Published On: Wed, Apr 8th, 2020

Dr. Emsley D. Tromp’s take on the CFTs’ recommendations to the RMR

Emsley Tromp 1PHILIPSBURG — In response to the advice the CFT has given to the Kingdom Council of Ministers (KCOM; or Rijksministerraad, RMR) on the request of Curacao for financial aid. We believe this analysis of Dr. Tromp to be quite informative and an interesting read. We also note here for the record that St. Maarten has not yet submitted their request for financial aid to the RMR as today, Wednesday, April 8th, 2020, at the time of this publication.


The legal mandate of the Cft is to monitor the fiscal situation in the countries of Curaçao and Sint Maarten based on the Rijkswet Financiele Toezicht (Rft.) On March 27, 2020, the Council of Ministers of the Kingdom of the Netherlands (RMR) invoked article 25 of the Rft allowing Curacao a period of noncompliance with article 15, sub 1 of the Rft.

Pursuant to this decision, the Cft was asked to advise the RMR on the liquidity needs of the countries for the month of April related to the COVID-19 outbreak. With this request, Cft was accorded a task potentially in conflict with its legal mandate to report the extent to which the countries are complying with the Rft.  In the CFT’s recommendation of April 7, 2020, to the RMR, it appears that these seemingly contradictory tasks have necessarily permeated the Cft’s advice.   On various points, the CFT’s recommendation seems guided by the committee’s legal function rather than the current urgent situation confronting the countries as a result of the COVID-19 crisis.

The very fact that the RMR invoked article 25 of the Rft implies that the countries are allowed to deviate from the provisions of article 15 sub 1. Yet Cft overlooks this fact in its advice to RMR and continues to insist on Curacao’s adherence to the provisions of article 15 sub 1 as contained in its previous recommendations.  The objective of Curacao’s request to the RMR was to obtain the necessary funds to finance among others the extra healthcare expenditures needed as a consequence of the coronavirus outbreak and to provide assistance to the private sector to avoid an economic catastrophe.

Cft starts its response to RMR by acknowledging that the loss of revenue of the government of Curaçao is realistic based on the projections of the Central Bank. It emphasizes that those projections may actually be on the lower side since they were premised on the partial lockdown in effect at the time, and a total lockdown was promulgated on March 30, 2020.  According to a recently issued Note, IMF estimates the 2020 financing fiscal gap for Curaçao at 22 percent of the GDP comprising both a shortfall in fiscal revenue and higher expenditure.

CFT Evaluation of the Curaçao request

  1. In its evaluation of the strategy underpinning Curacao’s request for financing to the RMR, Cft states that the reallocation of the funds in the context of the groeistrategie is inconsistent with previous agreements. In addition, the other measures announced by the government do not seem to get Cft’s approval. However, Cft’s evaluation is in contravention of the RMR’s decision to allow noncompliance of article 15 sub 1 for Curaçao.
  1. Cft is further of the opinion that the measures proposed by the government should be more austere given Curacao’s fiscal situation. The Cft is of the opinion that the private sector is not making sufficient sacrifice. Here again the committee overlooks the overriding objective of the government’s assistance program underpinning the financing request. The very fact that the sector will get 80% of the relevant minimum/SVB wage benchmark, implies in itself a sacrifice of at least 20%. The Cft departs from an economic contraction of 14.9% as projected by the Central Bank. By arguing for a much more austere program, Cft is increasing the downside risk for the Curaçao economy.
  1. As support for small and medium-sized enterprises, the government proposes a credit facility to maintain productive capacity. In its evaluation Cft states that the sector itself has to make a larger contribution to the credit facility. The credit facility is based on the projected needs of the sector. To the extent that a small and medium-sized enterprise does not make use of the facility and uses its own funds or seeks access to other sources in itself implies a sacrifice by the sector. Arguing that the sector needs to make a larger contribution seems presumptuous.
  1. Cft also is of the opinion that an additional supplement for the “onderstandtrekkers” is not sufficiently argued since it does not seem to have a direct link to the current crisis. What Cft again overlooks is that in practice the “onderstandtrekkers” allowance is a de facto supplement. Therefore, the economic standstill means that their primary income also would have dried up.
  1. While Cft argues that Curaçao should not deviate from previous agreements when it relates to, among other things, the groeistrategie, the committee does not maintain the same line of reasoning when it comes to the begrotingskamer and national planbureau, for example.
  1. The Cft concludes its evaluation by arguing that Curacao’s budgetary situation does not justify additional loans preferring instead a more austere package financed by creating the necessary fiscal room in the current budget. Here again, the Cft seems to argue against the RMR decision of March 27, 2020. Before the corona crisis, it was contended that social constraints prevented the creation of any additional fiscal room. By arguing now in a much more untenable situation for additional loans, Cft again seems to be insensitive to our current social economic realities.[1]

Liquidity Needs

  1. In determining the liquidity needs of the government, Cft seems to condone the buildup of arrears when it refers to SVB since the committee does not have sufficient insights into the liquidity of SVB. The government should regularize its arrears. It should not depend on Cft’s insight into the liquidity position of any institution.
  1. Cft is using this opportunity to advise the RMR to draw its attention to Cft’s previous advice rather than advise the RMR within the context of the current coronavirus crisis. This again reflects the conflicting situation for Cft as it had to advice the RMR on matter it previously as advised against.
  1. The additional monitoring suggested by the government for this special program gets only lip service from the Cft. It is not clear to me why the Cft does not seem to support this additional audit function proposed by the government to monitor the rescue program.

Emsley D. Tromp
April 8, 2020

[1] In a Note dated April 6, 2020, titled “Curaçao and Sint Maarten: Impact of COVID-19,” the IMF stated that “Assuming that financing is provided as loans, the debt-to-GDP ratio in Curaçao would rise to close to 90 percent of GDP, and in Sint Maarten to 91 percent of GDP in 2020.” These disproportionately high debt-to-GDP ratios were the overriding criteria used by Holland to provide the island with debt relief in 2009. Allowing them to again reach those ratios is tantamount to denying them the possibility to realize one of the most important objective of the 10-10-10 constitutional restructuring.