~ Measures good for St. Maarten image ~
PHILIPSBURG--In a room filled with St. Maarten power players at the St. Maarten Hospitality and Trade Association (SHTA) annual general membership meeting, all gathered to hear the presentation by Central Bank of Curaçao and St. Maarten President Emsley Tromp, only one question on the much-talked-about credit freeze was asked of Tromp from the audience.
Said one attendee: "I don't think people here fear the measure. Or they were too scared to speak."
The event was held at Sonesta Great Bay Beach Resort on Thursday night.
After Tromp had concluded his presentation on the Economy of St. Maarten in 2011 and the outlook for 2012, he joined SHTA President Emil Lee and Ministry of Economic Affairs Secretary-General Miguel de Weever on a panel to take questions from the gathering. That panel discussion lasted about five minutes after Tromp had given his answer to a two-part question.
He was asked whether the credit freeze would not reflect poorly on St. Maarten's image on the international markets and how the corporate offices of the subsidiary banks in St. Maarten would react to the credit freeze.
Tromp said that contrary to popular belief, St. Maarten would be sending a positive signal to the international markets: by pursuing the measure, the country is saying that stability is of the utmost importance. "This is very important for the business climate and international market," Tromp said, adding that countries as sophisticated as the US and the UK had "misperceived" signals that led to the great recession.
"Policy mistakes were made by not seeing the threat in 2008, which led to the financial consequences. So I think these measures will be welcomed by the international community and help to enhance the image of St. Maarten that despite our size, we are trying to be forthcoming and take timely measures," he said.
As for the banks, Tromp reiterated that there were exemptions. "I don't foresee these measures having a big impact on St. Maarten, because during the last few years we have seen that without the measures, credit growth in St. Maarten has been negative. What we need is positive growth. That's the reason why we have exemptions: to allow that to happen if it is for productive projects and providing profit opportunities. If so, I expect banks, whether locally-owned or foreign, to make use of those opportunities," he said.
He added that the monetary union had not entered the danger zone, but the worsening situation of the balance of payments and foreign exchange reserve demanded preventive action, hence the measure precisely to avoid any devaluation risk.
If left unchecked, the monetary union will soon arrive in a situation with an import coverage below the three months of merchandise norm, which eventually could undermine 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. 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 may not increase until August 31," he said.
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-month period, the measure will be evaluated.
De Weever presented a State of the Economy address that reflected on economic trends over the years, focusing on issues that are blunting economic growth and on priorities for government to stimulate said growth.
Blunting factors included a weak global economy, inflation and food prices, growth of no confidence of businesses in St. Maarten, which stood at 18 per cent compared to four per cent in 2005, and a "double whammy" of what he termed "stagflation," which sees a slow economy, but rising prices.
To mitigate these negative factors, De Weever said priorities included the establishing of the Tourism Authority, fast-tracking of major job facilitators out of the pipeline (projects), finalising an investment package for potential investors, fiscal reform and reduction of bureaucracy.
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