Philipsburg-President of the Central Bank Emsley Tromp gave a presentation to the Island Council members yesterday. Acting Governor Millicent Acuna Lopez de Weever, and several other government officials, on "The financial crisis and its impact on St. Maarten's economy."
Tromp explained the origin of the financial crisis in North America, borne out of a period of low interest rates, increase in the demand for mortgages, facilitated by flexible lending standards, promotion of asset price bubble (increase in credit), and when the bubble burst and home prices started to decline.
Then there was the ripple effect, whereby the housing market decreased and banks sought to under write these bad loans, which were exaggerated in the first place. Larger lending institutions went bankrupt, were sold, or required government action.
Thus with the multiple and spill over effects throughout the rest of the world, the credit crisis and lower consumer confidence was born.
There were measures taken to improve the confidence. However, by injecting cash from the central bank or cutting interest rates, all done to stimulate the economy, the market though decreasing will not be fully decimated.
On the domestic economy, there will be a tightening of credit standards, an intensifying of financial supervision, increasing costs in the financial sector, which will lead to weaker economic growth, and slower pace of inflation.
From the American Market to that of European countries, all did some reshuffling of capital injections, providing tax breaks to investing in infrastructure, providing insurance for citizens through guarantee savings to a certain point and nationalizing some financial institutions.
Although many thought that the major economies like China, India, and Brazil would somehow soften the financial crisis, they did not. Thus the lending rates are at an all time low, stock market developments are still uncertain and consumer confidence is still low.
Having said all this, the Central Bank President said that the Domestic banking situation is in good shape because they were not based on externalities like those other countries. However, there will be indirect effects because of the lowered economic activity, because of the decrease in tourism, and because of consumer dissonance, the economies of the Netherlands Antilles will be affected.
The main trading partners and the source of an economic comeback are the United States, the Netherlands, and Venezuela-who themselves are not doing well in this economic down turn. But because of the restrictions and the methods of operations, the Banks of the Netherlands Antilles are relatively secured.
However, there is little that can be done to stimulate the economy of the Netherlands Antilles for a variety of reasons, one of which is the effect of the budget and debt relief from the Netherlands, among other factors.