THE HAGUE–The Committee for Financial Supervision (CFT) on Monday admonished St. Maarten Finance Minister Ardwell Irion for issuing a loan on the local capital market without prior permission.
Despite the warning by the CFT, the minister went ahead with the process, and on Tuesday the Central Bank of Curaçao and St. Maarten (CBCS) announced that says there would be a NAf. 75 million bond-issue on behalf of St. Maarten on Wednesday, October 21.
In a letter sent to Minister Irion on Monday, CFT Chairman Raymond Gradus explained that the procedure and criteria for procuring a loan were stated in article 16 of the Kingdom Law Financial Supervision RFT, and that St. Maarten needed to adhere to this law.
Gradus reminded Irion that scheduled loans must be included in an approved, ascertained budget that complies with the norms of the RFT. “In this manner, the CFT is able to execute its supervisory task and to assess whether all applicable criteria of the RFT to issue a loan are complied with.”
One of these criteria is that the loan can only be procured for capital goods. This means that the loan cannot be used to cover operational expenses of government, as St. Maarten intends to do due to its deficit largely caused by the COVID-19 crisis.
“By procuring the NAf. 75 million loan, you are violating article 16 of the RFT. As far as the CFT is aware, there is no decision-taking of the Kingdom Council of Ministers that deviating from the applicable procedures and criteria for this intended loan is permissible,” Gradus stated.
“Therefore, the CFT is of the opinion that you are not authorised to procure a loan through the CBCS. The CFT assumes that the started procedure will be terminated and that you will act in accordance with the RFT,” Gradus warned Irion.
The CFT was made aware of the loan through CBCS. The NAf 75 million loan will have a semi-annual coupon, for the first time in April 2021, and a 25-year duration. The interest rate will be 5% per annum, which is higher than the almost zero interest rate when the Netherlands subscribes to a loan.
With this loan, St. Maarten doesn’t focus on the standard subscription by the Dutch government, but on the local capital market, and as a result, it will pay more in interest. The public has until October 19 to subscribe to the bond issue at commercial banks in Curaçao and St. Maarten.
The St. Maarten government is in urgent need of cash in order to comply with its financial obligation in absence of an agreement with the Netherlands about a third tranche of liquidity support. The Dutch government has halted the negotiations because St. Maarten hadn’t complied as yet with the conditions of the second tranche.
Source: The Daily Herald https://www.thedailyherald.sx/islands/loan-is-illegal-cft-warns-st-maarten