PHILIPSBURG–The Central Bank for Curaçao and St. Maarten CBCS is preparing an economic and financial impact analysis on the COVID-19 pandemic, partly at the request of the governments of Curaçao and St. Maarten.
The analysis involved is highly complex and any comments on its results can only be presented in quite general terms at this stage, CBCS said in a press release. “That explains why the economic forecasts of larger and more prominent international institutions are also still pending publication.”
The monetary union’s economic outlook was bleak even before the start of this pandemic, showing a further contraction of Curaçao’s economy (by approximately 2.5 per cent) due to the structural adjustments as a result of developments in Venezuela (measures to improve public finances and a further decline in refining activities in Curaçao) and a slowdown in St. Maarten’s economic growth (from 5.0 per cent to 2.9 per cent) mainly due to weaker growth in cruise tourism.
“This outlook has now deteriorated. The inevitable decision to close borders to protect the local populations against COVID-19 will be at great cost. Tourism, the monetary union’s main export sector, is basically coming to a standstill – cruise ships no longer call at the islands and in the absence of air connections with the outside world, stay-over tourism has ceased. This will result in economic contractions in both Curaçao and St. Maarten,” CBCS said in the release.
“Given the already fragile state of the monetary union’s economy as a result of Hurricane Irma and the situation in Venezuela, businesses will not be able to absorb this blow on their own,” CBCS Interim President José Jardim said.
This is a direct result of Curaçao and St. Maarten’s size and economic structure. Both are small service-based economies that are heavily dependent on foreign countries.
Exports of goods and services account for around 70 per cent of the combined Gross Domestic Product (GDP) of the monetary union’s two economies and imports account for around 90 per cent. This makes the monetary union’s economy particularly vulnerable to external shocks.
The exact extent of the contraction will depend on how long the current situation will continue. It is impossible to predict how quickly the situation may return to normal, but the current exponential increase in the number of infections in Europe is an indication that the peak has not yet been reached. It will take at least a few months before some level of normalcy returns.
The seriousness of the situation is also reflected in the fact that the US Federal Reserve cut its interest rate down twice in just a few days, to the level just marginally above zero, bringing it back to the all-time low of the 2008-2009 financial crisis. In both Europe and the US, several governments are considering fiscal stimulus packages ranging into hundreds of billions and even trillions of dollars in order to prevent the economy from imploding.
“Curaçao and St. Maarten do not have the tools and resources to mitigate such a crisis,” CBCS said. The governments do not have the budgetary scope to absorb it. Moreover, under the Kingdom Law on Financial Supervision, Curaçao and St. Maarten are not allowed to borrow in order to deal with the situation.
Jardim is adamant: “Curaçao and St. Maarten are facing a difficult task. It is precisely in times like these that the countries within the Kingdom of the Netherlands should provide each other with support and assistance. Solidarity is now more important than ever.”
What sets this situation apart is that all parts of the Kingdom are facing these same profound challenges at the same time.
In view of the large current-account deficits that will inevitably accumulate, CBCS sees no other option than to make allowance for the countries to deviate from the financial standards laid down in the Kingdom Law on Financial Supervision of Curaçao and St. Maarten.
CBCS also considers it extremely important that an aid package (in the form of an emergency credit line) be implemented for the governments of Curaçao and St. Maarten and the countries’ respective private sectors, to cover public deficits and provide financial support to the private sector; the latter with the aim of preventing mass redundancies. “The harm to be suffered by society can only be alleviated if salaries continue to be paid despite the loss of sales,” said Jardim.
“The challenges of the coming period will undoubtedly put enormous pressure on the governments of both countries.” CBCS will therefore make every effort to be of assistance to the governments of Curaçao and St. Maarten.
CBCS is in close consultation with the representative organisations of the banking sector to arrive at adjustments that will help banks to meet their customers’ needs and on the other hand be better able to absorb any (un)foreseeable shocks themselves, as stated in the release.