Caretaker Finance Minister Perry Geerlings.
PHILIPSBURG–“Not bad at all” were the words used by caretaker Finance Minister Perry Geerlings to describe the cooperation between St. Maarten and the Committee for Financial Supervision CFT.
Geerlings was addressing MPs at the time during a public plenary session of Parliament last Thursday on recent International Monetary Fund (IMF) criticism of the CFT and review of the Kingdom Law on financial supervision against the backdrop of St. Maarten’s economic development.
“In my opinion, apart from the formal Kingdom instruction in 2015, the cooperation between St. Maarten and CFT in general is not bad at all,” Geerlings said. “The civil servants from the Ministry of Finance in most cases have a good and fruitful working relationship with the employees of the secretariat of CFT.”
Geerlings said CFT is less harsh on St. Maarten than it probably could be if one looks at auditors’ reports for the past years. “In my belief that might also have to do with the fact that the financial situation of St. Maarten could improve relatively easily if the economy improves after the hurricanes, the tax transformation plan is executed, stimulating the grow of the economy and increasing income revenue, and if pension and healthcare systems are changed, etc.
“That is perhaps the key difference with Curaçao: Curaçao has already taken certain measures. They changed pension and healthcare systems some years ago, they modernised their tax organisation, etc. They have less room to improve with yet big deficit and lending problems – this might be the main reason for the instruction towards Curaçao,” he said.
Geerlings told MPs that St. Maarten has never been able to comply with the national ordinance (landsverordening) on accountability (comptabiliteitslandsverordening) or with the kingdom law on financial supervision (in Dutch: Rijkswet Financieel Toezicht RFT).
He said while until 2018 a balanced budget was approved in most years a deficit was realised in the annual accounts. However, for 2017 this was related to the hurricanes, for the other years before 2017 because of mainly negative surprises and poor budgeting in some respects.
“As an example, we never provided a multi-annual budget as is required by both laws. We also never produced annual reports in time according per the laws, except for the year 2013. May I also remind you that Parliament takes its time to approve those accounts when finished.
“Furthermore, over the past nine years our budgets were merely policy-based. We hardly discussed and elucidated on the investment budget (capital expense) as is required. And for the normal expense budgets our elucidation is seen as too limited,” Geerlings explained.
He said that while these things are always mentioned by CFT in its formal advices to government as findings and conclusions, the findings and shortcomings have never been handled or properly remedied by the different governments of St. Maarten.
Geerlings explained that during the negotiations on the restructuring of the former Netherlands Antilles, a debt relief was promised to allow the new autonomous countries to start with clean financial slates. The Kingdom Law on financial supervision was drafted as part of a whole debt relief package. This proposal was accepted by all countries, including St. Maarten.
The RFT in its articles 15 and 16 basically sets the financial standards with which each country must comply. “These standards are mostly of the same nature as in our own LVO (landsverordening) on accountability (in Dutch: comptabiliteitslandsverordening) and include, for instance, the golden rule of providing at least a balanced budget for each fiscal year. In that respect, both our own LVO and the RFT want to assure proper public financial management,” Geerlings explained.
Of a different nature, he said. are the rules on borrowing as stipulated in article 16. “In principal, the countries are only allowed to attract loans for capital expense, and only after approval of the CFT. The main reason for this article [16 – Ed.] is to prevent the now autonomous countries from acquiring the same exorbitant debt quotas the former Netherlands Antilles accumulated before the restructuring.”
He explained that these rules in the RFT are designed to protect and maintain the starting equity of the autonomous countries (after debt relief), as realised budget shortages might diminish that equity, and to protect the countries from borrowing too much on the capital market and building up unsustainable debts like the former Netherlands Antilles did.
He stressed that these rules are not bad for developing countries. IMF and other international financial institutions promote these kinds of measures. “As a matter of fact, both IMF and CFT are of the opinion that the so-called debt quota [total of debts as a percentage of gross domestic product (GDP)] should not be higher than 40 per cent for a small country like St. Maarten.”
Currently St. Maarten grows slightly above that ceiling with some 45 per cent of GDP, because of the situation after the 2017 hurricanes. “However, we are trying to stay as close to the 40 per cent as possible, because higher debts will become a burden on future generations and on future budgets, as interest someday will rise again.”
Supervision based on the RFT is executed by the CFT board, which for Curaçao and St. Maarten consists of four members: a chairperson appointed on behalf of the Dutch prime minister, a member appointed on behalf of the Dutch Government and one member per country – for Curaçao and St. Maarten – appointed by the respective countries.
In the case of a difference of opinion between the members of CFT, the vote of the chairman is pivotal. The board is supported by a secretariat, all cost is carried by the Netherlands.
Geerlings said another important area of supervision within the RFT is that of the quality of the public financial management (PFM) of each country.
“The poor quality of our PFM has been a real concern with the General Audit Chamber of St. Maarten, internal auditor SOAB, as well as a growing concern with the CFT for some years now. In fact, the concerns of these knowledgeable institutions made government decide to develop a priority project to solve these issues, for which a plan of approach was approved in the Council of Ministers in April 2019,” Geerlings said.
“Due to the late approval of budget and not receiving the investment loan yet, the project hasn’t started yet and the delay will impact the agreement with CFT on reaching a balanced budget, maintaining a sound debt quota and an unqualified audit opinion as per 2021.”
Source: The Daily Herald https://www.thedailyherald.sx/islands/92423-geerlings-cooperation-between-st-maarten-cft-not-bad-at-all
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