Minister blasts credit measure

WILLEMSTAD--The intention of the Central Bank of Curaçao and St. Maarten (CBCS) to introduce a credit freeze for commercial banks is not only a draconian measure, but also a mysterious one. Furthermore, this restriction will have an enormous negative effect on the local economy, said Curaçao’s Minister of Finance George “Jorge” Jamaloodin (MFK).

  The Central Bank wants to introduce one of the most severe credit measures to counter the mounting deficits on the balance of payments and the downward trend in foreign exchange reserves. In its March 14 letter to all commercial banks, CBCS announced a six-month freeze on private credit loans.

  In doing so, CBCS departs from the amount of credit banks individually had outstanding at the end of February. Banks may no longer exceed this “limit” and may only grant new loans when previously granted loans have been paid off.

  “A mysterious intention,” commented Jamaloodin, in the sense that although the foreign currency reserve is decreasing at the average rate of US $100 million per month, it still shows an import coverage of three months, which internationally is considered a safe minimum.

  “It’s absolutely incomprehensible that the Central Bank wants to impose such a draconian measure on Curaçao’s commercial banks, while it re-finances the debts of a New York bank active on St. Maarten for US $150 million, in one go.

  “In other words, CBCS spends an amount worth one-and-a-half months of foreign currency reserve as some kind of non-productive loan to a foreign bank. Talk about capital flight,” said the minister.

  He thinks a general freeze measure will certainly kill the fragile economy of Curaçao. “Small entrepreneurs and small and medium-size businesses will notice the effects of this severe measure, but so will those who are strongly dependent on micro-credits and other credit facilities, such as refinancing of mortgages.”

  “This measure also creates the necessary tensions in a small community that is accustomed to contracting loans during certain periods of the year to renovate the house, buy a new car or go on holiday. I wonder if the Central Bank considered these aspects.”

  Inquiry by the Amigoe newspaper showed that from a historical point of view, the foreign currency reserve of Curaçao (as part of the Netherlands Antilles) had dropped to a much lower margin of coverage in the past, compared to the current situation. The margin of coverage expressed in months is currently 3.2.

  This margin dropped to 1.2 and 1.5 months in 1997 and 1998, respectively, during the second cabinet of Miguel Pourier. The situation was so bad that at a certain moment, Pourier asked the Dutch Central Bank DNB for a line of credit, as some kind of guarantee for the foreign currency reserve of the Netherlands Antilles.

  DNB turned down the Antillean Government. However, despite the precarious situation of the foreign currency reserve, the then Central Bank in close dialogue with the Pourier-cabinet chose other measures than the current credit freeze for commercial banks.

  It was chosen at the time to increase the mandatory cash reserve and limit consumer loans by means of a credit ceiling. Commercial loans generating economic activity were allowed though.

  Asked whether CBCS had informed government of the intention, Jamaloodin answered in the negative. “They don’t have to either, because they can decide this on their own.”

  The minister acknowledged that he keeps in touch with the Central Bank, but said there had been no consultation on this measure. He added that the management of CBCS was making a grave mistake by underestimating the expertise of others.

  “The time that the Central Bank is one-eyed king in the country of the blind is over. Everyone with some common sense and knowledge of our recent political history knows the CBCS’ intention will have a direct and devastating effect on the economy of our island,” he concluded.

Source: http://www.thedailyherald.com/islands/1-islands-news/26448-minister-blasts-credit-measure-.html

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