~Shigemoto expects no immediate impact on private spending ~
PHILIPSBURG--An in-camera Central Committee meeting about the Central Bank of Curaçao and St. Maarten's freeze of the borrowing ceiling for commercial banks, political influences affecting the functioning of the bank and dollarization has been requested by Democratic Party (DP) Members of Parliament (MPs) Leroy de Weever and Roy Marlin and independent MP Patrick Illidge.
In their letter to President of Parliament Gracita Arrindell requesting the meeting, they asked for Central Bank President Emsley Tromp to be present to give information to MPs. They also asked for the St. Maarten Banks Association to be present, so its representatives could get "first hand information, seeing their crucial role in the banking sector ..."
The four topics DP and Illidge want to discuss with Tromp and the bankers are the present status of the bank and what led to the freeze, political influences on the bank, currency for St. Maarten and Curaçao and the question of dollarization, and "Is there a future for a Central Bank of Curaçao and St. Maarten?"
The MPs said in their letter that in a closed door meeting they "would expect greater efficiency" in obtaining "a clearer picture" from the Central Bank on the matters under discussion.
Independent MP Frans Richardson has also requested a meeting on the Central Bank issue. His request was for a meeting of Parliament's Permanent Committee for Tourism, Economic Affairs, Transportation and Telecommunication, headed by MP Jules James.
Richardson has asked for the Bankers Association to be invited to this "urgent meeting," so they can give their take on the situation. Following that meeting, he asked for a Central Committee of Parliament meeting with the Central Bank.
Finance Minister Hiro Shigemoto had explained during last week's budget debate that the credit freeze was not expected to have an immediate impact on private spending in St. Maarten. "However, it may slow an eventual recovery of the economy. Since a slight economic growth was projected, the credit freeze could result in slightly lower tax revenues." Further, non-obligatory expenses will be closely monitored and incurred based upon revenues received.
The credit freeze is intended to reduce private spending and, hence, imports, to alleviate the high deficit on the current account of the balance of payments and the declining trend in international reserves. "In the short run, the reduction of private spending will weaken economic activities."
During this period to stabilize the impact of the credit freeze on the balance of payments, Shigemoto said measures need to be taken to promote exports. Through export growth, the current account will gradually improve and contribute to a reversal of the declining trend in reserves.
The Finance Minister said that in light of the persistent high deficit on the current account of the balance of payments and the declining international reserves, the Central Bank started to tighten its monetary policy in September 2011. This tightening was effectuated through a gradual increase of the percentage of the reserve requirement. The reserve requirement is a non-interest-bearing blocked deposit that the commercial banks must hold with the Central Bank.
He added that despite the increase of the reserve requirement percentage from 7.75 per cent in September 2011 to 10.75 per cent as of January 16, 2012, private credit growth continued to accelerate and, hence, the increase in the deficit on the balance of payments and the decline in reserves proceeded.
In 2011, the foreign exchange reserves of the monetary union declined by NAf. 507 million, while at mid March the decline amounted to NAf. 906 million on an annual basis. "At the same time, the economy of Curaçao has hardly grown, while the economy of St. Maarten has contracted."
If left unchecked, the monetary union will soon arrive in a situation with an import coverage below the three months of merchandise norm, which could eventually undermine the confidence in the stability of the peg to the US dollar. When we arrive at that situation, there will be a flight into the US dollar, ultimately forcing a devaluation of the Antillean guilder. As a result, inflation will be spiralling and the economies of Curaçao and St. Maarten will end up in a prolonged, deep recession, Shigemoto had told MPs.
Therefore, to prevent that the stability of the guilder will eventually be undermined, the Central Bank has decided to introduce a freeze on private credit extension for six months. This means that for each bank the outstanding amount of credit on February 29, 2012, may not increase until August 31, 2012.
As a result, the extension of new loans will be limited to the amount of principal payments received on existing loans. By the end of this six months period, the measure will be evaluated.
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