vervolgens is het belangrijk dat men zich tijdens de rit houdt aan de gemaakte afspraken. Ook daar valt nog wel wat te verbeteren. Zo is er de afgelopen jaren bijvoorbeeld een gebrek geweest aan heldere begrotingen en aan effectieve begrotingsregels. In praktijk werd vooral gekeken naar de kas. Als er geld was, werd het uitgegeven. En vaak was er geen geld. Dit leidde tot betalingsachterstanden en juist de Antillianen met de laagste inkomens waren de dupe van dit beleid. Zij hadden immers geen buffer om achterblijvende betalingen van de overheid te kunnen opvangen. Met een dergelijke ad-hoc aanpak lopen de financiën van een gezin al snel uit de hand. En het vormt al helemaal geen goede basis voor gezonde overheidsfinanciën en een stabiel sociaal-economisch beleid. Er was dan ook weinig relatie tussen de in de begroting vastgelegde afspraken en het werkelijk gevoerde beleid. We weten dat het in praktijk moeilijk is voor politici om de verleidingen van alledag te weerstaan. Dat geldt voor alle politici, in alle landen. Daarom is begrotingsnormering in praktijk noodzakelijk. In de economische literatuur wordt vaak een parallel getrokken met het verhaal van Odysseus. Die liet zich aan de mast van zijn schip vastbinden, om zo de lokroep van de sirenen te kunnen weerstaan. Op die manier lukt het hem ongeschonden naar zijn bestemming te varen, waar zijn voorgangers schipbreuk leden. Het idee is dat ook politici zich aan de mast moeten binden, via strikte begrotingsnormering. Daarom hebben we in Europa een Stabiliteitspact, dat regels neerlegt voor onder andere de omvang van het begrotingstekort en van de staatsschuld. Daarbovenop hebben we in Nederland nog de begrotingsregels van het ‘trendmatig begrotingsbeleid’ ofwel de Zalmnorm. Deze regels zijn er dus omdat de Nederlandse politici zichzelf zonder regels niet vertrouwen. Bindende regels zijn nodig om ervoor te zorgen dat het Nederlandse beleid een verstandige lange-termijn oriëntatie krijgt en niet wordt geregeerd door de waan van de dag. Voor Curaçao en Sint Maarten voorziet het akkoord vergelijkbare bindende begrotingsregels – met als belangrijkste element een sluitende gewone dienst en een leenplafond. Deze normering is iets anders

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vormgegeven dan in Europa en Nederland, maar niet wezenlijk anders of strenger. De normering is cruciaal om het vertrouwen te herstellen. Beginnen met een schone lei heeft alleen zin als je niet meteen in oude fouten vervalt. Daarvoor zijn regels nodig, waaraan men zich ook moet houden.

Begrotingsproces/beheer Verstandig financieel beleid is gebaat bij goede begrotingsregels, maar daarmee ben je er nog niet. Ook wat financieel beheer betreft zijn in Nederland flinke stappen gezet – denk bijvoorbeeld aan de operatie ‘comptabel bestel’ waarmee in de jaren ’80 en ’90 het beheer sterk is verbeterd. Er zijn duidelijke regels en afspraken opgesteld voor begrotingsvoorbereiding, begrotingsuitvoering en controle. En dat was nodig: in 1986 hadden slechts 2 van de 14 Nederlandse ministeries een goedkeurende accountantsverklaring! Ik ben blij dat er nu orde op zaken is gesteld. Een recentere discussie die in Nederland speelde was dat de Tweede Kamer vroeg om betere controle bij grote projecten. Het kan ook in Nederland dus nog altijd beter. Ook aan het financieel beheer op Curaçao en Sint Maarten kan nog wel het een en ander verbeterd worden – en dan druk ik me diplomatiek uit. De begrotingen van de eilanden en het land zijn vooral wensbegrotingen; er vindt niet echt een prioriteitenafweging plaats: de kans dat deze begrotingen worden uitgevoerd is dan ook klein. In plaats van een wensbegroting moet er een realistische begroting komen. De kosten van de politieke verlangens moeten reëel worden geraamd. Dan weet je zeker dat deze politieke wensen wel worden gerealiseerd. Hiermee versterk je het democratische proces. Ook lijkt het me bijvoorbeeld belangrijk om de transparantie van de begroting verder te verbeteren door zo veel mogelijk posten ‘on budget’ te krijgen en de meerjarige gevolgen van overheidsuitgaven in beeld te brengen. Denk aan de overheidsbedrijven en de samenwerkingsmiddelen. Ook dit zorgt ervoor dat de politiek daadwerkelijk een integrale afweging kan maken. In Nederland maken sociale zekerheid en zorg nu ook integraal onderdeel uit van de begrotingsprocessen. Voor de samenwerkingsmiddelen geldt dat nu wel de investeringskosten worden gefinancierd maar niet de latere exploitatiekosten. Dan kom je vanzelf in de problemen. Ook heel belangrijk: de onafhankelijk check. Het IMF heeft herhaaldelijk de rol van het Centraal Planbureau

in Nederland geprezen. Het CPB is onafhankelijk en geeft soms ook wel eens kritiek op het gevoerde beleid. Daarmee vervult het CPB een onmisbare disciplinerende rol. Het CPB zorgt ervoor dat politici geen onzin kunnen verkopen en zorgt er samen met de eveneens onafhankelijke Rekenkamer en met het Centraal Bureau voor de Statistiek voor dat we ons op het ministerie van Financiën niet aan de regels kunnen onttrekken. Dit versterkt de parlementaire controle op de begroting. Op deze manier is er dus in Nederland een vorm van toezicht en controle geregeld. Daarnaast rapporteert Nederland aan de Europese Commissie over de ontwikkeling van het tekort en de schuld. In het stabiliteits- en groeipact, waaraan ik van harte heb meegewerkt, zijn afspraken gemaakt voor het geval een land een tekort heeft. Voor Curaçao en Sint Maarten is het nodig nog een stapje verder te gaan, om twee redenen. Ten eerste bevinden het financieel beheer en de overheidsfinanciën zich op dit moment in een vrij beroerde situatie – we kunnen er niet op vertrouwen dat het ‘vanzelf wel goed komt’. Bovendien is het juist tijdens en na de voorziene overgangsperiode extra belangrijk dat alles goed verloopt. Alleen op die manier kan het vertrouwen in de overheid en in de economie worden hersteld. Dit toezicht zal erop gericht zijn de begroting haar gouden plek te geven in het parlementaire proces en in de uitvoering van het beleid. Het toezicht zal er op toezien dat er realistische begrotingen komen. Dit houdt bijvoorbeeld in dat de vooronderstellingen achter de begrotingen gecheckt worden. De politiek beslist over het aantal ambtenaren dat ze in dienst wil nemen, de realistische begroting zorgt ervoor dat ze ook daadwerkelijk betaald kunnen worden. De begrotingsuitvoering wordt ook gevolgd door de toezichthouder, zodat het niet alleen bij mooie plannen blijft. Allemaal erop gericht om de begroting – en daarmee dus de politieke wensen van de Raad – werkelijk uit te voeren. Ook biedt het toezicht Nederland garanties dat overheidsfinanciën op de eilanden niet opnieuw uit de hand lopen. Toezicht is voor mij daarom onlosmakelijk verbonden met het overnemen van een groot deel van de schuld. En ik wil nogmaals benadrukken dat met het overnemen van die schuld een gouden kans wordt geboden om met een schone lei te beginnen. Ik heb 12 jaar lang mijn uiterste best moeten doen om de Nederlandse schuld terug te brengen van 75% naar ongeveer 50% BBP. Bij uitvoering van het Akkoord wordt de schuld van de Antillen in korte tijd teruggebracht van ruim 80 naar 13 procent.

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Fiscaliteit Dames en heren, voor ik afsluit nog even kort iets over het fiscale stelsel. Een aantal weken geleden heeft een delegatie van mijn ministerie de verschillende eilanden bezocht om samen met lokale financiënambtenaren te inventariseren wat de fiscale gevolgen van de voorgestelde staatkundige hervormingen zijn. De goede harmonie waarin dit heeft plaatsgevonden en het wederzijdse begrip voor elkaars gedachten, biedt een vruchtbare grondslag voor het verdere proces. Gedurende de periode waarin ik minister was, zijn echter ook pittige discussies binnen het Koninkrijk – en daarbuiten – gevoerd over fiscale stelsels. Het voorkomen van schadelijke belastingconcurrentie tussen overheden is zoals bekend een wereldwijd bekend fenomeen geworden. Onder druk van vooral Europa en de OESO hebben zowel Nederland als de Nederlandse Antillen en Aruba behoorlijke ingrepen in hun fiscale regelgeving moeten toepassen. Dat is niet altijd zonder slag of stoot gegaan. Graag wil ik hier nog eens uitspreken dat ik veel waardering heb voor de inspanningen die ook hier zijn verricht in dat verband. Resultaat is dat de regelgeving binnen het héle Koninkrijk nu als internationaal aanvaardbaar wordt gezien. Het is van groot belang om dat zo te houden en daarvan de vruchten te gaan plukken. Een goede reputatie op belastinggebied is immers belangrijk voor investeerders en draagt zo bij aan het economisch klimaat. In dat verband realiseer ik me dat ook onze onderlinge fiscale relatie via de zogenoemde Belastingregeling voor het Koninkrijk (BRK) nog de volle aandacht verdient. Inhoudelijk overleg hierover is op ambtelijk niveau onlangs weer opgestart. Ook bij aanpassing van de BRK, met name op het gebied van de dividendbelasting, zal met de staatkundige hervormingen en de financiële implicaties rekening moeten worden gehouden. De staatkundige hervormingen brengen immers waarschijnlijk nog meer variëteit in belastingstelsels binnen het Koninkrijk met zich mee dan nu al het geval is. Hoofdlijn zou mijns inziens moeten zijn dat we binnen het Koninkrijk moeten proberen elkaar onderling te versterken. Constructief en open overleg op dit punt tussen alle koninkrijksdelen blijft noodzakelijk.

processen intensief en tijdrovend is. Het hoeft ook niet allemaal van de ene op de andere dag perfect te zijn. En niet alles hoeft op de schop, laten we vooral afblijven van die elementen die al goed lopen. Bovendien hoeft u het niet alleen te doen. Nederland en mijn ministerie van Financiën bieden uiteraard assistentie aan. Het gaat hier overigens nadrukkelijk om ondersteuning, niet om het overnemen van uw eigen beleid. Dames en heren, het op orde brengen van de overheidsfinanciën en het financieel beheer is nog geen garantie voor economisch succes. Daar is meer voor nodig. Maar het Akkoord, inclusief de afspraken over begrotingsnormering, bieden wel een unieke kans op een frisse start, op een nieuw begin voor alle eilanden.

Slot Dames en heren, met deze observatie ben ik aan het eind gekomen. Er is nog veel, heel veel werk te doen. Uit de ervaringen van mijn eigen ministerie van Financiën weet ik dat het veranderen van begrotings-

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Een eerste reactie op presentatie Commissie Financiële Perspectieven Land Curaçao 3 april 2007

Financieel beheer

e oprichting van een begrotingskamer ter versterking van de begrotingsdiscipline is een goed punt. Begrotingsdiscipline en transparantie zijn heel belangrijk om een evenwichtige begroting te bereiken en te behouden en zo te garanderen dat niet opnieuw een onhoudbare schuldpositie wordt opgebouwd.

Schuldenproblematiek Het voorstel biedt geen directe oplossing voor de schuldenproblematiek. Er is direct een substantiële verlichting van de schuldenlast noodzakelijk om de noodzakelijke ruimte te creëren om de sociale noden te kunnen aanpakken en het onderwijs, de gezondheidszorg en de infrastructuur te verbeteren. Het voorstel biedt daar geen uitzicht op. Het voorstel gaat ervan uit dat de schuld van het Land niet (gedeeltelijk) aan Curaçao kan worden toegerekend. Dit is onjuist. Het Landsapparaat zit vrijwel geheel op Curaçao en de diensten van dit apparaat zijn grotendeels Curaçao ten goede gekomen. Het is dan logisch dat als het Land wordt opgeheven, de schulden door de overblijvende entiteiten worden overgenomen. De positie ten opzichte van de Landsschuld creëert ook onzekerheid in de financiële markt. Het Land heeft voor dit jaar een geraamd tekort van NAf 140 miljoen, terwijl NAf 213 miljoen aan schuldpapier vervalt. Dit komt neer op een totale financieringsbehoefte van NAf 353 miljoen. De dekking hiervan wordt aanzienlijk bemoeilijkt door de verantwoordelijkheid voor de Landsschuld af te schuiven. Tevens kan dit tot een stijging van de rente leiden die de overheid moet vergoeden over nieuwe uitgiften van schuldpapier.

Daarnaast moet bedacht worden dat Curaçao de taken van de Land moet overnemen. Die taken worden nu niet gedekt door de inkomsten, zodat in eerste instantie het tekort van het Land Curaçao zal toenemen. Dit verergert de schuldenproblematiek. De herfinanciering van de obligaties tegen gunstigere voorwaarden via een zero-coupon constructie is achterhaald. De Commissie Schuldenproblematiek heeft dit destijds aanbevolen toen de internationale rente veel lager was dan de nationale rente. Inmiddels is de internationale rente sterk gestegen en valt via herfinanciering geen substantieel voordeel meer te behalen. Privatisering is een goede zaak, maar vergt tijd en is daardoor geen oplossing voor de acute schuldenproblematiek waar we mee te maken hebben. Denk bijvoorbeeld aan de verschillende aspecten die komen kijken bij de privatisering van de Isla, zoals het milieu en geopolitieke verhoudingen. Dit geldt ook voor de mogelijke winning van olie en gas. Voor de aflossing van de schulden aan overheidsN.V.’s wordt onder andere voorgesteld toekomstige dividenden te gebruiken. Hierbij moet wel bedacht worden dat deze dividenden nu als inkomsten in de begroting zijn opgenomen. Als ze voor schuldaflossing worden gebruikt, zal het begrotingstekort oplopen. Om dit te voorkomen zijn extra maatregelen onvermijdelijk.

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Economic Perspectives of Curaçao Speech on the occasion of the Corporate and Commercial Breakfast Meeting organized by RBTT Bank May 3, 2007

Good morning ladies and gentlemen,

or this morning, I have been asked to give you an overview of the outlook for Curaçao’s economy. However, given the fact that our host, RBTT, is a regional player in the financial market, I cannot do this without taking the regional outlook and our current political and socio-economic situation into consideration.

Ladies and gentlemen, the Caribbean region has made impressive economic progress in recent years. With a growth rate of around 5 percent in 2006, this progress was supported by strong private sector performance, mainly in the construction and tourism sectors. The International Monetary Fund expects 2007 to become the fifth year of what is already the most vigorous period of recovery and expansion since the 1970s. The outlook remains bright, as a growth rate of 4.2 percent is expected for 2008. Similar to other economies in the Caribbean, Curaçao’s economy is characterized by its smallness and openness, which makes it highly vulnerable to external shocks. Furthermore, the Caribbean economies are relatively less diversified – relying oftentimes on one export product. Contrary to most economies in the region, Curaçao experienced an average annual economic growth of less than 1 percent during the past five years. Our weak economic performance has been accompanied by high unemployment rates –especially among the youth – and increasing marginalization. Without pretending that Curaçao’s economic structure or factor markets are completely similar to those of other economies in the region, I do believe that given these numbers, we can conclude that Curaçao is lagging behind. The question then arises, what are we doing wrong?

Before answering this question, allow me first to put into perspective the recent economic developments on the island of Curaçao. In 2005, the economy grew by a mere 0.8 percent, largely owing to the financial services, wholesale and retail, and construction sectors. Although the official figures for 2006 have not been published yet, it is expected that the economy has again grown, albeit at a slightly slower pace than in 2005. Growth in 2006 was mainly due to an encouraging performance in Curaçao’s stay-over tourism. Rising occupancy rates triggered a wave of new hotel projects and expansion of existing hotels. Furthermore, the wholesale and retail sectors grew as a result of more activities in the free-zone and tourism, and higher domestic spending. Activities in the construction sector also rose, due mainly to investments in the tourism and transportation sectors on the island. Ladies and gentlemen, Curaçao’s economic recovery, however, is greatly affected by an increasing fiscal imbalance, related to the high government debt. In addition, despite Curaçao being very open to investment, the attractiveness of our investment climate to foreign and domestic investors still needs major improvements. Due to the weaknesses in our investment climate, investment growth has been modest compared to the region. In addition, for the last several years, we have been suffering from constant changes in the Island’s territory executive council. This has led to a lack of consistency in government policy, which has not been very conducive to a good investment climate. If we are to address our economic ills in an effective manner, we must try at least to grow at the regional average. It is not only a matter of reaching more economic growth through higher domestic demand, but

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more importantly through raising productivity growth and foreign demand. Hence, we must catch up by reaching sustainable economic growth. Ladies and gentlemen, sustainable economic growth is the key to improving the standard of living in our society. It is therefore of the utmost importance for us to pursue sound policies to address the fiscal imbalance and to strengthen our competitive advantage in order to attract more investments and hence promote sustainable economic growth. In addressing these issues, we must also take into account the ongoing constitutional reforms. Ladies and gentlemen, as we all know Curaçao has arrived at an important historical cross-road. By December next year, it is expected that the Antillean constellation will cease to exist and Curaçao will become a separate country within the Dutch Kingdom. This status aparte will provide us with the unique opportunity to address our social and economic problems in a more island-specific context. However, constitutional changes alone should not be seen as a solution for all our social and economic problems. The constitutional reform must therefore be accompanied by social and economic reforms to foster sustainable economic growth. As I have pointed out repeatedly, sound public finances are crucial to promote higher sustainable growth, to create jobs, and to achieve social progress. Although several measures have been taken to reduce public expenditures and public sector debt, the public finances have worsened over the years. High fiscal deficits, combined with weak economic growth, resulted in a rising debt-to-GDP ratio. In 2005, the Island Territory of Curaçao reached a debt of NAf.2.5 billion, equivalent to a debt-to-GDP ratio of 59 percent. When speaking about the debt of the country Curaçao we must also take the debt of the Netherlands Antilles into consideration. I must stress that being part of the Netherlands Antilles, each island has contributed to the accumulation to this high debt. In 2005, the Netherlands Antilles had a debt of NAf.2.9 billion. By December 15, 2008, the Netherlands Antilles will cease to exist. Then, each island will be allocated its share in the debt of the Netherlands Antilles. Therefore, given that the debt of the Netherlands Antilles should be re-allocated among the islands of the Netherlands Antilles, Curaçao’s actual debt will increase to NAf.3.9 billion, leading to a debt-toGDP ratio of 93 percent.

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Such a debt burden poses serious risks to a sustained growth and hence the goal of improving our standard of living. That is why debt relief is so important. As you all know, I have been a proponent of the solution as contained in the “Concluding Statement” or “Slotverklaring”, which was signed between Curaçao, St. Maarten, and the Netherlands in November 2006, as it gives us the opportunity to eliminate our unsustainable debt and start with a clean slate in the new constitutional status. In addition, the “Slotverklaring” incorporates immediate economic stimulation through the Social Economic Initiative. However, it is for our policymakers to decide whether a solution along the lines of the “Slotverklaring” will be adopted or other solutions will be pursued. Up till now, no feasible alternatives have been presented to solve our structural fiscal problems. The so-called Monte alternative is fallacious on several grounds and as such cannot be considered a credible alternative: 1. The central tenet of this plan is the so-called zero coupon bond alternative. By implementing this solution which has been advanced in 2003 by the Debt Commission, it is contended that we can substantially reduce our debt-to-GDP ratio. The momentum for refinancing part of the debt with a zero coupon bond has passed. Since interest rates are now much higher than in 2003, when the debt commission recommended this, refinancing our debt (with the 0% bond as collateral) will not yield the then envisioned interest savings. In addition, the debt ratio will not fall due to this refinancing. 2. Due to some miscalculations, interest expenses will not decrease as much as the Monte commission presented. Hence, the need for additional measures will become more pressing. 3. The expected yield of privatization is too optimistic. Moreover, the analogy with Holland is also not substantiated by facts. Privatization had only a limited impact on the debt ratio in Holland; the largest impact came from strong economic growth. 4. Fiscal discipline, an important aspect of the Monte-plan, will be undermined by the suggestion of the committee itself to borrow from the central bank to redeem outstanding treasury paper. 5. Monetary stability will become subordinate to central bank profits. The most important task of a central bank is to promote monetary stability

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and not to maximize profit. Earmarking central bank profits to guarantee interest payments by the Curaçao government, as suggested by Monte, will create unnecessary uncertainties, erosion of investors’ confidence and may therefore erode monetary stability. 6. The establishment of various new institutions will increase bureaucratic tangles and competition in laxity. Credible and realistic alternatives for the debt solution in the “Slotverklaring” require a swift and major reduction in our debt and interest burden to free funds for our ailing health care, education, and poverty alleviation. These alternatives should raise consumers’ and investors’ confidence, and not distort our capital market. Moreover, debt relief must be accompanied by safeguards to prevent a new build-up of debt to unsustainable proportions. Fiscal discipline is not only needed for macro-economic stability, but also to preserve funds essential for public investment, especially in health care, education, infrastructure, and social safety nets. Ladies and gentlemen, achieving significant and sustainable increases in per capita income require higher investment and, more importantly, a substantial improvement in total factor productivity growth. As a share of GDP, investment in Curaçao lags behind the Latin American and Caribbean region. Therefore, we must strengthen our competitive advantage vis-à-vis the region. Several studies have revealed the weaknesses of our investment climate, such as high utility and labor costs, rigid labor laws, a qualitative mismatch between labor demand and supply, complicated and time-consuming licensing procedures, and a complex tax system with opaque tax incentive schemes. These weaknesses are compounded by the absence of a clear and consistent investment-driven growth-oriented economic policy and a weakened government administrative apparatus. Therefore, it is important to have policies in place that foster both higher investment and a more efficient use of resources. The first area that should be addressed is the functioning of the labor market. Ladies and gentlemen, the current rigid rules on hiring and firing, the man-

datory benefits, and the high overtime compensation are not attractive for investors. The current situation has led to socially unacceptably high unemployment rates. Tight labor market regulations have adverse effects on economic performance because they create rigidities that allow vacancies and unemployment to coexist, contributing to high overall unemployment rates. To improve our competitiveness, it is crucial to be able to deploy labor more flexibly, as long as individual protection against abuse is preserved. Furthermore, our investment climate will benefit greatly from investment in education and training to reduce the qualitative mismatch between labor demand and supply. Currently, both the construction and hospitality sectors are experiencing a lack of qualified labor on our labor market. Improving the quality of education is important for developing an adequate stock of human capital and hence fostering economic growth. In sum, a more flexible labor market and a higher educated labor force improve productivity, which is essential for a more sustainable long-term growth prospects. Ladies and gentlemen, another area that needs our attention is the further development of our capital market to promote a wider range of financing possibilities for investors. An inherent feature of corporate financing in developing countries is the prevalence of bank-based financing. Because of the limited degree of development of our capital market, equity-based financing is very rare on the island. Equity-based financing could, however, be an alternative, especially for large investment projects and projects with a high risk profile. Therefore, a good initiative to overcome this bottleneck would be the introduction of a venture capital fund for risky investment projects. Through such a fund, equity financing of start-up firms with promising projects can be stimulated by offering higher than usual returns to investors. In addition, we should step up our efforts for the creation of a securities exchange. In this respect, we can learn from the experiences of countries in the region, such as Barbados, Jamaica, and Trinidad & Tobago, that have known securities exchanges for over twenty years. Another weakness of our investment climate is the current administrative barriers, the long and unjustifiable delays in administrative decisions by government departments and excessive discretion in administrative functions. The existing red tape and bureaucracy

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weaken our competitiveness relative to other economies in the region. Therefore, I hope that with the new constitutional status of Curaçao, the elimination of the double layer of government will reduce the administrative barriers in the government apparatus considerably. This will facilitate the decision-making process of policies and projects. Finally, numerous studies on the Curaçao economy in recent years have indicated that there is a need for fiscal reform. With the new status approaching, Curaçao is going to have the opportunity to include all the necessary reforms in a new tax system, which could have a positive impact on the investment climate. In my view, the new tax system of Curaçao should be simple and transparent. Direct tax rates should be competitive compared to other countries, especially in our region. These reforms are to promote consumer spending and investment by increasing disposable income. This will lead to more economic activities, and hence more tax revenues to finance the government’s policy programs. In that regard I welcome the study of the Ellis committee which should report to the government before long. Ladies and gentlemen, before I conclude, I like to emphasize that there cannot be sustainable economic growth if we do not address our social ills. Therefore, we should continue to explore possibilities to raise the old age pension (AOV) further to guarantee a decent life for our senior citizens that depend solely on this state pension. Second, we should improve the availability of low cost housing. If financial institutions in the Netherlands Antilles provide, for example, for a period of say five years a limited number of mortgage loans annually at concessionary terms to low income households, this will go a long way in alleviating our housing problem. I am referring to loans at a 30-year term and 2% interest. This should help reduce the backlog in low cost housing of the public housing foundation FKP and hence improve the living conditions of more low income households.

power of the consumer, but it will also improve our competitive situation leading to more growth. Fourth, we should expand investments in our education also to attain social goals. Equipping our socially weaker citizens with the right skills increases their chance for a job considerably and therefore their prospects for a better life. Ladies and gentlemen, we are in the midst of important constitutional changes. Changes that will have far reaching implications for generations to come. I understand that due to the inherent uncertainties of these changes and their implications for economic recovery, financial institutions, investors, and entrepreneurs may be reticent towards taking risks. This attitude could slow down investments on the island. To prevent a reversal of the economic recovery, the authorities should therefore address the debt issue and the necessary macro-economic reforms in an adequate and swift manner. This will create a solid foundation to become an autonomous country with bright prospects for the future. Looking to the medium term, Curaçao’s main challenge remains to reach a higher and sustainable growth rate, and share the benefits of growth more equitably. With a more equitable and less divided society, macroeconomic volatility will also be reduced. Towards the status of a country, Curaçao’s economic agenda should aim at building on past achievements and address current challenges and to accomplish a stable macro-economic climate benefiting all layers of our society. Thank you for your attention.

Third, the necessary investments in the refinery should be accelerated with the aim of also lowering the utility costs. A more lasting solution to our high utility costs together with our environmental problem can be achieved by investing in the modernization of our refinery. This will not only improve the purchasing

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The Caribbean Marketplace: Succeeding in a Globalizing World Address on the occasion of the 2007 TOG Partners’ Conference July 3, 2007

Ladies and gentlemen, good morning,

fter a look on the conference agenda, I noticed that you already had two busy days behind you: one to get to know the island a little better (I am sure you enjoyed that) and yesterday your first conference day, while everybody else on the island was celebrating Curaçao’s national holiday “dia di himno i bandera” (day of the national anthem and flag). I wish you a productive and interesting second half of the conference and hope that you will find some more time to enjoy the hospitality and beauty of our island.

Ladies and gentlemen, we have to realize that Caribbean countries alone, by their sheer size, cannot survive in a globalizing world. Most countries in the Caribbean are very small and have open economies and, therefore, very vulnerable to international developments and external shocks. The erosion of preferential market access to the European Union, the establishment of NAFTA, the terrorist attacks on the United States, the international efforts to combat money laundering and terrorism financing, and natural disasters all had a great impact on our economies.

I also like to seize the opportunity to congratulate Ralph and his team for bringing this prestigious conference to Curaçao, making a welcome contribution to our tourism sector, and with their new office they recently moved into. A new office – aside from being a true architectural beauty – is a sign that doing business in Curaçao has been good for KPMG and confirms confidence in the future of the island.

The high vulnerability of our economies as I mentioned is primarily the result of our smallness, resulting in significant diseconomies of scale. Both the private and public sectors are affected by these diseconomies of scale.

I have been asked to address you on the topic “The Caribbean marketplace.” Without any further elucidation, I took the liberty to interpret this topic to mean: the need for further Caribbean cooperation and integration to seize the challenges of a globalizing world. My address this morning is structured as follows. First, I’ll give you a brief overview of the implicit weaknesses of Caribbean economies. Next, I will discuss the impact of globalization on the region, followed by an overview of some critical elements of a regional globalization strategy. I’ll conclude my address with some closing remarks and the role KPMG can play in preparing the region for successful global competition.

The small size of economic units and the small size of our national markets limit the international competitiveness of the production of goods and services for both export and the domestic market. Small firms are at a disadvantage in the global market place, because they cannot realize economies of scale, are not attractive business partners, and cannot spend significant funds on marketing, research and development. Small economies have severe constraints on their material and labor inputs both in amount and variety, related to their limited land area and small populations, leading to high unit costs of production. For instance, the small size of the labor market limits the range of available skills, pushing up the price of scarce skills. On the supply side, employment alternatives are limited, which promotes a brain drain of high-skilled workers and causes high social costs for low-skilled workers when industries have to restructure. Moreover, the small market size and limited

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range of resources result in a narrower range of domestic and export production and tends to cause high costs because there is often a lack of competition. The provision of public goods and infrastructure is usually characterized by indivisibility. This has two implications for small economies. First, the costs of public services per capita are higher than in larger economies. Second, the government may be forced to provide various goods and services – often at subsidized rates – that would typically be offered by the private sector in larger economies, increasing budgetary pressures. Besides diseconomies of scale, our countries are characterized by high vulnerability to external shocks. Various factors contribute to this vulnerability, largely beyond our control. I like to mention here our geographical location and high level of openness. Our countries are located in a tropical area and, therefore, prone to natural disasters, particularly hurricanes. These natural phenomena are recurrent and affect a large proportion of our population and economies. In some cases, economic damages have exceeded annual GDP, taking a long time to recover. Our high level of openness, illustrated by levels of imports and exports of goods and services near and even over 100% of GDP, also entails a high degree of vulnerability to external shocks. This is aggravated by the concentration of exports in a narrow range of products and markets. For example, the erosion of preferential access of agricultural products to the European market is having a significant impact on some Caribbean economies. To mitigate the effects of diseconomies of scale and the high degree of vulnerability to external shocks, broader and deeper cooperation between the countries in the Caribbean region is a viable and inevitable strategy. This is even more evident in light of the structural changes taking place in the world and the way they affect the countries in the region.

as an illustration of this development. The small Caribbean countries which are vulnerable to external events and that have limited adjustment capacity are particularly exposed to the effects of globalization. Let me elaborate some more on a number of aspects of globalization that impacts the region.

1. The phasing-out of preferential trading arrangements. The Caribbean region has been enjoying preferential access for several of its export products to the markets of the European Union and the United States for a long time. However, pressure is increasing to eliminate preferential arrangements and replace them with agreements based on reciprocity, exposing the Caribbean countries much more to international competition. The dismantling of the European Union’s banana and sugar regimes is an example of this development, forcing various countries to structurally adapt their economies.

2. Rapidly increasing dominance of the global market. Technological developments in telecommunications, computerization, and information technology have eliminated the barriers of distance and time, resulting in the reconstitution of the world into a single economic and social space. To survive, every business must become globally competitive, even if it produces and sells only within a local or regional market because standards of quality and costs of production are set globally.

3. Increasing importance of the services industry. Services constitute one of the fastest growing sectors of the world economy. This is also evident in the Caribbean region, in which tourism and international financial services are the main pillars of most of the island economies.

4. Economic concentration. These structural changes can be captured under the phenomenon of globalization, a multi-dimensional process transforming all aspects of national and global activities and interactions in a rapid and profound way. Inherent in the globalization process is that barriers to international flows of goods, services, capital, money, and information are being increasingly eroded and/or eliminated. The fact that world trade grows about three times faster than world output serves

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Globalization is creating larger units, both corporate entities and the coalescing of national economies through regional integration to form regional trade blocks. The number of countries that participate in trade blocks and the share in world trade they encompass are ever increasing, representing a transition from an atomistic world economy of national economies to a global market. CARICOM is a good example of this development in the Caribbean region.

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The most prominent feature of corporate concentration has been mergers and acquisitions. Particularly in the financial sector, we can notice this development also in the Caribbean region, with the regional expansion of RBTT, First Caribbean bank, and Guardian for example.

5. Erosion of policy autonomy Globalization is shifting power away from sovereign governments toward multilateral institutions and multinational corporations. Sovereignty in all its dimensions has been considerably constrained by economic interdependence. As a result, governments’ control over the design and implementation of national and international economic policy has been diminishing.

effects of globalization, the Caribbean tourism sector is facing increased competition from other regions, such as Asia and the Pacific. Therefore, to remain competitive and maintain a sound growth in tourism, new products and markets must be developed. This diversification could include health tourism, eco tourism, tourism geared toward older travelers, cultural and heritage tourism, and conference tourism.

From the discussion of these aspects of globalization, it becomes clear that formidable challenges confront the Caribbean region for successful adaptation to this new environment and achieving sustained economic development. A pro-active adjustment strategy, as opposed to reactive adjustment, offers the greatest chance to success. Such strategy should focus on consolidating and improving existing economic activities while reorienting the economy toward new types of economic activities for the national, regional, and global markets. I like to discuss with you some critical elements of this strategy in more detail.

The international financial services industry in the region is facing many threats. Pressure from the industrialized world through international institutions, such as the OECD, the IMF, and the Financial Stability Forum, has increased to address issues like harmful tax competition, money laundering, and terrorism financing. Moreover, the impact of globalization is particularly eminent in financial services, which is not restricted by borders. Therefore, competition is fierce from other regions and countries. To remain attractive and reputable providers of international financial services, our strategy should focus on the strengthening of supervision to improve compliance with the current best practices and requirements imposed on international business and finance. If our legal and supervisory infrastructure is considered adequate by the countries we get our business from, we will be able to develop new products that can maintain this sector as an important contributor to our economies.

1. A stable macroeconomic policy framework.

3. Development of new economic activities.

For creating a stimulating entrepreneurial environment conducive to investment, it is essential that macroeconomic policy instruments, such as structural policy, fiscal policy, and monetary policy, be applied in a consistent and sustained manner, complemented by supporting policies – in the fields of for example education and infrastructure – and a stable institutional framework. This environment will facilitate private sector-led, market-driven growth.

In identifying new economic activities, contributing to a diversification of the Caribbean economies, we have to realize that our countries are not at the lower end of the wage spectrum. Therefore, we have to focus on increasing productivity, product innovation, and the creation of niche markets, in other words: more knowledge-based economic activities. Given the importance of services-based industries in Caribbean economies and its encouraging prospects, the development of new activities in the provision of services is likely to produce the greatest rate of success. Evidently, our workforce will have to be properly skilled, knowledge oriented, and capable of adopting new technologies. Some interesting activities that could be explored are the provision of retirement facilities to persons in developed countries, health care services to foreign patients, bio-technology, internet-based services, and entertainment.

2. Strengthening existing economic activities. Tourism and international financial services are the most important economic activities in many Caribbean countries. Tourism is a highly labor intensive sector in which many companies from small to large, spread over several sectors of the economy are involved. Tourism activities are particularly significant in the retail trade, hotels & restaurants, and construction sectors, generating a considerable part of employment and foreign exchange in our economies. Due to the

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4. Improving productivity. Achieving and maintaining international competitiveness in a globalizing world necessitates continual improvements in productivity. This comprises not only labor productivity, but also managerial capacity, adaptation of new technologies, and improvement of infrastructure. Increasing labor productivity requires improvement in the quantity and quality of education through vocational training as well as on the job training. Social partnerships based on tripartite dialogue between the private sector, trade unions, and the government could promote the improvement of labor productivity. However, it is well known that much of our higheducated human capital resides outside the region. It is, therefore, also important to establish schemes to induce overseas nationals with professional skills to return home. Productivity can also be raised by improving managerial capacity in both the private and public sectors. To perform well in a constantly changing environment, the relationship between management and workers must be harmonious based on cooperation and dialogue. Managerial capacity can be improved in the short run by attracting skilled managers and professionals from abroad with an emphasis on Caribbean nationals who have a better understanding of local culture and traditions. In the long run, improving education is the road to pursue. Finally, the adaptation of new technologies, such as the use of the internet to do business, and improving the physical infrastructure, such as utilities, airports, and telecommunication, will contribute to higher productivity.

5. Overcoming xenophobia. Many Caribbean countries suffer from varying degrees of xenophobia, hampering a successful participation in the global economy. We have to abandon this mentality, be less preoccupied with national ownership and focus on what foreign investment can mean for economic activity, the development of new products and services with higher value added, and the creation of jobs.

6. Strategic corporate alliances. The small size of most Caribbean firms put them at a severe disadvantage in the global economy. Col-

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laborative corporate strategic alliances, mergers, and acquisitions can provide a larger capital base, expand resources, pool expertise and introduce new technologies, largely eliminating this disadvantage. In addition, larger regional firms are more likely joint-venture partners for foreign investors, contributing to extraregional expansion. The further increase in size will equip them even better to compete successfully in the world market.

7. Further regional integration. In addition to corporate integration, regional integration should be expanded. CARICOM is the most suitable entity to take this task upon it by widening its membership to include the rest of the Caribbean and Central America which will create a much larger economic space and thereby increase the possibilities of realizing the necessary economies of scale. The ultimate objective should be the completion of a regional single market and economy. Combining forces through a regional cooperative approach is also the most effective way to proceed in international trade negotiations. It increases the leverage of small states, because by operating as a single unit we can increase our critical political mass, and it economizes on the costs to our countries by pooling scarce skilled human resources and sharing representational duties. Ladies and gentlemen, I have tried to demonstrate that the Caribbean countries and companies on their own will fall rapidly behind and marginalize themselves given the current trends in globalization. Through regional alliances, cooperation and integration, we can overcome our inherent weaknesses and will be able to compete successfully in the global market. This process of strategic global repositioning is far from finished and requires unrelenting efforts of our governments, business companies, and other interest groups to implement the adjustments and structural transformation necessary for sustainable economic development in the decades ahead. To refer back to the topic of my address: the Caribbean marketplace, in my opinion, should not be seen as the last stop but as an instrument to succeed in the global marketplace. In concluding ladies and gentlemen, KPMG is a good example of a global company. With offices and expertise in countries all over the world and a solid regional presence, KPMG pre-eminently can assist governments and companies in the Caribbean in the diffi-

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cult and complex processes of change necessary to prepare the region for global competition. Many different fields of expertise will be involved, such as international business and finance, mergers and acquisitions, management training, interim management, and head hunting. All fields of expertise in which KPMG can pride itself as being among the world’s foremost. By collaborating with other stakeholders, KPMG can play a pivotal role in converting the weaknesses I have identified in the Caribbean economies into strengths. This will go a long way in making the Caribbean not a final stop but an important stepping stone to do business in this globalizing world. This will not only lead to strengthen local economies, but it will also help improve social conditions to make the Caribbean an even better place to live and visit. Thank you for your attention and wish you a productive conference.

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Small and Medium-sized Enterprises in Curaçao: Challenges and Opportunities Speech on the occasion of the “Siman di Empresario Chikí i Mediano” October 17, 2007

Good afternoon, ladies and gentlemen,

t is a pleasure for me to address you today on the occasion of the Siman di Empresario Chikí i Mediano. It has become a tradition in Curaçao that every year we dedicate a week to the entrepreneur and his business. The “Siman di Empresario” is a unique opportunity for entrepreneurs to discuss and exchange ideas with fellow entrepreneurs, government officials, bankers, and other stakeholders concerning important issues affecting small and medium-sized enterprises. Today, I would like to add to these discussions by sharing with you my views on the challenges and opportunities facing small and medium-sized enterprises in Curaçao. Ladies and gentlemen, small and medium-sized enterprises, or SMEs, play a predominant role in most developed and developing economies, both because of their number and variety and because they are represented in all sectors of the economy. In most countries, SMEs make up the majority of businesses and account for the highest proportion of employment. Furthermore, small and medium-sized enterprises contribute significantly to Gross Domestic Product. For example, SMEs in the OECD countries account for more than 55 percent of Gross Domestic Product and 65 percent of total employment. In middleincome countries, small and medium-sized firms account for over 70 percent of Gross Domestic Product and 95 percent of total employment. In addition to their contribution to economic growth and employment, small and medium-sized firms in mostly developed economies represent an important source of innovation. They tend to be in niche markets and follow competitive strategies that distinguish them from other companies.

In the Netherlands Antilles, the situation is no different. SMEs are of vital importance to the economy of Curaçao, for example. SMEs are a large contributor to employment and economic activity on the island. According to the Central Bureau of Statistics, small and medium-sized enterprises comprise the majority of firms in Curaçao and account for close to 35 percent of the island’s Gross Domestic Product. In addition, these enterprises account for over 50 percent of our island’s total employment. Needless to say, small and medium-sized enterprises are the backbone of our economy. Despite these impressive figures, the SME sector in Curaçao has not been able to realize its full potential. Ladies and gentlemen, I believe there are three critical preconditions for small and medium-sized firms to realize their potential: (1) a sound and stable macroeconomic environment that supports private investment, (2) an investment climate that is conducive to the establishment and growth of SMEs, and (3) an environment that encourages an entrepreneurial culture. Allow me now to elaborate on these preconditions in Curaçao. First, with regard to the macroeconomic environment, we all know that fiscal stability, low inflation, sound monetary policy, and political stability support private investment by promoting transparency, reducing risk, and providing sound economic signals. These conditions are crucial for small and mediumsized firms in evaluating risks and investment decisions. However, Curaçao’s macroeconomic environment has for many years been characterized by fiscal imbalances, related to high government debt and political instability.

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Despite an expanding world economy, these domestic imbalances have suppressed our growth potential. As a consequence, our economy has been expanding only marginally with average real growth figures of less than one percent. Therefore, it is encouraging that after years of fiscal consolidation and adjustment efforts, the economy of Curaçao grew by 1.5 percent in 2006. It seems that our economy is finally benefiting from the world economic expansion. Growth in 2006 was mainly due to an encouraging performance in Curaçao’s stay-over tourism. Rising occupancy rates triggered a wave of new hotel projects and expansion of existing hotels. Furthermore, the wholesale and retail sectors grew as a result of increased activities in the free-zone and tourism, and higher domestic spending. Activities in the construction sector also rose, due largely to investments in tourism and tourism-related activities on the island. A continuation of this positive development is possible only if we address our fiscal imbalances and high public debt. Therefore, it is encouraging that the island government of Curaçao, in light of the upcoming constitutional changes, recently reached an agreement with the Netherlands to eliminate a considerable part of its unsustainable debt. As we all know, our island has arrived at an important and historical crossroads. By December 2008, it is expected that the Antillean constellation will cease to exist and Curaçao will become an autonomous country within the Dutch Kingdom. The status aparte will give us the opportunity to address our social and economic problems in a more island-specific context. The debt relief accompanied by additional capital injections related to the Social Economic Initiative will give Curaçao the opportunity to invest in important policy areas that have been lagging behind, such as health care, education, and poverty alleviation. However, it falls short of prompting an effective and common response to the increasingly intolerable inequalities in the human condition within the Kingdom. The agreed-upon debt relief will go a long way toward alleviating the current budgetary imbalances. But the overall strategic objective of a full and complete debt forgiveness that I envisaged in my November 2005 proposal has been conceded for the short-term tactical objective of continuing to be able to borrow. Given

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the over-reliance on the forthcoming budgetary assistance from Holland to balance the 2008 draft budget, it should be all too clear to everybody that this tactical success has proven short-lived. Not only will it unnecessarily burden our budget with interest expenditures and hence make compliance with the forthcoming budgetary rules overly ambitious, but it will also create a constant source of potential conflict between the government and the financial supervisor. This situation will not be conducive to a harmonious relationship among the partners of the Kingdom. The envisaged budgetary rule, the so-called interest rate norm, is also too ambitious. It is guided by political rhetoric that far exceeds our institutional capabilities. Furthermore, it will constrain the authorities from pursuing policies aimed at stimulating the establishment and the further development of the sector that we all agree is so essential for our economic progress, namely, the SMEs. Ladies and gentlemen, we need to ask ourselves whether we understand the historic moment in which we find ourselves. The vital question we need to address is: What are the basic principles that should guide us if we are to succeed in fulfilling our historical vocation? The logical course one would think is a complete and full debt forgiveness coupled with a constitutionally mandated balanced budget. I still hope that this issue is being given constructive thought. The introduction of these safeguards, including a financial supervisor, will prevent a new build-up of debt to unsustainable proportions. By introducing this form of fiscal discipline, we will also improve our macroeconomic environment. The second key precondition for small and mediumsized firms to flourish is an attractive investment climate. An attractive investment climate provides opportunities and incentives for all firms, irrespective of their size, to invest productively, create jobs, and grow. Ladies and gentlemen, all too many studies have been conducted to identify the weaknesses in our investment climate. These weaknesses include complicated and time-consuming licensing procedures, high labor costs, rigid labor laws, a qualitative mismatch between labor demand and supply, difficulties in accessing finance, a complex tax system with opaque tax incentive schemes, and high utility costs. These weaknesses form an obstacle for the creation and growth

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of all firms, but they impose disproportionately more costs on SMEs than on large firms. One of the obstacles that in my opinion adversely affect SMEs disproportionately in Curaçao is the bureaucracy or “red-tape” on the island. Small businesses are relatively more susceptible to the high administrative costs of compliance with government regulation than are larger firms. Too many and complex procedures for registering a business hamper and delay business start-ups. In addition, because potential entrepreneurs usually do not have the necessary resources – either financial or human – to deal with complex administrative procedures, “red tape” can discourage formal entrepreneurial activities. Consequently, some potential entrepreneurs are discouraged from entering the market because of those perceived high entry barriers. In other cases, potential entrepreneurs choose to conduct their economic activities outside the formal regulatory environment. Evidence suggests that countries with costly regulations and heavy bureaucracy tend to have a rather large “informal” sector. One disadvantage of informal economic activities is that they do not provide workers with job protection and benefits, such as health insurance and pension schemes. In addition, informal firms have only limited or no access to investment facilities. Furthermore, since they take place outside the formal regulatory framework, informal activities escape taxation. As a consequence, the government forgoes considerable revenue. With the introduction of the new constitutional status for Curaçao, the government will have the unique opportunity to create an enabling regulatory environment for SMEs. The elimination of the double layer of government will reduce the administrative burden in the existing government apparatus considerably and facilitate the decision-making process of policies and projects. Therefore, the government should streamline its administrative procedures, aimed at eliminating all unnecessary bureaucracy, and simplify the procedures for obtaining business and work permits and business visas. Furthermore, the introduction of one-window to serve potential entrepreneurs is highly recommended. These changes will encourage the creation of more formal business activities on our island.

Another constraint for small business creation and growth is our rigid labor market regulations, making it difficult for SMEs to adjust their workforce according to market fluctuations. Therefore, it is important to promote a more flexible labor market that ensures a reasonable balance between workers’ preference for employment stability and firms’ need to adjust the workforce. Besides these regulatory rigidities, our labor market is also characterized by a qualitative mismatch between supply and demand. Insufficient or inadequate availability of personnel hampers the development of small and medium-sized enterprises, especially in those sectors of the economy with high-growth potential, such as the tourism and construction sectors. Our investment climate will benefit greatly from investment in education and training to reduce this qualitative mismatch. In this context, it is important to bring our education system more in line with the market realities. Our schools need to produce workers with the skills needed by the firms. Ladies and gentlemen, difficulties regarding access to risk capital and long-term finance are another main barrier for investment by small and medium-sized enterprises in Curaçao. Usually, institutional investors, such as pension funds and insurance companies, are the main suppliers of these types of financing. However, in Curaçao, the market for risk capital and longterm financing is relatively underdeveloped. As a consequence, SMEs are mostly dependent on loans from commercial banks. While the Bank has been pursuing a more liberal policy with regard to the domestic investment requirements for institutional investors, it has built incentives in the existing regulations to encourage the availability of more domestic risk capital. The Bank, therefore, cannot acquiesce the way domestic savings are being channelled by domestic institutional investors to finance foreign investment opportunities. With due regard to the optimal spread of risk, this issue will become critical in the context of the government’s debt relief. For now, the Bank will continue to monitor the situation, and will act as needed to foster the further development of SMEs and sustainable economic growth. One characteristic of small and medium-sized firms in this context is that they are usually more credit-constrained than larger firms. Information asymmetry, in-

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herent in any bank lending relationship, is especially challenging for the small business sector because of the absence of a track record. In addition, SMEs’ lending is usually associated with higher costs because of the relatively small size of loans. Because commercial banks generally consider loans to SMEs as costly and high-risk, they prefer safer investment options, such as investing overseas and holding high-yielding government bonds. The access that SMEs have to finance is affected also by the high fiscal deficits and public debt, resulting in a substantial borrowing requirement by the government on our financial market. The extensive government borrowing has decreased the financial resources available for the financing of private investment projects, known also as the “crowding out effect”. This situation has resulted in, among other things, an upward pressure on domestic interest rates. However, given the upcoming debt relief, combined with safeguards for financial discipline, more funds will become available to finance private projects. In addition, less government borrowing on the financial market will exert a downward pressure on domestic interest rates. Nevertheless, despite increased competition in the domestic commercial banking market and various incentives schemes, and financing possibilities through development agencies, such as Korpodeko and OBNA, SMEs in Curaçao still face difficulties in obtaining risk capital and long-term financing. Therefore, in my view, we should promote other financing alternatives in our capital market. One such alternative is a venture capital fund for investment projects with a high risk profile. Through such a fund, equity financing of start-up firms with promising projects can be stimulated by offering higher than usual returns to investors. Another alternative for the financing of especially the very small or micro firms is micro financing. Evidence suggests that in many economies, micro financing has a very positive impact on entrepreneurship and small business development. Best practices from abroad show that successful micro financing schemes include business support services, such as training, mentoring, and capacity building of the potential entrepreneur. Furthermore, these micro financing schemes take into account the macroeconomic environment

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and the stage of economic development of a country. In addition, these schemes are usually commercially driven in a public-private partnership. We should take these factors into consideration when designing and implementing a micro financing scheme in Curaçao. Ladies and gentlemen, last but certainly not the least important precondition for the development of SMEs that I would like to highlight today is a value system that encourages an “entrepreneurial culture” or “entrepreneurial spirit”. This value system includes factors that affect an individual’s willingness to consider becoming an entrepreneur. But first, allow me to define an “entrepreneur”. In my view, an entrepreneur is not just a business owner. An entrepreneur is a person who creates and develops economic activity within a new or existing organization by being creative and innovative. Therefore, an entrepreneur is not afraid of risk-taking behavior. Moreover, an entrepreneur manages his or her organization soundly. Thus, it is partly intellect, partly organization, partly a drive to create and innovate, but more important, the willingness to take risk. This definition highlights several crucial characteristics and skills of an entrepreneur including creativity, innovation, sound management, and risk-taking behavior. These skills and characteristics must be developed from a very young age. Consequently, our education system plays a crucial role. It should put more emphasis on creativity and problem-solving abilities. In addition, starting a business should be promoted as a viable career opportunity. Therefore, more publicity should be given to successful entrepreneurs within our society. These successful entrepreneurs could serve as role models to our young people. We should never be ashamed of our successes! An individual’s decision to become an entrepreneur is also influenced by the perception of the risks and rewards involved. When the perception exists that entrepreneurship means giving up benefits, such as health care coverage, a retirement pension, disability or unemployment insurance, the opportunity costs of self-employment increase, thereby enhancing the preference for payroll employment. In Curaçao especially, the perceived risk to lose pension benefits and health care insurance coverage has been identified as a disincentive for selfemployment. Therefore, in my opinion the govern-

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ment should explore incentives to make retirement pension schemes and health care insurance schemes more accessible for entrepreneurs. Becoming an entrepreneur requires a different mindset. In our society, we have relied for too long on the government. Due to its own financial problems, the government today has become a part of our problems, not the solution. Therefore, as a society we should become less dependent on the public sector and take more initiatives on our own. In other words, we should become more entrepreneurial.

ladies and gentlemen, the new Curaçao should be a country that encourages success and solidarity by intensifying individual’s aspirations so that a better country can emerge. Thank you for your attention.

Ladies and gentlemen, small and medium-sized enterprises have always played a vital role in the economy of Curaçao. They make an important contribution to our economic growth and employment. I strongly believe that SMEs will continue to play a crucial role in our future economic development. The economic outlook for Curaçao is positive. To underpin the recent economic recovery, it is imperative for the authorities to continue to pursue a policy conducive to growth – that is, a policy of fiscal consolidation and structural reforms complemented by investments in our social infrastructure. With the upcoming constitutional changes, we have the opportunity to achieve those goals and at the same time create an environment that is more conducive for the development and growth of our small and medium-sized firms. The recent proposal to seek access to the Dutch healthcare system is an encouraging first step in the right direction. Not only do we benefit from economies of scale, but it also encourages competition, hence lowering social premiums and consequently business costs for SMEs. Increased competition in the banking sector, or the so-called, flexibilisation of the capital market, for example, resulted in a reduction in the average mortgage rate from 11% in the year 2000 to 8% presently. This represents a saving to society of almost NAf 900 million during the average lifetime of a mortgage. In addition, for small and medium-sized enterprises to continue to thrive, we must promote and nourish the entrepreneurial spirit. This means a proactive attitude towards innovation, creativity, and risk to maximize the potential benefits from the development and growth opportunities ahead of us. But above all,

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Developmental Challenges in a Small Economy: The Case of St. Maarten Speech on the occasion of The State of the Economy Presentation Philipsburg, St. Maarten, March 20, 2008

Ladies and gentlemen, good evening,

ith pleasure I accepted the invitation from Commissioner Buncamper-Molanus to speak to you on the relevant theme “Developmental Challenges in a Small Economy” at this event surrounding the presentation of the Economic Outlook 2008. St. Maarten is a very small economy, but a highly successful one as I shall demonstrate later. I shall begin my address this evening with an analysis of St. Maarten’s economy, which is growing at an impressive speed. In the second part of my address, I shall discuss with you some of the challenges of the constitutional changes that are ahead for the island. If managed well, these changes create enormous opportunities for high sustainable growth in the coming years. St. Maarten is the second largest economy of the Netherlands Antilles with a 20% share of total Gross Domestic Product, approximately 1.2 billion guilders. Although Curaçao’s 70% share is considerably bigger, St. Maarten’s economy has performed much better. Since the end of the economic recession in 2001, the economy of St. Maarten has grown by an annual average rate of 3.8% in real terms, compared to 1.8% for Bonaire, and a marginal 0.3% for Curaçao. A preliminary estimate by the Central Bureau of Statistics indicates a real growth rate of 4.5% for St. Maarten for 2007. The island’s strong economic growth has been accompanied by a moderate rate of inflation, averaging 1.8%, but increasing to 2.3% in 2007. The higherthan- average inflation rate can be explained mainly by the impact of rising world oil prices. St. Maarten’s robust economic growth contributed to a decline in the unemployment rate, which reached 10.6% in 2007. This rate is better than the 12.0% in Curaçao, but Bonaire’s unemployment rate was even lower at 7.8%. Youth unemployment still con-

trasted sharply with overall unemployment. With 26.0% of St. Maarten’s labor force in the age group of 15-24 unemployed, the island has the highest rate in the Netherlands Antilles; this figure compares to 24.2% in Curaçao and 20.5% in Bonaire. Tourism is the dominant sector in St. Maarten’s economy and can be illustrated in various ways. In the National Accounts, tourism activities encompass the following sectors: Trade; Hotels & Restaurants; Transport, Storage & Communication; and Real Estate, Renting & Business Activities. Gross value added by these sectors comprises 56% of total business activities and 42% of Gross Domestic Product for the island. St. Maarten welcomes an impressive number of visitors each year. The number of stay-over visitors is approaching the 500,000 limit, and the number of cruise passengers has exceeded 1.4 million. In 2007, St. Maarten accounted for 56% of stay-over tourism and 76% of cruise tourism in the Netherlands Antilles. Tourism activities in St. Maarten generate approximately 1.2 billion guilders in foreign exchange revenues annually, representing 64% of total foreign exchange revenues from tourism in the Netherlands Antilles. However, these impressive figures are somewhat overshadowed by the disappointing visitor growth rates during the last two years. The number of stay-over visitors has remained about the same since 2005, while the number of cruise passengers declined in 2006 and remained almost unchanged in 2007. I think the main explanation for this development is that St. Maarten‘s utilization of its tourism infrastructure has reached full capacity. Therefore, further growth can be attained only by expanding the tourism infrastructure. Investors seem to believe in the potential for further growth, as evidenced by the continued robust growth

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in construction activities indicated in a press release from the Central Bureau of Statistics and the Department of Economic Affairs of St. Maarten last month. Hotel room and time share capacity as well as cruise pier capacity are expanding, creating prospects for the resumption of growth in the number of visitors in the near future. Another explanation for the weak growth in tourism may be the weakening economy of the United States, from which more than half of St. Maarten’s tourists originate. In line with the weak tourism performance, the airport and the harbour of St. Maarten also showed weak growth in 2007. Nevertheless, the Princess Juliana International Airport remained the busiest of the Netherlands Antilles airports, with 1.7 million passengers handled, half of all passengers handled in the Netherlands Antilles. With the recent modernization and expansion of St. Maarten’s airport, its capacity has increased to 2.5 million passengers per year. Thus, this part of St. Maarten’s infrastructure is capable of absorbing the anticipated recovery in tourism growth without any problems. Harbor growth is expected to resume once the expansion of the cruise pier and the container and freight handling facilities have been completed. I support the vision behind the expansion of the container and freight handling facilities to develop the harbor as a transit point for the distribution of goods to the neighboring islands. This is a step towards the necessary diversification of the economy. Ladies and gentlemen, I am an optimist who worries a lot. Therefore, allow me now to draw your attention to some of the weaknesses of St. Maarten’s economy. The most obvious weakness is the heavy reliance on one principal economic activity, namely, tourism. This characteristic is typical of most small island economies. However, such heavy reliance on a single activity enhances the business cycle and makes the economy more susceptible to external shocks. Reducing reliance on one main economic activity requires diversification. A small island economy like St. Maarten has, of course, only limited possibilities for diversifying its economy given, among other things, its lack of natural resources, scarcity of land, and small domestic market. This situation should not, however, prevent its policymakers and the business sector from coming up with creative ideas. Enhancing

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the regional distribution function of St. Maarten is a viable policy to pursue. The current expansion of the harbor and the recent expansion of the airport fully support this policy. I also note the idea of developing an international financial and business services sector on the island, an activity worth further exploration. However, a word of caution is at order: the daunting list of challenges that surround the creation of a world class international financial and business services sector requires a world class regulatory infrastructure and the institutional capacity to implement it, which may prove to be overly ambitious given your resource constraints. Another major weakness in St. Maarten’s economy is that the public infrastructure has not kept up with the expansion of the economy, either physically or socially. The physical dimension can be illustrated by the insufficient capacity of the road infrastructure, which has resulted in structural congestion most of the day. Electricity and water production cannot keep up with demand, causing frequent power outages and water shortages. The increasing amount of solid and liquid waste generated by businesses and the public cannot be processed effectively, which has created a growing burden for the environment. Some examples of the social dimension are shortages of schools, daycare facilities, and social housing, an understaffed police force, and an inadequate penitentiary system. These shortcomings have resulted in a rising crime rate and increasing social imbalances, aggravated by the illegal immigration issue. Ladies and gentlemen, I mention these weaknesses since they are a good starting point for discussing with you the challenges of the constitutional changes for the future country of St. Maarten. One of the many tasks in preparing the island for its new constitutional status is addressing effectively the observed economic and social imbalances to create a sound social-economic basis for durable balanced growth in the years ahead. With the new status comes the responsibility to govern the new country with a population anxious to reap the benefits of the new status. It is not a question of survival, but a challenge of leadership. Like inheritance, success can be invested productively or not. The question therefore to be answered is whether you are investing in what it takes to continue to build on the existing foundation while using the new status to meet the challenges that will await you as a new country within the Kingdom.

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According to the current thinking, St. Maarten is scheduled to become a country on December 15 of this year. However, almost all stakeholders realize that this date is not attainable. I strongly believe that a thorough preparation with all the laws and institutions in place is crucial for a viable start as a country. Until this process is completed, assumption of the new constitutional status is bound to create more issues than it solves for St. Maarten. The number of issues that must be addressed before St. Maarten can become a country are quite overwhelming, but they also create unique opportunities to correct the administrative, economic, and social ills on the island with broad technical and financial support from the Dutch government. Given the time constraint, I have selected a few to discuss with you in more detail. These are the design of an effective and efficient government apparatus, sound government finances, and the future of the monetary system and financial supervision. Let me start with the design of the government apparatus. The present dual layer of government has created numerous inefficiencies, promoted tensions between the central and island administrations, and frequently undermined the effective implementation of policies. Now that St. Maarten is becoming a country and the central government is being dismantled, a unique opportunity is created for the design of a new effective and efficient government apparatus. First, the government tasks must be defined, including the tasks that are taken over from the central government. Second, legislation on which to base the implementation of the government tasks must be prepared and approved. I think current legislation will generally be adequate, complemented with the necessary amendments. Third, the government apparatus must be adequately staffed in accordance with the requirements in the job description of each position. The positions can be filled from the current pool of civil servants of the island as well as from the central government, if necessary complemented with additional training. Positions that remain open should be advertised and filled with external candidates. Current civil servants who do not meet the job requirements and cannot be properly retrained should seek employment in the private sector after receiving adequate redundancy payments. Finally, the principles of good governance should be embedded in the new government apparatus to guarantee effective and responsible spending

of the citizens’ tax money, efficient high quality services to the public, and effective sanctions for misconduct and abuse. The second issue that must be addressed and about which I would like to share my views with you is sound public finances. Based on the relatively few occasions that St. Maarten has approached the central government for financial assistance, it appears that it has been able to bring expenditures in line with revenues. However, its budgetary process has been rather murky. The government has operated quite a few times without an approved budget for part of the year. Regular progress reports on the implementation of the budget have been absent. Budget audits have been delayed for years. Although the government is legally not allowed to borrow, St. Maarten has built up a considerable debt, sometimes created because of creative financing constructions. I do not want to suggest that St. Maarten has a monopoly on weak fiscal discipline and deviation from the budget legislation. The other islands and even the central government also have failed in this area. I only mention it as an illustration that a drastic change is necessary in how we approach the public finances in preparing for the island’s future status as a country. In the agreement between the central government, the governments of Curaçao and St. Maarten, and the Dutch government of November 2, 2006, better known as the “Slotverklaring”, the parties explicitly underscored the importance of starting the new constitutional status with a financially sound position. To arrive at this position, the Dutch government is prepared to take over a substantial part of the debt of the entities. In the new situation, St. Maarten will be granted the long desired authority to borrow but within strict limits. The maximum allowed outstanding debt will be bound to an interest burden rule, prescribing that the interest expenses in the budget may not exceed 5% of the average revenues of the preceding three years. It is still not very clear what this means for St. Maarten. First, the interest burden must be calculated from an estimated revenue base of the country of St. Maarten. Second, the room for borrowing depends also on the loans that remain the responsibility of St. Maarten after the debt relief. But I think it is safe to conclude that there will be some opportunity to borrow.

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The debt relief and authority to borrow are bound by strict conditions and control that will substantially enhance fiscal discipline and transparency. First, the current account of the budget may not have a deficit and must be presented in a multi-annual framework. Second, interest expenses may not exceed the 5% rule. Third, the recommendations of the Financial Position working group on improvement of the financial management and control must be implemented as planned. Fourth, the entire budgetary process from preparation of the draft budget to the accountability of its implementation is subject to supervision by an autonomous supervisory authority that will monitor whether the budget rules and other agreements are met, suggest corrective actions in case of deviations, and report its findings on a regular basis. I can imagine that this new approach to the public finances will be a culture shock for the island. In the beginning, it will create frequent tensions with the supervisory authority; the recent experiences of Bonaire, Saba, and St. Eustatius serve as an example here. It is for this reason that I have always been a strong proponent of a complete debt relief with the simultaneous elimination of the authority to borrow. But be as it may, we have to go through this period of adaptation to arrive at lasting sound public finances, a conditio sine qua non for building up a viable country with a prosperous future for its citizens. The third issue I’d like to bring forward, and one which I keep particularly close at heart as a central banker, is the future of our monetary system and financial sector supervision in the new constitutional arrangement. The “Slotverklaring” explicitly states that there will be one central bank for Curaçao and St. Maarten responsible for monetary, financial, and integrity supervision based on one set of laws. Rationally considered, I fully subscribe to this statement. It means that the current central bank will be broadly maintained, continuing its good reputation and credibility in safeguarding the stability of the monetary and financial system. I believe this is very important in light of the uncertainties surrounding the numerous changes that will take place on the road toward the new constitutional status of the islands. In addition, with a common central bank, economies of scale can be maintained with regard to the high costs of highly educated staff and modern information and communication infrastructure. Moreover, a common central bank will provide a larger common economic area with broader econom-

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ic diversification, which may dampen the impact of a shock occurring on one of the islands. If Curaçao and St. Maarten as autonomous countries share a common central bank and currency, they join a monetary union. Since autonomous countries have their own policy responsibilities, a monetary union requires a high degree of policy coordination and harmony to ensure a balanced and effective monetary policy. In addition, a well functioning monetary union requires free movement of goods, services, capital, and labor between the countries. These requirements may be difficult to reconcile with the desire for more autonomy by Curaçao and St. Maarten since this desire was the main driving force behind opting for country status. Ladies and gentlemen, I do not like to sound like the rooster who claims credit for the sunrise. We must begin however, with the understanding that strong political commitment is required to give up some of the newly won policy autonomy in the interest of a stable and effective monetary union. If we fail to comprehend this, we will not be able to create a stable monetary environment conducive to growth and stability. We will need to work well together because we have a great challenge before us. It is our own incredible success that we face. As mentioned, like inheritance the new found opportunities can be exploited successfully or be squandered. Though not far from inconceivable, the inevitable question becomes; if the politicians cannot come to an agreement on a common central bank, what will be the next best alternative? Given the current financial architecture, Curaçao will likely continue the current central bank, although its revenue base will shrink as a result of the division of the foreign exchange reserves with St. Maarten and the omission of income from the issuance of banknotes and currency transactions with banks in St. Maarten. With respect to St. Maarten, it is the question whether it will be able to sustain a full-fledged central bank in a profitable way. The smallness of the economy simply hampers the generation of enough income to cover the operational costs. This means that the central bank will become dependent on government financing, which will undermine its independence and, hence, credibility. In general, a central bank contributes to government revenues, not the other way around.

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Actually, St. Maarten does not need its own monetary policy. An own monetary policy and consequently an own central bank is needed only if you have your own currency. Because the US dollar is used so widely, official dollarization is an efficient and feasible alternative. Hence, dollarization eliminates the need for a central bank. In effect, you will elect to distribute the seignorage profit to the public at large rather than having it accrued to the central bank.

going gets tough, and I am convinced that they are tough enough to get going. Thank you for your attention.

The other question which we cannot deflect is: What about the supervision of the financial sector? Since most financial institutions in St. Maarten are subsidiaries or branches of foreign-based institutions, the central bank of the respective parent company continues to include them in its supervision. Instead of setting up its own supervisory authority, which will suffer from large diseconomies of scale, it would be much more efficient and effective for St. Maarten to outsource the supervision of the financial sector to the central bank of the parent institution. Ladies and gentlemen, St. Maartenâ&#x20AC;&#x2122;s economic development can be considered a success story. However, it is accompanied by increasing imbalances in the public domain, which will eventually undermine the sustainability of the current growth. The preparations for the new constitutional status provide a unique opportunity to address these imbalances effectively, helped by financial and technical support from the Dutch government. An efficient and effective government apparatus, sound public finances, a stable monetary system, good governance, and adequate financial sector supervision are essential elements for building a viable and prosperous country. The road towards this goal is marred with obstacles and setbacks. You have to be careful not to devote too much energy to achieve the new status while neglecting to strengthen the foundation and creating the institutional capacity to govern the new country. Our history is too simple and the facts, as they are commonly understood, not so clear. Governing a country is a matter of no little importance. It requires skills different than those for governing an island territory. Dismissing this may prove to be more disruptive than helpful. You will be leading a nation in a world riven with economic, financial and environmental challenges. What happens anywhere can matter everywhere. But, the people of St. Maarten have proven resilient when the

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Threats and Opportunities for the Economy of Curaçao in a Period of International Financial Turbulence Speech on the occasion of the fundraising seminar of Fundashon Stanley Lamp April 4, 2008

Ladies and gentlemen, good afternoon,

think you agree with me that to stand still at the impact of the international financial turmoil on our economy is a well-targeted theme for this seminar. I very much appreciate this initiative of the Stanley Lamp Foundation and the generous support provided by our local KPMG office headed by Ralph. I fully endorse the objective of the foundation to promote the education of our youth and, hence, their development and the development of our society as a whole. This is a crucial condition for building up a successful country in the new constitutional structure of the Kingdom. I think the late Stanley can be very proud on Ference and Roan, who have become successful professionals and are a perfect example of the huge return that good education generates, not only for them and the companies they work for, but also for Curaçao. In my address this afternoon, I shall focus on the macroeconomic aspects of the current international financial developments. First, I shall briefly describe the causes of the current international financial instability and discuss some of the consequences on our economy. This will be followed by a brief overview of the recent developments in the economy of Curaçao. Together with the opportunities created by the constitutional changes, I shall subsequently indicate some of the reforms that are necessary to create a solid foundation for strong sustainable growth and resilience against future external shocks. The current international financial turmoil ranks very high on monetary policy makers’ agenda around the globe. Virtually every day brings a new surprise in the financial markets. The scale and speed at which financial globalization has developed generated excesses in financial markets that are currently unwinding.

The recent events represent an overdue repricing of risk, triggered by significantly higher-than-expected defaults in US subprime mortgages. The ample availability of liquidity in the international financial markets promoted the development of innovative but complex new securities with a distant link to the original loan (the so-called originate and distribute model). The lively trade in these securities and, hence, their high liquidity gave a false sense of reduced risk. Financial institutions worldwide invested large sums in these securities. When American home owners got into problems servicing their mortgages, among other things, caused by weakening economic circumstances related to the sharply rising prices of oil and other raw materials, investors became aware of the associated risks and started to sell these securities. Due to a lack of buyers, prices dropped rapidly, making the securities worthless. Also other structured financial products suffered from the evaporated trust in mortgagebacked securities. Because of the enormous amounts invested in these securities, the write-offs have grown to gigantic proportions, causing major problems for many well-known international financial institutions. As a result, the share prices of these financial institutions fell sharply on securities exchanges worldwide and dragged most other share prices in their fall. Investors have become very nervous and react strongly on economic news resulting in volatile developments in securities prices. Since the origin of the current international financial instability lies in the United States, this economy is expected to go through a brief recession this year, affecting also countries that rely significantly on exports to the US market. As a result, world economic growth is projected to slow. Particularly a US recession is likely to affect the number of American visitors to our

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islands. The market share of American visitors in the total number of visitors determines the impact on the tourism sector on the respective islands. In Curaçao, this share is approximately 20%, implying that the impact will be moderate. What about the financial sector? Our local financial institutions have no or very limited exposure to mortgage-backed securities or other structured financial products, resulting in a negligible direct impact from the crisis around these securities. Of course, they will be affected indirectly by the declining international interest rates and securities prices in the wake of the financial crisis. The international financial and business services sector is likely to be affected to a greater extent, because the companies operating in this sector are very active in the international financial markets and have a larger exposure to innovative financial products. Nevertheless, since these companies operate outside of our economy, the domestic impact will probably be limited to some reduction in the services provided by local companies and professionals. Due to the peg of our guilder to the US dollar, the sharp reduction in US interest rates we have witnessed in the last few months results also in lower domestic interest rates. This development is enhanced further by the debt relief as part of the constitutional changes. The repayment of a major part of the government debt by the Dutch government will result in an increase of domestic liquidity and lower yields on new debt issues. Lower domestic interest rates will promote higher consumption and investment growth, resulting in a higher growth rate of our economy. Given this favorable outlook, I like to turn now to the current state of our economy and the likely impact of the current international financial turbulence on our economy. That is to say: looking ahead, how does the consequent drop in the US interest rate affect our economic developments? The economy of Curaçao is finally picking up after a marginal annual average growth rate of 0.3% in real terms since the end of the economic recession in 2001. Economic growth increased to 1.4% in 2006 and a further acceleration is expected in 2007. The inflation rate remained stable at 3.0%, which is relatively high as a result of the impact of the rising world oil prices. The stronger growth was translated in an improvement of the labor market. The unemployment rate started to decline from its peak of 18.2% in 2005 to 12.0% in 2007. Youth

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unemployment declined also during this period from 44.0% to 24.2%. Although this decline is more than welcome, I think the fact that almost a quarter of our youth is unemployed remains unacceptable. The improved economic performance is primarily private sector led. Particularly private investments grew strongly, but private consumption contributed also significantly to the expansion. The high investment growth was due largely to the construction of new hotels and the expansion of existing hotels. This wave of new investment projects was triggered by the remarkable recovery in the number of tourists since 2006. During the previous three years, the number of stayover visitors remained stagnant, reflected by an average annual increase of only a half percent. However, 2006 posted a growth of 6% and 2007 even 28%, the highest growth figures in the Netherlands Antilles. Consequently, the occupancy rate rose rapidly and has surpassed now the 90% limit. The rising occupancy rate created confidence with the existing hotels that the time was right to expand their room capacity. In addition, the potential for further strong growth in the number of tourists attracted new investors and the attention of large international hotel chains. Curaçao’s tourism is still rather underdeveloped compared to many destinations in the region, including Aruba and St. Maarten. So, there is substantial room for further growth. Moreover, cruise tourism is also performing well after its recovery in 2005, although the growth rate is decelerating. The result of the investments in hotels is that room capacity will be expanded by approximately 1,000 units in 2008. Based on current construction and intended projects in the years ahead, an average 1,000 rooms per year will be added between 2009 and 2111. Applying the common multiplier in the hotel sector that each room creates 2.5 direct and indirect jobs, approximately 10,000 jobs will be created from now until 2011, enough to eradicate unemployment in Curaçao. Prominent among these are: (i) the Santa Barbara Plantation master plan which envisions not only the luxury Hyatt Regency Curaçao hotel, but also as a 30-slip marina, beach club, 52 vacation club units, 128 condominium homes, 106 residential lots and 94 terrace homes. Additionally, it will include an 18-hole championship golf course, the first signature golf course on the island, designed by top golf architect Peter Dye; (ii) The Rif master plan which encompasses not only the 243 room 5-star Renaissance Hotel,

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but also a 50-slip marina, another 5-star hotel, a 3-star hotel, condominiums, a second mega pier and food and retail facilities; and (iii)The Jan Thiel master plan which envisions a 5-star 350 room Westin hotel, condominiums and residential homes. The investments to realize these projects run into billions of guilders, creating the prospect of strong economic growth in the coming years. Realization of these projects may put us on growth path consistent with sustainable double digit growth for some times to come. Ladies and gentlemen, this encouraging outlook however, is not guaranteed. While the prospect of a permanent resolution of our debt problem in the context of the constitutional changes and the consequent drop in the US interest rate have significantly improved the availability of funds to finance our growth, there are still some dark clouds on the horizon. Our current investment climate has several deficiencies that will seriously hamper the realization of these projects if not addressed adequately. The policy agenda to enhance the investment climate should focus on those government policies that promote incentives and opportunities for firms to invest productively, create jobs, and expand. This policy agenda should cover a broad terrain including stability, security, regulation, taxation, finance, infrastructure, labor markets, and a speedy and efficient decision making process to approve project by the government apparatus. Since it involves so many issues, investment climate improvements should be an ongoing process of policy adjustment and fine tuning. We have to start now with these policy adjustments if we want to make progress in the improvement of our investment climate and prepare our island effectively on its new constitutional status of a country within the Kingdom. With this in mind and with so many policy areas influencing investment-driven economic growth, priorities are essential, and we must be careful to ensure that they are combined in a coherent manner. If I have to make a selection, I would single out the following policy areas to address with priority: • The labor market; • The capital market; • The existing red tape and bureaucracy; and • The tax regime.

In these areas, the effectiveness of measures depends on policy transparency, good governance, broad public support, and economic and political stability. I would like now to share my views with you on the challenges for the government of Curaçao in addressing these four policy areas on the road to the new constitutional status and a bright future. One of the weaknesses of our investment climate is the still inflexible labor market, because of the rigid rules on hiring and firing, the mandatory benefits, and the high overtime compensation. Despite all the recommendations that have been given by international organizations to reform the labor market regulations, little progress has been made. Indeed, measures have been taken to flexibilize the labor market, but some of them have been reversed, though approval procedures became more even-handed and decision times were shortened. To enhance our competitiveness and potential growth, it is essential to be able to use labor more flexibly, provided that individual protection against abuse is preserved. Despite a decline in our unemployment rate, it remains high in double-digit figures, especially among our youth. The main reason for Curaçao’s structural unemployment is not so much the absence of jobs, certainly not in view of the demand for labor in the booming tourism sector, but a qualitative mismatch between supply and demand. Despite our high literacy rate and the availability of institutions providing higher education and language training, many investors find that the availability of well-trained workers is limited. Our investment climate will, therefore, benefit greatly from public investment in education and training to reduce the qualitative mismatch between labor demand and supply – an area championed by the late Stanley Lamp. Being important determinants of our long-term growth potential, we should therefore have an economic policy that focuses on enhancing investments in physical as well as human capital. Investment in our human capital, for example through improving education and training, will enhance the way that investments in physical capital are put to use. The investments in human capital must be targeted towards our youth as well as the unemployed population. This is especially important in view of the thousands of jobs to be filled in our tourism sector in the coming years. You will agree with me that

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economic progress should in the first place benefit our own people. We should attract labor from abroad only if positions cannot be filled on the local labor market. In addition, our education and training system should not only focus on the labor force in those sectors where our economy has a competitive advantage. It should also focus on creating a skilled labor force that can attract knowledge-based industries and services companies, particularly in high value-creating activities, to promote diversification of our economy. Such diversification is essential to reduce our vulnerability to external shocks. The resulting increase in productivity will have a more permanent impact on our longterm growth prospects. Thus, for Curaรงao to become more attractive for investors, we must take some major actions to improve the quality of our labor force and the functioning of the labor market. Ladies and gentlemen, another major bottleneck for investments in our country is the lack of long-term financing, the implicit high interest rates, and the absence of vehicles to provide equity capital to the various projects that are being undertaken. The high cost of capital leads to the postponement or even cancellation of business investment decisions. The issuance of private debt securities, equity, and the establishment of a venture capital fund for promising new businesses can be considered solutions to overcome these bottlenecks. Hence, the further development of our capital market will make the transmission of financial resources to investors more efficient and less costly. As a result, local investors will not have to rely solely on bank financing, which is more expensive because of the intermediation costs involved. This is an area where I think much progress can be made in light of the forthcoming constitutional changes and the opportunities arising out of the current turbulence in the international financial markets. A welcome development in our domestic capital market is the prospect for a further decline in interest rates, contributing to lower financing costs. Interest rates showed already a gradual declining trend caused mainly by increased competition among domestic financial institutions and from abroad. This trend is expected to be enhanced by the debt relief agreed with the Dutch government coupled with the decline in US interest rates as a consequence of the economic downturn. The redemption of a consider-

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able part of the government debt will substantially increase the availability of funds for the private sector at more attractive terms. In addition, yields on new government bond issues will decline due to a lower risk premium associated with a reduced debt and more competition among investors for these bonds. The substantial oversubscription on the latest bond issue by the central government at prices above nominal value serves as an example. Another weakness of our investment climate is the current administrative barriers, the long and unacceptable delays in administrative decisions by government departments and excessive discretion in administrative functions. In particular, the requirements for start-ups, procedures for obtaining permits for nonnationals, and migration regulations are seen as a major source of frustration by the business community. Ladies and gentlemen, establishing a business and getting a basic business license are automatic in most countries and are usually accomplished in a matter of days or even hours. On our island, however, these processes are discretionary and can take months or in some cases even more than a year. The long delays in obtaining permits are equivalent to a substantial loss of opportunities to capture investments. In other words, the existing red tape and bureaucracy weaken our competitiveness relative to other economies in the region. If we are to benefit from the current favorable environment with respect to the tourism sector and move to a path of higher growth, it is essential that progress be made in this area. One of the main changes accompanying the new constitutional status of Curaรงao is the elimination of the double layer of government. This will reduce the administrative barriers in the government apparatus considerably, facilitating the decision-making process of policies and projects. In this respect, it is important that the government streamlines its administrative procedures, aimed at eliminating all unnecessary bureaucracy and simplifying the procedures for obtaining business and work permits and business visas. In addition, the creation of the mentioned one-window agency to serve potential investors as well as to provide aftercare services to existing investors is long overdue. Moreover, when we start with our new constitutional status, we must be cautious not to implement any new measures that might have an adverse impact on our investment climate. What we should do is to embrace the possibilities that the new status

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offers us by making our administrative system more transparent and efficient. Ladies and gentlemen, another policy area that needs our attention is the tax system, which plays also a key role in shaping the investment climate. On the one hand, the government needs revenues to fund the public services – including those that improve the investment climate – and to accomplish its social goals. On the other hand, taxes represent a cost to firms, which reduce their incentives to invest and create jobs. All societies, including our own, struggle to find a balance between efficiency, equity, and sustainability of the tax system. To realize such a balance, it is crucial that policy makers maintain an effective policy dialogue with the business community.

a solid foundation for strong sustainable growth in the years ahead of us. With the right decisions, hard work, and broad consensus among all stakeholders, I am convinced that we will realize a better future for all of us in the new country of Curaçao. Thank you for your attention.

A number of studies on the Curaçao economy conducted by international organizations in recent years concluded that there is a need for fiscal reform. With the new status approaching, Curaçao will have the opportunity to include all the necessary reforms in a new tax system, contributing to the improvement of the investment climate. In my view, the new tax system of Curaçao should be simple and transparent. Direct tax rates should be competitive compared to other countries, especially in our region, to encourage consumer spending and investment by raising disposable income. This will lead to more economic activities, broadening the base of the sales tax. In addition, a more effective and efficient assessment and collection system should also be an important component of the new tax system, since it can ensure budget neutrality in the face of the reduction in direct tax rates. Ladies and gentlemen, we are part of a globalized world and the current international financial instability will also affect our economy, although I estimate the direct overall impact to be rather limited. In fact, our economic performance is improving and the prospects are encouraging, especially in tourism. To meet current and potential investors’ expectations, we should speed up the implementation of structural reforms to create an attractive investment climate. Together with the changes taking place to prepare the island for its new constitutional status, providing an excellent opportunity to correct the economic and social imbalances in our society with substantial financial and technical Dutch support, we will be able to create

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Regional integration: A policy agenda towards prosperity Address on the occasion of the seminar “Is Curaçao economically truly Caribbean?” April 24, 2008

Good evening, ladies and gentlemen,

et me start by thanking the Department of Economic Affairs of Curaçao and the Faculty of Social Sciences and Economics of the UNA for inviting me today. The topic of this seminar is a timely and important one for several reasons. First, regional integration has proven an important contributor to economic growth, especially in the case of small open economies such as ours, and second, Curaçao will become an autonomous country within the Dutch Kingdom in the near future. The ongoing constitutional changes provide a unique opportunity to design an economic policy that is aimed at sustainable economic growth by focusing on the development of key sectors of the economy. I believe that regional integration and cooperation should be included in this policy agenda. The Curaçao economy shares many characteristics with other economies in the Caribbean basin. Similar to most economies in the region, our economy is small and open and has to deal with diseconomies of scale. Consequently, we are very vulnerable to international developments and external shocks. Moreover, like many islands in the Caribbean, tourism and international financial services are the main pillars of our economy. Interestingly, despite sharing several characteristics with the neighboring economies, in terms of trade, our island is not really integrated into the Caribbean. The main trading partners of the Netherlands Antilles – of which the Curaçao economy represents 75 percent – are North America, Europe, and South and Central America. According to our trade statistics, trade with the Caribbean averaged only 8 percent of our total trade during the period 2000-2006. Despite our geographic proximity with Caribbean islands, the share of goods and services exported from

the Netherlands Antilles to the Caribbean was 11.5 percent of total exports. Meanwhile, imports of goods and services from the Caribbean were only 4.3 percent of our total imports. Ladies and gentlemen, trade flows are determined by the comparative advantage of a country vis-à-vis its trading partners. A country’s comparative advantage is determined by, among other things, factor endowments and relative prices. Trade flows are negatively affected by trade barriers, which can be either tariffs, such as import duties, or non-tariffs including quotas, unfair customs procedures, and import licenses. These barriers affect trade in merchandise. Trade in services also is hampered by barriers, such as licensing procedures, nationality and residency requirements, and discriminatory treatment advantaging domestic companies over foreign ones. To stimulate trade flows, countries usually engage in free trade agreements with other countries. As you may know, free trade agreements reduce trade barriers considerably and ultimately may result in trading blocks with unrestricted trade among the members of the block. Currently, there are several trading blocks based on free trade agreements among groups of countries in the Western Hemisphere. So far, the Netherlands Antilles has no full membership affiliation with any of the regional trading blocks. Furthermore, we lack bilateral free trade agreements with individual countries in the region. Hence, the Netherlands Antilles – and consequently Curaçao – is faced with high trade barriers in the region. I believe that these barriers have a negative impact on our trade flows in the Caribbean. As a consequence, we are not seizing the opportunities the Caribbean market place has to offer.

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Our failure to take advantage of these opportunities is unfortunate given that economic growth in our region has been particularly buoyant in recent years. According to the International Monetary Fund, the Caribbean economy grew by 4.2 percent last year, the fastest pace in the last two decades. For 2008, the IMF expects economic growth in the Caribbean to decelerate due to the global economic slowdown. Nevertheless, an above-average economic growth of 4 percent is projected for the region. By increasing cooperation within our region, the Netherlands Antilles, and consequently Curaçao, could benefit more from the ongoing economic expansion in the region. Regional cooperation and integration are now imperative. Besides the classical benefits of trade creation and diversion, regional integration provides a platform for more effective integration into the world economy. This integration is crucial given the fast pace of globalization today. Globalization provides great opportunities, but it also leads to more competition. And globalization brings with it new risks and vulnerabilities. Greater regional integration, if carried out correctly, can complement the process of global integration, both by taking advantage of the opportunities presented by globalization and by guarding against the vulnerabilities. This is especially important for small open economies such as ours. With greater regional integration, economies of scale in the production of goods that are not attainable for individual islands due to their small size may be feasible for the region as a whole. Through regional agreements, politically challenging policy changes often can be realized. Furthermore, gains from specialization within the region can be achieved by pursuing different strands of the value-added chain. Regional integration also strengthens the ability of countries to deal with negative shocks, both external and country-specific. This ability is particularly relevant in our region, where the impact of shocks can be devastating for any single economy. Finally, combining forces through regional cooperation is the most effective way to proceed in international trade negotiations because it increases the power of small states. Given these benefits, Curaçao must become more economically integrated within the region. Therefore, the barriers that are currently hampering trade

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between our economy and the region should be removed. I do realize that regional integration in the case of the Netherlands Antilles is very complex as our country is not autonomous in matters related to international affairs and trade. The government of the Dutch Kingdom is the authority responsible for international treaties and agreements. Because the Netherlands Antilles, and consequently Curaçao, are not sovereign with respect to international negotiations, regional integration achieved by joining a trading block is very difficult or even impossible. However, this challenge should not discourage us from making alliances or cooperating more intensively with regional trading blocks or individual countries in areas of interest. Such negotiations should take place, of course, with the support of the government of the Dutch Kingdom. Ladies and gentlemen, the policy agenda towards more regional integration should include a thorough assessment of our comparative advantages and disadvantages vis-à-vis our neighboring economies. In this context, we must realize that cooperation and integration will be effective only if countries complement each other in terms of trade. By assessing our advantages and disadvantages, we will be able to select those areas and industries where regional cooperation will be most likely to stimulate trade. Closer regional cooperation in such areas as tourism, transportation, telecommunication, and financial services will greatly facilitate the business development and economic growth of both Curaçao and its regional partners. Our tourism industry would benefit from more regional cooperation in marketing and promoting the Caribbean as a tourist destination. In addition, the sector would also gain from regional collaboration in tourism education and training programs. In the area of transportation, we would benefit from more intra-regional shipping routes to promote the growth of intra-regional trade and business links. Furthermore, increased intra-regional air connections would support the further growth of our tourism industry. In the area of telecommunication, our authorities could pursue regional collaboration to promote the further liberalization of the telecommunication services market and adequately regulate market monopolies, which tend to develop in this sector. This

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approach will stimulate the provision of state-of-theart equipment and services at competitive prices. In addition, removal of barriers to trade in the telecommunications industry will provide our local companies with opportunities to expand their activities in the region. Finally, more intensive collaboration is needed to promote the free flow of capital between our island and the region. Such collaboration will contribute to broader and deeper financial markets and the development of regional financial institutions, resulting in a wider range of financial instruments at lower costs. We already have had positive experiences with Caribbean banks and insurance companies that have expanded their activities toward our island. Ladies and gentlemen, successful regional integration requires more than just the removal of trade barriers. Economic policy coordination and cooperation are also important in this context. Such coordination should include the following goals: 1. Fostering of a stable macroeconomic environment. Macroeconomic policy instruments, such as fiscal policy and monetary policy, should be applied in a consistent and sustained manner, complemented by supporting policies in the fields of, for example, education and infrastructure, and a stable institutional framework. 2. Harmonization of regulatory frameworks towards a system of best practices. This goal comprises a wide range of policy areas, such as standards for prudential regulation and supervision of the financial sector, foreign investment regulations, labor standards, product and professional standards, and tax harmonization, to mention just a few. Tax harmonization should include a regional code on fair tax competition and limiting the extension of tax holidays to attract foreign direct investment to prevent the erosion of our tax bases. 3. Development of human capital. A well-educated and skilled labor force is a critical success factor for regional integration and effective competition in a globalizing world. Regional cooperation between universities and training and research institutes can create economies of scale and attract high-quality staff to produce a labor force that meets the skills demanded by the business sector and the government. 4. Improvement of productivity. This goal comprises not only labor productivity, but also managerial

capacity, adaptation to new technologies, and improvement of infrastructure. Through regional integration, alliances, and cooperation, we can overcome our inherent weaknesses and ultimately be able to compete successfully in the global market. Many countries in the region have already realized that regional integration is crucial to seizing the opportunities of globalization, and overcoming the risks and challenges of this irreversible process. I am convinced that progress towards more integration in the region will foster the performance of the Curaçao economy. For that reason, I sincerely hope that the question is not whether to integrate or not integrate, but rather, how integration can be realized in the most effective way. Therefore, integration into the region should be given a prominent place on the economic policy agenda of the new country of Curaçao. I thank you for your attention!

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Towards a Country Status for Curaçao: Financial and Social-Economic Implications Speech on the occasion of VBC’s 2008 L.B. Smith Lecture May 30, 2008

Ladies and gentlemen, good afternoon,

t is with a great deal of pleasure that I accepted the invitation of the Curaçao Business Association to deliver the 2008 L.B. Smith lecture. I was asked to share my views with you on the financial and socialeconomic implications of the constitutional changes for the future country of Curaçao. This topic is very timely because we all are confronted daily with news about the progress, drawbacks, complications, and differences of opinion related to this change of historical proportions we are preparing for that will shape our future prosperity and welfare.

An overwhelming amount of work has to be done to get our island ready for its future status as a country. Along the way, we are confronted with numerous threats and challenges that we must address to keep the process going. Despite the many differences that exist between our politicians, employer and employee associations, and other groups in our society, we share the common goal of Curaçao as an autonomous country in the Kingdom of the Netherlands. If we all focus on this common goal that binds us, we will be able to overcome our differences and reach the desired country status within a reasonable period of time. Although target dates are important to keep the processes of change going, I strongly believe that having all the essential legislation and institutions in place, sound public finances, and approval and funding for programs for structural reform and poverty relief are in indispensable for Curaçao to successfully assume its country status. Ladies and gentlemen, I have structured my address around three broad areas: (1) public finances; (2) structural reform and poverty alleviation; and (3) monetary and financial sector supervision. However, before I go into more detail on these areas with respect to the constitutional changes, I would first like

to discuss with you the current state of Curaçao’s economy and the challenges emitting from the international environment we are part of. The economy of Curaçao is finally picking up after a marginal annual average growth rate of 0.3% in real terms since the end of the economic recession in 2001. Economic growth increased to 1.4% in 2006 and a further acceleration to approximately 3.5% is estimated for 2007. The inflation rate remained stable at 3.0%, which is relatively high as a result of the impact of the rising world oil prices. The stronger growth was translated into an improvement in the labor market. The unemployment rate declined from its peak of 18.2% in 2005 to 12.0% in 2007. Youth unemployment also declined during this period from 44.0% to 24.2%. Although this decline is more than welcome, more progress is needed if we are to make durable inroads in our quest to eradicate poverty. The improved economic performance has been led primarily by the private sector. In particular, private investments grew strongly, but private consumption also contributed significantly to the expansion. The high investment growth was due largely to the construction of new hotels and the expansion of existing ones. This wave of new investment projects was triggered by the remarkable recovery in the number of tourists since 2006. During the previous three years, the number of stay-over visitors remained stagnant, reflected by an average annual increase of only a half percent. However, 2006 posted a growth of 6% and 2007 28%, the highest growth figures in the Netherlands Antilles. Consequently, the occupancy rate rose rapidly and has now surpassed the 90% limit. The rising occupancy rate created confidence among the existing hotels that the time was right to expand their room capacity. In addition, the potential for further

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strong growth in the number of tourists attracted new investors and the attention of large international hotel chains. Moreover, cruise tourism is also performing well after its recovery in 2005, although the growth rate is decelerating.

euro, the overall impact should be moderate. Finally, the foreign investments of our local financial institutions will be affected by the declining international interest rates and securities prices in the wake of the financial crisis.

Most other sectors also performed well. The airport handled 19% more passengers in 2007 than in 2006, owing to the strong growth in tourism. The harbor recorded an 8% growth in freight handled and 5% more ship calls. Moreover, the oil industry noted increases in refining, storage, and transshipment. In contrast, activities in ship repair and international financial & business services declined, the latter perhaps partly the result of the international financial turbulence.

Ladies and gentlemen, the fundamental changes in relative prices of commodities (the so-called silent tsunami) and their consequent impact on our cost of living, the volatility and turmoil in the international financial markets which greatly impacted capital flows and hence investment projects and the recession in the United States are all tantamount to an increase in taxation on our economy. This will impact our economic growth negatively and will bring its pressure to bear on our standards of living if no timely and appropriate policy measures are put in place. I therefore call for the institution of a blue ribbon committee on the national level if not on the Kingdom level to address these trying issues. The primary objective of this committee must be to devise ways and means to address the fundamental changes that are taking place in the world economy to mitigate their deleterious effect on our economies. Prominent among their recommendations should be policies to decrease our dependence on imported energy by looking for alternative energy sources consistent with a sustainable economic development.

The great volatility in international financial markets originating from the crisis in the US sub-prime mortgage market since mid-2007 and the continuing increases in the prices of oil, other raw materials, and food cast dark clouds over the world economic climate. Due to our small and open economy, Curaçao relies heavily on international trade, which is affected in various ways by these international developments. Import prices are rising rapidly, resulting in a higher inflation rate. We estimate an acceleration in the inflation rate to 3.5% in 2008, due primarily to higher food costs and domestic gasoline and utility prices. In light of the stringent budget rules concerning eligibility for the debt relief, the government cannot absorb the rising oil prices anymore and has started a gradual increase of the gasoline and utility prices. Consequently, private demand is expected to be tempered, slowing economic growth. The weaker groups in our society, such as persons relying on government support (“onderstand”) or a state pension (AOV), will suffer most from the price increases because they have no means to absorb them. Therefore, I support the efforts made by the government to compensate these groups for the impact of the rising prices. However, the compensating measures must not jeopardize the budget target or cause a disproportionate burden for other groups in our society. It is expected that the US economy will go through a brief recession in 2008, which is likely to affect the number of American visitors to our island. However, with a 20% share in total visitors and the favorable outlook for European visitors related to the strong

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Ladies and gentlemen, in addition to the threats emanating from the current international developments, preparing Curaçao for its new constitutional status will dominate our policy agenda in 2008 and the years ahead. The constitutional change brings many uncertainties, but it also creates unique opportunities to correct the many financial-economic and social imbalances on our island with the support of the Dutch government. The main objective is to prepare the island adequately for its status as a country with a sound financial position and a solid social-economic foundation, crucial conditions for a sustainable growth of our economy. The sound financial position has everything to do with Curaçao’s public finances. The accumulation of annual budget deficits resulted in an unsustainable debt level of NAf.2.5 billion in 2005, the year earmarked for the application of the debt relief, and it grew further to NAf.2.9 billion at the end of 2007. These debt levels correspond to 59% and 63% of GDP, respectively. The annual interest payments on the debt have reached

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NAf.150 million, absorbing 20% of tax revenues and 15% of expenditures. Given the initial 2008 deficit of NAf.170 million, it can be concluded that without this high interest burden, Curaçao’s budget would have been nearly in balance. In addition, high interest expenses crowd out funds needed for important policy areas, such as crime control, education, health care, infrastructure, and poverty alleviation. Moreover, a high debt burden substantially constrains our capacity to raise funds and hence our ability to grow. These results have significantly eroded the policy autonomy of our decision makers. To reduce the high level of debt to a sustainable level requires a long and painful adjustment process. Given the current erosion in public infrastructure and services due to a lack of funds and the prevailing poverty in Curaçao, I do not think this is a viable approach. The only realistic solution for the debt problem is a swift and significant reduction of the debt burden. This solution is included in the agreement between the central government, the governments of Curaçao and St. Maarten, and the Dutch government of November 2, 2006, better known as the “Slotverklaring.” In the “Slotverklaring”, the Dutch government agreed to take over the debt of the entities up to the level corresponding with an interest burden rule. In the case of Curaçao, this rule prescribes that the interest expenses in the budget may not exceed 5% of the average revenues of the preceding three years. Since the experts are still busy calculating the exact amount and composition of the debt to be assumed, the final outcome is not yet known. However, based on some broad assumptions, let me try to shed some lights on these figures. The average revenues of Curaçao as a country are estimated at approximately NAf.1.6 billion per year, resulting in maximum allowed interest expenses of NAf.80 million per year. Assuming an average interest rate of 7.5% on the debt results in a maximum allowed debt level of approximately NAf.1.1 billion, corresponding with a debt-to-GDP ratio of 25%. Compared with the actual debt of NAf.2.5 billion at the end of 2005, the Dutch government would take over 56% of Curaçao’s debt. I did not include Curaçao’s share in the unallocated central government debt in my calculation. Because Curaçao’s own debt already exceeds the level corresponding with the interest burden rule by a substantial amount, its share in the central government debt will be taken over by the Dutch anyway.

The debt relief and authority to borrow are bound by four strict conditions and control that will substantially enhance fiscal discipline and transparency. First, the current account of the budget may not have a deficit and must be presented in a multi-annual framework. Second, interest expenses may not exceed the 5% rule. Third, the recommendations of the Financial Position Working Group on improvement of financial management and control must be implemented as planned. Fourth, the entire budgetary process from preparation of the draft budget to the accountability of its implementation is subject to supervision by an autonomous supervisory authority. I fully support this rules-based supervisory framework because it will guarantee lasting sound public finances. However, this framework is quite a change from the current rather loose implementation of the budgetary rules. So, especially in the beginning, this new approach is bound to create frequent tensions with the supervisory authority; the recent experiences of Bonaire, Saba, and St. Eustatius serve as an example here. Ladies and gentlemen, I would like to share my thoughts with you on a number of issues regarding the debt relief. First, when will the debt relief start for Curaçao? After the Island Council finally ratified the “Slotverklaring” at the end of August 2007, expectations were high that the debt relief would go into effect in 2008. The island government even amended its budget to take into account the interest savings. Together with a set of measures, it would be possible to present a balanced budget for 2008. However, the preparations for the constitutional changes, including the debt relief, are taking much longer than initially anticipated. Recent information suggests that the “Algemene Maatregel van Rijksbestuur” regulating the supervision of Curaçao’s budgetary process will be approved by the end of this year, meaning that the debt relief will not become effective until 2009. In a worst case scenario, Curaçao will end up with a deficit of NAf.170 million in 2008 instead of a balanced budget, contributing to a further increase in the debt. This brings me to a second issue: what do we do with the debt accumulated after the end of 2005? If the debt relief starts in 2009, the deficits accumulated after 2005 will have added approximately NAf.550 million to Curaçao’s outstanding debt. This means that the maximum allowed debt will be exceeded by 50%. Clearly, if this amount is left out, we will not attain a sound financial starting position, the main objective

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of the debt relief. This issue must be resolved for successful debt relief. The final issue I’d like to mention concerning the debt relief is its impact on our capital market. The entire debt relief for all entities will result in NAf.3.5 billion flowing into the economy in the next 10-15 years from the settlement of payment arrears and the repayment of loans. Although part of this amount will end up abroad, a substantial amount will remain in our economy, increasing the availability of funds for the private sector and thereby contributing to a further decline in domestic interest rates. Borrowing at lower rates of interest will promote higher domestic consumption and investment leading to higher economic growth. On the other hand, our financial institutions have to deal with lower interest income, which should be compensated for by increasing efficiency and tapping other sources of revenue. Our institutional investors are a special case because they are subject to restrictions on investing abroad. They hold about 75% of the local government bonds, which will largely be redeemed. Since there are insufficient local investment alternatives at a comparable risk/return rate, the Bank has announced a special provision allowing these funds to be invested abroad. In addition to the debt issue, another major issue regarding the public finances is the government apparatus. Curaçao is becoming a country, which implies new tasks and responsibilities. This change of status provides a unique opportunity to design a new effective and efficient government structure. To do so requires several things. First, the government tasks must be defined, including the tasks being taken over from the central government. I understand that this exercise is almost completed with the assistance of consultancy company KPMG. Second, legislation on which to base the implementation of the government tasks must be prepared and approved. I believe current legislation generally will be adequate, complemented by the necessary amendments. Third, the government apparatus must be adequately staffed in accordance with the requirements listed in the job description of each position. The positions can be filled from the current pool of civil servants of the island as well as from the central government; if necessary, additional training can be provided. Positions that remain open should be advertised and filled with external candidates. Current civil servants who do not meet the job requirements and cannot be properly retrained should seek

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employment in the private sector. I think it is inevitable that setting up a new government apparatus from two existing entities will result in involuntary layoffs. Otherwise, the perceived benefits from the elimination of the present dual layer of government can never be realized. We have to focus on two major objectives in this exercise: (1) an efficient and effective government apparatus for the country of Curaçao, and (2) adequate compensation, counseling, and training for the civil servants who become redundant to create opportunities for them to secure a job in the private sector. Finally, the principles of good governance should be embedded in the new government apparatus to guarantee effective and responsible spending of our tax money, efficient high quality services to the public, and effective sanctions for misconduct and abuse. Ladies and gentlemen, to sustain the current economic recovery and to make our economy more resilient to external shocks, we must implement our structural reform agenda with much more vigor than has been the case so far. I have discussed this issue on many previous occasions, but given the lack of progress, allow me to repeat the necessary reforms briefly. Let’s start with the labor market. Reform in this area concerns two major aspects: (1) flexibilization of rules and regulations, and (2) reduction of the qualitative mismatch between demand and supply. Despite some improvements, rules on hiring and firing are still considered too rigid, while mandatory benefits and overtime compensation are high. Bolder steps towards more flexibility are needed to improve our competitiveness and create new jobs more easily, provided that individual protection against abuse is preserved. To reduce the qualitative mismatch between labor demand and supply education is the key. Our institutions that provide education should take into account to a much greater degree the skill needs in the private sector. Closer cooperation between the public and private sectors can help accomplish this goal. Although education is primarily a government task, the private sector should not hesitate to take its own initiatives. Companies could support education and training in their specific industry financially and/ or provide internships and training. I heartily welcome the initiative of the Curaçao Hospitality and Tourism Association to start a Hotel Academy, which will deliver properly trained staff for the many jobs that are being created in the booming tourism sector.

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A second area for reform is the further development of our capital market, promoting more financing opportunities for entrepreneurs and more local investment opportunities for investors. The latter has become even more relevant as a result of the declining significance of government bonds as an investment instrument in light of the debt relief. The development of private debt instruments and equity-based financing should especially be promoted. These types of financing are still rarely used on our island, but they are significantly cheaper than bank financing. Specifically for start-ups, the establishment of a venture capital fund could be crucial to raise the necessary financing for a promising investment project. The development of these instruments also can stimulate the development of a securities exchange. In summary, a wellfunctioning capital market will promote the realization of promising investment opportunities leading to faster growth in productivity and output. The reduction of administrative barriers for doing business is the third area of reform I would like to mention. One of the most common complaints from the business sector is the number and complexity of government formalities and paperwork that frustrate new investment initiatives and, hence, the opportunity for stronger economic growth. The elimination of the double layer of government on the island is certainly a step in the right direction. However, it should be complemented by streamlining administrative procedures aimed at eliminating all unnecessary bureaucracy, and simplifying the procedures for obtaining business and work permits and business visas. In addition, the creation of a one-window agency to serve potential investors as well as to provide aftercare services to existing investors is long overdue. Moreover, when we begin our new constitutional status, we must be cautious not to implement any new measures that might adversely impact our investment climate. What we should do is to embrace the possibilities offered by the new status by making our administrative system more transparent and efficient. A final area of reform that must not be neglected is tax reform. With the new status approaching, Curaçao will have the opportunity to include all the necessary reforms in a new tax system, contributing to the improvement of the investment climate. In my view, the new tax system of Curaçao should be simple and transparent. Direct tax rates should be competitive compared to other countries, especially in our region,

to encourage consumer spending and investment by raising disposable income. The result will lead to more economic activities, broadening the base of the sales tax. In addition, a more effective and efficient assessment and collection system should also be an important component of the new tax system, since it can ensure budget neutrality in the face of the reduction in direct tax rates. In this regard, I welcome the initiative of the Minister of Finance to put in place a mechanism to ensure the swift implementation of the recommendations made by the Ellis committee. Ladies and gentlemen, the higher economic growth that can be attained by implementing these reforms will ultimately also result in poverty reduction, but I do not think that the poor can wait any longer. Therefore, the reforms must be accompanied by targeted social programs for the poor that alleviate their immediate needs. The funds that become available with the recently signed Social Economic Initiative, which contains programs targeted at economic as well as social progress, will greatly facilitate the implementation of the necessary reforms and support for the poor. The third area I would like to discuss with respect to the constitutional changes, and one which is particularly close to my heart as a central banker, is the future of our monetary system and financial sector supervision in the new constitutional arrangement. The “Slotverklaring” explicitly states that there will be one central bank for Curaçao and St. Maarten responsible for monetary, financial, and integrity supervision based on one set of laws. Rationally considered, I fully subscribe to this statement. It means that the current central bank will be broadly maintained, continuing its good reputation and credibility in safeguarding the stability of the monetary and financial system. I believe this is very important in light of the uncertainties surrounding the numerous changes that will take place on the road toward the new constitutional status of the islands. In addition, with a common central bank, economies of scale can be maintained with regard to the high costs of highly educated staff and modern information and communication infrastructure. Moreover, a common central bank will provide a larger common economic area with broader economic diversification, which may dampen the impact of a shock occurring on one of the islands. If Curaçao and St. Maarten as autonomous countries share a common central bank and currency, they form

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a monetary union. Since autonomous countries have their own policy responsibilities, a monetary union requires a high degree of policy coordination and harmony to ensure a balanced and effective monetary policy. In addition, a well functioning monetary union requires free movement of goods, services, capital, and labor between the countries. These requirements may be difficult to reconcile with the desire for more autonomy by Curaçao and St. Maarten since this desire was the main driving force behind opting for country status. Ladies and gentlemen, autonomy dies from suicide and not murder. We must begin, however, with the understanding that strong political commitment is required to give up some of the newly won policy autonomy in the interest of a stable and effective monetary union. In addition, the central bank’s independence should not be subject to discussion. The Bank should be managed by persons with a high degree of professional standing and integrity, irrespective of nationality or place of birth. With regard to the supervisory board of directors, the governments of the two countries could be allowed to nominate candidates according to a predetermined number for each country and provided that certain professional and integrity standards are met. If we fail to comprehend this, we will not be able to create a stable monetary environment conducive to growth and stability. A deviation from those basic tenets for a common central bank will render this objective meaningless. We will need to work well together because we have a great challenge before us. It is our own incredible success that we face. As mentioned, like an inheritance the new found opportunities can be exploited successfully or be squandered. Though not far from inconceivable, if our politicians cannot come to an agreement on a common central bank, what will be the next best alternative? Curaçao will likely continue the current central bank with the existing monetary and supervisory infrastructure. Keep in mind that Curaçao comprises 70% of the Antillean economy, while most financial institutions have their local headquarters on the island. However, Curaçao’s central bank will start with a lower revenue base as a result of the division of the foreign exchange reserves with St. Maarten and the omission of income from the issuance of banknotes and currency transactions with banks in St. Maarten. The decline in revenues should be compensated by increases in other sources of revenues and cost reductions. 154

Ladies and gentlemen, we have opened an important new chapter in Curaçao’s history that will result in an autonomous country within the Kingdom of the Netherlands. This chapter is being written by many authors and consists of many sub-plots. Together we are all responsible for preserving the main storyline and finishing the chapter in time. It is my earnests hope that when we achieve our country status we do not lose our people. Let’s demonstrate that we are ready to carry out this responsibility and work tirelessly toward a strong and prosperous country. Thank you for your attention!

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The Financial Crisis and its impact on St. Maartens economy Presentation held at the Community Center in Philipsburg St. Maarten, March 4, 2009

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Economic developments in 2008 and outlook 2009 March, 2009

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Recent Economic Developments and their Repercussions for Small and Medium Enterprises Speech at ADECK fundraising lunch October 21, 2009

Good afternoon, ladies and gentlemen,

ur economy is currently facing many challenges. First, the world economy is experiencing its greatest slowdown since the Second World War. This undoubtedly affects the Curaçao economy in general, and the small and medium enterprises in particular. At the same time, we are in a process of constitutional changes that must lead to a status aparte for Curaçao. This process provides us an unique opportunity to address certain weaknesses of our investment climate that would benefit small and medium sized enterprises. I have been asked to discuss the recent economic developments and their impact on the small and medium enterprises in Curaçao. However, before discussing the local situation, I will start with the international environment.

Ladies and gentlemen, since July 2007 the global economy has experienced a severe financial crisis originating in the US housing and credit sectors. Due to the increased integration of goods, services and financial markets, the crisis has spread from the housing and credit markets in the United States to other markets and countries around the world. This has resulted into a deep worldwide recession with severe economic and social impact. There are few, if any economies that not have been affected by the crisis. Output has contracted in the major industrial countries, including the United States and the Euro area, and has slowed down in the emerging economies. Fortunately, global economic growth has started to rebound recently and financial conditions have improved markedly. World economic recovery has been driven largely by wide-ranging and coordinated public intervention, particularly in the industrial countries through supporting demand and reducing uncertainty and systemic risk in the financial markets.

The pace of recovery is, however, expected to be slow as uncertainties remain in the financial markets and public intervention will gradually have to be withdrawn. Against this background, it is projected that the world economy will contract by 1% in 2009 while recovering by about 3% in 2010. The global economic downturn has had severe repercussions for the Caribbean region. As external demand dropped, output in countries with relatively large manufacturing sectors contracted. In addition, foreign exchange revenues from tourism have been, dropping reflecting the weakening US, Canadian and European markets. Inflows from remittances and foreign direct investments have also been declining. As a consequence, real Gross Domestic Product is expected to contract in most countries in 2009 including the Bahamas by 3.9%, Barbados by 3.0%, and Aruba by 5.5%. Contrary to most countries in the region, the economy of the Netherlands Antilles is not expected to contract in 2009. One of the main reasons why our economy is an exception in the region, is the implementation of the debt relief program and the Social Economic Initiative. The inflow of debt relief funds has a positive impact on the current account of the balance of payments. In addition, it contributes to a cash surplus at the general government level and, hence, a decline in public sector debt. Thanks to the debt relief program, our debt-to-GDP ratio is projected to decline from 82% to 62% during 2009. An analysis by sector shows that activities in the tourism-related industries have, however, been negatively affected by the world economic recession. All islands of the Netherlands Antilles have experienced a drop in the number of stay-over visitors. In Curaçao, the

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number of tourist arrivals dropped by 1.4% during the first half of 2009, as a result of a decline in the North American and the Caribbean markets. The South American and European markets, on the contrary, expanded during the first six months of 2009. The latter was largely related to the appreciation of the Euro vis-à-vis the US dollar making Curaçao an attractive tourism destination in terms of costs for the Europeans. Meanwhile, hotel occupancy rates dropped from 86.5% in the first half of 2008 to 74.5% in the first six months of 2009. Activities in the wholesale and retail trade sector weakened during the first months of 2009 because of the decline in stay-over tourism, slower activities in the free-zone industry, and lower domestic demand. Furthermore, the transport, storage and communication sector showed a mixed performance in the first quarter of 2009. On the one hand, airport activities, as measured by the number of passengers handled, declined in line with the downturn in tourism. The number of passengers transported by the national carriers dropped also. On the other hand, harbor activities rose as a result of increased cargo movements and oil storage activities. The manufacturing sector recorded a remarkable decline in value added, attributable to the poor performance of both the “Isla” refinery and the Curaçao dry dock company. The financial and construction sectors were the main contributors to economic growth in the first quarter of 2009. The increase in financial sector activities was driven entirely by the good performance of domestic financial services as activities in the international financial sector declined due to the financial crisis. Construction work expanded largely because of ongoing tourism-related projects. However, the growth in construction moderated compared to the first quarter of 2008, in line with the slower growth in private investment. Against this background and in line with the latest forecast of the world economic growth, we expect economic growth in the Netherlands Antilles to slow to 0.8% this year. For 2010 we project the economy to expand by 1.3% given the expected recovery of the world economy. Needless to say that the projected economic slowdown for this year translates into lower activities for the small and medium sized enterprises. Small and

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medium enterprises are either active in the sectors that are being affected by the slowdown, including the hotels and restaurants sector, the wholesale and retail sector, and the international financial services sector or provide services to these sectors. The main pressures faced by these enterprises are weak demand, both domestic and foreign, and tighter credit conditions. According to the Central Bureau of Statistics, 97% of all enterprises in Curaçao are small or medium sized. These enterprises are crucial for the island economy as they account for 56% of employment and 31% of Gross Domestic Product. Given their importance, it is imperative that actions should be taken in order to help the small and medium enterprises survive these times of economic slowdown, and subsequently, benefit of the opportunities the projected economic recovery will offer. Ladies and gentlemen, we are currently in the historic process of the dismantling of the Netherlands Antilles. In the near future, Curaçao will become an autonomous country within the Dutch Kingdom. An autonomous status will provide us with the unique opportunity to address certain economic issues in a more island-specific way and thereby stimulate economic growth. Evidently, this will be beneficial for the business community, including the small and medium sized firms. A crucial aspect in this context is macro-economic stability. One of the greatest threats to our macro-economic stability is in my view our vulnerability to external shocks. Our balance of payments has become more susceptible to external shocks with far-reaching implications for the real economy. The rapidly expanding current account deficit during the last few years, financed by capital inflows from abroad exposes an increasing external vulnerability, which has been masked by the recent inflows of funds related to the debt relief program. A sudden reversal of capital flows could deplete our foreign exchange reserves quickly, undermining confidence in our currency. As we are preparing to close the last chapter of the Netherlands Antilles, it is crucial that we address these vulnerabilities to promote the welfare of the new countries’ citizens. With regard to the monetary system in the new constitutional structure, it has

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been agreed that the countries of Curaçao and Sint Maarten will form a monetary union with one central bank and a common currency. However, the balance of payments vulnerability compels us to consider alternatives, one of which is dollarization. Three of the five islands comprising the Netherlands Antilles, i.e., the BES islands, have chosen to introduce the US dollar as the legal tender once their new status takes effect, while Sint Maarten is already de facto dollarized. Moreover, the US dollar is widely accepted in Curaçao. Therefore, it would not be such a big step to formally dollarize Curaçao and Sint Maarten. Having the dollar as legal tender removes the possibility of a balance of payments crisis with the risk of devaluation. An economic downturn or reversal of capital flows would not turn into a currency crisis. An immediate benefit from the elimination of currency crises would be a reduction of the country risk premium, consequently lowering interest rates. In other words, the spread between the interest rates of the dollarized economy and the United States is reduced. Lower interest rates benefit growth by reducing the cost of credit, encouraging investments. In addition, as a result of dollarization, transaction costs, related to the conversion into foreign currency, are lowered. This would benefit trade, including tourism and foreign direct investments. Due to the perceived currency risk, local financial institutions might be more inclined to invest in foreign assets. In the absence of currency risk, the appetite to invest capital locally might increase. By adopting the US dollar, the financial system becomes more open to international capital flows. Capital mobility promotes financial intermediation, competition and efficiency among institutions, and promotes confidence in the financial system. It also encourages integration of the domestic financial system with the rest of the world. Although the public finances of Curaçao and Sint Maarten are closely monitored by the budget supervisor CFT, dollarization would provide an extra longterm constraint for fiscal policy as it eliminates the possibility of printing money to finance fiscal deficits. Hence, the restrictions on increasing the money supply can improve policy credibility given our long history of fiscal deficits and troubled adjustment programs.

Nevertheless, dollarization has also some disadvantages. First, the authorities lose monetary policy as an instrument to steer the economy, limiting the available policy mix to correcting macroeconomic disequilibria. Second, the “lender of last resort” function of the central bank disappears. Finally, under dollarization, the central bank would lose its main sources of income, i.e., investment of the foreign exchange reserves and seignior age from issuing banknotes. With respect to the first argument against dollarization, the loss of a policy instrument, the following counter argument can be made. Given the limited scope to pursue independent monetary policy under the current exchange rate regime, this loss would not be substantial. The recent adjustment periods have indicated that small open economies like ours are limited to fiscal policies and structural measures to remain competitive and hence improve their investment climates. With regard to the issue of profitability and the function of the central bank as lender of last resort, it is important to put the current reality into perspective. The lion share of the central bank’s profit consists of license fees, which will continue to exist under the regime of dollarization. In addition, since the balance of payments constraint is no longer binding, the need to hold foreign exchange reserves to maintain the peg no longer applies. Therefore, the Bank’s reserves will all become investable funds, thereby preserving the profitability of the Bank. To address the issue of lender of last resort, we need to accelerate the introduction of a deposit insurance scheme. Aside from providing depositors with added security, the funds of such a scheme, some of which can come from the current reserve requirements, will support the function of lender of last resort. Moreover, the government would have to assume this function even under the current exchange rate regime. This became abundantly clear during the recent international financial crisis. Hence, dollarization would result in no perceptible changes in the profit of the central bank and hence no impact on the government budget. Rather, it might lead to an increase in the Bank’s profit since the balance of payments constraint always has confined the Bank to pursue a policy of profit maximization. The Bank also has non-interest sources of income in terms of the fees it charges the financial institutions to cover the costs of financial sector supervision.

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A careful assessment towards a realistic balance between the advantages and disadvantages of dollarization for Curaçao in particular should be part of the public debate in choosing the most suitable monetary system for the future countries in the Kingdom. The balance seems to point in the direction of dollarization, given our vulnerabilities in the present world economic order. However, dollarization does not stand alone as a remedy for economic ills. It must be accompanied by a series of structural reforms in order to achieve economic growth and development in the long term. These reforms will improve our competitiveness and create opportunities for businesses, including small and medium enterprises. First, in the absence of monetary policy instruments, external shocks that require a change in real wages will not have lasting effects on the rate of unemployment if the labor market is flexible. This flexibility may need to take form of downward flexibility of nominal wages, and low hiring and firing costs. Another aspect of the labor market that needs to be addressed is the reduction of the qualitative mismatch between demand and supply. In my opinion, education is crucial in order to reduce this mismatch. Our vocational institutions should take into account to a much greater degree the skill needs in the private sector. A second area for reform is the further development of our capital market, promoting more financing opportunities for entrepreneurs and more local investment opportunities for investors. The latter has become even more relevant as a result of the declining significance of government bonds as an investment instrument in light of the debt relief. The development of private debt instruments and equity-based financing should especially be promoted. These types of financing are still rarely used on our island, but they are significantly cheaper than bank financing. Specifically for start-ups and small and medium enterprises, the establishment of a venture capital fund could be crucial to raise the necessary financing for promising investment projects. Another important area of reform is the reduction of administrative barriers. One of the most common complaints from the business sector is the number and complexity of government formalities and paperwork that frustrate new investment initiatives and,

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hence, the opportunity for stronger economic growth. The elimination of the double layer of government on the island is certainly a step in the right direction. However, it should be complemented by streamlining administrative procedures aimed at eliminating all unnecessary bureaucracy, and simplifying the procedures for obtaining business and work permits and business visas. We must realize that “entrepreneurial firms” are the ones that will really benefit from the arising economic opportunities. In addition, the likelihood of surviving is also higher among firms that are creative and entrepreneurial. In this context being entrepreneurial entails identifying and introducing new products, new ways of production, distribution, and marketing. At the same time, an entrepreneur is not afraid of taking risks. In my opinion, our business owners should become more entrepreneurial to maximize the benefits from the economic opportunities offered by the future country of Curaçao. Ladies and gentlemen, small and medium enterprises play a crucial role in our economy as they are an important contributor to employment and GDP. As a result, we should take all the necessary steps to create a business environment that stimulates the creation and growth of truly entrepreneurial small and medium enterprises. Especially in these times when the world economy is recovering from a severe crisis and the development of a new world economic order.

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Recent Economic Developments and their Implications for the Sint Maarten Hospitality and Trade Industry Speech at the SHTA General Membership Meeting October 23, 2009

ur economy is currently facing many challenges. First, the world economy is experiencing its greatest slowdown since the Second World War. This slowdown undoubtedly affects the Sint Maarten economy in general, and the hospitality and trade industry in particular. At the same time, we are in a process of constitutional changes that will lead to a status aparte for Sint Maarten. This process provides us a unique opportunity to address certain weaknesses in our investment climate that, if corrected, would benefit the industry.

I have been asked to discuss the recent economic developments and their impact on the hospitality and trade companies in Sint Maarten. However, before discussing the local situation, I will take a look at the international environment. As small open economies, both Curaçao and Sint Maarten are very vulnerable to external shocks. Therefore, I will also spend some time on the benefits and costs of dollarizing the economies of Curaçao and Sint Maarten to reduce these external vulnerabilities. Finally, I will discuss some structural reforms needed to stimulate sustainable economic growth in Sint Maarten. Ladies and gentlemen, since July 2007 the global economy has experienced a severe financial crisis originating in the US housing and credit sectors. Due to the increased integration of goods, services, and financial markets, the crisis has spread from the housing and credit markets in the United States to other markets and countries around the world. This crisis has resulted in a deep worldwide recession with severe economic and social impacts. Few, if any economies have not been affected by the crisis. Output has contracted in the major industrial countries, including the United States and the Euro area, and has slowed in the emerging economies.

Fortunately, global economic growth has started to rebound recently, and financial conditions have improved markedly. World economic recovery has been driven largely by wide-ranging and coordinated public intervention, particularly in the industrial countries, through supporting demand and reducing uncertainty and systemic risk in the financial markets. However, the pace of recovery is expected to be slow as uncertainties remain in the financial markets and public intervention will gradually have to be withdrawn. Against this background, it is projected that the world economy will contract by 1% in 2009 and recover by about 3% in 2010. The global economic downturn has had severe repercussions for the Caribbean region. As external demand dropped, output in countries with relatively large manufacturing sectors contracted. In addition, foreign exchange revenues from tourism have been dropping, reflecting the weakening US, Canadian and European markets. Inflows from remittances and foreign direct investment have also been declining. As a consequence, real Gross Domestic Product is expected to contract in most countries in 2009, including the Bahamas by 3.9%, Barbados by 3.0%, and Aruba by 5.5%. Contrary to most countries in the region, the economy of the Netherlands Antilles is not expected to contract in 2009. One of the main reasons why our economy is an exception in the region, is the implementation of the debt relief program and the Social Economic Initiative. The inflow of debt relief funds has a positive impact on the current account of the balance of payments. In addition, it contributes to a cash surplus at the general government level and, hence, a decline in public sector debt.

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Thanks to the debt relief program, our debt-to-GDP ratio is projected to decline from 82% to 62% during 2009. However, an analysis by sector shows that activities in the tourism-related industries have been negatively affected by the world economic recession. The island of Sint Maarten was affected most severely in stayover tourism, which dropped by 13% during the January – June period of 2009 compared to 2008. This development was seen in all markets. With 56% of Sint Maarten’s tourist arrivals from the United States, the recession in the world’s largest economy has taken a visible toll on the island. Meanwhile, hotel occupancy rates in Sint Maarten dropped from 72% in the first half of 2008 to 50% in the first six months of 2009. The number of cruise tourists remained about the same during the first half of 2009 compared to the first half of 2008. Activities in the trade sector, particularly the retail trade, weakened during the first months of 2009 reflecting the decline in stay-over tourism and lower domestic demand. The following graph shows the developments in the turnover tax revenues in Sint Maarten, which can be considered an indicator of developments in the trade sector. So far, revenues in 2009 have been lower than in 2008. The transport, storage, and communication sector showed a mixed performance in the first half of 2009. On the one hand, airport activities, as measured by the number of passengers handled, declined in line with the downturn in tourism. Sint Maarten, for example, recorded a decline of 12% in the number of passengers handled at the airport during the first half of 2009. The number of passengers transported by the national carriers declined as well. On the other hand, harbor activities in the Netherlands Antilles declined reflecting mainly less cargo movements. The Netherlands Antilles’ manufacturing sector recorded a remarkable decline in value added, attributable to the poor performance of both the “Isla” refinery and the Curaçao dry dock company. The financial and construction sectors were the main contributors to economic growth in the first months of 2009. The increase in financial sector activities was driven entirely by the good performance of domestic financial services as activities in the international financial sector declined due to the financial

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crisis. Construction work expanded largely because of ongoing tourism-related projects. However, the growth in construction moderated compared to the first months of 2008, in line with the slower growth in private investment. In the case of Sint Maarten, license fee revenues are considered an important indicator of economic activity. As shown in the following graph, license fee revenues dropped over the period January – June 2009. Against this background and in line with the latest forecast of world economic growth, we expect economic growth in the Netherlands Antilles to slow to 0.8% this year. However, based on the economic indicators for the first six months of 2009, and in particular, the indicators for the tourism industry, the wholesale and retail sector, and license fee revenues, we project that Sint Maarten economy may experience a contraction this year. For 2010, we project the economy of the Netherlands Antilles will expand by 1.3% given the expected recovery of the world economy. The Sint Maarten economy is also expected to expand in 2010 as the economies in its main tourism markets are projected to recover. Needless to say, the projected economic slowdown for this year translates into reduced activities in Sint Maarten’s tourism industry and the trade sector. In addition, companies that provide goods and services to these industries will also experience a decline in activities. The main pressures faced by these companies are weak demand, both domestic and foreign, and tighter credit conditions. Given their importance, it is imperative that actions be taken to help these industries survive the present economic slowdown, and subsequently, benefit from the opportunities the projected economic recovery will offer. Ladies and gentlemen, we are currently in the historic process of the dismantling of the Netherlands Antilles. In the near future, Sint Maarten will become an autonomous country within the Dutch Kingdom. An autonomous status will provide us with the unique opportunity to address certain economic issues in a more island-specific way, thereby stimulating economic growth. This new perspective should be beneficial for the business community, in particular the

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tourism and trade industries, which are the economic pillars of Sint Maarten. A crucial factor in this context is macroeconomic stability. In my view, one of the greatest threats to our macroeconomic stability is our vulnerability to external shocks. Our balance of payments has become more susceptible to external shocks with far-reaching implications for the real economy. The rapidly expanding current account deficit during the last few years, financed by capital inflows from abroad, exposes an increasing external vulnerability, which has been masked by the recent inflows of funds related to the debt relief program. A sudden reversal of capital flows could deplete our foreign exchange reserves quickly, undermining confidence in our currency. As we are preparing to close the last chapter of the Netherlands Antilles, it is crucial that we address these vulnerabilities to promote the welfare of the new countries’ citizens. With regard to the monetary system in the new constitutional structure, it has been agreed that the countries of Curaçao and Sint Maarten will form a monetary union with one central bank and a common currency. However, the balance of payments vulnerability compels us to consider alternatives, one of which is dollarization. Three of the five islands comprising the Netherlands Antilles, i.e., the BES islands, have chosen to introduce the US dollar as the legal tender once their new status takes effect, while Sint Maarten is already de facto dollarized. Moreover, the US dollar is widely accepted in Curaçao. Therefore, it would not be such a big step to formally dollarize Sint Maarten and Curaçao. Having the dollar as legal tender removes the possibility of a balance of payments crisis with the risk of devaluation. An economic downturn or reversal of capital flows would not turn into a currency crisis. An immediate benefit from the elimination of currency crises would be a reduction of the country risk premium, consequently lowering interest rates. In other words, the spread between the interest rates of the dollarized economy and the United States is reduced. Lower interest rates benefit growth by reducing the cost of credit, encouraging investments. In addition, as a result of dollarization, transaction costs, related to the conversion into foreign currency,

are lowered. Lower transaction costs would benefit trade, including tourism and foreign direct investments. Due to the perceived currency risk, local financial institutions might be more inclined to invest in foreign assets. In the absence of currency risk, the appetite to invest capital locally might increase. By adopting the US dollar, the financial system becomes more open to international capital flows. Capital mobility promotes financial intermediation, competition and efficiency among institutions, and promotes confidence in the financial system. It also encourages integration of the domestic financial system with the rest of the world. Although the public finances of Sint Maarten and Curaçao are closely monitored by the budget supervisor CFT, dollarization would provide an extra long-term constraint for fiscal policy as it eliminates the possibility of printing money to finance fiscal deficits. Given our long history of fiscal deficits and troubled adjustment programs, restrictions on increasing the money supply could improve our policy credibility. Nevertheless, dollarization has some disadvantages. First, the authorities lose monetary policy as an instrument to steer the economy, limiting the available policy mix to correcting macroeconomic disequilibria. Second, the “lender of last resort” function of the central bank disappears. Finally, under dollarization, the central bank would lose its main sources of income, i.e., investment of the foreign exchange reserves and seigniorage from issuing banknotes. With respect to the first argument against dollarization, the loss of a policy instrument, the following counter argument can be made. Given the limited scope to pursue independent monetary policy under the current exchange rate regime, this loss would not be substantial. The recent adjustment periods have indicated that small open economies like ours are limited to fiscal policies and structural measures to remain competitive and thus improve their investment climates. With regard to the issue of profitability and the function of the central bank as lender of last resort, it is important to put the current reality into perspective. The lion’s share of the central bank’s profit consists of license fees, which will continue to exist under dollarization. In addition, since the balance of payments constraint is no longer binding, the need to hold foreign exchange reserves to maintain

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the peg no longer applies. Therefore, the Bank’s reserves will all become investable funds, thereby preserving the Bank’s profitability. To address the issue of lender of last resort, we need to accelerate the introduction of a deposit insurance scheme. Aside from providing depositors with added security, the funds of such a scheme, some of which can come from the current reserve requirements, will support the function of lender of last resort. Moreover, the government would have to assume this function even under the current exchange rate regime, something which became abundantly clear during the recent international financial crisis. Hence, dollarization would result in no perceptible changes in the profit of the central bank and hence have no impact on the government budget. Rather, dollarization might lead to an increase in the Bank’s profit since the balance of payments constraint always has confined the Bank to pursue a policy of profit maximization. The Bank also has non-interest sources of income in terms of the fees it charges the financial institutions to cover the costs of financial sector supervision. Realistically assessing and balancing the advantages and disadvantages of dollarization for Sint Maarten and Curaçao should be part of the public debate in choosing the most suitable monetary system for the future countries in the Kingdom. The balance seems to point in the direction of dollarization, given our vulnerabilities in the present world economic order. However, dollarization does not stand alone as a remedy for economic ills. A series of structural reforms also are needed to achieve economic growth and development in the long term. These reforms will improve our competitiveness and create opportunities for businesses. The first area for reform is increasing market flexibility and balancing demand and supply. In the absence of monetary policy instruments, external shocks that require a change in real wages will not have lasting effects on the rate of unemployment if the labor market is flexible. This flexibility may need to take the form of downward flexibility of nominal wages, and low hiring and firing costs. Another aspect of the labor market that needs to be addressed is the reduction of the qualitative mismatch between demand and supply. In my opinion, education is crucial to reduce this mismatch. Our vocational institutions

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should take into account to a much greater degree the skill needs in the private sector. A second area for reform is the further development of our capital market, promoting more financing opportunities for entrepreneurs and more local investment opportunities for investors. More investment opportunities for investors has become even more relevant as a result of the declining significance of government bonds as an investment instrument in light of the debt relief. The development of private debt instruments and equity-based financing especially should be promoted. These types of financing are still rarely used on our island, but they are significantly cheaper than bank financing. Specifically for start-ups and small and medium-sized enterprises, the establishment of a venture capital fund could be crucial to raise the necessary financing for promising investment projects. Another important area of reform is the reduction of administrative barriers. One of the most common complaints from the business sector is the number and complexity of government formalities and paperwork that frustrate new investment initiatives and, hence, the opportunity for stronger economic growth. The elimination of the double layer of government on the island is certainly a step in the right direction. Also needed is a streamlining of administrative procedures aimed at eliminating all unnecessary bureaucracy, and simplifying the procedures for obtaining business and work permits and business visas. Finally, medium- and long-term policy efforts should be aimed at making the Sint Maarten economy less susceptible to future shocks. Hence, the recent initiative to develop an international financial and business services sector on the island is a step in the right direction. In addition, the policy agenda should include efforts to make Sint Maarten a regional hub for the transportation of passengers and freight. We must realize that “entrepreneurial firms” are the ones that will really benefit from the arising economic opportunities. In addition, the likelihood of surviving is also higher among firms that are creative and entrepreneurial. In this context, being entrepreneurial entails identifying and introducing new products, new ways of production, distribution, and marketing. At the same time, an entrepreneur is not afraid to take risks. In my opinion, our business owners should be-

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come more entrepreneurial to maximize the benefits from the economic opportunities offered by the future country of Sint Maarten. Ladies and gentlemen, the hospitality and trade industry plays a crucial role in Sint Maartenâ&#x20AC;&#x2122;s economy as it is the major contributor to employment and GDP. As a result, we should take all the necessary

steps to create a business environment that stimulates the creation and a growth of the businesses in this industry. This is especially relevant in these times of the world economy recovering from a severe crisis and a new world economic order is being developed.Â Thank you for your attention.Â

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Financieel-economische ontwikkelingen in de Nederlandse Antillen 4 november 2009

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Pasku Diskurso na okashon di Selebrashon di Pasku 2009 di Banko Sentral 18 desèmber 2009 Apresiable Señora Minister de Lannooy, Miembronan i èks miembronan di hunta di komisario di Banko, Penshonadonan i koleganan,

we nos a bini un biaha mas huntu pa den un ambiente kolegial nos selebrá Pasku di Nasementu. E periodo aki ta unu den kua un i tur ta reflehá riba e retonan i e logronan di e aña ku ta finalisando. Alabes nos ta fiha metanan pa e aña benidero. Den kaso di Banko Sentral, mi por bisa ku orguyo ku aña 2009 un biaha mas tabata un aña fruktífero. Den tur nos diferente áreanan nos a mira desaroyonan positivo. Esaki ta danki na e aporte di un i tur ku ta empleá aki na Banko Sentral. Nos di gerensia di Banko ta apresiá boso aporte i nos ta spera ku den e aña benidero nos por sigui konta ku boso koperashon pa huntu nos sigui kosechá eksito i konsekuentemente aportá na progreso di nos pais. Riba e tereno makroekonómiko, nos por bisa ku 2009 tabata un aña ku hopi reto. Na final di 2008 i komienso di 2009 ekonomia mundial a pasa den hopi turbulensia a konsekuensia di e krísis finansiero internashonal. Tabatin un sierto temor pa e reperkushon di e krísis aki pa nos ekonomia. Esaki espesialmente si nos tene na kuenta ku nos ekonomia ta relativamente chikitu i habrí, i konsekuentemente vulnerabel pa shòknan eksterno. Manera nos tur sabi, ekonomia mundial a pasa durante di 2009 den e reseshon di mas grave for di Segunda Guera Mundial. Mayoria pais desaroyá a eksperenshá un kresementu ekonómiko negativo durante di 2009. Nos region tambe a sinti e impakto negativo di e krísis finansiero internashonal. Por ehèmpel segun sifranan preliminar, produkto interno bruto di Bahamas a kai ku 3.9% na 2009, di Barbados ku 3% i di Aruba ku 8.4%. Den kaso di Antianan Hulandes nos por bisa ku e krísis finansiero a afektá partikularmente e sektor di tu-

rismo. Durante e promé mitar di 2009 tur isla di Antianan Hulandes a eksperenshá un bahada drástiko den e kantidat di turista ku ta keda mas ku un dia. Na mes momento aktividatnan den e sektor di benta por mayor i de tal a debilitá reflehando e kaida den e kantidat di turistanan ku ta keda mas ku un dia, ménos aktividat ekonómiko den Zona Franka i un bahada den demanda lokal. Sinembargo, kontrali na mayoria pais den region, ekonomia di Antianan Hulandes si lo konosé un kresementu ekonómiko – ounke moderá – na 2009. Nos a sobreviví e mal tempu aki danki na medidanan struktural ku a tuma durante e periodo di ahuste. Ademas, e saneamentu di debe i e transferensha di fondonan for di Hulanda den kuadro di e Inisiativa Sosial Ekonómiko tin un impakto positivo riba nos klima di invershon. Basá riba e resultadonan di e promé mitar di 2009 i tambe e proyekshonnan pa kresementu ekonómiko mundial, nos ta proyektá pa Antianan Hulandes un kresementu di 0.9% na 2009. Pa 2010 nos ta proyektá ku nos kresementu ekonómiko lo aselerá te 1.6% basá riba e proyekshon ku ekonomia mundial lo rekuperá otro aña. Sinembargo, ta importante pa nos realisá ku 2010 tambe lo ta un aña ku hopi reto pa nos islanan. Na e momentu aki nos ta bibando den e último fase di Antianan Hulandes. Pa òktober 2010, Antianan Hulandes lo stòp di eksistí. Kòrsou i Sint Maarten lo bira paisnan outónomo den Reino, miéntras Bonaire, Saba i Sint Eustatius lo haña un laso mas direkto ku Hulanda. Un di e komponentenan di mas importante den e proseso di desmantelashon di Antianan Hulandes ta e saneamentu di debe ku a kuminsá na yanüari di 2009

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pa gobièrnu sentral i pa gobièrnu insular di Kòrsou, na aprel di 2009. E proseso aki a kuminsá despues ku e dos entidatnan menshoná a kumpli ku e eksigenshanan stipulá. E eksigensianan aki tabata enserá, entre otro, presupuesto balansá, i fortifikashon di e maneho finansiero. A establesé e Hunta di Supervishon Finansiero, òf College Financieel Toezicht (CFT), pa supervisá finansa di e diferente gobièrnunan temporalmente. Konforme e programa di saneamentu di debe, gobièrnu hulandes lo paga 70% di gastunan di interes i 100% di debenan ku ta vense, te ora aproksimadamente 70% di e debenan ku mester a paga ainda na final di 2005 ta kanselá. Den kuadro di e saneamentu di debe, Hulanda a transferí aproksimadamente 835 mion florin pa durante di 2009. Manera ya mi a menshoná ta entre otro danki na e saneamentu di debe aki ku Antianan Hulandes kontrali na mayoria pais den region, a konosé un kresementu ekonómiko. Komo resultado di e saneamentu di debe akí, e tasa di debe kompará ku Produkto Interno Bruto lo baha konsiderablemente durante 2009. For di 1994 diferente intento i esfuerso a wòrdu hasí pa balansá e presupuesto di gobièrnu i konsekuentemente redusí nos debe públiko. Nos a implementá entre otro rekomendashonnan di Fondo Monetario Internashonal, Komishon Debe Nashonal i Banko di Desaroyo Internashonal. Gobièrnu a hasi intento pa entre otro redusí gastunan di pèrsonal i supsidionan. Ademas a subi ingresonan di gobièrnu dor di introdusí “omzetbelasting” i mehorá i optimalisá kobransa di impuesto. Lástimamente den hopi kaso e rekomendashonnan no a wòrdu apliká integralmente. Konsekuentemente e medidanan aki no tabata sufisiente pa realisá un presupuesto balansá i redusí nos debe públiko. Sin saneamentu di debe, Kòrsou lo a drenta e status di pais outónomo den Reino ku un debe igual na 94% di nos produkto interno bruto. Esaki lo a nifiká un debe di mas o ménos 30 mil florin pa kada habitante di Kòrsou, for di esun di mas hóben te esun di edat mas avansá. Den e kaso di Sint Maarten, e isla aki lo a bira pais outónomo den Reino ku un debe igual na 80% di e produkto interno bruto. Esaki lo tabata un debe di mas o ménos 18 mil florin pa kada habitante di e isla aki. Indudablemente, e debe aki lo a resultá den un posishon di salida debil pa tantu Kòrsou komo Sint Maarten. Konsekuentemente e futuro paisnan lo no tabatin espasio riba na presupuesto pa mehorá

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nan situashon sosio-ekonómiko. Saneamentu di debe al kontrario ta duna nos e oportunidat pa fortifiká nos ekonomia. Pa e motibu ey, e aktual diskushon tokante kontinuashon di e proseso di saneamentu di debe ta hopi preokupante. Ta importante pa den e diskushon aki nos para ketu na e implikashon di deskontinuashon di e proseso aki. Deskontinuashon di e proseso aki lo nifiká ku Kòrsou i Sint Maarten lo mester a tuma medidanan drástiko pa di e forma ey realisá un presupuesto balansá, redusí e debe pùbliko i logra un desaroyo sosio-ekonómiko duradero. Un alternativa pa saneamentu di debe ta oumento di impuesto. Den e kaso aki lo mester a oumentá impuesto ku 90%. Indudablemente esaki ta un alternativa irealistiko ya ku e ta daña nos klima di invershon i konsekuentemente stroba nos kresementu ekonómiko. Pues, kontinuashon di e proseso di saneamentu di debe ta krusial pa nos logra un desaroyo sosio-ekonómiko duradero. Apesar ku saneamentu di debe ta fortifiká nos ekonomia, e no ta solushoná tur nos problemanan. Den mayoria kaso e problemanan no ta pa falta di Hulanda of otro pais, sino ta originá serka nos mes. Desaroyo sosio-ekonómiko duradero di nos pais ta rekerí desishonnan krusial di nos banda. Por ehèmpel e konstrukshon di un megapir na Caracasbaai, modernisashon di nos refineria, desaroyo di e área di Rif i Santa Barbara ta nos propio responsabilidat. Esaki no ta solamente responsabilidat di gobernantenan sino di nos tur. Erornan ku a wòrdu kometé den pasado, jamas lo mester wordu ripití. Apresiabel koleganan i invitadonan, un biaha mas mi ke felisitá un i tur presente pa nan aporte duná na nos komunidat en general i na Banko Sentral en partikular durante di e aña ku ta terminando. Laga nos sigui hasi nos máksimo esfuerso pa huntu nos sigui aportá na desaroyo duradero di nos islanan. Na nòmber di gerensia di Banko mi ke deseá boso tur un Felis Pasku i un Aña Nobo yen di dicha i prosperidat pa boso i boso famia.

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The state of Curaçao’s economy: Developments & vulnerabilities Speech on the occasion of the L.B. Smith Luncheon of the VBC May 20, 2011

Good afternoon, ladies and gentlemen,

Introduction

t has already been seven months since Curaçao became an autonomous country within the Dutch Kingdom. The new country status brought with it a reminder that the world in which we are living is complex and constantly changing. Change brings uncertainty. At the same time, we have to recognize that in uncertainty and change lies opportunity and hope. The question, therefore, becomes: What will be the overarching strategy of the newly formed country Curaçao to advance the hopes and aspirations of its people? Where are we going in the world? How can we get there? What are the guiding stars that will illuminate our path? We need a strategy that will transcend our political divisions, orient us as one country, and give us both a common direction and the confidence and commitment to get to our destination. As I have stated on several occasions, the new constitutional status by itself does not lead to a higher level of sustainable economic growth and prosperity. To achieve sustained growth and prosperity today requires a new set of strategies because of the universal awareness that we are living through a time of rapid and universal change. The assumptions of the past make little sense because the Curaçao with thriving offshore, transportation, refining, and tourism sectors are as distant to the young generation today as the autonomy of 1954 was to those who designed the new constitutional arrangement. Moreover, Curaçao is experiencing its latest round of decline: the certainty that we are losing all the things that once made us a great island. We are living on the labor of the past. Our crumbling roads reflect a crumbling selfconfidence. Our education reformers often seem to despair that we can ever educate new generations effectively for today’s economy. Our health care system lags increasingly behind those of other nations.

It is against this backdrop, ladies and gentlemen, that I consider this a propitious time to discuss what to me are the most important challenges facing us. The risks that emanate from this interdependent world pose perhaps the greatest threat to our economic growth and prosperity. I will review recent economic developments in the context of those vulnerabilities and then conclude with some policy prescriptions that should be on the national policy agenda to strengthen and underpin the resilience of the Curaçao economy towards sustainable prosperity.

Recent Economic Developments Preliminary data indicate that the economy of Curaçao grew an estimated 0.2% in 2010, compared to a contraction of 0.5% in 2009. Meanwhile, consumer price inflation accelerated to 2.8% in 2010, up from 1.6% in 2009. The anemic economic expansion was due mainly to an upturn in the wholesale & retail trade and financial services sectors and in the public sector. The upturn in the public sector can be attributed to larger outlays on wages & salaries and goods & services. These gains were the result of salary adjustments, additions to payrolls, and expenses for technical assistance. Activities in the wholesale & retail trade sector rose, matching gains in domestic spending and tourist spending. By contrast, decreases in the manufacturing, construction, and transport, storage & communication sectors mitigated the upturn in the wholesale & retail trade and financial services sectors. The unfavorable development in manufacturing was due mainly to a drop in value added by the Isla refinery caused by the prolonged shutdown of the refinery from March till December 2010 because of problems in the BOO plant. Also, activities in the ship repair industry shrank. Meanwhile, construction investment activities were down in 2010, but less than in 2009.

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Ladies and gentlemen, you are what you owe. Our history speaks unnervingly on this matter. Curaçao’s deficit spending since the mid-eighties led to a debt build-up that resulted in a debt-to-GDP ratio that virtually rendered the government function as one of keeping creditors happy. This situation drove home that unfettered debt build-up can quickly compromise a country’s autonomy. But, thanks to the debt relief program that was an integral part of the constitutional reform, the Netherlands Antilles was able to reduce its debt-to-GDP ratio to approximately 32% on October 9, 2010. This is a substantial improvement over the 82.2% registered at the end of 2008, just prior to the initiation of the debt relief program in January 2009. The debt relief program allowed Curaçao and Sint Maarten to start their new status as autonomous countries with sound public finances and with budgetary rules and procedures in place to keep their finances in check. The estimated debt-to-GDP ratio of Curaçao at the end of October 2010 was 35%, while that of Sint Maarten was about 24%. These ratios can be categorized as sound according to international standards. Looking ahead, the question remains whether the fiscal policy now being pursued is consistent with sustainable fiscal balances given the overconfidence in the soundness and resiliency of the economy that is the banner message of the current administration. To be sustainable, economic growth has to be consistently higher than projected, and fiscal discipline has to underpin government policies. Ladies and gentlemen, another mounting risk is the widening deficit on the current account of our balance of payments. This deficit widened in 2010 compared to 2009, largely due to a decline in the net exports of goods and services. The latter decline resulted from an increase in imports accompanied by a decline in exports. The growth in imports can be ascribed to increased international oil prices. In contrast, exports shrank as a result of a contraction in re-exports by the free-zone companies. This contraction in re-exports was related to, among other things, lower demand from Venezuela due to the devaluation of the Bolivar, and the tightened foreign exchange controls by the Venezuelan authorities. The fee received for oil refining contracted due to the temporary shutdown of the refinery. Furthermore, oil

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storage fees received from abroad declined as a result of a drop in oil storage activities. The decline in exports was mitigated by increased foreign exchange revenues from bunkering activities, related to the higher international average oil prices. Foreign exchange earnings from the tourism industry also rose in both Curaçao and Sint Maarten. This deficit on the current account of our balance of payments has been financed by the inflow of funds to finance the debt relief and by the surpluses on the capital account. As a result, we have been recording overall surpluses on our balance of payments. Needless to say, this situation is unsustainable in the medium term. The sense of urgency to address this risk or possible severe adverse outcomes does not seem to be widely shared. The insufficient attention being paid to this factor, caused by a high degree of group-think and the lack of incentives to raise contrarian views, severely undermines our ability to discern risks and vulnerabilities associated with impending crisis before its outbreak. Ladies and gentlemen, with the relatively slow recovery in the advanced economies, Curaçao’s real GDP is projected to grow by a mere 0.3% in 2011, not much more than the estimated 0.2% in 2010. The 2011 growth will be backed by domestic demand resulting from gains in private demand and public investment. Meanwhile, the decline in net foreign demand will moderate the increase in domestic spending. Accompanying this slight economic growth will be a higher inflation of 4.8% due to higher world food prices and the pass-through of higher international oil prices in domestic gasoline and utility prices. An analysis of the growth and inflation figures of Curaçao over the period 2005 to 2011 shows an economic performance averaging one percent. Our headline inflation peaked in 2008 due mainly to the increased international oil and food prices. It should be noted, however, that the impact of the international financial and economic crisis on the Curaçao economy was relatively moderate, in contrast to its effect on most countries in the region. Curaçao emerged relatively unscathed mainly because of the implementation of the debt relief program and the socioeconomic initiatives. Moving forward, however, inflation is bound to increase due to rising commodities prices. To insulate the domestic economy from this risk requires a different approach to problem-solving than we are current-

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ly pursuing. We need to leverage all our strength to achieve this goal by developing a plan for sustainable access to the resources we need for our continued well-being, prosperity, and economic growth. Ladies and gentlemen, economic growth in Curaçao has not been robust enough to make substantial progress toward lowering the socially unacceptable high unemployment rate. Unemployment is not only destroying the lives of many, it is undermining Curaçao’s future. The longer this goes on, the more workers will find it impossible ever to return to employment, the more young people will find their prospects destroyed because they cannot find a decent starting job. The unemployment is eating away at our society. We seem to have developed a strange apprehension about our ability to create an investment climate conducive to sustainable high growth to address the issue of high unemployment and social exclusion. We need a credible macroeconomic policy mix. Such a mix cannot be won through intimidation and threat, and it cannot be sustained through exclusion. It requires a commitment and investment in the future. Our investment priority, therefore, must be intellectual capital and a sustainable infrastructure of education, health, and social services to provide for the continuing development and growth of Curaçao’s youth. So, the question becomes: What has kept us from achieving a higher level of sustainable economic growth? In my opinion, ladies and gentlemen, our weak economic performance is the result of, among other things, lack of resiliency to external shocks. Small economies like ours are susceptible to these external shocks because of their openness, size of domestic markets, lack of economic diversification, and the high dependence on strategic imports such as food and oil. Some of these shocks are caused by nature, and little can be done to insulate us from their consequences. But some of these shocks are related to trade and exchange, such as a contraction in external demand and increased international oil and food prices. These types of shocks have a direct impact on our balance of payments and domestic consumption and investment. In the past couple of years, our balance of payments increasingly has become affected by this

category of shocks because of, among other things, increased international oil and food prices with farreaching implications for the real economy. The rapidly expanding current account deficit during the last few years, financed by capital inflows from abroad, exposes an increasing external vulnerability, which has been masked by the inflows of funds for the debt relief program. A sudden reversal of capital flows could deplete our foreign exchange reserves quickly, undermining confidence in our currency. A third category of shocks includes those that result from our own policy mistakes. Hence, these types of shocks are more endogenous and reflect our own political choices. Ladies and gentlemen, to achieve higher levels of sustainable growth, our priority must be to pursue policies that strengthen our ability to weather those storms and policies to foster rapid growth. Therefore, our policy agenda needs to address three crucial areas. The first item on the national policy agenda to achieve the mentioned objectives should be macro-economic stability. To mitigate the adverse impact of shocks, fiscal and monetary policies should be able to respond quickly by mobilizing resources to address these imbalances. Sound fiscal balances as measured by a low debt-to-GDP ratio are crucial. A low debt-to-GDP ratio provides authorities with room to maneuver and hence increases their choices of which policy instruments to use to address the crisis. Thanks to the implementation of the debt relief program, the debtto-GDP ratio of Curaçao is currently sound. Curaçao was required to meet several conditions to qualify for debt relief. The main requirement was financial supervision by an independent board, the College Financieel Toezicht (CFT), established to temporarily assess and monitor the public finances of the countries. Other conditions included the strengthening of financial management and adherence to a balanced budget rule and an interest burden rule. The interest burden rule stipulates a yearly interest ceiling of 5% of government revenues. These conditions are designed to prevent the uncontrolled build-up of debt in the future and hence, contribute to macroeconomic stability. With regard to Curaçao’s monetary policy, since 2009 I have been advocating the following policy response: rather than focusing all our attention on specific threats and risks, as we have in the past, we should

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evaluate the possibility of removing the constraints and seek opportunities to credibly influence these risks to our advantage. To that end, I have advocated a new foreign exchange arrangement. Having the US dollar as legal tender removes the risk of exchange rate adjustments. Hence, an economic downturn or reversal of capital flows would not turn into a currency crisis. In addition, dollarization has other advantages, including lower transaction costs, the promotion of financial sector soundness, and the integration of the domestic financial system with the rest of the world. The second area to be addressed in terms of a national policy agenda is the functioning of markets. Ladies and gentlemen, in the case of adverse shocks, resources will be reallocated rapidly through the price mechanism in markets that are functioning efficiently, freely, and competitively. Hence, market efficiency will enable us to cope better with economic shocks. One of the most important markets we should address is our labor market. Tight labor market regulations have adverse effects on economic performance because they allow vacancies and unemployment to coexist, contributing to high overall unemployment rates. To improve our competitiveness, we must be able to deploy labor in a more flexible way, as long as individual protection against abuse is preserved. Competition is what has driven nations to achieve greatness. The efficient functioning of markets also is affected by bureaucracy and administrative barriers. One of the most common complaints from the business sector is the number and complexity of government formalities and paperwork that frustrate new investment initiatives and, hence, the opportunity for stronger economic growth. The elimination of the double layer of government on the island is certainly a step in the right direction. However, this change should be complemented by streamlining administrative procedures aimed at eliminating all unnecessary bureaucracy and simplifying the procedures for obtaining business and work permits and business visas. A third important topic for our national policy agenda is good governance. Good governance ensures that resources are allocated to those who will use them most effectively and efficiently. Therefore, good governance enhances both productivity and growth. We can distinguish between public governance and corporate governance. Public governance is defined as the traditions and institutions that determine how au-

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thority is exercised in a particular country. It includes the capacity of the government to manage resources efficiently and to formulate, implement, and enforce sound policies and regulations. Public governance is good when quality resources are managed and provided efficiently. Predictability, accountability, transparency, and participation are key factors for good public governance. Government decisions must be based on the rule of law, and firms and individuals must be protected from arbitrary decisions. Good public governance requires an effective and impartial legal system. Segregation of powers, and a system of checks and balances must be at the core of the political system. Good governance rests on the establishment of criteria for evaluating the performance of public sector institutions. Institutions such as the Court of Audit or Rekenkamer and the Ombudsmen are crucial to strengthen the accountability of the government. The general public will be able to ascertain the governmentâ&#x20AC;&#x2122;s adherence to law and regulations and evaluate its performance only if information about government activities is available, timely, and clear. Therefore, transparency is imperative for predictability and accountability. Finally, participation refers to the engagement of citizens in the decision making related to government plans and budgeting. By encouraging the participation of citizens, the government can have better insight into their needs and priorities. Public participation can be achieved through public consultation, hearings, and referenda. Ladies and gentlemen, although corporate governance and public governance have similarities, differences also exist. Corporate governance refers to the rules and practices that govern the relationship between the managers and shareholders of corporations, as well as stakeholders. A good system of corporate governance contributes to sustainable economic development as it promotes market confidence, facilitates long-term capital funding, and stimulates market discipline through appropriate disclosure and transparency. Also, corporate governance helps to ensure that the corporation takes into account the interests of a wide range of stakeholders. Good corporate governance is based on responsibility, accountability, fairness, and transparency, and promotes diversity of rules and regulations.

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The autonomy of Curaçao was based on the core values and principles that served the Netherlands Antilles as anchor and compass for more than fifty years. Our values defined our national character, and they are our source of credibility and legitimacy in everything we do. When these values are no longer sustainable, we have failed as a nation, because without these values, we do not have credibility. Today, we find ourselves in a very different environment. The challenges and opportunities facing us are far more complex than we could have imagined in 1954. Therefore, we must recognize the need to take a hard look at the governance of state-owned enterprises. Governance impediments and an institutional culture that discourages contrarian views risk triggering an environment not conducive to growth and prosperity. In Curaçao, state-owned enterprises are prevalent in several key sectors, including the utilities and telecommunication sectors. The governance of these companies is critical to ensure their positive contribution to Curaçao’s overall economic performance and competitiveness. The OECD has defined some key guidelines for the governance of state-owned enterprises. First, to avoid market distortions, the legal and regulatory framework for state-owned enterprises should ensure a level-playing field in markets where stateowned enterprises and private sector companies compete. Second, the government should act as an informed and active owner and establish a clear and consistent ownership policy ensuring that the governance of the state-owned enterprises is carried out in a transparent and accountable way, with the necessary degree of professionalism and effectiveness. Therefore, the government should develop and issue an ownership policy that defines the overall objectives of state ownership, the state’s role in the corporate governance of the state-owned enterprises, and how the state will implement its ownership policy. Moreover, the government should not be involved in the day-to-day management of state-owned enterprises and should allow them full operational autonomy to achieve the agreed-upon objectives. In addition, the state should let the executive and supervisory boards of state-owned enterprises exercise their responsibilities in freedom and respect their independence. In other words, the shareholder should not be sitting in the chair of the director or supervisory director. Third, the state and state-owned enterprises should recog-

nize the rights of all shareholders and in accordance with the OECD Principles of Corporate Governance ensure their equitable treatment and equal access to corporate information. Fourth, state-owned enterprises should observe high standards of transparency in accordance with the OECD Principles of Corporate Governance. And finally, the supervisory boards of state-owned enterprises should have the necessary authority, competencies, and objectivity to carry out their function of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions. The recent experience in Curaçao has underscored the importance of these principles to promote market confidence in and attract long-term capital for stateowned enterprises. The exuberance in the preparation of the new constitutional arrangement led to a situation where the attention paid to these issues apparently was insufficient. The failure to segregate duties and responsibilities in the governance structure and unfettered interference of shareholders and supervisory directors in the day-to-day affairs of these enterprises have created incentive structures not well aligned to foster the candid exchange of ideas necessary for transparency. This situation is bound to lead to lapses in oversight and weak accountability and ultimately undermine economic growth.

Concluding Remarks Ladies and gentlemen, I have been asked to give an assessment of the current state of the Curaçao economy and the risks associated with the build-up of vulnerabilities associated with the economic shocks that Curaçao is susceptible to as a small and open economy. This assessment has been made in the context of the new constitutional arrangement, which went into effect on the 10th of October last year. As I have mentioned on several occasions, Curaçao’s new status as a country is not an end in itself. Rather, it is a means to achieve a better tomorrow. My assessment has made it abundantly clear that we need a strong, effective, and well-equipped government to face the many economic and financial challenges that lie ahead. Yet the problems uncovered by this assessment are long-standing and difficult to solve: addressing them will require close collaboration between authorities and social partners. To achieve this collaboration, we need to create an environment that encourages candor and considers dis-

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senting views. We need to modify incentives to speak truth to power. We need to pursue sustainable macroeconomic policies consistent with the global outlook and risks. We need to overcome the insular culture. Ladies and gentlemen, to achieve this better tomorrow, we need a vision, a national strategy that embraces these issues. Without doubt, our greatest resource is CuraĂ§aoâ&#x20AC;&#x2122;s young people, who will have to shape and execute the vision needed to take this island forward into an uncertain future. A reawakening of some sort may be required. Perhaps because we have been so blessed over time, many of us have forgotten that rewards must be earned, that there is no such thing as a free lunch. Fair competition and hard work bring with them a true sense of accomplishment. We can no longer expect the generosity of the Kingdom or the ingenuity and labor of the past generations to sustain our growth as a nation for generations to come. We must embrace the reality that with opportunity comes challenge, and that for us to succeed as an autonomous nation, requires a commitment and investment in the future. Our vulnerabilities have restrained us from achieving a higher level of sustainable economic growth and, hence, prosperity for us all. Therefore, through strengthening of our economic resilience based on policies aimed at a stable macroeconomic environment, efficient-functioning markets, and good governance, we will be able to break with the past and provide our new country with a bright future. I thank you for your attention.

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Capital market stability Speech on the occasion of the First Latin-American & Caribbean Trade Fair and Congress April 14, 1999

Ladies and gentlemen,

t was with a great deal of pleasure that I accepted the invitation to address this first conference on Latin America and Caribbean trade fair and capital markets. I welcome the opportunity to address such a distinguished gathering of financial professionals about the role of capital markets in our economies, their characteristics and possibilities. I am pleased to note that the first securities exchange has been established in the Netherlands Antilles and that trade in stocks, fixed-income securities, options, and other financial assets soon will be part of our domestic capital market. The establishment of such an exchange is a milestone in our capital market development because it is an important step toward a well-developed and diversified capital market. Given the globalization and the integration of capital markets in the world economy, a well-developed capital market for our small-scale economy is of paramount importance. The presence of well-developed capital markets will enhance the efficiency of the allocation of financial resources in our economies. Financial institutions have played a prominent role in the allocation of resources in our economies, and they are the main channels through which economic development is financed. However, our experience in recent decades has been that bank-based financial systems have not always been able to adequately meet the need for capital, especially long-term capital. In this regard, capital market development increasingly is being seen as a critical factor for the long-term growth prospects of countries in development. Besides stimulating economic growth, a well-developed capital market will contribute significantly to the further development of the financial sector in our Caribbean economies. In particular, a well developed capital market will introduce new financial products

and incentives for existing financial institutions to become more competitive. In other words, it will enhance market mechanisms in our financial sector with benefits for the broader economy. The strengthening of the market mechanism in the financial sector also will be beneficial to the conduct of monetary policy. As is well known, efficient capital markets are important in improving the use and effectiveness of market-oriented instruments of monetary control because they contribute to a better pricing and allocation of financial resources. In particular, the determination of the short-term and long-term interest rates and the impact of these interest rates on the entire economy are enhanced through efficient capital markets. Moreover, a well-developed capital market can contribute to the fiscal discipline of the government. As more domestic corporations commence raising funds in the domestic capital market, a level playing field for available savings will emerge, because the government will have to compete with the private sector to borrow funds. Subsequently, the government will have to accept the high costs of its borrowing in terms of high interest rates or impose more fiscal discipline on itself to reduce its financing requirements. Given its effect on the flow of capital, a well-developed domestic capital market also can have a positive impact on the capital account of our balance of payments. Until now, many local investors have had only two alternatives: place their money on deposits at commercial banks, or buy government securities. Consequently, to diversify their portfolios, many local investors have had to seek access to foreign financial markets. The further development of a domestic capital market not only will provide local investors

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with a variety of investment opportunities, but also will provide them with alternative instruments that can be used as substitutes for foreign instruments. The result, a larger share of domestic savings will be used to finance domestic investments. Furthermore, a well-developed domestic capital market attracts foreign investors, which also will contribute to the capital account of our balance of payments. Ladies and gentlemen, emerging markets have experienced several waves of pressure since early 1997 emanating mainly from Asia. As a result, the international investment community has become more apprehensive about the risks of propagation from emerging markets to the world financial system. Recent events in these markets have affected all aspects of the international financial landscape and have brought to the fore the high degree of globalization and integration of financial markets. Those events served to underscore that developments in the international financial markets, while improving efficiency also have enhanced the potential for contagion when disruptive shifts in investor sentiment occur. A key lesson from this experience is the need to address promptly any sign of weaknesses in policies and institutions that ultimately may provoke sharp revisions in investor perceptions of a country’s prospects. The turmoil generated by the fall in the Asian markets exposed the vulnerability of financial markets to reversals of capital flows. If capital flows are not based on sound fundamentals they will only heighten the risks of disruptions and precipitate crises. Ladies and gentlemen, it is, therefore, a fallacy to think that capital markets will bring benefits if the institutional infrastructure is unstable. It is equally mistaken to think that markets will operate efficiently without a stable macroeconomic environment. Put differently, the main objective in increasing the resiliency of the international monetary system against financial market crises has to be to create the necessary conditions under which markets can function more effectively and impart a stabilizing influence on the broader economy. Against the background of increased globalization of financial markets and altering investors’ attitudes, we should ask ourselves the following critical questions:

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What can a well-developed capital market in the Netherlands Antilles offer to the international investment community? More specifically, what are our comparative strengths and weaknesses in the global financial marketplace? I think this conference is an appropriate forum for discussing these questions and the role of the Netherlands Antilles as an international financial center. From the Central Bank’s perspective, one of the main conditions for attracting foreign investors in this “new era” is stability in the financial system. Financial market stability derives from an improved institutional infrastructure, an adequate supervisory and regulatory framework, enhanced transparency, market discipline, and corporate governance, and enhanced risk management by financial institutions. The increasing volume of cross-border financial flows and the greater potential of financial markets to propagate financial instability to the financial institutions that deal actively in them, raise the question of whether the current regulatory structures, which remain fragmented along industry and national lines, are adequately suited to an emerging financial landscape where these borders are becoming increasingly blurred. Given this progressively complex environment, the Basle Committee promulgated the Core Principles for Effective Supervision. These principles are the result of the joint efforts of supervisors acting internationally through the Basle Committee to focus on financial stability. The Core Principles constitute a codified version of best practice in the field of banking supervision. Similar initiatives now are being considered in the fields of insurance and financial conglomerates and securities regulation, and in the management of payment and settlement systems. Ladies and gentlemen, the Netherlands Antilles not only has fully endorsed the Core Principles, but also our current supervisory regime is fully in line with those core principles. In the fields of insurance and securities regulation, the Netherlands Antilles has made considerable strides in modernizing and updating its regulatory framework. Our current regulatory regimes in these fields are in line with internationally accepted standards.

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Improved supervision, however, is only one aspect of financial stability. Stability can be underpinned only by strengthening the internal discipline of the markets. The task of the supervisor is to find ways to work with the market forces in encouraging prudent behavior by market participants. The emphasis should be on good governance, sound risk management, and effective audit and control procedures. It should be based on the capacity of the financial intermediaries to weather the adverse shocks they are liable to encounter. In these areas, the Netherlands Antilles also can pride itself on a track record of good practices. For markets to operate efficiently, it also is necessary to have a stable macroeconomic environment. Macroeconomic setbacks, interacting with weaknesses in the financial sector, can bring even expanding economies to a halt. When the macroeconomic climate worsens, more loans go bad and more provisions have to be made. The resulting decreased credit availability further weakens economic activities. This vicious cycle helps explain the increased vulnerability of financial systems and the complex relationship between the stability of markets in general and the performance of the real economy. Therefore it is essential that a macroeconomic climate be created conducive to stability in the financial markets. Turning our attention to the domestic front however, I have to say that the current macroeconomic environment still is clouded by the near-term outlook for a credible and sustainable fiscal program. A multitude of inter-related risks makes the current economic situation unusually fragile. To deal with the worsening economic situation and prospects, confidencerestoring policy adjustments are needed. The creation of conditions that would encourage more stable longer-term capital flows still lags despite a series of adjustment programs initiated or announced in the past. A moment’s reflection on those programs reveals that they failed in varying degrees because of shortcomings in policies and implementation. While some of the announced stabilization programs contained all the necessary elements to achieve their stated objectives, much too often the measure did not go far enough in their implementation to bring about the structural adjustment necessary. Other programs were abandoned due to windfalls – transitory by definition – that have masked the

need for structural adjustments and subsequently precipitated future crises. This review of failed programs leads us to the farreaching question of how the current adjustment efforts should be redesigned to ensure that we reap the benefits of a stable macroeconomic environment conducive to stable financial markets and, hence, stable and sustainable economic growth. That is to say, where are we heading now? Broadly speaking, a consensus seems to have emerged about the nature of our fiscal and economic problems, and an agenda for action. The basic thrust of this agenda is better behavior and practices for both public and private entities based on transparency, accountability, and cooperation. The implementation of this agenda – a daunting task indeed – implies considerable challenges ahead. For strong growth to resume on a sustained basis, fundamental economic, financial, and institutional reforms clearly will be required. For the envisaged National Recovery Plan to achieve its stated objectives, the following line of action needs to be adopted and its enforcement ensured: (1) the current constitutional arrangement with two layers of government has created a government bureaucracy that has led to wasteful duplication of activities and has become prohibitively expensive to maintain. This waste must be eliminated; (2) current efforts to broaden the tax base and place more reliance on indirect taxes are commendable. However, the current practice of allowing a large number of exemptions has eroded the tax base and has rendered this policy ineffective. Additional income enhancing measures are likely needed to prevent a further deterioration of the current fiscal situation; (3) current widening budget deficits are mainly the result of a failure to contain wage pressures in the public sector. Resolution of this issue is the key to providing a structural and lasting solution to the budgetary problem. It is therefore critical that decisive action be undertaken to underpin the authority’s commitment to adjustment. Given the downside risks and the current financing constraints facing the governments, a swift downsizing of the government bureaucracy accompanied by adequate social provisions would seem desirable; and (4) the current privatization efforts ought to be accelerated to achieve the objective of a smaller role for the state and to take advantage of the current world economic situation.

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It is erroneous to believe, ladies and gentlemen, that economic recovery can be achieved without addressing our economic ills. I have said it before and would like to repeat it here: our problem is not the economy, it is rather too much government. Fiscal consolidation is an indispensable requirement to create the necessary conditions to restore sustainable economic growth.

the markets and the self-regulating instincts of market participants.

Ladies and gentlemen, gone are the days when governments could intervene to counteract undesired market developments. Stability can be effectively underpinned only by strengthening the internal discipline of markets.

Thank you

The best way to achieve that is to create conditions conducive to best practices, market transparency and a stable macroeconomic environment. I wish you a fruitful conference and hope you have a pleasant stay on our island.

Thus efforts to increase the flexibility of the labor market should be further pursued, and a phased elimination of the trade barriers that have been erected is called for. Another important variable in the investment climate equation is unnecessary bureaucracy and red tape. The elimination of these impediments should be at the forefront of the economic agenda. Further, governments are required to conduct macroeconomic policy in a transparent framework, and to provide timely, high-quality information. This policy of good governance will have to be rounded off with a firm commitment to sound social and human development policies. The task ahead is to pursue sound fiscal policy and at the same time make adequate budgetary provision for social spending in order to protect those groups most affected in the adjustment process. Experiences with initiatives such as the Reda Social have been encouraging. Private sector participants are required to adhere to internationally recognized standards and to behave according to accepted standards of corporate governance. Ladies and gentlemen, we must keep moving forward steadily and inject the best possible contributions to this process. If these challenges are met, we should be able to achieve quite rapid rates of economic growth. In conclusion let me bring you back to the topic of this conference, namely, capital market stability. The stability of financial markets has to be based on a search for ways to reinforce the stabilizing forces of

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Recent developments in the life insurance industry in the Netherlands Antilles Speech on the occasion of the official opening of the new office of Alico in Curaçao January 16, 2001

Excellencies, ladies and gentlemen, good evening,

t is with pleasure that I have accepted the invitation to be tonight’s guest speaker on the occasion of the inauguration of Alico’s new building. Ladies and gentlemen, a word of congratulation is in order. The growth that Alico has recorded in the last few years in the insurance market in the Netherlands Antilles forced them to move out of a landmark building into this new building. I commend the Board and Management of Alico for showing confidence in our economy, by investing in the establishment we are about to officially open today. Before going to the order of the day, allow me to address some recent developments in the life insurance industry in the Netherlands Antilles, that to a great extent is also being influenced by international developments. I would also like to dwell on some recent developments in the non-life insurance sector, particularly those related to the third party motor insurance which, has been the subject of public debates in the past few weeks. Insurance has become indispensable in our daily lives. Today it is unimaginable to live without the protection against numerous perils that we face: we need property insurance for our homes, insurance for our cars, insurance to cover damages caused by our children to properties of our neighbors, health insurance and last but not least, life insurance to provide us with some financial security or to secure the future of our loved ones in case of death. As with other industries, technological innovation and globalization have brought their pressures to bear on the insurance business. Insurance companies are being affected by these global shifts and we as supervisory authority are monitoring these changes continuously to assess their impact on the risk pro-

file of the industry. Potential new risks are emerging for the insurance industry associated with the rapid pace of globalization, the aging population, the developments of e-commerce and the convergence of financial activities. In the life insurance area, the distinction between certain types of products is becoming less and less clear. We are closely monitoring these developments since they are likely to affect the way we regulate and supervise the insurance industry. In order to cope with these changes it may very well be necessary to change the existing – or adopt new legislation in the future. Ladies and gentlemen, despite our economic situation in recent years the life insurance companies performed well. Regrettably, this has not been the case for the non-life insurance companies. However, one should bear in mind that adverse economic developments are not often felt immediately in the life insurance industry. As per December 1999, the equity position of the local life insurance companies consisting of capital and surplus increased by nearly 73%. This represents more than twice the amount needed to meet the required cushion referred to as the solvency margin. As you can imagine, we as supervisor welcome this situation as it represents added protection to the policyholders. Ladies and gentlemen, as I mentioned the life insurance industry is undergoing spectacular changes. Aside from the traditional products being offered such as retirement income, savings instruments, security instruments or as supplements to other contracts such as a basic pension plan, whereby the consumer insures him/herself against all risks, new products are being offered whereby the policyholder bears some of the risks.

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The desire for high investment yields, for example, may encourage a consumer to choose for a type of product whereby he or she bears the investment risk. It is important however, that the consumers be adequately informed of the risks they are exposed to in such a situation. Another development in this area, is the trade of insurance through the Internet, which brings modern financial products closer to consumers via his or her computer at home. While internet commerce brings a variety of products – otherwise not available – closer to the consumers, the one-to-one contact between agent and potential policyholder, a valuable and powerful service provided and source of advice currently by Alico and others, will be lost through policy acquisition via the computer. Consumers may have to take a decision based on incomplete information. The advent of policy acquisition via the Internet represents additional supervisory challenges for the Bank. In line with international developments, the Bank is currently working on guidelines for the insurance industry on the Internet. We hope to be able to discuss these and other challenges shortly with the industry.

Non-life sector Ladies and gentlemen, this brings me to the issue of non-life contracts. An issue that has been hotly debated recently. At issue is whether the premium, which is being administered by the Executive Council of the various Island Territories, allows market clearing to take place. To put it differently, whether the premium the insurance companies are allowed to charge is sufficient to cover the risks associated with the policy. If this is not the case, in a market economy such as ours the market will fail to clear at that price. That means that insurance companies will not be able to provide sufficient coverage at that price. As you all know, insurance companies providing coverage against third party motor liability have tightened their underwriting and acquisition guidelines and procedures. In some cases, the provision of certain coverages has been tied in with the sale of other products whereas in other cases the premium has been increased. The general public views these actions as unfair. This view is strengthened by the fact that, on the one hand, motorists have a legal obligation to acquire

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insurance against the legal liability as stipulated in the National Ordinance Liability Motor Vehicles commonly referred to as the ‘LAM’. The premium for this type of insurance coverage is stipulated by the different island governments. Insurance companies, on the other hand, are not required to provide these insurance coverages if the price and risk associated with a contract are considered by them to be unfavorable. For some years now insurance companies providing this coverage have been contending that the current rate structure is insufficient to cover the risks associated with such a contract. Changes in driving habits of the general public and frequent cases of insurance frauds have led to substantial losses in this type of the insurance business. Opponents of the measures recently introduced by the insurance companies are calling for the introduction of a legal obligation to provide coverage. The introduction of a legal obligation to the insurance companies to provide coverage will not solve the problem as long as the premium, which the insurance companies are allowed to charge is not sufficient to cover the risks, associated with the contract. As long as the price is not sufficient to cover those risks, insurance companies will not provide those services or they will exit that market segment as was the case with catastrophe coverage on the Windward Islands. Ladies and gentlemen, as supervisor our task is to protect the interest of the policyholders. And as such, the solvency of the insurance company is essential. While social considerations may call for a rate below the market premium, we must be cognizant of the fact that if the official premium insurance companies are allowed to levy forces the companies to operate at a loss, the protection called for in the supervisory act will be rendered useless. The LAM also provides for the introduction of a Motor Insurance Guarantee Fund. This issue has also received much attention recently and questions were raised as to why this Fund is not yet operational. In this respect allow me to explain first to you the objective of this Fund. Once operational, the Motor Insurance Guarantee Fund will indemnify losses in case of the existence of a legal liability as defined in the LAM under the following circumstances: 1. in the event that it cannot be determined which party is at fault;

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2. in case the party at fault failed to comply with the requirement to have insurance or; 3. in the event of insolvency of an insurance company. Please note that the objective of the Motor Insurance Guarantee Fund is not to operate as a regular insurance company but only to provide indemnification under the circumstances as previously mentioned or to cover the specific risks in the LAM. It is imperative that the much-needed infrastructure be in place, before the Fund becomes operational to avoid uncontrollable financial burden on this Fund. A requirement for the introduction of this Fund is a central registration system to ensure that no vehicle can use our driveways without a proper insurance coverage. This system will also provide information for insurance companies, car inspection centers and other governmental agencies, to minimize the risks of an insolvent fund in the near future. As the supervisory authority we are charged with the responsibility to promote the solvency of the insurance industry in the interest of the policyholders. If a company has a solvency deficit, the Bank can remove its license. Provision of insurance coverage at prices lower than their cost runs counters to this objective. The best approach to this problem is to re-institute the Working Group, which has been working on this issue to provide authorities with a lasting solution to this problem. Ladies and gentlemen, we are facing new challenges in the insurance area, new technological developments, changed financial products within an environment and an economy that is experiencing financial difficulties. Difficulties which need time, courage and decisive measures to overcome. In this respect investments like this new building are very much welcome. Allow me to congratulate again the management, shareholders and personnel of Alico for this new investment, which I am sure will not only benefit the company but also our entire community.

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Er is een win-win situatie mogelijk voor de institutionele beleggers en de Antilliaanse samenleving Toespraak ter gelegenheid van de directiewisseling van Ennia 22 november 2002

Inleiding

et was met genoegen dat ik de uitnodiging aanvaarde om vandaag, ter gelegenheid van de directiewisseling van Ennia, het woord tot u te mogen richten. Ten eerste wil ik Hans Groot welkom heten als nieuwe directeur van dit bedrijf. Hans, je aanvaardt deze functie juist op een moment waarop de verzekeringswereld, zowel lokaal als internationaal vanwege de heersende economische situatie zich voor veel uitdagingen ziet geplaatst. Ik hoop dat jij, evenals je voorganger zult weten deze uitdagingen het hoofd te bieden. Ik wens je sterkte en wijsheid toe in de uitvoering van deze taak. Het vertek van Jaap Willemsen brengt gemengde gevoelens met zich mee: aan de ene kant betreuren wij het verlies van expertise in een markt waar al schaarste hierin heerst; aan de andere kant gunnen we hem, na zoveel jaren van hard werken van harte een welverdiend pensioen toe. Jaap draait al zo lang mee dat hij hier ook nog tijden van economische voorspoed heeft meegemaakt. In de twaalf jaar dat Jaap leiding gaf aan Ennia heb ik Ennia een opmerkelijke groei zien doormaken. Opmerkelijk omdat onze economie de laatste 5 jaren wordt gekenmerkt door een langdurige en aanhoudende economische recessie. Voor een deel is deze te verklaren door de uitgebreide sanering die de overheid heeft doorgevoerd. De overheidsfinanciën staan er daardoor nu een stuk beter voor dan een aantal jaren geleden. Om op lange termijn tot begrotingsevenwicht te raken zijn er echter nog steeds structurele maatregelen noodzakelijk. In de eerste plaats heeft de daling in de overheidsbestedingen en de vermindering van het ambtenarenbestand een neerwaarts effect gehad op de binnenlandse bestedingen. Daarnaast heeft de overheid haar inkomsten vergroot, waardoor het

besteedbaar inkomen van het publiek is afgenomen en de binnenlandse bestedingen verder gedrukt werden. De slechte economische en sociale situatie heeft er weer toe geleid dat een grote groep inwoners de Antilliaanse eilanden de rug heeft toegekeerd en zijn geëmigreerd, voornamelijk naar Nederland. Hierdoor nam de binnenlandse vraag verder af. In deze omgeving van afnemende vraag en hoge kosten voor lokaal krediet zagen veel lokale (en internationale) ondernemers af van plannen om op de Antillen te investeren. Naast deze binnenlandse factoren hadden de Antillen echter ook te maken met externe schokken. Vooral de orkanen die de Bovenwindse eilanden meerdere malen hebben getroffen hebben zijn van grote negatieve invloed geweest op de inkomsten uit het toerisme en de economie als geheel. Voor de lokale verzekeringsbedrijven waren de laatste jaren dan ook buitengewoon moeilijk door de afnemende lokale economische activiteiten. Daar komt bij dat de inkomsten van verzekeraars voor een belangrijk deel afkomstig zijn van hun beleggingen en daarmee voor een groot deel bepaald worden door de ontwikkelingen op de lokale en internationale financiële markten. Juist de afgelopen moeilijke jaren werden de verzekeraars geconfronteerd met een hoge volatiliteit en forse prijsdalingen op de internationale financiële markten. Een aantal specifieke gebeurtenissen die hebben geleid tot de verhoogde volatiliteit wil ik hierbij even in herinnering halen: het Russische moratorium op buitenlandse schulden, de resulterende Aziëcrisis, de uiteenspatting van de dotcom-zeepbel, de Braziliaanse devaluatie, 11 september, het Argentijnse default, frauduleuze boekhoudkundige praktijken bij beursgenoteerde bedrijven en ook de grote variaties in economische groei in Amerika.

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De aandelenmarkten hebben door de toegenomen onzekerheid en de afgenomen economische vooruitzichten fors aan waarde in moeten leveren. Sinds 1 januari 1999 was het gemiddelde jaarlijkse rendement (inclusief dividend) op de Nasdaq -11,8%, op de Dow Jones -0,3% en op de AEX -11,0%. Een beloop zoals de afgelopen drie jaar waarin de aandelenkoersen achter elkaar dalen is sinds de jaren van de Grote Depressie in de jaren ‘30 niet meer voorgekomen. Ook op de valutamarkten zijn grote schommelingen waargenomen. Dit valt goed te illustreren aan de hand van de koers van de Euro ten opzichte van de USD. Was de Euro bij de introductie op 1 januari 1999 nog 1,16675 USD waard, 22 maanden later (in oktober 2000) werd een dieptepunt genoteerd van 0,8272 USD: een waardedaling van maar liefst 29%! [Op dit moment is de koers van de Euro ongeveer gelijk aan 1 USD]. De valuta van ontwikkelingslanden kenden ten opzichte van de USD (en de NAf.) nog veel grotere uitslagen. Zo daalden bijvoorbeeld de Braziliaanse reaal en de Argentijnse peso van 1,2 respectievelijk 1 per dollar tot 3,6 per dollar. Voor vastrentende beleggingen is slecht economisch nieuws echter meestal goed nieuws. Slecht economisch nieuws betekent namelijk dat risicodragend kapitaal minder zal renderen, waardoor aan de vaste inkomstenstroom uit obligaties relatief meer waarde wordt gehecht. Daar komt bij dat slecht economisch nieuws vaak gepaard gaat met renteverlagingen en een afnemende inflatie. Lagere rente en lagere inflatie vergroten de aantrekkelijkheid van vastrentende waarden, waardoor de obligatiekoersen stijgen. Het omgekeerde deed zich voor in de periode tot de lente van 2000, toen vanwege een mogelijke oververhitting van de Amerikaanse economie, de Fed de rente 6 keer verhoogde tot 6,5%. In deze periode daalden de obligatiekoersen en waren aandelen aantrekkelijker voor beleggers beter. Sinds het uiteenspatten van de dotcom zeepbel in maart 2000 zijn de aandelenkoersen echter sterk gedaald, heeft de Fed de rente agressief verlaagd (in totaal 12 keer tot 1,25%) en hebben obligaties beduidend meer opgeleverd dan aandelen. Uit deze beschrijving kan worden opgemaakt dat het spreiden van beleggingen over mogelijke alternatieven en over tijd de risico’s kan verminderen. Omdat vanwege de kosten de analyse van beschikbare instrumenten en het beheren van portefeuilles voor de individuele particuliere belegger onmogelijk dan wel eco-

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nomisch niet rendabel is bestaat er een behoefte aan het samenbundelen van beleggingen. Dit verklaart de opkomst van de mutual funds en beleggingsplannen als Ennia’s Money Plan, waar de beleggingen van een groot aantal beleggers gebundeld worden en door professionele beleggers worden belegd. Een ander punt wat uit mijn korte beschrijving volgt is dat beleggen in aandelen iets is voor de lange termijn. Investeerders die al in 1975 in aandelen zijn gestapt hebben ondanks de daling in de aandelenkoersen van de laatste drie jaar een rendement gerealiseerd van 9,5% per jaar. Een lange adem is echter voor veel individuele beleggers moeilijk vol te houden: er zijn altijd wel uitgaven die gepleegd moeten worden, waarvoor het ‘appeltje voor de dorst’ wordt aangesproken. Daarom is er vraag naar vormen van ‘verplicht’ sparen cq. beleggen. Het sparen voor een pensioen in een pensioenfonds is een van de aangewezen manieren om het brede publiek aan te zetten tot lange termijn sparen. Voor de deelnemers is het gunstig omdat het door het samenvoegen van alle premies mogelijk wordt om de risico’s te spreiden (te diversificeren) en professionele managers in te huren. Voor de economie is het gunstig omdat er door de vorming van pensioenfondsen kapitaal beschikbaar komt voor langlopende leningen en risicodragend vermogen. Als toezichthouder op de verzekeraars in de Nederlandse Antillen willen wij weinig beperkingen opleggen aan de soort activa waar een verzekeraar in wil beleggen. Wat wij de sector wel hebben op gelegd is de verplichting om een deel van hun beleggingen in de Nederlandse Antillen te laten plaatsvinden: de 40/60-regel. Deze 40/60-regel is ingesteld om ervoor te zorgen dat de bedrijven die activiteiten ontplooien in onze economie ook meehelpen om die economie te stimuleren door een deel van hun activa op de lokale kapitaalmarkt te plaatsen. Daarin zit natuurlijk ook een stukje eigenbelang voor de verzekeraars omdat een groeiende economie uiteindelijk zorgt voor een stijging van het premie-inkomen. De 40/60-regel stelt dat institutionele beleggers onder toezicht van de Bank de volgende minima moeten hanteren voor het lokale deel van hun beleggingen:

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40% over de eerste NAf. 10 miljoen 50% over de tweede NAf. 10 miljoen en 60% over het restant van hun totale voorzieningen en verplichtingen. Zoals uit het overzicht blijkt is de huidige regeling progressief aangezien van de grote bedrijven wordt verlangd dat zij een groter deel lokaal investeren. Onderzoek heeft echter uitgewezen dat 38% van de verzekeraars niet aan de 40/60-regel voldoet. In geld uitgedrukt betekent dit dat lokale verzekeraars NAf. 187 miljoen te weinig lokaal beleggen. Wat verder opvalt is dat vooral de grote bedrijven moeite hebben de 40/60-regel te handhaven, waaruit kan worden opgemaakt dat het probleem hem zit in de progressiviteit van de regel. Recentelijk hebben zowel de verzekeringssector als de pensioensector hun bezorgdheid over deze regeling uitgesproken en een aantal redenen aangevoerd waarom zij niet voldoen aan de 40/60-regel. De belangrijkste redenen die werden aangedragen zijn de beperkte beschikbaarheid van lokale beleggingsmogelijkheden, anders dan overheidspapier, het kredietrisico en de beperkte liquiditeit. Daarentegen, dames en heren, horen wij regelmatig ondernemers klagen over het tekort aan beschikbare leningen. Het probleem is in mijn ogen niet dat er te weinig beleggingsmogelijkheden zijn, maar dat de voorwaarden waaronder lokale financiers bereid zijn hun geld ter beschikking te stellen niet overeenkomt met de zekerheden die ondernemers kunnen verschaffen. Deze problematiek vraagt om een bundeling van middelen in een Fonds, dat aan de ene kant tegemoet komt aan de eisen van de financiers (vermindering van de risico’s door spreiding) en aan de andere kant de lange termijn kan realiseren die ondernemers nodig hebben om hun project op te kunnen starten. Een dergelijk fonds kan ook het probleem van het kredietrisico gedeeltelijk oplossen indien een professionele partij wordt ingehuurd voor het beoordelen en monitoren van de te financieren projecten. Door gezamenlijk gebruik te maken van gespecialiseerde kennis raken alle financiers beter geïnformeerd over de kredietrisico’s. Het probleem van de beperkte liquiditeit lijkt zich voor een groot deel zelf op te hebben gelost. Wij zien een grote stijging in de overname van kredieten van

de ene financiële instelling door de andere, terwijl de secundaire markt in lokaal overheidspapier inmiddels van vergelijkbare omvang is als de primaire markt. Als Centrale Bank is het onze taak om ervoor te zorgen dat de onder toezicht staande bedrijven zich houden aan de wetten en regels. Van eenieder wordt verwacht dat ze de bestaande regels naleven. Dames en heren we zijn ons terdege bewust dat deze regels een beperking opleggen aan de verzekeringsindustrie. Daarom buigen wij ons tegelijkertijd over de vraag of wij, parallel aan de flexibilisering van het monetair beleid van de Bank, over kunnen gaan tot een versoepeling van de bestaande regel. In eerste instantie denk ik hierbij aan het afschaffen van de oplopende schalen in de regeling zodat die vereenvoudigd wordt tot 40% lokaal en 60% internationaal over alle provisies en verplichtingen. Een eventuele versoepeling van de 40/60-regel moet evenwel niet worden opgevat als een uitnodiging om nu ineens veel geld naar het buitenland te sturen. Sterker nog, ik denk dat er voldoende redenen zijn om lokaal te beleggen! Gedurende de afgelopen jaren bood de Antilliaanse kapitaalmarkt voor zowel de buitenlandse als voor binnenlandse investeerders een bij uitstek geschikte mogelijkheid om risico’s te spreiden en additionele rendementen te behalen. Laat mij een voorbeeld geven. Stel dat een belegger op 1 januari 1999 de beschikking had over NAf. 100.000 en die zou hebben belegd in de Nasdaq. Dan was de waarde van zijn belegging nu gedaald tot NAf. 61.800. Een belegging in de Dow Jones zou wat beter zijn afgelopen, maar zou nog steeds in de min zijn geëindigd: NAf. 98.800. Bij een belegging in de AEX had de investeerder veel meer verloren door het koersverlies van de EUR en was zijn belegging nog maar NAf. 55.200 waard geweest. Obligaties zouden in de afgelopen drie jaar wel een positief rendement hebben opgeleverd: een belegging in 10-jaars Amerikaans overheidspapier zou de belegging hebben doen aangroeien tot NAf. 122.800. Een aanzienlijk hoger rendement zou echter behaald zijn indien de belegger besloten had zijn geld in lokaal overheidspapier te steken. In dat geval was zijn vermogen aangegroeid tot NAf. 156.400. Het laatste jaar heeft de lokale gelden kapitaalmarkt een drastische wijziging ondergaan als gevolg van een wijziging in het monetaire beleid van de Bank. Door het beleid te flexibiliseren is de marktwerking op de gelden kapitaalmarkt verbeterd. Deze verbeterde

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marktwerking heeft er, in de huidige situatie met een extreem lage rente in de Verenigde Staten, toe geleid dat de lokale rentetarieven sterk zijn gedaald. Lagere interestlasten maken het aantrekkelijker voor ondernemers om te investeren, maar het door het bedrijfsleven gewenste lange termijnkarakter van de leningen blijkt moeilijk te realiseren. Daarom is er behoefte aan beleggers met een lange termijn beleggingshorizon (levensverzekeraars, pensioenfondsen) die voor de afstemming van de looptijden van hun bezittingen en verplichtingen (asset-liability matching) juist op zoek zijn naar lange termijn beleggingen.

Dames en heren bedankt voor jullie aandacht en nog een prettige avond.

Wat ik hier vanavond wil benadrukken is dat er een win-win situatie mogelijk is voor de institutionele beleggers en de Antilliaanse samenleving. Een investering op de lokale kapitaalmarkt biedt een internationaal gezien aantrekkelijk rendement voor de belegger, terwijl de samenleving baat heeft bij de beschikbaarheid van lang kapitaal voor het uitbreiden van haar economische activiteiten. De argumenten die door de markt regelmatig worden aangehaald als reden om de 40/60 regel niet na te leven zijn enigszins ongenuanceerd. Met de nodige creativiteit zijn er financieringsvormen te bedenken waarbij het risico voor de financiers beperkt blijft en er toch een hoog rendement behaald kan worden. Een voorbeeld daarvan is het Fonds voor Economische Ontwikkeling dat de overheid heeft opgezet. Dit fonds kan alleen aan haar verwachtingen voldoen indien er volop wordt geparticipeerd door de lokale bedrijven. Hoewel ik zou kunnen wijzen op de 40/60-regel om deelname aan dit fonds te realiseren, denk ik dat institutionele beleggers na een normale risico/rendementsafweging ook uit zouden komen op additionele lokale beleggingen. Het is aan jullie hier aanwezig om ieder voor zich die afweging te maken. Ik heb er vertrouwen in dat die afweging zal leiden tot een toename in de lokale investeringen, waardoor uiteindelijke de lange termijn fondsen beschikbaar komen die voor de ontwikkeling van onze economie zo noodzakelijk zijn. Tot slot wend ik mij nogmaals tot Jaap en wil ik hem bedanken voor zijn inzet en leiderschap. Daarnaast, Jaap, natuurlijk al het beste voor de toekomst. Aan Enniaâ&#x20AC;&#x2122;s nieuwe management: wij kijken er naar uit om met jullie samen te werken en rekenen op dezelfde goede verstandhouding die wij met Jaap door de jaren heen hadden.

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Challenges and Opportunities in the International Financial Services Industry Address on the occasion of the opening of the “2005 GENERAL MEETING OF CITCO GROUP”

Ladies and gentlemen,

n behalf of the Central Bank of the Netherlands Antilles I welcome each of you to our beautiful island by extending to you a warm “Bon Bini”. I am particularly pleased to welcome those visiting Curaçao for the first time, the island where the Citco organization originated. On a personal note, I would like to thank the Citco Group for the invitation extended to me to address a group of individuals who, I believe, collectively agree on the critical need to continuously improve our business practices and promote a business culture that fosters high standards of governance and integrity. In a world characterized by dramatic changes, developments, and innovations, businesses should constantly strive to remain abreast of developments in the industry and discover ways to undertake their responsibilities more efficiently and effectively. Our Bank applauds the efforts of the Citco Group to continuously provide a venue for its staff members from across jurisdictions to come together to discuss plans and strategies for the future and share ideas and experiences to further enhance its business practices. The timing of this conference, is needless to say, very crucial. We are meeting at a time when the eyes of the world are focused more than ever on the international financial centers and service providers. International organizations, standard-setting bodies, policymakers, legislators, and international media alike are intensively observing the activities of institutions operating in the international financial centers and service providers. The risks, particularly the reputational risks, that our various financial centers are exposed to, should make us realize our mutual dependence. Therefore, as institutions operating within these jurisdictions, we should at all times promote a regime that promotes market integrity, effective risk management,

and sound governance. In doing so, we help promote the confidence of particularly the international public in our various jurisdictions and the international financial centers as a whole. Today more than ever it seems, that our domestic macroeconomic performance and policies are being dramatically affected by global developments. Financial markets around the world felt the effect of the latest tragedies and financial scandals, which further emphasizes our interrelationship and mutual dependence. These tragedies and financial scandals have affected our domestic financial markets such that institutions can no longer “think and act locally,” but rather should “think and act globally.” Furthermore, competition in the financial sector has become so intense that only the institutions able to predict and monitor changes in the financial industry will be able to obtain or maintain a competitive position in the industry. The beginning of the 21st century witnessed remarkable advances in financial engineering and innovation, which makes these times particularly interesting and challenging for institutions within the financial sector. The pace of innovation is expected to accelerate further in the years to come as financial markets increasingly integrate the use of new technologies into the world economy. These advances have resulted in an increased number of complex financial institutions and financial service companies. Of course there are uncertainties and risks surrounding these advances that will require careful monitoring and management by financial institutions and service providers. These institutions should have a comprehensive risk measurement approach accompanied by a strong management information system for controlling, monitoring, and reporting the risks.

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The financial and technological advances I alluded to also pose significant challenges to the financial institutions and service providers, as they work to appropriately calibrate their business activities to the challenges of the innovations in their operations. These institutions must implement policies and practices that conform to the scope and complexity of their activities.

a dividend withholding tax on profit distributions has been introduced. Our Civil Code also was revised last year in line with international standards, such as standards related to good governance. The latter revision also reflects the government’s commitment to safeguard and strengthen the position of the Netherlands Antilles as an important international financial services jurisdiction.

Our Bank has always been very active in promoting financial stability and minimizing systemic risk through sound and prudential supervision, which also has contributed to the importance of the Netherlands Antilles as an international financial center in the region. With the supervision of credit institutions, insurance companies, pension funds, collective investment schemes, administrators, and trust service providers entrusted to it, our Bank is constantly striving for ways to strengthen the Netherlands Antillean financial sector by enhancing the quality of our supervision in an effort to promote sound macroeconomic developments. Accordingly, we promote high standards of integrity, competency, governance, and business conduct among all our supervised institutions. Our Bank believes that good regulation commands a premium and preserves reputation and stability. We also believe that prudential oversight must be complimented by enhanced corporate disclosure and market discipline.

I would be remiss if I did not commend this morning the way the Citco Group has expanded its operation from this island and become one of the major players in the financial services sector worldwide.

The Netherlands Antillean government plays an active role in our financial sector. In coordination with the private sector and our Bank, the government continues its efforts, to maintain and enhance the status of the Netherlands Antilles as an international financial center. These efforts are concentrated on reforming the fiscal and legal infrastructure of the financial industry in an effort to adapt to the constantly changing environment in which we live. Therefore, the government, in cooperation with organizations in the international financial sector, is continually striving to introduce legislation and regulatory regimes to enhance its ability to attract quality business and enable the country to maintain its reputation of pursuing high standards and integrity. Legislation to this end is the so-called “New Fiscal Framework” that was enacted a few years ago. This framework entails an upgrade and modernization of the tax legislation of the Netherlands Antilles in line with the OECD guidelines. Under this framework the average profit tax rate has been reduced, profits of nonresidents and foreign permanent establishments are 95 % tax exempt, and

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Not only do I greatly commend Citco’s growth but also its commitment to continuously promote a framework of high standards and integrity around the world. As Citco expands, thereby increasing its market share worldwide, I am sure that you would agree with me that the challenges that Citco faces have become more, but not unmanageable. When I refer to challenges, I refer to challenges in all areas of Citco’s operation. In the banking area, we can think of the money laundering and terrorist financing issues and challenges that international banks, such as Citco Banking, are faced with. Nonetheless, considering the risks, particularly reputational risk, that money launderers and terrorists pose to a global institution like Citco, it is imperative that Citco continue to take corrective measures to deter and detect the use of its facilities for money laundering and the financing of activities. The rapid growth and increasing importance of electronic banking also has become of growing concern to financial institutions and service providers. As technologies for processing, analyzing, and transmitting vast quantities of data continue to develop consumer and banking practices are changing, in some cases dramatically. Traditional constraints on the timing and location of economic transactions are being eased rapidly in many markets. Through the use of the Internet and automated business systems, many markets can now be open twenty-four hours a day at very low marginal costs. Transactions can take place at much more convenient times tailored to the specific needs of individuals and banks. As factors such as timing and location are changing, significant efforts should be made to strengthen confidence in electronic transactions by enforcing the laws governing elec-

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tronic transactions, by deploying encryption systems, and by ensuring privacy as an important commercial and legal issue. In this environment, banks should continuously assess and monitor the impact of new technologies and innovations on their operations and adapt to developments in the market. Of course, promising innovations bring with them uncertainties and risks as well as intense market competition. These uncertainties and risks will require careful monitoring and management. Banks also face challenges relative to their interactions with Highly Leveraged Institutions. After the events in 1998 involving Long-Term Capital (LTC) Management, various initiatives were undertaken by the international supervisory community to address the issues that led to the problems surrounding LTC. The Basel Committee on Banking Supervision issued a report on banks’ interactions with Highly Leveraged Institutions in January 1999. This report evaluated the quality of banks’ risk management practices involving Highly Leveraged Institutions and the related supervisory and regulatory issues. The Basel Committee also published guidance on sound practices relating to banks’ interactions with Highly Leveraged Institutions. The International Organization of Securities Commission (IOSCO) in its on-going efforts to address securities supervisory issues, has been active in drawing from the collective supervisory experience of its members and other supervisory authorities in issuing supervisory guidance to address the challenges that securities firms face. An example of such a supervisory guidance is the consultative document published by the Technical Committee of IOSCO addressing the elements of International Regulatory Standards on Fees and Expenses of Investment Funds. The Technical Committee of IOSCO also produced a report on securities firms’ interactions with Highly Leveraged Institutions in November 1999. The nature of these interactions, the risks, and the recommendations for sound practices in mitigating these risks were very similar to those identified for banks. The U.S. Securities and Exchange Commission (U.S. SEC) adopted a rule last year requiring mutual funds and their advisers to adopt policies and procedures reasonably designed to prevent securities law viola-

tions, including late trading, abusive market timing, and selective portfolio disclosure. These programs and procedures are designed to assist mutual funds in their decision-making and monitoring rules. Trust and company service providers also are increasingly facing challenges with respect to compliance with internationally due diligence standards. Furthermore, an ever more common requirement is that the trust and company service providers not only know the structures of their clients’ businesses for KYC purposes, but also the ultimate beneficial owners behind the structures. As financial service companies are attempting to narrow the gap between their existing policies and practices and the necessary update required to keep pace with the global developments in the industry, I am sure you would agree with me that the tasks of financial institutions and service providers have only become more challenging. The size and complexity of the challenges always seem to grow at a faster rate than the resources assigned to them. Nonetheless, financial institutions and service providers should implement policies and practices that conform to the scope and complexity of their institution. To do so financial institutions and service providers must have the right information to make the right choices in assessing the threats and challenges their respective organizations face and to keep abreast of the developments that are taking and will take place in the market. In so doing we will contribute both to meeting our respective domestic objectives and to strengthening the global economy at a time of significant changes.

Conclusion To conclude, I would like to say that recent developments in the international financial sector imply that more than ever, financial service companies should promote sound and prudent business practices that constantly anticipate and adapt to changes in the financial industry. Even though the financial services industry is continuously evolving, which in turn poses significant challenges to financial institutions and service providers around the globe, these institutions should strive to promote a framework that further contributes to the soundness and stability of the financial system a framework that emphasizes sound corporate governance, effective risk management, and a market discipline that encourages transparencies. While the external environment is not within the

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control of a financial institution or a financial service provider, the strategic policies are. I believe that the selection and effective application of the right policies will enable financial institutions and service providers to capitalize on the opportunities and help them to overcome obstacles arising from size and resource constraints. Therefore, I hope that this meeting will shed further light on these challenging issues faced by your institution. I wish you a fruitful meeting and hope you have a pleasant stay on our island.Â

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The Caribbean Hotel & Tourism Investment Conference Speech at the cocktail reception hosted by the Bank van de Nederlandse Antillen on the occasion of The Caribbean Hotel & Tourism Investment Conference May 9, 2007

Good evening ladies and gentlemen,

n behalf of the Central Bank of the Netherlands Antilles, I welcome each of you to our beautiful island by extending you a warm “Bon Bini”. We are very pleased in having you here at the Bank for a cocktail party on the occasion of the Caribbean Hotel and Tourism Investment Conference.

Ladies and gentlemen, the Caribbean region has made impressive economic progress in recent years. In 2006, our region recorded a growth rate of around 5 percent. The services sector has been the main driver of growth in the Caribbean. In most countries in the region, tourism has played an important role in the expansion of the services sector, and hence the economic growth. According to the World Travel and Tourism Council, the Caribbean is the most tourism intensive region in the world. Based on the latest statistics of the Caribbean Tourism Organization1, the region hosted approximately 10 million stay-over and 8.6 million cruise visitors in 2006. In all the Caribbean countries, tourism has shown to be a highly labor intensive sector that provides possibilities for many small and medium enterprises that are connected to, or offer products and services to the industry. Its impact is especially strong in the retail trade, hotels & restaurants, and the construction sectors. Tourism in most Caribbean economies is a major employment and foreign exchange generator. According to the World Travel and Tourism Council, nowadays, tourism contributes to approximately 15 percent of the Caribbean’s GDP and 16 percent of total employment. Similar to the other Caribbean countries, tourism is also an important sector of the Netherlands Antilles’ economy. This is reflected in our recent economic performance. In 2006, economic growth in the Neth-

erlands Antilles was sustained by an encouraging performance of stay-over tourism, particularly on the island of Curaçao. Rising occupancy rates triggered a wave of new hotel projects and expansion of existing hotels. The tourism sector is also a crucial contributor to foreign exchange receipts, which is about 36% of our total foreign exchange earnings from the exports of goods and services. Ladies and gentlemen, similar to other economies in the Caribbean, the Netherlands Antilles is characterized as a small and open economy, which makes it highly vulnerable to external shocks. The achievements of the tourism sector in the Netherlands Antilles and other Caribbean islands are mainly due to the many positive endowments we are blessed with in this region. These include favorable locations, excellent climates, the advantage of the English language in most countries – Spanish, French, and Dutch in other cases, an early targeting of primary education, strong traditions of democratic participation, and political stability for most countries. However, nowadays, the Caribbean tourism sector is facing increased competition from emerging economies, namely Asia and the Pacific, and the rapidly changing nature of global tourism demand. However, the strong growth expected in global tourism and the emerging of new market segments, create possibilities for growth in the Caribbean tourism sector. Ladies and gentlemen, the tourism industry will only remain an important driving force of our regional economic growth, if we address certain issues in our economies. In this, the improvement of the investment climate is crucial for all countries in the region.

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A good investment climate provides opportunities and incentives for firms to invest productively, create jobs, and expand their activities. More investments in the tourism industry will not only raise activities in this sector, but also stimulate additional investments in related sectors, and hence contribute to economic expansion. It is therefore crucial that the investment climate gives the correct signals and encourages higher quality and more productive private investments. The policy agenda to enhance the investment climate is relatively similar to most countries in the region, and consists of several actions. First, improve the quality and effectiveness of the human resources. Second, make the public sector more cost effective and efficient. Third, address the level of taxation and infrastructure deficiencies. Fourth, diversify the economy with more knowledge-based activities. And lastly, address the issue of crime in some countries. At the same time, governments in the region should pursue sound macro-economic policies. Moreover, Caribbean countries can enjoy the benefits of tourism fully and create strong linkages with national economies if they take specific aspects of tourism development into account. As a result, each and everyone in the community will benefit from the tourism growth. Ladies and gentlemen, the tourism sector in the region is facing many challenges, but at the same time it has great potential for growth. In order to realize this potential, the region, as I have mentioned will need to improve its investment climate, and manage and market the tourism sector more effectively. To accomplish this, it is necessary for the public and private sectors to work in synergy. Today, I understand that you have dealt with many of the challenges and issues that impact the future investment and growth of tourism in the Caribbean. In addition, tomorrow you will address some key topics related to the development of the Caribbean tourism product. I wish you all success during the plenary sessions and in the workshops tomorrow, thereby contributing to a further dynamic development and reinforcement of the competitiveness of Caribbean tourism. Once again I bid you all welcome and hope that during the conference you will have an inspiring exchange of views.

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I thank you for your attention!

Note 1. Caribbean Tourism Organization, latest statistics 2006. February 16, 2007

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Fortis Conference: Curaçao, fiscale traditie Toespraak ter gelegenheid van de opening van: “Fortis Conference: Curaçao, fiscale traditie” 8 november 2007

Dames en heren,

oni bini, welkom op Curaçao. Het is voor mij een genoegen u vandaag toe te mogen spreken over de mogelijkheden die ons land biedt op het gebied van internationale dienstverlening. Ik hoop dat ik, aan het eind van mijn betoog, u ervan heb kunnen overtuigen dat de Nederlandse Antillen een jurisdictie is waar u goed zaken kunt doen. Ik dank Fortis Intertrust (Curaçao) B.V, die ik hierna voor het gemak “Fortis” zal noemen, hartelijk voor de uitnodiging om vandaag de openingsrede te mogen uitspreken. Ik zal in mijn betoog niet diep ingaan op de fiscale aspecten die ons land biedt, omdat andere sprekers daar al uitgebreid op zullen ingaan. Niettemin zal ik af en toe even stilstaan bij de mogelijkheden op dit gebied. Dames en heren, de internationale financiële dienstverlening is één van de belangrijkste pijlers van de Nederlands-Antilliaanse economie. Ons land werd als financieel centrum gedurende de laatste 10 jaar met grote uitdagingen geconfronteerd. Om een beeld hiervan te schetsen wil ik daarom even met u teruggaan naar het eind van de jaren negentig, waar zich belangrijke ontwikkelingen hebben voorgedaan. Niet alleen voor de Nederlandse Antillen, maar voor financiële centra wereldwijd. Tegen het einde van de jaren negentig kregen financiële centra te maken met een hoeveelheid van complexe en omvangrijke initiatieven van organisaties zoals de OECD, de Financial Action Task Force, het Financial Stability Forum en de Europese Unie. Het merendeel van deze initiatieven betrof aspecten op het gebied van het bestrijden van oneerlijke concurrentie op belastinggebied en het witwassen van gelden. Dit zijn allemaal aspecten die ons als financieel

centrum blootstellen aan verschillende risico’s, in het bijzonder reputatie risico’s. Tegelijk met deze ontwikkelingen, en mede als gevolg van een algemene bewustwording van het belang van de financiële dienstverlening, nam ook de concurrentie tussen landen toe met als doel het verkrijgen van een groter deel van deze markt. Daar komt bij dat het oprichten van een internationaal financieel centrum, vergeleken met andere sectoren, relatief snel kan gebeuren zonder substantiële fysieke investeringen, hetgeen de introductie van deze sector ook aantrekkelijk maakt voor minder ontwikkelde landen. Concurrentie bestaat niet alleen tussen verschillende landen maar ook binnen de industrie zelf. Nieuwe ontwikkelingen op het gebied van informatie technologie en telecommunicatie hebben geleid tot een toenemende concurrentie tussen productieve en dienstverlenende sectoren, inclusief de financiële dienstverlenende sector. Deze sector onderging de laatste decennia dan ook een sterke groei door onder andere een toename in de wereldhandel, deregulering van locale financiële markten en globalisering in segmenten van de dienstverlenende sector. Het is dan ook tegen deze achtergrond dat landen met een jarenlange traditie van internationale financiële dienstverlening, de Nederlandse Antillen hieronder begrepen, hun strategieën moesten heroverwegen teneinde hun status als internationaal financieel centrum te handhaven en te versterken. De geschiedenis van de internationale financiële dienstverlening in de Nederlandse Antillen gaat terug tot het einde van de jaren dertig van de vorige eeuw, toen verschillende grote Nederlandse ondernemingen, anticiperend op een eventuele oorlog, hun activa naar de Nederlandse Antillen overhevelden.

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Na afloop van de Tweede Wereldoorlog creëerde de Nederlands-Antilliaanse Overheid een aantrekkelijk fiscaal regime om deze ondernemingen te behouden. Het was echter nimmer de bedoeling om van de Nederlandse Antillen een geheel belastingvrij paradijs te maken, want het land wenste immers ook enig belastinginkomen te genieten. De inspanningen van de Overheid loonden zich. Halverwege de jaren 60 hadden de Nederlandse Antillen, en in het bijzonder Curaçao, zich ontwikkeld tot een gerenommeerd internationaal financieel centrum. Ondanks concurrentie van omringende landen en eilanden die een belastingvrij regime hanteerden, wist Curaçao zich toch te onderscheiden. Hierbij speelden factoren een rol als politieke en sociale stabiliteit, vrij verkeer van kapitaal, aanwezigheid van hoog gekwalificeerd personeel, een gunstige locatie met goede verbindingen en communicatiemogelijkheden en de aanwezigheid van gerelateerde diensten zoals bancaire, juridische, fiscale en accountantsdiensten. Als ander belangrijk voordeel werd ook de band met het Nederlandse deel van het Koninkrijk ervaren. Echter, deze bloei in onze financiële sector kwam abrupt tot stilstand bij de beëindiging van het belastingverdrag met de Verenigde Staten en de afschaffing van de ‘US Foreign Witholding Tax’ in 1985. Dit betekende het einde van allerlei zeer winstgevende internationale financiële activiteiten op Curaçao. Andere factoren die bijdroegen aan deze neerwaartse trend waren de geleidelijke beëindigingen van andere belastingverdragen met de Nederlandse Antillen en de toenemende concurrentie van andere belastingvrije jurisdicties. Dames en heren, ondanks de voortgaande afname van de activiteiten wist onze financiële dienstverlenende sector toch een belangrijke positie te behouden in de economie van de Nederlandse Antillen. De totale bijdrage van deze sector aan de economie van de Nederlandse Antillen bedraagt momenteel bijna 8% van het Bruto Binnenlands Product. De belastinginkomsten van deze sector bedragen ongeveer 4% van het BBP en meer dan 5% van de beroepsbevolking is in deze sector werkzaam. Gedurende de periode 2000-2006 genereerde deze sector gemiddeld bijna 14% van de deviezeninkomsten van de Nederlandse Antillen.

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De internationale financiële sector in de Nederlandse Antillen bestaat uit banken, verzekeringsmaatschappijen en andere financiële en dienstverlenende instellingen die samen, ruw geschat, een totaal van 36 miljard dollar aan vermogen beheren, waarvan ruim 96% toe te schrijven is aan de bancaire sector. De internationale financiële sector draagt ook indirect bij aan de Nederlands-Antilliaanse economie via positieve overloopeffecten op andere sectoren zoals de handel, de toeristische sector, telecommunicatie en transport. Van de publiciteit die gepaard gaat met het promoten van onze financiële dienstverlening profiteren ook andere sectoren, hetgeen uiteindelijk resulteert in additionele buitenlandse investeringen in onze economie. Noemenswaardig is verder de rol die de sector kan spelen in de ontwikkeling van de kapitaalmarkt, in het bijzonder de opzet van een effectenbeurs. Ten slotte vertalen de relatief hoge inkomens in deze sector zich in hogere lokale bestedingen, waarvan ondermeer de bouwsector en de handel profiteren. Naast de door mij genoemde directe en indirecte bijdrage van de internationale financiële dienstverlening aan onze economie, verbreedt de sector ook de economische basis van de Nederlandse Antillen. Gelijk andere economieën in het Caribische gebied, karakteriseert de Nederlands-Antilliaanse economie zich als een kleine en open economie, hetgeen haar kwetsbaar maakt voor externe factoren. Ook wij zijn bijvoorbeeld sterk afhankelijk van het toerisme en zijn continu bezig andere mogelijkheden te onderzoeken om onze economie te diversifiseren. Een grotere diversificatie van onze economie kan tot verlaging van risico’s leiden, hetgeen weer nieuwe financiële ontwikkelingen mee zal brengen. Caribische landen doen er dan ook goed aan om te proberen hun economieën te diversificiëren middels op kennis gebaseerde dienstverlenende industrieën die zich specialiseren in activiteiten met een hoge toegevoegde waarde. De hogere productiviteit die hiermee gepaard gaat zal een meer permanent effect hebben op de groeivooruitzichten op langere termijn. Dames en heren, u zult het met mij eens zijn dat wij onze financiële sector moeten behouden en moeten blijven versterken, gelet reeds op de relatief grote bijdrage aan onze economie. Cruciaal hiervoor zijn voortdurende inspanningen om onze internationale concurrentiepositie te versterken,

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met als uiteindelijk doel aantrekkelijker te worden én te blijven als een internationaal financieel centrum. Hier is een taak weggelegd voor ons allen en niet alleen de Overheid. Er zijn verschillende voorwaarden die naar mijn mening essentieel zijn voor het verkrijgen van de status van aantrekkelijk internationaal financieel centrum en om die eenmaal verworven status succesvol te behouden. Ik zal de belangrijkste voorwaarden kort met u nalopen. 1. Tot één van de belangrijkste voorwaarden behoren de macro economische en politieke stabiliteit. Een gezond en duurzaam macro economisch beleid ondersteunt de stabiliteit van het financiële systeem. Niet minder belangrijk is de politieke stabiliteit. Die bevordert het vertrouwen van investeerders in alle sectoren van de economie, maar in het bijzonder in de internationale financiële sector, dit vanwege haar mondiale karakter. 2. Een andere belangrijke voorwaarde is een sterke fiscale en juridische infrastructuur. Een sterk juridisch systeem kenmerkt zich door respect voor eigendom en andere rechten, het naleven van overeenkomsten, een efficiënt, betrouwbaar, onafhankelijk en geloofwaardig rechtssysteem met een snelle afdoening van procedures. Het is hierbij essentieel dat de fiscale en juridische infrastructuur van de financiële sector zich adequaat aanpast aan de voortdurende ontwikkelingen in de internationale financiële wereld. Dit impliceert de ontwikkeling en tijdige aanpassing van relevante wetgeving. 3. Niet minder belangrijk voor een solide financiële sector is de beschikbaarheid van gekwalificeerd personeel. Toegang tot een pool van bekwame arbeidskrachten met juridische, fiscale, controlerende, administratieve en management expertise is daarom cruciaal. 4. Voorts zijn ook goede communicatiemogelijkheden en ondersteunende dienstverlening belangrijke factoren voor een succesvol internationaal financieel centrum. Het belang hiervan wordt onderstreept door de behoefte aan snel beschikbare en effectieve informatie van in de markt opererende partijen.

5. Als laatste, maar zeker niet minder belangrijke voorwaarde, kan de aanwezigheid van een adequaat toezichtregime genoemd worden, dat toeziet op een gezond financieel systeem met sterke banken, institutionele beleggers en andere financiële dienstverleners. Het toezichtregime dient aan de ene kant economische ontwikkeling en groei te ondersteunen en aan de andere kant financiële stabiliteit en de belangen van investeerders en deposanten te waarborgen. Het toezicht dient echter zodanig te zijn dat het ook snel en doelmatig kan inspelen op de veranderingen in de financiële wereld. De Bank van de Nederlandse Antillen is verantwoordelijk voor het toezicht op de financiële sector in de Nederlandse Antillen. Onder het toezicht van de Bank staan commerciële banken, spaarfondsen, verzekeringsmaatschappijen, ondernemingspensioenfondsen, beleggingsmaatschappijen, kredietverenigingen, trustkantoren, administrateurs en assurantiebemiddelaars. In totaal gaat het om ongeveer 500 instellingen. Als internationaal financieel centrum zijn wij sterk afhankelijk van een adequaat functionerend financieel systeem. De Bank is daarom continu bezig met het verhogen van de financiële stabiliteit en het minimaliseren van systeemrisico’s door de haar wettelijk opgedragen toezichttaak zo optimaal mogelijk uit te oefenen. Voortdurende inspanningen in een zoektocht naar de best mogelijke methoden om de Nederlands-Antilliaanse financiële sector te versterken, zijn de Bank dan ook niet vreemd. Voorop staat het verhogen van de kwaliteit van het toezicht waarbij hoge integriteitsnormen, gedegen vakbekwaamheid, degelijk bestuur en gezonde bedrijfsvoering centraal staan. Naar mijn mening bestaat er geen alternatief voor goed toezicht. Goed toezicht bevordert een hoge kwaliteit van dienstverlening, het waarborgt het behoud van de reputatie van de sector en het behoud van financiële stabiliteit. Ik ben mij er ook van bewust dat overregulering afbreuk kan doen aan het vermogen van onze jurisdictie om een concurrerende positie als internationaal financieel centrum te handhaven. Het is daarom imperatief dat er een evenwicht wordt gevonden tussen de adequaatheid en effectiviteit van regels en wetgeving enerzijds en de onderliggende risico’s waaraan onze financiële sector is blootgesteld anderzijds.

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Dames en heren, aan het begin van mijn betoog stelde ik dat de Nederlandse Antillen u veel te bieden heeft. U zult het met mij eens zijn dat we desondanks niet stil kunnen en mogen zitten. De concurrentie volgt de ontwikkelingen bij ons op de voet en zal ons binnen de kortste keren uit de markt prijzen als we niet alert blijven. Het initiatief van Fortis om dit seminar op Curaçao te houden komt mijn inziens dan ook op het juiste moment. In de sector van de internationale financiële dienstverlening speelt innovatie een belangrijke rol. Wil men de concurrent voor blijven, dan dient men te investeren in de ontwikkeling van nieuwe producten en deze producten ook op een juiste wijze promoten. Tijdens dit seminar zal Fortis u kennis laten maken met een aantal nieuwe producten. De wijze waarop deze kennismaking geschied juich ik toe. Deze wijze is typerend voor een bedrijf als Fortis, dat zich als één van de grootste spelers in de financiële sector, wereldwijd heeft weten te positioneren. Ik feliciteer Fortis dan ook met het reeds behaalde succes en spreek de wens uit dat dit succes in de toekomst zal worden gecontinueerd. Ik ben ervan overtuigd dat er een taak voor ons allen is weggelegd in het creëren van een integere en betrouwbare financiële sector waarin integere personen en bedrijven creatief en voortvarend opereren. De economische en sociale waarde van een dergelijke omgeving is op de lange termijn onbegrensd. Rest mij nog u een vruchtbaar seminar en een prettig verblijf op ons eiland toe te wensen. Ik dank u voor uw aandacht.

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Tourism in the Netherlands Antilles from a macroeconomic perspective Speech on the occasion of the annual VERA Conference in the Marriott Beach Resort November 8, 2007

Good afternoon, ladies and gentlemen,

t is with pleasure that I accept the invitation to address you this afternoon. Let me start by wishing you a fruitful and productive seminar. Ladies and gentlemen, the theme of this VERA conference as you know is “Accountancy and Tourism.” While instinctively there does not seem to be a relationship, at least in the conventional sense, between these two sectors as the topic of this conference indicates, a careful analysis may lead you to conclude otherwise. Usually when we deal with the topic of accountancy, on the one hand, we discuss the standards, rules, and regulations in this professional field. The tourism industry, on the other hand, is usually discussed in terms of its economic impact, marketing efforts, and recent and future developments. Nevertheless, these two sectors have an important interrelationship. Firms in the tourism sector rely on accounting and tax services provided by the accounting firms. The tourist sector is also becoming an important client base for the accounting profession. By enhancing their mutual understanding, it will allow both sectors to better serve each other. It will also become possible to better structure one’s services to meet both present and future needs. A growing tourism industry generates more business opportunities for the accounting firms. Therefore, I do applaud the initiative of the VERA to organize this conference and to discuss the developments within the tourism industry, and their implications for the accounting sector. Today, I would like to add to this discussion by reviewing with you the developments within the tourism industry in the Netherlands Antilles from a macro-economic perspective. First, I will deal with the developments on the global and the regional levels, followed by a discussion of the developments in the tourism sector in the Nether-

lands Antilles. Secondly, I will make an attempt to shed some lights on the challenges and opportunities the sector is facing and the necessary macro-economic environment conducive for the growth of the tourism sector. Last, I will discuss the outlook for the tourism sector. Tourism, ladies and gentlemen, is a thriving industry. As the world economy expands, consumers are willing to spend an increasing share of their income on leisure activities like travel. On a global level, the tourism sector has indeed benefited from the world economic growth of recent years. According to the World Tourism Organization 846 billion persons around the world travelled for leisure or business in 2006. This represents a growth of 5.4% compared to 2005. During the past 15 years, the tourism sector has been expanding, except for North America. This lack of growth in the North American market, may be the result of the 9-11 attack and its aftermath, and natural disasters that occurred during the period 2000-2005. In spite of that, the tourism industry remains one of the largest and fastest growing sectors of the global economy. One of the key characteristics of the tourism industry is its contribution to foreign exchange earnings. The World Tourism Organization estimates that the worldwide receipts from international tourism reached US$733 billion in 2006. International tourism receipts increased by US$57 billion in 2006. (In Figure 2, the development in international tourism receipts is presented for the period 2002-2006). For many countries, foreign exchange receipts from tourism are an important contributor to economic development. It is widely acknowledged that the sector contributes to the economy in terms of job creation, investments, and income for the government.

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In addition, the industry has indirect spin-off effects across all other sectors of the economy. Therefore, the tourism sector is an important development tool especially for developing economies. Because tourism contributes to economic development and growth, national economies compete against each other to obtain a larger share in international tourist arrivals by exploiting their competitive advantages. In fact, traditional tourist destinations, such as North America, Western Europe, Southern Europe, and the Caribbean, are facing increased competition from emerging tourist destinations including Asia and the Pacific, Central and Eastern Europe, Africa, and the Middle East. The increase in the number of tourist destinations is a result of the higher demand for tourist destinations. Fuelled by the strength of the global economy, demand has emanated from new markets, such as China, India, and Russia. (Figure 3 shows the market shares in international stayover tourist arrivals by region.) The Caribbean has continued to experience growth in international tourist arrivals. In most Caribbean economies, tourism expansion has played a key role in economic growth and development. According to the World Travel and Tourism Council, the Caribbean is the most tourism intensive region in the world. Evidence also suggests that in all Caribbean countries, tourism is a highly labor intensive sector that provides opportunities for many small and medium enterprises that produce or supply products and services to the industry. The impact of tourism is especially strong in the retail trade, hotels and restaurants, and the construction sectors. In most Caribbean economies it is a major generator employment and foreign exchange. According to the World Travel and Tourism Council, tourism now contributes to approximately 15 percent of the Caribbean’s Gross Domestic Product and 16 percent of total employment. However, growth in the Caribbean tourism industry has been lagging behind the global expansion largely because of the small scale and vulnerability of Caribbean economies to external shocks. In fact, growth in 2006 was partially offset by damages to the infrastructure that were caused by hurricanes in 2005. Moreover, problems in attracting additional airlift to the region also negatively influenced the regional

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expansion of tourist arrivals in 2006. Tourism sector growth in the Caribbean region has also been hampered by some weaknesses in the investment climate in the region. Because the tourism industry is a major source of income for most Caribbean countries, any threats to the sustainability of the industry must be addressed in a timely way. That is to say, we have to maintain a good investment climate. Ladies and gentlemen, a good investment climate will lead to investment, jobs creation, and expansion of economic activities. More investments in the tourism industry will not only raise activities in the sector, but will also stimulate additional investments in related sectors, and hence contribute to economic expansion. Therefore, it is crucial that the investment climate give the correct signals and encourage high quality and more productive private investment. With regard to the investment climate, Caribbean economies face more or less similar weaknesses. These weaknesses include: • A qualitative mismatch in the labor market • Inefficiënt public sector • Infrastructure deficiencies • Complex taxation systems • Crime • Macro-economic instability, and • Natural disasters Needless to say, the economies in the region should address these issues if they want to enhance their investment climate and thereby stimulate growth of the tourism sector and the economy. Ladies and gentlemen, the Netherlands Antilles is no exception in the Caribbean. Similar to most countries in the region, tourism is one of the most important sectors in the Netherlands Antilles’ economy. In 2006, the Netherlands Antilles received about 2.6 million tourist visitors – stay-over and cruise –, which is a growth of 36 percent compared to the year 2000. Visitors to St. Maarten represented 73 percent of total visitors in the Netherlands Antilles, followed by Curaçao with 22 percent and Bonaire with 5 percent. (Figure 4 shows the development in stay-over tourist in Curaçao, St. Maarten and Bonaire.) As illustrated, the number of stay-over visitors in the Netherlands Antilles has increased on average by 1.3 percent during the past six years. Meanwhile, Curaçao’s stay-over

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tourism has risen on average by about 3 percent per year during this period. The number of cruise tourists has also been growing in the Netherlands Antilles. (Figure 5 presents the development in cruise tourism for each island for the period 2000-2006.) The cruise tourism market is the largest in St. Maarten, which accounts for 79 percent of total cruise tourism, followed by Curaçao with 18 percent and Bonaire with 3 percent. The tourism industry contributes directly and indirectly to the economy. Tourism expenditures stimulate economic activity and create additional business sales, employment, and household income, and government revenues. (In Figure 6, the share of tourism receipts in total foreign exchange revenues is depicted.) Tourism receipts account for 39 percent of the total foreign exchange revenues from the exports of goods and services. (Figure 7 presents the share in foreign exchange revenues from tourism in Curaçao, St. Maarten and Bonaire.) St. Maarten has the largest share of foreign exchange receipts from tourism, followed by Curaçao and Bonaire. Tourism is the main foreign exchange earner, whereas bunkering, and reexports by the free-zone generate about 15 percent of the foreign exchange earnings. (Figure 8 illustrates the development in foreign exchange revenues from tourism in Curaçao, St. Maarten and Bonaire over the period 2000-2006.) Foreign exchange revenues from tourism over the period 2000-2006 have increased on all islands of the Netherlands Antilles in the past six years. Tourism has an influence on several sectors in the economy, but is felt mostly in the hotels & restaurants and wholesale & retail sectors. Based on the weights of tourism-related activities in these sectors we estimated that the tourism industry contributes approximately 7 percent to Gross Domestic Product of the Netherlands Antilles. Meanwhile, tourism accounts for about 6 percent of GDP in Curaçao. According to estimates of the World Travel & Tourism Council, the tourism industry accounts for approximately 4,500 jobs, representing 8.3 percent of total employment in Curaçao. Tourism’s share of total employment is greater than its share in gross value added. This is because on average, tourism tends to be

more labor-intensive than other forms of economic activity. When tourism-related businesses purchase goods and services from other domestic companies, we speak of the indirect impact of tourism on the economy. Moreover, individuals employed at the hotels, restaurants, and other tourism-related businesses will spend their income locally, which will create more jobs and spending in the economy. The combination of the direct and indirect impacts of tourism creates a spin-off effect in the economy contributing to a higher level of growth. Like most economies in the region, the Netherlands Antilles is characterized by some weaknesses that negatively influence the development and growth of the tourism sector. One of the drawbacks on the tourism industry is the qualitative mismatch in our labor market. This mismatch is common on all the islands of the Netherlands Antilles. The main reason for the structural unemployment is not so much the absence of jobs, but a qualitative mismatch between labor supply and demand. However, according to the recent vacancy survey by the Central Bureau of Statistics, there is a high demand for workers with a low level of education, such as the MAVO, LBO, and VSBO. Fifty-two percent of the job openings require individuals with a low level of education. On the other hand, the majority of the unemployed jobseekers have a low level of education. Thus, a paradoxical situation seems to exist in the labor market, as the high unemployment often coexists with vacancies in the low skilled labor-intensive occupations. Lack of motivation and or loss of skills due to a protracted period of unemployment may be the underlying causes. As we all are very aware, tourism depends heavily on the skills level and professionalism of the labor force to make the sector more productive and competitive. Therefore, human resources requirements in the tourism sector are a critical factor for the industry. Moreover, the tourism sector requires more flexible labor laws to account for seasonality, daily flows and the specific characteristics of an industry that operates on 24-hour 7-days a week basis.

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Ladies and gentlemen, private and public partnerships are crucial to shape and ensure a sustainable future growth for one of the world’s largest industries – tourism. Due to the economic importance of the sector, the government has a key role as a facilitator and mediator rather than a financier. In the past, our government has also taken the role of financier by offering grants or even taking over the management of hotels in order to safeguard employment in the tourism industry. It is clear that the public and private sectors have different interests and roles in the tourism industry. Yet there is a strong need for them to complement each other through partnerships at all levels to exploit the tourism sector’s full potential. The private sector can and must play the driving role in tourism development, ensuring quality products and competitive services geared towards rapidly changing demand, while the government needs to show leadership by stimulating and facilitating investment, streamlining and clarifying regulations, and developing the muchneeded infrastructure and human capital. Public – private partnerships have proven to be an effective tool in the development of many industries. The Netherlands Antilles has the potential to realize the economic and social benefits from tourism if the government and the industry join in efforts to address the obstacles and constraints that hamper the further development of the tourism sector. Ladies and gentlemen, to improve our investment climate, the government should tackle its weaknesses, thus creating an environment conducive to investment, including investment in the tourism sector. Sound public finances are indispensable for sustained economic growth, the creation of jobs, and social progress. Fiscal discipline is not only needed for macro-economic stability, but also to preserve funds essential for public investment, especially in education, infrastructure, and social safety nets. Another weakness of our investment climate is the current administrative barriers or high degree of bureaucracy. In this respect, it is important that the government streamline its administrative procedures by removing all unnecessary bureaucracy and simplifying the procedures for obtaining business and work permits and business visas. 224

The other policy area that needs our attention is the tax system, which also plays an important role in shaping the investment climate. In my view, the new tax system of the future country of Curaçao should be simple and transparent. These reforms are needed to encourage consumer spending and investment by raising disposable income that is by lowering the marginal tax rate. This increase in disposable income will lead to more economic activities, which will broaden the tax base and hence raise sufficient revenues to cover government expenditures. In addition, a more effective and efficient assessment and collection system should also be an important component of the new tax system, since it can ensure budget neutrality in the face of the reduction in direct tax rates. Another important issue is to balance the expansion in tourism with the protection of our natural resources. In recent years, researchers around the globe devoted quite some time to raise our awareness about achieving a sustainable tourism expansion. Preserving nature and launching eco-projects are the latest trend. This trend has also reached Curaçao, as eco-projects and environmental friendly projects are being developed. Furthermore, it is essential that we develop and promote our national heritage designations, which will further improve our tourism environment. Ladies and gentlemen, as can be appreciated, the tourism industry represents an important pillar of the Netherlands Antilles economy. It has registered important growth during the last few years. In order to sustain that, we have to continue to invest in our investment climate. Moving forward, we can also conclude that the long-term prospects of the tourism industry look promising. According to the World Travel and Tourism Council, global tourism is projected to expand by approximately 5 percent annually over the next seven years, while the tourism sector in the Caribbean area is expected to grow at 4 percent annually. As part of the Caribbean area, the Netherlands Antilles tourism sector will undoubtedly share in this growth. Therefore, it is safe to say that the firms in the tourist sectors will continue to increase and will increasingly become important players in our economy. To the accounting profession it means more and hopefully financially healthier clients. The need to have more people in the accounting profession with increased knowledge of this sector is becoming self-evident.

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Seminars like this one, is a very important step in meeting this objective. It is with this in mind that I once more would like to congratulate the organizer of this seminar who took the initiative to address this important topic for our economy. As we all know, on the constitutional scene, the Netherlands Antilles is due to be disbanded on December 15, 2008. This change in status will also bring its pressure to bear on the prospects for the tourism sector. One of the main changes accompanying the new constitutional status of Curaçao is the elimination of the double layer of government. This will reduce the administrative barriers in the government apparatus considerably, facilitating the decision-making process of policies and projects. The outlook for Curaçao’s tourism industry as a consequence of this may be substantially enhanced. A continuous and increasing flow of investment is already noticeable in this sector, with the numerous promising projects in the pipeline. The World Travel and Tourism Council estimates average annual gains of 6 percent in the total employed in Curaçao’s tourism sector over the next seven years. I hope sincerely that the benefits of this expansion will sustainable and will higher living standards for all especially those that were marginalized in our society. Ladies and gentlemen, I thank you for your attention.

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Insurance regulation in a globalizing world: Challenges and opportunities

Address on the occasion of the 2008 IAC Conference June 1, 2008

Ladies and gentlemen, good evening,

t is with a great deal of pleasure that I accepted the invitation to speak at this Annual IAC. I would like to congratulate the NAVV for bringing this prestigious conference to Curaçao. It makes a welcome contribution to not only our tourism sector, but also our financial sector and our economy through the various presentations, which I’m sure will be of a high level. I am delighted to see so many representatives from the world’s financial and insurance community here today. And I welcome the opportunity to speak to you about the important challenges we face in the regulation of the financial services industry in general and – the insurance industry in particular. In my opinion, we all play a key role in achieving our shared goals of keeping our world financial system strong, stable, and efficient. Ladies and gentlemen, I have structured my views along the following lines: First, I will elaborate on some of the weaknesses of our Caribbean economies and the impact of globalization on our region. Next, I will elaborate on the challenges and opportunities that we as insurance regulators face in this globalized world. I will conclude my address with some remarks on the role that we all can play in preparing ourselves to meet the challenges we face with global competition. Ladies and gentlemen, against the background of an ever globalizing world, it is fitting to portray the road ahead of us as a journey into the future. We have to realize that because of their size, Caribbean countries are very vulnerable to international developments and external shocks. The erosion of preferential market access to the European Union, the establishment of NAFTA, the terrorist attacks on the United States, the international efforts to combat money laundering and terrorism financing, and natural disasters all have had a great impact on our economies.

As I just noted, the high vulnerability of our economies is primarily because of our smallness, which results in significant diseconomies of scale. Both the private and public sectors are affected by these diseconomies of scale. The small size of our national markets limits the international competitiveness of our goods and services for both export and the domestic market. Small firms are at a disadvantage in the global market place because they cannot realize economies of scale, they are not attractive business partners, and they cannot spend significant funds on marketing, research and development. Small economies have severe constraints on their material and labor inputs both in amount and variety. These constraints are related to their limited land area and small populations, leading to high unit costs of production. For instance, the small size of the labor market limits the range of available skills, pushing up the price of scarce skills. On the supply side, employment alternatives are limited, which promotes a brain drain of highly skilled workers and causes high social costs for low-skilled workers when industries have to restructure. Moreover, the small market size and limited range of resources result in a narrower range of domestic and export production and tend to cause high costs because of a lack of competition. The provision of public goods and infrastructure is usually characterized by indivisibility. This indivisibility has two implications for small economies. First, the costs of public services per capita are higher than in larger economies. Second, the government may be forced to provide some goods and services – often at subsidized rates. In larger economies, these goods

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and services typically would be offered by the private sector thereby lessening budgetary pressures. Besides diseconomies of scale, our countries are characterized by high vulnerability to external shocks. Various factors that are largely beyond our control contribute to this vulnerability. These factors include our geographical location and high level of openness. Our countries are located in an area prone to natural disasters, particularly hurricanes. These natural phenomena are recurrent and affect a large proportion of our population and economies. In some cases, economic damages have exceeded annual GDP. The result is a long recovery time. Our high degree of openness, illustrated by levels of imports and exports of goods and services near and even over 100% of GDP, also makes us extremely vulnerable to external shocks. This openness is aggravated by the concentration of exports in a narrow range of products and markets. For example, the erosion of preferential access of agricultural products to the European market is having a significant impact on some Caribbean economies. To mitigate the effects of diseconomies of scale and the high degree of vulnerability to external shocks, broader and deeper cooperation among the countries in the Caribbean region is an inevitable strategy. The need for this strategy is even more evident in light of the structural changes taking place in the world and the way they affect the countries in the region. These structural changes can be described under the phenomenon of globalization. Globalization is a multi-dimensional process that transforms all aspects of national and global activities and interactions in a rapid and profound way. Inherent in the globalization process is that existing barriers to international flows of goods, services, capital, money, and information are increasingly being reduced and/or eliminated. The fact that world trade grows about three times faster than world output illustrates this development. The small Caribbean countries, which are vulnerable to external events and have limited adjustment capacity are particularly exposed to the effects of globalization, which brings along potential risks for these nations. Risk permeates all our lives. Whether as individuals, businesses, or governments, we confront a vast range of risks. Insurance is the most basic financial mechanism for dealing with risk. Therefore, insurance plays a vital role in our economies. While the importance of the insurance industry far outweighs

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its size in terms of its relative share of total assets in the financial sector, its size is nonetheless impressive. In this whole process of globalization, the importance of global regulatory cooperation in ensuring open, competitive, and stable financial and insurance markets becomes preeminent. Such cooperation is needed to strike the right balance between protecting investors and policyholders and entrenching financial stability on the one hand and encouraging innovation, foreign investment, and market efficiency, on the other. As the global economy goes through a period of fundamental transformation and integration, negotiations and regulatory decisions at the global level increasingly have a major bearing on the competitiveness and efficiency of our insurance markets. In this global environment, it is vital that a cooperative approach be adopted to achieve our shared goals. International convergence of global standards is a central theme in the prudential regulation of the insurance market. The European Union is creating a new regulatory framework – Solvency II – which aims to achieve convergence with emerging global standards in key areas, including international accounting standards and frameworks for insurance supervision. A global perspective is necessary because the globalization of financial services makes efficient supervision of insurance groups and financial conglomerates operating internationally a key challenge for all regulators. Global convergence of international accounting standards can also reduce the cost of capital due to enhanced transparency and leveling of the playing field. This will also make comparison of cross-border investment decision easier. I believe that we all gain in the long-term from greater global cooperation and mutual recognition. Ladies and gentlemen, let me now turn to some of the numerous challenges and opportunities that impact insurance regulation in a globalized world. The structural changes that are reshaping the global insurance market have had a major impact on the insurance industry. The most significant of these changes is the breakdown of traditional barriers that once segmented the market for financial services. Driven by powerful technological innovations and changing regulatory structures worldwide, the financial sector

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is witnessing a process of convergence in the delivery of products. The rise of conglomerates poses a special challenge both for insurers and regulators. Financial institutions such as banks, with more capital and greater opportunities to cross-sell insurance with traditional bank products, are a threat to non-diversified insurers. Indeed, in Europe, banc assurance is already a fact of life, and conglomerates will increasingly become the norm, rather than the exception. Newer threats are emerging from non traditional competitors like retailers, finance companies, and Internet providers, who are using new IT platforms to circumvent traditional marketing and distribution channels, such as insurance agents. Together, these forces are leading to an unprecedented wave of consolidation in the insurance industry, both in our country and overseas. Recognizing that growth is the key to survival in a flat market, merger and acquisition activity among companies is at record levels. Insurers have to adapt to this fluid business environment. Failing to do so is to be left behind. These developments have also consequences for the regulatory framework governing the financial sector. We will have to transform our regimes to provide this sector with a world-class regulatory framework that will allow it to prosper in the face of current and future challenges. Ladies and gentlemen, as globalization is drawing our national economies together, the importance of establishing a transparent, flexible, and growth-oriented regulatory framework cannot be overestimated. The growing complexity of the financial sector, including the insurance sector, raises special challenges, not just to regulators but also to senior management. Technological innovations, convergence, and rationalization are undermining the old assumptions about how to do business. Whatever the developments, one basic tenet remains unchanged – that is, the importance of good corporate governance practices to the success of companies. Directors might need new skills in the ‘new’ economy, but the old fundamentals of disclosure and accountability remain unchanged. Ensuring that directors are aware of their fiduciary duties means they need to be informed of the standards

required of them both by law and by best practice. Continuing education is the only way to achieve that. And while education is vital, it must be remembered that corporate governance is a dynamic and interactive process. As the supervisory authority, we strongly encourage institutional investors to act in the best interests of those they represent, while continuing to keep a close watch on their activity. Ladies and gentlemen, globalization brings also with it constraints for insurance regulation. The question is, how should we work within these constraints arising from our international obligations while still respecting the rights of each nation to regulate its own insurance industry against the background of its own traditions and cultures? The recent turmoil and volatility in the financial markets demonstrates that economic systems can benefit from improved financial services regulation. It is in everyone’s interest to have an optimal framework for financial services regulation. The globalization of the capital markets also prompts the need to revisit the current regulatory structure in our countries. Companies now can raise capital across the world, seeking environments that provide adequate capital and liquidity at the optimal cost. Market participants today have many jurisdictional from which to raise or invest their capital. Because of this dynamic, market participants have choices today that were unavailable as recently as 10 years ago. This borderless world pressures regulatory regimes to compete with each other because capital flows to where investors expect to achieve the greatest risk-adjusted return. Note that a welcoming regulatory regime does not mean that it is ineffective or lenient. In fact, market participants value well-regulated markets because they foster market integrity and investor confidence. In this new globalized marketplace, we are engaged in a race-to-the-top to achieve the optimal regulatory structure for the financial services and insurance industry. The optimal regulatory structure needs to attract capital based on its effectiveness in promoting innovation, managing system-wide risks, and fostering consumer and investor confidence. Insurance is an industry that is heavily influenced by external factors as is the regulatory structure. The global nature of insurance is vastly different from what it was some decades ago. Therefore, regulatory authorities should re-evaluate and adapt their insurance regulatory re-

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gime to reflect the changes taking place in the insurance markets. A lot has changed in the past 25 years in the insurance industry. Some decades ago, insurance didn’t really take place across national lines. Now we are concerned about regulation across oceans. With the occurrence of more mergers and international ownership of insurance companies, CEOs are finding themselves having to negotiate with insurance supervisors in various jurisdictions. These changes could not have occurred in recent years without the use of technology, which makes it easy for insurance companies to do business all over the world. The information revolution is changing the way that insurance is sold – by delivering products closer to the consumer than ever before, directly in their homes. This is giving the consumer a considerable advantage over middlemen and agents. Consumers can use the Internet to find the best product at the best price, and they are using that power more than ever before to their benefit. But there is another side to all of this change. While the information age empowers the consumer, it also provides greater opportunities for the unscrupulous operator. It increases the chances of insurance fraud. As supervisors, we need to be alert for these threats which come along with globalization and technology. Fraud not only inflicts losses on the insurers, but it also erodes the very foundation on which the industry operates and flourishes. The insurance regulation community has to match the threat that fraudulent agents and companies pose by staying ahead of the information technology curve. To do so, runs the gamut from enhancing financial solvency activities to educating consumers via the Internet. As agents, providers, and consumers begin to complete more of their insurance-related transactions online, new regulatory issues will have to be resolved. Because insurers are collecting more information on customers, privacy is a greater concern. In fact, privacy will become one of the more important issues that we as insurance regulators deal with, especially as it relates to the transfer of medical information. The globalization of the insurance business and the change in the way that insurance products are delivered via the Internet puts a lot of pressure on insur-

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ance regulation. Information on the insurance industry is of utmost importance for us insurance regulators if we want our insurance market to operate efficiently and properly. We must, therefore, not simply focus on the collection of more information and data, but also on intelligent ways to use that information. The trend is towards global regulation; however, the move towards uniformity in regulation is very contentious throughout the insurance industry and nations. The European Commission’s proposed new Solvency II legislation, coupled with the Reinsurance Directive, represents a major effort to reorient and modernize insurance regulation, treating insurance firms as cross-border actors. It is clear that the increasing globalization of the insurance business requires global regulation. Regulation of insurance will be threatened unless we become more uniform and efficient in what we do. Those of us involved in insurance regulation have our work cut out for us. We have to keep up with a transformation that is taking place all over the world. The question we must ask ourselves then is, how do we effectively oversee, global seamless markets when we have only national or local regulators? Indeed, the ideal solution to contending with global markets would be to have a global regulator. However, even the members of the European Union – who now share a common overarching legal structure and, in many cases, a common legal and financial history – have not yet been able to conclude that a single EU-wide financial regulator is feasible or desirable. Instead, the issue has been reformulated to ask, how, given national regulation, can regulators coordinate their enforcement and regulatory activities in ways that reflect the global nature of our markets? Fortunately, organizations such as the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, the Financial Action Task Force, and the Organization for Economic Cooperation and Development have done much to help answer this question. Through these organizations, as well as through bilateral networks, financial regulators have created channels of collaboration, cooperation, and information exchange that allow national regulators to do their jobs effectively and efficiently in a world of global financial markets.

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It goes without saying that prevention is better than cure. Proper legislation and good regulation provide the basic safeguards. Cooperation among insurance supervisors is and remains a key element. We in the Netherlands Antilles recognize the need for closer cooperation and have in this respect strengthen our relationship with different foreign supervisors by concluding MOU’s with these jurisdictions. Also new legislation was drafted in the Netherlands Antilles to modernize our regulatory framework, whereby consideration was given to what will best serve our interests and the global economy in maintaining an insurance marketplace that attracts capital and does not set up artificial and costly barriers. This draft Harmonization legislation was submitted to our Government in 2007 and is pending enactment. I am confident that this legislation will ensure that we can maintain our approach to insurance market regulation without imposing a disproportionate burden on the institutions themselves. On the other hand, external regulatory competitive pressures require a constant re-evaluation of financial services regulatory structure. Ladies and gentlemen, globalization is an irreversible process. It is a reality we must learn to deal with. It provides opportunities as well as threats to our economies. The most effective way to deal with globalization is to pursue policies that reduce our vulnerabilities. By acting as an effective and competitive jurisdiction, we can reduce the threats and risks of globalization and benefit from its challenges and opportunities.

policies, a world-class regulatory structure, deep and stable capital markets, and a highly-educated workforce, all of us should be well primed for the challenges we are facing in this globalized world. I hope this will be the beginning of a lasting and fruitful cooperation among us Caribbean nations and the rest of the world – a cooperation that will lead to strong partnerships, creative investment opportunities, and sustainable economic growth for all of us. I wish you a productive and interesting conference, and I hope that you will find time to enjoy the hospitality and beauty of our island. Thank you.

Coming back to the Caribbean, I have to say that on our own, we as Caribbean countries and our companies will fall rapidly behind and will marginalize ourselves given the current trends in globalization. Through regional alliances, cooperation, and integration, we can overcome our inherent weaknesses and be able to compete successfully in the global market. This process of strategic global repositioning is far from finished and requires unrelenting efforts by our governments, business companies, and other interest groups to implement the adjustments and structural transformation necessary for sustainable economic development in the decades ahead. I would like to conclude by stressing that global regulatory cooperation will continue to be key as we work to address the challenges facing the insurance industry today. I believe that with sound macroeconomic

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To Comply or Not to Comply Opening remarks on the occasion of the opening of the compliance seminar for fund industry “To Comply or Not to Comply” March 13, 2009

ood morning. I would like to welcome you and thank the Association of Compliance Officers of the Netherlands Antilles (“ACONA”) for organizing this compliance seminar. I also want to thank the MOT for taking part in this seminar. I appreciate the opportunity today to address an audience of professionals from the fund industry. I am sure that you collectively agree that we need to further improve industry practices and adhere to the highest standards to maintain our reputation as an important international financial center while safeguarding the interests of the investors we ultimately serve. It is no secret that the fund industry has been facing challenging times lately. We see many funds being liquidated, many investors redeeming their participating interests in funds, many funds depreciating in value, and many investors losing some of their confidence in the financial market. The recent global financial crisis has had and is still having an unprecedented adverse impact on the fund industry. The dramatic events that have unfolded in the financial markets in recent months have emphasized that we cannot underestimate the systemic risk inherent in the financial markets, because in the end, this risk affects us all. While the private sector, investors, government, and regulators alike are focusing their attention on the causes of the financial crisis and who is to blame, one might easily argue that compliance should be given less importance in light of the systemic financial turbulence the crisis has caused. Many active parties in the fund industry also perceive compliance as a function that, from a commercial perspective, does not add significant value to the bottom line of an institution’s business. I tend not to subscribe to this view. I believe that compliance contributes value to the operation of an institution in the most essential way. It

assures that the institution retains and improves its reputation, thereby allowing it not only to remain in business, but also to thrive in this uncertain and unpredictable era. Ladies and gentlemen, in this day and age, adverse publicity results from criminals’ misuse of institutions for the purpose of money laundering and terrorist financing. Such adverse publicity may easily undermine public confidence in institutions. In our jurisdiction, we should all be vigilant to deter money launderers and terrorist financiers from misusing our institutions and jurisdiction. The important role of compliance and the price tag for noncompliance must not be forgotten amidst the current global financial turbulence. No matter how you look at it, the price of compliance is minimal compared to the potential costs of noncompliance. As the saying goes, “pay now, or pay a lot more later.” It is in this context that I applaud the effort of ACONA to organize this valuable conference with the central theme “To Comply or Not to Comply”. As the theme rightly suggests, we are all faced with the ongoing challenge of whether “to comply or not to comply”. While this theme could suggest that an institution may decide not to comply, we should not forget our joint responsibility to continue to promote the reputation of our financial sector and, hence, its stability. A compliance failure of one player in the fund industry ultimately may adversely affect the whole industry and, consequently, the reputation of the whole Netherlands Antillean financial sector. This fact underscores that we all share a common goal, which is to ensure that the fund industry and those associated with it are in full compliance with the applicable rules and regulations and that ad-

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equate resources and attention are devoted to ensuring compliance on an ongoing basis. We should strive to ensure that the investors we serve are protected and that their interests come first. In meeting this goal, a lot of reliance is placed on you as compliance officers and directors of institutions operating in the fund industry. As a result, you are the guardian, the first line of defense in ensuring compliance with rules and regulations and, hence, protecting the interests of the investors. That is why it’s so important for you to be committed to and supportive of the compliance program. For an institution to have a strong compliance culture, support must start at the top. Management should set the tone that encourages regulatory compliance. It is also imperative that each designated compliance officer be empowered by management to develop and enforce appropriate policies and procedures governing compliance. The designated compliance officer should be competent and knowledgeable regarding the applicable compliance rules and regulations and be able to analyze cases independently from management and report to the Unusual Transactions Reporting Center (“MOT”) in an independent manner. Under these conditions, the compliance officer will be able to exercise his or her duty in a more effective way, while at the same time promoting a sound compliance culture within the institution. As the regulator of the fund industry in the Netherlands Antilles, our Bank has been from the outset an advocate for strong compliance culture within the supervised institution. Our position is evidenced by our involvement in the drafting process of laws governing compliance and by the provisions and guidelines in the area of anti-money laundering and terrorist financing prevention that we have issued for the various sectors under our supervision, including the fund industry. The provisions and guidelines require that supervised institutions have comprehensive compliance policies and procedures in place, that they appoint a compliance officer, provide training to their staff, and ensure that independent testing of their compliance program. The compliance programs of the supervised institutions are also regularly subjected to our review during our on-site examinations at the institutions. While evaluating the effectiveness of an institution’s

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compliance procedures during our site visits, we not only assess whether the procedures are preventing violations from occurring, but also whether the procedures are detecting violations. Although you may do your best to prevent violations from taking place, problems sometimes occur. That’s exactly when the detection aspect becomes so vitally important. The procedures must be designed to detect violations so that the necessary measures can be taken to correct the violation or mitigate the risk involved. When our Bank’s staff visits an institution and observes strong internal control systems, allocation of adequate resources to compliance and surveillance functions to deter and detect compliance violations, the Bank feels more comfortable that the institution is able to identify problems and fix them. On the other hand, if we conduct an on-site examination at an institution and observe weak controls and compliance systems, we perceive this as a “red flag” requiring a more rigorous supervisory approach. In other words, we want the supervised institutions to make compliance a top priority and to devote adequate resources to the compliance function. Compliance should be a critical function in the institution, which means that the compliance program is constantly subjected to review by an independent party. An independent review allows the institution to identify its own compliance risks, adapt or implement procedures, and take corrective measures to mitigate the identified risks. Ladies and gentlemen, we do understand that in times of economic and financial uncertainties, such as the ones we are experiencing now, it becomes challenging, if not difficult, to continue to devote adequate resources and attention to compliance. Institutions can be easily tempted to cut compliance expenses as a shortsighted way to save money. While many institutions are considering reductions and cost-cutting measures, I want to remind you of your institution’s legal obligation to maintain an adequate compliance program reasonably designed to achieve compliance with applicable rules and regulations. An inadequate compliance program or the lack of such a program, will expose your institution to unacceptable levels of risk. When an institution cuts compliance, violations will more likely occur. And if violations occur, punitive actions should and will be taken by our Bank. No favors will be granted because an institution made

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a cost-cutting decision to minimize its compliance budget. It is important, therefore, that you, as compliance officers and directors, be vigilant in this difficult environment. You must be assertive in making it known that the financial turmoil by no means implies that you have become complacent as an organization or that you are less committed to compliance. During this period of market turmoil, investment institutions and fund administrators alike need to take a long-term view of compliance and realize that their fiduciary responsibility requires a constant, and I dare say, an even greater commitment to compliance. The events unfolding around us as a result of the financial crisis should make you realize why your jobs as compliance officers and directors of institutions operating in the fund industry are more important now than ever. By promoting and enforcing your compliance program, you help reduce the marketâ&#x20AC;&#x2122;s uncertainty concerning institutions operating within the fund industry, increase the confidence of the public in the market, and protect the investors of the funds. By fulfilling your obligations in the area of compliance, you can help restore and bolster public confidence in the fairness and integrity of our markets and market participants. Essential prerequisites to that process are providing adequate resources to compliance programs and functions and ensuring that both management and the designated compliance officer take an active role in the promotion of a compliance culture within their respective institutions.

resources to compliance is simply the right business decision. We must sustain our support for compliance in the midst of this market turmoil, and beyond it as well. Especially now, when the future is uncertain, markets are unstable, and investor confidence is shaken, we must become stronger advocates for compliance. Good compliance is good for your clients, your business, and our fund industry as a whole. It commands a premium and preserves reputation and stability. Thank you very much for your attention. I hope you will have a constructive and productive seminar.

Conclusion To conclude, I would like to commend you for the progress that we, as the supervisory authority of the fund industry, have observed in your respective institutions over the past years in building effective compliance programs. Open communications and constructive cooperative efforts between us as regulators and the industry have contributed significantly to these efforts. Now that we are faced with a financial crisis, caused to a great extent by a lack of transparency concerning financial risk in companies, we must not turn back the clock. From a commercial perspective, it may be tempting to cut compliance expenses to save money in times like these. However, you must not forget the risks, particularly the reputational risk, that your respective institutions are exposed to in the case of an inadequate compliance system. Devoting adequate

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International and local challenges for financial institutions in the Netherlands Antilles

Speech on the occasion of the official opening of the new headquarters of Orco Bank April 10, 2010

Good evening, ladies and gentlemen,

t is a pleasure for me to join you today on the occasion of the official opening of Orco Bank’s new headquarters. I would like to start by congratulating the shareholders, management, and personnel on this milestone in Orco’s Bank history. With the purchase of this historical building, you have contributed to the conservation of Curaçao’s cultural heritage. In addition, with this investment you have demonstrated your confidence in the Antillean economy in general, and the Curaçao economy in particular. Given Orco Bank’s performance and its prudent management, I am more than confident that in the future, your decision will prove to have been the right one. Ladies and gentlemen, these are without doubt challenging times for financial institutions. Both internationally and locally, developments are taking place that affect the way financial institutions do business. Today, I would like to address some of these developments. I will first discuss recent international economic developments and their impact on the financial sector. Second, I will deal with the challenges our financial institutions are facing in the context of the constitutional changes within the Kingdom. When discussing international economic developments, we cannot ignore the international financial crisis that resulted in a worldwide recession last year. Financial innovation and closer links between financial institutions transformed a liquidity crisis in the relatively small U.S. subprime mortgage market into a major solvency issue in other financial markets in the United States and abroad. Subsequently, the financial crisis rapidly spilled over into the real sector. In an effort to prevent a collapse of the global financial system, authorities, particularly in industrial

countries, took unprecedented measures aimed at supporting demand and reducing uncertainty and systemic risk in financial markets. These measures included the expansion of retail deposit insurance schemes and the provision of guarantees for bank liabilities other than deposits. In addition, banks received billions in capital injections and guarantees for their assets in return for government ownership stakes. Central banks also provided generous liquidity support and cut interest rates. However, these efforts could not prevent a deep worldwide recession. As we all know, few if any economies have not been affected by the crisis. Output contracted in most of the advanced economies, including the United States and the Euro area. In addition, economic activities slowed in the emerging markets and developing economies. As a consequence, many economies experienced a significant increase in unemployment. Fortunately, global economic growth has rebounded recently, and financial conditions have improved. However, the pace of recovery is expected to be slow as uncertainties remain in the financial markets, and public intervention will gradually have to be withdrawn. According to the International Monetary Fund’s most recent World Economic Outlook, global growth is forecasted to near 4 percent in 2010, following a contraction of 0.8 percent in 2009. Although the sources of the crisis were extremely complex and numerous, a fundamental cause was that many financial firms simply did not appreciate the risks they were taking. Financial regulation was not equipped to detect the risk concentration and flawed incentives behind the financial innovations. Regulators, in fact, were not aware of the underlying risks of the financial innovations and the interconnectedness between activities and institutions. As a

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result, financial institutions and other investors took risky decisions beyond the regulatory net. For that reason, economists and policymakers worldwide generally agree that the weaknesses that led to the recent financial crisis must be addressed. Financial regulation and supervision need to be strengthened to prevent a similar crisis in the future. This will require a number of steps. First, regulation should be broadened and include all activities that pose economy-wide risks. Second, financial regulation will have to focus on strengthening financial institutions’ management of liquidity and risk. Third, conflicts of interest should be reduced by making bonuses more consistent with long-term success rather than short-term profits. And fourth, the transparency of the financial system should be improved. In the area of financial supervision, the focus should be to detect developments in the financial sector that might lead to a systemic crisis. Not only banks, but all financial institutions should be subject to strong and comprehensive supervision on a consolidated or firm wide basis. An important lesson of the recent financial crisis is the need for international cooperation and policy coordination. As financial markets have become increasingly integrated and financial centers interconnected, no country can escape the effects of a financial crisis no matter where it occurs. As a consequence, financial sector reform cannot stop at the national borders. The recent experience in dealing with the crisis has shown us that international policy coordination actually can be very effective. Ladies and gentlemen, the effects of the international financial crisis on the financial sector in the Netherlands Antilles were relatively contained. Of course, our financial institutions were affected by the global collapse of the debt and equities markets and the sharp reduction of interest rates. However, conservative investment strategies combined with relatively high risk-aversion limited our financial institutions’ exposure to troubled assets. In addition, the financial sector supervision provided by the central bank has prevented major problems from the financial crisis. Nevertheless, we should be aware that the general tendency towards stronger financial supervision and regulation and increased international cooperation and policy coordination will have implications for our financial sector supervision. The supervisory and regulatory standards are set by international institutions

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such as the BIS and the IMF. If we do not follow these rules, we will run the risk of being blacklisted, thereby undermining confidence in our financial sector and investment climate. Hence, the notion of determining one’s own supervisory policies is an illusion. In small economies like ours that are very vulnerable to shocks, international cooperation and policy coordination in financial sector regulation and supervision is indispensable for international recognition and to make us more resilient towards possible crises in the future. Cooperation and policy coordination in the areas of financial sector supervision and regulation are also crucial on the Kingdom level. To address our financial sector’s vulnerabilities, I envision a financial supervisory structure in which every country within the Kingdom will have its own supervisory institution, complemented by a standard-setting body at the Kingdom level or Committee of Kingdom Supervisors. As I advocated recently on the occasion of the “Kingdom seminar on Financial Sector Supervision,” this body should consist of the presidents of the respective central banks and should be in charge of preparing legislation in line with international best practices, the timely implementation of rules and regulations, and monitoring compliance. Such a structure will guarantee compliance with international supervisory standards. In addition, this structure will create a level playing field with uniform rules within the Kingdom and promote credibility and transparency. The existing cooperative agreements between the central banks of the Netherlands, Aruba, and the Netherlands Antilles can serve as a basis for the development of a firm supervisory architecture and the achievement of sound financial institutions and financial stability in the new countries of the Kingdom. Ladies and gentlemen, I would like to turn now to recent developments in our own economy. In 2009, our economy also was affected by the adverse international economic developments. Domestic demand weakened, due to lower private investment and consumption, although it was offset in part by increased public consumption and investments. Inflationary pressures eased in 2009, largely because of lower energy prices. An analysis by sector reveals that the tourism industry was most affected by the global economic downturn. We estimate that the foreign exchange revenues from the industry dropped by 5.5 percent in 2009.

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In most other sectors of the economy, activities weakened in 2009 compared to 2008. For example, in the construction sector, activities slowed down because several major tourism and transportation- related projects reached their final stages. In addition, activities in the wholesale and retail sector weakened reflecting lower domestic demand, a decline in the number of stay-over tourists, and lower re-exports by the free-zone companies in Curaçao. Our economy did not contract in 2009, contrary to the experience of most countries in the region. Real economic growth in the Netherlands Antilles, however, is estimated to have decelerated from 1.8 percent in 2008 to 1.0 percent in 2009. The main reasons why our economy is an exception in the region is the implementation of the debt relief program and the Social Economic Initiative. The inflow of debt relief funds from the Netherlands prevented a worsening of the current account of our balance of payments in 2009. In addition, it contributed to a cash surplus at the general government level and, hence, a decline in public sector debt. Thanks to the debt relief program, our debt-to-GDP ratio declined from 82 percent in 2008 to 72 percent in 2009. Ladies and gentlemen, the Netherlands Antilles economy is expected to grow by 1.6 percent in 2010 as a result of an improvement in both domestic and external demand. The growth of domestic demand is accounted for primarily by public sector consumption and investment. Expectations are that wages and salaries expenses will increase moderately, despite the dismantling of the Netherlands Antilles, as no efficiency effects are expected in the short term. As a result of the culmination of the dismantling process in 2010, consultancy fees for setting up the necessary institutions to support the entities in their new constitutional status are projected to rise, causing spending on goods and services to remain elevated. Meanwhile, public investment is expected to peak as most projects of the Social Economic Initiative Program will be implemented in 2010. The current account of our balance of payments is projected to worsen as imports of goods and services will offset higher exports. However, the worsening of the current account will be partly offset by the net inflows of current transfers related to the implementation of the debt relief program.

The price climate is expected to remain favourable in 2010. Inflation is projected to rise modestly from 2 percent in 2009 to 2.3 percent in 2010, a result of higher commodity prices, reflecting the pickup of global economic activity. Ladies and gentlemen, the constitutional changes within the Kingdom and the related implementation of the debt relief program and Social Economic Initiatives have played a crucial role in our recent economic performance and will continue to affect our performance in 2010. However, these developments also have implications for the financial sector. The debt relief program started in January 2009 for the central government and in April 2009 for the island government after each entity met the qualifying requirements. These requirements included, among other things, balanced budgets and the strengthening of financial management. The Board of Financial Supervision, or College Financieel Toezicht (CFT), was established to temporarily supervise the finances of the government entities. As you may know, the terms of the debt relief program provide that the Dutch government will pay 70 percent of interest costs and 100 percent of maturing principal until approximately 70% of the outstanding debt at the end of 2005 has been settled. The inflow of debt relief funds from the Netherlands adds to the existing excess liquidity in the domestic money market. This excess liquidity was due to the uncertainties regarding the international securities markets, which caused financial institutions and other investors to hold more funds locally. These developments put domestic interest rates under increased pressure, and these rates had already declined in line with international developments. As a consequence, local financial institutions are obtaining lower interest income, which forces them to reduce deposit rates, tap other sources of income, and improve cost efficiency to remain profitable. Financial institutions in the Netherlands Antilles have always considered government securities as a main local investment instrument, given their low risk and attractive return. This view, however, has hampered progress in the further development of our capital market. Because of the debt relief, the availability of government securities is diminishing rapidly. In addition, new issues of government securities will be lim-

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ited under the prevailing budget rules. Consequently, alternative investment opportunities are needed to keep our capital market attractive for investors. One possible alternative is the issuance of bonds by public enterprises. However, these issues will be successful only if good corporate governance of public companies is observed. In this context, it is crucial that tariffs are determined based on sound business principles and rules set by a regulatory board. Strong internal controls, full disclosure, and independent boards of directors and supervisory directors also are important preconditions for effective governance of public enterprises. Under these circumstances, investors will be confident of receiving a fair return on investment. The Dutch Caribbean Stock Exchange is, in this context, also a welcome development as it could foster more investment alternatives in our capital market. Ladies and gentlemen, as we are reaching the final stages of the dismantling process of the Netherlands Antilles, we also are closing a chapter in the history of central banking in the Netherlands Antilles. In a few months, the Netherlands Antilles will cease to exist. As a consequence, the central bank of the Netherlands Antilles as we currently know it also will disappear. The current system has served our nation well for over 180 years. It essential therefore that the current framers of the new central bank be guided by our past experience. If we are to have one central bank, it ought to be reflected also in the governance structure. Any attempt to make the new central bank function as one institution for two completely autonomous entities will be unproductive and will result in mutually inconsistent policy objectives. Therefore, I would like to share my views with you on the institution that should replace it in the new constitutional setting. Currently, the most important objectives of our central bank are to maintain the external stability of the Netherlands Antillean guilder and to promote a sound and efficient financial system in the Netherlands Antilles. These objectives translate into the following functions: (1) the issuance of banknotes and the circulation of coins; (2) the supervision of financial institutions to guarantee depositors’ and other creditors’ funds; (3) the management of the foreign exchange reserves; (4) the promotion of a reliable and efficient payments system; and (5) banker of the government. Of course, the new countries of St. Maarten and Cu-

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raçao also need an institution in charge of executing these functions. In the new constitutional arrangement, St. Maarten and Curaçao will establish a monetary union with a common central bank and a common currency. The preservation of economies of scale, the continuation of the good reputation and credibility of the current central bank, and a larger common economic area are the main considerations for having a common central bank. However, a common institution also poses great challenges for the countries involved. I think the high degree of policy coordination required to ensure a balanced and effective monetary policy is one of the greatest challenges because it means that already some of the newly won policy autonomy has to be forfeited. Also, the introduction of uniform legislation for monetary and financial sector supervision in both countries is a complex task lying ahead of us. Ladies and gentlemen, the process of creating a new central bank and designing effective governance arrangements for this new institution is a complex one, especially given the involvement of two new autonomous countries. In addition, the environment in which central banks operate changes continuously, and the role and governance of a central bank will continue to evolve. Effective governance of the new central bank can be guaranteed only if certain preconditions are met. I would like to discuss these preconditions with you in more detail. First, the new countries will have to continue adopting similar legislation, rules, and regulations related to monetary and financial sector supervision. Also, reconciliation of fiscal policies is recommended, but for the time being, this will be guaranteed by the common budget rules monitored by the CFT. Second, the central bank should have a high degree of autonomy from the governments to guarantee that its monetary and supervisory policy decisions are made without political interference. Moreover, professional and technical expertise of monetary and financial matters is centralized in the central bank. Therefore, the relationship between the government and the central bank, and the roles and responsibilities of both entities should be clearly specified in legislation. Third, the appointment procedures of the central bank’s board of directors should be clearly specified

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in the Bank’s statute. Needless to say, the board of directors of a central bank should meet certain requirements, including professional and personal qualifications. Furthermore, the members of the board of directors should abstain from activities that would create conflicts of interest regarding their role as central bankers. When stipulating the requirements for the board of directors, we also should take into consideration the reality of our labor market. Hence, we should avoid limitations on, for example, age or nationality that could become barriers for the appointment of experienced professionals. Ultimately, what the central bank needs is professionally and personally qualified persons who can manage the institution effectively. Once appointed, the directors of the central bank should direct their efforts towards the realization of the institution’s objectives. Therefore, it is crucial that these individuals are provided with the required autonomy to execute their office effectively. And finally, an independent and expert supervisory board should be appointed. The supervisory board plays a crucial role in ensuring the effective administration of the Bank. Central banks have supervisory boards to approve the institution’s operational budget, review and approve the annual accounts, and oversee the audit process. In addition, the supervisory board promotes the use of structured planning and management frameworks. Because the supervisory board is part of the governance structure of an independent central bank, it also should have a high degree of autonomy in executing its functions. Similar to the board of directors, the members of the supervisory board should be selected on the basis of their personal and professional qualifications. Their age or nationality should not play a role. Ladies and gentlemen, our financial institutions are currently facing many challenges. Developments are taking place on both the international and the local levels that will impact the way you operate in the near future. However, these challenges provide both the financial institutions and authorities with unique opportunities to strengthen our financial sector and the functioning of our financial market, which will contribute to building strong and prosperous new countries.

Once again, I would like to wish the shareholders, management, and personnel of Orco Bank all the best in their new office. Thank you.

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Bancaribe 30 años de relaciones Curazoleñas-Venezolanas en un medio ambiente dinámico y desafiante Discurso con ocasión de la presentación del libro “Curazao y Venezuela unidos por el Caribe” Junio 22, 2010

Buenas noches señoras y señores

nte todo, yo quisiera felicitar la gerencia y el personal directivo del “Bancaribe Curazao Bank N.V.” con ocasión del trigésimo aniversario de esta institución financiera. Con el fin de conmemorar esta importante piedra miliar, Bancaribe ha publicado el libro “Curazao y Venezuela unidas por el Caribe”. Este libro nos proporciona más profundidad en los fuertes lazos históricos, geopolíticos y económicos entre Curazao y Venezuela que data de muchos siglos. Yo quisiera felicitar los autores de los distintos artículos por la documentación y análisis de fondo de la relación entre Curazao y Venezuela. La presencia de treinta años de Bancaribe en nuestra isla es desde luego una de las evidencias de los fuertes lazos, particularmente de los lazos económicos entre Curazao y Venezuela. Damas y Caballeros, los fuertes lazos económicos son reflejados por las relaciones comerciales entre Venezuela y las Antillas Neerlandesas en general y con Curazao en particular. De hecho, con el 14% del total de las exportaciones e importaciones de las Antillas Neerlandesas, Venezuela es uno de nuestros mayores socios comerciales después de los Estados Unidos y Los Países Bajos. Durante del período 2000 al 2009 Venezuela contribuyó con un promedio de 16% al año, al total de ingresos de divisas de las exportaciones de bienes y servicios en las Antillas Neerlandesas. Los principales contribuyentes a los ingresos de divisas de Venezuela son las compañías exportadores de la zona franca para Venezuela, las cuotas de arrendamiento pagadas por PDVSA para cubrir los gastos operacionales de la refinería en Curazao y el consumo de los turistas Venezolanos.

Entretanto, las importaciones de mercancías de Venezuela cuentan con un promedio de 14% del total de importaciones en las Antillas Neerlandesas. Compañías Venezolanas también desempeñanun papel importante en la industria de servicios financieros internacionales de Curazao, comoquiera que un tercio de los bancos internacionales que operan en ese sector son de Venezuela. A través de tres décadas, compañías operando en ese sector, incluyendo Bancaribe, han enfrentado diferentes contratiempos. Un contratiempo mayor fue la terminación del Tratado Fiscal con los Estados Unidos y la “Abolición Estadounidense de Retención de Impuestos Extranjeros” en 1985. Además el sector se vio afectado negativamente por desarrollos, tal como la terminación gradual de los acuerdos fiscales de la Antillas Neerlandesas y la competencia creciente de jurisdicciones fiscales exentas de impuestos. Estos desarrollos dieron lugar a una disminución constante en las actividades de las industrias de servicios financieros internacionales. No obstante estadisminución, el sector sigue teniendo una importancia relativa en la economía de las Antillas Neerlandesas. Por ejemplo, durante el período 2000-2009, ese sector contribuyócomo promedio con aproximadamente el 10 por ciento a los ingresos de divisas por la exportación de bienes y servicios. Además, el sector de servicios financieros internacionales tiene un alto componente de valor añadido y amplía nuestra base económica, lo que hace que dependamos menos del sector turístico. Señoras y señores, han surgido nuevas oportunidades para las instituciones en el sector financiero internacional como la globalización y la innovación de los mercados financieros, y se han traducido en el desar-

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rollo de nuevos nichos de mercado y productos. Sin embargo, la reciente crisis financiera internacional nos ha demostrado las externalidades negativas a donde las innovaciones financieras y la globalización nos pueden conducir. Una de las principales lecciones que se puede extraer de la crisis, es que mercados financieros no pueden funcionar bien sin regulación y supervisión apropiada. Además, por motivo de la globalización, la regulación y la supervisión ya no se puede ser limitada más a fronteras nacionales. La reciente experiencia del tratamiento de la crisis nos ha demostrado que la coordinación y cooperación de política internacional de hecho pueden ser muy efectivas. Por lo general, hay cinco áreas que requieren acción: En primer lugar, la regulación debería ampliarse e incluir todas las actividades que plantean riesgos para toda la economía. En segundo lugar, la regulación financiera tendrá que concentrarse en fortalecer la gestión de las instituciones financieras de liquidez y riesgo. En tercer lugar, los conflictos de interés deben ser reducidos haciendo gratificaciones que sean más coherentes con el éxito a largo plazo en lugar de beneficios a corto plazo. En cuarto lugar, la transparencia del sistema financiero debe ser mejorada. Y en quinto lugar, en el área de la supervisión financiera, el objetivo debería ser detectar los desarrollos en el sector financiero que podrían conducir a una crisis sistémica. No sólo los bancos, sino todas las instituciones financieras deberían estar sujetas a una supervisión estricta y exhaustiva sobre una base consolidada, firme y amplia. Ciertamente, esta tendencia general hacia una supervisión y regulación financiera más amplia, y una mayor cooperación y coordinación internacional de la política tendráimplicaciones para nuestra supervisión del sector financiero. Al ignorar las normas internacionales de supervisión y regulación, corremos el riesgo de ser incluidos en listas negras, lo que socava la confianza en nuestro sector financiero y en el clima de inversión. En economías pequeñas y abiertas como la nuestra, la cooperación y coordinación internacional de políticas en las áreas de supervisión del sector financiero y la regulación son fundamentales para el reconocimiento internacional ynos hacen menos vulnerables a las crisis en el futuro.

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En nuestro caso en particular, la cooperación y la coordinación de las políticas también son cruciales al nivel del Reino. Como ya he indicado en varias ocasiones, preveo una estructura de supervisión financiera en la que cada país dentro del Reino tendrá su propia institución supervisora, complementado por un cuerpo normativo al nivel unido Holandés o el Comité de Supervisores del Reino. Este cuerpo normativo debería estar a cargo de la preparación de la legislación en línea con las mejores prácticas internacionales, la aplicación oportuna de normas y reglamentos, y la vigilancia de su cumplimiento. Esta estructura garantiza el cumplimiento de las normas internacionales de supervisión. Además, esta estructura creará una igualdad de condiciones con normas uniformes en el Reino y promoverá la credibilidad y la transparencia. Mirando hacia el futuro cercano, veo nuevas oportunidades para las instituciones en el sector de servicios financieros internacionales. En septiembre del 2009, la Organización para la Cooperación y Desarrollo Económico (la OCDE) retiró a las Antillas Neerlandesas de la lista gris de los paraísos fiscales no cooperativos como resultado de nuestros esfuerzos por aplicar las normas de la OCDE sobre transparencia y el intercambio de información. Como el desarrollo de la industria de servicios financieros internacionales depende en gran medida de la forma que el sector es percibido por el resto del mundo, la eliminación de las Antillas Neerlandesas de la lista gris de la OCDE hace que nuestro sector sea más creíble y crea más oportunidades para el futuro desarrollo de laindustria. Además, las Antillas Neerlandesas están negociando actualmente con varios países para llegar a acuerdos encaminados a evitar la doble tributación y en el intercambio de información fiscal. Señoras y señores, estamos en la etapa final del desmantelamiento de las Antillas Neerlandesas. En pocos meses, Curazao y San Martín se convertirán en países autónomos dentro del Reino Holandés, mientras que Bonaire, Saba y San Eustatius se convertirán en municipios especiales de Holanda. Como un país autónomo, Curazao será capaz de abordar las cuestiones económicas y sociales en un contexto más específico sobre la isla, que también podría ser beneficioso para el sector de servicios financieros internacionales. Con respecto a esta industria en particular, algunas áreas claves de política deben ser dirigidas para mejorar la competitividad del sector y hacerlo más atractivo para los inversores. Por ejemplo, en

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el área de la fiscalidad, el impuestocorporativo debe ser reducido. Es mas, nuestra fuerza de trabajo debe ser más flexible, y tenemos que mejorar la calidad de nuestra fuerza laboral. Además, debemos eliminar las barreras administrativas actuales y la burocracia que debilitan nuestra competitividad como lugar de inversión. En los últimos 30 años, la industria de servicios financieros internacionales ha enfrentado a obstáculos, retos, oportunidades y cambios rápidos. Bancaribe ha demostrado ser un jugador fuerte y fiable en este ambiente dinámico y a veces turbulento. Me gustaría expresar mi gratitud por la confianza de Bancaribe en las Antillas Neerlandesas y Curazao y como lo ha demostrado con su presencia continúa de 30 años. Estoy mirando adelante a su continua presencia en la industria de servicios financieros internacionales y en la ampliación de nuestra fructífera cooperación en materia de supervisión con el objetivo común de desarrollar a Curazao, como un centro financiero internacionalimportante. Gracias por su atención.

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ICT as a driver of growth in the Caribbean: Policies to improve the Caribbean’s competitiveness in a knowledge-based economy Speech on the occasion of the opening of the 26thAnnual CANTO conference and trade exhibition July 11, 2010 Excellencies, ladies and gentlemen, good evening,

llow me to welcome all the representatives of the Caribbean Association of National Telecommunications Organizations – CANTO – to the island of Curaçao. Developments in the telecommunications sector are not only important for the individual organizations operating in the industry, but they also are crucial for our national and regional economies. Therefore, I would like to congratulate CANTO and the United Telecommunication Services – UTS – in particular, for organizing this annual conference. Ladies and gentlemen, the theme of this conference, “Embracing technology for economic success” is very timely. Today more than ever, technology, and specifically, information and communications technology, or ICT, is considered one of the main factors contributing to economic recovery and sustained growth. ICT has become an essential element of the infrastructure underpinning competitive economies. In today’s world, the ability to create, distribute, and exploit knowledge is a major source of competitive advantage, wealth creation, and improvements in the quality of life. Information and communications technology is the foundation of this knowledge-based world because it allows economies to acquire and share ideas, expertise, services, and technologies locally, regionally, and across the world. Furthermore, ICT stimulates innovation as it encourages the creation and development of new ideas, products, and services. Finally, increased use of ICT stimulates productivity growth. In fact, investment in ICT can spur gains in productivity in three ways. (1) Investment in ICT contributes to overall capital deepening, helping to increase labor productivity. (2) Technological progress may contrib-

ute to faster multifactor productivity growth in the ICT-producing industry. (3) Finally, but perhaps most important, greater use of ICT outside the ICT industry helps firms, public and private institutions to increase efficiency, develop new products and services and, hence, it increases multifactor productivity growth. Ladies and gentlemen, as the world economy is recovering from one of the worst economic crises in decades, ICT is bound to play an increasingly prominent role in enabling economic growth. As you may know, following the escalation of the international financial crisis in 2008, global output contracted significantly in 2009. Output dropped sharply in the major industrialized economies and slowed down in the emerging economies. The Caribbean was not exempted from the global economic downturn. Most economies in the region contracted in 2009. The economic downturn in the region is primarily attributable to a decline in foreign demand that affected the main export industries, including tourism, financial & business services, and manufacturing. Fortunately, the world economy is showing signs of recovery and the IMF projects a global GDP growth for 2010. Output in our region is also expected to rise. For 2010, the IMF projects an average real GDP growth of 1.5% for the Caribbean. Countries are taking several measures to foster a sustained economic recovery. In general, the policy agenda includes fiscal measures to cut budget deficits and reduce public debt. In addition, the reform of the financial sector is considered high priority in most countries, especially the advanced economies. Furthermore, countries are taking measures to improve the efficiency of labor and product markets. Given ICT’s important contribution to efficiency and productivity, several countries have included measures and stimulus packages to foster the creation and dif-

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fusion of ICT in their policy agenda. For example, the European Union has presented the Digital Agenda for Europe that includes measures to improve the speed of internet connections and to stimulate ICT research and innovation. In the United States, the government has increased its investment spending on ICT, including investments in broadband technology, electronic medical records, and new computers for schools and libraries in order to make the country more competitive while creating more jobs. In the case of the Caribbean, the development and diffusion of ICT has become crucial to competing effectively in the global world. In the Caribbean, the services industry is the main pillar of economic growth, and ICT plays a crucial role in a services-oriented economy. For example, destinations, accommodations, and attractions can be marketed efficiently in the tourism industry by using ICT. Furthermore, in higher value-added industries such as financial & business services, ICT makes it easier to access market and management data, share information, and build trading partnerships. In the area of logistics, ICT can improve efficiency by reducing delivery times and coordinating stock levels through improved monitoring of supply and demand, which in turn enhances customer service. Ladies and gentlemen, over the past several years we have seen significant economic progress in the Caribbean region. Nevertheless, our average growth rate lags behind that of advanced and emerging economies. According to a recently published study by the Inter-American Development Bank, the main reason why Latin American and Caribbean economies have underperformed vis-à-vis advanced and emerging economies in terms of economic growth is low productivity growth. In fact, since 1970, productivity in our region has consistently lagged behind the rest of the world. What is more worrisome is that the services industry, in particular, has performed poorly in terms of productivity growth, dragging down aggregate productivity in the region. One of the main reasons why productivity growth has been low in our region is that investments have been concentrated in traditional, low productivity sectors such as agriculture. In addition, high investments were made in maturing sectors, particularly the tourism sector, where productivity improvements are more difficult to realize. Instead of focusing on

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the traditional industries, investments must be made in those sectors that can increase productivity and, hence, boost economic growth in the region. Needless to say, the policy agenda should include measures to stimulate innovation and diffusion of ICT in the business sector, particularly the high value-added services industries. Several factors affect a firm’s decision to invest in and use ICT. First is the availability of a state-of-the-art ICT infrastructure. For example, these days, the availability of adequate bandwidth with access to the international information superhighway is crucial. A second factor affecting firms’ investment decisions related to ICT is the direct costs of ICT, including the costs of ICT equipment, telecommunication, or installing an e-commerce system. Lower costs will lead to more technology investment and diffusion of ICT. The availability of qualified personnel also affects a firm’s decision to invest in new technologies and use ICT. A third important factor is the amount of risk and uncertainty related to the implementation of ICT. For example, firms will be more inclined to do business online if the infrastructure for online payments, delivery, and guarantees is secure. Finally, firms are more likely to invest in ICT in a competitive environment as a way to improve performance and survive than in a sheltered environment. Ladies and gentlemen, a quick assessment of the ICT environment in the Caribbean reveals that one of our main weaknesses is the availability and affordability of state-of-the-art ICT services. Although significant ICT investments have taken place over the past decade, the availability of business-oriented technologies differs considerably among countries in the region since not all countries have equal access to the international backbone infrastructure. For example, limited access to the fiber optic submarine systems results in higher prices for bandwidth capacity. In the cases in which state-of-the-art services are provided, customers are charged relatively high prices. For example, according to a recent study by CARICOM, Caribbean countries charge far more than developed countries for broadband internet access. The high cost of ICT services is related to the lack of economies of scale in the Caribbean due to our countries’ small size. As a consequence, competition in the telecommunication industry in the Caribbean is limited. More often than not, only one single opera-

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tor has the licenses to use the international backbone infrastructure and/or is the owner of the domestic infrastructure. Hence, other operators have no access or limited access to international and domestic infrastructure, which results in limited and even unfair competition. From an economistâ&#x20AC;&#x2122;s point of view, the availability and affordability of ICT services in the Caribbean can be improved with increased competition in the telecommunication industry. Therefore, governments should ensure through adequate regulation, fair and non discriminatory access to the domestic ICT infrastructure. All players within the sector should be able to develop and offer services through the domestic and international backbone infrastructure. In cases where competition is limited or not possible, the regulator must ensure that conditions exist for users to obtain the bandwidth capacity they need under non discriminatory, transparent conditions and at cost-based prices. Another weakness in the ICT environment in the Caribbean is our legal and regulatory framework. The legal enforcement of electronic documents, electronic transactions, and digital signature is essential because it reduces the risks of doing online business. Measures to fight internet crime should be included in the legal and regulatory framework as these increase a countryâ&#x20AC;&#x2122;s reputation as a safe environment for e-business. Regulation of intellectual property and privacy related to the use of the internet also affects a firmâ&#x20AC;&#x2122;s decision to develop and provide new e-business activities and, hence, should be included in the legal and regulatory framework. Currently, the legal and regulatory framework in the region can be characterized as fragmented and antiquated, lacking focus and flexibility. Several reports by international institutions, including the World Bank and CARICOM, have emphasized the importance of a regional approach for the development of a legal and regulatory framework for Caribbean countries. This regional approach should encompass the harmonization of e-legislation and e-regulation among the countries in the region. The Caribbean framework should be in line with international best practices. Moreover, the framework should be flexible to adapt to new ICT developments. Because changes happen very rapidly in this dynamic environment, regulators need to monitor ICT developments continuously and adjust the framework if necessary.

A main advantage of regional cooperation in the area of ICT is that it will help maximize the use of scarce expertise with regard to drafting legislation and implementing regulation of e-business. Furthermore, the ICT reform process could evolve more rapidly if countries only had to focus on facilitating and implementing the legislative and regulatory framework instead of drafting country-specific legislation. Ladies and gentlemen, another area that has to be addressed to increase productivity is the availability of a skilled workforce. A competent and skilled workforce is essential for countries to succeed in a knowledgebased economy. Today, the labor market demands more and more well-trained and qualified workers. Caribbean countries have recognized the importance of ICT in the vocational curriculum. Governments, the private sector, and nongovernmental organizations are engaged in expanding ICT coverage in the education system. Therefore, schools are increasingly being equipped with computers and internet access. Nevertheless, despite much effort, the access to ICT equipment is still insufficient. Furthermore, in most cases, the vocational curriculum is focused on providing basic technology skills instead of integrating ICT into the learning processes to develop critical thinking and higher value skills. Therefore, I believe that public-private partnership efforts to expand ICT coverage in the vocational curriculum should be further expanded. Besides providing the ICT infrastructure, teachers should be trained to better incorporate ICT tools in the learning experience. At the university level, through special programs and incentives, public-private partnerships could stimulate internships in the ICT sector and academic research on ICT-related topics. Because the knowledge-based economy and the ICT environment are very dynamic, lifelong learning has become a necessity for countries to maintain and increase their competitiveness. After formal education, workers need continuous training to maintain the skills needed in their work. Lifelong learning should be a joint responsibility of workers and their employers. The government could provide special incentive schemes, for example, tax schemes, to make lifelong learning and training more attractive for the worker and the employer.

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Regional cooperation is also recommended to improve the quality of the labor market, in particular in the area of ICT. For example, Caribbean countries could cooperate in the development and provision of ICT training for teachers. In addition, universities in the region could join efforts in academic research on ICT-related topics. And finally, Caribbean countries could share experiences and best practices with respect to lifelong learning and training schemes for workers. Ladies and gentlemen, I have just dealt with several aspects of firms’ decision to invest in ICT that need to be improved in the region. Besides these sectorspecific factors, I would also like to emphasize the importance of an enabling investment climate. An enabling investment climate includes a flexible labor market, low administrative barriers, and easy access to capital. Furthermore, barriers to market entry and exit are relatively low, and the costs of doing business are competitive. Such an investment climate will not only encourage firms to invest in ICT hardware and applications but will also encourage ICT innovation. In other words, in an attractive investment climate, firms will be more inclined to develop new ICT products and services. Ladies and gentlemen, I wish to conclude my address by underscoring the importance of ICT as a driver of growth in the knowledge-based economy. Today more than ever, ICT plays a crucial role in countries’ ability to recover from the recent economic downturn. In the Caribbean, ICT could boost economic growth. However, we have to address certain institutional and economic weaknesses in order to improve our competitiveness and to make our economies more attractive for ICT investments. In this regard, regional cooperation is essential. Therefore, I applaud CANTO’s initiative in organizing an annual conference to discuss important topics and developments in the ICT industry and to develop regional programs to improve our ICT competitiveness. I wish you all fruitful meetings and a pleasant stay in Curaçao. Thank you for your attention.

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The local petroleum industry: Its viability and stability Presentation on the occasion of Curoil’s 25th anniversary November 1, 2010

Good morning ladies and gentlemen,

would like to start today’s presentation by congratulating the management and personnel of Curoil with the company’s 25th anniversary!

Over the past 25 years, we have experienced many developments that either directly or indirectly had an impact on Curoil’s way of doing business. For example, consumers all over the world have become more aware of environmental issues and the importance of clean energy. Oil prices have risen sharply between 2005 and 2008, reflecting among other things, fast growing demand from Asia. International oil prices became also more volatile. Domestically, we have struggled continuously with the issue of pricing of domestic oil products. In this dynamic and challenging environment, Curoil has proven to be a reliable supplier of oil products to our domestic market. Furthermore, the company contributes to foreign exchange revenues through its bunkering activities and most recently to the export of oil products to the region. My presentation is structured as follows. First, I would like to present the importance of the petroleum industry in terms of foreign exchange revenues. Second, I will discuss the role of Curoil in our economy. Third, I will discuss some factors that affect Curoil’s performance. And finally, I will deal with Curoil’s role in the 21st century. Ladies and gentlemen, the petroleum industry can be defined as the companies that explore for and produce crude oil and gas, and refine and market oil products as their main source of business. The Curaçao petroleum industry includes the refining activities performed by the Isla refinery and oil stor-

age and transhipment activities. In addition, there is the wholesale & retail trade of petroleum products, including the sale of gasoline and diesel through the gasoline stations. Moreover, bunkering is provided to domestic and foreign companies in the shipping and aviation industry. Curoil is active in the wholesale and retail trade segment of the petroleum industry and is the main supplier of bunkering. The contribution to GDP by Curoil, gas stations, and the refinery was 2.2% in 2007 and 9.3% in 2008. Curoil plays an important role as the supplier of oil products. Over the last 25 years, on the domestic level, Curoil served as the sole supplier of gasoline and diesel to gas stations on Curaçao. • Curoil is also the main supplier of industrial fuel to the utility company, Aqualectra. • Currently, Curoil operates 5 gas stations out of a total of 26 gas stations on the island. • Also, Curoil sells lubricants by importing the bulk of finished lubricants and repackaging them for domestic and foreign distribution. On the international level, Curoil is the only supplier of gasoline and diesel to the gas stations on Bonaire. • Curoil offers offshore bunkering deliveries at Curaçao, Bonaire, and Aruba. • Additionally, it provides jet fuel to turbine airplanes as well as lubricants for engine aircrafts. • Since 2006, Curoil has been exporting fuel oil to the Dominican Republic and Haiti. Curgas, which is a subsidiary of Curoil, distributes liquid propane gas (LPG). Similar to Curoil’s role as the sole supplier of gasoline and diesel, Curgas is the sole provider of LPG to households and businesses on Curaçao and Bonaire.

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The following pie chart shows the foreign exchange income from the export of goods and services by sector in the Netherlands Antilles in 2009. As shown, the main contributor to export revenues is the tourism industry.

This chart shows the average shares of some segments of the petroleum industry in foreign exchange income generated by the petroleum industry during the period 2000-2009. As shown, the refinery is the most important contributor, followed by bunkering activities. The petroleum industry, comprising refining, bunkering, and oil storage activities contributes 18.4% to foreign exchange income from the export of goods and services. Hence, the industry is an important source of foreign exchange income and contributes to making our economy less dependent on tourism.

Curoil is the main supplier of bunkering fuel. Moreover, the company exports fuel oil abroad, in particular to the Dominican Republic and Haiti. Therefore, we can conclude that Curoil contributes approximately 40% to the foreign exchange income of the petroleum industry.

Since we are not a producer of crude oil, we have to import all petroleum products. Hence, oil exports and bunkering activities have a large import content. This figure shows that the net exports, i.e., exports minus imports, by the petroleum industry were positive over the period 2000–2009, with the exception of 2008.

Ladies and gentlemen, besides its contribution to foreign exchange revenues, Curoil’s activities contribute to our Gross Domestic Product. • The trade sector represents 11.0% of Curaçao’s GDP. Curoil, as part of the trade sector, accounts for 1.2% of GDP (2008). • Meanwhile, sales of Curoil account for 27.6% of the total trade of Curaçao (2008).

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As you may know, 2008 was an exceptional year, when international oil prices increased significantly. Overall, we can conclude that the petroleum industry has a positive contribution to our net export revenues. However, these net revenues fluctuate as they depend on both foreign demand and the international oil prices. Ladies and gentlemen, from a macro-economic and sectoral perspective, there are several factors that affect the current and future performance of Curoil. Internationally, as the petroleum industry is no longer vertically integrated, companies such as Curoil, have more opportunities to provide bunkering services to the aviation and shipping industry. In the past oil companies used to supply their own refineries in their own ships and then provide gasoline to their own retail sites. This is no longer the case. Intermediate

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markets have now been established and have deepened in the petroleum industry value chain. However, an important challenge for companies operating in the bunkering industry is the increased international regulations on emissions from aviation and shipping bunker fuels. In fact, bunker fuel as a product is changing. Driven by stricter international regulations on emission, low sulphur fuel standards are being imposed by governments on bunker fuel oil. Curoil will have to keep track of these developments, and if required, adjust its product line in order to comply with the international standards. A domestic factor affecting Curoil’s performance is our price regulation. In fact, price regulation of fuel is not necessarily a problem to Curoil, but the arbitrary implementation of this policy is. When gasoline prices are determined arbitrarily, it leads to non transparent price setting. This will lead to problems in the short as well as the long-run. In a situation of steady global oil price increases, Curoil would be forced to pre-finance the price gains, which can ultimately bring the company into financial problems. Also, by not passing on the higher prices, consumers would get a biased impression of the fuel prices. Transport & Communication accounts for about 23% of the total Consumer Price Index. So, when fuel prices are finally adjusted after consistent global price increases; consumers are faced with an enormous price gain, making it more difficult for them to adjust their spending habits. Basically, price regulation of fuel should be depoliticized.

This figure shows the monthly price developments of West Texas Intermediate crude oil vs domestic gasoline during the period January 2005-August 2010. To mitigate the negative impact of rising world oil prices, the island government of Curaçao created an energy fund in mid-2005, leading to domestic gasoline prices to remain constant at NAf.1.80/USD1.01 per liter during the period June 2005-June 2007.

In July 2007, the government started to adjust the domestic gasoline prices gradually. On May 2008, the island government of Curaçao proposed that gasoline prices be adjusted on a monthly basis. In this way, changes in the world oil prices are passed on to the consumers with a lag of 1 month. However, the domestic gasoline prices were kept unchanged during the period September 2009-March 2010 at NAf.1.91/ USD1.07 per litre. The last price adjustment was on April 2010, after which domestic gasoline prices have remained unchanged at NAf.2.02/USD1.13 per litre. Meanwhile, world crude oil prices have been gradually rising. Hence, by implementing the price regulation arbitrarily, the world crude oil price changes are still not reflected in the domestic gasoline prices. To increase transparency and to depoliticize the oil pricing mechanism, a regulatory authority was recently created in Curaçao. However, in order to function well, the responsibilities and competence of the regulatory authority should be clear to all parties. Furthermore, the regulatory authority should be provided with the necessary information to perform its task accordingly and should be free from political intervention in the price setting of oil products. If the regulatory authority is functioning properly, Curoil’s current risk of absorbing price increases without domestic price adjustments would disappear. With the Isla refinery being Curoil’s main supplier of oil derivatives, the stability and reliability of the refinery is crucial for Curoil’s performance. For example, recently, Curoil had to buy jet fuel on the spot market from third parties, due to the refinery’s shutdowns. To reduce its exposure to price volatility on the international market, the company had to hedge its jet fuel imports. Curoil’s bunkering performance does not only depend on the company’s efforts, but also on the infrastructure that supports the bunkering activities. For example, the quality of the airport and the seaport should be competitive vis-à-vis the region. Moreover, the service and safety-quality standards should be high. Therefore, it is crucial that the quality of this infrastructure is maintained and in certain aspects improved. Despite being a monopolist on the domestic wholesale market of gasoline and diesel, Curoil should always strive to meet the consumer needs.

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In this aspect, Curoil has to deal with increased awareness of environmental issues and clean energy. For example, Curoil has responded recently to consumers’ increasing demand for cleaner diesel. Ladies and gentlemen, expectations are that the world will continue to depend primarily on fossil fuels for energy in the near future. Fossil fuels are used in one way or another as a part of everyday economic activity.

Ladies and gentlemen, over the past 25 years, Curoil has played an important role in our economy by being a reliable supplier of oil products. Also, the company contributes to our foreign exchange revenues through its expanding export ambitions. I foresee a bright future for Curoil, if it also takes a leading role in providing cleaner energy sources. I thank you for your attention.

To promote sustainable economic and social development, every country of the world should have sufficient energy resources available. Hence, the future role of the petroleum industry is not only to continue supplying the growing demand for oil, but also to take part in promoting energy conservation and renewable alternative fuels. Being the sole supplier of gasoline and diesel to gas stations on Curaçao and Bonaire as well as the main supplier of industrial fuel to the utility company, Curoil has to ensure that the supply of fuel is reliable and efficient. With the long-term outlook suggesting that fossil fuels will continue to provide the bulk of global energy needs, and with the world increasingly requiring its energy to be cleaner and safer, Curoil and its stakeholders have an important role to play in domestic environmental efforts. Besides the aforementioned reliable fuel provision, it is crucial for Curoil to ensure the development and deployment of cleaner fossil-fuels technologies and create environmental awareness with the public. This is important for both local and global environmental protection. Curoil should take the lead in improving product quality specifications and provide cleaner oil products. The development of stricter product quality standards is part of overall efforts to reduce atmospheric fossil fuel emissions. For instance, making improvements to the quality of products like gasoline and automotive diesel will substantially improve air quality. Hence, the environmental challenges of tomorrow should be dealt with by both petroleum producers and consumers. As we are talking about taking the lead in creating cleaner and safer fuel, Curoil is currently taking part in a study with “Fundashon Antiano Pa Energia” (FAPE) in exploring alternative energy for Curaçao.

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Towards a regulatory framework for the utility sector of Curaçao: Lessons from international experiences Speech on the occasion of the follow-up energy symposium with the theme “A regulatory framework, making it good for everybody” May 18, 2011

Ladies and gentlemen, good afternoon,

t was with a great deal of pleasure that I have accepted the invitation to address you this afternoon on the topic of utility regulation. Aside from the fact that this topic has been on the forefront of the National Agenda for some times now, it has been my passion since my academic years. Indeed, the topic of my doctoral dissertation in 1985 was: “The Impact of Regulation on Electric Utility Pricing: An Econometric Test of Ramsey Pricing.” I developed and applied an econometric model capable of estimating the extent to which prices deviate from marginal cost pricing in the electric utility industry. This allowed me to estimate the magnitude of the potential efficiency gain to be derived by moving to the optimal set of prices. It has subsequently been extended to examine the pattern of inefficiency observed in different regulatory environments. Ladies and gentlemen, I have not been asked though to elaborate on my model but to review with you recent economic developments and their implications for the topic at hand. I will however, expand on the issue of utility pricing given the importance of prices in a market economy to guide the allocation of resources among alternative uses to achieve economic efficiency. Thus, the issue of regulation as a substitute for market forces is critical for economic development and hence economic growth. Ladies and gentlemen, recent economic developments in Curaçao cannot be seen in isolation. Given the openness and size of our economy, our economic developments are largely a reflection of economic developments in our main trading partners. As the global economy is estimated to expand in the aftermath of the 2008 great recession, the outlook for growth in our region is projected to improve.

While Curaçao fared relatively well during the international financial and economic crisis owing to the debt relief in the context of the constitutional arrangements, it did record a contraction in 2009. In 2010, economic growth is estimated to be a mere 0.2 percent. Growth in 2010 can be attributed to an upturn in the wholesale & retail trade and financial services sector and the public sector. The expansion in the public sector was due mainly to more outlays on wages & salaries and goods & services. Activities in the wholesale & retail trade sector rose, reflecting gains in domestic and tourist spending. By contrast, decreases in the manufacturing, construction, and transport, storage & communication sectors mitigated the upturn in the wholesale & retail trade and financial services sectors. The unfavourable development in manufacturing was due mainly to a drop in value added by the Isla refinery due to the prolonged shutdown of the refinery. Also, activities in the ship repair industry shrank. Construction investment activities also were down in 2010, but less than in 2009. Meanwhile, Curaçao’s real GDP is projected to reach 0.3% in 2011. The 2011 growth will be backed by domestic demand, owing to gains in private demand and public investment. However, the decline in net foreign demand will moderate somewhat the increase in domestic spending. Inflationary pressures were however led by developments in international oil and food prices. It is estimated that headline inflation will remain high by historical standards as a consequence of commodity price increases and increases in demand by countries such as China and India. To insulate our economy from those effects, it is important that we put in place

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a program to look for alternative energy sources. Given the topic of this conference, I think it is propitious to underscore this subject. Ladies and gentlemen, during the last two decades, public finances in the Netherlands Antilles have been characterized by structural deficits and the consequent build up of public debt. Various attempts to implement structural adjustments programs to achieve fiscal consolidation derailed and led to a debt-to-GDP ratio of over 80%. To address this imbalance and to give the newly formed country a good starting position, the Netherlands agreed to pay off 70% of the outstanding public debt. As a consequence, our debtto-GDP ratio has been reduced to 35%. Given the debt relief, which was coupled with budgetary rules and norms to ensure balanced budgets, the fiscal situation in Curaçao can be characterized as sound. The overall balance of the Curaçao budget was a surplus of NAf.323.3 million in 2010 and is estimated to record a surplus of NAf.3.2 million in 2011. The deficit on the current account of our balance of payments widened in 2010 compared to 2009 due mainly to a decline in net exports of goods and services. The latter was related to an increase in imports combined with a decline in exports. The increase in imports can be ascribed to higher international average oil and food prices. Meanwhile, exports dropped, as a result of among other things, a decline in reexports by the free zone companies to particularly Venezuela. Also, the fee for refining operations in Curaçao dropped significantly in 2010 because of the temporary shut-down of the refinery. Furthermore, oil storage fees received from abroad contracted as a result of a decline in oil storage activities. In contrast, foreign exchange revenues from the tourism industry rose. It should be noted that over the past couple of years, the deficit on the current account of the balance of payments has been increasing rapidly. This situation has however been masked recently by the implementation of the debt relief program that resulted in increased net current transfers from abroad. Without the debt relief program, the situation on the current account would have been worse at this moment. Given the importance of the utility sector for the economic performance of Curaçao, it is important that the price setting mechanism adopted by the govern-

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ment provides the necessary incentive structure to maximize allocative efficiency. Therefore, before elaborating on the regulatory framework, it is important to understand the importance of the signalling function of prices in our market economy as it applies to the complexity of a natural monopoly. Ladies and gentlemen, a major function of prices in a market economy is to guide the allocation of resources among alternative uses to achieve economic efficiency. In general, an efficient outcome is one where, by reallocating the available resources, no one can be made better off in terms of his preferences without making someone else worse off in terms of his preferences. Under certain conditions, perfectly competitive markets throughout the economy can achieve an efficient allocation of resources. Situations however do exist where competitive market forces are not likely to allocate resources efficiently. For example, if a product is produced under technical conditions that give rise to extensive scale economies relative to the size of the market, perfect competition will not result in a socially optimal allocation of resources. The natural outcome of competitive market forces under these conditions is a single firm dominating the market. That is, competitors are not naturally attracted to such a market and are incapable of survival even if the incumbent firm does not resort to predatory measures. This condition is referred to as a natural monopoly. In sum, extensive scale economies lead to market failure. This provides the “economic logic” that motivates government intervention in the marketplace and, in particular, regulation of prices in the utility industry. In addition, freedom of entry carries the risk of excessive duplication of facilities and only temporary competition at best, because any firm that increases its scale will have lower average costs than its rivals and will ultimately “price them out of the market”. The existence of one firm, left unregulated, will then lead to monopoly prices. To avoid the “twin evils” of wasteful competition and market prices which exceed minimum long-run average cost, public regulation is often used instead of market competition. A possible flaw in the economic rationale for government regulation is the notion that a natural monopoly provides a logical basis for monopoly prices. Even though efficiency considerations dictate that only one firm exists in a natural monopoly industry, the use of

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some form of competitive bidding will force the unregulated firm to charge a competitive price. The coexistence of monopoly power and monopoly structure is possible only if the costs of negotiating are differentially positive for potential rivals and if the rivals do not have the same access to the necessary inputs at market prices. Franchise bidding for public utility services, however, are likely to encounter the same problem associated with regulation. First, given the long run nature of the assets employed by public utilities, long run considerations are important in franchise bidding. Writing contracts that ensure reasonable performance over the contract life would be very costly. Second, since it is not possible to incorporate every single detail explicitly in a contract, renegotiation over time is necessary. The necessity for contract renegotiation implies that franchise bidding would come to resemble conventional regulation. Thus, extensive scale economies relative to the size of the market make a monopoly the natural outcome of competitive market forces – a case of market failure due to economies of scale. Because of market failure, the price system no longer conveys the necessary information to ensure efficiency. Given this assumption, an unfettered market cannot be relied upon to produce an outcome with any particular optimality properties. The alternatives are for the government to either regulate the industry (public regulation) or nationalize the industry (public monopoly) or do nothing (laissez faire). The usual normative prescription has been government regulation. Substituting a regulatory agency for the free market is premised in part on the belief that a regulatory agency can, at a relatively low cost, determine an efficient set of prices. Hence, optimal pricing is an integral part of any discussion of the role of government regulation. Ladies and gentlemen, the critical issue in designing rate structures is to establish rate-making criteria that will lead to an efficient outcome. If the general criterion is marginal cost pricing, socially efficient consumption and production decisions will result because marginal cost is the correct measure of opportunity cost, that is, the value of society’s forgone alternatives. Setting prices equal to marginal cost insures that, at the margin, the value of the resources used to produce a given commodity is the same as their value in the next-best alternative employment. However, it is not a rule to be followed absolutely and in all events. Marginal cost pricing, is “a principle to be

followed (only to the extent that) it is compatible with other desirable objectives and from which deviations of greater or lesser magnitude are to be desired when conflicting objectives are considered”. A conflict with the strict application of marginal cost pricing arises when the technological assumption of a well-behaved production is violated – for example, the existence of economies of scale. If there are economies of scale throughout the region of possible industry outputs, then marginal cost pricing will yield negative profits. Subsidizing this loss from tax revenue generally will not help unless the tax leaves all marginal allocation decisions unchanged. Even then, subsidies may distort the subsidized firm’s behaviour leading to excessively high costs of production. Because of the problem created by economies of scale, rates must be guided by a set of principles that are broader than marginal cost pricing. In general, the “guiding principles” in designing a rate structure in the utility field are: (a) to allow utilities to meet their revenue requirement; (b) to allocate cost of service among customers; and (c) to provide incentives for efficient consumption and production. These first two principles are discussed next. First, revenue requirement. Ladies and gentlemen, the revenue requirement is defined as the total number of guilders required to cover operating expenses, to service debt, and to provide reasonable contribution toward funds for expansion. Determination of the revenue requirement is usually the first step in the regulatory process of setting prices for utilities. A test year is first selected in order to examine a firm’s existing revenues and costs. Until recently, the test year usually was the most recent year for which historic accounting records were available. Recent inflation, however, has forced regulators to give consumers price signals that place greater weight on current cost. Use of a future test year (that is, cost and revenue projections) in the regulatory process is now common. Once the test year has been selected, the firm’s operating expenses, annual depreciation, annual taxes, and allowed profit are evaluated. The revenue requirement is determined by adding up these items. The second guiding principle is cost allocation. Cost allocation refers to the distribution of costs among consumer classes. Utility service is produced for different customer classes using the same facilities. As a result, it is difficult to indentify separate marginal

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costs for each customer class because a large part of the costs are common or joint. However, utility is produced for different customer classes in variable proportions, and separate marginal production costs can be identified as the increment to the total cost of the joint production process when output to one customer class is increased by one unit, holding the output of other customer classes fixed. Various factors influence customer costs, including voltage differences, distances between generation points and consumption points, and customer-density. Recognition of these factors has led to the development of cost allocation formulas that approximate the actual costs for which each customer class is responsible. In addition to being simple, the use of cost allocation formulas may reflect a desire to favor certain groups in terms of the prices they have to pay. Cost allocation methods are broadly classified into two groups: (1) peak allocation methods and (2) energy allocation methods. Peak allocations methods distribute cost responsibility to the various customer classes on the basis of their proportionate share in total demand placed on the system. Meanwhile, energy allocation methods distribute costs to the various customer classes on the bases of the amount of energy used to serve each class. In contrast to the peak allocation method, this method takes load factors into consideration and therefore benefits low-load factor customer. As can be seen there are various ways and methodologies to price utility services. It is not an easy and clear cut as sometimes one may want it to appear. This issue is further complicated when one takes into considerations the various interest group that try to make the rates reflect their own objectives such as consumers advocate, environmentalists and industry lobbyists. Ladies and gentlemen, before 1984 public ownership of utility companies was justified by the argument that these companies were natural monopolies. Governments owned utility companies because it was not possible to prevent the abuse of market power under private ownership, because of economies of scale, competition in these industries would result in the inefficient duplication of assets. In the mid 1980’s a changes occurred in this view.

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The focus became more on increasing efficiency in the utility companies. In addition, there was a growing realization that while a considerable part of the activities carried out by the utility companies had monopolistic characteristics, certain activities did not. The latter could in fact be provided in a competitive environment. Hence, the utility industry or parts of it were liberalized by allowing competition. In addition, the ownership of certain companies was transferred from public to private hands. Regulation was now aimed at facilitating the introduction of competition or “creating a level playing field”. The privatization of the UK energy sector in the 1980s triggered a wave of privatization attempts in other countries. Although many countries opted to customize the UK’s privatization principles to fit their own specific circumstances, the common denominator in these approaches was the separation of the transmission and distribution of electricity from the production and retail sale thereof. However, the liberalization of energy markets has not always led to lower consumer prices, as expected. According to certain studies, prices might have only shifted between market segments, or even increased compared to prior to the liberalization. Some studies indicate that energy prices dropped after the liberalization of the energy market, but only for businesses. Private consumers, in contrast, ended up spending relatively more on their energy bill. In California, consumer prices rose following the liberalization of the energy market, while the number of power outages increased substantially. According to some energy market experts, liberalization on its own does not guarantee lower consumer prices. If private suppliers retain the possibility to ration their production and as such cause shortages, they can influence the price of electricity in their favor anyway. Hence, they retain certain monopolistic powers, despite the liberalization of the market. These developments have slowed down the trend towards liberalization in recent years, and even spurred calls for the re-regulation of some liberalized energy markets including: (1) the prevention of market abuse in case of a monopoly and (2) the establishment and regulation of structures to facilitate competition in potentially competitive sectors. Furthermore, independent regulatory agencies were established to execute these tasks.

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As a monopoly service provider, Aqualectra until now has not been subject to economic regulation as there is not a body which has responsibility for regulating competition, controlling prices and protecting consumers in the water and electricity supply industry.

business conduct; investigating possible breaches of the acts that it administers; educating and informing businesses and consumers about the requirements of these acts; and taking enforcement action when needed.

In the past, the department of economic affairs used to advice the government on the tariffs of water and electricity. This task is now being fulfilled by the bureau of Telecommunications and Post (BT&P).

Ladies and gentlemen, choosing a regulatory framework for Curaçao’s energy and water sector is not an easy task. However, we can draw upon international best practices and the experiences of our neighboring Caribbean islands to help us making the right decisions. We must keep in mind though that best practices do not mean that we should simply apply these concepts to our environment. We have to adapt them to our own specific circumstances.

Ladies and gentlemen, I would like to turn now to the best practices that have evolved during the last several years. For effectively regulating the water and energy infrastructure services some form of regulation is needed. Best practices in recent years point at the creation of autonomous and independent institutions. This is only possible if there is a political commitment to facilitate this development as the regulatory decision making powers are transferred from the government (Minister) to an independent regulator, sourced out through a regulatory contract or to an expert panel. The commitment of the government should be shaped in a constitutional and legislative framework.

Thank you for your attention.

The aim of establishing an independent regulatory board is to encourage efficient, low-cost, reliable service provision, to ensure financial viability and to facilitate new investments. Furthermore, it will insulate tariff setting from political opportunism and make decisions more transparent and predictable. One of the constraints of setting up independent regulatory agencies is the institutional capacity. It is often difficult to find a competent institution and staff. In this and next sheet, I will give an overview of the status of energy policies in selected Caribbean countries. A number of Caribbean islands already have depoliticized the decision making process and instituted regulators. In Barbados – we often mirror ourselves against this Caribbean island – a regulatory body exists since the middle of last century. From 1955 till 2001 the Public Utilities Board was responsible for regulation. On January 2nd, 2001, the Fair Trading Commission was established with a much broader mandate than its predecessor. Its duties include among other things: determining principles, rates and standards of service for regulated service providers; monitoring general

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Challenges facing pension plans: A regulatorâ&#x20AC;&#x2122;s viewpoint Speech on the occasion of the opening of Penad Pension Services December 14, 1999

Ladies and Gentlemen, good afternoon,

t is with a great deal of pleasure that I accepted the invitation to share with you some thoughts about the emerging trends in the field of pension schemes and their implications for the Netherlands Antilles. Beyond the recent economic turmoil affecting our economy, one facet of our longer-term prospects not often remarked upon is that our population is aging. This fact will influence the long-term development of the economy affecting labor markets, saving and investment, growth rates and posing policy challenges for government particularly in the social sectors. The aging of a countryâ&#x20AC;&#x2122;s population poses important long-term public policy challenges. Educational systems will need to adapt and rapidly modernize, while aging societies will confront difficult challenges in meeting the growing and shifting demands for medical care. Social insurance mechanisms will be necessary to ensure that the elderly have adequate financial resources when they retire, particularly since traditional extended family support systems normally weaken as economies mature. Forecasting the budgetary effects of aging is always problematic. As we are standing here today our governments are working on a new pension scheme for their own employees. The reforms in the public sector pension plan L+G are not only being forced by the budgetary constraints in the public sector. International developments and the aging population have increased the operational cost of many pension systems here as well as in Europe, the US and Canada. Therefore, we will have to come up with new alternatives and solutions to cope with the rising costs of future retirement plans or else run the risk of ending up with undercapitalized funds.

In addition to the fiscal effects, one should ask whether our governments should pursue more actively the privatization of the social security system rather than put more efforts in a concentration of the old age and sickness benefits into one or a few entities. Competition in this area will contribute to lower premiums and will also create an environment conducive for high level and professional services to the customers. As we are entering a new millennium, one has to reflect on the many challenges that the demographic factors are posing to public policy. During this century, for instance, we have witnessed how information technology and globalization have changed our way of life in the social, economical and financial context. They have brought along changes in family values and the financing of and plans for the retirement benefits. Globalization, as a result of the increasing use of information technology, has created opportunities for all economic agents to swiftly and at very low cost do business around the globe. This development has also influenced traditional labor mobility in the sense that nowadays more and more people have a flexible attitude in pursuing various job opportunities. Compared to, for instance, some years ago you will rarely find today an employee working for the same employer during his or her entire life. Increased labor mobility has become a universal phenomenon and we are no exception in this matter. This development in turn has affected the way the younger generation or the active population sees their role with respect to financing the care for the elderly in the community. In the social context, the traditional role of a strong family tie and the responsibility of the children for the parents have been replaced by the individual respon-

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sibility for one’s own future well being. Therefore, the design of a good pension plan is of the utmost importance for the future well being of every single member of this community. All of these important changes in our social and economic environment have resulted in various new challenges for us as supervisor of the financial sector in the Netherlands Antilles. In addition, some trends in the international supervisory field will likely bring their pressure to bear on the supervisory agenda as we are entering a new millennium. One major trend is the shift from a defined benefit to defined contribution pension plan. For instance, in Europe defined contribution plans are becoming extremely popular with employers and employees. The popularity of defined contribution plans in the United States and Canada was the catalyst behind the current developments in Europe. An employee’s defined contribution plan accumulates assets as the employee and employer make their premium contributions and the plan earns investment returns. Defined contribution plans give employees a sense of ownership and control over their ability to plan for retirement. These plans are also flexible in that the employee can take his investment away when he or she changes from one job to another. In doing this, the defined contribution plan stimulates the labor mobility within the economy without hampering the pension plans of the contributors. Ladies and gentlemen, in the last decade we have experienced that the outcome of investment returns of pension plans are increasingly sensitive to developments in the stock markets. Pension funds and other financial institutions are being affected by the volatility of stock markets. As supervisors we are therefore focusing on structured information on the investment portfolios of institutions under our supervision. Another important change in the global economy is the move towards more transparency in corporate organization management and this is clearly evident in the pension sector. The publication of pension funds annual reports contributes to greater openness towards pensioners. In view of the financial interest involved in the adequate operations of a pension fund,

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there is also a growing demand for those who determine the policy in the pension funds to be reliable and have the required expertise in this field. The Bank in this regard has an important supervisory task to assess the fund’s administrative structure and internal controls and also verify the compliance of the funds to the existing rules and regulations. The Bank has also adopted as a standard policy for the financial sector, the “fitness and proper test” for the persons that manage the institutions in our jurisdiction. The focus here is the reliability and expertise of the management and the supervisory board. Because of all the changes and particularly the rapid pace of the changing structure of our community and the high cost and risks involved in defined benefits pension plans we will have to come up with new alternatives for the future retirement plans here. The time has come that we will have to review and adapt present policies to anticipate on the future changes. As the environment in which pension plans operate continue to change, pension plans will demand superior level of service and responsiveness. Plan sponsors will expect perfection from their service provider. To continuously meet the expectations of the plan sponsors, service providers will have to make significant investments. Investing in operating systems and back office. Success also requires keen strategic decisions, marketing and sales techniques geared specifically toward the market and a good understanding of the different requirements of each type of retirement plan. An important issue is that the back office – the administrative side of the business – is very capital intensive. As pension plans continue to grow, both the investments required will continue to increase, as the knowledge level required to guarantee quality service. The pension industry will continue to evolve and will reward those that are well prepared to assist clients in developing, administering and providing value added actuarial and investment advice to their plans. The expectations and requirements of plan sponsors will continue to change. This change will be driven by the evolution in technology. In the past, plan sponsors used to look for a basic record-keeping service.

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Nowadays they are considering total outsourcing, whereby the plan sponsor or Management board is involved only at a strategic level. This is perhaps the biggest contribution the establishment of companies such as Penad can make to the Netherlands Antilles. Experience has shown that the outsourcing of such tasks will result in: • Increase profitability through reduction of operating costs; • Sharpen the board’s focus on strategy; • Improve business processes; • Adopt best practices; • Strengthen control; and • Exploit advanced technologies. As a result of outsourcing, plan sponsors can get back to the core of their own business. Penad’s ultimate mission should be to assist pension plans imbed the characteristics which will make them successful. You should focus on:

• • • • •

Meeting the client’s needs (custom tailored.) Eliminate complexity – make it simple for everyone to understand. Reduce fiduciary risk. Reduce the time and expense involved in the administration of the plan, and Compliance with all the regulations of the regulatory agencies.

I am convinced that with the opening of the Penad office today, we all will have a good opportunity to better structure our own individual retirement plan. I like to conclude by wishing the new company Penad N.V. the best of luck and all the wisdom to confront the challenges ahead. I thank you for your attention.

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De rol van financiële integriteit in het bedrijfseconomisch toezicht van de Bank van de Nederlandse Antillen Toespraak tijdens het Integriteitscongres 3 november 2000

Excellenties, dames en heren goedemorgen,

et is mij een genoegen om ter gelegenheid van dit Integriteitscongres het woord tot u te mogen richten. In mijn voordracht zal ik een uiteenzetting geven over het belang van financiële integriteit in het bedrijfseconomisch toezicht van de BNA. De betekenis van de financiële integriteit is in de laatste jaren met rasse schreden toegenomen. Gebeurtenissen in het recente verleden hebben duidelijk gemaakt dat niet meer volstaan kan worden met slechts toe te zien op de “naleving van de letterlijke tekst van weten regelgeving”, maar dat de aandacht ook dient uit te gaan naar de “naleving van de geest en van de bedoeling van de regelgeving”. Deze verbreding van het aandachtsgebied impliceert de introductie van ethische en morele criteria of waarden. De noodzaak hiertoe is mede ingegeven door de vanwege technologische ontwikkelingen en globalisering toegenomen mogelijkheden om misbruik te maken van een ingewikkelder geworden financiële sector. Staat u mij toe het begrip integriteit te illustreren aan de hand van de volgende gebeurtenis: drie vrienden checken voor een overnachting in bij een hotel, alwaar zij te horen krijgen dat de prijs voor een overnachting 30 gulden bedraagt. Het bedrag brengen zij bijeen door ieder 10 gulden in te leggen. Naderhand komt de hotelier echter tot de ontdekking dat de prijs voor een overnachting niet 30 maar 25 gulden bedraagt. De hotelier stuurt de hotelbode er vervolgens op uit om de drie gasten hun de 5 te veel betaalde guldens terug te betalen. Onderweg naar de gasten realiseert de bode zich echter dat de 5 gulden niet deelbaar is door drie en besluit hij de drie vrienden elk 1 gulden uit te betalen en de resterende 2 gulden in zijn zak te steken. Dit plaatst ons wel voor de volgende vraag: door de terugbetaling van de 3 gulden hebben de drie

gasten 3 maal negen, dat is 27 gulden betaald. Samen met de 2 gulden die de bode in zijn eigen zak heeft gestoken, brengt ons dat op 29 gulden. De vraag is dan: waar is de laatste ene gulden gebleven? Alvorens deze vraag te beantwoorden, laten we eerst onze aandacht richten op de ontwikkelingen in de financiële sector. Nog recentelijk waren de directe gevolgen van de aantasting van een goede naam en reputatie van een financieel centrum in de regio van dichtbij te volgen, toen de Verenigde Staten op mondiaal niveau een negatief advies uitbrachten voor het onderhouden van handelsrelaties met Antigua en Barbuda nadat deze eilanden werden bestempeld als ‘non-cooperative’, zijnde in strijd met de 40 aanbevelingen van de FATF. Het gevolg hiervan was dat investeerders zich massaal hebben teruggetrokken, wat heeft geleid tot desastreuze gevolgen voor de financiële sector van beide eilanden. Instellingen en daarmee ook het hele financiële apparaat kunnen het vertrouwen en de goede naam, die in de loop der jaren is opgebouwd, ineens verspelen. “Reputatie komt te voet en gaat te paard.” Vandaar dat het in ons aller belang is wanneer de financiële sector zelf, zoals op enige terreinen reeds gedaan is, initiatieven neemt om de sector te vrijwaren van mogelijke smet. De BNA vervult ook in de ogen van buitenstaanders een steeds groter wordende coördinerende en controlerende rol in deze.

• De rol van de wettelijk aangewezen toezicht-

houder De taak van de BNA als toezichthoudster is tweeledig en bestaat uit: 1. Het bevorderen van de stabiliteit van de Antilliaanse gulden, het zogenaamde “monetair toezicht”; en 2. Het zorgen voor een gezond en efficiënt financi-

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eel systeem op de Nederlandse Antillen, het “bedrijfseconomisch toezicht”. In dit kader heeft de BNA onder meer de verantwoordelijkheid om er zorg voor te dragen dat de reputatie van de Nederlandse Antillen als gerespecteerd internationaal financieel centrum niet in het gedrang komt. In feite is financiële integriteit nauw verweven met de hoofddoelstelling van het bedrijfseconomisch toezicht, crediteurenbescherming en bewaking van de stabiliteit van het financieel stelsel. Naast deze reguliere controle en bewaking zijn met de introductie van ethische en morele criteria nieuwe aspecten aan de orde zoals: benadeling van derden, misbruik van voorwetenschap, de cultuur van de bestuurskredieten en van aandeelhouders, het gedogen van witwassen en van omkoping en belangenverstrengeling. In het verlengde hiervan is de waarborg voor financiële integriteit het meest tastbaar in de integriteitstoets die de BNA uitoefent en haar supervisie op de naleving van regels met betrekking tot deugdelijk ‘Corporate Governance’.

Middenstuk • Integriteitstoets Bij integriteit in de financiële sector gaat het er in de praktijk om te voorkomen dat dienstverleners worden misbruikt voor onoorbare of illegale praktijken. In dit kader is het evenzeer van belang dat bestuurders geen misbruik maken van hetzij hun positie of hun bevoegdheden. Het persoonlijk belang van een bestuurder mag niet prevaleren boven het algemeen of maatschappelijk belang van de desbetreffende instelling. Overigens is het belangrijk om te voorkomen dat de continuïteit van instellingen in gevaar wordt gebracht door belangenconflicten tussen bestuurders onderling. De continuïteit van financiële instellingen is dus in grote mate afhankelijk van de kennis, de integriteit en de samenwerking tussen de verschillende bestuursorganen onderling. In dit kader heeft de BNA in 1996 richtlijnen in de vorm van ‘Corporate Governance’ opgesteld. Deze richtlijnen bieden ondersteuning aan bestuurders bij het formuleren van eigen procedures en richtlijnen voor het voeren van deugdelijk bestuur.

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In het verlengde hiervan hanteert de BNA, bij de beoordeling van bestuursleden van financiële instellingen, de zogenaamde ‘Fit and Proper’ test (de zogenaamde integriteitstoets). In juli 1998 heeft de Bank een beleidsmemorandum uitgegeven met betrekking tot de door de Bank uitgevoerde ‘Fit and Proper’ test. Doelstelling van dit memo was om het kader waarbinnen de Bank de integriteitstoets uitvoerde uiteen te zetten. De in het memorandum genoemde richtlijnen vinden hun wettelijke grondslag in de Landsverordening Toezicht Bank- en Kredietwezen uit 1994 en de Landsverordening Toezicht Verzekeringen van 1990. Personen die betrokken zijn bij het bestuur van een instelling worden aan deze test onderworpen alvorens toestemming te verkrijgen van de BNA om in die hoedanigheid te mogen functioneren. Het betreft bestuursleden, leden van de raad van commissarissen en aandeelhouders. Als onderdeel van deze integriteitstoets wordt een antecedentenonderzoek gedaan waarbij wordt nagegaan of de betrokken personen een crimineel verleden hebben en/of het wel eens is voorgekomen dat onder hun verantwoordelijkheid, instellingen zijn benadeeld waarbij sprake is geweest van bijvoorbeeld wanbeleid of grove nalatigheid. Ook aandeelhouders van instellingen zijn onderhevig aan een integriteitstoets. Alvorens tot een instelling toe te treden wordt nagegaan in hoeverre er belangenconflicten kunnen ontstaan indien deze personen of instellingen participeren middels hun aandeel. In dit kader is het van eminent belang dat de reputatie van de aandeelhouders in kwestie onschendbaar is opdat deze de reputatie van de desbetreffende instelling niet aantast.

• Gedrags- en beroepsregels personeel Tijdens reguliere onderzoeken bij instellingen uit hoofde van het bedrijfseconomisch toezicht, wordt zowel de opzet, het bestaan als de werking van interne gedrags- en beroepsregels onder het personeel getoetst. Middels interviews met cruciale personeelsleden wordt nagegaan in hoeverre men kennis heeft van deze regels en in hoeverre deze in de praktijk worden nageleefd. In het bedrijfeconomisch toezicht beperkt financiële integriteit zich niet slechts tot de integriteitstoets van de hoogste organen. Uiteraard dienen leiding en be-

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stuurders voldoende waarborg te bieden om hiaten in de administratieve organisatie of interne controle systemen te dichten. Deze dienen echter als basis om de verdere uitvoering van gedragsregels in juiste banen te leiden. Van belang hierbij is dat deze regels naar behoren worden nageleefd; ook op de lagere niveaus van de instelling. Relevante elementen in dit verband zijn bedrijfscultuur, normen en waarden. Bovendien is het vermeldenswaard om rekening te houden met de persoonlijke culturele achtergrond, de normen en waarden van de medewerkers alvorens zij toetreden tot de desbetreffende instelling. Ik zou op deze plaats erop willen wijzen dat tegelijkertijd met het aanleggen van gedrags- en beroepsregels jegens het personeel van onder toezicht staande instellingen in de financiële sector, het voor de hand licht dat de Bank als toezichthouder zichzelf de verplichting oplegt dezelfde regels toe te passen op haar eigen personeel. De Bank dient bij de vervulling van haar taken in de financiële sector ter zake van integriteit van personeel borg te staan voor dezelfde integriteit als die zij verlangt van de onder haar toezicht staande instellingen. Vandaar dat ik mij ook geheel kan vinden in de stelling ‘Integrity is more than rules’. Het betreft een manier van leven, een continue afweging van normen en waarden. De toenemende tendens van normvervaging in de samenleving en het steeds sterker wordende materialistische denkkader komen steeds meer op de voorgrond, waardoor de persoonlijke integriteit in de mens naar de achtergrond verschuift. Vooral in de westerse wereld is het gevaar groot dat het persoonlijk belang van een medewerker zal prevaleren boven het algemeen of maatschappelijk belang van de instelling. In dit kader heeft de BNA officieel een integriteitafdeling in het leven geroepen, die als voornaamste taak heeft om specialistische ondersteuning te bieden aan het bedrijfseconomisch toezicht dat door de BNA wordt gevoerd. In het verlengde hiervan ontwikkelt de BNA samen met De Nederlandsche Bank een zogeheten integriteitsaudit. De bedoeling hiervan is dat binnen bedrijfseconomisch toezicht, systematisch en geïntegreerd aandacht wordt geschonken aan integriteitsrisico’s, teneinde voornamelijk de dreiging van reputatierisico te verkleinen.

• Rol van de interne controle comité/complian-

ce officer om integriteit te waarborgen Toezichthouders van de BNA steunen op de primaire taak die is weggelegd voor de interne controle comité en compliance officer zoals omschreven in onze richtlijnen voor ‘Corporate Governance’. Op basis van deze richtlijnen dienen beide organen zich ervan te verzekeren dat de integriteit van de instelling in zijn geheel wordt gewaarborgd. Beide organen dienen onafhankelijk van de dagelijkse bestuurders te functioneren en dus rechtstreeks aan de Raad van Commissarissen te rapporteren. Het adequaat opereren van deze organen vergemakkelijkt de taak van de BNA als toezichthoudster aanzienlijk. In dit kader is het van belang om zoveel mogelijk doorzichtigheid te creëren, zowel in de beleidsvorming als in de uitvoering daarvan. Het Baselse comité voor financiële regelgeving en toezichtzaken heeft het over ‘Enhancing Bank Transparency’ oftewel vrij vertaald: ‘De bevordering van doorzichtigheid in het bankwezen’. Het comité heeft onlangs richtlijnen opgesteld die een duurzame en gezonde ontwikkeling van de financiële sector bemoedigen. Verder is het comité van mening dat transparantie in het beleid overeenkomt met transparantie in zowel structuur als activiteiten. De richtlijnen geven aan dat zowel toezichthouders als potentiële investeerders standaardinformatie dienen te verkrijgen door het gebruik van definities en een classificatiesysteem te introduceren, zodat het vergelijken van appels met peren wordt verholpen. Voorts dienen toezichthouders bepaalde financiële maatstaven te ontwikkelen ter ondersteuning van het toezicht en ter verbetering van de informatieverschaffing aan het publiek. Deze informatie betreft onder meer het openbaar maken van specifieke financiële gegevens, risicospreiding, administratieve systemen en basis gegevens omtrent het strategisch en operationeel beleid dat wordt gevoerd door respectievelijk de raad van commissarissen en het dagelijks bestuur.

• Uitbreiding financiële integriteitsonderzoek

door de BNA De BNA heeft de noodzaak ingezien om de integriteitstoetsing te structureren. Daartoe is opgericht een Unit Integriteit Financiële Sector. Naast de betrouwbaarheid van bestuurders, staan mede centraal de

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wijze van bedrijfsvoering, en de effectiviteit van de genomen interne maatregelen om misbruik tegen te gaan en het tijdig signaleren van ongewenste internationale tendensen. Het tijdig signaleren van mogelijke afbreukrisico’s komt de gehele financiële sector ten goede. Bovendien zal een database aangelegd moeten worden om te voorkomen dat personen die in het buitenland reeds als onbetrouwbaar gesignaleerd staan hier te lande alsnog proberen een “keyposition” in een financiële instelling te verwerven.

Slot Toezicht op financiële integriteit vormt een vitaal onderdeel van het bedrijfseconomisch toezicht van de BNA. De integriteitstoets, gedrags- en beroepsregels voor het personeel en de rol van het interne controle comité in het beperken van reputatierisico vormen tezamen onderdeel hiervan. Deze opsomming is niet uitputtend, maar weldegelijk gericht op het waarborgen van integriteit in financiële instellingen. Voor de BNA is integriteit een noodzaak voor het garanderen van een sterk en gezond financieel centrum. Tevens zijn wij ons er terdege van bewust dat een onschendbare reputatie ontvankelijk is voor iedere aandoening en trachten wij ons optimaal te beschermen tegen ieder risico. De praktijk bewijst dat de integriteitstoets van bestuurders niet voldoende is voor de waarborging hiervan. Financiële integriteit heeft ook te maken met de bedrijfscultuur en de manier waarop een instelling zijn bedrijfsvoering organiseert. Het beperkt zich niet uitsluitend tot een cijferanalyse maar strekt zich uit tot de ethiek van de financiële sector als geheel. Alvorens mijn voordracht te beëindigen, ben ik u het antwoord nog schuldig op de vraag van de zoekgeraakte gulden van de hotelbode van het begin van mijn voordracht. Het antwoord is simpel: door de terugbetaling van de drie gulden, hebben de drie gasten per saldo niet dertig, maar 27 gulden aan het hotel betaald. Van die 27 gulden is 25 gulden terecht gekomen in de kas van het hotel en de resterende 2 gulden in de zak van de bode. De mathematische raadsel is hiermee tot een oplossing gekomen. Rest wel nog de vraag of de bode geheel integer handelde door eigenhandig de resterende 2 gulden in eigen zak te steken.

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Regulashon finansiero den tempu di crisis Presentashon: durante e fundraising gala buffet di Steering Committee Curaçao 31 oktober 2001

a ku hopi plaser mi a akseptá e invitashon di Steering Committee Curaçao (SCC) pa duna e diskurso di orden awe nochi na okashon di e ‘Gala Buffet’. Mi kier hasi uso di e oportunidat aki pa gradisi boso i alabes felisitá boso ku 25 aña di trabou positivo pa e komunidat di Kòrsou. Damas y kabayeronan, ayera na un otro okashon mi a elaborá riba e konsekuenshanan di e tragedia na Merka di dia 11 di sèptèmber último pa nos ekonomia. E impakto riba ekonomia i sektor finansiero mundial, manera mi a elaborá ayera, por ta masha grandi i e por ta di larga durashon. Awe nochi mi kier bolbe elaborá riba e topiko aki, sinembargo ku e énfasis riba su konsekuensianan pa nos sistema finansiero. E motibu di mi selekshon tin di haber ku e hecho ku komo Banko Sentral, den e ròl di reguladó y supervisadó di e sistema finansiero na Antiyas, nos lo sinti e konsekuensianan direktamente. Un di e posibel konsekuensianan direkto por ta e asina yama riesgo di reputashon si nos no maneha e proseso aki kuidadosamente. Esaki na su turno lo por tin otro konsekuensiananpa e integridad y stabilidad di nos sistema finansiero.

Riesgonan di nos institushon finansiero den di un situashon di krisis mundial Institutonan finansiero manera entre otro bankonan, kompanianan di seguro i fondonan di penshun ku ta akseptá deposito for di publiko ta importante den ekonomia di un pais pa motibo di nan enbolbimento den e sistema di pago, nan rol komo intermediado entre depositante y fiadó y nan funshon komo agente pa transmishon di politika monetario. Bankonan por ehèmpel, ta asumi y manehá riesgo. Di naturalesa bankonan ta vulnerabel na problemanan di likides y

solvensia pasobra nan ta transformá deposito a korto plaso den kreditonan y inbershon na un plaso mas largo. Aparte di e riesgonan ey, institutonan finansiero ta ser enfrentá ku otro riesgonan, manera: • riesgo di inkumplimentu di un persona o instansia: aki por bisa ku un kliente (ò grupo di kliente) di un instituto pa un motibu òf otro no por kumpli ku su obligashon di pago na e instituto; • riesgo di merkado: ku ta ensera kambio den balorashon di aktivo òf pasivo di un instituto akonsekuensia di rebalorashon monetario òf basa riba kambio di tasa di interes; • riesgo legal: akshon di un instituto finansiero por resultá den kasonan den korte di hustisia ku finalmente konsekuensianan finansiero grandi. • riesgo reputashon: e relashon entre un instituto finansiero y su kliente ta basa riba konfiansa. Aktonan di un instituto finansiero manera por ehèmpel froude, inkumplimentu ku leynan of malversashon por afektá e reputashon di un instituto y konsekuentemente pone ku klientenan por pèrdè konfiansa den e maneho di e instituto y termina nan relashon ku e instituto ku tur su konsekuensianan pa e instituto. Hustamente e riesgo di reputashon aki ta algu ku durante e último añanan a bin ta haña masha atenshon internashonalmente. Esaki ta debi na prinsipalmente algun akontesimiento ku a kausa daño na reputashon di algun instituto finansiero y finalmente a resulta den nan kiebra. Na aña 1994, por ehèmpel, un serie di akshonan ilegal i uso di e sistema bankario pa aktonan ilísito dor di Bank of Credit and Commerce Internationl (BCCI) na Inglatera a generá un ola di publikashonan negati-

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vo kontra di e instituto aki y finalmente a resulta den su desaparishon. Nos mester bisa ku pa motibu di akshonan di gerensia i trahadonan di BCCI ku tabtatin presensia den hopi huridikshon, komunidat finansiero internashonal a bin kai den un lus negativo. Afortunadamente BCCI nunka a opera for di nos pais. E akontesimentunan di BCCI a mustra kon vulnerabel un sistema bankario ta pa tipo di aktonan asina y e riesgo di por kontagia henter un sistema finansiero mundial. Otro krisis den ambito internashonal ku a afektá e reputashon di e sistema finansiero y a kontagia nos sistema finansiero tabata e krisis bankario serka nos pais bisiña Venezuela na 1994. Manera boso por kòrda e krisis aki a afektá profundamente algun di nos bankonan offshore. Aunke e problemanan a originá na Venezuela su efektonan tabata evidente pa nos pais. Otro problema den e ambito mundial ku a kapta atenshon durante e último dekada tabata e problema na Barings Bank den medio Oriente na 1995. Akinan un miembro di staf haltu den e institushon a spekulá ku fondonan di Barings Bank riba bolsa di balor i a pèrdè praktikamente henter e kapital di e banko. Ku e akshonan aki e institushon a inkuri un gran pèrdida ku a pone hopi kliente pèrde nan konfiansa den e banko ey. Final di kuenta un otro institushon bankario mundial (ING) mester a reskatá lokual a sobra di e banko. E ehèmpel aki ta ilustrá kon akshonan di un individuo por trese reputashon di henter un banko òf sistema finansiero na peliger. Pero damas y kabayeronan, un ehèmpel klasiko di e riesgo di reputashon ta e kaso di Bank of New York ku na fin di aña 1999 a wordu konfrontá ku un situashon grave i difisil kaminda a keda probá ku durante tempunan largu for di Bank of New York a laba biyones di dòler di mafianan Ruso usando sistemanan di e banko. Algun akshonista di Bank of New York basa riba e kaso aki, ku a afektá e bon nòmber di Bank of New York i tambe basa riba e riesgo di reputashon inmenso pa e institushon, a pidi retiro di 11 miembro di hunta di direktiva di e banko pa motibu ku e balor di nan akshon a kai substansial mentedor di e publisidadnan negativo. Lokalmente un kaso ku a hala masha atenshon ultimamente ta esun kaminda doñonan di baiskel na

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Hulanda a keda perhudiká pa un intermediario Hulandes ku tabata opera for di Hulanda. Esaki ta e kaso di ‘Westward Insurance N.V.’ Dor di aparente malversashon di e intermediario ‘Westward Insurance N.V.’ kual ta un kompania lokal a ser deklara bankarota. Na e momentunan aki nos ta finalisando e investigashonan nesesario pa konhuntamente ku e supervisor na Hulanda, ‘Pensioen en Verzekeringskamer’, tuma é pasonan nesesario. E pregunta ku ta surgi ta: kual ta e relevansia di e kasonan aki den konteksto di e akontesimientonan di 11 di sèptèmber último? Damas y kabayeronan, e konfiansa ku publiko, esta spardonan, tin den un institushon finansiero ta por gran parti dependiente di e kumplimentu di gerensha i trahado di e institushon ku reglanan di bon kondukta e integridat. Esaki manera a ser ilustrá por resulta den kiebra di un instituto. Ta masha importante pa mantene reputashon i bon nòmber di kualke organisashon finansiero na haltu i pa esaki esunan responsabel pa manehá e organisashon tin un ròl transendental. Hustamente pa mantené e reputashon aki na haltu Banko Sentral durante ultimo añanan a bin ta traha pa implementá reglanan di kontrol y kondukta pa evitá ku reputashon di un instituto finansiero ta ser afektá negativamente. Permiti’mi di repasá algun di é reglanan ku nos a implementá durante ultimo añanan pa kontraresta e posibel mal uso di poder y evita ku personanan i organisashonanpor usa nos sistema finansiero pa aktonan ilísito. Un di e prinispal reglanan ta e asina yama regla di Konose bo Kliente (“Know Your Customer”). Obhetivo di e regla aki ta pa evitá ku institutonan finansiero ta hasi negoshi ku hendenan òf ku organisashonan deskonosi i di kual origen di nan fondonan no ta konosi. Awe en dia nos tur por ripará ku hopi atenshon ta ser pone dor di institutonan finansiero riba identifikashon di e kliente prome ku por ehèmpel e por habri un kuenta, kambia, tranferi of fia sèn, kumpra akshonan òf bono etsetera… Miho informashon un instituto finansiero tin di su kliente menos grandi ta e posibilidad ku mal uso por ser hasi di e sistema finasiero.

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Parlamento di Antiyas na aña 1997 a introdusi un ley di identifikashon di kliente (Landsverordening Identificatie Financiele dienstverlening) pa hustamente hasi posibel ku institushonan finansiero tin un kuadro legal pa por puntra identifikashon di tur persona i organisashon ku kier hasi un transakshon finansiero. Tambe na aña 1997, parlamento a introdusi un otro ley pa obligá institutonan finansiero pa raportá na e sentro di MÒT tur e asina yama transakshonan no-usual ku keda detektá durante operashon finansiero serka e institushonan i organisashonan. Pa evitá un repitishon di e konsekuensianan di krisis di Venezuela na aña 1994, parlamento a adoptá un ley dunando Banko Sentral mas instrumento legal pa por eherse su funshon den e ambiente internashonal ku ta konstantemente kambiando. Pa finalisá ta importante pa reiterá ku esaki ta un desaroyo internashonal. E leynan i reglanan mester ser adapta periodikamente basá riba eksperensha ku reguladonan internashonal ta obtene den nan trabou di tur dia.

Reputashon finansiero relashona ku posibel vínkulo ku terroristanan Biniendo bèk riba akontesimentonan di terorismo di dia 11 di sèptèmber último, kon esaki por afekta nos sistema finansiero? Manera boso sabi, aktividadnan di terorismo mester ser finansiá. Si nos kier evitá òf eradiká nan aktividad, ta importante pa elimina nan akseso na nos sitema finansiero. Uso di teroristanan di nos sistema finansiero por afekta nos reputashon y konsekuentemente e integridad i stabilidad di nos sistema finansiero. Importansia ku mundo ta duna pa evita akseso di terorismo na sistemanan finansiero, ta ku direktamente despues di e atentado na Merka konseho finansiero di Oropa p.e. a tuma algun medida rigoroso pa kombati finansiamentu di terorismo. Un di e rekomendashonan mas importante tabata pa aselerá é medidanan na nivel Oropeo pa kombati labamentu di plaka. Tambe a yega na un plan di akshon pa koördina investigashonan kontra terorismo, interkambia informashon i analisis riba tereno di kombatimentu di terorismo, oumentá e medidanan di seguridat pa transporte partikular i transporte komersial aereo.

Ta konosi ku un par di dia despues di e atentadonan na Merka a kuminsa sirkula tres lista di negoshinan i personanan ku posiblemente tin vinkulo ku terorismo i ku tin kuentanan bankario serka institushonan finansiero rònt mundu. E tres listanan aki a ser yamá e lista di Presidente Bush, lista di Nashonan Uni i e lista di FBI merikano. Aki na Antiyas basá riba e lista aki e institutonan finansiero konhuntamente ku Banko Sentral ta investigando ku di un manera of otro gruponan terorista direktamente òf indirektamente por ta of tabatin akseso na nos sistema finansiero. Obhetivo di e ehersisio aki ta pa kongelá tur kuenta di moda ku ningun grupo lo por tin akseso na fondonan destiná pa komete krimenan horendo manera a pasa na Washington i New York. For di seno di gobiernu di Antiyas tin un komishon ta trahando riba inventarisashon di e efektonan sosial, ekonómiko, finansiero i hudisial di e akshonan di dia 11 di sèptèmber pa nos pais. Un meta prinsipal di tur e esfuersonan aki ta pa evitá nos sistema finansiero por ser usa dor di terorismo internashonal. Banko Sentral ya pa añanan largu ta hasiendo esfuerso pa introdusi regla i legislashon modernu pa evitá ku nos sistema finansiero ta bira blanko di akshonan ilegal. Hopi atenshon tambe ta ser pone riba e responsabilidat individual i kolektivo di partikularmente esnan ku ta manehá e institutonan finansiero pa bini ku reglanan espesífiko pa ‘Konose bo Kliente’ ora ta hasi transakshon finansiero. Hunta di komisario i gerensha di institushon finansiero bou di nos supervishon mester tin sufisiente instrumento pa kontené tur tipo di riesgonan ku nan ta enfrentá. Aña pasa Banko Sentral a institui un unidat di ‘Integridat Finansiero’ ku e meta prinsipal pa riba un base kontinuo evaluá e personan ku di un forma òf otro ta determiná e maneho di un institushon finansiero riba nan integridat finansiero. Ku esaki nos ke evitá kasonan manera esun di BCCI i di Barings Bank kaminda un grupo di esnan ku a wordu yamá pa manehá un banko a hasi mal uso di poder ku konsekuensia fatal pa e depositantenan. Ku e unidat di “Integridat Finansiero’ nos ke bai koördina tambe ku supervisornan internashonal pa evitá ku personanan ku no ta kalifiká òf ku menos bon re-

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putashon di otro pais yega aki na ehèrse un posishon den kualke institushon finansiero. Ya nos tin akuerdonan di interkambio di informashon ku Banko Sentral Hulandes, Banko Sentral di Aruba, Superintendencia di Venezuela i aworaki nos ta terminando e trabounan pa yega na akuerdonan tambe ku Chile, Trindad & Tobago i Pensioen en Verzekeringskamer (PVK) na Hulanda. Tur nos esfuersonan ta dirigí na ampliá nos base di koöperashon ku otro institushon i supervisornan mundial ku e meta di evitá ku nos i otronan den e mundu finansiero internashonal por wordu (mal)usá pa hendenan ku mente maligno.

Konklushon i remarkenan final Damas i kabayeros awe mi a hasi un rekorido riba tur esfuersonan lokal i internashonal ku ta wordu hasi pa evitá ku nos sistema finansiero por wordu usá pa malhechornan i desfalkadonan ku nan úniko meta ta pa produsi ganashi bruto for di fuente ilegal i finalmente usa e fondonan aki pa finansia entre otro terorismo internashonal. Manera mi a ilustrá ta ku tin un esfuerso konhunto den kual tur outoridatnan supervisor riba nivel mundial ta koöpera ku otro pa evita maluso di e sistema finansiero mundial. Mi ta konvensí ku riba termino mas largu nos lo yega na minimalisá e riesgo di reputashon ku ta asina importante mundialmente. E atentadonan dia 11 di sèptèmber último a demostrá un bes mas kon vulnerabel un sistema di kontrol i prevenshon por ta. Pero bisando esaki mi tin e konvikshon tambe ku kada bes ku nos logra oumentá nos sistemanan di seguridat nos ta hasi’e mas difisil pa por malusá nos sektor finansiero. Nos lo keda vigilá konstantemente e akshonan koördina di supervishornan internashonal pa por trese kambio den nos método di kontrol. Klientenan lo bai sinti efekto di esaki tambe pero pa integridad i stabilidad di nos sistema finansiero esaki lo kausa algun inkonveniensa. Danki pa e atenshon, i direktiva di Steering Committee Curaçao mi kier sugeri pa kontinua ku e trabounan positivo pa e komunidat di Kòrsou.

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Opening of the 7th Annual Meeting of the Offshore Group of Collective Investment Schemes (OGCISS) Opening remarks on the occasion of the opening of 7th Annual Meeting OGCISS hosted by the Bank van de Nederlandse Antillen June 2, 2004

Distinguished delegates,

ood morning. On behalf of the Central Bank of the Netherlands Antilles I welcome each and every one of you to the 7th Annual Meeting of the Offshore Group of Collective Investment Schemes and to our island, by extending you a warm “Bon Bini” (meaning “welcome”). Our Bank is very pleased to host this meeting in cooperation with the Offshore Group of Collective Investment Schemes. In a financial world characterized by dramatic changes, developments, and innovations, we as supervisors should constantly strive to remain abreast of the developments in the financial industry and discover ways of undertaking our responsibilities more efficiently and effectively. Our Bank applauds the efforts of the Offshore Group of Collective Investment Schemes to continuously provide a venue for supervisors from across jurisdictions to come together and share their ideas and experiences related to the regulation and supervision of collective investment schemes. These annual meetings also help us better understand each others’ approach to the regulation and supervision of collective investment schemes. Our Bank has always been very active in the promotion of financial stability and minimizing systemic risk through sound and prudential supervision, which has also contributed to the importance of the Netherlands Antilles as an international financial centre in the region. With the supervision of credit institutions, insurance companies, pension funds, collective investment schemes, administrators, and trust service providers entrusted to it, our Bank is constantly striving for ways to strengthen the Netherlands Antillean financial sector by enhancing the quality of our supervision in an effort to promote sound macroeconomic developments. Accordingly, we promote high stan-

dards of integrity, competency and business conduct amongst all our supervised institutions. The timing of this conference is needless to say very crucial. We are meeting at a time when the eyes of the world are more than ever focused on the international financial centres. International organizations, standard setting bodies, policymakers, legislators, and international media alike are intensively observing the activities of institutions operating in the international financial centres. The risks, particularly the reputational risks, that our various financial centres are exposed to, should make us realize our mutual dependence. Therefore, as supervisors of the institutions operating within these tax havens, we should at all times promote a regime that foster sound, prudential supervision of these institutions. In doing so, we help promote investors’ confidence in our various jurisdictions and in the international financial centres as a whole. Today it seems more than ever that our domestic macroeconomic performance and policies are being dramatically affected by global developments. The financial markets around the world felt the effect of the latest tragedies and financial scandals, which further emphasize our interrelationship and mutual dependence. These tragedies and financial scandals have affected our domestic financial markets in such a way that financial institutions can no longer “think and act locally”, but rather should “think and act globally.” Furthermore, competition in the financial sector has become so intense that only the institutions that are able to predict and monitor changes in the financial industry will be able to obtain or maintain a competitive position in the industry.

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The beginning of the twenty first century witnessed remarkable advances in financial engineering and innovation. These advances have resulted in an increased number of complex institutions. There are of course uncertainties and risks surrounding these advances. These uncertainties and risks will require careful monitoring and management by the supervised institutions. These institutions should have a comprehensive risk measurement approach accompanied by a strong management information system for controlling, monitoring and reporting the risks. The financial and technological advances alluded to also pose significant challenges to supervisors, as they work to appropriately calibrate their supervisory programs to the challenges of the innovations in the operations of the supervised institutions. Supervisors must nonetheless implement supervisory policies and practices that conform to the scope and complexity of the supervised institutions to which they are applied. The U.S. Securities and Exchange Commission (U.S. SEC), for example, has recently adopted a rule requiring mutual funds and their advisers to adopt policies and procedures reasonably designed to prevent securities law violations, including late trading, abusive market timing, and selective portfolio disclosure. These programs and procedures are designed to assist the mutual funds in their decision-making and monitoring rules. The International Organization of Securities Commission (IOSCO) in its on-going efforts to address securities supervisory issues, has been active in drawing from the collective supervisory experience of its members and other supervisory authorities in issuing supervisory guidance to foster safe and sound policies to adapt to the changes in the financial industry. An example of such a supervisory guidance is the consultative document recently published by the Technical Committee of IOSCO addressing the elements of International Regulatory Standards on Fees and Expenses of Investment Funds.

has only become more challenging. The challenges and threats that financial institutions face appear to be numerous. The size and complexity of the challenges always seems to grow at a faster rate than the resources assigned to it. Nonetheless, we as supervisors should have the right information in order to make the right choices in assessing the threats and challenges of the industry and keep abreast of the developments that are taking and will take place in our markets. In doing so we will contribute both to meeting our respective domestic objectives and to strengthening the global economy at a time of significant changes.

Conclusion The recent developments in the international financial sector imply that supervisors should more than ever promote a sound and prudent supervisory structure that is constantly anticipating and adapting to the changes in the financial industry. More than ever, it appears that sound and prudent supervisory structure is only effective if financial institutions make meaningful disclosure of their activities and risk exposures. While significant progress has been made in recent years in the area of collective investment schemesâ&#x20AC;&#x2122; supervision, it unfortunately remains the case that disclosure practices have not kept pace with the rapid changes in the institutionsâ&#x20AC;&#x2122; activities and risk exposures, and how these exposures are measured and managed. Even though the financial services industry is continuously evolving, which in turn poses significant challenges to supervisors around the globe, as supervisors we should strive to promote a regulatory framework that ensures the soundness and stability of the financial system. A regulatory framework that places emphasis on sound corporate governance, effective risk management and a market discipline that encourages transparencies. Therefore, I hope that this conference will shed further light on these challenging issues faced by supervisors. I wish you a fruitful conference and hope you have a pleasant stay on our island.

As we as supervisors attempt to narrow the gap between our existing laws and regulations governing the supervision of collective investment schemes and the necessary update that is required to keep pace with a growing and constantly evolving industry, I am sure you would agree with me that our task as supervisor

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Recent international economic developments and related challenges for the Netherlands Antilles Speech on the occasion of the Caribbean Financial Action Taskforce (“CFATF”) Plenary lunch meeting October 28, 2009

Ladies and gentlemen,

llow me to welcome the member countries of the Caribbean Financial Action Task Force, the Cooperating and Supporting Nations, and the representatives of other international organizations. It is indeed with a great deal of pleasure that I am addressing you this afternoon on the occasion of the plenary meeting of the Caribbean Financial Action Task Force (CFATF). It has been almost 20 years since the G-7, on the occasion of its annual meeting, issued 40 recommendations to prevent the misuse of the financial systems for criminal activities. The issuing of these recommendations can be considered as the beginning of concerted actions by the world community to address in a consistent and effective way the issue of laundering the proceeds of criminal activities. These areas have subsequently been extended to include terrorism financing in the aftermath of the 9/11 attacks. The Caribbean countries followed rapidly with the creation of the CFATF to deal more effectively with this misuse of the financial system since the international financial services sector represents an important pillar of our economies. Since then, important progress has been achieved on this front. Needless to say, that we have to continue to adjust our legislations to the constantly changing international environment. I believe that this CFATF meeting is a significant event, as professionals from different parts of the world come together to discuss, develop, and promote the enforcement of policies to combat money laundering and terrorist financing. Having these policies in place would certainly put our countries in a better position in the world, making us more attractive to foreign investors. Naturally, this enhanced attractiveness would have a favourable impact on our economic growth and employment.

Since the establishment of the CFATF in 1990, the Netherlands Antilles has been an active member of this organization, supporting efforts to fight money laundering and terrorist financing. The Netherlands Antilles fully supports the efforts of both the CFATF and the FATF. The Central Bank of the Netherlands Antilles is doing its utmost to implement and comply with the recommendations of both organizations through the supervision of our financial institutions. Therefore, it is a privilege for the Netherlands Antilles to host this conference. Ladies and gentlemen, since July 2007 the global economy has experienced a severe financial crisis originating in the US housing and credit sectors. Due to increased integration of goods, services, and financial markets, the crisis spread from the housing and credit markets in the United States to other markets and countries around the world. This crisis has resulted in a deep worldwide recession with severe economic and social impacts. Few, if any economies have not been affected. Output has contracted in the major industrial countries, including the United States and the Euro area, and slowed in emerging economies. Fortunately, global economic growth has recently started to rebound, and financial conditions have improved markedly. World economic recovery has been driven largely by wide-ranging and coordinated public intervention, particularly in industrial countries, by supporting demand and reducing uncertainty and systemic risk in financial markets. However, the pace of recovery is expected to be slow as uncertainties remain in the financial markets, and public intervention will gradually have to be with-

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drawn. Against this background, it is projected that the world economy will contract by 1% in 2009 and recover by 3% in 2010. Ladies and gentlemen, the global downturn has had severe repercussions for the Caribbean region. Our region consists of nations some of which are relatively small, very open, and prone to external shocks. Geographically, we are located in the path of one of natureâ&#x20AC;&#x2122;s most destructive phenomena, namely, annually recurring hurricanes. At the same time, we also have been endowed with beautiful weather and beaches, which make our shores very attractive to foreign visitors. As a consequence, tourism has become an important pillar of our economies. In fact, the Caribbean is one of the most tourism-intensive regions in the world. In addition, many Caribbean economies depend heavily on inflows from remittances and foreign direct investments. Needless to say, we have become increasingly susceptible to the health of the world economy. Due to the global economic downturn, foreign exchange revenues from tourism have been dropping, reflecting the weakening US, Canadian, and European markets. Furthermore, foreign exchange receipts from international financial services have dropped, reflecting the crisis in the international financial markets. Inflows from remittances and foreign direct investments also have been declining. As a consequence, real Gross Domestic Product is expected to contract in most countries in 2009. It should be noted, however, that in contrast to other regions, the Latin American and Caribbean financial systems have not experienced widespread episodes of distress. The economies in this region have been able to withstand some of the financial turmoil because of several key structural improvements including stronger policy frameworks that promote resilience and allow for the implementation of timely policy responses to support economic activity. Also, in many cases, fiscal discipline brought down public debt levels significantly. Finally, banks in the region relied on domestic deposits to fund domestic credit and had put prudent lending practices in place. As a result, the Latin American and Caribbean region is showing signs of stabilization and recovery.

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Nevertheless, the pace of recovery is projected to be slow in those countries that are highly dependent on tourism and remittances. Despite signs of recovery in the United States and the Euro area, tourism revenues will pick up slowly because of a projected increase in private savings in these tourism markets. Remittances, which depend on employment conditions in the advanced economies, notably the United States, also are expected to recover gradually. To become more resilient to external shocks, many countries in the region have attempted to diversify their economies. International financial services have been relatively appealing to countries seeking to diversify due to its perceived high value-added component. In addition, the ability to establish an international financial centre quickly and without substantial physical investments, as required in other industries, has made the sector attractive to many islands in the region. However, activities in this industry also have been affected by the world economic crisis. As a consequence, foreign exchange revenues from international financial services have dropped recently. It should be noted, however, that this sector is not only affected by developments in the rest of the world, but also depends on how the sector is perceived by the rest of the world. Ladies and gentlemen, the current world economic crisis had its origin in the US housing crisis, which spilled over to the financial and other sectors and to other countries around the globe. Nonetheless, when the G-20 countries met in Washington, London, and Pittsburgh, their main focus was on those jurisdictions offering financial services. The impression was thereby created that we are in part to blame for the current world economic ills. As a consequence, despite many efforts to comply with the OECD recommendations, many Caribbean jurisdictions are now on the â&#x20AC;&#x153;grayâ&#x20AC;? list of this organization. Needless to say, this negatively affects the development of the international financial services industry and, hence, economic development in our countries. I do endorse, however, the point that the fight against money laundering and terrorist financing should be a priority on the international agenda. Ladies and gentlemen, as you all know, money laundering and terrorist financing activities can undermine the integrity and stability of financial institutions and

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systems and negatively affect foreign investment and other capital flows. In today’s world, the problems presented by money laundering and terrorist financing activities are global. Money launderers constantly seek out for loopholes in anti-money laundering laws and schemes among countries. Those jurisdictions that have weak or ineffective controls become special targets of money launderers. As a consequence, problems in one country may spread to other countries in the region and other parts of the world. It is imperative, therefore, that we take all the necessary actions to continue to enhance our respective jurisdictions to meet the world’s best practices. Not only will this lead to a more transparent and resilient sector, but it also will enhance our reputation and prevent our jurisdictions from being misused for criminal activities. In addition to a framework to fight money laundering and terrorist financing, there are certain requirements for both attaining the status of an international financial centre and successfully maintaining it. Allow me to outline some broad areas that I believe are the most important. Ladies and gentlemen, the first requirement is macroeconomic and political stability. Sound and sustainable macroeconomic policies support the stability of the financial system. In addition, political stability is a precondition for building business confidence in all sectors of the economy, including the international financial services sector. Therefore, to succeed as an international financial centre, the financial community must be able to rely on the stability of the economy and the govern-ment. Another important requirement is a strong fiscal and legal infrastructure. A strong legal system includes property rights, contract enforcement, a functional and credible court system, and bankruptcy procedures. The fiscal and legal infrastructure of the financial industry should be able to continuously reform itself to adapt to the constantly changing international business community. Relevant legislation must be introduced and adapted in a timely manner. The success of an international financial centre also depends to a great extent on the competence of its professionals operating in the sector. For that reason,

access to a pool of skilled labor, including well-trained legal, taxation, accounting, auditing, and company management professionals is crucial. In addition, good communication and support services are an important requirement for a successful international financial centre. This requirement is particularly important for the quick and efficient transmission of market information to participants. Finally, but not the least important, is a sound regulatory framework, promoting strong and credible banks and institutional investors. The regulatory framework should support economic development and growth, financial stability, and protect investors and depositors. In addition, it must be responsive to the changing financial environment. The international financial crisis has demonstrated quite clearly through the case of Icesave that small countries are severely limited in pursuing autonomous rescue operations when the size of the financial institutions is big compared to their GDP. Furthermore, determining one’s own supervisory policies has proven illusory. International coordination and cooperation have become the rule, led by international institutions such as the Bank of International Settlements and the International Monetary Fund. These institutions set the standards for their members. However, if countries do not follow these rules, they run the risk of being blacklisted, thereby undermining confidence in their financial sector and investment climate. Ladies and gentlemen, as the world is struggling to get out of the deepest recession since the Great Depression, the G-20 and OECD countries will continue to keep us at the forefront of their attention to see how and to what extent we are compliant with the best practices. Given the relatively high degree of global financial integration, it is crucial for the supervisory authorities in the Caribbean and the Latin American jurisdictions to collaborate closely to address crossborder financial issues and to comply with the internationally supported recommendations. Ladies and gentlemen, I wish to conclude my address by restating the importance of developing and promoting policies that contribute to the establishment of a solid economic and institutional infrastructure that fosters sound and sustainable economic devel-

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opment in the Caribbean and Latin American countries. This infrastructure includes a sound and internationally approved financial system with effective anti-money laundering policies and regulation aimed at preventing the financing of terrorism. I wish you fruitful discussions in the remaining meetings and a pleasant stay on our island. Thank you for your attention.

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De uitdagingen van de financiële crisis en de staatkundige veranderingen voor het toezicht op de financiële sector Toespraak gehouden tijdens het seminar “Toekomst van het Toezicht in de Nederlandse Cariben” 29 maart 2010

Dames en heren, goedemiddag,

llereerst wil ik mijn waardering uitspreken voor het organiseren van dit seminar door het Nederlandse Ministerie van Financiën. Het is volgens mij de eerste keer dat de toezichthouders op de financiële sector van het Koninkrijk bijeenkomen om te discussiëren over de toekomst van het toezicht. De belangrijkste aanleiding is uiteraard de constitutionele veranderingen in ons Koninkrijk en de gevolgen daarvan voor de inrichting van het toezicht in de onderscheiden landen. Daarnaast kunnen we niet voorbijgaan aan de mondiale veranderingen in het toezicht op financiële instellingen naar aanleiding van de grootste financiële crisis sinds de Grote Depressie in de jaren dertig van de vorige eeuw. Deze mondiale veranderingen bepalen ook in belangrijke mate de toekomst van het toezicht binnen het Koninkrijk. Over deze twee onderwerpen wil ik graag mijn visie met u delen.

Ik wil beginnen met de internationale financiële crisis en de rol van het toezicht daarin. De oorzaken van de financiële crisis zijn velerlei en door een complexe samenloop van omstandigheden kwamen we dicht bij een ineenstorting van het internationale financiële systeem. Krachtig ingrijpen door centrale banken en overheden wereldwijd heeft dit kunnen voorkomen, maar het had uiteraard nooit zo ver mogen komen. Als gevolg van de globalisering zijn steeds grotere, mondiaal opererende financiële instellingen ontstaan, die ook onderling steeds meer met elkaar verweven zijn geraakt. Hierdoor is het systeemrisico in de financiële sector sterk toegenomen en kon een hypotheekcrisis in de Verenigde Staten het mondiale financiële systeem aan het wankelen brengen. Binnen het Koninkrijk is de financiële sector in Nederland aanzienlijk zwaarder getroffen door de crisis dan die in de Nederlandse Antillen en Aruba. De Neder-

landse staat heeft verschillende financiële instellingen te hulp moeten schieten om ze van de ondergang te redden, wat zelfs tot nationalisatie van één van de grootste banken heeft geleid. In de Nederlandse Antillen en Aruba hebben de financiële instellingen uiteraard ook de gevolgen van de crisis gevoeld, zoals de waardedaling van beleggingsportefeuilles en de sterk gedaalde rentetarieven. Echter, door de geringere internationale oriëntatie, de grotere risicoaversie en het toezichtbeleid van de BNA zijn onze lokale financiële instellingen niet in problemen gekomen. De instellingen actief in de internationale financiële en zakelijke dienstverlening zijn harder getroffen door de financiële crisis als gevolg van hun sterke internationale oriëntatie. Mede door het toezichtbeleid van de BNA zijn ook in deze sector geen instellingen in problemen gekomen, maar zijn de activiteiten wel afgenomen. Dit heeft bij verschillende instellingen geleid tot afslankingen, waaronder afvloeiing van personeel. Dames en heren, we moeten ons realiseren dat het toezicht op de financiële sector altijd achter de feiten aanloopt. Ontwikkelingen in financiële markten verlopen razend snel als gevolg van de globalisering en de voortschrijdende informatietechnologie. Nieuwe, vaak zeer complexe financiële producten worden binnen korte tijd in de markt gezet met de belofte van aantrekkelijke rendementen zonder dat de risico’s in voldoende mate worden doorgrond. Zolang de rendementen waargemaakt worden, blijft kritiek uit. Deze situatie verandert echter snel als het mis gaat en beleggers hun beleggingen aanzienlijk moeten afwaarderen, zoals met de derivaten gebaseerd op Amerikaanse hypotheken is gebeurd. Inadequaat risicobeheer, een scheefgegroeid beloningsbeleid en onvoldoende deskundigheid of alertheid van commissarissen van financiële instellingen zijn enkele factoren die hebben bijgedragen aan de crisis. Deze factoren

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werden ook door de toezichthouders geïdentificeerd en zijn onder de aandacht van de verantwoordelijke bewindslieden gebracht. Adequaat ingrijpen werd echter gehinderd door wettelijke beperkingen. Wetgevingsprocessen verlopen in het algemeen traag. Dit gaat zeker op voor toezichtwetgeving, die vaak erg technisch is en de gewone burger amper aanspreekt. Het is dus geen onderwerp waar politiek gescoord mee kan worden. Een crisis blijkt dan vaak een unieke kans om wetgeving snel aangenomen te krijgen. In het geval van de Nederlandse Antillen kan ik dat met een voorbeeld illustreren. Begin jaren negentig hadden wij gewerkt aan een wetsvoorstel om de bestaande toezichtwetgeving aanzienlijk te moderniseren ten einde adequater te kunnen optreden bij kredietinstellingen. Op een gegeven moment kwam een grote Venezolaanse bank in problemen die ook als offshore bank in de Nederlandse Antillen actief was. Deze crisis droeg er aan bij dat het wetsvoorstel binnen korte tijd werd behandeld en aangenomen. De toen ingevoerde landsverordening toezicht banken kredietwezen 1994 gaf de BNA het noodzakelijke wettelijke instrumentarium om effectiever bij onder toezicht staande instellingen in te grijpen. Hierdoor konden problemen bij instellingen sneller worden geïdentificeerd en adequaat worden opgetreden om erger te voorkomen. Hopelijk zorgt de recente financiële crisis ook voor een snelle behandeling en aanname van de binnenkort aangeboden harmonisatiewetgeving van het toezicht. Hiermee wordt het wettelijke toezichtinstrumentarium verder gemoderniseerd conform internationale normen en richtlijnen en worden overeenkomstige bepalingen in de verschillende toezichtwetten geharmoniseerd. Dit is van groot belang om onze positie als internationaal financieel dienstencentrum te kunnen handhaven en uitbouwen. Uit de financiële crisis vallen een aantal lessen te trekken, die internationaal en binnen het Koninkrijk op korte termijn tot veranderingen in het toezicht op de financiële sector kunnen leiden om de kans op herhaling aanzienlijk te verkleinen. Een selectie uit de belangrijkste voorstellen die circuleren. Ten eerste dient de rol van risicobeheersing bij financiële instellingen substantieel te worden versterkt. In de periode vóór de crisis werd het risicomanagement steeds meer gemarginaliseerd ten gunste van de

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grote winsten belovende nieuwe complexe financiële producten. Onder meer de BIS, het IMF en de Commissie Maas hebben inmiddels voorstellen gedaan om het risicomanagement te versterken door onder andere de oprichting van een risicocommissie bij financiële instellingen en door de raad van commissarissen en de interne accountant een grotere rol te geven in het beoordelen van risico’s. Ten tweede is het beloningsbeleid van de top van financiële instellingen dringend aan revisie toe. Wereldwijd zijn de beloningspraktijken onder hevige kritiek komen te staan en initiatieven genomen om die te reguleren. Vooral de variabele component gekoppeld aan de winstgevendheid van de instelling heeft vanwege de verkeerde prikkels tot excessen geleid en dient te worden beperkt. De noodzakelijke aanpassingen zullen worden vertaald in algemene richtlijnen voor het beloningsbeleid in de financiële sector. Ten derde is een meer evenwichtige belangenafweging binnen het beleid van financiële instellingen noodzakelijk. Vóór de crisis stond het belang van de aandeelhouders voorop en waren de belangen van andere stakeholders, zoals spaarders en werknemers, daaraan vaak ondergeschikt. Het bestuur van de instelling is in de eerste plaats verantwoordelijk voor een evenwichtige belangenafweging, waarbij waardecreatie op lange termijn voorop dient te staan. Ook op dit gebied zijn door internationale organisaties en commissies waardevolle aanbevelingen gedaan op basis waarvan concrete richtlijnen kunnen worden uitgevaardigd. Ten vierde is versterking van de kapitaalbuffers van financiële instellingen noodzakelijk. Ondermeer collega Wellink in BIS verband, het IMF en de Financial Stability Board werken hard aan voorstellen. Gedacht wordt aan hogere kapitaaleisen in het algemeen, aangevuld met extra eisen voor grote internationale instellingen, die een zogenaamd systeemrisico inhouden. Verder wordt gepleit voor mechanismen die de kapitaalbuffers in goede tijden verplicht versterken om klappen in slechte tijden op te vangen. Financiële instellingen moeten weerbaarder worden in tijden van crisis, zodat overheden niet meer massaal hoeven bij te springen om te voorkomen dat de financiële stabiliteit van een land wordt ondermijnd.

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Als laatste punt wil ik de versterking van de corporate governance noemen. In dit kader speelt versterking van het toezicht door de raad van commissarissen een prominente rol. Om dit te realiseren dient de toezichthouder de deskundigheid en onafhankelijkheid van commissarissen in versterkte mate te toetsen, moeten audit en risk committees bij financiële instellingen verplicht worden gesteld en dient het functioneren van de commissarissen op regelmatige basis te worden geëvalueerd. Dames en heren, voor behoud van gezonde internationale concurrentieverhoudingen en een “level playing field” is het van essentieel belang dat toezichthouders wereldwijd nauw met elkaar samenwerken bij de uitwerking van de voorstellen in “best practices” die in nationale weten regelgeving voor het toezicht op financiële instellingen moeten worden opgenomen. Internationale instellingen, zoals de BIS en het IMF, hebben hierin een voorstrekkers- en coördinerende rol. Ook regionaal worden samenwerkingsinitiatieven ontplooid. In dit verband kan het initiatief om tot een Europees toezichtmodel te komen langs de lijnen uitgestippeld door het De Larosière rapport worden genoemd. Wat mij in dit initiatief aanspreekt is dat de nationale toezichthouders verantwoordelijk blijven voor de uitvoering van het toezicht. Boven de nationale toezichthouders komt een Europees orgaan dat bindende beleidsregels opstelt, signalerend en bindend mag optreden bij conflicten tussen nationale toezichthouders in het geval van grensoverschrijdende financiële instellingen en toeziet op een uniforme toepassing van weten regelgeving. Afdalend naar het Koninkrijksniveau pleit ik voor een soortgelijke toezichtstructuur, die ik nader voor u zal toelichten. Naast de uitdagingen die de financiële crisis wereldwijd voor het toezicht op financiële instellingen heeft gebracht, spelen dichter bij huis tevens de staatkundige veranderingen binnen het Koninkrijk. De huidige Nederlandse Antillen van vijf eilanden houdt op te bestaan. Curaçao en St. Maarten worden autonome landen binnen het Koninkrijk, terwijl Bonaire, Saba en St. Eustatius onderdeel worden van Nederland. Deze nieuwe structuur betekent dat het belang van grensoverschrijdende toezicht, ook al speelt het zich af op de kleine schaal binnen het Koninkrijk, toeneemt. Dit vergt een andere organisatie van het toezicht om de effectiviteit en de efficiëntie ervan te kunnen blijven waarborgen.

In de huidige structuur van het Koninkrijk speelt grensoverschrijdend toezicht ook al een rol. Dit is bijvoorbeeld tussen de Nederlandse Antillen en Aruba het geval, omdat verschillende financiële instellingen met het hoofdkantoor op Curaçao tevens vestigingen hebben op Aruba. Ook tussen de Nederlandse Antillen en Nederland is sprake van grensoverschrijdend toezicht; het gaat dan vooral om instellingen actief in de internationale financiële dienstverlening. Om dit gemeenschappelijke toezicht beter te structureren heeft de Bank in het verleden al verschillende bilaterale samenwerkingsovereenkomsten met de Centrale Bank van Aruba en De Nederlandsche Bank afgesloten. Met de Centrale Bank van Aruba gaat het om de MOU’s voor het toezicht op banken kredietinstellingen van 14 oktober 1998 en het toezicht op het verzekeringswezen van 3 april 2003. Voorafgaand aan deze MOU’s werd al op 22 april 1998 een protocol voor periodieke consultaties tussen beide instellingen getekend. Met De Nederlandsche Bank werd op 28 augustus 1997 een MOU voor banktoezicht en op 3 april 2002 een MOU voor het toezicht op pensioenfondsen en verzekeringsmaatschappijen getekend. In maart 2008 is de samenwerking tussen de centrale banken van het Koninkrijk verder uitgebreid en geïntensiveerd met de ondertekening van een trilaterale MOU. Specifieke samenwerkingsgebieden betreffen integriteitstoezicht, financiële stabiliteit, toezicht op het betalingssysteem, invoering van het gewijzigde Basel II kapitaalakkoord, statistieken, strategische planning en budgettering, training en uitwisseling van personeel. In de samenwerking ligt de nadruk op ondersteuning door De Nederlandsche Bank middels de uitwisseling van haar uitgebreide kennis en ervaring op deze gebieden met haar Caribische partners. Voorts is de organisatie van de samenwerking verder geformaliseerd en bestaat uit een Raad van Presidenten, ondersteund door een Technische Commissie die verantwoordelijk is voor de uitvoering van gemaakte afspraken en wordt bijgestaan door een secretaris. Met deze schets van de evolutie in de samenwerking tussen de centrale banken van het Koninkrijk wil ik illustreren dat de stap naar de organisatie van het toezicht op financiële instellingen op Koninkrijksniveau eigenlijk helemaal niet een grote is en logisch volgt uit de steeds hechter wordende onderlinge samenwerking. De opzet die ik voor ogen heb voor dit Koninkrijkstoezichtorgaan, wat bijvoorbeeld het College van Koninkrijkstoezichthouders zou kunnen gaan he-

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ten, vertoont daarom analogie met de organisatie van de huidige trilaterale samenwerking. Het Koninkrijkstoezichtorgaan zal bestaan uit de presidenten van de centrale banken in het Koninkrijk, die uit hun midden een voorzitter kiezen. Dit orgaan zal worden bijgestaan door een Technische Commissie bestaande uit 3 leden. Elke centrale bank draagt één lid voor, waarbij de directeur belast met toezicht wordt beoogd. De Technische Commissie, ondersteund door een secretariaat, draagt zorg voor de voorbereiding en bewaking van tijdige implementatie van weten regelgeving op het gebied van financieel toezicht in lijn met de internationale “best practices”, een “level playing field” met eerlijke concurrentieverhoudingen, en naleving van de weten regelgeving binnen het Koninkrijk. De uitwerking van de benodigde weten regelgeving valt onder de verantwoordelijkheid van een uitvoerend orgaan, waarin de onderdirecteuren van de verschillende toezichtdisciplines zitting hebben. Dit orgaan is tevens verantwoordelijk voor de daadwerkelijke uitvoering van het overeengekomen beleid en controleert of de weten regelgeving in de landen van het Koninkrijk wordt nageleefd. De door mij geschetste organisatiestructuur van het toezicht op financiële instellingen in het Koninkrijk zal de naleving van internationale standaarden en de toepassing van uniforme regels binnen het Koninkrijk kunnen garanderen. Zo zal bijvoorbeeld de huidige problematiek rond de negatieve FATF-evaluatie van het toezicht op Aruba in de nieuwe toezichtstructuur niet meer mogen voorkomen. Voorts zal de voorgestelde structuur de transparantie en geloofwaardigheid van het toezicht bevorderen. Bovendien siert het het Koninkrijk als alle partners voldoen aan de internationale eisen met betrekking tot het financiële toezicht. In het kader van de staatkundige veranderingen in het Caribische deel van het Koninkrijk vindt momenteel al intensieve samenwerking plaats tussen de toezichthouders in de Nederlandse Antillen en Nederland om de overgang naar de nieuwe situatie zo soepel mogelijk te laten verlopen. Hoewel de staatkundige grenzen binnen het Koninkrijk zullen veranderen, blijven de financiële sectoren op de eilanden in het Caribische deel nauw met elkaar

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verweven. Uniforme weten regelgeving en beleid op het gebied van toezicht op de financiële instellingen die actief zijn op de eilanden kan er dan voor zorgen dat de toezichtlasten voor de instellingen beheersbaar blijven en een “level playing field” kan worden gehandhaafd. Institutionalisering van de organisatie van het toezicht in een Koninkrijksorgaan kan de duurzaamheid hiervan bevorderen. Een voorbeeld in dit kader is het gedragstoezicht, dat in Nederland al geruime tijd gemeengoed is maar in de Cariben nog in de kinderschoenen staat. Aangezien de BESeilanden onder de verantwoordelijkheid van Nederland komen te vallen, zullen de financiële instellingen op deze eilanden ook met gedragstoezicht te maken krijgen. Dankzij de hechte samenwerking binnen het Koninkrijksorgaan kunnen Curaçao, St. Maarten en Aruba dan gelijk optrekken met de BES-eilanden, zodat een “level playing field” kan worden gehandhaafd. Dames en heren, het is niet zo moeilijk een schets te presenteren over hoe het toezicht op de financiële sector in het Koninkrijk het best georganiseerd kan worden. De werkelijke uitdaging zit in de concrete uitwerking ervan, waarbij de nodige barrières overwonnen moeten worden. Zo dient de weten regelgeving op het gebied van toezicht zoveel mogelijk uniform te zijn, maar tevens rekening te houden met de verscheidenheid van de Koninkrijkspartners. Met andere woorden: “eenheid in verscheidenheid.” Dit uitgangspunt moet ervoor zorgen dat het toezicht in alle delen van het Koninkrijk voldoet aan de internationale normen, maar ruimte laat voor onderlinge verschillen op grond van bijvoorbeeld de structuur en ontwikkelingsgraad van de financiële sector. Daarnaast krijgen we in de nieuwe staatkundige structuur te maken met vier landen, vier parlementen en vier toezichtorganen. Het zal dan geen eenvoudige opgave zijn om vrijwel uniforme wetgeving op hetzelfde tijdstip in alle delen van het Koninkrijk in te voeren, wat het beoogde “level playing field” in gevaar kan brengen. Ik zie hier voor het Koninkrijkstoezichtorgaan een belangrijke voorbereidende en coördinerende rol weggelegd. Dames en heren, ik kijk uit naar een vruchtbare discussie met u over de toekomst van het toezicht in de Nederlandse Cariben in het bijzonder en het Koninkrijk in het algemeen. Een toekomst die wij grotendeels in eigen hand hebben. Door nog intensiever met elkaar samen te werken, kunnen wij de uitdagingen van de financiële crisis en de staatkundige veranderingen

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voor het toezicht op de financiële instellingen in het Koninkrijk met vertrouwen tegemoet treden. Aan ons is de taak om deze uitdagingen uit te werken in een solide toezichtraamwerk dat bijdraagt aan gezonde financiële instellingen en financiële stabiliteit in de landen van het Koninkrijk. Ik dank u voor uw aandacht en wens u een succesvol seminar toe.

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Opening 2011 CFATF assessment Welcoming remarks on the occasion of the 2011 CFATF assessment August 22, 2011

ood morning. I would like to welcome you to the Central Bank and at the same time express my appreciation for the commitment of CFATF over the past years to help its members combat and deter money laundering and terrorist financing. As a member of the CFATF and the FATF, we applaud the efforts of the CFATF to continuously perform evaluation of its member jurisdictions. These evaluations serve as an excellent tool for the member jurisdictions to receive an independent opinion on their AML & CFT regime and take the necessary actions to further strengthen their AML & CFT regime. The Central Bank has played an important role in the fight against money laundering and terrorist financing in our jurisdiction. Since public confidence in the supervised institutions and the financial system can be easily undermined by adverse publicity as a result of the misuse of institutions by criminals for money laundering and terrorist financing purposes, as a regulatory authority, we are constantly vigilant in deterring criminals from misusing the supervised institutions for money laundering and terrorist financing purposes. The Central Bank has been instrumental in the drafting of several legislations governing AML and CFT, including the National Ordinances on the Reporting of Unusual Transactions and National Ordinance on Identification when Rendering Services. These legislations were enacted in 1996 and lastly amended in 2009. The Central Bank has also issued sector-specific provisions and guidelines in the area of AML and CFT for the various sectors under its supervision. These guidelines date back to 1991 and were lastly amended this year. The sector-specific provisions and guide-

lines have significantly increased the awareness of good compliance under the supervised institutions. As a result hereof, we have noticed that the industry is increasingly devoting more resources to combating money laundering and terrorist financing and that the compliance function has taken an even more prominent place in the supervised institutions. Furthermore, the compliance programs of the supervised institutions are regularly being subjected to our review during our on-site examinations at the institutions. The AML and CFT deficiencies identified during our on-site examinations are communicated to the supervised institutions and the institutions are in that respect requested to take corrective measures in a timely manner. The Bank has also been instrumental in the drafting of the list of indicators that must be used by the supervised institutions to identify and report unusual transactions to the Financial Intelligence Unit (MOT). Our commitment to deter and detect money laundering and terrorist financing amongst supervised institutions, has also been recognized and highlighted by the IMF. In its final report issued in February 2004 on the former Netherlands Antilles, the IMF concluded on page 7 of its report that: (quote) “Overall the legal and institutional framework for financial supervision meets high standards. It is comprehensive, effective, and to a great extent in line with international standards. The Central Bank’s staff is highly capable, well trained and dedicated, …….to perform its functions” (end quote). Nonetheless, the Central Bank realized the importance of not becoming complacent. The Bank has continued to intensify its efforts by taking the neces-

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sary measures to further strengthen its supervisory regime by continuously upgrade the AML & CFT requirements in line with international standards. You will certainly hear more about these efforts during your visit. To conclude, I would to say that significant progress has been made in our jurisdiction over the past years in the fight against money laundering and terrorist financing. It is therefore imperative for the market participants to continue to work closely with us and other competent authorities to combat money laundering and terrorist financing. The Central Bank is in that respect striving to constantly promote a compliance framework that ensures the soundness and stability of our financial sector and to promote an effective compliance environment that not only deter problems, but also detect problems at an early stage. We are committed to continue to promote an AML & CFT regime that is dynamic and constantly adapting to international standards. We wish you all the best with your assessment and want you to know that our staff is available to provide you with any information you need concerning our activities and to answer any inquiry you may have. Once again thank you for your support and your commitment to combating money laundering and terrorist financing in the Caribbean region.

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The role of the Central Bank Speech on the occasion of the opening of the 4th branch of the Antilles Banking Corporation St. Maarten, February 23, 2000

Ladies and Gentlemen,

t is with a great deal of pleasure that I have accepted the invitation to give the feature address on the occasion of the official opening of the Simpson Bay branch of the Antilles Banking Corporation. I wish to start by congratulating the shareholders, management and the personnel of the ABC bank with the opening of their fourth branch and the confidence they have placed in the Antillean economy in general and the Sint Maarten economy in particular. I hope that the future will prove your decision to be the right one.

efficiency of the price mechanism and to avoid both arbitrary redistribution of wealth as a result of inflation as well as the costs and distortions caused by uncertainty and periodical adjustments of nominal value. In the case of the Netherlands Antilles with its open economy, inflation is by and large the result of the inflation rates imported from our major trading partners. Given moderate wage developments, our task becomes that of promoting the stability of the external value of the Netherlands Antillean guilder.

Ladies and gentlemen, I am particularly happy with the fact that ABC bank, born out of a local initiative, has been undergoing such a spectacular growth. And based on their performance and prudent management I have every reason to believe that they have a prosperous future ahead of them.

The positive effects of price stability obviously benefit savings. I personally see three aspects to this: an effect on the protection of the value of savings, an effect on their structure and allocation, and finally an effect on the distribution of savings within society. First, by aiming at price stability, monetary policy directly preserves the real value of a large proportion of financial savings. In a situation where inflation rises unexpectedly, a transfer of wealth occurs from creditors to debtors. This interferes with the optimal allocation of savings when the transfer of wealth does not correspond to the provision of a service or a real economic cost, but have all the characteristics of a windfall profit or an exceptional loss. It can result in a reduction in the amount of savings by discouraging agentsâ&#x20AC;&#x2122; propensity to save and by transferring inflationary income from the private to the public sector, which has a lower savings ratio.

I would like to take this opportunity to share with you some thoughts on the role of the central bank in encouraging and safeguarding savings. This is indeed a crucial matter, since the level of savings largely determines the long-term level of productive investment, which provides the basis for solid and stable growth. Moreover, the level and structure of savings affects, in various ways, the cost and means of financing enterprises, the profitability of the financial sector and the distribution of income between generations. This is particularly important in view of the central issue of financing retirement seen against the background of the ageing of the population. The primary objective of monetary policy, ladies and gentlemen, is to promote the stability of the value of the guilder â&#x20AC;&#x201C; that is, both its internal and external value. This objective is founded on the conviction that price stability makes it possible to ensure the full

Furthermore, the primacy of price stability contributes to improving macroeconomic stability, thus encouraging long-term investment and hence economic growth and employment. The reduction in real interest rate following the reduction in the inflation premium works in the same way. I should like to note here that investment and savings are two sides of the

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same coin, i.e. the accumulation of physical or financial capital with a view to a future return. Ladies and gentlemen, this brings me to an issue that has been put on the forefront of the national agenda: namely, the appropriateness of the levels and the relative prices of savings and investments in our economy. Put it differently, do we have the right level of interest rates and are they conducive to economic growth? The current economic policy of the government is directed at promoting economic growth to broaden the tax base and thereby lowering the cost of fiscal consolidation. One argument that has been advanced by proponents of this strategy is that because of the rigidities in the capital market, interest rates are prohibitively high and as a consequence stalling the much-needed investments to restore economic growth. In a market economy, ladies and gentlemen, the free interactions of demand for, and supply of financial resources determine the level of and the relative rates of interest. Given no market imperfections and no government interference and assuming free capital mobility, the real level of domestic interest rates should not be significantly different from the world level of real rates of interest. In order to determine the real level of interest rates one has to correct for inflation including the risk premium. The real rates of interest should then reflect the productivity of capital. The question that has been raised is why the real level of interest rates in the Netherlands Antilles has been higher than the world level of real interest rates? Is it because capital is more productive here than elsewhere or is it because the basic tenets on which the theory of capital market efficiency is premised do not hold for the Antillean case? As I mentioned, by correcting the nominal rates of interest for inflation, one gets to the real level of interest rates. Given the low level of inflation in the Netherlands Antilles, the question then becomes if the real rates are appropriate? The fact that the Netherlands Antilles guilder is pegged to the US dollar means that the interest rates of the Netherlands Antilles are in fact tied to the US rates of interest. Thus, when talk-

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ing about our rates of interest, the most appropriate benchmark to look at is the US rates of interest and those of economies similar to ours. One gets a measurement of appropriateness by comparing our real rates with the benchmark rates. If we account for the spread between our rates and those of the US, reflecting risk premium and relative market efficiency, we have to conclude that it has been constant. Constancy means that one can draw the conclusion that our relative rates seem to be appropriate. It is the size of the spread however, â&#x20AC;&#x201C; being the sum of the risk premium, market efficiency, and other factors â&#x20AC;&#x201C; that determines the extent to which the levels of our rates are appropriate. The level of the risk premium is determined by among others, the inflationary environment in which we operate and the general investment climate. Inflation in the Netherlands Antilles has been low and as such contributes to a low risk premium. The general investment climate however, has been clouded by the fiscal problems facing our nation. The uncertainty surrounding an early resolution of our fiscal ills has contributed to a high-risk premium. The sum of the two determines the level of the risk premium. The second factor determining the size of the spread is market efficiency. The efficiency of the market is determined by how well the market functions. Here both the size and depth of the market are determining factors. The market structure and conduct of market participants also have a determining impact on the efficiency of the market. In this regard it is important to take into account the regulatory regime and the supervisory framework that are in place and see the extent to which they are conducive to enhancing the functioning of the market. Our markets are limited in size by the sheer fact that we are a small country both physically and in terms of population. However the constrain of our size can be removed to the extent that our markets are integrated in the world economy. This implies that capital has to be mobile. In an economy with a pegged exchange rate however, the mobility of capital may temporarily be constrained by balance of payments considerations.

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Another tenet of the capital market rigidity argument of proponents of the growth strategy is that the market structure of the banking sector is highly concentrated and hence its performance reflects monopolistic pricing. Ladies and gentlemen, while the concentration ratio in the Netherlands Antilles banking sector is high, our situation is not unique. In analyzing the financial market, one cannot and should not limit the analysis to the banking sector. Due to technological advances and financial innovations, the banking sector is facing competition both domestically from near banking institutions and other financial institutions like pension funds and insurance companies in the extension of mortgages, credit unions and financing companies in the extension of consumer loans and externally from foreign financial institutions. In addition, if one compares the three months inter bank rates for the Euro and the Swiss franc – markets with concentration ratio of over 70% – one gets a rate of respectively 3.62% and 2.38% as opposed to a three month inter bank rates for US dollar of 6.11% in a market with a concentration ratio of 20%. This serves to illustrate that concentration ratio is not a significant explanatory factor in explaining high rates of interest. Our regulatory regime and supervisory practices, I can assure you ladies and gentlemen, have been a contributing factor in the well functioning of the marketplace. This is evidenced by the fact that if we observe the rates on government instruments, they have been showing a narrowing margin with US rates on similar instruments since the Bank started acting as the agent of the governments for the issuance of government paper. To enhance the functioning of the market mechanism, the Bank in 1989 introduced the so-called Dutch auction system in the issuance of government paper as opposed to the administered price system, which was then in place. In addition, we encouraged the further development of the secondary market for government paper by standing ready to buy and sell government paper in that market. While these factors (i.e. risk premium and market efficiency) are, under normal circumstances, the explanatory factors in determining the level of interest rates, we see that they alone do not fully account for the level of rates we are observing in the Netherlands Antillean economy. What to a large extent have been exerting a big influence on the level of interest rates

in the Netherlands Antilles are the unsustainably high level of budget deficits – and its consequent crowding out effects. If we analyze the fiscal situation during the last decade, the pattern that emerges is one of overspending and over-borrowing by the governments with a debt-to-GDP ratio of almost 70%. This has led to a situation that the government’s share in the financial transactions of the whole economy is over 50%. This situation is putting upward pressure on the rates of interest and goes a large way in explaining not only the high levels of interest rates but also the widening margin between the Netherlands Antillean rates on government instruments and US ones of similar maturity. If we are to improve the functioning of the capital market in the Netherlands Antilles, we have to rid ourselves of the distortionary effects of the current budgetary policy. Looking ahead however, the lack of progress in presenting a budget that can be financed from domestic non-bank sources indicates that those distortionary effects of the budget deficits will remain with us for some time to come. Another argument that has been advanced to explain the high level of interest rates is the current stance of monetary policy. Tight monetary policy, ladies and gentlemen, is a natural ingredient of a monetary policy for price stability – a policy that ultimately aims for a stable development of production and employment. Thus, ladies and gentlemen, in answering the question of the appropriateness of the current level of interest rates in our economy, the simple answer is that it is a reflection of the current state of our economy being burdened by the unsustainably high level of fiscal deficits. Is it conducive to high levels of investments and economic growth and employment? The answer is no. The appropriate course of action therefore is fiscal consolidation. One aimed at a lasting improvement of our public finances. If we are to avoid the mistakes of the past, we have to ensure that the quality of the measures taken is such that the adjustment in the fiscal field will be a durable one. Getting back to the issue of price stability, it ought to be noted that price stability has major implications for the social distribution of efforts to save. Price stability is especially beneficial for the less well-off sectors of society, which often lack sufficient information to protect their savings in a period of inflation. At a time

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when we are very preoccupied by adjusting working hours and retirement age, it is essential that everyone should have the opportunity to save, i.e. to set aside part of their future income, in a relatively safe manner. However, the principle of monetary stability very clearly highlights the issue of the distribution of income between generations. In a situation where the proportion of public spending has reached unsustainably high levels, the role of private savings in the future financing of retirement attains a crucial dimension. Ladies and gentlemen, aside of the positive effect of price stability on domestic saving, other economic policies should contribute to a favourable climate, through structural measures aimed at increasing flexibility in the labor market and efficiency in the markets for goods, services and capital. Price stability and a well-functioning financial market are beneficial to the development of savings and their optimal allocation. It would allowed to jeopardize this favourable environment. Thus, insufficient fiscal consolidation leads to continuous eviction by the government of a significant part of the available private savings. In the same way, excessive taxation and wage increases out of line with growth in productivity, take away the dynamism from investment and consequently also from savings. Ultimately the health of the financial sector is essential to the protection of savings. With the current regulatory framework, the Bank is well equipped to monitor risk developments in the financial sectors and to take appropriate actions where these developments could potentially affect overall monetary and financial stability. In these areas, the role of the Central Bank is to always uphold confidence in the currency, to contribute to the well functioning of the financial system and to encourage prudent macroeconomic policies, which influence the will and capacity to save and hence invest. I thank you for your attention!

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Banko Sentral di Antia Hulandes: Logronan den 2001 i retonan pa futuro Diskurso na okashon di selebrashon di fin di aña di Banko Sentral 22 di desèmber 2001

presiable miembronan di hunta di komisario di Banko, koleganan i nan invitadonan bon nochi i bon biní na nos edifisio nobo. For di aki mi kier duna un kordial bon bini na señor Palm ku durante e aña aki a wòrdu nombra komo presidente di nos hunta di komisario remplasando asina ei señor Nicolina ku a ehersé e funshon aki pa 10 aña largu. Despues di un esfuerso di hopi aña impulsá pa entre otro nos miembronan di hunta di komisario nos ta kasi kla ku e edifisio nobo i ku tur aki presente ta privilegiá di por partisipá na e promé akto importante aki na Skalo. Mi kier duna rekonosimentu na eks-miembronan di nos hunta di komisario señores Nicolina i Nicasia ku tabata instrumental den realisashon di nos proyekto di edifisio nobo. Naturalmente tambe nos aktual miembronan di hunta di komisario señor Helburg i señora Römer tambe a aprobá i guia nos proyekto na Skalo. Manera ya a bira un tradishon na fin di aña i ku selebramentu di nos sena di Pasku mi sa reflehá riba e akontesimentunan importante ku den transkurso di aña nos a eksperenshá na Banko. Ounke ku un hende lo por pensa ku hopi tempu i atenshon a bai na e konstrukshon di nos edifisio nobo, mi mester bisa ku hopi kos otro di importansha tambe a pasa den transkurso di aña 2001. Un akontesimentu ku sigur tabatin i te ainda tin un impakto grandi pa ekonomia di nos pais i pa restu di mundu tabata é atakenan terorista di 11 di sèptèmber último. Nos ekonomia ku ya kaba ta pasando den un fase masha difísil, di kual nos a pronostiká den promé instansha un kresementu leve di 0.5% a haña un klap hopi grandi despues di 11 di sèptèmber. Pronóstikonan ku nos a hasi inmediatamente despues di e akon-

tesimentu aki ta indiká ku ekonomia di nos pais por keda afektá strukturalmente pa un kaida di aktividat ekonómiko di 2.2%. Esaki den término di entrada bruto ta nifiká un pèrdida di kasi 100 mion florin pa nos pais bou di sirkunstanshanan ku nos no por apsorbá niun depchi di pèrdida di entrada. E akontesimentunan di 11 di sèptèmber a nifiká tambe ku nos mester bai pone mas énfasis riba e área di ‘Corporate Governance’ i di konosé bo kliente ora ta trata nos trabou di supervishon di institushonnan aki na Antia i den eksterior. Den e área di trabou di Banko mes mi mester bisa ku hopi énfasis a wòrdu pone durante 2001 pa hasi nos organisashon mas fleksibel. Un di e formanan ku nos di gerensia ta purbando di hasi esaki ta ku nos a parti nos responsabilidatbou di kada direktor ku 4 supdirektor ku tambe ta yuda nos formulá e implementá maneho moderno den Banko. Mi mester bisa ku ya e promé indikashonnan ku nos tin ta mustra ku trabounan ta kana muchu mas fásil i ku otronan ta purba huntu ku nos di gerensia pa bini ku inisiativa nobo. Biniendo bèk riba e área di supervishon nos a mira ku atenshon di nos komo supervisor mas i mas ta bai konsentrando riba área di ‘Corporate Governance’, kalidat di organisashon interno pa institutonan bou di nos supervishon, integridat di individuonan klave ku ta manehá institushonnan i finalmente e seguridat i kontinuidat den implementashon di teknologianan di kòmpiuter e informashon. Den kuadro di fortifiká nos supervishon riba e áreanan ya menshoná nos ta hasiendo hopi esfuerso pa yega na konvenionan ku otro supervisornan internashonal pa asina ei evitá ku personanan òf aktividat-

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nan ku no ta kuadra ku normanan i balornan di bon kondukta por keda realisá for di nos hurisdikshon òf for di kualkier pais rònt mundu. Nos na e momentunan aki ta repasando nos lei di supervishon di kompanianan di seguro pa trese algun kambio ku ta nesesario pa nos por kumpli tambe ku obligashonnan internashonal manera ta e kaso di supervishon riba kondukta di merkado ku nos ke bai asumí. Di mes forma tambe nos ta trahando riba un lei nobo di supervishon di fondonan di penshun pa di e moda aki modernisá i hasi mas efisiente nos trabou di supervishon. Pa amplia e embergadura di trabou di supervishon nos tin kaba un konsepto di lei na gobièrnu i parlamentu pa pone institushon di invershone asina yama ‘beleggingsinstellingen’ bou di supervishon di Banko. Tur e trabou interno pa por hasi e tarea aki ya ta den ‘full swing’, pa asina e lei keda aseptá den parlamentu nos por kuminsá mesora ku nos tarea di supervishon riba e tipo di institutonan aki. Ku tur e esfuersonan aki mi ta premirá un supervishon di Banko mas aktivo i mas dirigí riba evitá ku problemanan di índole di maneho i organisashon lo por afektá e bon nòmber di nos pais. Bisando esaki nos ophetivonan di control tradishonal manera ta garantisá ku e likides i solvabilidat di institushon bou di nos supervishon lo keda na nivelnan aseptá internashonalmente lo keda semper bai e otro foko di atenshon di nos supervisornan. Nos maneho monetario a konsentrá su mes durante e último añanan riba kontrolá e oumento di krédito den sektor públiko i priva pa asina ei garantisá ku nos reservanan internashonal por keda na un nivel aseptabel. Den esaki sigur e aña aki nos a logra grandemente. E tasa di kresementu di krédito a keda bou di lokual nos a kumbiní na kuminsamentu aña ku Fondo Monetario Internashonal. Un gran parti di e desaselerashon den krédito por wordu splika dor di e sirkunstanshanan ekonómiko ku nos ta bibando aden. E agentenan ekonómiko aworakí ta ménos inkliná pa gasta eksaherá i e situashon aki ta hasi ku e demanda makroekonómiko interno ta keda atras riba proyekshonnan. Por parti esaki ta splika tambe ku nos ekonomia ta ketu bai den un spiral negativo.

Di otro banda nos mester bisa ku nos reservanan di divisa a yega na un rèkòrt nunka bisto durante e último dékadanan. Si nada imprevisto no pasa durante e siman ku ta bini aki nos reservanan internashonal lo oumentá ku mas di 200 mion florin Antiano ora bo midi esakidurante henter e aña aki. Teniendo na kuenta e resultadonan positivo aki di nos balansa di pago i nos reservanan internashonal nos mester bisa ku pa aña 2002 nos a disidí di fleksibilisá nos maneho monetario bahando un poko e tasa di interes primario (beleningsrente) di Banko Sentral te ku 6.75% pa asina ei yuda stimulá aktividatnan ekonómiko den nos pais. Riba tereno di sistema di pago lokal e internashonal nos a finalisá e proyektonan relashoná ku i kliring di chèk. Ku e sistema outomatisá aki ku no tin su igual den nos region nos hendenan a demostrá un biaha mas ku nos por produsí sistemanan di kalidat ku internashonalmente ta wordu rekonosé komo inovashonnan importante. Na e momentu aki tur pago di sumanan grandi i kliring di chèk ta wordu hasi masha efisiente den e sistema ku nos a bin yama ‘automated payment system’ aki na Antia. For di e lugá aki mi kier gradisí tur nos koleganan ku tabata enbolbí den e proyekto aki durante kasi 3 aña. Den Banko manera bosonan ta na altura outomatisashon ta hunga un ròl masha importante. Ku esaki nos kier logra pa hasi prosesonan ku nos tin mas efisiente i tambe redusí e márgen di eror. Awor ku nos a terminá e proseso di e sistema di pago nos tin dos otro proyekto grandi ku nos ta enkaminando. Un di nan ta e sistema di outomatisashon di nos balansa di pago i e otro ta esun di nos ‘Chart Of Accounts’. Tur dos e proyektonan aki ta sumamente grandi i kompliká pero ku nos di gerensia ta konvensí ku unabes nos terminá ku nan nos lo tin sistemanan ultramoderno ku por yuda nos mas ku ta e kaso aworakí pa antisipá riba desaroyonan ekonómiko di un forma mas aselerá i mas asertá. Un di nos logronan importante durante aña 2001 tabata ku tur nos personal awor ta disponé di un e-mail adrès personal den Banko i di e forma aki por haña direktamente tur informashon importante rápidamente. Durante último aña tambe nos a intensifiká nos esfuersonan pa stimulá nos personal pa sigui diferente

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kurso di kapasitashon. Esakinan di un banda a keda realisá lokalmente kaminda ku hopi énfasis a wòrdu pone riba asuntunan ku ta regarda kumplimentu ku regla, integridat den maneho di institushonnan finansiero, kambionan den balorashon di aktivonan despues di e atakenan terorista, fundamentonan makroekonómiko i stabilidat di sistema finansiero. Eksperensha di último tempu ta mustra ku nos mester hasi masha hopi esfuerso pa atraé i mantené personal kalifiká pa nos por funshoná optimalmente. No opstante e hopi esfuersonan ku nos ta hasiendo pa buska personal kalifiká aki na Antia, pero tambe na Hulanda, no tur biaha nos ta logrando esaki. Den gerensia di Banko nos ta pensando kon lo mester enfrentá e problema aki tambe den futuro. Manera tabata e kaso último añanan Banko tabata huéspet di un konferensha internashonal ku nos a organisá konhuntamente ku ‘Financial Stability Institute’ (FSI) na Basilea i e grupo Karibense di Supervisornan (Caribbean Group of Banking Supervisors). E konferensha a embarká tópikonan manera ‘corporate governance’, banko elektróniko i strukturanan di supervishon emergente; a resultá den un éksito grandi. Nos tabatin partisipashon di 9 pais di Karibe i e lektornan a bini di Merka, Méhiko, Fransia i Suisa.

otro entidatnan finansiero i ministerio públiko pa evitá ku nos pais por wòrdu malusá pa personanan òf entidatnan hurídiko ku metanan dudoso. Un otro reto grandi ta pa nos kontinuá nos kompromiso huntu ku gobièrnu pa yega na un akuerdo ku Fondo Monetario Internashonal ku e meta di haña fondonan finansiero nesesario pa sigui renobá strukturanan den nos ekonomia. Esaki ta un di e garantianan importante pa nos por saka nos pais for di e spiral negativo ku nos ta den pa algun aña kaba. Awor ku atrobe nos ta na víspera di un aña nobo no a keda muchu mas di bisa; si no di felisitá un i tur presente pa lokual nan a nifiká pa Banko i pa e komunidat aki durante e aña ku ta kabando. Laga nos renobá nos kompromiso un biaha mas den aña nobo pa pone skouder bou di kosnan ku nos mester hasi pa hiba e pais aki dilanti. Ami ta sigur ku nos por hasi esaki i prueba di ku nos por ta lokual nos tur ta hasiendo den Banko diariamente ku dedikashon i perseveransha. Konstantemente mi ta risibí bon rekomendashon di lokual nos tur den Banko ta produsí pa e komunidat aki. Mi ke deseá boso tur, na nòmber di gerensia di Banko un felis Pasku i un aña nobo yen di bendishon pa boso i boso famia.

Tirando un bista awor riba e aña benidero mi te kere ku nos ta enfrentá retonan masha importante. Un di esakinan ta ku nos awor mester bai kustumbrá ku nos edifisio nobo i lugá di sinta. Mi ta kombensí ku tur nos empleadonan ta bini ku kara mas kontentu entrante otro aña ya ku nos edifisio nobo ta traha ku bista riba e kondishonnan mas moderno di trabou i medio ambiente. Di forma aki mi ta kere ku lo tin ménos doló di kabes ku nos ta sinta riba otro. Un di dos reto importante ta ku riba tereno di supervishon nos lo bai haña ku tur probabilidat mas tarea aserka i ku esaki ta bini tambe mas responsabilidat pa nos tur. Antisipando riba nos responsabilidat mas amplio ya kaba nos a identifiká un programa di training di algun persona den área di supervishon ku den koperashon ku Banko Sentral Hulandes nos bai atkirí e konosementu básiko pa por kuminsá implementá supervishon mesora. Tambe mi ta mira hopi trabou ku mester wòrdu hasi riba e tereno di integridat finansiero i koperashon ku

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The role of central banks in promoting sustainable growth Address on the occasion of the Seminar on Current Issues in Central Banking organized by the Centrale Bank van Aruba and the Universiteit van Aruba November 14, 2002

Ladies and gentlemen, good afternoon,

Introduction

t was with a great deal of pleasure that I accepted the invitation to address you on this seminar on “Current Issues in Central Banking” on the occasion of the inauguration of the new office building of the Central Bank of Aruba. The Central Bank of Aruba and the Bank van de Nederlandse Antillen share a common history that goes back to 1828. In 1828 the then King of the Netherlands, King William I established the Curaçaosche Bank to finance and promote trade in the colony Curaçao. Over time, this Bank grew into a full fledged Central Bank responsible for the conduct of monetary policy and the supervision of financial institutions in the Netherlands Antilles – including Aruba. With departure of Aruba from the Antillean constellation, the Bank van de Nederlandse Antillen was divided into two autonomous institutions entrusted with the conduct of monetary policy and the supervision of financial institutions in the two respective countries of the Kingdom. Despite this legal separation, the two central banks continue to corporate on various matters. It is for this reason that I am glad that Hassalani Meheran who initiated and promoted this process of collaboration between the two central banks, is also present here today. This cooperation includes technical assistance, policy coordination and the exchange of ideas and experiences in various areas of central banking. Given our close ties, it is probably no coincidence that we both moved into a new office building this year. I would like to use this occasion to congratulate my Aruban colleagues with this milestone in their twelve years of existence. I am also very pleased to see so many of my colleagues and friends with whom I had and still have frequent contact as a central banker. This creates an excellent

opportunity for a productive and fruitful exchange of views and ideas on current issues in central banking, which is the topic of this seminar. Ladies and gentlemen, I have been asked to talk about the role of central banks in promoting sustainable growth. Let me start by saying that central bank’s policy in small open economies as ours should be based on two overriding principles: (i) the protection of the value of the national currency and (ii) the preservation of overall financial stability. In periods of economic difficulties however, central banks may be subjected to increasing pressure to pursue policies that may not be consistent with the two principles mentioned earlier. Central banks may be pressured to provide financing to the government, provide credit to the private sector and pursue policies to lower interest rates that may be inconsistent with the underlying economic fundamentals. However, as history taught us monetary policy can provide only temporary stimulus to the economy. Subsequently monetary policy must be followed by corrective measures. Central banks should refrain also from engaging in activities that may put them in direct competition with commercial banks. This is tantamount to un-leveling the playing field and will interfere with the effective performance of central bank functions. To avoid this, central banks should have a medium-term horizon in the conduct of policies aimed at promoting sustainable growth and job creation. Ladies and gentlemen, I will continue my address by focusing on the necessary conditions for creating an environment conducive to more investments and, hence, economic growth. As we shall see, these con-

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ditions are closely related to the main objectives of central banks that I mentioned earlier, underpinning the role of central banks in promoting sustainable growth. The regional pattern and composition of capital flows suggest that investors have become more sensitive to economic fundamentals in host countries. What I mean to say is that investors are factoring macroeconomic variables into their investment decisions. These macroeconomic variables include among other the size of the current account deficits in relation to foreign exchange reserves, government debt, government deficits, inflation, domestic savings, growth potential, and the soundness of the banking system. This implies that a stable macroeconomic environment is critical for a stable and sound development of the financial sector. A stable financial sector and the sound development of the financial system in the long run depend on the quality of our financial institutions and the effectiveness of banking supervision. Therefore, macroeconomic stability, high quality financial institutions, and effective banking supervision are necessary conditions and key success factors for sustainable growth. Let me elaborate on this issue further.

Macroeconomic stability A stable macroeconomic environment promotes savings necessary to finance investments – a precondition for achieving sustainable economic growth. In today’s global environment, market perceptions are important explanatory variables in determining where capital flows. Thus, if we are to attract the needed capital to sustain the growth of our economies, we have to pursue policies that the market perceives as credible and will result in growth and stability. This means: (i) sound macroeconomic policies, (ii) comprehensive structural reform, and (iii) good governance. The economies of Aruba and of the Netherlands Antilles are characterized by their smallness and openness. External economic relations account for a substantial part of national expenditures, while economic activities are concentrated around only a few important pillars such as tourism, financial services, and oil refining, which are mostly dependent on foreign markets. Our region has been beset by adverse macroeconomic conditions in the 1980s and 1990s: terms of trade

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shocks, rising debts, natural disasters, loss of international competitiveness in key export industries, and inappropriate macroeconomic policies –particularly fiscal policies– were largely responsible for the persistence of balance of payments deficits. The appropriate response to these external shocks to our economies would have been consistent monetary, fiscal and trade policies, combined with policies to promote savings, investment, and the enhancement of our foreign exchange generating capacity. Of course, we must allow for differences in emphasis and intensity, depending on the specific economic circumstances and characteristics of the various countries. However, we have not always responded timely and adequately to these shocks. The Netherlands Antilles did not escape the winds of adverse macroeconomic conditions. The origins of the current financial-economic crisis started some 15 years ago with a series of large external shocks which hit the three main pillars of our economy. In this respect I can mention the repeal of the withholding tax in the United States, which caused the collapse of a number of highly profitable activities in the international financial and business services sector. Another major shock was the oil crisis, which affected us in two ways. First, it caused a large devaluation of the Bolivar, which ended the buoyant shopping tourism from Venezuela to our islands. Second, it prompted the closure of Shell’s Curaçao refinery. These two major shocks were aggravated by a number of smaller shocks, such as several devastating hurricanes on the Windward Islands, the discontinuation of certain trade privileges on the European market, and the uncertainties surrounding the change of the Tax Arrangement for the Kingdom. The impact of the shocks and inadequate policy responses by the authorities resulted in large macroeconomic imbalances. It became evident that only a major restructuring of the economy would create a basis for sustainable growth. At the end of 1995, the Netherlands Antilles embarked on a structural adjustment program in close cooperation with international organizations, such as the IMF, the IDB, the FIAS, and the World Bank. Our structural adjustment strategy entailed a three-pronged approach: (i) re-establishing confidence in the public sector by pursuing fiscal consolidation and structural reform, (ii) a growth strategy, and (iii) a social policy.

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During the past six years, we have made considerable progress in restructuring the public finances and implementing structural reform. The government bureaucracy has been reduced, wage costs have been brought under control, and the civil servants pension scheme has been partially reformed. The improvement of cost efficiency in the government apparatus has further reduced expenditures.

portance. Furthermore, adjustment programs should be appropriately tailored, taking into account differences in economic structure, institutional arrangements, and institutional capacity when implementing and monitoring the program. If these points are overlooked, it can lead to unnecessary derailment of the program and will consequently affect authorityâ&#x20AC;&#x2122;s credibility and commitment to adjustment.

Aside from these country specific points, ladies and gentlemen, there are some overriding principles that apply to all countries in promoting a stable macroeconomic environment. First, economic discipline is the cornerstone of success. It helps shape the market perception and investorsâ&#x20AC;&#x2122; confidence in the policies pursued by a country. Second, policies should be consistently implemented to assure economic agents that the favorable business climate will last. Third, credibility is very important: once lost, it takes great efforts and time to regain.

In the field of structural reform, various measures have been implemented to foster competition and to create a business climate conducive to more investments. Labor legislation has been modernized and the product market is being made more competitive. Progress also has been made in the capital market: disclosures have improved, and the interest rate level has declined. The privatization process has also started. All of this has been done with the objective of improving our business climate and, hence, restoring economic growth. Given the involvement of the IMF in the structural adjustment of the Antillean economy, strong emphasis was placed on fiscal adjustment and an appropriately tight monetary policy. Our significant internal and external macroeconomic disequilibria warranted this approach. However, the accompanying growth strategy and social policies were neither timely nor fully implemented. As a consequence, it is only now that we are seeing signs of recovery from the recession we endured during the adjustment process. This lack of synchronization of policies resulted in a large part of our population migrating to Holland in the hope of a better future. The experience of the Netherlands Antilles serves to illustrate that the timing and sequencing of the policy measures in adjustment programs are of critical im-

The central bankâ&#x20AC;&#x2122;s role in promoting a stable macroeconomic environment is reflected through the design and implementation of its monetary policy, representing one of the main pillars of overall macroeconomic policy. This role is extended further in the coordination of monetary and fiscal policies and the advising of government on overall macroeconomic policy. On the long run, financial stability cannot be maintained unless monetary policy is complemented by sound fiscal policy Having said this, I now would like to turn to the issue of the quality of the financial sector.

Quality of the financial sector A stable macroeconomic environment is a necessary, but not sufficient condition to create a climate conducive to sustainable growth. The second key factor for success is quality financial institutions. Financial institutions of high quality are usually the driving force behind a stable financial system. To maintain quality financial institutions, several things are needed: (i) an adequate admission and licensing policy, (ii) a comprehensive and effective supervisory framework, and (iii) appropriate mechanisms to resolve distressed financial institutions. The main regional financial centers, including the Netherlands Antilles, have a well-developed banking

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system as well as various non-banking financial intermediaries. The commercial banks are equipped with trust, insurance and investment departments that provide both local and international services. The main banking sectors of the region are comprised of both domestic and international banks that are mainly subsidiaries and affiliates of major international banks of industrialized countries such as the United States, the United Kingdom, the Netherlands, and other European countries. However, noteworthy is the nascent development of Caribbean financial institutions with regional ambitions, of which RBTT Bank is a good example. Notwithstanding the numerous financial institutions, there is a lack of well-developed money and capital markets in the Caribbean. Therefore, in comparison with the industrialized countries, financial institutions, especially banks, still play a very prominent role in the allocation of resources in our economies, and are the main channels through which economic development is financed. Due to the globalization of the marketplace and technological advancements, especially in the application of computer technology and telecommunication systems, our local financial sectors have undergone substantial changes becoming more dynamic and innovative. The number of new financial products and services has expanded dramatically, and modern technology has added a new dimension to the activities in this sector. Several other factors have contributed to the broadening of financial intermediation and monetization in the Caribbean economies. For example, the growth and expansion of non-bank financial intermediaries, such as credit unions, insurance companies and mutual funds forced commercial banks to seek innovative ways to expand and diversify their operations in order to maintain their competitiveness and profitability. In this regard, commercial banks are increasingly diversifying into non-traditional financial activities such as leasing and insurance services. As a consequence, distinctions between commercial banks and other financial institutions are blurring and as financial assets become more accessible, the difficulties of maintaining monetary control are increasing.

However, despite the rapid growth in the activities of non-bank financial intermediaries, commercial banks still dominate the financial system in the Caribbean, and bank loans are still the primary source of financing. In addition, another important factor is the oligopolistic nature of the bank-based financial system in the Caribbean and its consequent implications for the pricing of financial services. Another interesting feature in the Caribbean financial infrastructure is the fact that most loans are collaterized. The phenomena can be best explained by informational asymmetries in the credit market. There is some evidence that problems related to imperfect or asymmetric information may be more severe in small economies like those in the Caribbean, particularly with regard to foreign investors. Indeed, the sources of information in the Caribbean countries are still limited compared to other countries. Moreover, most banks in the Caribbean are not equipped with a financial-economic research unit and, consequently, do not engage actively in research on investment prospects. This limits their ability to pursue innovative and flexible policies to bring about sectoral shifts in the employment of their resources. Hence, because of internal limitations and the fact that the information bases of the banks in the Caribbean region are not very extensive, they rely heavily on collateral security as an information acquisition device and a means of protection against credit risk. The role of the central bank in promoting quality financial institutions lies in the design and implementation of policies, which encourage domestic savings to remain at home and to flow to the local financial institutions. Thus, more local resources can be mobilized to finance the investment required for sustainable economic development. Moreover, savers must be assured of the liquidity of the instruments issued by financial institutions as well as about the soundness of the institutions themselves. Furthermore, the financial instruments offered must provide reasonable earnings, competitive with alternative uses of funds. Particular attention should be paid to the liquidity of financial assets, which can be promoted by the further development of the capital market. In this respect, the Bank van de Nederlandse Antillen has made significant progress in the development of

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an active secondary market in government securities. With the gradual broadening of the capital market with, for example, securities issued by development finance institutions, we can further contribute to the channeling of funds for development and growth. The Bank van de Nederlandse Antillen also strives to promote domestic savings by exempting long-term deposits – more than two years to maturity – from the calculation of the reserve requirement commercial banks have to hold.

Banking regulation and supervision In addition to creating a stable macroeconomic environment and quality financial institutions, an adequate regulatory and supervisory framework to guarantee a sound financial system is imperative. Thus, the third key factor for success in creating a stable climate conducive to sustainable growth is effective banking regulation and supervision. In terms of public policy, the need for adequate prudential supervision arises ultimately from four fundamental policy concerns: (i) safety and soundness of individual banks, (ii) maintaining healthy competition and a level playing field, (iii) consumer protection, and (iv) systemic stability. In other words, prudential supervision should provide reasonable assurances for efficient banking in a healthy competitive environment, protect depositors, and promote the stability of the financial system in the long run. In order to accomplish these goals, the supervisory authority should have a transparent and effective regulatory framework to exercise adequate and comprehensive supervision on a consolidated basis. The benefits of having a banking supervisory framework, which regulates the entrance, supervision and liquidation of institutions in the banking sector in an efficient and effective manner, is self-evident. To avoid weak banks from entering the financial system, adequate admission and licensing policies must be implemented, based on a sound legal framework. In this regard, in 1990, the Netherlands Antilles adopted the policy that in principle, only international banking institutions belonging to the World Top 1000 –based on total assets– will be admitted to the banking sector. I have to say that this policy has served us well. Despite the trying economic times that we went through during the last six years, our banks have weathered the financial storms with impressive resiliency.

This policy was a qualitative decision to guarantee admission of only quality banks into the financial system. By making this decision, the Netherlands Antilles chose a policy of controlled growth in the banking sector, given the benefits for financial stability in the long run. In addition to the admission policies and guidelines, stringent licensing requirements to operate a banking institution should be in place to guarantee the safety and soundness of the financial institutions. These requirements should at least cover minimum capitalization in line with international standards, good liquidity ratios, a sound business plan for the medium and long term, and fit and proper shareholders. Moreover, also management has to be fit and proper and with the necessary professional training and experience supported by an adequate internal audit systems and good corporate governance. Finally, in order to prevent bank failures as much as possible and to resolve failing banks in a timely manner, an effective intervention framework is necessary. Taking the importance of banking in our society and its role in the process of economic development into account, the implementation of the concept of adequate and comprehensive financial supervision in the Netherlands Antilles has been one of the main focal points for the supervisory authorities and its main stakeholders. A word of caution is at the order. Banks should not be forced to operate in an over-regulated and over-restrained structure. But still the elements needed for the proper transmission of monetary policy through a safe and sound banking system should be maintained. In addition to appropriate legislation and regulations, adequate supervision also comprises effective off-site surveillance and on-site inspection. It is known and acknowledged that desk supervision without periodic investigation of the books and records of the institutions is ineffective, since misstatements, omissions, overstatement of the value of assets, or understatement of the liabilities will necessarily lead to an overstatement of the institution’s solvency position. Despite the efforts of banking supervisors, international practice has shown over and over again that failing or distressed financial institutions may threaten the stability of the financial system from time to time. Therefore, in addition to adequate preventive

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measures, an adequate system of curative or problem-resolution measures with respect to troubled financial institutions is imperative in maintaining the stability of the financial system. Also, with the increasing globalization of our economies and financial systems, threats to the financial system may come from a variety sources â&#x20AC;&#x201C; both internal and external. Hence, the legal supervisory framework should provide for adequate mechanisms for liquidation and the restructuring of distressed institutions. While liquidation is an administrative measure not directed at continuity, the liquidation process is a natural response to a failed institution and must be handled well to preserve confidence in the system as a whole. On the other hand, restructuring a failing entity is directed towards its continuation as a financial institution in the financial sector. At an early stage there may still be some value in selling a distressed institution or turning it around into a profitable institution. Evidently, central banks must have full responsibility for bank regulation and supervision, particularly in Caribbean economies, to realize economies of scale in staff and information technology necessary to exercise their supervisory tasks efficiently and effectively. Banking institutions, sanctioned by a license from the central bank, share in the responsibilities to protect the value of the currency. They indeed become the conduit through which monetary policy is transmitted and their special relations with the central bank, for example through borrowing facilities, are of vital importance for maintaining overall financial stability.

that is important. Structural adjustment is no instant cure. Once we have achieved a healthy macroeconomic environment, we should muster permanent discipline. To be able to react quickly and effectively to new opportunities in the world economy, we have to promote private sector activities and open up our markets. This will create an investment climate that both domestic and foreign investors find attractive to invest to bolster growth and development. Second, we must have a stable and sound financial system. From the discussion above, it is abundantly clear that it is not possible to have a sound financial system with quality financial institutions without adequate and effective supervisory policies, including adequate policies to resolve distressed financial institutions effectively and efficiently. The concerns for safety and soundness of individual banks, maintaining healthy competition and a level playing field, consumer protection, and systemic stability call for a transparent and comprehensive regulatory framework. And in a world that is constantly changing, we must subject our regulatory and surveillance activities to constant reforms to maintain a sound regulatory and supervisory environment. By pursuing these policies we will make a lasting contribution to growth and development. It is through this channel that we as central bankers can contribute to the enhancement of the general welfare of our community.

Concluding remarks Ladies and gentlemen, it must be clear to all of us that central banks play an important role in promoting sustainable growth and development. This role should not be exercised directly, since this tends to conflict with the effective performance of the core central bank functions. Therefore, central banks should focus on creating the necessary conditions in which growth and development can prosper. These conditions are based on the two overriding principles of: (i) protecting the value of the national currency and (ii) the preservation of overall financial stability.Â This means that, first, we must pursue sound and appropriately coordinated economic policies to minimize potential sources of instability. Fiscal consolidation is not enough. It is the quality of expenditures

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In 175 years the Bank has evolved from a near dormant institution in the nineteenth century to a vibrant organization able to adapt to the ever changing financial world in the twenty-first century Speech on the occasion of the reception in honor of the Bank’s 175th anniversary February 2003 Ladies and gentlemen, good evening and a very warm welcome to all of you here at the Bank van de Nederlandse Antillen.

s you all know, we are celebrating the 175th anniversary of the Bank, which was founded by order of King William I in 1828. I think it is fitting to take this opportunity to take stock of where we stand not only as Bank but as a nation after 175 years with a Central Bank. The Bank van de Nederlandse Antillen is by far the oldest still existent bank of circulation in the Western Hemisphere. Indeed, the Bank van de Nederlandse Antillen is the oldest central bank in this part of the world. In the 1800s Curaçao was reported to be “no more than a bare, unproductive rock”. Despite this unappealing description, Adam Smith in his Wealth of Nations noted that “Curaçao and Eustatius are free ports open to ships of all nations; and this freedom has been the great cause of the [relative] prosperity of those two barren islands”. To realize his dream of making Curaçao the focal point of all commercial exchanges between Europe and the America’s, the King formally declared the Curaçao port as a free port in 1826 and he ordered the installation of the Bank to stimulate trade and economic activity by extending credits and to regulate the currency in circulation. The Bank, which became known as the “Bank van Leening” was entrusted with the task to provide capital to merchants and agricultural developers in order to promote economic activity. In the first 100 years of its existence, the Bank granted credits, extended mortgages, and discounted bills and issued banknotes to finance these loans. The banknotes were backed by Dutch gold and sil-

ver coins, which were sent by the King. However, the open economy of Curaçao, coupled with the lack of natural resources led to balance of payment deficits, while the lack of economic activity caused the government to run budget deficits as well. So ladies and gentlemen, the economic difficulties we encountered in the 1990s were also the case back then. The result was that there was a continuing demand for coins to pay for the imports, which the Dutch were not always willing to provide. As a matter of fact, at one time they even proposed to order Japanese Yen to circulate in Curaçao instead of Dutch coins. The continued shortage of especially small denomination payment instruments induced trading houses to develop short term credit facilities for their relations and they began issuing IOUs on their own behalf. At several points in this period, serious discussions arouse about the continued existence of the Bank. Many argued that the Bank should be liquidated and were in favour of free competition in the private sector and many complained about the fact that the Bank seemed not to be in the position to do what it was supposed to do: stimulate trade and economic activity by extending credits and regulation of the circulation of money. In an effort to put an end to this situation, the Bank charter was revised in 1907. In this Charter the Bank became the Curaçaosche Bank and a formal monopoly on the issuance of banknotes was granted to the Bank. The monopoly to issue banknotes has been contested many times by many. But in the end the Curaçaosche Bank maintained its monopoly which enabled it to earn a profit, of which half was transferred to the Government. The Government, which ran budget deficits between 1890 and 1924, was not willing to

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give up this source of income. Around the time of the Bank’s first centenary, there were several proposals to integrate the Curaçaosche Bank with De Nederlandsche Bank in Amsterdam or with the Surinaamsche Bank in Paramaribo, but the responsible Dutch Minister kept the Bank alive. In 1928, the Bank employed only 3 people: the Secretary and two clerks. The other positions were considered to be honorary functions. In the following years, the economy of Curaçao and Aruba underwent a major change with the establishment of the oil refineries of Shell and Lago. Everything connected with oil thrived: trade in the port, construction and public utilities. The oil brought employment, income and purchasing power. The economy prospered as the Bank put it in its annual report of 1929, there was “great activity and all but unlimited luxury”. For example, the number of cars per inhabitant was, at that time, twice the number of that in Holland. Another indication of the economic prosperity was the harbor activity. Measured by number of ships or by metric tons, the harbor of Curaçao was the seventh largest harbor in the world. As a result of the economic prosperity and the abundance of funds, the position of the Bank as supplier of credit to the private sector was taken over by commercial banks, most of which had their origin in the old trading houses. Furthermore, its function as issuing bank became more important as in 1920 the Management of the Bank received greater autonomy in setting the number of banknotes in circulation. Up to that time, the number of banknotes in circulation was stipulated in instructions from Holland and any increase in the maximum number of banknotes needed the consent of the Crown. In 1937, the banknotes in circulation further gained in importance, as the notes were officially considered legal means of payment in transactions involving private parties whereas before it was only officially accepted as a means of payment by the government. This change in the functioning of the Bank has been a gradual process which, on the eve of the Second World War, resulted in the following functions for the Bank: it controlled the number of banknotes in circulation, it serviced the circulation of coins on behalf of the government, it managed the gold and silver reserves and strived to maintain exchange rates within margins acceptable for the commercial banks. In the space of three decades the Curaçaosche Bank evolved from a general lender into a lender of last resort; from everybody’s bank to a banker’s bank.

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Banknotes issued by the Curaçaosche Bank were backed by Dutch metallic coins and followed the Gold Standard. When Holland departed the Gold Standard, the currency in Curaçao devalued vis-à-vis the dollar by as much as 20%. This devaluation led to a sudden increase in the prices of imports, most of which originated from the United States of America, and a corresponding decline in the purchasing power of the local population. This reinforced the support for an already existing idea of an independent currency for Curaçao, which could be decoupled from the Dutch Guilder. The Second World War made it practically impossible to convert the issued banknotes into Dutch coins and the Dutch Government in exile decided to fix the banknotes issued in Curaçao to the British Pound Sterling as of September 3, 1943. Although decoupled from the Dutch Guilder, there was a lot of opposition to this decision, as the local people feared a devaluation of the European currencies as soon as the war was ended, which would drag down the value of their currency. In 1949 the desire of the local people was finally granted and the Dutch Government allowed the Curaçaosche Guilder to follow the USD (at a rate of 1.88585 per USD) instead of the Pound Sterling or the Dutch Guilder which devalued by over 30% with respect to the dollar in September of that year. In 1953, at the 125th anniversary of the Bank, the Bank employed a secretary, a cashier, a messenger and 4 administrative personnel. It was at that time that the Netherlands Antilles were formed and became an autonomous part within the Kingdom of the Netherlands. The changing institutional environment demanded for a revision of the functions and responsibilities of the Bank. This resulted in the Bank charter of 1961. This revision was used to strengthen the ties with the Government as the new Government was not willing to give up its recently acquired autonomy to an independent institution. The Bank charter of 1961 formalized the ties with the Finance department and also re-established the credit extending role of the Bank. The Bank was thought to have an important role in the development of a new economic activity: tourism. As more international banks started doing business on the various islands, the need for credit extension by the Bank subsided and the lending portfolio gradually declined. In 1971, the Bank became responsible for safeguarding the value of the Antillean Guilder, while guaranteeing its convertibility at a rate of 1.79 per USD, the rate of which is still in effect today. In addition to its task for monetary supervision,

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the first law on banking supervision of 1972 gave the Bank the authority not only to grant licenses, but also to request information on solvency and liquidity from licensed banks. The legislation had become necessary as a result of the large increase in the number of banks operating in the Netherlands Antilles, especially Curaçao, as it developed into an international financial centre. In the years from the early 1970s through the early 1980s the Bank transformed gradually from a government department to an independent institution. The independence was deemed necessary to safeguard the value of the Antillean Guilder and to guarantee its convertibility. In order to achieve this, outside expertise was used to educate the local staff and to set up the internal organization of the Bank. The Status Aparte for Aruba was taken to create yet again a new Bank charter in 1985. As a result of this charter, the Bank’s independent position was formalized; most notably by imposing a limit on the amount of credit the Bank could extent to the government. With its autonomous position, the bank was able to attract and maintain highly trained personnel. Or as Dr Duisenberg put it, the Bank became a centre of excellence. Especially in the last 15 years, the Bank has been entrusted with numerous new tasks. Most of them have to do with supervision and were the result of international agreements the Netherlands Antilles needed to abide to in order to maintain its position as an international financial centre. Others had to do with the role as an advisor to the government on structural measures to be taken to revive the economy. In this respect, the Bank became the principle sparring partner of international organizations such as the Worldbank, the IMF, and the Inter-American Development Bank. In the field of supervision, the supervision on local and international commercial banks was intensified; supervision on pension funds, insurance companies, insurance brokers, savings- and credit unions, and secondary financial institutions was laid down in laws. The Bank began issuing guidelines concerning among others corporate governance, anti-money laundering, and integrity. Furthermore, the Bank made considerable progress in redesigning its monetary policy towards more market oriented instruments, increasing the flexibility for commercial banks and liberalizing the capital markets. Just recently another function has been added to the Bank’s palmares, as the supervision on mutual funds has been passed on to the Bank.

As a result of the expanding activities, the number of employees increased rapidly and a new building became inevitable. Currently, the Bank employs around 170 people to perform its wide array of tasks. I am proud to say that the Bank has become less dependent on technical assistance from Holland or other parts of the world as we have been able to train our own people. At this time, the Bank is a well respected member of the international community, while a number of its staff form part of international bodies. In concluding, in 175 years the Bank has evolved from a near dormant institution in the nineteenth century to a vibrant organization able to adapt to the ever changing financial world in the twenty-first century. This has been the result of all its employees and directors in its 175 years of existence and I am proud to be part of the Bank’s long history.

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Monetary policy and financial sector supervision: Options for the islands of the Netherlands Antilles Introductory remarks on the presentation of Mr. Henk Brouwer, Executive Director of De Nederlandsche Bank, on the occasion of a year-end lunch for the financial sector

Ladies and gentlemen,

ith great pleasure I would like to introduce to you Mr. Henk Brouwer, Executive Director of De Nederlandsche Bank, who is our keynote speaker today. Mr. Brouwer will share with us his views on the design of the monetary policy and financial sector supervision framework for the islands of the Netherlands Antilles in their new constitutional setting.

Mr. Henk Brouwer is a good friend of the Netherlands Antilles. Our working relation with Henk dates back from the time he was Treasurer General at the Ministry of Finance in the Netherlands. Before joining De Nederlandsche Bank, Mr. Brouwer was also a member of the Executive Board of the “Nederlandse Phillips bedrijven”. Two years ago, Henk was here with us to share his views on the challenges for our policy makers in a globalizing world economy at the closing of the celebrations of the 175th anniversary of the Bank. Ladies and gentlemen, the Netherlands Antilles is at a crossroad to a new future. Various commissions and working groups have been established to prepare proposals for the many issues that have to be solved on the road to new constitutional relations. The Bank is involved in several of these groups, covering topics such as the distribution of assets and liabilities of the central government, the financial position of the island governments, including the debt issue, the design of a social-economic initiative aimed at revitalizing the island economies and the promotion of sustainable growth, and the design of monetary policy and financial sector supervision in the new constitutional structure. In the report of the Working Group Administrative and Financial Relations Netherlands Antilles of October

2004, chaired by Edsel Jesurun, four options for the future design and implementation of monetary policy and the related central bank functions are discussed. The working group advised for a monetary union which was considered the best option for maintaining certainty in the monetary area and the financial sector. This view is also endorsed by the IMF in their concluding statement of the Article IV Consultation of the Netherlands Antilles that ended last week. The IMF delegation concluded that the long-standing peg to the US dollar has served our economy well. The Bank’s monetary policy has delivered low inflation and kept interest rate differentials with the United States narrow despite expansionary fiscal policies that run counter to the requirements of a fixed exchange rate regime. Therefore, the IMF considers a monetary union with an independent central bank for all five islands as the most resource-efficient way to manage the peg. Resource efficiency and credibility plea also for financial sector supervision to be located in a common central bank. As the Central Bank of the Netherlands Antilles I could not agree more with this view. We should be aware, however, that not only economic but also political arguments play a role in the design and implementation of central bank tasks in the new constitutional setting. But we must understand that in the end, monetary and financial sector stability should always be the leading principle. I am sure Henk’s address today will shed some light on those issues awaiting to be resolved in the periods ahead. Ladies and gentlemen, I would like now to invite Mr. Brouwer to deliver his address.

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Speech by Henk Brouwer, executive director of the Nederlandsche Bank, at the Bank van de Nederlandse Antillen December 21, 2005 1. I am glad to accept the invitation to speak here today, which in my view reflects the excellent relations between our two central banks. Governors Tromp and Wellink and other board members meet regularly to discuss issues of common interest, and over the years there have been numerous exchanges of staff with expertise in the fields of prudential supervision and monetary policy implementation. My own most recent involvement with the Netherlands Antilles concerned the question whether it would be beneficial for the islands to pursue the status of ultra peripheral region of the EU. I was a member of the Committee European Union, presided by Ronald van Beuge, which was established to explore the possible future relations of the Netherlands Antilles and Aruba with the EU. The Committee concluded that the disadvantages of being part of the EU outweighed the advantages for the Netherlands Antilles and Aruba. This assessment was primarily based on economic considerations, but political considerations could potentially lead to a totally different conclusion. Therefore, I will also consider this option in my talk today. 2. My contribution takes place against the background of the current constitutional reform of the Netherlands Antilles into separate island territories. As was agreed during the Round Table Conference of 26 November, the targeted outcome of the reform is for Curaçao and St. Maarten to become autonomous states within the Kingdom of the Netherlands, while Bonaire, Saba and St. Eustatius are expected to strengthen their direct ties with the Netherlands. Therefore, the current tasks of the Netherlands Antilles will have to be transferred in some way to the new separate island entities, although the islands can perform certain tasks jointly if they wish. Given my area of expertise, I will focus on the options concerning the design of the monetary policy and financial sector supervision framework for the islands in their new constitutional setting. Let me first clarify that it is not my intention to prescribe the optimal solution for the islands, but merely to point out the consequences of each option as I see them. Furthermore, these options are not just the fantasies of a central banker: the islands themselves also recognise most of them in their recent joint report “Future in sight!”.

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Considerations regarding monetary policy and financial supervision in small island economies 3. Before turning to the specific options for the monetary policy and financial supervision framework, I think it is useful to think first about the criteria these options should satisfy. In my opinion, these criteria are credibility, independence, professionalism, efficiency and political support. Professionalism, credibility, and independence are interrelated, and have to do with the necessity for a central bank to be recognised as a financial authority that knows what it is doing and is trustworthy in its intentions. The reputation of a central bank is so important because monetary policy decisions affect the economy mainly through their influence on private sector expectations. Efficiency is a criterion mainly because a central bank is indirectly financed by tax-payers’ money. Putting the government finances in order is currently one of the main priorities for the Netherlands Antilles, and it would be helpful if the monetary policy and prudential supervision framework contribute to this effort. The last general criterion I mentioned, political support, may sound obvious, but its importance should not be underestimated. Irrespective of the degree of independence of the central bank, without sufficient political support neither a currency peg nor a monetary union would be viable in the long run, since both need to be supported by sound macro-economic policies. 4. Apart from these general criteria, the options should of course also be suitable for small island economies. An important characteristic of such economies in this context is their openness to trade. As it is impossible for a small island to produce a large range of different goods themselves, they usually rely heavily on imports. This implies that large movements of the exchange rate will be especially harmful for small island economies, since they will feed through into the domestic price level relatively quickly. Moreover, the uncertainty related to exchange rate volatility would make it costly to invest in the export-oriented markets, such as tourism. All in all, exchange rate stability vis-à-vis the main trading partners is an important asset for small island economies.

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5. The current monetary policy framework reflects the importance of exchange rate stability. The Bank van de Nederlandse Antillen has kept the exchange rate of the Antillean guilder stable against the dollar for almost thirty-five years, which is an extraordinary accomplishment given the at times highly adverse macro-economic conditions. The reason for pegging to the dollar is the fact that over 60% of the international trade relations of the Netherlands Antilles is conducted with the United States or in US dollars. In other words, the economy is predominantly dollar-oriented. As a result of the credible dollar-peg, the inflation rate closely followed the American inflation rate over the years, thereby keeping the competitiveness position of the Netherlands Antilles fairly stable. 6. Besides monetary policy, prudential supervision on the financial sector currently also functions well. The IMF declared banking and insurance supervision as compliant or largely compliant with the Basel and IAIS Core Principles and called BNA staff highly capable, well-trained and dedicated. With this point of departure in mind, I will now discuss three options for the monetary policy framework for the island territories of the Netherlands Antilles, and then focus on the design of financial sector supervision. These three options are, first, forming a monetary union, second, establishing separate central banks and currencies, and third, introducing an existing currency like the dollar or the euro.

Option 1: Forming a monetary union 7. Since the current situation is working well, the islands could consider changing it as little as possible. This would be done by forming a monetary union, in which the BNA can be transformed into the common monetary authority, keeping the peg of the Antillean guilder to the dollar unchanged. The advantage of this option is that most of the criteria I mentioned before are satisfied. First, it is a suitable option for small island economies, given that the valuable exchange rate stability is not likely to be jeopardised. Furthermore, the BNA is clearly a credible and professional institution, not only because the IMF says so, but also because it otherwise would not have been able to keep the exchange rate stable for over thirty years. It is also a relative efficient option, since there are economies of scale in performing the monetary tasks jointly.

8. The main issue regarding this option is the political support, and related to that the solidness of the constitutional arrangements between the islands. The acceptance and support by the islands of the monetary union and the independence of the common central bank is a precondition for a viable monetary union. To secure the support if this option is chosen, a politically agreed statute for the monetary union would preferably be embedded in the new Charter for the Kingdom of the Netherlands. Political support is especially important since the participants in a monetary union need to agree on and adhere to rules for fiscal policy, in order to prevent that large budget deficits of one island frustrate the common monetary policy. Of course, the current high debt situation in the Netherlands Antilles cannot be properly solved in a sustainable way without strict fiscal rules either. A rule based fiscal policy that deliberately limits political discretion should be in place anyway!

Option 2: Establishing separate central banks and currencies 9. Instead of forming a monetary union, particularly the larger islands have the option to establish their own central banks and currencies and conduct monetary policy individually. In order to preserve exchange rate stability, the new currencies would preferably also be pegged to the dollar or to a basket of currencies reflecting the trade relations of the islands concerned. In this option, the smaller islands could either choose to join in a monetary union with one of the larger islands, or to introduce another existing currency like the dollar or the euro. 10. When evaluating the pros and cons of this option, the islands should realise that a trade-off exists between having monetary policy autonomy (which in practice is already limited by the currency peg) and the efficiency and effectiveness of monetary policy. Introducing new currencies and establishing new central banks are costly affairs. Moreover, the newly created central banks will not automatically inherit the credibility the BNA has acquired over the years. This means that these central banks will have to put a lot of energy into proving their independence and establishing a reputation of credibility. Especially the first years, maintaining a currency peg can prove to be difficult, because the financial markets may want to test the â&#x20AC;&#x2DC;trueâ&#x20AC;&#x2122; intentions and independence of the new central banks.

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Option 3: Introduction of the dollar or the euro

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11. Given that the Netherlands Antilles are highly dollar-oriented economies, (some of) the islands can also choose to introduce the dollar as legal tender. This will guarantee complete exchange rate stability against the main trading partner, thereby satisfying the criterion of being suitable for small island economies. Furthermore, by introducing the dollar the islands would automatically import the credible monetary policy of the US Federal Reserve. Also in terms of cost-efficiency this option scores relatively well, since establishing new central banks is not necessary. At the same time, however, seigniorage earnings will come to an end.

14. How could the supervision of the financial sector be designed under these different monetary policy options? Besides the question whether to centralise or decentralise, here also the issue of whether to entrust it to a central bank or to a separate supervising authority comes into play. To start with the latter, an advantage of placing prudential supervision in the hands of a central bank â&#x20AC;&#x201C; besides efficiency â&#x20AC;&#x201C; is the fact that the central bank also functions as a lender of last resort in case the financial sector experiences a sudden liquidity problem. In other words, by making a central bank responsible for prudential supervision, the institution that has to solve problems once they occur is also responsible for preventing these problems in the first place.

12. The pros and cons of introducing the euro are similar to introducing the dollar, except for one big difference: introducing the euro would create more volatility in the trade-weighted exchange rate and therefore in the economy. Since trade predominantly takes place in US dollars, with the euro being a distant second, exchange rate stability against the dollar is more beneficial for the economy than exchange rate stability against the euro. Having said that, however, the example of Saint Martin proves that having the euro as legal tender does not have to be problematic even in this part of the world, if the euro is part of a Europe-oriented political strategy. Such a political strategy would probably involve obtaining the status of ultra peripheral region of the EU, as Saint Martin has done. In view of the existing European legislation, the responsibility for monetary policy would in that case be transferred to the European System of Central Banks, and the Nederlandsche Bank would be charged with the implementation of monetary policy. Finally, the European fiscal rules as laid down in the Stability and Growth Pact would then apply to the public finances of the Kingdom of the Netherlands as a whole, which necessitates some kind of agreement on fiscal discipline within the Kingdom to prevent the accumulation of public debt. 13. As a result of a Europe-oriented strategy and the introduction of the euro, the trade patterns of the islands could start to shift in the direction of the EU, thereby increasing the suitablility of the euro for the Antilles. This switch towards European markets will require considerable effort and will probably be a slow process. Until this process is sufficiently advanced, the islands will be more vulnerable to economic shocks than under their current dollar-peg.

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15. With regard to the degree of centralisation, I think this partly follows from the monetary policy framework chosen. For instance, in case a monetary union is formed, it seems logical to entrust the common central bank with the supervision of the financial sector on all the islands. Alternatively, if some of the islands establish new central banks, these could also be entrusted with the financial sector supervision on the respective island. Of course, breaking up prudential supervision only reinforces the loss of efficiency that would argue against this option. Furthermore, it creates the need for a well-organised information sharing arrangement between the different supervisors in order to contain systemic risks, since problems in one financial institution can easily spread out and affect the stability of the financial system on other islands. With regard to the third option, (unilaterally) introducing the dollar or the euro would in my view increase the benefits of a centralised prudential supervision framework. After all, a lender of last resort in that case no longer exists, which actually is one of the main drawbacks of this option. This creates an even stronger need for establishing a well-organised and professional prudential supervision framework with a minimum of information-sharing problems, which is most easily realised by carrying out supervision jointly, either through the experienced BNA or by a newly established common institution.

Concluding remarks 16. What should be the conclusion of my discussion of options concerning monetary policy and prudential supervision? I would say the main message is that it all depends on the degree of political support, and

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the way this support can be translated into solid constitutional arrangements. For instance, if the islands support a Europe-oriented strategy, they could choose the euro. If they accept fiscal rules and the independence of the common central bank, they could choose a monetary union. I have merely tried to point out the consequences of the options as I see them.

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Balance of payments vulnerabilities caused by a widening current account deficit: A way forward Is dollarization the right approach? May 19, 2000

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Dollarisashon komo alternativa pa e sistema di tipo di kambio pa e futuro paisnan Kòrsou i Sint Maarten Artikulo skirbi pa e edishon di pasku di e korant Ultimo Notisia December 2009

oke ta deskonosí – ounke e por ta simpel – den hopi kaso ta difísil pa komprondé. E motibu ta ku e ta eksiguí di nos un manera diferente di pensa. Esaki tambe ta e kaso ku dollarisashon. Dollarisashon ta e régimen di tipo di kambio di mas simpel ku ta eksistí. Simplemente, e pais ku dollarisá ta adoptá un moneda stranhero komo su moneda legal. Konsekuentemente e pais ku dollarisá no mester hiba un maneho monetario propio i den algun kaso por asta skohe pa no tin un banko sentral. Echo ta ku den e struktura aktual nos konosé nos mes moneda – ku ta mará for di 1971 na e doller merikano – i un maneho monetario propio kondusí pa nos Banko Sentral. E loke nos konosé aki den mayoria kaso ta nos punto di referensia den diskushonnan tokante di un régimen di tipo di kambio pa e futuro paisnan Kòrsou i Sint Maarten. Na okashon di e presentashon di e relato anual 2008 di Banko Sentral, mi a proponé dollarisashon komo un opshon pa e régimen di tipo di kambio pa e futuro paisnan outónomo den Reino. E proposishon aki ta basá riba e desaroyonan di ultimo tempu den nos balansa di pago i tambe e lèsnan ku nos por siña di e krisis finansiero internashonal. Den e artíkulo aki lo mi presentá e argumentonan pakiko dollarisashon por wòrdu konsiderá komo un alternativa pa e sistema di tipo di kambio pa Kòrsou i Sint Maarten. Además lo mi duna un splikashon di e konsepto di dollarisashon i su bentaha i desbentaha. Na promé lugá ta importante pa nos para ketu na e definishon di dollarisashon. Dollarisashon formal ta e sistema di tipo di kambio den kua un pais ta adoptá un moneda stranhero komo su moneda ofisial. Ku otro palabra, e pais aki no tin un moneda propio mas. Banda di dollarisashon formal, nos konosé tambe dollarisashon informal (den kua mayoria depósito ta den moneda stranhero, pero e moneda stranhero tòg

no ta e moneda legal), i dollarisashon semi-formal (den kua tantu e moneda lokal komo e moneda stranhero ta funhi komo e moneda legal). Ora nos papia di dollarisashon den e artíkulo aki, nos ta referí na dollarisashon formal. Tin diferente motibu pakiko paisnan ta dollarisá. Eksperensha ta mustra ku den hopi kaso ora skohe pa dollarisashon e pais en kuestion tabata den un estado di instabilidat makro-ekonómiko i inflashon haltu i kresiente. Den e situashon aki no tin konfiansa mas den e moneda propio i e maneho monetario. Konsekuentemente dollarisashon mester yuda restourá e kredibilidat di e maneho ekonómiko. Un ehèmpel di un ekonomia ku a dollarisá bou di e sirkunstansianan aki ta Ekuador. Den algun kaso, paisnan ta skohe pa bandoná nan moneda i introdusí un moneda stranhero komo e moneda legal, pa di e forma ey stimulá invershonnan djaf’ó i integrashon den merkadonan internashonal. El Salvador ta por ehèmpel un pais ku a implementá dollarisashon komo parti di un pakete di medidanan struktural pa asina ey stimulá kresementu ekonómiko duradero. Irespektivo di e motibu pa skohe pa dollarisashon, nos por tuma nota ku mayoria di e paisnan ku a dollarisá ta kompartí unu of mas di e siguiente karakterístikanan. Na promé lugá e ekonomianan dollarisá den hopi kaso ta relativamentu chikitu i habrí. Ku otro palabra den mayoria kaso ta trata di ekonomianan vulnerabel pa gòlpinan eksterno. Den algun kaso, manera ya menshoná previamente, e ekonomia tabata sufri di instabilidat monetario i inflashon haltu i kresiente promé ku a dollarisá. I por ùltimo, promé ku dollarisashon formal, e ekonomianan tabata de facto dollarisá kaba.

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Ekonomia di Antianan Hulandes ta similar na hopi di e paisnan dollarisá den e sentido ku nos tambe ta relativamente chikitu i vulnerabel pa gòlpinan eksterno. E desaroyo di nos balansa di pago durante di e ùltimo añanan ta suprayá e vulnerabilidat aki. Durante ùltimo añanan e défisit riba e kuenta koriente di nos balansa di pago a bini ta krese rápidamente. Ounke tradishonalmente nos tin un défisit riba nos kuenta koriente dor ku nos ta importá mas produkto di afó ku nos ta eksportá, entre 2005 pa 2008 e défisit a krese di -3% pa -22% di e produkto interno bruto. E défisit aki a wòrdu finansiá pa un fluho di entrada di kapital for di eksterior, inkluyendo e fluho di fondonan ku nos pais a risibí den kuadro di e programa di saneamentu di debe. Pero un kambio rápido den sentido kontrario, esta di fluho di kapital ku ta sali for di nos pais, lo por agotá rápidamente nos reservanan di divisa i asina mina konfiansa den nos moneda ku e konsekuente riesgo di devaluashon. Desintegrashon di Antianan Hulandes ùnikamente ta oumentá e vulnerabilidat aki. E situashon aki ta obligá nos konsiderá dollarisashon komo un alternativa pa e régimen di tipo di kambio den e struktura estatal nobo. Den kaso di nos islanan, lo ta lógiko pa den kaso di dollarisashon nos adoptá e dollar merikano komo moneda ofisial. E motibu pa esaki ta ku mas ku 80% di nos fluho di likides eksterno ta den dollar merikano mientras 75% di nos transakshonan internashonal ta den dollar merikano. Ya tres di e sinku islanan ku ta forma Antianan Hulandes, esta islanan BES a opta pa introdusí dollar merikano komo moneda legal ora nan status nobo drenta na vigor, mientras ku Sint Maarten ya kaba de facto ta dollarisá. Ademas na Kòrsou en prinsipio tur kaminda ta aseptá dollar merikano. P’esei no ta un paso grandi pa formalmente dollarisá Sint Maarten i Kòrsou. Un di e bentahanan di dollarisashon ta ku na momento ku nos dollarisá, esey lo eliminá e posibilidat di un krisis di balansa di pago, ku e konsekuente riesgo di devaluashon. Den kaso di dollarisashon un empeoramentu ekonómiko òf kambio di direkshon di fluho di kapital lo no bira un krisis monetario. Konsekuentemente e tasa di interes lo por konvergí den direkshon di e tasa di interes merikano. Ku otro palabra e diferensia entre nos tasa di interes i e tasa di interes merikano lo por bira mas chikitu.

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E riesgo di devaluashon por ta un di e motibunan pakiko institutonan finansiero ta skohe pa invertí nan kapital afó. Na momento ku dollarisá, e riesgo aki ta disparsé. Esaki lo por stimulá nos institutonan finansiero pa invertí mas kapital riba nos merkado lokal. Ademas, dor di dollarisashon nos ekonomia lo forma parti di un merkado finansiero internashonal mas grandi kaminda tin mas kapital disponibel kontra di kondishonan faborabel. Un otro bentaha di dollarisashon ta ku e gastunan di transakshon relashoná ku kambio di nos moneda den doller merikano lo disparsé. Esaki lo benefisiá spesialmente nos sektor di komèrsio i nos sektor di turismo. Ademas, esaki lo por hasi nos ekonomia mas atraktivo pa invershonistanan di afó. Por ùltimo dollarisashon tin un efekto disiplinario riba e maneho finansiero di gobiernu. Na momento ku dollarisá un gobiernu lo no por finansiá su défisit riba presupuesto dor di oumenta e kantidat di sèn den sirkulashon (monetisashon di debe). Esaki pues lo limitá gobiernonan di krea debe sin mas. Aki mester remarká ku e posibilidatnan pa e futuro paisnan Kòrsou i Sint Maarten monetisá debe ya ta hopi limitá dor di e akuerdonan firmá enkuanto normanan di presupuesto. Dollarisashon sin embargo, tin algun debentaha. Na promé lugá, gobièrnu lo no tin su propio maneho monetario komo instrumento pa dirigí su ekonomia, loke ta limitá e konhunto di posibilidatnan di maneho ku gobièrnu lo tabatin disponibel pa koregí desekilibrionan makroekonómiko.Den e kuadro aki ta importante pa remarká ku e posiblidatnan pa kondusi un maneho monetario independiente bou di e aktual régimen di tasa di kabio di divisa ta limitá. E efekto di e pèrdida pues lo no ta supstansial. Ademas, e resiente periodonan di ahuste a demostrá ku ekonomianan chikitu i habrí, manera esunnan di nos, ta limitá na manehonan fiskal i medidanan struktural pa nan keda kompetitivo i asina mehorá nan klima di invershon. Na di dos lugá, e funshon di dunadó di fiansa di ùltimo rekurso (“Lender of last resort”) ku Banko Sentral tin, lo disparsé. Ku otro palabra, den kaso ku un instituto finansiero enkontrá problemanan di likides, Banko Sentral ya lo no por duna asistensia mas den forma di likides temporal pa asina ey evitá ku e problema lo sigui plama i afektá otro institutonan finansiero i bira un krísis finansiero. Sinembargo, e resien-

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te krisis finansiero internashonal a demostrá nos ku e funshon tradishonal di dunadó di fiansa di ùltimo rekurso a bira un ilushon dor di e integrashon internashonal di institutonan finansiero. Ademas, den sierto kaso e responsabilitnan finansiero di e institutonan en kuestion ta surpasá produkto interno bruto di un pais. Den nos kaso, parti di e funshon di “Lender of last resort” por keda kompensá pa e echo ku mayoria banko riba nos islanan ta pertenesé – parsialmente òf kompletamente – na bankonan internashonal. E bankonan internashonal pues lo por sirbi komo dunadó di fiansa di ùltimo rekurso na nan supsidiarionan riba nos islanan. Akuerdonan di liñanan di krédito kontingente partikular òf ofisial tambe lo por kompensá parti di e funshon di “Lender of last resort”. Pa atendé e aspekto di dunadó di fiansa di ùltimo rekurso nos mester aselerá tambe e plan di seguro di depósito. Ademas ku e ta duna esnan ku depositá plaka na banko mas seguridat, e fondonan di un plan asina, di kua algun por bini di e aktual eksigensianan di reserva, lo por kompensá e funshon di dunadó di finansa di ùltimo rekurso. Ta bini aserka ku gobièrnu lo mester asumí e funshon aki, loke ta e kaso kaba bou di e aktual régimen di tasa di kambio. Esey a bira ampliamente evidente durante di e krísis finansiero resiente. Un di tres desbentaha di dollarisashon ta ku Banko Sentral lo pèrdè su mayor fuentenan di entrada, ku ta via di invershon di e reservanan di divisa ekstranhero i emishon di plaka di papel. Gran parti di e entradanan aki ta bai pa gobièrnu den forma di dividendo. Enberdat, den kaso di dollarisashon, e entrada generá for di emishon di plaka lo disparsé dor ku nos lo bai usa e moneda merikano. E entrada aki ta mas o menos 0.3% di nos produkto interno bruto. Pa aña 2008 esaki ta nifiká ku e emishon di plaka a generá mas o menos Naf.22,8 mion florin. Sinembargo, e mayor parti di ganashi di nos Banko Sentral ta konsistí di kargo riba kambio di divisa ekstranhero (“licence fee”) ku por gran parti lo sigui eksistí bou di e régimen di dollarisashon. Solamente e “licence fee” ku ta wòrdu generá for di lantamentu di doller mérikano i pagonan ku tarheta di krédito riba nos islanan, lo no por wòrdu kobrá mas. Komo e restrikshon di balansa di pago ya no ta obligatorio, e nesesidat pa mantené divisa ekstranhero komo

reserva pa konservá e paridat fiho ku dollar ya no ta aplikabel. Konsekuentemente tur e reservanan di kapital di Banko lo bira fondona ku por invertí i na mes momento mantené rentabilidat di e Banko. Ademas, Banko tin fuentenan di entrada no proveniente di interes, den forma di honorario ku e ta kobra institutonan finansiero pa kubri gastunan di supervishon di sektor finansiero. Kiere desir ku dollarisashon lo no resultá den kambionan notabel den ganashi di Banko Sentral i konsekuentemente, lo no tin impakto riba presupuesto di gobièrnu. Komo parti di e diskushon pùbliko riba dollarisashon ta nesesario pa evaluá detenidamente un balanse mas realista entre bentaha – i desbentahanan di dollarisashon pa Kòrsou en partikular, na momento di skohe e sistema monetario mas kumbiniente pa e paisnan nobo den Reino. Aparentemene e balanse ta na fabor di dollarisashon, en bista di nos vulnerabilidatnan den e aktual órden ekonómiko mundial. Sinembargo, dollarisashon só no ta e solushon pa tur nos problemanan ekonómiko. Dollarisashon mester wòrdu akompañá pa un serie di reforma struktural pa asina ey nos realisá desaroyo ekonómiko duradero riba término largu. E reformanan aki lo mehorá nos klima di invershon i hasi nos islanan mas kompetitivo riba plano internashonal. Un di e áreanan ku sigur meresé atenshon ta nos merkado laboral. Na momento ku nos no tin e instrumentonan di maneho monetario mas na nos disposishon, ta sumamente importante pa nos tin un merkado laboral fleksibel ku por adaptá su mes outomátikamente den kaso di gòlpinan eksterno. Ademas, nos mester atendé ku e diskrepansha kualitativo ku ta eksistí entre demanda i oferta riba nos merkado laboral. Un di dos área di atenshon ta e asina yamá bareranan atministrativo o “red tape”. Un di e konstante reklamonan di nos sektor empresarial ta e kantidat di prosedimentonan kompleho na momento ku un empresario ke bini ku un inisiativa nobo. Esakinan den hopi kaso ta stroba e empresario ku ke hasi invershon. E echo ku un nivel di gobernashon na Kòrsou i Sint Maarten lo disparsé a konsekuensha di e struktura estatal nobo, ta un paso den e bon direkshon. Sinembargo, ta importante pa nos kordiná i simplifiká pro-

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seduranan atministrativo pa di e forma ey nos eliminá tur burokrasia innesesario. Konkluyendo por bisa ku e défisit riba e kuenta koriente di nos balansa di pago ku a bini ta krese rápidamente durante ùltimo añanan i ku a wòrdu finansiá pa fluho di entrada di kapital di afó ta suprayá nos vulnerabilidat pa gòlpinan eksterno. Un kambio rápido den sentido kontrario lo por agotá rápidamente nos reservanan di divisa i asina mina konfiansa den nos moneda ku e konsekuente riesgo di devaluashon. Ya tin un akuerdo kaba ku den e struktura estatal nobo e futuro paisnan Kòrsou i Sint Maarten lo forma un union monetario ku un banko sentral i un moneda komun. No opstante, e vulnerabilidat di balansa di pago ta obligá nos di konsiderá alternativanan, entre nan dollarisashon. Por ùltimo ta importante pa remarká ku e sistema di tipo di kambio no mester ta un meta riba su mes, sino un medio pa nos logra stabilidat makroekonómiko i un kresementu ekonómiko duradero.

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Balance of payment vulnerabilities caused by a widening current account deficit: A way forward Is dollarization the right approach? January 19, 2011 for the Council of Ministers of Sint Maarten February 8, 2011 for the Rotary Club of Curaรงao February 17, 2011 for the Parliament of Sint Maarten

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Corporate Governance Address on the occasion of the opening of the “Day of Directorate” sponsored by Promes Van Doorne and the Galan Group November 15, 2005

Dear ladies en gentlemen,

would like to welcome you and express my appreciation to Promes Van Doorne and the Galan Group for their initiative in organizing this “Day of Directorate” (Dag van Commissariaat) with the central theme “Governance at Work”. I appreciate the opportunity to address you on this important subject, which I consider fundamental to further enhance the functioning of our economy, in general, and our local companies, in particular. Subsequent to the Asian crisis, which shook the global financial system in the late 1990s, policymakers and regulators alike heard the rallying cry from around the world to establish and promote a system that would encourage better corporate governance for both businesses and governments. Since then, governments, policymakers and regulators around the globe have devoted significant time and resources to the development of legislation and policies related to corporate governance. Corporate governance entails the way in which a company’s board oversees the management of the company, and how the board members in turn are accountable to shareholders and the company. Corporate governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives in the interests of the company and its stakeholders and should facilitate effective monitoring; thereby encouraging firms to use resources more efficiently. Good corporate governance is not simply about minimizing the risk of corporate failure and dealing with those guilty of fraud. It also is a fundamental prerequisite to improving economic performance, facilitating corporate

access to capital, and improving the investment climate. Poor corporate governance, on the other hand, weakens a company’s potential and may lead to financial difficulties and even fraud. A company’s supervisory board should play an important role in approving the objectives, strategy and business plans of the institution, monitoring the performance of its management and ensuring that the internal control and risk management systems of the institution are effective. The supervisory board also should ensure that the institution conducts its affairs with integrity and in accordance with high ethical standards. The supervisory board is part of the system of checks and balances that ensure that neither large shareholders nor management abuse their power and that decisions are made with the institution’s best interests in mind. A competent supervisory board, free of conflicts of interest, can help protect shareholders, ensure compliance with laws and regulations, and provide useful guidance to management in areas of strategic concern. The Bank van de Nederlandse Antillen has been very active in promoting sound corporate governance in the financial sector of the Netherlands Antilles. In August 1996, the Bank issued the Guidance Notes for the Board of Directors of Supervised Financial Institutions on Corporate Governance and a Summary of Best Practice Guidelines on Corporate Governance, both of which were revised in October 2001. The guidance notes describe the general responsibilities of institutional boards, the legal obligations of directors, and the role of auditors. The best practice guidelines contain a discussion and presentation of various systems, policies, and measures potentially effective in dealing with corporate governance issues in financial institutions. To encourage the practical implementation of the guide-

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lines, the Bank requires that the board of directors of all supervised financial institutions provides the Bank annually with a “Statement of Compliance” with the Bank’s Summary of Best Practice Guidelines, reviewed by an external accountant. The corporate governance issues addressed in the guidance notes and the best practice guidelines also are discussed with the institutions during our on-site examinations at these institutions. We have observed that these guidelines have greatly increased the awareness of the importance of sound governance among the supervised financial institutions. As a result, we have noticed that governance practices amongst the supervised financial institutions have improved significantly over the last few years. This trend is not only reflected in the information provided in the Statement of Compliance submitted to the Bank by the supervised institutions, but also is reflected in the business conduct observed during our on-site examinations. For example, significant progress has been made in the area of public disclosure. One of the board’s responsibilities described in the guidance notes is to ensure timely and accurate disclosure on all material matters regarding the institution. This responsibility entails that financial institutions provide timely, accurate, relevant and sufficient public disclosures of qualitative and quantitative information that enables their stakeholders to properly assess the institutions’ activities and the risks inherent in those activities. We have noticed over the last few years that financial institutions increasingly are publishing their financial statements, in whole or in part in the local newspapers. Non-financial institutions as well as financial institutions face challenges in this new economy. In the constantly evolving environment in which institutions operate, they must be able to respond and adapt to the challenges they face. One of the many challenges financial and non-financial institutions face is the ability to maintain adequate pricing amid fierce competition from their competitors and the high cost demanded by technological changes. The last decades of the 19th century and the beginning of the 20th century witnessed remarkable advances in technological engineering and innovation, which make these times particularly interesting and challenging for directors. The pace of innovation is expected to increase

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further in the years to come as businesses increasingly integrate the use of new technologies into their operations. Hence, the implementation of sound governance is not only important for the proper management and supervision of businesses, but also is imperative for businesses to obtain and maintain a competitive position in the market. As a response to the Asian crisis, the OECD (Organization of Economic and Cooperative Developments) issued on June 21, 1999, a set of corporate governance principles to help governments evaluate and improve the legal, institutional, and regulatory framework for corporate governance in their countries. These guidelines were also published to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties with a role in the process of developing good corporate governance. Since 1999, the guidelines have been widely adopted as a benchmark for good practice in corporate governance. They have been endorsed by the Financial Stability Forum as one of its key standards for ensuring international financial stability and by the World Bank in its effort to improve corporate governance in emerging markets. A revised version of the OECD principles published on April 22, 2004, calls for a stronger role for shareholders, greater emphasis on preventing conflicts of interest and self dealing, controlling abuse of related companies, and promoting transparency and effective enforcement. International organizations such as the Basel Committee, the International Organization of Securities Commission (IOSCO), and the International Association of Insurance Supervisors (IAIS) also have been active in drawing from the collective supervisory experience of their members and other supervisory authorities in issuing supervisory guidance to foster safe and sound policies related corporate governance. The timing of this conference is, needless to say, very crucial. We are meeting at a time when the activities of corporations are being closely observed. The recent corporate scandals have focused the mind of governments, regulators, companies, investors, and the general public on weaknesses in corporate governance systems and the continued need to address these issues. These scandals highlighted the fact that the world’s seemingly most successful companies in the world’s most advanced economies can suffer from severe corporate governance failures that destroy

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substantial wealth for investors and employees. The integrity of businesses is central to the vitality and stability of our economy. Businesses should, therefore, at all times foster a corporate governance framework that promotes market integrity, the independence of the board from management, transparency, an effective risk management system, and a system of accountability. Our government is also faced with governance challenges and issues in government-owned entities. One such challenge and issue that became evident in recent years relates to government policy relative to the privatization of government entities and their subsequent management. STIP was called into existence to guide and monitor the privatization process of government-owned entities. The government has also entrusted STIP with the operational management of the privatized entities. The dual role of STIP in the privatization process leads to conflicting governance issues vis-à-vis the government’s policy relative to the privatization process. Professor Tinbergen (1952) has asserted, that the simultaneous attainment of a number of policy objectives requires the use of the same number of policy instruments. However, our government’s current policy relative to the privatization of government-owned entities consists of one privatization instrument (STIP) being used to achieve two different objectives, namely privatization and operational management. According to the Tinbergen’ rule, this is bound to lead to suboptimal results. The current discussion about the role and existence STIP should, therefore, not have come as a surprise to us. A possible solution to this conflicting governance issue is to entrust another entity, for example a Holding company wholly-owned by the government, with the operational aspects related to the management of the government entities. In this suggested structure the shares of the government entities would be transferred to the Holding. As a result, STIP would no longer have a controlling interest in the government entities and would be able to concentrate its efforts fully on guiding and monitoring of the privatization process. The Holding would have a Board of Supervisory Directors composed of for example the Commissioners of the Island Territory. The Board of Supervisory Directors would appoint the Management for the Holding and could issue guidelines to the management. The management would

prescribe guidelines for the government entities and guarantee the implementation of these guidelines in accordance with rules of good governance. By implementing this suggested structure, the government’s policy instruments would be properly matched with its policy objectives. Ladies and gentlemen, as directors attempt to narrow the gap between their existing policies governing corporate governance and the necessary update required to keep pace with global developments in this area, I am sure you would agree with me that the tasks of directors have only become more challenging, not unmanageable. The size and complexity of the challenges always seem to grow at a faster rate than the resources available. Nonetheless, the supervisory and managing board should implement policies and practices that conform to the scope and complexity of their institution. To do so directors must have the right information to make the right choices in assessing the threats and challenges their respective organizations face and to keep abreast of the developments that are taking and will take place in their respective markets. In this context, the Bank applauds the initiative of Promes Van Doorne and the Galan Group to establish a Centrum for Managing and Supervisory Directors in the Netherlands Antilles. This Centrum can serve as an excellent means to support the managing and supervisory directors in their efforts to strengthen corporate governance practices in their respective institutions. The Centrum also will help develop a culture of values for professional and ethical behavior on which well-functioning institutions must depend. We also support the initiative to set up a Netherlands Antillean Registry of Supervisory Board Members and Supervisors. This registry could serve as a database that both local and international institutions can consult in their effort to appoint capable supervisory directors of high integrity residing in the Netherlands Antilles. The Registry also could serve as an excellent reference point for the registered supervisory directors. From it they can obtain contact information for their fellow colleagues, which will further promote the sharing of experiences, particularly on governance issues, among themselves.

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Conclusion To conclude, the corporate scandals of recent years have brought to fore the importance of good corporate governance practices. Managing and supervisory directors must constantly be on their guard to identify emerging problems and develop appropriate responses. Managing and supervisory directors should strive to promote a framework that emphasize sound corporate governance, effective risk management and a market discipline that encourages transparencies. Thus, we welcome the initiative to establish a Centrum and a Registry in the Netherlands Antilles to further promote sound corporate governance practices in our jurisdiction. Sharing our best practice experiences, thereby learning from each other as we strive to improve and enhance our corporate governance practices in this jurisdiction, will be mutually beneficial. By working together, we can help bring about the corporate governance reforms that are needed in our jurisdiction, which will benefit everybody. I hope that your experience at this conference will be fruitful and that by sharing your experiences you will shed further light on the subject of sound corporate governance and the role of supervisory and managing directors in promoting sound corporate governance practices. Once again I wish to thank Promes Van Doorne and the Galan Group for their initiative in hosting this conference.

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The importance of integrity for the development of a country Speech on the occasion of the conference “Integrity – The foundation of Good Government” organized by the Caribbean Ombudsman Association October 31, 2010

Ladies and gentlemen, good afternoon,

t was with pleasure that I accepted the invitation to address you during the Sixth Biennial Conference of the Caribbean Ombudsman Association (CAROA). I am pleased to participate in this forum, not only because of the importance of transparency and good governance, but also because it gives me the opportunity to express my appreciation for the work you are doing in the Caribbean. By helping to enhance public sector accountability and transparency and developing greater public awareness of the requirements for and the importance of good governance, your organization is performing a vital service to individual countries and to the Caribbean economy in general. That Curaçao was chosen to host this conference provides us with a platform for discussing the importance of integrity for this newly formed country. As the theme of the conference correctly indicates, integrity should be the foundation of good governance. As President of the Central bank, my address will focus first on the issue of integrity in the context of the work we have been doing in this field and second on the importance of good governance as a foundation for macroeconomic stability. The Bank’s role in governance issues has been evolving over the years, and good governance has taken on increasing importance in our primary function of promoting the stability of the guilder and our supervisory tasks. The Bank, as well as the institutions under its supervision, have awakened to this concern, although with varying degrees of enthusiasm. Indeed, as recently as a few years ago, there was little support for the Central Bank becoming more actively involved in governance issues. Some people feared that in taking on such issues, the institution would become politicized and lose its effectiveness. Others

attached higher priority to other issues. Today, however, governance issues have moved to the forefront of our policy agenda. This shift in focus is the result of the growing perception of what constitutes sound economic policy. More and more evidence has emerged concerning the adverse consequences of bad governance on economic performance – among them, losses in government revenue, lower quality public investment and public services, reduced private investment, and the loss of public confidence in government. With such evidence has come a broader consensus on the central importance of transparency and good governance in achieving economic success. Numerous studies have shown that where governance is poor, domestic investment and growth suffer. In a world in which private capital has become more mobile, mounting evidence suggests that corruption undermines the confidence of investors and adversely affects private capital inflows, an important source of economic growth. Going back to the theme of this conference, I want to reiterate that accountable and transparent government is an important milestone on the path to creating the most prosperous and productive economies – economies that allow individuals, businesses, and governments to create the highest possible standard of living for the largest possible number of people. Ladies and gentlemen, there is now universal consensus that promoting good governance is essential to creating an environment in which countries can achieve lasting prosperity. As I will discuss below, important aspects of good governance include insuring

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the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption. Please allow me to share with you five conditions essential to good governance. 1. The first condition necessary for economic efficiency and the eradication of corruption is strong management of public resources and establishment of a stable and transparent regulatory environment for private sector activity. The lack of transparency about underlying economic and financial conditions can feed market uncertainty and trigger large capital outflows that can, in turn, threaten macroeconomic stability. 2. The second condition is transparent government financial operations. Maximizing this transparency can be achieved by creating systems that limit the opportunities for making decisions on an ad hoc basis and for giving preferential treatment to individuals and organizations. For example, we have to simplify our tax systems, labor laws, and business legislation and strengthen tax and customs administration by eliminating special exemptions that apply to a privileged few; this is the best way to ensure that adequate revenues are received to finance essential public services and that such services are accessible to the general population. 3. The third condition for good government is transparent budgetary procedures. We have to strengthen and increase the transparency of budgetary procedures to ensure that government revenues are fully accounted for and used as agreed in the budget. We also have to improve the quality of government expenditures by reducing outlays for unproductive purposes. The savings that result will make room for spending on primary health care, basic education, vocational training, and essential infrastructure. In this regard, the recently achieved fiscal consolidation in the context of the debt forgiveness program should not mask the vulnerabilities of our fiscal situation. 4. The fourth condition needed is more effective and accountable economic and financial institutions. To this end, the adoption of the “Harmonisatie wetgeving”, which has been submitted to parliament, is essential to improving the quality of financial sector regulation and supervision and enhancing the transparency of financial sector operations. 5. The final requirement is to have better data avail-

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able to the public on domestic economic and financial policies and performance. I cannot overemphasize the importance of high quality statistical data; such data are an important factor in improving economic policy and an essential aid to potential investors in evaluating countries’ economic policies and performance. Ladies and gentlemen, good governance is essential for countries at all stages of development from the recently autonomous Curaçao and Sint Maarten, which are still in the process of building up domestic institutions and undertaking the basic reforms needed to accelerate economic growth, to advanced countries such as the Netherlands. In the past few months, the world has been shocked to see how quickly countries renowned for outstanding economic performance have been engulfed in crisis. Although the causes of the crisis are varied and complex, many of the problems that lie at the heart of the difficulties are lack of transparency about government, corporate and financial sector operations. Therefore, the issue of good governance is not limited to the public sector. Just as activities in the public sector must be more open and transparent, so too must those in the private sector. Private sector governance should include measures to improve the transparency of corporate balance sheets through independent external audits, disclosure, and publication of consolidated statements for businesses so that markets can monitor corporate performance. At the same time, a more level playing field is needed for private sector activity. CAROA’s initiative in organizing this conference could not have been more timely. Integrity is essential to a country’s success and development. Integrity is the foundation of good governance, protecting a country from debilitating behavior such as corruption, while at the same time helping the country achieve its goals. The topics that will be discussed here, will provide valuable lessons especially for the new countries of Curaçao and St. Maarten in building strong and prosperous societies. Ladies and gentlemen, turning to the institution for which I am responsible, the Central Bank has long

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recognized integrity and compliance as fundamental to the soundness of the financial institutions subject to its supervision. Indeed, integrity is the core value in our vision. We strive to instill integrity in our staff and ensure that it becomes the guiding principle in all our operations and actions. To make integrity the norm rather than the exception, the Bank has introduced and implemented various measures. We have been very active in promoting good corporate governance in the financial sector of the Netherlands Antilles since 1994. In August 1996, the Bank issued Guidance Notes for the Board of Directors of Supervised Financial Institutions on Corporate Governance and a Summary of Best Practice Guidelines on Corporate Governance, which were revised in October 2001 and November 2006, respectively. The guidance notes describe, among other things, the general responsibilities of the Board, the legal obligations of directors, and the role of auditors. To encourage the practical implementation of the guidelines, the Bank requires the Board of Directors of all supervised financial institutions to provide to the Bank annually a “Statement of Compliance” with the Bank’s Summary of Best Practice Guidelines. These statements are reviewed by an external auditor. The Bank also has institutionalized periodic integrity tests of policymakers and qualified holders of institutions subject to its supervision. These guidelines have significantly increased awareness of the importance of sound governance and integrity by the supervised financial institutions, some of which are government-owned. Concerning the Bank itself, the appointment procedures of the board of directors are clearly specified in the Bank’s charter. Needless to say, appointees should meet certain requirements, including professional and personal qualifications. Furthermore, the members of the board of directors should abstain from activities that would create conflicts of interest with their role as central bankers. Additionally, an independent and expert supervisory board is part of the governance structure of the central bank. The supervisory board plays a crucial role in ensuring the effective administration of the Bank. The supervisory board is responsible for approving the institution’s operational budget, reviewing and approving the annual ac-

counts, and overseeing the audit process. In addition, the supervisory board promotes the use of structured planning and management frameworks. Last, but not least in importance, the Bank has institutionalized a recruitment program that enables it to hire highly qualified and professional staff. The program also provides for periodic integrity testing of personnel. Ladies and gentlemen, the goal of my remarks today was to focus our attention on some of the key issues that relate to integrity and good governance – both in the public and the private sectors. While much progress has been achieved in the area of integrity and good governance, we should not forget that integrity is a fluid concept. What may seem harmless today may not be acceptable tomorrow. Given the high and lasting cost that lack of good governance can inflict on a nation, we have to be unrelenting in our efforts to make further advances in this area. Therefore, let me close with a renewed call to continue to establish clear guidelines for strengthening integrity and to strictly adhere to these guidelines. While we may sometimes be constrained by our limited resources, we should intensify cooperative efforts both in the kingdom and in the region to continue to meet and promote the best internationally accepted practices. Given our track record in this area as the Netherlands Antilles, I am convinced that Curaçao will continue to meet those challenges as an autonomous country. Let me once again express my support for and admiration to our Ombudsman for the organization of this seminar, and thank you all for your attention. I wish you a very fruitful conference.

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Plenchi Ronchi Isa ta simbolisá e fundeshi ku Ronchi Isa a pone pa nos tur Inougurashon Plenchi Ramez (Ronchi) Isa 17 oktober 2001

Damas i kabayeros,

we tardi, na e okashon speshal aki, mi ke kuminsá mi introdukshon ku sita di un karta for di un buki di e konosido outor Paulo Coehlo ku a kompilá un gran kantidat di karta, poema i pensamentu di Jibran Khalil Jibran. Khalil Jibran, manera e ta konosí pa miónes di atmirador literario den tur skina di mundu, a nase na desèmber di aña 1882 i probablemente ta e poeta, pintor i pensadó mas famoso ku e suela di Lebanon a produsí. Su talento úniko pa poesia i su sabiduria ku ta revelá un inspirashon kasi dibino a hasi posibel ku hopi di nos a siña komprondé aun mas mihó e bunitesa i sentido di nos existir. Den e karta ariba menshoná i fecha 14 di yanüari 1922 e ta duna su lektornan e siguiente konseho: “Purba haña sa e loke ta e mihó ku ta biba den un hende i bisi’é esei tambe. Nos tur tin mester di un motivashon asina. Kada bes ku nan elogiá mi trabou, mi ta bira mas humilde pasombra mi no ta sintimi ni balotá no indeseá. Tur hende tin algu ku ta meresé di ser elogiá. Palabranan di elogio ta nifiká komprenshon. Den profundidat di nos alma nos tur ta hende maravilloso i ningun hende no ta mihó ku e otronan. Siña konosé e grandesa di bo próhimo i lo bo mira bo mes grandesa tambe.”

Hasiendo esei nos bista a kai fásilmente i direktamente riba e persona di Ronchi Isa ku durante di dékadanan largu a sirbi nos komunidat komo abogado magnífiko, parlamentario ekselente i gran estadista. Ronchi Isa a nase na Kòrsou for di mayornan ku, pa kasualidat, tambe meskos ku Khalil Gibran ta frutanan di e suela di Libanon. E manera ku durante di su karera briante ela desplegá dedikashon, konosementu i sabiduria a hasiele sin mas un di e estadistanan di mas grandi ku nos pais a konose. Nos komo Amigunan di Ronchi Isa a konsiderá ku ta na su lugá pa preservá e herensha polítiko i intelektual di Ronchi Isa pa futuro generashonnan den un buki ku e titulo: Ronchi Isa; Grootheid in Eenvoud. E buki su kontenido ta relatá e grandesa ku nos tur mester keda rekordá i relatá na nos yunan. Awe tardi nos ke komplementá e trabou intelektual aki ku un muestra infrastruktural di nos apresio pa su trabou. Nos komo Amigunan di Ronchi Isa ta sumamente kontentu ku riba nos petishon Straatnamencommissie i Gobièrnu di Kòrsou a aprobá pa duna e plenchi aki e nòmber di un di su yunan. Plenchi Ronchi Isa ta simbolisá e fundeshi ku Ronchi Isa a pone pa nos tur i pa nos yunan. Ronchi masha danki.

E palabranan di sabiduria di e gran yu di Libanon aki a inspirá algun di nos pa pone aun mas atenshon na e grandesa di nos siudadanonan i muy en partikular na esnan ku a pone un fundeshi sólido pa e komunidat di awe.

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Het premierschap van Miguel Pourier Spich na okashon di entrega di ‘Liber Amicorum’ “Het premierschap van Miguel Pourier” na Sr. M. Pourier 11 di desèmber 2002

Dama i kabayero, … bonochi

a ami ta un plaser di hiba palabra na okashon di entrega di e buki di amigu (‘liber amicorum’) na señor Miguel Pourier. Manera mi a bisa na introdukshon di nos artíkulo, ku retiro di Miguel Pourier for di arena polítiko nos ta pèrdè talbes e persona ku nos a bini ta identifiká komo Órden den Finansa Públiko di nos pais. Nos problemanan di finansa públiko ta konsekuensia di un serie di akontesimentu ku partikularmente tin nan orígen eksterno ku ta data for di añanan ochenta. Señor Pourier a hunga un papel importante den e proseso pa oumentá e konsiensia kolektivo di e nesesidat di un maneho di finansa públiko responsabel. Esaki ta un kondishon nesesario pa krea un klima adekuá pa kresementu ekonómiko, pa asina nos mehorá bienestar di tur habitante di Antianan Ulandes. Miguel su periodo komo Promé Ministro a ser karakterístika pa un operashon monumental den restrukturashon di e aparato gubernamental. Si nos kompará aña 1994 ora Pourier a asumí e kargo di promé minister di Antia i e momentu di su salida na yüni di aña 2002, nos lo mira ku sin lugá na duda e polítiko Pourier a hasi hopi esfuerso pa traha riba e ideal di un Antia reformá. Den e añanan aki Pourier a destaká pa su tenasidat pa atendé nos problemanan finansiero ekonómiko di un manera ku konsistente i dirigí. Gabinete Pourier a komprometé su mes pa diseñá i implementá un strategia di ahuste struktural pa nos pais ku tabata konsentrá rondó di tres área: 1. sanea finansa públiko di nos pais; 2. inisiá reforma struktural kreando kondishonnan pa kresementu ekonómiko sostenibel

3. kuminsá un polítika soshal pa asistensha na esnan ménos privilegiá den nos komunidat. Pa loke ta e promé ophetivo, nos por bisa ku hopi ta e logronan di Pourier den e área di restrukturashon di nos finansa públiko. Gobièrnu Sentral i esun Insular di Kòrsou ya awe ta kosechando e promé frutanan di nan esfuerso pa redusí gastunan públiko. Un di e áreanan mas notabel ta e redukshon konsiderabel di gastunan salarial, a konsekuensia di e redukshon di e kantidat di ámtenar ku kasi 30% den e último añanan. Si nos kompará p.e. e défisit primario riba e presupuesto di gobièrnu general (esaki ta nifiká kita tur gastu di interes for di e presupuestonan di tantu gobièrnu sentral i di teritorio insular di Kòrsou) nos mester bisa ku tur esfuerso ku e gabinete presidí pa Pourier a hasi pa logra kambia e défisit primario aki na aña 1994 den un superavit di e balansa primario, tabata eksitoso. Señor Pourier a logra di kambia e rumbo di nos presupuesto primario di un défisit pa un surplus den un periodo di apénas 3 aña. E logro aki ta sin presedente den nos pais durante e último dékadanan. Riba tereno monetario mi por bisa ku ora Miguel a bandoná e puesto di promé minister nos reserva di divisa internashonal a redoblá te yega kasi 1 miar di florin loke ta representá mas ku 3 luna di importashon. Ta bon pa remarka ku for di aña 1986 nos reserva di divisa internashonal no tabata na e nivel aki. Miguel su gabinete a bira konosí tambe pa e echo di a inisiá e proseso di restrukturashon di nos struktura di impuesto, poniendo mas énfasis riba impuesto indirekto. Bou di gabinete Pourier, a introdusí OB i BBO, tur esakinan forma di belasting indirekto. Alabes, na aña 2001, a baha e tasa di belasting direkto i a

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introdusí un sistema di brèket (“belasting schijven”) den impuesto di entrada. Aunke ku e reforma den nos sistema di belasting no ta kompletá ainda, mi ta kere ku gabinete Pourier a pone e promé piedanan pa reforma nos sistema di impuesto. E filosofia di baha belasting direkto i subi esun indirekto ta kompletamente di akuerdo ku nos situashon sosio – ekonómiko i nos posishon den e área di Karibe. Riba tereno di reforma struktural gabinete Pourier a kuminsá ku e reformanan nesesario den nos sistema di penshun i di e forma aki tambe a logra redusí gastu públiko konsiderablemente. Tambe e legislashonnan laboral a keda modernisá for di diferente ángulo. Fleksibilisashon di merkado laboral ta keda un instrumento importante pa krea i mantené kuponan di trabou den nos pais. No opstante tur e krítikanan ku tin último tempu riba e reformanan inisiá bou di gabinete Pourier mi ta kere ku e reformanan aki tabata nesesario pa krea kuponan nobo di trabou. Riba tereno soshal tambe Pourier a inisiá e proseso pa aliviá e nesesidat pa esnan ménos privilegiá den nos komunidat atraves di e asina yama Reda Soshal. E parti ku talbes nos no a mira e frutanan un bes ta e área ekonómiko. A hasi hopi pa krea un klima di imbershon pa stimulá mas kresementu ekonómiko. Ta awor numa nos a bini ta mira e promé señalnan di un rekuperashon ekonómiko. Mi tin ku bisa ku ta danki na e hopi esfuersonan di gabinete Pourier ku nos por bisa ku, apesar di un ekonomia mundial suak y e efektonan di 9/11, tòg nos a kuminsá ta registrá un oumento di nos aktividatnan ekonómiko. Mi kier ilustrá esaki referiendo na e último publikashon di CBS, kaminda nos por nota ku aunke Antianan Ulandes a registrá un kontrakshon ekonómiko aña pasa, Kòrsou a konosé un ekspanshon di no ménos ku 1.3%. Mi ke terminá deseando Miguel, su kasa Hilly i nan yunan tur klase di éksito i forsa pa futuro. Ku nos bon Dios dun’é salú i éksito pa tur loke e sigui ku n’e den futuro. Miguel un biaha mas masha danki pa loke bo a hasi i nifiká pa e komunidat di Antia. Tur kos bon pa futuro.

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Haiku den lus di animal Presentashon na okashon di e presentashon di e buki Haiku den lus di animal di Ellis Juliana na Gallery Alma Blou 19 augustus 2007

Damas i kabayeros, bondia,

-lis a po-ne su men-sa-he den hai-ku, Nos ta ko-pe-rá.

Pa esnan ku no sa, esei ta un haiku. Un verso di origen hapones den tres liña, di sinku, shete, i sinku sílaba repektivamente. Awor, laga’mi komo bankero no pretendé di ta ni poeta, ni eksperto literario. Ounke, bo no por ninga ku polítika monetario i asuntunan ekonomiko i finansiero, prinsipalmente ora bo ta dediká bo bida na nan komplehidat, tambe tin su parti poétiko. Ma esei ta otro kos. Damas i Kabayeros, desaroyo di un pueblo ta desaroyo di su hendenan. Ta pesey edukashon en general ta haltu den bandera di Banko Sentral. Nos ta konvensi ku un bon edukashon ta inpresindibel pa desaroyo di un pueblo. E uniko manera pa bo bai dilanti komo sosiedat ta si miembronan di e sosoiedat ey tin un edukashon ku ta habri porta i bentana dunando’e e oportunidat di siña kos pafo di su mundu. I mientras edukashon formal ta hopi importante, nos ta kere tambe den otro tipo di edukashon manera por ehempel edukashon riba tereno di arte den e sentido mas amplio di palabra i di baluartenan importante di nos pais. Pesey, na momentu ku nos a haña e petishon di Galeria Alma Blou pa yuda ku publikashon di haikunan di Elis Juliana, nos a asepta esey mesora. I nos ta konsider’e un honor pa ta awe aki na okashon di entrega di e bunita buki aki. Resientemente, na okashon di su ochenta aña, tábatin un kantidat di evento ku a enfoká riba entre otro su obra literario, su arte gráfiko, su eskultura, su trabou antropológiko i arkeológiko, su esfuersonan pa konsientisá públiko di balor di nos historia i kultura,

su trabou di edukashon di hubentut i di tur e otro aspektonan den kua ela sobresalí. Un parti sinembargo ku segun mi no a haña tur e atenshon meresí, manera mi a indiká den e prólogo di e buki ku lo ser entregá awe, ta Elis e filósofo: nèt e parti ku ta haña su ekspreshon mayor den su haikunan. Manera e mes ta bisa den preámbulo di e kalènder di 1999, limitashon ku e forma di poesia aki ta imponé, ta obligá e poeta p’e bisa hopi ku tiki palabra. I ora bo lesa su haikunan bo mes lo sinti ku esei ta obligá e skibidó di koba te den profundidat mas leu di su lenga pa por saka e finifininan di diamante skondí ku t’ei duna brio na su mensahe. Ta echo sinembargo, ku no ta tur loke sa skibi i publiká riba e lugá di nos akí ta kumpli ku e normanan ei. Ta sali mas i mas buki na papiamentu último añanan. Riba su mes un desaroyo mashá saludabel i ku nos ta aploudi i apoya. Ta importante pa awor ku papiamentu ta hañando su luga komo idioma den nos kominidat i den ensenansa, nos konsentrá riba kalidat i nivel di e publikashonnan aki. Nos tin ku evita ku lektura ku defisiensia tantu linguístiko komo sosial i moral por hasi daño na nos lenga enbes di yuda edifik’e. Manera Elis ta bisa den un di su haikunan: Tin mediokridat tur na streki den sala di imitashon. P’esei nos t’aki awe, pa presentá Elis su haikunan. Si ta eksistí hoya literario ku ademas di karisiá bo lenga i supla dushi den bo orea, ta komove bo spiritu tambe i klara bo mente, anto ata nan akí. Elis, ounke un tiki lat, pabien ku bo ochenta aña. Mi ta spera ku Dios lo duna’bo hopi aña mas pa bo ta serka

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nos. I na Kas di Alma Blou i Poppi, pabien ku publikashon di e buki bunita aki. Pa nos tabata un orguyo i plaser di por a kopera. Mi ta spera ku e buki aki lo trese hopi goso i plaser, i hopi momentu di reflekshon pa tur esnan ku lesâ&#x20AC;&#x2122;e.

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Politiek heeft een prijs Presentashon di e Liber Amicorum pa señora Maria Liberia-Peters 14 di òktober 2009

Señora Liberia-Peters, Mandatarionan, famia Liberia-Peters, damas i kabayeros,

n “Liber Amicorum” ta un kompilashon di teksto personal, anékdota e ilustrashon ku un grupo di amigu ta presentá na un persona. Pa ami ta un gran plaser pa awe presentá e Liber Amicorum “Politiek heeft een prijs” na Maria LiberiaPeters. Un persona ku a hunga un papel importante den desaroyo polítiko, sosial i ekonómiko di nos pais, partikularmente den e dékada 80 i 90 di siglo pasá. Den e buki aki, diferente amigu di Maria a kompartí nan eksperenshanan ku Maria. Tres aspekto di Maria den nos komunidat ta bini dilanti. E promé ta Maria komo polítiko i gobernante. Mi ta kere ku amigunan i atversarionan ta koinsidí ku Maria ta un di e Minister Presidentenan di Antianan Hulandes ku mas reto a topa durante di su trayektoria. Mi ke ilustrá esaki dunando algun di e retonan ku Maria komo Promé Minister mester a enfrentá den e Kabinete Liberia-Peters I, entre 1984 i 1986. Na promé lugá e kambionan den e konstelashon Antiano ku a konsekuensia di e status aparte di Aruba, mester a bira Antia di sinku. Mester a pasa hopi lei durante di e periodo aki inkluyendo lei pa traspaso di pèrsonal di gobièrnu, lei pa separashon di bienes, i lei pa e korte komun di hustisia di Antianan Hulandes i Aruba. Ademas, den e periodo ei nos pais tabata konfrontando problemanan ekonómiko inkluyendo bahada drástiko den turismo Venesolano, kaida den ingresonan di Offshore, problemanan den Dòk i ALM. Tur esaki a resultá den un reseshon ekonómiko ku a bai kompañá pa un subida di nos tasa di desempleo te 24%. Durante di e periodo aki mester a tuma desishonnan polítiko sumamente difísil i impopular manera e crisisheffing di 10%. Tabata un periodo hopi turbulento ku hopi protesta i manifestashon kontra di e medidanan.

Sin lugar a dudas e reto mas grandi di Gabinete Liberia-Peters I tabata negosiashonnan pa mantené e refineria na Kòrsou habrí, ya ku Shell despues di 70 aña a disidí ku e lo a bandoná Kòrsou. Maria komo Promé Minister tabata un di e motornan prinsipal den tur e negosiashonnan komersial i diplomátiko ku Shell, Hulanda i Venezuela pa mantené e refineria na Kòrsou habrí dor di logra un kontrato ku PDVSA. Di e forma ei a logra salbaguardiá kuponan di trabou na e refineria. E di dos aspekto ta Maria komo hende muhé. Maria tabata i ta ainda un gran luchadó pa emansipashon di hende muhé den nos komunidat. Ademas e ta un “trend-setter” siendo e promé hende muhé den nos pais ku a presidí kuater gabinete. E papel aki no tabata unu semper fásil, spesialmente den un arena polítiko ku tabata dominá pa hende hòmber. Komo mandatario femenino Maria a risibí rekonosementu lokal e internashonal. Siendo hende muhé, Maria a hañele konfrontá ku un lucha fuerte di sindikalismo pa igualdat salarial entre hende hòmber i hende muhé den sektor pùbliko. Tabata durante di su maneho ku e diskriminashon salarial entre hende hòmber i hende muhé a keda eliminá, ounke esaki tabatin un preis altísimo pa nos finansas públiko. E último aspekto ku ta bini dilanti den e Liber Amicorum ta e papel di Maria komo esposa i komo mama. Hopi biaha nos komo “outsider” ta lubidá e sakrifisionan ku un mandatario tin ku hasi pa por sirbi su pais. Maria a hañele ta kombiná su bida familiar ku su karera polítiko. Maria su esposo i yunan a haña nan obligatoriamente ta kompartí atenshon i kariño di Maria ku otronan. Maria a sakrifiká hopi di e tempu ku e por a kompartí ku su esposo, yunan i sobrá famia pa ta na servisio di nos komunidat. Esei, ta kisas e preis mas haltu ku polítika a kobra. Manera e titulo di e Liber

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Amicorum ta bisa “Politiek heeft een prijs”. E tres aspektonan aki ta mustra ku Maria indudablemente ta un persona ku hopi determinashon, perseveransha i konfiansa den su mes. Personalmente mi tabatin e honor di por a eksperenshá Maria komo gobernante den mi funshon komo Presidente di Banko di Sentral di Antianan Hulandes. Manera mi a bisa anteriormente gobièrnu a hañele konfrontá ku hopi reto i Banko mester a konsehá gobièrnu na hopi okashon. Tin ora nos mester a konsehá pa tuma desishonnan difísil, pero Maria semper tabata un mandatario ku ta habrí pa skucha tur konseho. Mi tin hopi atmirashon tambe pa e papel ku Maria a hunga spesialmente komo hende muhé den nos komunidat. Mi ta kere ku Maria komo hende muhé fuerte a sirbi i ta sirbi ainda komo ehèmpel pa hopi hende muhé. Ta danki na pioneronan manera Maria ku awe ya no ta algu straño di mira un hende muhé riba un posishon klave den nos komunidat. Na e momentonan aki un biaha mas nos pais ta enfrentando diferente reto. Na promé lugá, e krísis finansiero internashonal i su efektonan sekundario riba ekonomia real a hiba hopi pais den reseshon i a sakudí órden ekonómiko mundial. Antianan Hulandes no ta un eksepshon i nos ekonomia tambe a wòrdu afektá dor di e krísis mundial. Konsekuentemente kresementu ekonómiko durante di e promé lunanan di 2009 a baha kompará ku 2008. Basá riba e resultadonan di e promé lunanan di 2009 i tambe e proyekshonnan pa kresementu ekonómiko mundial, Banko Sentral ta proyektá ku ekonomia di Antianan Hulandes lo krese ku 0.8% na 2009. Ounke e kresementu lo ta moderá, ta importante pa remarká ku kontrali na hopi pais den region, Antianan Hulandes lo no eksperenshá kresementu negativo na 2009. Segun pronóstikonan, Produkto Interno Bruto di por ehèmpel Bahamas lo kai ku 3.9% na 2009, di Barbados ku 3% i di Aruba ku 5.5%. Nos a sobreviví e mal tempu prinsipalmente danki na medidanan struktural ku a tuma durante e periodo di ahuste. Ademas, e saneamentu di debe i e transferensha di fondonan for di Hulanda den kuadro di e Inisiativa Sosial Ekonómiko tin un impakto positivo riba nos klima di invershon. Pa 2010 nos ta proyektá ku nos kresementu ekonómiko lo aselerá te 1.3% basá

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riba e proyekshon ku ekonomia mundial lo rekuperá otro aña. Na di dos lugá, nos pais ta den un proseso di desmantelashon. Un proseso históriko ku alabes ta sumamente kompliká. Òktober 2010 e pais “Antianan Hulandes” lo stòp di eksistí i pais Kòrsou i pais Sint Maarten lo bira realidat. Na mes momento Bonaire, Saba i Sint Eustatius lo haña un laso mas direkto ku Hulanda. Outonomia pa Kòrsou i Sint Maarten i un laso mas direkto ku Hulanda pa e otro tres islanan mester wòrdu konsiderá un medio pa yega na un mihó mañan pa e islanan. Pues partinan envolví den e proseso di desmantelashon mester realisá ku tur e kambio, esfuerso i sakrifisionan mester resultá den un mihó futuro pa nos islanan. Pa e motibu ey tur parti envolví mester hasi mas esfuerso pa logra un konsenso mas amplio pa atendé e detayenan di e status estatal nobo, pa hasié un éksito duradero. Den e proseso aki ta importante pa nos realisá ku nos islanan ta sumamente vulnerabel pa gòlpinan eksterno. Desintegrashon di Antianan Hulandes únikamente ta oumentá e vulnerabilidat akí, a ménos ku nos opta pa traha estrechamente huntu den Reino. Mediante koperashon estrecho, nos lo por minimisá konsekuenshanan di e eskala chikí di nos ekonomianan i kompartí e gastunan ku tin ku hasi pa desaroyá sierto habilidat- i kapasidatnan di e paisnan, pa nan por funshoná debidamente. No mester limitá e koperashon akí na entidatnan di e aktual Antianan Hulandes, sino ku e koperashon mester ta entre tur partner di Reino. Riba tereno di finansas pùbliko nos ta notando progreso kaba. E proseso di saneamentu di debe ku a kuminsá e aña aki, akompañá pa e transferensha di fondonan di Hulanda den kuadro di e Inisiativa Sosial Ekonómiko a prevení un empeoramentu di e kuenta koriente di nos balansa di pago. Alabes, tantu gobièrnu sentral komo gobièrnu di e teritorio insular di Kòrsou a registrá un surplus. Konsekuentemente e tasa di debe lo baha di 82% te 62% na final di e aña aki. Ta importante pa enfatisá ku no opstante añanan di ahuste ekonómiko, medidanan i mas medida nos no a logra di hasi e progreso ku nos ta selebrando awe. Nos lo por a logra e resultado akí, sinembargo solamente a kosto di gastunan sosial i ekonómiko inakseptabelmente haltu. Pues, danki na e saneamentu di debe i e introdukshon di un kantidat di norma pre-

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supuestario i supervishon finansiero, por fin finansa públiko sano i duradero a bira realidat. Un finansa públiko sano i duradero ta un kondishon nesesario pa nos por traha riba bienestar i prosperidat di nos respektivo paisnan. E fecha 10 di òktober, e dia ku nos lo optené nos outonomia, ta solamente un fecha. E Kòrsou di 11 di òktober lo ta e mesun Kòrsou di 10 di òktober. E ta bira sinembargo e fecha ku ta marka komienso di e trabou ku lo mester ser hasi pa yega na un mihó mañan. Tur e trabounan ku ta ser hasi ta pa krea e kondishonnan nesesario pa maksimisá realisashon di e ophetivonan aki. Esaki probablemente lo ta e reto di mas grandi ku mandatarionan di nos pais lo enfrentá durante e siglo aki. E retonan ku nos pais ta enfrentando a konsekuensha di e situashon ekonómiko mundial i e kambionan di struktura estatal ta similar ku hopi reto ku Maria komo gobernante mester a enfrentá. E retonan aki ta eksigí un maneho ku vishon i madures, aspektonan ku a karakterisá e gobièrnunan presidí pa Maria Liberia-Peters. Mi ta spera pues ku e “Liber Amicorum” di Maria Liberia-Peters “Politiek heeft een prijs” no solamente lo sirbi pa nos wak bèk den nos historia, pero tambe lo inspirá nos pa enfrentá tur e retonan di nos pais. Danki pa boso atenshon.

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Roald “Ati” Schotborgh: Artista multifasétiko ku un amor grandi pa Kòrsou Diskurso na okashon di apertura di eksposishon di obranan di Roald “Ati” Schotborgh 17 di aprel 2011 Popi, famianan di Sr. Roald Schotborgh, invitadonan, Damas i kabayeros bon dia,

u plaser mi a aksepta e invitashon pa hiba palabra awe mainta na okashon di e homenahe na e gran yu di Korsou Ati Schotborgh. Durante di e eksposishon di awe, nos por apresiá algun obra di Roald “Ati” Schotborgh. Na momento ku nos a risibí e petishon, Banko Sentral di Kòrsou i St. Maarten no a duda niun momento so pa koperá ku e eksposishon aki. Awe boso lo por apresiá gran parti di e kolekshon di obranan di Schotborgh ku entre otro Banko Sentral a atkerí durante añanan. Den Ati Schotborgh su obranan por apresiá e gran amor ku Ati tabatin pa Kòrsou i partikularmente su bario stimá Otrobanda. Ta un lástima ku Ati no ta huntu ku nos pa risibí e homenahe aki na bida. Schotborgh tabata un artista multifasétiko, un hòmber kulto ku un amor grandi pa Kòrsou. E tabata pintor i konosedó di arte, eskritor i karikaturista. Mi tabatin e honor di a konos’é den tur e fasétanan aki. Mi a konosé sr. Schotborgh algun aña pasá na momento ku a surgi e idea pa laga portretá tur presidente di Banko Sentral desde momento di fundashon te awe. Nos a disidí ku e tarea aki mester a bai pa un artista lokal i esaki a resultá sr. Roald “Ati” Schotborgh. Ati a aksepta e enkargo aki i a demostra ku e no tabata solamente un bon pintor, pero tambe un bon investigadó. Ati no solamente a portretá tur presidente pero el a hasi un investigashon ekstenso tambe di orígen i bida di kada unu. Informashonnan ku nos komo Banko Sentral no tabatin, Ati a suministrá nos ku’ne a base di su investigashon tanto lokal komo den eksterior. Despues di e proyekto aki, Banko Sentral a sigui kolaborá ku Ati Schotborgh pa diferente otro proyekto. Entre otro e proyekto pa portretá tur Obispu di e Diose-

sis di Willemstad i e proyekto “Hanchinan di Kòrsou”. Banko Sentral na varios okashon a hasi uso di su konosementu amplio riba tereno di arte pa atkisishon i restourashon di nos kolekshon. E último proyekto di Banko Sentral ku Ati Schotborgh ta e proyekto “Esta un dia” ku ta un kuenta ku ta ilustrá faktornan ekonómiko ku ta influenshá bida di hende. Komo parti di e esfuerso di Banko Sentral pa duna un aporte na mayor konosemento ekonómiko na e poblashon, nos a inisia un proyekto den forma di karikatura di e proseso ekonómiko. E proyekto ta ilustra den un forma simpel pero humorístiko konseptonan manera inflashon, reseshon, desempleo y otro tópikonan ekonómiko y kon esakinan por influensha nos bida diario. Pronto e proyekto aki lo finalisá i lo ta disponibel na nos museo numismátiko. Di e forma aki a surgi un amistat entre Ati Schotborgh i mi pèrsona. Den nos kòmbersashonan mi a siña konosé Ati komo un persona ku un gran amor pa Kòrsou i ku preokupashon pa akontesimentunan riba tereno polítiko. Ademas, Ati tabatin un grado haltu di inteligensia kombiná ku un sentido di humor skèrpi. Durante nos promé enkuentro mi a deskubrí un di e sekretonan mihó warda den mundu periodístiko aki na Kòrsou. Esta ku Ati Schotborgh tabata Dori Maco. Mi a sera konosí ku e kartikatura Dori Maco durante di mi adolesensia. Tur djabièrne mi tabata kumpra mi La Prensa fielmente pa asina ey lesa e kartikaturanan Dori Maco i Den mi Awa. Aparte di tabata chistoso, Dori Maco tabata resumí maestralmente e akontesimentu i tendensianan polítiko den nos komunidat. Di forma humorístiko i semper bon intenshoná, Dori Maco tabata presentá esensia di e asuntu i na mes momento habri wowo di e lesadó pa posibel implikashon di e aktonan of desaroyonan.

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Kaminda hopi koluminsta ta motivá pa un of otro preferensia polítiko – partidista, Dori Maco tabata ekivaltene di analístanan polítiko ku na luganan mas grandi manera Merka i Ulanda ta aktua komo konsenshi di nan komunidat. Na mi opinion, Dori Maco tabata e mihó analista polítiko ku Kòrsou a konosé. Nunka nos no a papia di Dori Maco, ounke e mester tabata sa ku mi sa ku t’é ta Dori Maco. Aki nos ta mira e importansha di arte komo medio pa komunika ku e pueblo y hiba un diskushon honesto riba akontesimientonan den nos pais. Lamentablemente e tamaño di nos pais ta pone ku hopi biaha bo no ta haña un diskushon habrí di akontesimientonan ku di un forma of otro ta afekta hopi di nos den nos bida diario. Atrabes di historia nos a mira ku kaminda no tin libertat di ekspreshon of tin miedo pa represaye, arte y otro formanan di ekspreshonnan artistiko ta hunga un rol importantisimo pa hiba e diskushon aki. Pero esaki hopi biaha ta keda limita na un grupito selekto. Pero komo karikaturista Ati a purba i a logra di hasi e diskushonnan aki aksesibel pa tur lesadó. Espeshalmente na e momento históriko ku nos ta bibando aden komo pais nobo, demokratisashon di e akontesimientonan aki a kobra na importansia. E enkuentro ku destino aki mester determina den ki forma e speransa i aspirashonnan di nos tur lo ser realisa y konsekuentemente lo mester determina ki tipo di sosiedat nos ta bai laga tras pa e futuro generashon. I aki e obranan di Ati lo ta un bon guia pa nos! Ku baimentu di Roald “Ati” Schotborgh, Kòrsou a pèrdè un parti di su konsenshi demokrátiko pero alabes un gran artista Yu di Kòrsou. Mi ta spera ku e obranan i karikatúranan di Schotborgh lo inspirá nos pa stima nos pais mas tantu i aportá mas tantu na su desaroyo.

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It is in times of crises that we look to the church for guidance Speech on the occasion of the unveiling of the portrait of Mgr. Luis Secco and the donation of portraits of eleven former bishops to Bisdom Willemstad April 27, 2004

Excellencies, ladies and gentlemen,

t gives me great pleasure in welcoming all of you and in particular our visitors from abroad who are here on the occasion of the 48th Episcopal Conference. As President of the Bank of the Netherlands Antilles and as a Catholic myself I feel very happy that the Antilles Episcopal Conference has chosen Curaçao as the site for their 48th Annual Plenary Meeting. During their deliberations this week the archbishops and bishops will be dealing with issues that are of the utmost importance in our daily life. Our societies are faced with daunting challenges: issues such as crime, poverty, corruption, unemployment, education and of course an ever growing materialism take us further away from spiritual values. Many of these problems seem to arise from growing individualism. We do not seem to show sufficient compassion for our fellow citizens. How else can we explain the increasing material, intellectual, emotional and spiritual poverty? How else can we explain the deterioration in the quality of life, the ever rising crime rates and the growing number of broken homes and dreams? It is in times of crises such as the one we are currently going through, that we look to the church as moral authority, for guidance. How well the church responds to these challenges to a great extent determines how well we as a flock will cope with these issues. Excellencies, ladies and gentlemen, we are all well aware of the challenges that the Catholic Church is facing. This may require that the church revisit some of its own internal rules. However, this should not lead to a bureaucratic and inward oriented church. Rather, the challenges that humanity is facing call for a more proactive and outward oriented church.

This means that we have to show more solidarity with the poorest and the weakest to bring about major and positive changes. The caring for each other, the pursuit of a more humane society ought to be a continuous effort by each of us in whatever position or in what ever social or professional function we are. The Bible teaches us as worded in the two most important commandments, how to live in solidarity: “Love the Lord your God with all your heart and with all your soul and with all your mind.” This is the first and greatest commandment. And the second one is: “Love your neighbour as yourself.” All the Laws and prophecies are based on these two commandments. But we can of course in the search for examples of solidarity also study and reflect on the lives of the many men and women who, through the centuries, have dedicated themselves to the service of God and their fellow men. The many saints have left a very rich example for us to follow. Here in the Antilles we have also known many leaders of the local Catholic Church who have chosen to serve God and their fellow men and women unconditionally. Those apostolic prefects, vicars and bishops have laid the cornerstones for the local Catholic Church. They were the missionaries who, in the great tradition of the apostles, have left their loved ones to follow the path of Christ to places very far away to teach and live the Word of God. Under their responsibilities and with their unrelenting efforts, churches, schools, hospitals and nursing homes were built to attend to the most basic needs of the forgotten and the downtrodden. Their work and efforts should not be forgotten.

Other

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Their task was not easy: frustration, pain and suffering burdened their lives. But their love for Christ and an overwhelming compassion for all those who suffered because of neglect and injustice made them overcome the impossible and spread the Word and alleviate some of the pain. The Bank of the Netherlands Antilles is very much aware of its task in this community to conduct monetary policies. In this role and from our perspective we have done and will continue to do all that is in our possibilities to promote the welfare of this society. However, while assuming our responsibilities as guardians or trustees of the monetary well-being we cannot run away from social responsibilities in this community. As such we are very much committed to a large number of social projects. In these social initiatives we always feel motivated by the great examples of others like the prefects, vicars and bishops who did pioneering work in the social area, century after century. To honor and thank these great men of God, the Bank of the Netherlands Antilles has chosen to commission portraits of each one of them by one of the most prolific artists of our country: Mr. Arti Schotborgh. We are convinced that celebrating our 175th anniversary could not have been done without paying tribute to these pioneers. Their stories as embodied in these portraits should be properly preserved for generations to come. The story of their exemplary lives will also be told in a publication that we have commissioned for the second half of this year. We hope that these role models will continue to inspire thousands of faithful and others in our community. We are convinced that the participants at the Antilles Episcopal Conference will appreciate their great contribution to the betterment of our community. Ladies and gentlemen, we hope that the Episcopal Conference will be fruitful and may the Lordâ&#x20AC;&#x2122;s wisdom be your guidance during your deliberations. Thank you very much.

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Overzicht kunstwerken

De kunstwerken afgebeeld in deze publicatie zijn alle eigendom van de Centrale Bank van Curaçao en Sint Maarten Pag.

Kunstenaar

Titel van het werk

Materiaal

Afmeting (in cm)

Herbert Boyé

Breedestraat Punda

Olieverf op doek

70,5 x 85,2

Midzey Longuevergne

Vie Aquatique

Olieverf op doek

100 x 100

Paula Evers

Eureka

Acrylverf op linnen

100 x 100

Heleen Cornet

Turks Cap

Waterverf op doek

1,11 x 60

Lucia Trifan

Flamboyant Garden

Acryl op canvas

98 x 68

Anton Vrede

Olifant

Olieverf op doek

101 x 146

Philip Rademaker

Kas di kunuku

Acrylverf op hout

100 x 133

Nena Sanchez

Spanish Bayonet

Acrylverf op hout

180 x 61,5

Ellen Spijkstra

#15

Foto op aluminium

130 x 200

Jean Girigori

Bida en un puerto

Gemengde techniek op doek

102,5 x 102,4

Herbert Boyé

Punda

Olieverf op doek

69 x 109,5

102

Herbert Boyé

Zeilboot

Olieverf op doek

85 x 110

116

Ellen Spijkstra

Stern III

Foto op aluminium plaat

50 x 75

126

Philip Rademaker

Koningstraat Otrobanda

Olieverf op triplex

82 x 122,5

132

Tanya van Esveld

Fiesta

Acrylverf op doek

51 x 51

138

Ras Mosera

Judas Kiss

Acryl op canvas

100 x 100

Other

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144

Ailsa Anastatia

Off center

Acryl op canvas

80 x 80

148

Ced Ride

E Giter

Olieverf op doek

75 x 102

160

Jose Maria Capricorne

E Kumindamentu

Acryl op linnen

50 x 60

168

Roald Schotborgh

Otrabanda

Olieverf op doek

79,5 x 104,5

186

Boy Namias de Crasto

Barkjes

Acrylverf op hout

79,5 x 67,4

198

Roald Schotborg

Landhuis Klein Arrarat

Olieverf op canvaspapier

52,5 x 36,5

206

Ced Ride

Mi Kasita

Olieverf op doek

150 x 117

228

Heleen Cornet

Dame d’anochi

Waterverf op doek

50 x 60

234

Samuel Ugueto

Komienso sin final

Olieverf op hout

140 x 100

238

Roald Schotborgh

Yellow Tree

Olieverf op doek

88,5 x 68

244

Roald Schotborgh

Portret van E.D. Tromp

Olieverf op doek

70 x 55

248

D. Wicki

Niet bekend

Olieverf op doek

125 x 168

266

Hipolito Ocalia

Baha di Pitrimain

Gemengde techniek op hout

39,6 x 53,5

270

Herman van Bergen

Curaçao Impression

Olieverf op doek

110 x 110

290

Cynric Griffith

Mother in trouble

Olieverf op doek

82 x 88

294

Jean Girigori

El Toro y La Luna

Gemengde techniek op doek

103 x 112

302

Roald Schotborgh

Hardin na Wespén

Olieverf op doek

80 x 60

312

Ton Treling

Niet bekend

Olieverf op doek

62 x 72

320

Jean Girigori

Blauwe vaas

Gemengde techniek op doek

44 x 54,5

336

Hipolito Ocalia

Bario di Jamboos

Gemengde techniek op hout

44 x 58

346

Herbert Boyé

Huisje bij Fort Beekenburg

Olieverf op doek

50,5 x 70

348

Ariadne Faries

Gift for the Children 2010

Olieverf op doek

34 x 47

356

Jean Girigori

Carnaval Queen III

Gemengde techniek op doek

99 x 170

360

Brigitte Wawoe

Zittende

Calciet

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Colofon

Ensuring stability Speeches and presentations by dr. Emsley D. Tromp, president of the Central Bank of Curaçao and Sint Maarten Dr. Emsley D. Tromp Met dank aan E. Reijnaert, Drs. C. Henriquez, Drs. B. Beuving ISBN 978 90 8850 311 5 NUR 793

Foto omslag Ans Mezas Foto’s kunstwerken Mr. Dr. J. Sybesma Vormgeving Merel van Dam, Uitgeverij SWP Eindredactie Nancy S. van der Wal BA Uitgever Paul Roosenstein

Voor informatie over overige uitgaven van Caribpublishing BV: Willemstad - Curaçao www.caribpublishing.com office@caribpublishing.com

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