Financial supervision act makes a significant contribution to controlling public finances in Curaçao and Sint Maarten

The Boards of financial supervision (Cft) have been supervising the public finances of Curaçao and Sint Maarten since 2008. At first this was on the basis of a temporary financial supervision decree; and since 2010 on the basis of a financial supervision act called Rijkswet financieel toezicht (Rft). Amsterdam Bureau for Economics investigated the effectiveness and efficiency of the Rft.

The Rft makes a significant contribution to controlling the public finances of Curaçao and Sint Maarten. The current subscription of the Netherlands to loans from Curaçao and Sint Maarten has ensured that the debt ratios of both countries are 20 and 16 percentage points lower, respectively, than if the countries had had to pay market interest rates. Financial supervision also contributes to structurally sound socio-economic development, because higher debts and higher interest costs would have been at the expense of productive public expenditure and investments. However, the rule for a balanced budget for the operating account and deficit compensation can have a procyclical effect and thus have an unfavorable effect on the socio-economic development of the countries. Finally, financial supervision contributes to promoting the autonomy of Curaçao and Sint Maarten: the supervision and advice of the Cft contribute to the improvement of financial-economic policy in a broad sense and with the provision of information to parliament and the broad public, it contributes to the functioning of the democratic institutions of the countries.

The ultimate objectives of the Rft and financial supervision – institutions and administrative methods that make the Rft redundant, and a financial management that is permanently in order – have not been achieved. Curaçao and Sint Maarten do not structurally meet the rules of the Rft and the financial management is not in order in both countries.

Areas for improvement that can contribute to higher effectiveness and efficiency of the Rft are:

• Clarification of the manner in which provisions in the Rft are applied:
  • The conditions under which borrowing is and is not permitted;
  • The definition of damage due to extraordinary events;
  • The scope of the current subscription;
  • The manner in which deficit compensation should take place, in particular when it comes to deficits that have arisen due to extraordinary events.
• More emphasis on a multi-year perspective, where, in addition to the existing rules in the Rft, long-term rules are also taken into account and assessed. A debt anchor can be a functional addition to this.
• A special regime for external shocks, in which a further explanation or elaboration of Article 25 of the Rft is given within the existing framework and a framework of rules is designed that applies during periods of external shocks. Such a regime can contribute to a more efficient financial and economic policy of the countries, to a more stable macroeconomic development with correspondingly favorable social effects, and thus to a higher efficiency of the Rft.

Read the entire report by Amsterdam Bureau for Economics on the Financial Supervision Act here (in Dutch).