PHILIPSBURG--St. Maarten's prospects in the changing global economy are not bleak, but "it's just a wait and see" what the impact of the latest debt crisis in the United States and the problems in the euro zone will have on the local economy, President of St. Maarten Bankers Association Jan Beaujon told Members of Parliament in a Central Committee meeting on Tuesday.
He cautioned against "any big spending spree," although the country has weathered its share of crisis.
St. Maarten is resilient and has weathered other crises "fairly well." Some sectors, such as real estate and loan demand, had "serious problems" and saw declines due to the global financial crunch in 2008-2009, Beaujon said. The declines stabilised "a bit" in 2010, only to see some dips this year.
The Bankers Association, represented in the meeting by Beaujon, Robert Judd, Roland Halman and Fabien Lewis, was invited by Parliament to talk about developments in the economy and the impact of global finance issues. They were quizzed on numerous issues, including the difficulties faced by residents to acquire mortgages, compared to car loans, and interest rates.
Beaujon predicted that the rest of the year would follow the trend of the "very slow" low season. This will create problems for residents who build up their income with two or more jobs, as with this scenario opportunities of acquiring a loan dwindle. "They do not have sufficient and regularity of income to make the loan payments and to make the loans reliable."
The amount of money that was available for expenditure in previous years will be "a little lower this year."
MP Silvia Meyers-Olivacce (UP) inquired about the impact the crisis in 2008 had on the banks. Halman said the effects had been "limited" because the local banks have "always been conservative in issuing credit (loans)."
She also asked for a 12- to 24-month prognosis. Beaujon said the "only thing we can do is wait and see" while continuing to prepare and strengthen the businesses.
Opportunities
Cruise ship tourism, more than ever, is the country's "main lifeline." "When there is one ship in town things liven up. ... It livens up everywhere." It has also grown from just shopping to activities and tours, and this can create "more opportunities" for young people to be trained for these jobs.
Creating jobs via tours and activities was one of the new ways Beaujon suggested to stimulate the economy and boost the tourism sector. Another way was for government to look at means of tax relief.
There is some relief, as the world crisis may decrease the prices of some commodities and as demand lags, as has been seen this week with the price of oil. Gold now has the interest of the commodities market. As the price increases, so would the interest in buying it and "people taking it (stealing)," and therefore this should be guarded against.
Until now, the country has had "good assistance" from the European market because of the high euro. Beaujon likened the situation to the support of a rich uncle or grandfather. People from the French side and Europe spend on the Dutch side because they get more buying power. "I believe that that has kept us going and has also kept the real estate market going through 2010 and also this year. But now Europe is also coming to terms with its own problems," he said.
Beaujon described the downgrading of the US credit rating as political decisions not taken in a timely manner that in turn impacted the businesses.
Loans
MP Johan "Janchi" Leonard (UP) asked for a timeframe in which the latest debt crisis in the US would impact the economy here. Beaujon said it was "difficult" to gauge that at this time, because the credit downgrade had to do with trust in the US dollar. If this trust decreases in the markets, the US economy will suffer and consequently St. Maarten, because people will have less to spend on vacations.
Leonard also was concerned about how the banks would deal with a new crisis that might see people unable to make loan payments. Beaujon said the banks would have to mitigate any impact and would have "to show empathy," unlike the US where everything is auctioned off. Auctions in St. Maarten do not draw crowds, Beaujon said.
Leonard and other MPs raised the issue of car loans being easier to acquire compared to mortgages. Beaujon said car dealers had been more aggressive in marketing this product and loans for cars were for shorter terms. Land loans are for at least 15 years; an applicant has to be "very young" to be able to pay off the amount in the term of the loan.
Beaujon encouraged government to buy land to build more affordable apartments and houses. He also called on people who have land and want to build homes to use the old-fashioned approach of getting a few blocks together to build the foundation. With this method, when a loan is sought, the bank can evaluate the foundation and this will lessen the loan amount.
Answering enquiries from MP George Pantophlet (NA), Beaujon said the interest rate for loans was between 6.5 and eight per cent, depending on the loan. The interest rate overall has decreased significantly over the year, moving from as high as 11 per cent.
The MP asked for an explanation about the high percentage of interest that comprises a monthly payment for a loan, saying that a person could borrow some US $50,000, but end up paying back $150,000. Beaujon said both the amount borrowed and the interest were collected. At the beginning of the loan, a significant part of the monthly payment is the interest payment. In the case of a mortgage, it is not until the 10th year that a larger percentage of the payment goes toward the principal of the loan.
Pantophlet and MP Dr. Ruth Douglass (UP) also asked the bankers' opinion on dollarisation. Beaujon reiterated the association's request to government for an independent study to be carried out before a stance is taken. The changeover to the US dollar was easy for Saba and St. Eustatius, but now the impact on cost for the businesses is being felt.
President of Parliament Gracita Arrindell asked when was the cut-off date for the use of the Netherlands Antilles guilder and the move to the Caribbean guilder. Beaujon said this was a political decision and not up to the bankers.
Confidence
Pantophlet also was concerned about banks defaulting and was assured by Beaujon that the Central Bank had "done a wonderful job" keeping the banks in check by monitoring liquidity. Banks have to deliver monthly balance and loss sheets to the Central Bank for scrutiny.
Banks are "not social institutions" and are answerable at the end of the year to their shareholders. The money given out in loans is the money of depositors and this warrants caution to ensure that the return of those deposits is safe, Beaujon said.
Judd encouraged businesses to let their bankers know what is going on and not wait until a situation is far gone.
Adding to that, Beaujon said banks lacked information from the business community because people are too scared about others knowing they are doing well or are afraid of the taxman. The banks can see the balances in the accounts, but also would like to know about the accounting system so assistance can be rendered where necessary. Such assistance would also help to eliminate the fear of the taxman.
MP Patrick Illidge (independent) said he thought the banks' level of confidence in the community was not good because of what appeared to be a reluctance to give lower interest rates and mortgages. He also queried the cost for houses and land here compared to Cura�ao, where prices are in guilders as opposed to the dollar prices here.
Halman said the price of land and construction was different in Cura�ao than in St. Maarten and this affected the overall project.
Beaujon said the banks had high confidence in the local people and if there were no confidence the amount of construction for homes would not have been possible. As for not taking a chance on young entrepreneurs, he said not all entrepreneurs were successful and the banks had to look for the most viable endeavours.
As for project writing, Beaujon said there was a need to train young entrepreneurs. They also need to be trained how to make their presentations to banks. Banks look at not only what is on paper, but also at the person's delivery, as success depends on the entrepreneur.
MP Jules James (UP) said the impression was that the banks were sitting on "fat reserves," but were not assisting young entrepreneurs. Beaujon said there were good young entrepreneurs and the banks encouraged them to obtain advice from successful entrepreneurs or to form partnerships with older successful business people.
MP Frans Richardson (NA) asked whether government sought the bankers' input when increasing taxes. Beaujon said this often happened after the fact. The association would like to be more active in such decisions.
Kadaster
MP Dr. Lloyd Richardson (NA), who proclaimed that he was not a supporter of what Bob Marley would call the "Babylon system," enquired about the Kadaster Office not properly informing people about encumbrances on properties when they sought to purchase.
Judd said that once there was a Kadaster stamp on the property alignment documents "it should be a clean indication that it is correct." Beaujon added that the Kadaster was the official registry for property encumbrances and this information was public. However, if someone overbuilds on a property that is not recorded, this should be checked with the authorities who issued the planning and building permits.
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