From the answers of the Minister of Finance Roland Tuitt to parliamentary questions on the future of the monetary union, it might be inferred that the recent SER advice on the monetary union contained criticism of the Central Bank of Curaçao and Sint Maarten (CBCS).
The Social Economic Council wishes to correct any possible impression of criticism on its part towards the Central Bank as an institution or its role in safeguarding our monetary stability.
The SER advice "Sint Maarten stepping out of the monetary union" does not pertain in any way that the Central Bank would be dysfunctional or "broken" as Minister Tuitt phrased it. In the view of the SER, the Central Bank is a highly professional, well-functioning institution. Information provided by the Central Bank contributed greatly to this SER advice and others. Furthermore, beefing up the Sint Maarten branch of the Central Bank is a desirable development, whatever the future of the monetary union may be. If it would come to dissolving the monetary union, Sint Maarten will at the very least need a regulatory body for supervision of the banking sector, and certainly a research and statistics division to monitor the new financial system.
What is broken, according to the SER advice, or at least at great risk, is the monetary union, the situation of Curaçao and Sint Maarten sharing the same currency.
Our common currency is underpinned by a common foreign exchange reserve, that is the amount of dollars and other foreign currency the central bank keeps ensuring that a Netherlands Antilles guilder at all times can be exchanged for a dollar at the official rate of Naf. 1.79 to the dollar, even if we temporarily spend more dollars than we earn as a country. The foreign exchange reserve is permanently fed by the dollars we earn from export and our tourism sector and other earnings, while it is at almost the same rate depleted by our imports and other dollar spending.
According to the IMF and other expert organizations, the structural problem between Sint Maarten and Curaçao is that our economies do not operate at the same wavelength. On balance, Sint Maarten consistently adds to the foreign exchange reserve, while Curaçao tends to draw from it. It is the worrisome financial situation in Curaçao that undermines our monetary union, as government budget deficits tend to lead to balance of payments or foreign exchange deficits as well. If the foreign exchange reserve consistently runs low, the Central Bank, however well-functioning and well-equipped, in the long run will not be able to maintain our pegged rate to the dollar and the value of our currency would be at risk.
This negative trend in the foreign exchange reserve has been camouflaged for years by debt relief and by Dutch aid monies flowing in. The Dutch aid has come to an end while debt relief was a one-time windfall.
Compounding the problem of unbalance between both countries is that our economies are of unequal size. This makes the risk of unfavorable financial policies on Curaçao far greater than the other way around. Simply put, Curaçao is able to drag Sint Maarten down monetarily, but we would not easily be able to put Curaçao at risk.
The minimum safe level for the foreign exchange reserve is internationally recognized as the sum needed for three month of imports. This level has been safely maintained for decades. However, in 2012, for the first time in many years, the foreign exchange reserves dipped below this level. This and other factors prompted the SER to initiate an unsolicited advice on the future of the monetary union.
The SER concluded that maintaining the monetary union would be too risky. Once it is decided to dissolve the union, the next choice would be between either creating a "Sint Maarten dollar" for the 30% of our economy that is not dollarized yet, or to introduce the US dollar as the sole legal tender. For practical reasons, the majority of the SER advised to generally introduce the dollar.
The view of the finance minister Mr. Tuitt that "no country in the world that has dollarized has been successful" must be refuted, as our next door neighbors the British Virgin Islands (Tortola) introduced the US dollar in 1959 without a glitch since, while many Latin American countries used temporary or permanent circulation of the US dollar as a means to successfully combat hyperinflation. Sint Maarten however, if dollarizing, would not do so from a position of weakness, but from strength, as our country – taken separately from Curaçao - does not have structural balance of payment problems, and it is already 70% dollarized.
The SER wishes to support the view of Finance Minister Tuitt that any individual in the community can give advice to the government, and certainly encourages every citizen to do so. At the same time, the SER has a specific advisory obligation anchored in the law, and provides advice from the tripartite background of business, labor and independent experts.
A SER advice is the reflection of a broad array of social economic partners in civil society who bring forward joint advice, often unanimous and always with majority support among members. It is noteworthy however that contrary to the essence of the role of the SER in our constitutional framework, so far no official reply or feedback was given by government on any of the advices – solicited or unsolicited - brought forward by the SER.
The SER advice "Sint Maarten stepping out of the monetary union" can be downloaded at any time from www.sersxm.org.
SER Press Release