Central Bank shoots down all of MP Brison’s suggestions

PHILIPSBURG – The Central Bank of Curacao and Sint Maarten (CBCS) has put Chairman of Parliament, MP Rolando Brison, firmly in his place with a response to a letter he sent on April 21 in which he demanded “urgent action” from the bank.

Interim president José Jardim picks Brison’s arguments apart one at a time, beginning with a quote from the American economist and chess grandmaster Kenneth Rogoff: “The whole point of not relying on debt excessively in normal times is precisely to be able to use debt massively and without hesitation in situations like this.”

Jardim writes that this quote is not applicable to our monetary union “because the Antillean guilder is not an internationally accepted means of payment but pegged to the US dollar, because the union’s domestic market is very small and because it relies on import for most of the goods people consume.”

Applying Rogoff’s quote to the monetary union without securing foreign financing “would inevitably compromise the external stability of the common currency.” This is why the Central Bank has emphasized the importance of requesting financial support from the Dutch government to finance programs to alleviate the impact of the corona-virus crisis, Jardim states in the letter.

The Central Bank prefers this way of financing the government programs to alleviate the impact of the corona-virus crisis, namely foreign financing, particularly from the Netherlands, over buying government bonds from St. Maarten (i.e. monetary financing), because this results in a compensating foreign exchange inflow in the short term, which will slow the decline in foreign exchange reserves.

CBCS: foreign financing is preferred in order to slow the decline in foreign exchange reserves

Jardim notes that proceeds of the 1 percent license fee banks levy go directly to the local government. In 2019, St. Maarten received 26.1 million in license fee revenue from the Central Bank.

Brison asked in his April 21 letter for pre-approval of a bank license for the establishment of a local development bank. In a meeting of parliament, Brison claimed that Jardim opposes the establishment of such a bank in St. Maarten but the letter from the Central bank defies that notion: “The CBCS welcomes any initiative to incorporate a development bank for St. Maarten.” Parties who want to establish such a bank have to file a request with the Central Bank and they must meet all the requirements for the license. These requirements are listed on the website of the Central Bank.

Brison’s request for a lower reserve requirement also fell flat. The banking system is “still in a situation of excess liquidity,” Jardim states in his letter. “Their balances at the CBCS are much higher than needed to settle their daily transactions and for precautionary reasons.”

Om May 4, the banks in St. Maarten held 123 million guilders in their current accounts at CBCS. This represents 7.5 percent of gross domestic product. Nevertheless, the Central Bank lowered the pledging rate from 2.5 to 1 percent, temporarily suspended the surcharge on the pledging rate of 200 basis points on loans over 20 million, and lowered the interest rates on certificates of deposit.

Brison’s suggestion that commercial banks should be instructed to postpone mortgage payments and interest collection “goes against the supervisory task of the CBCS to safeguard the interest of the creditors of supervised institutions,” Jardim wrote.

Brison’s call for citizens’ right to a basic bank account is another suggestion the Central Bank is unable to honor. “We do not have an ordinance or a guideline with reference to the right of a basic bank account. The CBCS cannot force any commercial bank to open a bank account for an individual or a business,” Jardim wrote.

Brison furthermore demanded that the CBCS makes its expertise available to the government of St. Maarten – but that point seems obsolete, given the answer Jardim produced: “Since its inception as an autonomous country in the Kingdom of the Netherlands, the CBCS has provided numerous solicited and unsolicited advices and support to the government of St. Maarten.”

Jardim mentions more than ten examples; among them are: the economic impact analysis of a proposed US pre-clearance facility at the airport; a macroeconomic scenario analysis of the St. Maarten Recovery, Reconstruction and Resilience Trust Fund; revised growth projections as a result of the outbreak of the corona-virus and domestic preventive measures; and advice on the opening of bank accounts for gambling businesses.

As a surprise ending to his letter, Jardim announces that the CBCS is assisting the government of St. Maarten with the organization of a Bitcoin conference.

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Relevant links:
CBCS letter to Chairman of Parliament MP Brison