Dear Editor,
Earlier on I expressed already my concerns about this topic. See letters to the editor on April 5, 2019, called “Consider and decide asap” and April 12, 2019, called “Let us not wait until it’s too late”.
The reason to write again is the recent warning report from International Monetary Fund (IMF) June 7, 2019, about our currency. The report indicates – if you read well – that the solid connection between US dollar and NAf. (1=1.80) already is under pressure and that urgent additional measures are needed to keep it up this way. Part of the findings I have copied below for you to read. I have underscored the most important part related to this topic.
This topic is important to know for all who do not like to see prices increasing here on St. Maarten with 10-15 per cent soon related – among others – to: most of the imported goods (as food and medicine), the debts of existing (study) loans abroad, the cost of study abroad or traveling abroad. This is the consequence if the solid connection between US dollar and NAf. cannot be kept anymore (devaluation).
Here some extracts of the findings of IMF cited.
“Curaçao is facing the fourth year of recession as its economy has been hit by spill-overs from the Venezuela crisis. The spill-overs are exposing long-standing structural challenges and weaknesses in public finances and contribute to external vulnerabilities. Curaçao’s ongoing recession since 2016 deepened in 2018 due to continued spill-overs from the crisis in Venezuela. GDP declined by an estimated 2¾ percent in 2018, bringing the cumulative contraction in the past 3 years to 5½ percent. Declines in refining, oil trans-shipment, and related services were the main contributors. The external current account deficit to nearly 29 percent of GDP and pushed up inflation. Historically strong trade linkages with Venezuela dropped sharply.
“The outlook is subject to significant downside risks – a permanent shutdown of the refinery would deepen the recession considerably and exert significant pressure on public finances via higher social spending. The inflow of undocumented Venezuelan immigrants is generating additional pressure on public finances.
“Central government debt increased from about 51 percent of GDP in 2016 to close to 55 percent of GDP in 2018. The authorities have elaborated plans to restore economic growth and improve public finances. As a result, the stock of government debt would increase to 62 percent of GDP by 2024. Reaching the authorities’ objective of a balanced budget by 2021 would require not only strong implementation of existing plans but also some additional measures. Whereas this gap could be partially filled by better revenue administration and stronger expenditure controls, new measures are likely to be needed.
“The large external current account deficit in Curaçao is a significant vulnerability and requires urgent attention. The deficit, together with excess liquidity in the banking system, poses risks for the Union’s reserves, which have declined from 3.8 to 3.5 months of projected imports of goods and services between December 2018 and mid-May 2019. The Central Bank of Curaçao and St. Maarten is considering options for addressing the excess liquidity and has requested IMF technical assistance in this area. Fiscal adjustment would help reduce the external current account deficit although a strong structural reform is required to increase exports and reduce the deficit more durably. It is important to take steps to bolster medium-term external sustainability. It is very important to follow through on economy-wide structural reforms to support potential growth and increase exports.”
(C) IMF: Main Conclusions of the IMF Staff Visit, June 7, 2019
Please, representatives of the people of St. Maarten, do not wait until it is too late. The solid connection between US dollar and NAf. can only be kept if the Curaçao government is able to act with implementation and execution soon of important changes to improve the balance. As said before in my previous letter: St. Maarten cannot do much about solving the problems Curaçao has and that makes us very dependent on how the government of Curaçao is willing and/or able to act soon. It is a huge challenge and one can wonder if Curaçao is able to fix this fast as needed.
If not then we face inevitably devaluation and the resulting price increases unless … the monetary union will be split up and St. Maarten goes its own way.
This asks for bringing this topic on the political agenda soon and asks for speedy decision-making.
Geert B. van der Leest
